S-4/A 1 j9063402s-4a.txt WEIRTON STEEL CORPORATION S-4/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 2001 REGISTRATION NO. 333-72598 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- WEIRTON STEEL CORPORATION (Exact name of registrant as specified in its charter) 06-1075442 DELAWARE 3312 (I.R.S. employer (State or other jurisdiction of (Primary Standard Industrial identification number) incorporation or organization) Classification Code Number)
400 THREE SPRINGS DRIVE WEIRTON, WEST VIRGINIA 26062 TELEPHONE: (304) 797-2000 (Address, including zip code, and telephone number, including area code, of registrants' principal executive offices) --------------------- WILLIAM R. KIEFER, ESQUIRE 400 THREE SPRINGS DRIVE WEIRTON, WEST VIRGINIA 26062 TELEPHONE: (304) 797-2000 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------------- COPIES TO: MICHAEL C. MCLEAN, ESQUIRE ROD MILLER, ESQUIRE KIRKPATRICK & LOCKHART LLP WEIL, GOTSHAL & MANGES LLP HENRY W. OLIVER BUILDING 767 FIFTH AVENUE 535 SMITHFIELD STREET NEW YORK, NY 10153 PITTSBURGH, PENNSYLVANIA 15222-2312 TELEPHONE: (212) 310-8000 TELEPHONE: (412) 355-6500
--------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED EXCHANGE OFFER: As soon as practicable after the effective date of this Registration Statement. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] --------------- If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] --------------- --------------------- CALCULATION OF REGISTRATION FEE
--------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED NOTE/SHARE(1) OFFERING PRICE(1) REGISTRATION FEE --------------------------------------------------------------------------------------------------------------------------------- 10% Senior Secured Discount Notes due 2008....... $85,400,000 100% $85,400,000 $21,350(2) --------------------------------------------------------------------------------------------------------------------------------- 10 3/4% Senior Notes due 2005.................... $18,195,000 N/A $18,195,000 $ 4,549(3) --------------------------------------------------------------------------------------------------------------------------------- 11 3/8% Senior Notes due 2004.................... $18,405,000 N/A $18,405,000 $ 4,602(4) --------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(f) under the Securities Act of 1933, as amended (the "Securities Act"). (2)Previously paid and computed in accordance with Rule 457(f). (3)$1,516 was previously paid as part of the filing of the registration statement on November 1, 2001. Consequently, we have applied that amount as a credit to the $4,549 that is currently due and payable. (4)$1,534 was previously paid as part of the filing of the registration statement on November 1, 2001. Consequently, we have applied that amount as a credit that is currently due and payable. --------------------- 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 THAT 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. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL OR OFFER THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED NOVEMBER 21, 2001 PRELIMINARY PROSPECTUS EXCHANGE OFFER AND CONSENT SOLICITATION IN RESPECT OF ALL OUTSTANDING 11 3/8% SENIOR NOTES DUE 2004 AND 10 3/4% SENIOR NOTES DUE 2005 [WEIRTON LOGO] --------------------- TERMS OF THE EXCHANGE OFFER AND CONSENT SOLICITATION - We are offering to exchange up to 100% of our 11 3/8% Senior Notes due 2004 and 10 3/4% Senior Notes due 2005. Concurrently with this exchange offer, we are soliciting consents from the holders of our outstanding notes to amend the indentures that govern those notes. - If you decide to participate in the exchange offer, for each $1,000 principal amount of outstanding notes that you validly tender before the exchange offer expires, you will receive $300 principal amount at maturity of new 10% Senior Secured Discount Notes due 2008. In addition, for each $1,000 principal amount of outstanding notes that you tender before the consent solicitation expires, you will receive an additional $50 principal amount at maturity of new senior secured discount notes. The issue price of the new senior secured discount notes will be $822.70 per $1,000 principal amount at maturity, which represents a yield to maturity of 10%. This issue price and yield to maturity is not necessarily the issue price and yield to maturity that will apply for United States federal income tax purposes. - The new senior secured discount notes will be secured by a deed of trust and first priority security interest in our hot strip mill, which is an integral facility in our downstream steel processing operations. - This exchange offer expires at 5:00 p.m., New York time, on , 2001, unless extended. We do not currently intend to extend the exchange offer. - The consent solicitation expires at 5:00 p.m., New York time, on , 2001, unless extended. We do not currently intend to extend the consent solicitation. - You may validly withdraw outstanding notes that you tender after the consent solicitation expires at any time up until the exchange offer expires. You will not be permitted to withdraw outstanding notes that you tender before the consent solicitation expires unless we reduce the exchange offer consideration or the consent payment or laws otherwise require that you be permitted to withdraw outstanding notes that you have tendered. - If you tender your outstanding notes before the consent solicitation expires, you are obligated to consent to the proposed amendments. You may not consent to the proposed amendments without tendering your outstanding notes. - In addition to this exchange offer and consent solicitation, at our request the City of Weirton, West Virginia is offering to exchange all of its outstanding 8 5/8% Pollution Control Revenue Refunding Bonds (Weirton Steel Corporation Project) Series 1989 due November 1, 2014 for new 9% Pollution Control Revenue Refunding Bonds (Weirton Steel Corporation Project) Series due January 1, 2014. The new secured series 2001 bonds will also be secured by a deed of trust and first priority security interest in our hot strip mill. - We are conditioning the completion of this exchange offer on, among other things, the tender of at least 95% of each series of our outstanding notes in this exchange offer and on the completion of the series 1989 bonds exchange offer. - If you do not exchange your outstanding notes and the proposed amendments are adopted, you will continue to hold those notes, but most of the restrictive covenants, the events of default relating to cross defaults and judgment defaults and many other provisions of the indenture governing those outstanding notes will be removed or substantially modified. - The 11 3/8% Senior Notes due 2004 are listed on the New York Stock Exchange under the symbol "WS04" and the 10 3/4% Senior Notes due 2005 are listed under the symbol "WS05." --------------------- WE ENCOURAGE YOU TO CONSIDER CAREFULLY THE "RISK FACTORS" BEGINNING ON PAGE 18 OF THIS PROSPECTUS. --------------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------------------- THE DEALER MANAGER FOR THE EXCHANGE OFFER IS: LEHMAN BROTHERS THE DATE OF THIS PROSPECTUS IS , 2001 TABLE OF CONTENTS Questions and Answers About the Exchange Offer and Consent Solicitation.............................................. 1 Summary..................................................... 9 Risk Factors................................................ 18 Forward-Looking Information................................. 29 Capitalization.............................................. 30 Selected Consolidated Financial Data........................ 33 Unaudited Pro Forma Consolidated Financial Statements....... 36 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 44 Steel Industry Overview..................................... 54 Business.................................................... 58 Management.................................................. 75 Security Ownership of Certain Beneficial Owners and Management................................................ 83 Description of Other Indebtedness and Financing Arrangements.............................................. 85 The Exchange Offer and Consent Solicitation................. 96 Description of the Senior Secured Discount Notes............ 108 Summary Comparison of Key Differences Between the Senior Secured Discount Notes and the Outstanding Notes.......... 135 Material United States Federal Income Tax Consequences...... 140 Plan of Distribution........................................ 149 Legal Matters............................................... 149 Experts..................................................... 149 Where You Can Find More Information......................... 149
INDUSTRY AND MARKET DATA In this prospectus, we rely on and refer to historical and projected market and market share data for the United States steel industry which is derived from third-party sources, including American Iron and Steel Institute, World Steel Dynamics, New Steel, DRI and Economic Associates. We believe that this data is inherently imprecise but is generally indicative of the market and industry trends and our relative domestic market share. QUESTIONS AND ANSWERS ABOUT THE EXCHANGE OFFER AND CONSENT SOLICITATION Q: WHAT IS THE PROPOSED TRANSACTION? A: We are offering to exchange our new 10% Senior Secured Discount Notes due 2008 for all of our outstanding 11 3/8% Senior Notes due 2004 and our outstanding 10 3/4% Senior Notes due 2005. We are also soliciting consents to amend provisions of the indentures governing our outstanding notes, including the elimination of events of default relating to cross defaults and judgment defaults, the modification of the definition of change of control and the elimination of the following restrictive covenants: - limitations on indebtedness; - limitations on restricted payments; - limitations on mergers, consolidations and sales of assets; - limitations on transactions with affiliates; - restrictions on dispositions of our assets; - limitations on liens; - limitations on sale and leaseback transactions; and - limitations on dividends and other payments restrictions affecting subsidiaries. Concurrently, at our request, the City of Weirton is offering to exchange all of its outstanding 8 5/8% Pollution Control Revenue Refunding Bonds (Weirton Steel Corporation Project) Series 1989 due November 1, 2014 for its 9% Secured Pollution Control Revenue Refunding Bonds (Weirton Steel Corporation Project) Series 2001 due January 1, 2014 and to solicit consents to eliminate the limitations on liens and limitations on sale and leaseback transactions covenants and corresponding events of default contained in the related loan agreement between the City of Weirton and us. The consummation of this exchange offer and the series 1989 bonds exchange offer are each conditional upon consummation of the other exchange offer. Q: WHAT WILL I RECEIVE IN THIS EXCHANGE OFFER IF I TENDER MY OUTSTANDING NOTES? A: For each $1,000 principal amount of outstanding notes that you validly tender before the exchange offer expires, you will receive $300 principal amount at maturity of new senior secured discount notes. In addition, you will receive an additional $50 principal amount at maturity of new senior secured discount notes for each $1,000 principal amount of outstanding notes that you tender before the consent solicitation expires. The issue price of the new senior secured discount notes will be $822.70 per $1,000 principal amount at maturity, which represents a yield to maturity of 10%. Cash interest will not be paid on the new senior secured discount notes for a period of two years but interest on those notes will accrete to $1,000 principal amount at maturity. This issue price and yield to maturity is not necessarily the issue price and yield to maturity that will apply for United States federal income tax purposes. See "Material United States Federal Income Tax Consequences." For example, if you tender $10,000 principal amount of outstanding notes before the exchange offer expires but after the consent solicitation expires, you will receive $3,000 principal amount at maturity of new senior secured discount notes. If you tender $10,000 principal amount of outstanding notes before the consent solicitation expires, you will receive the total consideration of $3,500 principal amount at maturity of new senior secured discount notes, which includes the aggregate consent payment of $500 principal amount at maturity of new senior secured discount notes in addition to the exchange offer consideration. 1 Q: WILL I RECEIVE ANY INTEREST ON THE OUTSTANDING NOTES THAT HAS BEEN ACCRUING SINCE THE LAST PAYMENT ON INTEREST? A: We will not pay any of the interest on the outstanding notes tendered in this exchange offer, which has been accruing since the last payment of interest on the outstanding notes. Instead, any accrued and unpaid interest will be includable as part of the total consideration received by you in the exchange. The last payment of interest on the 11 3/8% Senior Notes due 2004 was July 1, 2001 and the last payment of interest on the 10 3/4% Senior Notes due 2005 was June 1, 2001. We do not intend to pay the next scheduled semi-annual interest payments due January 1, 2002 and December 1, 2001, respectively, on the outstanding notes. We have no ability to pay cash interest during this period under the terms of our senior credit facility, reflecting our voluntary financial restructuring plan presented to our senior lenders. Q: WHAT ARE THE BENEFITS TO ME OF THIS EXCHANGE OFFER? A: If the exchange offers are completed and we exchange 95% of our outstanding notes and bond obligations, there will be significantly less uncertainty about our ability to make interest payments, to finance our operations, to implement our strategic plan and to repay our debt in the future. Holders of our outstanding notes currently hold an aggregate of $244 million in principal amount of unsecured claims, excluding any accrued interest. If the exchange offer is completed and all of our outstanding notes are exchanged for new senior secured discount notes prior to the expiration of the consent solicitation, the holders of those new senior secured discount notes will hold an aggregate of approximately $85.4 million principal amount at maturity in secured claims. The new senior secured discount notes will be secured by a deed of trust and a first priority security interest in our recently rebuilt hot strip mill. The new secured series 2001 bonds will also be secured by our hot strip mill on a pari passu basis with the new senior secured discount notes. Because secured claims are paid prior to unsecured claims in a bankruptcy, holders of new senior secured discount notes will be effectively senior to holders of unsecured claims to the extent of the value of the hot strip mill. In contrast, if the exchange offers are not completed and we seek bankruptcy protection or commence liquidation proceedings, obligations represented by the outstanding notes and the series 1989 bonds would be treated as unsecured claims, together with other unsecured claims, such as trade payables, contract rejection and litigation claims, and unsecured employee benefit claims. Of the unsecured claims, in the event a bankruptcy case is commenced, certain administrative expenses may be entitled to priority status for payment purposes over other unsecured claims. Claims that may be entitled to priority status, include but are not limited to, claims for professional fees, claims for operational shutdown and liquidation costs, and to a limited extent, claims for employee wages and benefits and contributions to pension plans. As of September 30, 2001, total unsecured claims in a liquidation of Weirton are estimated to exceed $2 billion. Of those claims, a significant amount could be assigned priority status under applicable bankruptcy laws, particularly if claims for employee wages and benefits are included. Consequently, in a bankruptcy, owners of the outstanding notes and series 1989 bonds may receive repayments of little or none of the principal amount of their outstanding notes or series 1989 bonds. Q:HOW IMPORTANT IS THE HOT STRIP MILL AS COLLATERAL FOR THE NEW NOTES? A: Our hot strip mill is an integral part of our downstream steel processing operations. According to a recent industry report, our hot strip mill is superior in terms of energy, operating cost and product quality and is rated among the top 30% of United States facilities, as is our No. 9 tin tandem mill. Our hot strip mill is one of the few hot strip mills in the industry that is capable of rolling both carbon and stainless steel substrate. Based on a recent independent appraisal, the hot strip mill is estimated to have a liquidation-in-place value range of $ million to $ million, which if realized should provide adequate collateral protection for the new senior secured discount notes and the new secured series 2001 bonds in the event of our liquidation in bankruptcy. Based on that same recent independent appraisal, our hot strip mill has an "in place, in use" value ranging from $191 million to $236 million and, based on assumptions regarding 2 future hot band steel prices, an estimated discounted cash flow value of $255 million. On the other hand, in the event of a stand-alone or piecemeal liquidation of the hot strip mill, the hot strip mill equipment is estimated to have a relatively minimal liquidation value for appraisal purposes. Taking advantage of the capability of rolling both carbon and stainless substrate, we have entered into a long-term tolling agreement with J&L Specialty Steel, a domestic stainless steel producer which is owned by a major foreign steel producer, to convert stainless slabs into stainless coils. The tolling arrangement currently accounts for approximately 20% of our hot strip mill's overall capacity. The tolling arrangement, which extends until 2006, provides higher, more stable profit margins than potential carbon slab conversion opportunities at this time. The facility load from our existing tin and stainless conversion business now accounts for over 50% of the hot strip mill's overall capacity. The balance of the hot strip mill capacity supports our galvanizing operations and our hot and cold rolled commodity sheet production. Under our strategic plan, we anticipate that our hot strip mill will be further utilized through additional stainless conversion and increasing the proportion of our carbon steel rollings used in our downstream finishing operations in the production of tin mill and other higher margin value-added products. Due to the importance of these facilities to this major stainless steel producer's United States market position, our customer has entered into a five year tolling agreement with us. We believe that at the present time only a limited number of hot strip mills in operation are capable of converting the stainless slabs required by our customer. In the event of a loss or stoppage under a Chapter 11 bankruptcy reorganization or Chapter 7 liquidation scenario, we believe that this stainless steel producer would have commercial and strategic reasons to continue to have access to our hot strip mill. In addition, this stainless steel producer is entitled to terminate the arrangement in the event that it purchases or invests in another hot strip mill. However, we believe that this is unlikely. Under a Chapter 11 reorganization, we would most likely shut down our primary steel making facilities, including our steel slab production facilities, and purchase slabs in the open market. In the current environment, this would provide an immediate improvement in operating margins as the costs associated with our "front-end" production currently exceed the spot price of steel slabs. Should Weirton be forced to seek protection under the bankruptcy laws, we believe that the most likely scenario would be a liquidation-in-place. Under such a scenario, we assume that a potential buyer would retain the hot strip mill at its present location for continued use for similar operations. The mill would be offered for sale intact, as a complete, installed assembly of operating equipment and assets, in an "as-is, where-is" condition. The hot strip mill would not necessarily be operating or producing hot band product at the time of its sale but would be capable of operating and producing product upon the immediate completion of a sale. We believe that our hot strip mill could be operated by another operator using purchased steel slabs and stainless steel slabs provided under tolling arrangements. In addition to the value derived through the tolling arrangement, the hot strip mill is essential in supplying substrate to our downstream tin producing facilities. With a domestic market share of 25% and representing approximately 48% of Weirton's 2001 revenues, our tin mill production facilities generate positive operating margins. Our hot strip mill and our No. 9 tin tandem mill could continue to supply substrate for our tin mill products business. We believe that our tin finishing assets would continue to operate because of the very competitive nature of our equipment as well as the relative supply and demand balance existing in the United States tin plate market. Indeed, a shutdown of Weirton's facilities under a liquidation scenario could have an adverse effect on the packaging industry, as there is currently little excess domestic capacity for tin mill products. Therefore, we believe a likely acquirer of the hot strip mill would have significant interest in operating the tin mill facilities as well, taking advantage of the higher margins and longer contracts provided by customers of tin mill products. Q: WHY IS WEIRTON MAKING THIS EXCHANGE OFFER AND CONSENT SOLICITATION? A: We are making this exchange offer and we have requested that the City of Weirton make the series 1989 bonds exchange offer as a critical part of our strategic plan to reduce operating costs, improve 3 our liquidity and working capital position, restructure our long-term debt and fundamentally reposition our business to focus on the production and sale of tin mill products and other higher margin value-added sheet products. Our strategic plan has five integral steps, and we will begin to recognize the benefits of the first three steps later in the fourth quarter of 2001; - reducing our operating costs on an annual basis through the full implementation of a cost savings program which includes a workforce reduction, reductions to our employee benefits costs and other operating cost savings, which became effective in late October 2001 (estimated to generate approximately $51 million in annual cost savings when fully implemented in 2002); - improving our liquidity and long-term supplier relationships through vendor financing programs we entered into with over 60 suppliers in late October 2001, and through ongoing negotiations with other suppliers of services and raw materials, such as coke (estimated to generate at least $30 million in additional near term liquidity); - increasing our borrowing availability and liquidity through the refinancing of our bank credit and asset securitization facilities, which became effective in late October 2001 (estimated to result in $35 million to $40 million in additional availability based on existing current asset levels; - restructuring our long-term debt and lowering our debt service costs through this exchange offer and the series 1989 bonds exchange offer by year end in order to increase our liquidity and financial flexibility by approximately $32 million per year in 2002 and 2003, as well as to provide greater overall financial stability and to permit the fundamental repositioning of our business through strategic acquisitions and targeted investments; and - fundamental repositioning of our business to focus on tin mill and other higher margin value-added sheet products and significantly reduce our presence in the commodity flat-rolled product market through strategic acquisitions and targeted investments and further improvements to our operating cost structure by increasing the use of our hot strip mill capacity dedicated to tolling or converting stainless steel slabs and increasing the proportion of our coils used in our downstream finishing operations in the production of tin mill and other higher margin value-added products. We seek to strengthen our position as a leading domestic full range producer of higher margin tin mill products by further shifting our product mix toward higher margin value-added products and away from lower margin, commodity flat-rolled sheet products. Our strategy to meet this objective is to capitalize on our extensive market presence and strong competitive position as the second largest domestic producer of tin mill products and to leverage our existing strengths. These strengths include our superior product quality and range of product offerings, our strategic partnerships with large existing customers, and the design and configuration of our principal steel making facilities which are best suited to the production of narrow width tin mill and coated products. We are also pursuing niche market opportunities for higher margin value-added sheet products. The consummation of the concurrent exchange offers to restructure our long-term debt is critical to the success of our strategic plan. If we are unable to reduce our current debt obligations and extend debt maturities on the outstanding notes through the concurrent exchange offers and thus improve our liquidity and financial stability, we may be unable to attract the necessary outside debt or equity financing needed to implement the final step of our plan, the fundamental repositioning of our business through strategic acquisitions and targeted investments. If we are not successful in repositioning our business, the corporate restructuring and refinancing steps that we have taken to date may be inadequate to ensure our long term viability and competitiveness. Q: WHAT ARE WEIRTON'S ALTERNATIVES IF THE CONCURRENT EXCHANGE OFFERS ARE NOT CONSUMMATED? A: The consummation of the concurrent exchange offers is critical to the success of our strategic plan. If we are unable to consummate the concurrent exchange offers, we have no ability to pay cash interest for a period of at least one year under the terms of our senior credit facility reflecting our voluntary financial 4 restructuring plan presented to our senior lenders. If the outstanding notes and bonds are accelerated as a result of the failure to pay interest, then we may have to seek bankruptcy protection or commence liquidation proceedings. In that case, owners of the outstanding notes and series 1989 bonds may only receive repayments of little or none of the principal amount of their notes or bonds. Any such repayments may be in the form of cash or other securities. However, based on the size of claims of the noteholders as compared to total secured and unsecured claims which are expected to exceed $2 billion, it is highly unlikely that the noteholders would receive a substantial or a controlling interest in Weirton in the event of a bankruptcy proceeding. In a bankruptcy proceeding, our ability to reposition our business would also be significantly impaired, delayed or may never occur. A number of United States steel producers which have filed for bankruptcy protection over the past two years have subsequently commenced liquidation proceedings. Q: HOW LONG DO I HAVE TO DECIDE WHETHER TO TENDER MY OUTSTANDING NOTES? A: Unless Weirton extends this exchange offer, it will expire at 5:00 p.m., New York time, on , 2001. In order to receive the consent payment, you must tender your outstanding notes and consent to the proposed amendment before the consent solicitation expires at 5:00 p.m., New York time, on , 2001, unless we extend the consent solicitation. We do not currently intend to extend the expiration date of either the consent solicitation or the exchange offer. Q: UNDER WHAT CIRCUMSTANCES CAN THIS CONSENT SOLICITATION OR EXCHANGE OFFER BE EXTENDED? A: We expressly reserve the right, at any time or from time to time, to extend the period of time during which this consent solicitation or exchange offer is open. During any extension of the exchange offer after the consent solicitation expires, outstanding notes that were tendered after the expiration of the consent solicitation and not withdrawn will remain subject to the exchange offer, and we may accept them for exchange unless they are thereafter withdrawn prior to the expiration date. Q: HOW WILL I BE NOTIFIED IF THIS CONSENT SOLICITATION OR EXCHANGE OFFER IS EXTENDED? A: If we decide to extend the consent solicitation or exchange offer, we will notify the exchange agent of any extension. We also will issue a press release or make any other public announcement of the extension no later than 9:00 a.m. New York time, on the first business day after the previously scheduled expiration date. Q: WHAT ARE THE MOST SIGNIFICANT CONDITIONS TO THIS EXCHANGE OFFER? A: This exchange offer is conditioned on our receiving tenders of at least 95% of the principal amount outstanding of each series of the outstanding notes, as well as the completion of the series 1989 bonds exchange offer. For more information regarding the conditions to this exchange offer, please see the section of this prospectus entitled "The Exchange Offer -- Conditions to this Exchange Offer and Consent Solicitation." Although we reserve the right to waive these and other conditions, completion of the exchange offer on the terms and conditions set forth in this prospectus is critical to improving our near term liquidity and to repositioning our business. Q: MAY I TENDER A PORTION OF THE OUTSTANDING NOTES THAT I HOLD? A: Yes. You do not have to tender all of the outstanding notes that you hold to participate in this exchange offer. However, the consummation of this exchange offer is conditioned upon our receiving tenders of at least 95% of the principal amount of the outstanding notes, unless we waive that condition. Q: MAY I TENDER THE OUTSTANDING NOTES THAT I HOLD WITHOUT CONSENTING TO THE PROPOSED AMENDMENTS? A: If you tender the outstanding notes that you hold in this exchange offer before the consent solicitation expires, you will automatically consent to the proposed amendments to the applicable indenture governing the notes that you tender. Each note's indenture may be amended with the consent of holders of at least a majority of the principal amount of notes outstanding under that indenture. 5 Q: WILL MY RIGHTS AS A HOLDER OF OUTSTANDING NOTES CHANGE IF I TENDER MY OUTSTANDING NOTES IN THIS EXCHANGE OFFER? A: Yes. Currently, your rights as a holder of outstanding notes are governed by the indenture under which those notes were issued. If you exchange your outstanding notes for new senior secured discount notes, your rights as a holder of new senior secured discount notes will be governed by a new indenture under which the new senior secured discount notes will be issued, the terms of which are described in this prospectus under "Description of the Senior Secured Discount Notes" and "Summary Comparison of Key Differences Between the Senior Secured Discount Notes and the Outstanding Notes." Q: HOW WILL THIS EXCHANGE OFFER AFFECT MY RIGHTS AS A HOLDER OF OUTSTANDING NOTES IF I DO NOT TENDER MY OUTSTANDING NOTES IN THIS EXCHANGE OFFER? A: If the exchange offer is completed and the proposed amendments become operative, holders of outstanding notes that are not tendered in the exchange offer will no longer be entitled to the benefits of the events of default and restrictive covenants that will be eliminated or modified by the proposed amendments to the indentures governing the outstanding notes. The modification or elimination of the restrictive covenants and other provisions could permit Weirton or its affiliates to take actions that could increase the credit risks of Weirton or that could otherwise be adverse to the holders. The indebtedness under the new senior secured discount notes, the new secured series 2001 bonds and our senior credit facility will rank equal in right of payment to the remaining 11 3/8% Senior Notes due 2004 and 10 3/4% Senior Notes due 2005, but this secured indebtedness will effectively rank senior in right of payment to other secured and unsecured indebtedness, including any remaining 11 3/8% Senior Notes due 2004 and 10 3/4% Senior Notes due 2005, to the extent of the value of the collateral securing that indebtedness. Moreover, if we receive tenders of 95% of the principal amount of the outstanding notes, less than $6.5 million in aggregate principal amount of each series of our outstanding notes will remain outstanding after the completion of this exchange offer. We believe that opportunities to sell any of our outstanding notes or series 1989 bonds that remain outstanding after these concurrent exchange offers will, therefore, be extremely limited. Q: WHAT ARE THE TAX CONSEQUENCES TO ME IF I DO NOT TENDER MY OUTSTANDING NOTES IN THIS EXCHANGE OFFER? A: If you do not tender your outstanding notes in exchange for new senior secured discount notes, we intend to take the position that you nevertheless will be deemed to have exchanged your outstanding notes for modified notes in a taxable transaction for United States federal income tax purposes. Under this treatment, you generally will recognize a gain or loss on the exchange equal to the difference between the fair market value of the modified note received and your tax basis in your outstanding notes. The modified notes also will be treated as being issued with original issue discount, which you generally will be required to include in your gross income for United States federal income tax purposes in advance of any cash payment attributable to such income even if no cash payment is received by you. We anticipate that the amount of this original issue discount will be substantial. See "Material United States Federal Income Tax Consequences." Q: WHAT ARE THE TAX CONSEQUENCES OF MY PARTICIPATION IN THIS EXCHANGE OFFER? A: We intend to report the exchange of outstanding notes for new senior secured discount notes generally as a recapitalization for United States federal income tax purposes. Provided that the exchange so qualifies, you generally will not recognize taxable gain or loss as a result of the exchange. Your adjusted tax basis in the new senior secured discount notes (other than any new senior secured discount notes received as a consent payment) will equal your adjusted tax basis in your outstanding notes surrendered in the exchange, and your holding period for those new senior secured discount notes will include your holding period for the outstanding notes. We intend to treat your receipt of a consent payment as an amount that you must include in your gross income as ordinary income. See "Material United States Federal Income Tax Consequences." 6 Q: AT WHAT PRICES HAVE THE OUTSTANDING NOTES RECENTLY TRADED? A: The outstanding notes are listed on the New York Stock Exchange. The trading markets for outstanding notes are limited and sporadic, and prices may fluctuate significantly depending on the volume of trading in those notes and the balance between buy and sell orders for those notes. The most recent actual trading prices were 12.125% of par on $12,000 principal amount of the 10 3/4% Senior Notes due 2005 and 11.875% of par on $57,000 principal amount of the 11 3/8% Senior Notes due 2004, as reported on the New York Stock Exchange on October 23, 2001. We encourage you to obtain current price quotations from your local regional broker. Q: HAS THE BOARD OF DIRECTORS OF WEIRTON OR ANY OTHER PARTY RECOMMENDED THAT I TENDER THE OUTSTANDING NOTES THAT I HOLD UNDER THIS EXCHANGE OFFER? A: None of our board of directors, the dealer manager, the information agent or the exchange agent expresses any opinion, and each is remaining neutral, regarding any recommendation to you whether or not to tender the outstanding notes that you hold under this exchange offer because the risks and benefits of the concurrent exchange offers to you will depend on your particular situation or status. None of our board of directors has made any determination that the exchange ratios represent a fair valuation of either the outstanding notes or the new senior secured discount notes, and we have not obtained a fairness opinion from any financial advisor about the fairness of the exchange ratios to us or to you. In addition, we have not authorized anyone to make a recommendation regarding this exchange offer. You must make your own decision whether to tender the outstanding notes that you hold in this exchange offer based upon your own assessment of the market value of those notes and the likely value of the new senior secured discount notes, your liquidity needs and your investment objectives. Q: IF I TENDER THE OUTSTANDING NOTES THAT I HOLD AND CONSENT TO THE PROPOSED AMENDMENTS, WILL I BE ABLE TO REVOKE THIS DECISION IF I LATER CHANGE MY MIND? A: You may validly withdraw outstanding notes that you tender after the consent solicitation expires at any time up until the exchange offer expires. After the consent solicitation expires, you will not be permitted to withdraw outstanding notes that you tender before the consent solicitation expires unless we reduce the exchange offer consideration or the consent payment. For a withdrawal to be effective: - if you hold your outstanding notes through DTC, you must comply with the appropriate procedures of DTC's automated program; or - if you do not hold your outstanding notes through DTC, you must send written notice of withdrawal to the exchange agent at its address on the back cover of this prospectus. For additional information regarding a withdrawal of notes that you have already tendered in this exchange offer, please see the section of this prospectus entitled "The Exchange Offer and Consent Solicitation -- Withdrawals of Tenders and Revocation of Consents." Q: HOW DO I EXCHANGE THE OUTSTANDING NOTES THAT I HOLD? A: If you wish to exchange your outstanding notes in this exchange offer and deliver your consent pursuant to the consent solicitation, you must comply with one of the following procedures: - if you hold your position through DTC, a timely confirmation of a book-entry transfer of your notes into the account of the exchange agent; - if you hold your position through a broker dealer, commercial bank, trust company or other nominee, you must contact the holder of record promptly and contact the holder of record to tender your notes on your behalf of DTC, plus either (1) a properly completed and executed letter of transmittal, or (2) an agent's message in the case of a book-entry transfer; or 7 - if you do not hold your position through DTC, certificates for your notes must be received by the exchange agent along with a properly completed and duly executed letter of transmittal (or a manually signed facsimile of the letter of transmittal), including any required signature guarantees. For additional information regarding the tender of your notes, please see the section of this prospectus entitled "The Exchange Offer and Consent Solicitation -- Procedures for Exchanging Notes." Q: WHO CAN HELP ANSWER MY QUESTIONS? A: If you have any questions about the exchange offer or consent solicitation, you should contact: Lehman Brothers Inc. Liability Management Group 101 Hudson Street, 31(st) Floor Jersey City, New Jersey 07302 Attention: Hyonwoo Shin Telephone: (212) 681-2265 (call collect) (212) 455-3326 If you need additional copies of this prospectus, you should contact: D.F. King & Co., Inc. 77 Water Street, 20(th) Floor New York, New York 10005 Banks and Brokers call: (212) 269-5550 (call collect) All others call: (800) 431-9643 (toll-free) 8 SUMMARY This summary highlights some of the information in this prospectus. Because this is only a summary, it may not contain all of the information that may be important to you in deciding whether to participate in this exchange offer. Therefore, you should read the entire prospectus, especially the section of this prospectus entitled "Risk Factors" and the financial and other information contained elsewhere or incorporated by reference in this prospectus, before making an investment decision. Unless the context otherwise requires, in this prospectus, the terms "Weirton," "the Company," "we," "us" and "our" refer to Weirton Steel Corporation, the issuer of the 11 3/8% Senior Notes due 2004 and 10 3/4% Senior Notes due 2005 and, through the City of Weirton, the Series 1989 Bonds, and its subsidiaries. WEIRTON We are a major integrated producer of flat rolled carbon steel with principal product lines consisting of tin mill products and sheet products. We are the second largest domestic manufacturer of tin mill products, with a 25% market share of domestic shipments during the first half of 2001, based on the most recent available data as reported by the American Iron and Steel Institute. Tin mill products include tin plate, chrome coated and black plate steels and are consumed principally by the container and packaging industry for food cans, general line cans and closure applications, such as caps and lids. Tin mill products accounted for 48% of our revenues and 35% of tons shipped in the first nine months of 2001. Sheet products include hot and cold rolled and both hot-dipped and electrolytic galvanized steels and are used in numerous end-use applications, including among others the construction, appliance and automotive industries. Sheet products accounted for 52% of our revenues and 65% of tons shipped in the first nine months of 2001. In addition, we currently are providing tolling services at our hot strip mill for a major stainless steel producer, which accounts for almost 20% of the overall capacity of our hot strip mill. We and our predecessor companies have been in the business of making and finishing steel products for over 90 years in Weirton, West Virginia. THE STEEL INDUSTRY The United States steel industry is in a state of crisis characterized by record operating losses, more than two dozen bankruptcies, and a permanent closure of a significant amount of productive capacity, particularly in the past 15 months. The domestic steel industry is cyclical and highly competitive and is affected by excess world capacity that has limited price increases during periods of economic growth and led to greater price competition during periods of slowing demand and/or increasing supply. Weirton, like most United States integrated steel producers, has sustained significant operating losses and a decrease of liquidity as a result of adverse market conditions due to the current slowing economic conditions, which have been exacerbated by the September 11, 2001 terrorist attacks on the United States, and depressed selling prices caused in substantial part by dramatic increases in imported steel since 1998. The current crisis in the United States steel industry and the results of the pending International Trade Commission proceeding regarding the illegal dumping of steel by foreign competitors may provide the opportunity for a restructuring of the United States steel industry to take place, greatly increasing the chances for a meaningful transformation of the United States steel industry. However, we cannot assure you that the United States steel industry will receive meaningful relief as a result of the ITC investigation and recommendations or that a restructuring of the United States steel industry will occur. See "Steel Industry Overview." OUR STRATEGIC PLAN In response to severe weaknesses in the domestic steel industry and our worsening financial condition, we have developed a five point strategic plan to: - reduce operating costs; 9 - improve our liquidity and working capital position; - restructure our long-term debt through the consummation of these exchange offers; - fundamentally reposition our business to focus on the production and sale of tin mill products and other higher margin value-added sheet products and shift our product mix away from lower margin, commodity flat-rolled sheet products. Our strategy to meet this objective is to capitalize on our extensive market presence and strong competitive position as the second largest domestic producer of tin mill products and to leverage our existing strengths. These strengths include: - our superior product quality and range of product offerings; - our strategic partnerships with large existing customers; and - the design and configuration of our principal steel making facilities which are best suited to the production of narrow width tin mill and coated products. We are also pursuing niche market opportunities for higher margin sheet products. See "Business Strategic Plan" and "-- Our Competitive Advantages." THE EXCHANGE OFFER AND CONSENT SOLICITATION The material terms of this exchange offer and consent solicitation are summarized below and under "Question and Answers About the Exchange Offer and Consent Solicitation." However, in addition, we encourage you to read the detailed descriptions in the sections entitled "The Exchange Offer and Consent Solicitation," "Description of the Senior Secured Discount Notes," "Description of Other Indebtedness and Financing Arrangements -- Senior Notes due 2004 and Senior Notes due 2005" and "Summary Comparison of Key Differences Between the Senior Secured Discount Notes and the Outstanding Notes." Securities for which we are making this Exchange Offer.... We are making this exchange offer and consent solicitation for all of our outstanding 11 3/8% Senior Notes due 2004 and 10 3/4% Senior Notes due 2005. The Exchange Offer............ For every $1,000 in principal amount of outstanding notes that you tender prior to the expiration of the exchange offer, you will receive $300 principal amount at maturity of 10% Senior Secured Discount Notes due 2008. In addition, for each $1,000 principal amount of outstanding notes that you tender before the consent solicitation expires, you will receive an additional $50 principal amount at maturity of new senior secured discount notes. Any outstanding notes not exchanged will remain outstanding. In order to be exchanged, your outstanding notes must be properly tendered before the expiration date. Subject to satisfaction of the conditions to the exchange offer, all outstanding notes that are validly tendered and not withdrawn will be accepted for exchange. Concurrently with the exchange offer, the City of Weirton, West Virginia is offering to exchange all of its outstanding 8 5/8% Pollution Control Revenue Refunding Bonds (Weirton Steel Corporation Project) Series 1989 due 2014 for its 9% Pollution Control Revenue Refunding Bonds (Weirton Steel Corporation Project) Series 2001 due 2014. 10 Market Trading................ The outstanding notes are listed on the New York Stock Exchange. The trading markets for outstanding notes are limited and sporadic, and prices may fluctuate significantly depending on the volume of trading in those notes and the balance between buy and sell orders for those notes. The most recent actual trading prices were 12.125% of par on $12,000 principal amount of the 10 3/4% Senior Notes due 2005 ("WS05") and 11.875% of par on $57,000 principal amount of the 11 3/8% Senior Notes due 2004 ("WS04"), as reported on the New York Stock Exchange on October 23, 2001. We encourage you to obtain current price quotations from you local regional broker. Expiration Date............... The expiration date of the exchange offer will be 5:00 p.m., New York time on , 2001, unless extended. Closing Date.................. The closing of this exchange offer will be as promptly as practicable after the expiration date. Conditions to the Exchange Offer......................... The exchange offer is conditioned on, among other things, on the receipt of tenders of at least 95% in aggregate principal amount of each series of outstanding notes currently outstanding and the consummation of the series 1989 bonds exchange offer. We will not be required to, but we reserve the right to, accept for exchange any outstanding notes tendered and may terminate this exchange offer if any condition of this exchange offer as described under "The Exchange Offer -- Conditions to the Exchange Offer" remains unsatisfied. Although we reserve the right to waive any of the conditions to this exchange offer, completion of the exchange offer on the terms and conditions set forth in this prospectus is critical to improving our near term liquidity and to repositioning our business. Consent Solicitation Expiration.................... The consent solicitation will expire at 5:00 p.m. New York time on , 2001, unless extended. Consent Solicitation.......... If you tender your outstanding notes in the exchange offer and they are accepted before the consent solicitation expires, you will be consenting to amend the indentures that govern the outstanding notes. These amendments will modify the definition of change of control and eliminate events of default relating to cross defaults and judgment defaults and the following restrictive covenants: - limitation on indebtedness; - limitation on restricted payments; - limitation on consolidation, mergers and sale of assets; - limitation on dividend and other payment restrictions affecting restricted subsidiaries; - limitation on transactions with affiliates - restrictions on disposition of our assets - limitation on liens; and - limitations on sale and leaseback transactions. 11 Minimum Consent Thresholds.... Duly executed (and not revoked) consents to the proposed amendments from holders representing at least a majority of the outstanding amount of each series of the outstanding notes are required to amend the indentures governing those notes. Withdrawal Rights............. Outstanding notes tendered after the consent solicitation expires may be withdrawn any time at or prior to 5:00 p.m., New York time on the expiration date by following the procedures described in this prospectus. Tenders of outstanding notes may not be withdrawn and consents cannot be revoked prior to the expiration of the consent solicitation or following the expiration date. Required Approvals............ No federal or state regulatory requirements must be complied with and no approvals need be obtained in the United States in connection with this exchange offer, other than those with which we have completed or will comply, or those approvals which we have obtained or will obtain. Appraisal Rights.............. You do not have dissenters' rights or appraisal rights with respect to this exchange offer. Certain United States Federal Income Tax Consequences for Note Holders.................. We intend to report the exchange of outstanding notes for new senior secured discount notes generally as a recapitalization for United States federal income tax purposes. Provided that the exchange so qualifies, you generally will not recognize taxable gain or loss as a result of the exchange. Your adjusted tax basis in the new senior secured discount notes (other than those received as a consent payment) will equal your adjusted tax basis in your outstanding notes surrendered in the exchange, and your holding period for those new senior secured discount notes will include your holding period for the outstanding notes. The new senior secured discount notes will be issued with original issue discount. We intend to treat your receipt of a consent payment as an amount that you must include in your gross income as ordinary income. If you do not tender your outstanding notes in exchange for new senior secured discount notes, we intend to take the position that you nevertheless will be deemed to have exchanged your outstanding notes for modified notes in a taxable transaction. Under this treatment, you: (i) generally will recognize a gain or loss on the exchange equal to the difference between the fair market value of the modified note received and your tax basis in your outstanding notes; and (ii) generally will be required to include original issue discount with respect to your modified notes in your gross income, which could be substantial. See "Material United States Federal Income Tax Consequences." Brokerage Commissions......... You are not required to pay any brokerage commissions to the dealer managers. Dealer Managers............... Lehman Brothers Inc. Information Agent............. D.F. King & Co., Inc. 12 Exchange Agent................ Chase Manhattan Trust Company, National Association Further Information........... Additional copies of this prospectus and other materials related to this exchange offer and consent solicitation may be obtained by contacting the information agent. For questions regarding the procedures to be followed for tendering your notes, please contact the exchange agent. For all other questions, please contact the dealer manager. The contact information for each of these parties is set forth on the back cover of this prospectus. THE 10% SENIOR SECURED DISCOUNT NOTES DUE 2008 Notes offered................. Up to $85.4 million in aggregate principal amount at maturity of 10% Senior Secured Discount Notes due 2008. The new senior secured discount notes will be issued at a discount to their aggregate principal amount at maturity. The yield to maturity of the new senior secured discount notes is 10% (computed on a semi-annual bond equivalent basis). This yield to maturity is not necessarily the yield to maturity that will apply for United States federal income tax purposes. See "Material United States Federal Income Tax Consequences." Maturity...................... The new senior secured discount notes will mature on January 1, 2008. Collateral.................... Mortgage and first priority security interest in our hot strip mill in Weirton, West Virginia. Ranking....................... The new senior secured discount notes will be senior secured obligations of Weirton. The new senior secured discount notes will rank equal in right of payment with any of our existing and future senior indebtedness. The new senior secured discount notes will effectively rank senior in right of payment to our unsecured indebtedness to the extent of the value of the collateral. As of September 30, 2001, on a pro forma basis, we had outstanding senior indebtedness of $376.5 million, and our secured indebtedness totalled $77.0 million. See "Description of the Senior Secured Discount Notes." Interest payment dates........ No cash interest will accrue on the new senior secured discount notes prior to January 1, 2004. The new senior secured discount notes will bear stated interest at a rate of 10% from and including January 1, 2004, payable semiannually on January 1 or July 1 of each year, commencing July 1, 2004. Original issue discount....... For United States federal income tax purposes, the new senior secured discount notes will be treated as having been issued with "original issue discount" equal to the difference between the sum of all cash payments (whether denominated as principal or interest) to be made on the new senior secured discount notes and the "issue price" of those notes (which will equal the fair market value of the outstanding notes on the date of the exchange and, thus, may not equal the declared issue price of $822.70 per $1,000 principal amount at maturity). Original issue discount generally will be required to be included in the gross income of a holder of new senior secured discount notes on a 13 constant yield basis over the term of the notes even though cash payments attributed to that income may be made in a later accrual period. See "Material United States Federal Income Tax Consequences." Optional Redemption........... Except as described below, the new senior secured discount notes will not be redeemable at the option of Weirton prior to January 1, 2004. Thereafter, the new senior secured discount notes will be redeemable at the option of Weirton, in whole or in part, at the redemption prices set forth herein, together with accrued and unpaid interest, if any, to the date of redemption. See "Description of the Senior Secured Discount Notes -- Redemption." Change of Control............. Upon the occurrence of a change of control, each holder of the new senior secured discount notes will have the right to require Weirton to repurchase such holder's new senior secured discount notes at a price equal to 101% of either (a) the accreted value of the new senior secured discount notes if the change of control occurs prior to January 1, 2004, or (b) the principal amount of the new senior secured discount notes plus accrued interest to the date of purchase if the change of control occurs on or after January 1, 2004. Certain Covenants............. The new senior secured discount notes indenture will contain covenants that will, subject to certain exceptions, limit, among other things, our ability to: - pay dividends or make certain other restricted payments or investments; - incur additional indebtedness and issue disqualified stock; - create liens on assets; - merge, consolidate, or sell all or substantially all of their assets; - enter into certain transactions with affiliates; and - create restrictions on dividends or other payments by subsidiaries to Weirton and/or its subsidiaries. Absence of a Public Market.... There is currently no established market for the new senior secured discount notes. Accordingly, there can be no assurance as to the development or liquidity of any market for the new senior secured discount notes. We do not intend to apply for listing of the new senior secured discount notes on any national securities exchange or for their quotation on an automated dealer quotation system. 14 SUMMARY CONSOLIDATED FINANCIAL DATA The following summary consolidated historical financial information for the five years ended December 31, 2000 has been derived from the audited historical consolidated financial statements contained elsewhere in this prospectus. We have derived the summary consolidated financial data for the nine months ended September 30, 2000 and 2001 from the unaudited historical consolidated financial statements contained elsewhere in this prospectus, which in the opinion of our management, include all adjustments, consisting only of normal, recurring adjustments, necessary for fair presentation of that data. The results of operations for the interim period presented should not be regarded as indicative of the results that may be expected for a full year. You should read the summary consolidated financial data together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited historical consolidated financial statements which includes a report with an explanatory paragraph with respect to the uncertainty regarding the Company's ability to continue as a going concern as discussed in Note 23 to the financial statements, and the notes thereto contained elsewhere in this prospectus.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------------ --------------- 1996 1997 1998 1999 2000 2000 2001 ------ ------ ------ ------ ------ ------ ------ (UNAUDITED) (DOLLARS IN MILLIONS) INCOME STATEMENT DATA: Net sales(1)................................. $1,434 $1,444 $1,297 $1,130 $1,118 $ 907 $ 734 Costs of sales(1).......................... 1,334 1,305 1,159 1,076 1,053 818 800 Selling, general and administrative expenses................................ 39 36 39 45 42 31 26 Depreciation............................... 58 61 61 61 64 49 49 Restructuring charge....................... 17 17 3 -- -- -- 12 Income (loss) from operations................ (14) 25 35 (89) (41) 9 (153) Gain on sale of investment, net(2)......... -- -- -- 170 -- -- -- Loss from unconsolidated subsidiaries...... -- -- -- (1) (26) (18) (19) Interest expense(3)........................ (44) (48) (44) (44) (35) (26) (28) Income (loss) before income taxes, extraordinary item and minority interest... (56) (22) (7) 36 (97) (31) (199) Income tax provision (benefit)(4).......... (11) (4) (1) 8 (12) (6) 154 Net income (loss)............................ $ (50) $ (18) $ (6) $ 31 $ (85) $ (25) $ (353) ====== ====== ====== ====== ====== ====== ====== BALANCE SHEET DATA (AT END OF PERIOD): Cash and equivalents....................... $ 112 $ 125 $ 68 $ 209 $ 32 $ 68 $ 39 Working capital............................ 299 302 203 299 193 259 70 Total assets............................... 1,300 1,282 1,194 1,187 990 1,094 697 Long-term employee benefits................ 404 436 419 419 399 405 407 Long-term debt (including current portion)(5)............................. 431 389 305 305 299 299 348 Stockholders' equity (deficit)............. 149 133 122 154 63 122 (290)
15
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------------ --------------- 1996 1997 1998 1999 2000 2000 2001 ------ ------ ------ ------ ------ ------ ------ (UNAUDITED) (DOLLARS IN MILLIONS) OTHER FINANCIAL DATA EBITDA(6).................................. 61 103 99 (6) 23 58 (92) Capital expenditures....................... 68 60 50 22 38 20 9 Net cash provided by (used for) operating activities(7)........................... 35 72 50 81 (85) (76) (33) Net cash provided by (used for) investing activities(8)........................... (68) (60) (58) 145 (78) (51) (9) Net cash provided by (used for) financing activities.............................. 14 1 (49) (85) (15) (15) 49 Ratio of earnings to fixed charges(9)...... N/A N/A N/A 1.81 N/A N/A N/A Working capital ratio(10).................. 2.1:1 2.2:1 1.7:1 2.2:1 2.2:1 2.3:1 1.4:1 OTHER DATA (FOR PERIOD EXCEPT WHERE NOTED) Average hot band price per ton shipped..... 314 335 306 265 283 294 220 Average sales per ton shipped.............. 502 521 504 449 457 459 427 Average cost per ton shipped(11)........... 467 471 450 428 430 414 466 Tons steel shipped (in thousands).......... 2,857 2,772 2,575 2,514 2,448 1,977 1,718 Active employees (at end of period)(11).... 5,373 4,873 4,329 4,302 4,246 4,323 3,965
--------------- (1) In accordance with Emerging Issues Task Force Issue 00-01, "Accounting for Shipping and Handling Fees and Costs," shipping and handling costs were reclassed from net sales to cost of sales. (2) The gain on sale of investment relates to the sale of a portion of our investment in MetalSite, L.P. (3) Interest expense has been reduced by capitalized interest of $0.1 million, $0.1 million, $0.4 million, $0.5 million, and $1.1 million for nine months ended September 30, 2000, the year 2000 and for the years 1998 through 1996, respectively. There was no capitalized interest expense applicable to facilities under construction for the nine months ended September 30, 2001 or for the year 1999. (4) In the second quarter of 2001, a non-cash charge was recorded to fully reserve our deferred tax assets which include deferred tax assets related to approximately $400 million of net operating loss carryforwards. It was determined that our cumulative financial losses had reached the point that fully reserving the deferred tax assets was required. However, to the extent that we generate taxable income prior to the expiration of the net operating loss carryforwards, we would be able to utilize them to help offset our tax liabilities. These net operating losses will be reduced by reason of the elimination of principal and interest pursuant to the exchanges of outstanding notes and series 1989 bonds for new senior secured discount notes and new secured series 2001 bonds (based principally on the issue price for federal income tax purposes of the new senior secured discount notes and the new secured series 2001 bonds). (5) Long-term debt (including current portion) does not include amounts utilized under our accounts receivable securitization program. Under our accounts receivable securitization program, we obtained proceeds by selling participation interests in our accounts receivable as opposed to borrowing money using accounts receivable as collateral. As a result of this structure, proceeds received were accounted for as a reduction of our accounts receivable balance. We had sold participation interests in our accounts receivable of $28 million, $25 million and $35 million at September 30, 2001, December 31, 2000 and December 31, 1999, respectively. (6) EBITDA is calculated as income (loss) from operations plus depreciation and non-recurring items including restructuring and asset impairment charges. EBITDA is presented because our management believes that such information is considered by certain investors to be an additional basis for evaluating our ability to pay interest and repay debt. EBITDA should not be considered as an alternative to measures of operating performance as determined in accordance with generally accepted accounting principles, as a measure of our operating results 16 and cash flows or as a measure of our liquidity. Since EBITDA is not calculated identically by all companies, the presentation in this prospectus may not be comparable to other similarly titled measures of other companies. (7) Net cash provided by (used for) operating activities includes amounts utilized under our accounts receivable securitization program. Utilization of the program is treated as a sale of accounts receivable rather than long term debt. As a result, the cash flows related to the program are operating cash flows. Cash flows from the program accounted for $35 million in cash flows provided by operations in 1999, $10 million used by operations in 2000 and $3 million provided by operations during the nine months ended September 31, 2001. (8) Cash flows from investing activities include $170 million in proceeds from the sale of MetalSite L.P. in 1999. (9)The ratio of earnings to fixed charges is computed by dividing income (before income taxes, minority interest and extraordinary items and fixed charges less capitalized interest) by fixed charges. Fixed charges include interest expense, including any capitalized interest expense and the portion or rental expenses which are deemed to represent interest. The ratio of earnings to fixed charges for the years ended December 31, 1996, 1997, 1998 and 2000 are not presented because of the loss before income taxes incurred for those periods. Earnings were inadequate to cover fixed charges by $56.4 million, $22.5 million, $8.2 million and $96.9 million for the years ended December 31, 1996, 1997, 1998 and 2000, respectively. The ratio of earnings to fixed charges for the nine months ended September 30, 2000 and 2001 are also not presented because of the loss before income taxes incurred for these periods. Earnings were inadequate to cover fixed charges by $30.9 million and $199.5 million for the nine months ended September 30, 2000 and 2001, respectively. (10) Our working capital ratio is calculated by dividing our total current assets by our total current liabilities. (11) Does not reflect the recent planned workforce reduction of 550 employees to be implemented beginning in the fourth quarter 2001 pursuant to our operating cost savings plan or the effect of the operating cost savings plan on average cost per ton shipped, which is currently estimated to range from $15 to $20 per ton. 17 RISK FACTORS Holding any of our indebtedness presents a high degree of risk. In addition to other information contained in this prospectus, we urge you to consider these risks in making your decision regarding whether to tender the outstanding notes you hold under this exchange offer and consent to the proposed amendments under the consent solicitation. After the discussion of risks associated with the failure to tender your outstanding notes in this exchange offer, we discuss risks that are more specifically applicable to this exchange offer, risks associated with holding the new senior secured discount notes and risks relating to our business and financial condition. RISKS ASSOCIATED WITH RETAINING THE OUTSTANDING NOTES If you do not elect to exchange the outstanding notes that you hold in this exchange offer, and the consent solicitation described in this prospectus is successful, your rights as a holder of those notes will change. If this exchange offer and consent solicitation is completed, the indentures governing the outstanding notes will be amended to eliminate various restrictive covenants, and the remaining holders of the outstanding notes who do not tender their notes for exchange will no longer benefit from the protection to their credit interest afforded by those restrictive covenants. However, in the event of a payment default under the indentures governing the outstanding notes, the holders will have the right to accelerate the principal amount of those notes and exercise other remedies as provided in the indentures. As described in greater detail under "The Exchange Offer and Consent Solicitation -- Proposed Amendments to Indentures" in this prospectus, the amendments proposed in connection with this exchange offer include the elimination of some events of default and most of the restrictive covenants. Any of our outstanding notes that are not tendered and remain outstanding after this exchange offer will be effectively subordinated to all of our secured indebtedness, including our senior credit facility, the new senior secured discount notes and the new secured series 2001 bonds. The secured indebtedness under the new senior secured discount notes, the new secured series 2001 bonds and our senior credit facility will rank equal with one another in right of payment, but will effectively rank senior in right of payment to other secured and unsecured indebtedness to the extent of the value of the collateral securing that secured indebtedness. Any outstanding notes that remain outstanding after this exchange offer will rank equally with our other unsecured indebtedness and obligations, such as trade payables, contract rejection and litigation claims, and unsecured employee benefit claims, as well as any indebtedness under the new senior secured discount notes, the new secured series 2001 bonds and the senior credit facility, to the extent the collateral securing those secured obligations is insufficient. Of the unsecured claims, in the event a bankruptcy case is commenced, certain administrative expenses may be entitled to priority status for payment purposes over other unsecured claims. Claims that may be entitled to priority status include but are not limited to claims for professional fees, claims for operational shutdown and liquidation costs and, to a limited extent, claims for employee wages and benefits and contributions to pension plans. As of September 30, 2001, total unsecured claims in a liquidation of Weirton are estimated to exceed $2 billion. Of those claims, a significant amount could be assigned priority status over other unsecured claims under applicable bankruptcy laws, particularly if claims for employee wages and benefits are included. Consequently, in a bankruptcy proceeding, owners of the outstanding notes and series 1989 bonds may receive repayments of little or none of the principal amount of their outstanding notes or series 1989 bonds. Any such repayments may be in the form of cash or other securities. However, based on the size of claims of note holders as compared to total unsecured claims, it is highly unlikely that the note holders would receive a significant or controlling interest in Weirton in the event of a bankruptcy proceeding. 18 There may be tax consequences to non-tendering holders because they likely will be treated as having exchanged the outstanding notes held by them for new modified notes, and the new modified notes will be treated as issued with original issue discount. We intend to take the position that the adoption of the amendments proposed by the consent solicitation results in a deemed exchange of the outstanding notes for new modified notes in a taxable transaction for United States federal income tax purposes. Under this treatment, you generally will recognize gain or loss on the exchange equal to the difference between the fair market value of the modified note received and your tax basis in your outstanding notes. The modified notes also will be treated as being issued with original issue discount, which you generally will be required to include in your gross income over the remaining term of the modified notes in advance of cash payments attributed to such income. We anticipate that the amount of this original issue discount will be substantial. See "Material United States Federal Income Tax Consequences." If you do not exchange the outstanding notes that you hold in this exchange offer, you may not be able to sell them in the secondary market. Any outstanding notes tendered and exchanged in this exchange offer will significantly reduce the aggregate principal amount of the outstanding notes. Because it is a condition of this exchange offer that at least 95% of each series of outstanding notes are tendered, we anticipate that the liquidity of the market for any outstanding notes that remain outstanding after this exchange offer will be extremely limited. RISKS ASSOCIATED WITH THE EXCHANGE OFFERS If we waive the 95% minimum threshold condition for tendering outstanding notes and series 1989 bonds and consummate the concurrent exchange offers, you may not receive scheduled cash interest payments on the remaining outstanding notes and bonds, which default could result in the acceleration of the outstanding notes and bonds. Following the consummation of the exchange offers, and depending on the amount of outstanding notes and series 1989 bonds tendered, we may determine not to pay interest on any outstanding notes and in respect of the series 1989 bonds not validly tendered pursuant to the exchange offers for a period of at least one year and may defer such payments for a longer period of time. Our ability to pay cash interest under the terms of our senior credit facility is limited to $4 million per year, reflecting our voluntary financial restructuring plan presented to our senior lenders. Failure to pay interest would result in an event of default and may cause an acceleration of the outstanding notes and series 1989 bonds, unless the payment defaults were cured. In addition, an acceleration of the principal of our outstanding notes and series 1989 bonds would constitute a default under our senior credit facility. In such circumstances, consummation of the exchange offer may not preclude the commencement of a bankruptcy or liquidation proceeding. The value of the new senior secured discount notes that you will receive may not be equal to or greater than the outstanding notes that you tender for exchange. We have not undertaken a valuation with respect to the exchange ratios for the exchange offer of the outstanding notes or the new senior secured discount notes. Our board of directors has made no determination that the exchange ratios represent a fair valuation of either series of the outstanding notes. We have not obtained a fairness opinion from any financial advisor about the fairness of the exchange ratios to you or to us. If you tender your outstanding notes, you may not receive the same or greater value than if you choose to keep them. In the event of a liquidation, we may have inadequate collateral to satisfy payments on the new senior secured discount notes and you may not receive any payment on the new senior secured discount notes that you hold. The new senior secured discount notes and our obligations with respect to the new secured series 2001 bonds will be secured by a first priority lien on our hot strip mill. The value of and ability to foreclose on 19 this collateral in the event of a liquidation of our company will depend on market and economic conditions, the availability of buyers, laws relating to the liquidation of collateral and other factors beyond our control. As a result, the proceeds of any sale of the collateral following a default may not be sufficient to satisfy payments due on the notes. In that case, if the proceeds are not sufficient to repay all amounts due on the new senior secured discount notes, then you would have only an unsecured claim against our remaining assets with respect to the unpaid amount. Other creditors, including the lenders under the senior credit facility, may have secured claims against other remaining assets. Further, by its nature, some or all of the collateral will be illiquid and have no readily ascertainable market value. Accordingly, the collateral may not be able to be sold in a short period of time or at all. The trustee under the indenture may be unable to foreclose on the collateral securing the new senior secured discount notes and pay you the amount due on the new senior secured discount notes. Under the indenture governing the new senior secured discount notes, if an event of default occurs, including defaults in payment of interest, principal or premium, if any, on the new senior secured discount notes when due at maturity or otherwise, the trustee may accelerate the new senior secured discount notes and, among other things, initiate proceedings to foreclose on the collateral securing those notes. It is likely that the right of the trustee to repossess and dispose of the collateral after the occurrence of an event of default would be significantly impaired by applicable bankruptcy laws if a bankruptcy proceeding were to be commenced by us or against us prior to the trustee having repossessed and disposed of the collateral. For example, under applicable United States bankruptcy laws, a secured creditor is prohibited from repossessing and selling its security from a debtor in a bankruptcy case without bankruptcy court approval. Morever, with respect to collateral in jurisdictions outside the United States, the trustee's ability to foreclose may further be impaired by both local laws and defects with respect to perfection of security interests in those jurisdictions. Under any of these circumstances, you may not be fully compensated for your investment in the new senior secured discount notes in the event of a default. You may not receive payment on the new senior secured discount notes because those obligations and the security interest that will secure their payment may not be enforceable under federal and state fraudulent transfer laws. You may not receive payment on the new senior secured discount notes or may receive only a reduced payment if a court finds that the transaction is not enforceable under federal or state fraudulent transfer laws. For a discussion of applicable fraudulent transfer law, see "Description of the Senior Secured Discount Notes -- Fraudulent Transfer and Preference Laws." In the event a petition for relief under the United States Bankruptcy Code is filed by or against Weirton, the grant of a security interest in the hot strip mill may be avoided as a preferential transfer. The grant to the holders of the new senior secured discount notes of a security interest in our hot strip mill may be avoided as a preferential transfer in the event a petition for relief under the United States Bankruptcy Code is filed by or against us if the transfer does not satisfy the exceptions provided under law. If a court were to find that a preferential transfer had occurred, similar to the possible actions that could occur if the exchange offer was found to be a fraudulent transfer, the court could nullify the security interest in our hot strip mill granted to the holders of the new senior secured discount notes, rendering the new senior secured discount notes unsecured obligations of Weirton and making the value of the hot strip mill available for application to our unsecured creditors, and the court may require the holders to return any distribution made to them. The bankruptcy laws further provide an exception, in that a transfer which would otherwise be considered a preference may not be avoidable if: - the transfer was intended by the parties to be and was in fact a substantially contemporaneous exchange for which Weirton received new value; or - the debt was incurred in the ordinary course of business or financial affairs of both parties and any payment made was made in the ordinary course of business or financial affairs of both parties. 20 This exchange offer may be considered by a court to involve a preferential transfer because the issuance of the new senior secured discount notes and new secured series 2001 bonds alters the status of the holders from unsecured to secured creditors. Depending on the value of Weirton, in the event of a liquidation, a holder of the new senior secured discount notes or new secured series 2001 bonds, as a secured creditor may receive a greater recovery than such a holder would have received absent the exchange offer, and as a result the exchange offer may be found to be a preferential transfer. However, the grant of the security interest in the hot strip mill may not be avoided if a court further finds that the transaction constituted a substantially contemporaneous exchange for which we received new value. If a court were to determine that the exchange offer is a preferential transfer and that the transfer does not qualify for defenses provided in the Bankruptcy Code, you may never receive payment on the outstanding notes or the new senior secured discount notes and new secured series 2001 bonds. In any of these events, the holders of the new senior secured discount notes may not receive the intended benefit from the liens securing those notes or the holders of the new senior secured discount notes may never receive payment on those notes. Because the new senior secured discount notes are being issued at a discount, the amounts you may recover in a bankruptcy may be affected. If a bankruptcy case were commenced by or against us under the United States Bankruptcy Code after we issue the new senior secured discount notes, your claim as a holder of the new senior secured discount notes may be limited to an amount equal to the sum of the issue price and that portion of the discount (as determined for bankruptcy purposes) that is not deemed to constitute "unmatured interest" for purposes of the United States Bankruptcy Code. Any discount that has not amortized as of the date of any such bankruptcy filing could constitute "unmatured interest" for purposes of the United States Bankruptcy Code. To the extent that the United States Bankruptcy Code differs from the Internal Revenue Code with respect to the determination of the amount of discount and the method of amortizing such discount, you may recognize taxable gain or loss upon payment of your claim in bankruptcy. We may be unable to purchase the new senior secured discount notes upon a change of control because we may have insufficient funds or we may be prohibited from doing so by the terms of our senior credit facility. Under the terms of the indentures for the new senior secured discount notes, we may be required to repurchase all or a portion of the new senior secured discount notes then outstanding on a change of control at a purchase price equal to 101% of either the accreted value of the new senior secured discount notes if the change of control occurs prior to January 1, 2004 or the principal amount of the new senior secured discount notes plus accrued interest to the date of purchase if the change of control occurs on or after January 1, 2004. We may not be able to repurchase the new senior secured discount notes upon a change of control in accordance with the terms of the indenture because: - we may have insufficient funds to do so; or - we may be prohibited from doing so by the terms of our senior credit facility. The terms of our senior credit facility prevent us from repurchasing the new senior secured discount notes or the new secured series 2001 bonds without the consent of our senior lenders, unless we also repay our senior indebtedness in full. In those circumstances, we would be required to obtain the consent of our senior lenders, or otherwise repay our senior indebtedness in full, before we could repurchase the new senior secured discount notes or the new secured series 2001 bonds following a change of control. If we were unable to obtain the required consents or otherwise repay our senior indebtedness, the put right on a change of control will be ineffective. The trading market for the new senior secured discount notes may be limited. We do not intend to apply to have the new senior secured discount notes listed on any securities exchange or for quotation on the National Association of Securities Dealers Automated Quotation System. 21 As such, a public market for such securities may not develop. In addition, the liquidity of the trading market in the new senior secured discount notes and the market price quoted therefor, if any, may be adversely affected by a variety of factors, including, among other things: - the number of holders of the new senior secured discount notes; - the market for similar securities; - the interest of securities dealers in making a market in the new senior secured discount notes; - changes in the overall market for high-yield securities; - changes in our financial performance or prospects; and - changes in the prospects for companies in the United States steel industry generally. The new senior secured discount notes are being issued with original issue discount, which may be considered taxable income to you over the term of the new senior secured discount notes. The new senior secured discount notes are being issued with original issue discount. The amount of original issue discount is dependent, in part, on the fair market value on the exchange date of the outstanding notes tendered for the new senior secured discount notes. Accordingly, you may be required to include OID in your income for United States federal income tax purposes in advance of any cash payment attributable to such income even if no cash payment is received by you. See "Material United States Federal Income Tax Consequences." RISKS ASSOCIATED WITH OUR BUSINESS AND FINANCIAL CONDITION We may be unable to generate sufficient cash flow from operations to service our debt, which may require us to refinance our existing debt or possibly seek bankruptcy protection. Our business may not be able to generate sufficient cash flow from operations in the future to service our debt, make necessary capital expenditures or meet other cash needs. In fact, we have generated negative cash flows from operations in 2000 in the amount of $84.9 million and for the first nine months of 2001 in the amount of $32.7 million. If we are unable to reverse these trends and generate sufficient cash flow from operations, we may seek, subject to the restrictive provisions of our debt instruments and consent of our lenders, to refinance all or a portion of our existing debt, including the new senior secured discount notes and our obligations under the new secured series 2001 bonds, to sell assets or to obtain additional financing. Any such refinancing, sale of assets or additional financing may not be possible on terms reasonably favorable to us. In such circumstances, we may have to seek bankruptcy protection or commence liquidation or administrative proceedings because we will not have sufficient cash to repay our indebtedness as it becomes due. The new senior second discount notes will be senior secured obligations of Weirton and will rank equal in right of payment with any of our existing and future senior indebtedness, including our senior credit facility and our new secured series 2001 bonds. The new senior secured discount notes will effectively rank senior in right of payment to our unsecured indebtedness to the extent of the value of the collateral securing the new notes. The amount of our debt service for the nine months ended September 30, 2001 before the exchange offers were made was $28.4 million and after the exchange offers are completed would be $3.6 million on a pro forma basis as set forth in "Unaudited Pro Forma Consolidated Financial Statements." We have experienced losses in the past and could experience additional future losses, which could prevent us from sustaining or developing our business. We incurred losses from operations of approximately $89.3 million in 1999, $40.7 million in 2000 and $199.5 million during the first nine months of 2001. Absent a recovery in the domestic steel market, particularly with respect to pricing, we expect to continue to incur losses in the future, which may limit our ability to execute our business strategy and satisfy our debt obligations. 22 Downturns in the United States steel industry have had in the past, and may in the future have, an adverse effect on our sales and profitability. Historically, the steel industry has been cyclical in nature as a result of markets that it serves. Excess worldwide steel production capacity has further contributed to the destabilization of steel markets, especially during periods of reduced demand. The United States steel industry is affected by changes in economic conditions that are outside of our control, including currency exchange rates, and international, national, regional and local slowdowns in customer markets. For example, a decline for demand for our products or in the general financial condition of the packaging industry or its principal members to which we supply our tin mill products would have a material adverse affect on our business, financial condition, results of operations or prospects. In addition, during the periods of economic slowdown such as the one we are currently experiencing, our credit losses increase. Our operating results may also be adversely affected by increases in interest rates that may lead to a decline in the economic activity of our customers, while simultaneously resulting in higher interest payments under our senior credit facility. See "Business -- Principal Products and Markets." Our indebtedness could adversely affect our financial position and prevent us from obtaining additional financing in the future. We have, and will continue to have after giving effect to the completion of the concurrent exchange offers, a substantial amount of indebtedness when compared to our shareholders' equity. The terms of the indentures governing the new senior secured discount notes and the terms of the senior credit facility generally limit the incurrence of additional indebtedness. As of September 30, 2001, on a pro forma basis after giving effect to the exchange offers which are being accounted for as a troubled debt restructuring, and implementation of other components of our strategic plan, including the implementation of our vendor financing programs, the refinancing our credit facilities, and the implementation of our operating cost savings plan, our outstanding indebtedness would have been $203.9 million. This assumes that all outstanding notes are exchanged for $85.4 million in principal amount of new senior secured discount notes prior to the expiration of the consent solicitation, such that each tendering holder receives the total consideration and all outstanding series 1989 bonds are exchanged for $19.7 million in principal amount of new secured series 2001 bonds. The $203.9 million pro forma indebtedness balance, which includes current maturities, compares to a pro forma principal amount of indebtedness of $152.0 and pro forma shareholders' deficit of $145.3 million. As of September 30, 2001, on a pro forma basis, we had the ability to obtain $72.9 million of additional financing. For a discussion of troubled debt restructuring, see "Accounting Treatment." Our debt service obligations will have important consequences to the holders of new senior secured discount notes, including: - all of the indebtedness incurred in connection with the senior credit facility will become due no later than March 31, 2004, prior to the time the principal payment on the outstanding notes and the new senior secured discount notes and other long-term obligations will become due; - certain of our indebtedness, including the amounts borrowed under our senior credit facility, will be at variable rates of interest, which will make us vulnerable to increases in interest rates; - our ability to obtain additional financing in the future may be limited; - a portion of cash flow from our operations will be dedicated to the payment of principal and interest on our indebtedness, thereby reducing the funds available for operations, future business opportunities and acquisitions and other purposes and increasing our vulnerability to adverse general economic and industry conditions; - we may be hindered in our ability to adjust rapidly to changing market conditions; - we may experience an event of default under one or more of our debt instruments that, if not cured or waived, could result in the acceleration of that and other of our indebtedness which would adversely affect us; and 23 - our ability to withstand a downturn of our business or the economy generally or otherwise react to changes in general economic conditions, the United States steel industry, global competitive pressures or adverse changes in government regulation may be adversely affected. These factors may include, among others: -- the economic and competitive conditions in the steel industry, particularly as they affect product pricing and shipment volumes; -- any operating difficulties, increased operating costs or pricing pressures we may experience; -- cyclicality of the principal markets we serve; -- the economic conditions affecting the tin mill products market in particular and the financial performance of our principal customers; -- high levels of steel imports and the effect of any governmental actions to restrain illegal dumping of steel imports; -- the relative strength of the United States dollar as it affects international trade; -- the passage of legislation or other regulatory developments that may adversely affect us; and -- volatility in financial markets, which may affect invested pension plan assets and the calculation of benefit plan liabilities. Restrictive debt covenants contained in our senior credit facility and indentures could limit our ability to take certain business, financial and operational actions. Our senior credit facility and the indenture governing the new senior secured discount notes contain covenants that will limit the discretion of our management with respect to certain business, financial and operational matters. The covenants, taken as a whole, place significant restrictions on our ability to, among other things: - incur additional indebtedness; - pay dividends and other distributions; - redeem, repurchase or prepay subordinated obligations, equity securities and other obligations; - enter into sale and leaseback transactions; - create liens and other encumbrances; - make acquisitions and certain investments; - engage in certain transactions with affiliates; - sell or otherwise dispose of assets; and - merge or consolidate with other entities. Our ability to comply with these and other provisions of the senior credit facility and the indenture governing our new senior secured discount notes and other indebtedness may be affected by changes in economic or business conditions or other events beyond our control. A failure to comply with the obligations contained in the senior credit facility or the indenture and related agreements could result in an event of default under either the senior credit facility or the indentures, which could result in acceleration of the related debt and the acceleration of debt under other instruments evidencing indebtedness that may contain cross-acceleration or cross-default provisions. If the indebtedness under the senior credit facility were to be accelerated, our assets may not be sufficient to repay in full such indebtedness and our other indebtedness, including the new senior secured discount notes. See "Description of the Senior Secured Discount Notes" and "Description of Other Indebtedness and Financing Arrangements." 24 We may not successfully complete and manage future acquisitions that are fundamental to the success of our strategic plan. The consummation of the exchange offers is critical to our ability to permit the fundamental repositioning of our business, which depends in part on our ability to make strategic acquisitions of assets related to the tin mill and coated products markets and to integrate successfully those assets into our operations. However, any strategic acquisitions require the consent of our lenders under the senior credit facility, and our existing capital resources are limited and otherwise are subject to restrictions in our senior credit facility and in the indenture governing the new senior secured discount notes. Consequently, we may not have sufficient funds to finance such acquisitions unless we are successful in raising necessary debt or equity financing from third parties. We may not be able to obtain financing for this purpose on terms that are acceptable to us or our lenders or are permitted under the terms of the senior credit facility or the indenture or, in the case of equity, if we are required to increase our authorized capital on terms acceptable to our stockholders. Moreover, such acquisition opportunities may not become available or may not be available on acceptable terms. Any acquisitions consistent with our strategic plan that may occur will also place increasing demands on management and operations resources. Our future performance will depend, in part, on our ability to manage our changing operations and to adapt our operational systems to that end. We may not be successful at effectively and profitably managing the integration of any future acquisitions. Our failure to complete and manage any strategic acquisitions could adversely affect our business financial condition and results of operations. Highly competitive conditions in the steel industry may directly and adversely affect the pricing of our products, our profit margin and operating cash flow. The steel industry is highly competitive, particularly with respect to price in the market for sheet products. We face intense competition from domestic and foreign steel producers. In addition, we face competition from producers of products other than steel, including aluminum, plastics, composites and ceramics. Competition is based primarily on price, with factors such as reliability of supply, service and quality also being important in certain segments of the industry. In addition, a number of our domestic competitors have filed for bankruptcy protection and are seeking to maintain their market share, particularly in commodity sheet steel products, by reducing prices. Integrated steel makers also face strong competition from mini-mills, which are efficient, low-cost producers that generally produce steel by melting scrap in electric arc furnaces, utilize new technologies, have lower employment costs and target regional markets. Mini-mills historically have produced lower margin commodity grade long products, such as bars, rods and wire and other commodity-type steel products not manufactured by us. However, thin slab cast technology has allowed mini-mills to enter sheet markets traditionally supplied by integrated producers, including the hot rolled, cold rolled and galvanized markets. Mini-mills generally continue to have a cost advantage over integrated steel producers, particularly for labor and especially during periods of weak demand when scrap prices are low. Although most new capacity in the domestic industry has resulted from growth in mini-mill operations, there has also been a significant increase in both cold rolling and galvanizing capacity at independent processors. Foreign producers also compete with us, although to a lesser extent than domestic mills. Many foreign producers have lower labor costs and some are subsidized by their governments. Political and social considerations may influence their decisions with regard to production and sales more than prevailing market forces. Many foreign steel producers continue to ship to the United States market despite decreasing profit margins or losses. Other factors that influence the level of foreign competition include the relative strength of the dollar, the level of imports, and the effectiveness of United States trade laws. Although on October 22, 2001 the ITC found that the domestic steel industry had sustained serious injury because of foreign imports, we cannot assure you that the investigation will result in meaningful tariff, quota protection or other relief for the United States steel industry or for Weirton. 25 Demand may not increase from current depressed levels. Further, increased production capacity or operating efficiencies of our competitors, or increased foreign and domestic competition, may directly and adversely affect pricing and profit margins and our operating cash flow. Substantial employee postretirement benefit obligations may adversely affect future cash flow. We have substantial financial obligations related to our employee postretirement plans for medical and life insurance benefits and pensions. Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" requires that we accrue retiree medical and life insurance benefits during an employee's service rather than defer the recognition of costs until claims are actually paid. In accordance with this accounting standard, we have established a liability for the present value of the estimated future medical and life insurance benefit obligations. As of December 31, 2000, we had balance sheet liabilities for accumulated postretirement health care and life insurance benefit obligations at $344.3 million. The cash payments for actual postretirement health and life insurance claims were $23.2 million in 1999, $26.5 million in 2000 and $22.6 million for the first nine months of 2001, and our health care costs are projected to increase by 5.25% in 2002. In accordance with the Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions," we had an accrued pension liability of $80.0 million at December 31, 2000 for our defined benefit pension plans. As of December 31, 2000, projected benefit obligations of $754.0 million exceeded plan assets by $26.8 million. However, adverse developments in health care costs could materially increase the amount of our postretirement benefit obligations and adverse conditions in the financial markets have, and could in the future, materially decrease the plan assets available to fund pension obligations. Plant shutdowns would substantially increase the amount of our postretirement benefit obligations. In addition, layoffs or other similar events, including our recently negotiated workforce reduction, could also increase the amount of our postretirement benefit obligations. We do not expect to have any near term funding requirements with respect to our pension plans. Under minimum funding rules, no contribution is expected in 2002; however, a substantial contribution of approximately $50 million is likely to be required in 2003. This amount is subject to significant change depending on, among other things, asset performance. The price and availability of our raw materials may fluctuate and adversely affect our operating results. We purchase a number of raw materials in the open market in the ordinary course of our business, including scrap, tin, zinc, natural gas and other raw materials, which are subject to significant price fluctuation. In addition, we have a long-term coke supply contract for up to 80% of our actual annual coke requirements that expires on December 31, 2001, under which the price of coke fluctuates with the market, subject to a ceiling and a floor. We may not be able to negotiate acceptable renewal terms of this contract. We have entered into long-term supply contracts with respect to other commodities, including iron ore pellets, industrial gases and electricity; however, the loss of any of those contracts or of our coke supply contract may expose us to greater market risks, and the potential for significant cost increases which could have a material adverse effect on our business, financial condition, results of operations and prospects. In addition, certain of our raw material suppliers are participating in our vendor financing programs, under which we have entered into a sale and leaseback transaction with respect to our Foster-Wheeler Steam Generating Plant and related electricity generating assets, which supplies process steam, heat and electricity. A failure to satisfy our rental payment and other obligations under this arrangement could result in the termination of the lease. This may adversely affect our relationships with participating vendors and may also adversely affect our ability to secure the steam and electricity necessary to operate our steel making facilities. Unplanned repairs or equipment outages could interrupt production and reduce sales and profitability. Our integrated operations depend upon critical equipment, such as blast furnaces, basic oxygen furnaces, our continuous caster, our hot strip mill and other rolling and finishing facilities to support our 26 business, that may occasionally be out of service due to routine scheduled maintenance or equipment failures. Any unplanned unavailability of critical equipment could interrupt our production capabilities and reduce our sales and profitability. We have experienced unscheduled equipment outages in the past, and we could have material shutdowns in the future. We may not be able to negotiate favorable labor agreements or prevent work stoppages. The Independent Steelworkers Union represents our production and maintenance workers, clerical workers and nurses. In addition, the Independent Guard Union represents our security personnel. While we negotiated new agreements with the ISU and the IGU in October 2001, which expires no earlier than March 2004, future collective bargaining agreements, or the negotiation of such agreements, may have an adverse effect on our financial condition and results of operations. Labor disputes and resulting work stoppages or slowdowns occasionally occur in the steel industry. Work stoppages or slowdowns may occur in the future in connection with labor negotiations or otherwise. We may incur substantial environmental control and remediation costs. In common with other United States steel producers, we are subject to various federal, state and local requirements for environmental controls relating to our operations. These environmental laws and regulations include the Clean Air Act with respect to air emissions; the Clean Water Act with respect to water discharges; the Resource Conservation and Recovery Act with respect to solid and hazardous waste treatment, storage and disposal; and the Comprehensive Environmental Response, Compensation and Liability Act with respect to releases and remediation of hazardous substances. In addition, West Virginia has similar environmental laws. We have spent substantial amounts of money to control air and water pollution pursuant to applicable environmental requirements. We have also spent, and will continue to spend, substantial amounts for proper handling and disposal and for the environmental investigation and cleanup of properties. Along with capital investments and operating costs relating to environmental matters, from time to time we have been and may be subject to penalties or other requirements as a result of administrative action by regulatory agencies. The ultimate impact of complying with environmental laws and regulations is not always clearly known or determinable because certain implementing regulations have not yet been promulgated or in certain instances are undergoing revision. However, complying with environmental laws and regulations may substantially increase capital, operating and compliance costs. Currently, we are involved in a number of environmental remediation projects relating to the remediation of former and present operating locations and are involved in a number of other remedial actions under federal and state law. We may incur environmental exit costs if we decide to sell a current property, for it is our policy not to accrue such environmental exit costs until we decide to dispose of a property. These costs include, among other things, remediation and closure costs and expenses relating to our clean-up of soil contamination, our closing of waste treatment facilities and our monitoring commitments. We believe that the ultimate liability for the environmental remediation matters identified to date, including the clean-up, closure and monitoring of waste sites and formerly-owned facilities and businesses, will not materially affect our consolidated financial condition or liquidity. However, the identification of additional sites, increases in remediation costs with respect to identified sites, the failure of other potentially responsible parties to contribute their share of remediation costs, decisions to dispose of additional properties and other changed circumstances may result in increased costs to us. These increased costs may have a material adverse effect on our financial condition, liquidity and results of operations. We depend on our key personnel for our success, and the loss of their services could have a negative impact on our business. Our success will depend, in large part, on the efforts, abilities and experience of our senior management and other key employees. Executive compensation for our key employees has been restrained by our weak financial performance, and options and other stock-based incentive compensation currently have minimal or no value. In light of our current financial position and uncertain prospects, key employees, including certain members of management, may not have an incentive to stay with us. The loss of the 27 services of one or more such individuals could adversely affect our business, financial condition, results of operations or prospects. Weirton's ESOPs hold approximately 42% of our voting power and the ESOP participants acting together can exercise substantial influence over our affairs. Approximately 42% of the combined voting power of our issued and outstanding shares of common stock and voting convertible preferred stock are held by Weirton's 1984 ESOP and 1989 ESOP, respectively. Accordingly, the ESOPs and their participants, consisting of active and retired employees of Weirton, can exercise significant influence over our affairs, including the election of our directors and the approval of actions requiring the approval of our stockholders, including the adoption of amendments to our restated certificate of incorporation, increases in our authorized capital, issuances of voting securities, and approval of mergers or sales of substantially all of our assets. A number of corporate actions require the affirmative vote of holders having at least 80% of the outstanding voting power. The restated certificate of incorporation also limits the ability of any stockholder other than the ESOPs to exercise more than 5% of voting power. The interests of the ESOPs and their participants may conflict with your interests. The concerns of employee-stockholders, including retired employees who are ESOP participants, with respect to matters such as job security, pensions and postretirement benefits may conflict with your interests. For example, a "change of control" transaction, which would require us to repurchase all or a portion of your new senior secured discount notes, may not be approved by the requisite supermajority vote of the stockholders, if any employee-stockholder concerns arising out of a sale, merger or similar transaction are not satisfactorily resolved. Likewise, the execution of our strategic plan through selective acquisitions and targeted investments will likely require outside funding, including the possible issuance of equity or equity-related securities by the company. The authorization of additional common stock and the approval of the issuance of common stock, for example, in connection with the financing of an acquisition will also require supermajority stockholder approval and possibly be subject to similar employee or retiree concerns. 28 FORWARD-LOOKING INFORMATION The statements contained in this prospectus that are not historical facts are or may be deemed to be "forward-looking" statements. Some of these statements can be identified by the use of forward-looking terminology such as "believes," "estimates," "intends," "may," "will," "should," or "anticipates," or the negative or other variation of these or similar words, or by discussion of strategy or risks and uncertainties. In addition, from time to time we or our representatives have made or may make forward-looking statements orally or in writing. Furthermore, such forward-looking statements may be included in various filings that we make with the SEC, or press releases or oral statements made by or with the approval of one of our authorized executive officers. Forward-looking statements in this prospectus include, among others, statements regarding: - the United States steel industry; - our strategic plan; - productivity and profitability improvement; - principal products and customers; - raw materials and energy; - pension and other employee postretirement benefit obligations; - competition and imports; - liquidity and capital resources; and - the outcome of the filing of bankruptcy or any other similar proceeding. These forward-looking statements are only present expectations. Actual events or results may differ materially. Factors that could cause such a difference include those discussed under the heading "Risk Factors" in this prospectus. We undertake no obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this prospectus. 29 CAPITALIZATION The following table sets forth Weirton's consolidated indebtedness and capitalization as of September 30, 2001 and on a pro forma basis to reflect the refinancing of our accounts receivable securitization program and revolving credit facility and the concurrent exchange offers. The pro forma adjustments have been prepared on the same assumptions as those used for the unaudited pro forma consolidated balance sheet included in this registration statement, including the assumption that all outstanding notes are tendered for exchange prior to the expiration of the consent solicitation and all series 1989 bonds are exchanged, including accrued and unpaid interest on the outstanding notes and series 1989 bonds. The exchange offers are being accounted for as a troubled debt restructuring. The total interest and principal to be paid to holders of the new senior secured discount notes and the new secured series 2001 bonds are expected to be less than the carrying value of the debt for which they are being exchanged. Therefore, we will record a gain on the exchanges. See "Unaudited Pro Forma Consolidated Financial Statements." The pro forma column does not purport to represent what our financial condition would actually have been if these transactions and events occurred on the date specified. The pro forma adjustments are based on available information and certain adjustments that our management believes are reasonable. In the opinion of our management, all adjustments have been made that are necessary to present fairly the unaudited pro forma consolidated data. We can give you no assurances that the transactions referred to in the assumptions will take place or, if they do take place, that they will take place on the terms specified in the assumptions.
SEPTEMBER 30, 2001 ----------------------------------------------- EXCHANGE ACTUAL ADJUSTMENTS OFFER PRO FORMA ------- ----------- -------- --------- (DOLLARS IN MILLIONS) Cash and equivalents................................ $ 38.9 $ (4.8) (1) $ (4.0)(5) $ --(2) ======= ======= ======= (30.1)(2) ====== Debt obligations: 11 3/8% senior notes due 2004..................... 122.7 (122.7)(6) -- 10 3/4% senior notes due 2005..................... 121.3 (121.3)(6) -- 8 5/8% pollution control revenue refunding bonds due 2014........................................ 56.3 (56.3)(7) -- Senior credit facilities.......................... 49.0 28.0(3) 46.9 (30.1)(2) Unamortized debt discount......................... (0.8) 0.8(6) -- 10% senior secured discount notes due 2008........ 119.6(6) 119.6 9% secured pollution control revenue refunding bonds due 2014........................ 37.4(7) 37.4 ------- ------ ------- ------- Total debt obligations..................... 348.5 (2.1) (142.5) 203.9 Mandatorily redeemable preferred stock: Series A preferred stock, $0.10 par value: (1,552,187 shares issued; 1,533,405 subject to put).................................... 21.4(8) 21.4(8) Less Series A preferred treasury stock, at cost 42,901 shares................................... (0.6) (0.6) ------- ------- Total mandatorily redeemable preferred stock.................................... 20.8 20.8 Stockholders' equity:(9) Preferred stock Series A, $0.10 par value; 18,782 shares.......................................... 0.3 0.3 Common stock, $0.01 par value; 50,000,000 shares authorized; 43,809,370 shares issued............ 0.4 0.4 Additional paid in capital........................ 459.7 459.7 Retained earnings (deficit)....................... (736.6) (0.6)(4) 125.6(6) (592.0) 19.6(7) Less: common stock treasury at cost; 2,310,809 shares.......................................... (14.0) (14.0) Other stockholder equity.......................... 0.3 0.3 ------- ------ ------- ------- Total stockholders equity (deficit)........ (289.9) (0.6) 145.2 (145.3) ------- ------ ------- ------- Total capitalization................................ $ 79.4 $ (2.7) $ 2.7 $ 79.4 ======= ====== ======= =======
30 --------------- The pro forma adjustments do not reflect approximately $30 million in proceeds generated by our vendor financing programs. The vendor financing programs have been structured principally as a sale and leaseback transaction of our Foster-Wheeler Steam Generating Plant, including the related real property and certain related energy generating equipment, direct advances or concessions by certain vendors, and the expected sale and leaseback of our general office building and research and development building. Pro forma adjustments do not reflect the restructuring charge that will be associated with our operating cost savings plan. The recent renegotiation of our collective bargaining agreements allows a reduction in our workforce, which we believe will allow us to reduce labor costs and function more efficiently. We have also agreed to streamline our management structure. The restructuring charge related to the workforce downsizing consists of an increase in pension obligation ($46.4 million), other post-retirement benefit obligation ($23.7 million, including an increase in the current obligation of $4.0 million), an increase in other long term liabilities of ($7.2 million) and cash costs ($3.0 million). (1) Pro forma adjustments to reflect the cash cost of the senior credit facility which includes $4.0 million in closing costs and $0.8 million of payments for accrued interest and discount expenses on the old accounts receivable securitization program and revolving credit facility. (2) Pro forma adjustments to reflect the use of all available cash will be used to pay down amounts outstanding under the senior credit facility. (3) Pro forma adjustment to payoff amounts outstanding under our accounts receivable securitization program which we refinanced through our senior credit facility. Under our accounts receivable securitization program, we obtained proceeds by selling participation interests in our accounts receivable as opposed to borrowing money using accounts receivable as collateral. As a result of this structure, proceeds received were accounted for as a reduction of our accounts receivable balance. Proceeds under our senior credit facility consist, in part, of revolving loans collateralized by our accounts receivable. (4) Pro forma adjustment to reflect the write-off of deferred issuance costs on our old revolving credit facility. (5) Pro forma adjustment to reflect the anticipated cash closing costs related to the exchanges of outstanding notes and series 1989 bonds for new senior secured discount notes and new secured series 2001 bonds, respectively. Due to our substantial net operating losses, we do not anticipate incurring any significant federal income tax liability as a result of the exchange. (6) Pro forma adjustments to reflect the exchange of the outstanding notes for new senior secured discount notes. Under the prescribed accounting treatment, it is anticipated that a gain of $125.6 million will be recognized. For federal income tax purposes, we have approximately $450 million of net operating losses available to offset taxable income. As a result, under several provisions of the Internal Revenue Code, we do not anticipate that the gain to be recognized upon consummation of the exchange offers will result in any significant federal income tax liability for Weirton. In addition, we do not expect to incur any significant state tax liability in connection with the anticipated gain resulting from the exchange offers. This gain will be accounted for as an extraordinary item. See "The Exchange Offer and Consent Solicitation -- Accounting Treatment." (7) Pro forma adjustments to reflect the exchange of series 1989 bonds for new secured series 2001 bonds. Under the prescribed accounting treatment, it is anticipated that a gain of $19.6 million will be recognized. For federal income tax purposes, we have approximately $450 million of net operating losses available to offset taxable income. As a result, under several provisions of the Internal Revenue Code, we do not anticipate that the gain to be recognized upon consummation of the exchange offers will result in any significant federal income tax liability for Weirton. In addition, we do not expect to incur any significant state tax liability in connection with the anticipated gain resulting from the exchange offers. This gain will be accounted for as an extraordinary item. See "The Exchange Offer and Consent Solicitation -- Accounting Treatment." 31 (8) Reflects the historical cost of the preferred stock of $14.50 per share at the time of its original issuance. The outstanding shares of mandatorily redeemable preferred stock are subject to redemption at a price equal to the appraised value at the redemption date. At September 30, 2001, the shares had an appraised fair value of $0.45 per share. In any given year, we are only required to redeem those shares put to us by a limited number of former ESOP participants who have retired or otherwise separated from service. (9) Does not reflect an aggregate of 5.2 million shares of common stock that may be issuable upon conversion of outstanding Series A preferred stock or upon exercise of outstanding stock options or issuable under other stock-based plans. See Notes 11 and 12 to our consolidated financial statements. Under our restated certificate of incorporation, any increase in our authorized capitalization would require the affirmative vote of at least 80% of the outstanding common stock and Series A preferred stock. In addition, any issuance of preferred stock having voting power would require the affirmative vote of at least 90% of our board of directors. Our 1984 ESOP and 1989 ESOP collectively hold approximately 42% of our combined voting power. See "Security Ownership of Certain Beneficial Owners and Management." 32 SELECTED CONSOLIDATED FINANCIAL DATA The following data, insofar as it relates to each of the years 1996 through 2000, has been derived from financial statements audited by Arthur Andersen LLP, independent public accountants. Consolidated balance sheets at December 31 for the five years ended December 31, 2000, and the related consolidated statements of operations and of cash flows for the five years ended December 31, 2000 and the notes thereto appear elsewhere in this prospectus. The data for the nine months ended September 30, 2000 and 2001 has been derived from unaudited financial statements also appearing in this prospectus which, in the opinion of our management, include all adjustments, consisting only of normal recurring adjustments, necessary for fair statement of the results for the unaudited interim periods. The results of operations for the interim period should not be regarded as indicative of the results that may be expected for a full year. You should read the selected consolidated financial data together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited historical consolidated financial statements which includes a report with an explanatory paragraph with respect to the uncertainty regarding the Company's ability to continue as a going concern as discussed in Note 23 to the financial statements, and the accompanying notes contained in this prospectus. Our historical results are not necessarily indicative of our future operating results. See "Risk Factors."
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------------ --------------- 1996 1997 1998 1999 2000 2000 2001 ------ ------ ------ ------ ------ ------ ------ (UNAUDITED) (DOLLARS IN MILLIONS) INCOME STATEMENT DATA: Net sales(1)............................... $1,434 $1,444 $1,297 $1,130 $1,118 $ 907 $ 734 Costs of sales(1)........................ 1,334 1,305 1,159 1,076 1,053 818 800 Selling, general and administrative expenses.............................. 39 36 39 45 42 31 26 Depreciation............................. 58 61 61 61 64 49 49 Provision for profit sharing(2).......... -- -- -- 15 -- -- -- Asset impairment(3)...................... -- -- -- 22 -- -- -- Restructuring charge..................... 17 17 3 -- -- -- 12 ------ ------ ------ ------ ------ ------ ------ Income (loss) from operations.............. (14) 25 35 (89) (41) 9 (153) Gain on sale of MetalSite investment, net(4)................................ -- -- -- 170 -- -- -- Loss from unconsolidated subsidiaries.... -- -- -- (1) (26) (18) (19) Interest expense(5)...................... (44) (48) (44) (44) (35) (26) (28) Other income, net........................ 5 4 5 2 5 4 1 ESOP contribution(6)..................... (3) (3) (3) (2) -- -- -- ------ ------ ------ ------ ------ ------ ------ Income (loss) before income taxes, extraordinary item and minority interest................................. (56) (22) (7) 36 (97) (31) (199) Income tax provision (benefit)(7)........ (11) (4) (1) 8 (12) (6) 154 ------ ------ ------ ------ ------ ------ ------ Loss before extraordinary item and minority interest................................. (45) (18) (6) 28 (85) (25) (353) Loss on early extinguishments of debt(8)............................... 5 -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ ------ Income (loss) before minority interest..... (50) (18) (6) 28 (85) (25) (353) Minority interest in loss of subsidiary............................ -- -- -- 3 -- -- -- ------ ------ ------ ------ ------ ------ ------ Net income (loss).......................... $ (50) $ (18) $ (6) $ 31 $ (85) $ (25) $ (353) ====== ====== ====== ====== ====== ====== ======
33
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------------ --------------- 1996 1997 1998 1999 2000 2000 2001 ------ ------ ------ ------ ------ ------ ------ (UNAUDITED) (DOLLARS IN MILLIONS) BALANCE SHEET DATA (AT END OF PERIOD): Cash and equivalents..................... $ 112 $ 125 $ 68 $ 209 $ 32 $ 68 $ 39 Working capital.......................... 299 302 203 299 193 259 70 Total assets............................. 1,300 1,282 1,194 1,187 990 1,094 697 Long-term employee benefits.............. 404 436 419 419 399 405 407 Long-term debt (including current portion)(9)........................... 431 389 305 305 299 299 348 Redeemable preferred stock, net(10)...... 18 21 22 23 21 21 21 Stockholders' equity (deficit)........... 149 133 122 154 63 122 (290) OTHER FINANCIAL DATA EBITDA(11)............................... 61 103 99 (6) 23 58 (92) Capital expenditures..................... 68 60 50 22 38 20 9 Net cash provided by (used for) operating activities(12)........................ 35 72 50 81 (85) (76) (33) Net cash provided by (used for) investing activities(13)........................ (68) (60) (58) 145 (78) (51) (9) Net cash provided by (used for) financing activities............................ 14 1 (49) (85) (15) (15) 49 Ratio of earnings to fixed charges(14)... N/A N/A N/A 1.81 N/A N/A N/A Working capital ratio(15)................ 2.1:1 2.2:1 1.7:1 2.2:1 2.2:1 2.3:1 1.4:1 OTHER DATA (FOR PERIOD EXCEPT WHERE NOTED) Average hot band price per ton shipped... 314 335 306 265 283 294 220 Average sales per ton shipped............ 502 521 504 449 457 459 427 Average cost per ton shipped(16)......... 467 471 450 428 430 414 466 Tons steel shipped (in thousands)........ 2,857 2,772 2,575 2,514 2,448 1,977 1,718 Active employees (at end of period)(16)........................... 5,373 4,873 4,329 4,302 4,246 4,323 3,965
--------------- (1) In accordance with Emerging Issues Task Force Issue 00-01, "Accounting for Shipping and Handling Fees and Costs," shipping and handling costs were reclassed from net sales to cost of sales. (2) The provision for employee profit sharing is calculated in accordance with the profit sharing plan agreement. The provision is based upon 33 1/3% of net income. (3) The asset impairment charge is associated with the write down of a slab sizing press to fair value. (4) The gain on sale of investment relates to the sale of a portion of our investment in MetalSite, L.P. (5) Interest expense has been reduced by capitalized interest of $0.1 million, $0.1 million, $0.4 million, $0.5 million, and $1.1 million for the nine months ended September 30, 2000, the year 2000 and for the years 1998 through 1996, respectively. There was no capitalized interest expense applicable to facilities under construction for the nine months ended September 30, 2001 or the year 1999. (6) Does not include a net outflow of cash as these contributions are returned to Weirton in the form of payments on loans from Weirton to the 1984 and 1989 ESOPs. (7) In the second quarter of 2001, a non-cash charge was recorded to fully reserve our deferred tax assets which include the deferred tax assets related to approximately $400 million of net operating loss carryforwards. It was determined that our cumulative financial losses had reached the point that fully reserving the deferred tax assets was required. However, to the extent that we generate taxable income prior to the expiration of the net operating loss carryforwards, we would be able to utilize them to help offset our tax liabilities. These net 34 operating losses will be reduced by reason of the elimination of principal and interest pursuant to the exchanges of outstanding notes and series 1989 bonds for new senior secured discount notes and new secured series 2001 bonds (based principally on the issue price for federal income tax purposes of the new senior secured discount notes and the new secured series 2001 bonds). (8) Reflects certain costs incurred in connection with the early extinguishments of debt. (9) Long term debt (including current portion) does not include amounts utilized under our accounts receivable securitization program. Under our accounts receivable securitization program, we obtained proceeds by selling participation interests in our accounts receivable as opposed to borrowing money using accounts receivable as collateral. As a result of this structure, proceeds received were accounted for as a reduction of our accounts receivable balance. We had sold participation interests in our accounts receivable of $28.0 million, $25.0 million and $35.0 million at September 30, 2001, December 31, 2000 and December 31, 1999, respectively. (10) Reflects the historical cost of the preferred stock at $14.50 per share at the time of its original issuance. The outstanding shares of mandatorily redeemable preferred stock are subject to redemption at a price equal to the appraised value at the redemption date. At September 30, 2001, the shares had an appraised fair value of $0.45 per share. In any given year, we are only required to redeem those shares put to us by a limited number of former ESOP participants who have retired or otherwise separated from service. (11) EBITDA is calculated as income (loss) from operations plus depreciation and non-recurring items including restructuring and asset impairment. EBITDA is presented because our management believes that such information is considered by certain investors to be an additional basis for evaluating our ability to pay interest and repay debt. EBITDA should not be considered as an alternative to measures of operating performance as determined in accordance with generally accepted accounting principles, as a measure of our operating results and cash flows or as a measure of our liquidity. Since EBITDA is not calculated identically by all companies, the presentation in this prospectus may not be comparable to other similarly titled measure of other companies. (12) Net cash provided by (used for) operating activities includes amounts utilized under our accounts receivable securitization program. Utilization of the accounts receivable securitization program is treated as a sale of accounts receivable rather than long term debt. As a result, the cash flows related to the program are operating cash flows. Cash flows from the accounts receivable securitization program accounted for $35.0 million in cash flows provided by operations in 1999, $10.0 million used by operations in 2000 and $3.0 million provided by operations during the nine months ended September 30, 2001. (13) Cash flows from investing activities include $170.1 million in proceeds from the sale of a portion of our investment in MetalSite L.P. in 1999. (14) The ratio of earnings to fixed charges is computed by dividing income (before income taxes, minority interest and extraordinary items and fixed charges less capitalized interest) by fixed charges. Fixed charges include interest expense, including any capitalized interest expense and the portion or rental expenses which are deemed to represent interest. The ratio of earnings to fixed charges for the years ended December 31, 1996, 1997, 1998 and 2000 are not presented because of the loss before income taxes incurred for those periods. Earnings were inadequate to cover fixed charges by $56.4 million, $22.5 million, $8.2 million and $96.9 million for the years ended December 31, 1996, 1997, 1998 and 2000, respectively. The ratio of earnings to fixed charges for the nine months ended September 30, 2000 and 2001 are also not presented because of the loss before income taxes incurred for these periods. Earnings were inadequate to cover fixed charges by $30.9 million and $199.5 million for the nine months ended September 30, 2000 and 2001, respectively. (15) Our working capital ratio is calculated by dividing our total current assets by our total current liabilities. (16) Does not reflect the recent planned workforce reduction of 550 employees to be implemented beginning in the fourth quarter 2001 pursuant to our operating cost savings plan or the effect of the operating cost savings plan on average cost per ton shipped, which is currently estimated to range from $15 to $20 per ton. 35 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS We have set forth our unaudited pro forma consolidated financial statements on the following pages. The unaudited pro forma consolidated balance sheet as of September 30, 2001 has been prepared as if the concurrent exchange offers and the refinancing of our revolving credit facility and asset securitization program that occurred on September 30, 2001. The unaudited pro forma consolidated statements of income (loss) for year ended December 31, 2000 and the nine months ended September 30, 2001 have been prepared as if the concurrent exchange offers and refinancing of our revolving credit facility and accounts receivable securitization program that occurred on the first day of the period for which the income statement is presented. The unaudited pro forma consolidated financial statements do not incorporate other elements of our strategic plan including the completion of our vendor financing programs and the implementation of our operating cost savings plan. We anticipate that these parts of our strategic plan will improve future liquidity and reduce future operating costs. Though we consider these points, along with the concurrent exchange offers to be part of one strategic plan, items other than the concurrent exchange offers are not incorporated in the pro forma consolidated financial statements. The unaudited pro forma consolidated financial data does not purport to represent what our results of operations would actually have been had the concurrent exchange offers occurred on the dates specified or to project our results of operations for any future period or date. The pro forma adjustments are based on available information and certain adjustments that our management believes are reasonable and necessary to present fairly the information presented in the unaudited pro forma consolidated financial statements. We can give you no assurances that the concurrent exchange offers will take place or that they will take place in the terms specified in the assumptions. The unaudited pro forma financial statements have been prepared on the following assumptions: EXCHANGE OFFERS. - All outstanding notes and series 1989 bonds outstanding are tendered for exchange prior to the expiration of the consent solicitation; - $122.7 million in principal amount of 11 3/8% Senior Notes due 2004 and $121.3 million in principal amount of 10 3/4% Senior Notes due 2005, including all accrued and unpaid interest related thereto, are exchanged for $85.4 million in principal amount of 10% Senior Secured Discount Notes due 2008; - $56.3 million in principal amount of series 1989 bonds, including all accrued and unpaid interest thereon, are exchanged for $19.7 million in principal amount of 9% Secured Series 2001 Bonds due 2014; - The concurrent exchange offers are being accounted for as a troubled debt restructuring. The total interest and principal to be paid to holders of the new senior secured discount notes and the new secured series 2001 bonds is expected to be less than the carrying value of the debt for which they are being exchanged, including $9.9 million of accrued unpaid interest thereon. Accordingly, a pro forma net gain of $145.2 million is recorded. For federal income tax purposes, we have approximately $450 million of net operating losses available to offset taxable income. As a result, under several provisions of the Internal Revenue Code, we do not anticipate that the gain to be recognized upon consummation of the exchange offers will result in any significant federal income tax liability for Weirton. In addition, we do not expect to incur any significant state tax liability in connection with the anticipated gain resulting from the exchange offers. Interest over the life of the new senior secured discount notes and the new secured series 2001 bonds is included in the carrying amount of the outstanding notes and series 1989 bonds and interest expense on the new senior secured discount notes and new secured series 2001 bonds will not be recognized in the future for financial accounting purposes. We anticipate that annual cash interest payments 36 beginning in 2004 on the new senior secured discount notes will be approximately $8.6 million and annual interest payments on the new secured series 2001 bonds will be approximately $1.8 million; - Fees and expenses associated with the exchanges of the outstanding notes and series 1989 bonds are $4.0 million; and - The exchange offers are expected to be consummated on or before December 31, 2001. REFINANCING OF REVOLVING CREDIT FACILITY AND ASSET SECURITIZATION PROGRAM. - For purposes of the unaudited pro forma balance sheet, we assume that as part of the senior credit facility, we entered into agreements to use all available cash to pay down amounts outstanding under the facility. Any cash needs would be funded on a revolving basis by borrowings drawn down under the facility; and - For purposes of the unaudited pro forma income statements, we assume that, over the periods presented, amounts outstanding under the old revolving credit facility and accounts receivable securitization program are replaced by an equal amount of borrowing under the new senior credit facility. We assume that, on average, borrowings under the senior credit facility carry an interest rate that is 2.0% higher than the average rate of discount and interest associated with the old revolving credit facility and accounts receivable securitization program. The agreement to use all available cash to pay down amounts outstanding under the senior credit facility would have resulted in some positive benefit in the form of reduced interest expense, but we believe that such benefits would not have been material in the periods presented and, therefore, they are excluded from our pro forma adjustments. The unaudited pro forma financial statements exclude the impact of parts of our strategic plan other than the concurrent exchange offer and the refinancing of our bank credit and asset securitization facilities. Though the impacts of other points of our strategic plan are excluded from the pro forma financial statements, they are critical to our strategic plan and we anticipate that they will have a significant impact on our financial position and results of operations. Other parts of our strategic plan and their anticipated impacts on our financial position and results of operations are: VENDOR FINANCING PROGRAMS - We have entered into vendor financing programs generating approximately $30.0 million in proceeds. The principal transactions under the programs are the sale and leaseback of our Foster-Wheeler Steam Generating Plant, including the related real property and certain related energy generating equipment, direct advances and concessions by certain vendors, and the expected sale and leaseback on our general office building and research and development building. - We anticipate the program will result in a capital lease obligation of more than $30 million dollars the proceeds of which will be received in the form of cash contributions, pricing concessions from vendors and relief from accounts payable. - Quarterly lease payments of approximately $1.5 million will begin one year after the Foster-Wheeler transaction. - Additional lease payments may be required based on: - the net profits resulting from the related power and sales agreement; and - an industry published average hot band price in excess of $305 per ton in the preceeding year. OPERATING COST SAVINGS PROGRAM - Our announced operating cost savings plan will result in a restructuring charge which we anticipate will occur in the fourth quarter and will amount to approximately $80 million consisting of 37 increases in our pension obligation, other post-retirement benefit obligation, other long term liabilities and cash costs for severance benefits and other related fees. - The operating costs savings plan, once fully implemented, will result in annual savings of approximately $51 million. The footnotes accompanying the pro forma financial statements are an integral part of the statements. 38 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2001 --------------------------------------------------- ACTUAL EXCHANGE PRO RESULTS ADJUSTMENTS OFFER FORMA ------- ----------- --------- ------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Current Assets: Cash and equivalents..................... $ 38.9 $ (4.8)(1) $ (4.0)(5) $ -- (30.1)(3) Accounts receivable...................... 71.8 28.0(3) 99.8 Inventory................................ 124.9 124.9 Other current assets..................... 3.8 3.8 ------- ------ --------- ------- Total Current Assets.................. 239.4 (6.9) (4.0) 228.5 Property, plant and equipment, net....... 447.2 447.2 Other assets and deferred charges........ 10.3 4.0(1) (3.2)(5) 10.5 (0.6)(2) ------- ------ --------- ------- TOTAL ASSETS............................... 696.9 (3.5) (7.2) 686.2 ======= ====== ========= ======= Current Liabilities: Payables................................. 75.2 75.2 Notes payable............................ 46.9(4) 46.9 Employment costs......................... 71.1 71.1 Other current liabilities................ 23.3 (0.8)(1) (9.9)(5) 12.6 ------- ------ --------- ------- Total Current Liabilities............. 169.6 46.1 (9.9) 205.8 Long term debt obligations -- notes and bonds................................. 299.5 (142.5)(5) 157.0 Long term debt obligations -- bank....... 49.0 (2.1)(3) (46.9)(4) Long term pension obligation............. 94.2 94.2 Postretirement benefits other than pensions.............................. 313.3 313.3 Other long term liabilities.............. 40.4 40.4 ------- ------ --------- ------- TOTAL LIABILITIES.......................... 966.0 (2.9) (152.4) 810.7 ======= ====== ========= ======= REDEEMABLE STOCK, NET (6).................. 20.8 20.8 STOCKHOLDERS EQUITY (DEFICIT).............. (289.9) (0.6)(2) 145.2(5) (145.3) ------- ------ --------- ------- TOTAL LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY..................... 696.9 (3.5) (7.2) 686.2 ======= ====== ========= =======
--------------- The pro forma adjustments do not reflect approximately $30 million in proceeds generated by our vendor financing programs. The vendor financing programs have been structured principally as a sale and leaseback transaction of our Foster-Wheeler Steam Generating Plant, including the related real property and certain related energy generating equipment, direct advances or concessions by certain vendors, and the expected sale and leaseback of our general office building and research and development building. Pro forma adjustments do not reflect the estimated restructuring charge that will be associated with our operating cost savings plan. The recent renegotiation of our collective bargaining agreements allows a reduction in our work force, which we believe will allows us to reduce labor costs and function more efficiently. We have also agreed to streamline our management structure. The restructuring charge consists of an increase in pension obligation of $46.4 million, other postretirement 39 benefit obligation of $23.7 million, including an increase in the current obligation of $4.0 million, an increase in other long term liabilities of $7.2 million and cash costs of $3.0 million. (1) Pro forma adjustments to reflect the replacement of our old revolving credit facility and accounts receivable securitization program with our new senior credit facility. We assume that the transaction will result in $4.0 million in closing costs and a pay off of $0.8 million of accrued interest under the old revolving credit facility and accounts receivable securitization program. (2) Pro forma adjustment to reflect the write-off of deferred debt issue costs of $0.6 million associated with the old revolving credit facility and accounts receivable securitization program. (3) Pro forma adjustment to payoff amounts outstanding under our accounts receivable securitization program which we refinanced through our senior credit facility. Under our accounts receivable securitization program, we obtained proceeds by selling participation interests in our accounts receivable as opposed to borrowing money using accounts receivable as collateral. As a result of this structure, proceeds received were accounted for as a reduction of our accounts receivable balance. Proceeds under our senior credit facility consist, in part, of revolving loans collateralized by our accounts receivable. All available cash will be used to pay down amounts outstanding under the senior credit facility. Cash on hand and the proceeds from the vendor financing programs are, therefore, used to paydown $30.1 million of outstanding borrowings under the senior credit facility. (4) Under the terms of our senior credit facility, borrowings under the agreement will be classified as a current liability. (5) Pro forma adjustments to reflect the exchanges of outstanding notes and series 1989 bonds for new senior secured discount notes and new secured series 2001 bonds. The pro forma "long term debt obligations -- notes and bonds" of $157 million consists of new senior secured discount notes principal ($85.4 million) and interest ($34.2 million) and new secured series 2001 bonds principal ($19.7 million) and interest ($17.7 million). (6) Reflects the historical cost of the preferred stock of $14.50 per share at the time of its original issuance. The outstanding shares of mandatorily redeemable preferred stock are subject to redemption at a price equal to the appraised value at the redemption date. At September 30, 2001, the shares had an appraised fair value of $0.45 per share. In any given year, we are only required to redeem those shares put to us by a limited number of ESOP participants who have retired or otherwise separated from service. 40 UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (LOSS)
NINE MONTHS ENDED SEPTEMBER 30, 2001 -------------------------------------------- ACTUAL EXCHANGE PRO RESULTS ADJUSTMENTS OFFER FORMA ------- ----------- -------- ------- (DOLLARS IN MILLIONS, EXCEPT FOR SHARE DATA) INCOME STATEMENT DATA: Net sales........................................ $ 733.8 $ 733.8 Operating costs: Cost of sales................................. 800.1 800.1 Selling, general and administrative expense... 25.7 25.7 Depreciation.................................. 49.0 49.0 Restructuring cost............................ 12.3 12.3 ------- ------ ---- ------- Income (loss) from operations.................... (153.3) (153.3) Loss from unconsolidated subsidiaries......... (18.5) (18.5)(3) Interest expense.............................. (28.4) 24.8(1) (3.6) Other income, net............................. 0.7 0.7 ------- ------ ---- ------- Income (loss) before income taxes............. (199.5) 24.8 (174.7) Income tax provision(2)....................... 153.8 153.8 ------- ------ ---- ------- Net income (loss)................................ (353.3) 24.8 (328.5) ======= ====== ==== ======= RATIO OF EARNINGS TO FIXED CHARGES(4).............. -- -- PER SHARE DATA: Weighted average number of common shares (in thousands): Basic......................................... 41,578 41,578 Diluted....................................... 41,578 41,578 Net income (loss) per share: Basic......................................... $ (8.50) $ (7.90) Diluted....................................... $ (8.50) $ (7.90)
--------------- Pro forma adjustments reflect nine months of estimated savings from the operating cost savings plan. The recent renegotiation of our collective bargaining agreements allows a reduction in our workforce, which we believe will allow us to reduce labor costs and function more efficiently. We have also agreed to streamline our management structure. We estimate that the program will save approximately $51 million annually. A nine month portion of $38.8 million is included here. The pro forma adjustments do not reflect interest expense on approximately $30 million in proceeds generated by our vendor financing programs. The vendor financing programs have been structured principally as a sale and leaseback transaction of our Foster-Wheeler Steam Generating Plant, including the related real property and certain related energy generating equipment, direct advances or concessions by certain vendors, and the expected sale and leaseback of our general office building and research and development building. The Foster Wheeler financing carries interest at 12.0% resulting in an interest expense of $2.7 million for the first nine months of 2001. (1) Pro forma adjustment to eliminate $24.8 million in interest expense recorded under the outstanding notes and series 1989 bonds. Cash payments of interest were $22.9 million with the remainder being amortization of deferred debt discount and deferred issuance costs and interest accrued. (2) We recorded an income tax provision of $153.8 million during the second quarter of 2001 to fully reserve our deferred tax assets due to a further assessment of our ability to generate sufficient taxable 41 income to utilize the assets. Because all deferred tax assets are fully reserved, no income tax provision or benefit is recognized on the pro-forma adjustments. (3) The Company recorded a loss from unconsolidated subsidiaries of $18.1 million in the first quarter of 2001 from the write offs of investments in GalvPro and MetalSite. The Company does not anticipate any further significant losses from unconsolidated subsidiaries or investments in these entities. (4)The ratio of earnings to fixed charges is computed by dividing income (before income taxes, minority interest and extraordinary items and fixed charges less capitalized interest) by fixed charges. Fixed charges include interest expense, including any capitalized interest expense and the portion of rental expenses which are deemed to represent interest. The ratio of earnings to fixed charges for the nine months ended September 30, 2001 and the pro forma nine months ended September 30, 2001 are not presented because of the loss before income taxes incurred for these periods. Earnings were inadequate to cover fixed charges by $199.5 million for the nine months ended September 30, 2001. On a pro forma basis, earnings would not have covered fixed charges by $138.9 million. UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME (LOSS)
YEAR ENDED DECEMBER 31, 2000 ------------------------------------------------ ACTUAL EXCHANGE PRO RESULTS ADJUSTMENTS OFFER FORMA -------- ----------- -------- -------- (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) ------------------------------------------------ INCOME STATEMENT DATA: Net sales..................................... $1,117.8 $1,117.8 Operating costs: Cost of sales.............................. 1,052.9 1,052.9 Selling, general and administrative expenses................................. 41.6 41.6 Depreciation............................... 64.0 64.0 -------- ----- ---- -------- Income (loss) from operations................. (40.7) (40.7) Loss from unconsolidated subsidiaries...... (26.2) (26.2)(2) Interest expense........................... (34.6) 33.1(1) (1.5) Other income, net.......................... 4.8 4.8 -------- ----- ---- -------- Income (loss) before income taxes.......... (96.7) 33.1 (63.6) Income tax provision (benefit)............. (11.6) 4.0(1) (7.6) -------- ----- ---- -------- Net income (loss)............................. (85.1) 29.1 (56.0) ======== ===== ==== ======== RATIO OF EARNINGS TO FIXED CHARGES(3)........... -- -- PER SHARE DATA: Weighted average number of common shares (in thousands): Basic...................................... 41,401 41,401 Diluted.................................... 41,401 41,401 Net income (loss) per share: Basic...................................... $ (2.06) $ (1.35) Diluted.................................... $ (2.06) $ (1.35)
--------------- The pro forma adjustments do not reflect interest expense on approximately $30 million in proceeds generated by our vendor financing programs. The vendor financing programs have been structured 42 principally as a sale and leaseback transaction of our Foster-Wheeler Steam Generating Plant, including the related real property and certain related energy generating equipment, direct advances or concessions by certain vendors, and the expected sale and leaseback of our general office building and research and development building. The Foster Wheeler financing carries interest at 12.0% resulting in an interest expense of $3.8 million in 2000. Pro forma adjustments do not reflect the approximately $51 million in annual cost savings associated with our operating cost savings plan. The recent renegotiation of our collective bargaining agreements allows a reduction in our workforce, which we believe will allow us to reduce labor costs and function more efficiently. We have also agreed to streamline our management structure. (1) Pro forma adjustment to eliminate $33.1 million in interest expense recorded under the outstanding notes and series 1989 bonds. Cash payments of interest were $31.8 million with the remainder being amortization of deferred debt discount and deferred issuance costs and accrued interest. (2) We recorded a loss from unconsolidated subsidiaries of $18.1 million in the first quarter of 2001 from the write off of investments in GalvPro and MetalSite. We do not anticipate any further significant losses from unconsolidated subsidiaries or investments in these entities. (3)The ratio of earnings to fixed charges is computed by dividing income (before income taxes, minority interest and extraordinary items and fixed charges less capitalized interest) by fixed charges. Fixed charges include interest expense, including any capitalized interest expense and the portion of rental expenses which are deemed to represent interest. The ratio of earnings to fixed charges for the year ended December 31, 2001 and the pro forma year ended December 31, 2001 are not presented because of the loss before income taxes incurred for these periods. Earnings were inadequate to cover fixed charges by $96.7 million for the year ended December 31, 2001. On a pro forma basis, earnings would not have covered fixed charges by $15.7 million. 43 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, the audited consolidated financial statements and notes thereto included elsewhere in the prospectus. OVERVIEW General. We are a major integrated producer of flat rolled carbon steel with principal product lines consisting of tin mill products and sheet products. Tin mill products include tin plate, chrome coated and black plate steels and are consumed principally by the container and packaging industry for food cans, general line cans and closure applications, such as caps and lids. Tin mill products accounted for 48% of our revenues and 35% of tons shipped in the first nine months of 2001. Sheet products include hot and cold rolled and both hot-dipped and electrolytic galvanized steels and are used in numerous end-use applications, including among others the construction, appliance and automotive industries. Sheet products accounted for 52% of our revenues and 65% of tons shipped in the first nine months of 2001. In addition, we currently are providing tolling services at our hot strip mill for a major stainless steel producer, which accounts for almost 20% of the overall capacity of our hot strip mill. We seek to strengthen our position as a leading domestic full range producer of higher margin tin mill products by further shifting our product mix toward higher margin value-added tin mill products and away from lower margin, commodity flat-rolled sheet products. In general, commodity sheet products are produced and sold in high volume in standard dimensions and specifications, while our tin mill and other value-added products require further processing, generally command higher profit margins and typically are less affected by imports and domestic competition. The market for tin mill products generally remains stable over the typical business cycle as compared to more volatile markets for sheet steel products. Domestic supply of tin mill products has been limited by the relatively small number of domestic producers, recent facility rationalizations, and the anti-dumping determination made by the ITC in August 2000. In addition, all of our tin mill products sales are based upon contracts of one year or more and are, therefore, less subject to price volatility than spot market sales. Recent Developments. Weirton, like most United States integrated steel producers, has sustained significant operating losses and a decrease of liquidity as a result of adverse market conditions as a result of adverse market conditions due to the current slowing economic conditions, which have been exacerbated by the September 11, 2001 terrorist attacks on the United States, and depressed selling prices caused in substantial part by dramatic increases in imported steel. See "Steel Industry Overview." Many industry observers believe that the severity of the current crisis in the United States will lead to a necessary restructuring of the industry. In June 2001 the Bush Administration initiated a trade investigation by the ITC under section 201 of the Trade Practices Act of 1974 regarding the illegal dumping of steel by foreign competitors. On October 22, 2001, the International Trade Commission found that twelve steel product lines, representing 74% of the imports under investigation, have sustained serious injury because of foreign imports. These product lines include hot rolled, cold rolled, galvanized sheet and coils, and tin mill products. The section 201 investigation now enters a remedy phase that will include the extent to which trade restrictions should be imposed on the twelve product categories singled out by the ITC as having caused or threatened serious injury. The Commission must release its recommendations by December 19, 2001. The remedies could include tariffs, quotas, or orderly marketing agreements. President Bush then has 60 days to adopt the recommendations, craft his own, or take no action. In response to severe weaknesses in the domestic steel industry and our worsening financial condition, we have developed a strategic plan to reduce operating costs, improve our liquidity and working capital position, restructure our long-term debt and fundamentally reposition our business to focus on the production and sale of tin mill products and other higher margin value-added sheet products. See "Business -- Our Strategic Plan." 44 Our strategic plan has five integral steps, and we will begin to recognize the benefits of the first three steps later in the fourth quarter of 2001: - reducing our operating costs on an annual basis through the full implementation of a cost savings program which includes a workforce reduction, reductions to our employee benefits costs and other operating cost savings, which became effective in late October 2001 (estimated to generate approximately $51 million in annual cost savings when fully implemented in 2002); - improving our liquidity and long-term supplier relationships through vendor financing programs we entered into with over 60 suppliers in late October 2001 and through ongoing negotiations with other suppliers of services and raw materials (estimated to generate at least $30 million in additional near term liquidity); - increasing our borrowing availability and liquidity through the refinancing of our bank credit and asset securitization facilities, which became effective in late October 2001 (estimated to result in $35 to 40 million in additional availability based on existing current asset levels); - restructuring our long-term debt and lowering our debt service costs through this exchange offer and the series 1989 bonds exchange offer (which, as proposed, would generate estimated net annual cash savings of approximately $32 million per year in 2002 and 2003); and - fundamental repositioning of our business to focus on tin mill and other higher margin value-added sheet products and significantly reduce our presence in the commodity flat-rolled product market. Anticipated Results for 2001. We anticipate fourth quarter 2001 revenues to be comparable to revenues in third quarter 2001. Excluding the impact of a one-time restructuring charge of approximately $80 million, we anticipate fourth quarter 2001 operating results to be comparable to those in the third quarter 2001 and to reflect the early stages of the implementation of our operating cost savings program. In the fourth quarter 2001, as a part of our strategic plan to reduce operating costs, we anticipate a one time restructuring charge of approximately $80 million. The restructuring charge is anticipated to include an increase in pension and other postretirement obligations of approximately $70 million, a $7 million increase in other long-term liabilities and a $3 million cash payout. This restructuring charge will be recorded in a separate line item. This restructuring provides for the permanent elimination of a minimum of 372 production and maintenance jobs, a minimum of 78 office, clerical and technical jobs and a reduction of 100 management positions. We estimate that fourth quarter 2001 tin shipments will increase modestly, mainly due to late harvesting of crops caused by the adverse weather conditions and that prices will be consistent with those prevailing in the third quarter. Fourth quarter 2001 sheet product shipments are expected to decline from third quarter levels. Previously anticipated sheet product price increases for the fourth quarter 2001 will not occur due to expected reduction in demand from hot rolled service centers and pipe and tube manufacturers. We also expect reduced demand for cold rolled and coated products from steel service centers. RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2000 Net loss for the first nine months of 2001 was $353.3 million, or $8.50 per diluted share, which included a non-cash charge of $153.8 million to fully reserve the deferred tax assets, a restructuring charge of $12.3 million associated with our involuntary reduction program for non-represented employees and the write-off of our remaining interests in certain joint ventures totaling $18.1 million. Excluding the effects of these items, net loss for the first nine months of 2001 was $169.1 million. Last year's first nine months resulted in net loss of $25.0 million, or $0.60 per diluted share. 45 Net sales in the first nine months of 2001 were $733.8 million, a decrease of $173.8 million or 19% from the first nine months of 2000. Total shipments in the first nine months of 2001 were 1.7 million tons, a decrease of 0.3 million tons or 13%, compared to the first nine months of 2000 shipments of 2.0 million tons. The decrease in revenue reflects the extremely adverse market conditions that have troubled the domestic steel industry since 1998 and have significantly worsened over the past 15 months. In addition to the impact of the decrease in shipment volume, our revenues were negatively impacted by lower selling prices on all products. Tin mill product prices were down approximately $8 per ton, or approximately 1%, during the first nine months of 2001 compared to 2000. Flat rolled sheet steel prices were lower by $65 to $85 per ton, or 20% to 30%, over the same period. Partially offsetting the impact of lower selling prices and volumes was a shift to a higher value-added product mix with a notable increase in tin plate shipments as a percentage of total shipments. Tin mill product net sales for the first nine months of 2001 were $351.3 million, an increase of $9.4 million from the first nine months of 2000. Shipments of tin mill products in the first nine months of 2001 were 595,000 tons compared to 572,000 tons for the same period in 2000. The increase in revenue resulted from a 4% increase in shipments which was partially offset by a modest decrease in selling prices. Sheet product net sales for the first nine months of 2001 were $382.5 million, a decrease of $183.2 million from the first nine months of 2000. Shipments of sheet product in the first nine months of 2001 were 1.1 million tons compared to 1.4 million tons in the first nine months of 2000. The decrease in revenue resulted from both a decline in shipments of approximately 21% and a substantial decline in selling prices. Costs of sales for the first nine months of 2001 were $800.1 million, or $466 per ton, compared to $818.0 million, or $414 per ton, for the first nine months of 2000. The increase in cost of sales per ton was attributable to higher energy costs, greater pension expense, and a shift to a higher value-added product mix. The decrease in shipments also contributed to the higher cost of sales per ton as we lost certain economies of scale. For the nine months ended September 30, 2001, we incurred a negative gross margin as cost of sales exceeded sales by $66.3 million. Severe weakness in the domestic steel industry has severely depressed sheet product prices to the point where our sheet product revenues are not enough to exceed the direct cost of production and indirect overhead costs. Depressed market conditions have resulted in lower shipment and production levels and the loss of certain economies of scale. Additionally, higher energy costs in the first nine months have negatively impacted our operating results. Gross margin on our tin mill products have been positive during the period, but not enough to offset the negative margins on sheet products. We will continue to compete in the sheet products market to utilize our productive assets as efficiently as possible, but as part of our strategic plan, we will make efforts to transition more of our shipments from sheet products to tin products. While we expect to realize negative margins in the fourth quarter, we expect that negative margins will be mitigated by efforts to ship a greater percentage of tin mill products. We established and implemented a workforce downsizing program, effective March 8, 2001. The downsizing program reduced non-represented staff employees by approximately 10%. After the downsizing program, our company was operating with approximately 630 non-represented employees and approximately 3,500 represented employees. The effects of the downsizing program, along with other cost reduction efforts, helped reduce selling, general and administrative costs by $5.1 million in the first nine months of 2001 when compared to the same period in 2000. As a result of the first quarter downsizing, we recorded a $12.3 million restructuring charge during the first quarter of 2001. The restructuring charge consisted of $5.4 million of pension benefits and $3.9 million of other postretirement benefits. The remaining $3.0 million was related to other separation and severance benefits provided to the affected employees. For the nine months ended September 30, 2001, we paid $0.7 million related to the restructuring charge. The resulting estimated annual savings from the program are expected to be $4.6 million. 46 During the first quarter of 2001, we recorded a $18.1 million charge to loss from unconsolidated subsidiaries writing-off our investments in MetalSite Inc. and GalvPro, L.P. During the first nine months of 2000, losses from these two unconsolidated subsidiaries accounted for a majority of the total loss from unconsolidated subsidiaries. Interest expense increased $2.1 million in the first nine months of 2001 when compared to the same period in 2000. We had $49.0 million outstanding under our revolving credit facility as of September 30, 2001. No amounts were outstanding under the remaining credit facility during the first nine months of 2000. The interest expense resulting from that borrowing is responsible for the increase in interest expense during the first nine months of 2001. Other income declined $3.7 million from the first nine months of 2000 as compared to the first nine months of 2001. The decline resulted from lower interest income on cash investments due to a lower average cash balance and the expense associated with amounts utilized under our accounts receivable securitization program. During the second quarter of 2001, we recorded a non-cash charge of $153.8 million to fully reserve our deferred tax assets (which included approximately $400 million of net operating losses). It was determined that our cumulative financial losses had reached the point that fully reserving the deferred tax assets was required. However, if we generate taxable income prior to the expiration of our net operating losses, we would be able to utilize them to help offset our tax liabilities. These net operating losses will be reduced by reason of the elimination of principal and interest pursuant to the exchanges of outstanding notes and series 1989 bonds for new senior secured discount notes and new secured series 2001 bonds (based principally on the issue price for federal income tax purposes of the new senior secured discount notes and the new secured series 2001 bonds). YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 Net loss for 2000 was $85.1 million or $2.06 per diluted share compared to net income of $30.9 million or $0.71 per diluted share in 1999. The results for 1999 include a net pretax gain of $170.1 million related to the sale of a portion of our investment in MetalSite and a non-cash pretax asset impairment charge of $22.5 million associated with the write down of a long-lived asset to fair value. Excluding the effects of these non-recurring items, profit sharing, and the resulting impact on income taxes, the net loss for 1999 would have been $76.4 million or $1.84 per diluted share. Total shipments in 2000 were 2,448 thousand tons compared to 2,514 thousand tons in 1999. Net sales were $1,117.8 million in 2000 compared to $1,130.4 million in 1999. Shipments and selling prices improved slightly in the first half of 2000, but near record levels of imports caused steep declines in shipments and selling prices in the second half of the year. Tin mill product shipments in 2000 were 736 thousand tons compared to 771 thousand tons in 1999, a decrease of 5%. Tin mill product shipments resulted in net sales of $438.2 million in 2000, a decrease of $21.8 million compared to 1999. The decrease in net sales is primarily the result of the decrease in shipment volume. Sheet product shipments in 2000 were 1,712 thousand tons compared to 1,743 thousand tons in 1999, a decrease of 2%. Sheet mill product shipments resulted in net sales of $679.6 million in 2000, an increase of $10.1 million compared to 1999. The increase in net sales is primarily attributable to an improvement in sheet product selling prices during the first half of 2000. Cost of sales per ton increased approximately $2 per ton from $428 per ton in 1999 to $430 per ton in 2000. We benefited from a two blast furnace configuration for most of 2000 and favorable raw material prices in the first half of 2000. These benefits were offset by a significant increase in natural gas costs in the fourth quarter of 2000 and lower shipment and production levels in the second half of 2000. In response to these conditions, we idled our No. 4 blast furnace in November 2000. 47 Selling, general and administrative expenses in 2000 were $41.7 million compared to $44.8 million in 1999. The decrease resulted primarily from the inclusion of MetalSite's selling, general and administrative costs during 1999, which had been consolidated. MetalSite's results were reported using the equity method of accounting during 2000. The decrease associated with MetalSite was partially offset by an increase in reserve for bad debt expense related to specific customers. Depreciation expense increased $3.1 million from 1999 to 2000. The increase is primarily attributable to increased units of production depreciation associated with restarting the No. 4 blast furnace in December 1999. The furnace had been idled for most of 1999. Loss from unconsolidated subsidiaries increased $25.1 million from 1999 to 2000. The additional loss resulted primarily from the recognition of a $15.9 million loss associated with funding requirements of GalvPro resulting from start-up expenditures and adverse market conditions and an $11.1 million equity loss recorded for MetalSite. Interest expense decreased $9.6 million in 2000 compared to 1999. Weirton repaid $84.0 million in senior notes at maturity in October 1999, resulting in lower average outstanding debt during 2000. We recorded an income tax benefit of $11.6 million in 2000 compared to an income tax provision of $8.2 million in 1999. The change resulted from the change in our net income (loss) and a reduction in the effective tax rate due to increased valuation allowance requirements based on our analysis of our ability to realize deferred tax assets. The results for 1999 include a net pretax gain of $170.1 million related to the sale of a portion of our investment in MetalSite. During 1999, Weirton recognized an asset impairment charge of $22.5 million associated with the write down of a slab sizing press to its estimated fair value. In 1999, Weirton recorded a provision for profit sharing of $15.5 million pursuant to our company wide profit sharing plan. In 2000, there was no profit sharing provision due to the net loss incurred. YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 Net income for 1999 was $30.9 million or $0.71 per diluted share compared to a net loss of $6.1 million or $0.15 per diluted share in 1998. The results for 1999 included a net pretax gain of $170.1 million related to the sale of a portion of our investment in MetalSite and a non-cash pretax asset impairment charge of $22.5 million associated with the write down of a long-lived asset to fair value. The results for 1998 included a pretax restructuring charge of $2.9 million associated with an employee reduction program. Excluding the effects of these non-recurring items, profit sharing, and the resulting impact on income taxes, the net loss for 1999 would have been $76.4 million or $1.84 per diluted share compared to a net loss for 1998 of $3.8 million or $0.09 per diluted share. Total shipments in 1999 were 2,514 thousand tons compared to 2,575 thousand tons in 1998. Net sales were $1,130.4 million in 1999 compared to $1,296.7 million in 1998. Tin mill product shipments in 1999 were 771 thousand tons compared to 804 thousand tons in 1998, a decrease of 4%. Tin mill product shipments resulted in net sales of $460.0 million in 1999, a decrease of $52.5 million compared to 1998. The decrease in net sales is primarily attributable to the decrease in tin mill product selling prices and shipments. Sheet product shipments in 1999 were 1,743 thousand tons compared to 1,771 thousand tons in 1998, a decrease of 2%. Sheet mill product shipments resulted in net sales of $669.5 million in 1999, a decrease of $114.7 million compared to 1998. The decrease in net sales is primarily attributable to a decrease in average selling prices. Overall, lower shipments and selling prices were the result of unfairly priced imports which drastically weakened domestic steel pricing beginning in the second half of 1998 and continuing throughout 1999. 48 Cost of sales per ton decreased approximately $22 per ton from $450 per ton in 1998 to $428 per ton in 1999 due to the benefit of purchasing slabs in the open market to meet incremental requirements and a reduction in employee benefit costs. Selling, general and administrative expenses in 1999 were $44.8 million compared to $39.2 million in 1998. The increase is primarily attributable to costs incurred by MetalSite during its first full year of operation. MetalSite's results of operations were consolidated through December 29, 1999. During 1998, we initiated a special voluntary retirement window for certain supervisory and managerial employees. As a result of the retirement window, Weirton recorded a restructuring charge of $2.9 million, consisting of early retirement benefits. During 1999, Weirton recognized an asset impairment charge of $22.5 million associated with the write down of a slab sizing press to fair value. In 1999, Weirton recorded a provision for profit sharing of $15.5 million pursuant to the company wide profit sharing plan. LIQUIDITY AND CAPITAL RESOURCES Total liquidity from cash and available financing facilities amounted to $41.8 million at September 30, 2001, as compared to $55.4 million at June 30, 2001, $105.4 million at March 31, 2001 and $131.7 million at December 31, 2000. Our liquidity has continued to decline primarily as a result of operating losses from prolonged adverse market conditions. During the first nine months of 2001, we utilized an additional $52.0 million under our available working capital financing facilities. As of September 30, 2001, the total amount utilized under existing working capital financing facilities was $77.0 million. The total additional amount available under the facilities was $2.8 million. As of September 30, 2001, we had cash and equivalents of $38.9 million compared to $32.0 million as of December 31, 2000. Our consolidated statements of cash flows at September 30 are summarized below:
SEPTEMBER 30, -------------------- 2001 2000 -------- --------- (IN THOUSANDS) Net cash provided (used) by operating activities............ $(32,736) $ (75,967) Net cash provided (used) by investing activities............ (9,342) (50,516) Net cash provided (used) by financing activities............ 48,981 (14,531) -------- --------- Increase (decrease) in cash................................. $ 6,903 $(141,014) ======== =========
In the first nine months of 2001, we undertook measures to improve cash flow and liquidity by substantially reducing cash outflows for investing activities and by reducing overall operating costs and net working capital investment. Despite a net loss of $353.3 million in the first nine months of 2001, which included a non-cash restructuring charge of $12.3 million, a $153.8 million non-cash provision to fully reserve deferred tax assets, and the $18.1 million non-cash write-off of our investments in GalvPro and MetalSite, net cash outflow from operations was $32.7 million. We limited our net operating cash outflow by substantially reducing working capital investment, primarily through a $77.5 million reduction in inventory. The first nine months of 2000 included payments for alternative minimum taxes, profit sharing and the repurchase of $35.0 million of funded participation interest in our accounts receivable which had been sold in October 1999. Net cash used by investing activities includes $8.5 million and $20.2 million of capital expenditures for the nine months ended September 30, 2001 and 2000, respectively. Our new senior credit facility places certain limits on our ability to make future capital expenditures to $13.8 million in 2002 and $34.5 million in 2003, subject to increase to $40.0 million in 2003 if we meet certain financial tests. 49 At September 30, 2001, our available working capital financing facilities included a revolving credit facility of up to $100.0 million secured by a first priority lien on our inventory and an accounts receivable securitization program providing for up to $95 million, including a letter of credit subfacility of up to $25.0 million. As of September 30, 2001, we had $77.0 million utilized under the revolving credit facility and accounts receivable securitization program, combined. At September 30, 2001, we had outstanding $244.0 million of publicly held senior notes under two substantially identical indentures, including $121.3 million in principal amount of our 10 3/4% Senior Notes due 2005 and $122.7 million in principal amount of our 11 3/8% Senior Notes due 2004. The notes are unsecured and contain no financial maintenance covenants. They do contain restrictive covenants that limit, among other things, our ability to incur additional indebtedness, including liens and sale and leaseback transactions, and to make certain investments such as in joint ventures. As of December 31, 2000 and September 30, 2001, our ability to incur additional indebtedness, excluding debt from the accounts receivable facility, was limited to $100.0 million. In connection with the concurrent exchange offers, we are offering to exchange our new senior secured discount notes for all of the outstanding notes and our new secured series 2001 bonds for all of the outstanding series 1989 bonds. Net deferred tax assets were $153.8 million as of December 31, 2000, which consisted primarily of the carrying value of net operating loss carryforwards and other tax credits and net deductible temporary differences available to reduce our cash requirements for the payment of future federal income tax. Weirton was required in 1999 and 2000, and may be required in future periods, to make cash payments for income taxes under federal alternative minimum tax regulations. FASB Statement No. 109, "Accounting for Income Taxes" requires that we record a valuation allowance when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Our results to date and the current outlook for the remainder of 2001 are more unfavorable than we anticipated at the beginning of the year. In the absence of specific favorable factors, application of FASB Statement No. 109, issued in 1992, and its subsequent interpretations require a 100% valuation allowance for any deferred tax asset when a company has cumulative financial accounting losses, excluding unusual items, over several years. Accordingly, we have provided a 100% valuation allowance for its deferred tax assets during the quarter ended June 30, 2001, increasing the non-cash provision for income taxes and net loss for the year by $153.8 million, or $3.70 per diluted share. We will continue to provide a 100% valuation allowance for the deferred income tax assets until it returns to an appropriate level of cumulative financial accounting income. The ultimate realization of the net deferred tax assets depends on our ability to generate sufficient taxable income in the future. We have tax planning opportunities that could generate taxable income, including sales of assets and timing of contributions to the pension fund. The exchange of outstanding notes for new senior secured discount notes and the exchange of series 1989 bonds for new secured series 2001 bonds will reduce our net operating losses by reason of the elimination of principal and interest pursuant to the exchanges. If our current plans and strategies to improve profitability for 2002 and beyond are successful, we believe that our deferred tax assets may be realized by future operating results and tax planning strategies. If we are able to generate sufficient taxable income in the future, we will reduce the valuation allowance through a reduction of income tax expense, increasing stockholders' equity. On October 26, 2001 we entered into a new $200.0 million senior secured credit facility with Fleet Capital Corporation, as agent for itself and the other lenders, Foothill Capital Corporation, as syndication agent, and The CIT Group/Business Credit, Inc. and GMAC Business Credit LLC, which serve as co-documentation agents for the facility, to refinance our existing revolving credit facility and accounts receivable securitization program. Through this new asset-based facility, we believe that we will be able to more effectively borrow against our accounts receivable and inventory and generate additional availability of approximately $35 to $40 million (at existing current asset levels). The senior credit facility, which matures on March 31, 2004, consists of up to $200.0 million of available loans secured by our accounts receivable (including related general intangibles) and inventory, including a $25.0 million letter of credit subfacility and a $25.0 million tandem mill subfacility, which in 50 addition to the collateral described above, is also secured by the real property constituting our No. 9 tin tandem mill and all equipment and fixtures located on that property. Although a portion of the senior credit facility is secured by our No. 9 tin tandem mill, we are permitted, with the reasonable consent of the lenders under the facility, to enter into a sale and leaseback or other financing involving the No. 9 tin tandem mill for amounts in excess of $30.0 million. However, if we do enter into such a financing transaction, the required reserve of $20.0 million against our borrowing base will increase to $30.0 million. We have no present intention to enter into a transaction involving our No. 9 tin tandem mill. Amounts actually available to us from time to time under the senior credit facility are based upon the level of qualifying accounts receivable and inventory subject to a minimum availability reserve. Borrowings under our senior credit facility bear interest at variable rates on the basis of either LIBOR or the prime rate announced from time to time by Fleet National Bank, at our option, plus an applicable margin. In addition to such interest, we will also pay a commitment fee equal to 0.50% per annum on unused portions of the facility. In late October 2001, we also obtained assistance from certain key vendors through our vendor financing programs to improve our near term liquidity. Under the vendor financing programs, we have negotiated arrangements with over 60 vendors in the form of purchase credits, improved pricing or other concessions to achieve one-time cash benefits of at least $30 million in the aggregate. The vendor financing programs have been structured principally through a sale and leaseback transaction of our Foster-Wheeler Steam Generating Plant, including the related real property and certain related energy generating equipment, direct advances or concessions by certain vendors, and the expected sale and leaseback of our general office building and research and development building. The sale and leaseback transaction of our Foster-Wheeler Steam Generating Plant has been accounted for as a financing or borrowing transaction. Further, in response to deteriorating market conditions and financial performance, management and the ISU have been able to negotiate new labor agreements, effective in late October 2001 and expiring no earlier than March 2004, that will significantly reduce the number of hourly employees, facilitated primarily through work rule changes. The agreement for our production and maintenance employees provides for the permanent elimination of a minimum of 372 jobs. The office, clerical and technical agreement provides for the right to eliminate a minimum of 78 jobs. We will also streamline our management structure by eliminating non-core and redundant activities resulting in a reduction of 100 management positions. We have also made significant changes to the employee benefit package resulting in more cost savings. We expect to record a fourth quarter restructuring charge of approximately $80.0 million related to the workforce reductions. In addition, as of December 31, 2000 and 1999, Weirton had pension funding credits of approximately $76.8 million and $80.8 million, respectively. Additionally, Weirton is not required to contribute to its pension plan in 2001, nor was it required to contribute to its pension plan in 2000 or 1999. Under the senior credit facility, following the consummation of the exchange offers on the terms and conditions described in this prospectus, we will be able to make scheduled semi-annual cash interest payments on the new senior secured discount notes and in respect of the new secured series 2001 bonds, provided that these cash payments are reserved for against availability under the facility. The reserve will reduce amounts available to us under the senior credit facility up to a maximum of approximately $6 million in any six month period, assuming valid tenders of all of the aggregate principal amount of the outstanding notes and series 1989 bonds. In the event that less than all of the aggregate principal amount of the outstanding notes and series 1989 bonds are tendered in the exchange offers, we are permitted to make cash interest payments on any remaining outstanding notes and series 1989 bonds of up to $4 million in any year subject to similar reservation against availability under the facility. If we do not successfully complete the exchange offers, under our voluntary financing restructuring plan presented to our senior bank lenders and as reflected in our senior credit facility, we will not make scheduled cash interest payments for a period of at least one year on any outstanding notes and series 1989 bonds. Thereafter, any interest payments will be made, provided that these payments are included in the 51 reserve under the senior credit facility described above. Failure to pay interest would result in an event of default and may cause an acceleration of the outstanding notes and series 1989 bonds, unless the payment defaults were cured. In addition, an acceleration of the principal of our outstanding notes and series 1989 bonds would constitute a default under our senior credit facility. In such circumstances, we may have to seek bankruptcy protection or commence liquidation proceedings. Subject to the consummation of the exchange offers on satisfactory terms, based on the amount of cash on hand, the amount of cash expected to be generated from operating activities, cash savings resulting from our operating cost savings program and our vendor financing programs, additional borrowing availability under our new senior credit facility and liquidity improvement as a result of the consummation of the concurrent exchange offers, our management believes that we will have sufficient cash to meet our operating cash needs over the next twelve to eighteen months. There can be no assurance, however, that the exchange offers will be consummated on satisfactory terms, or that we will have sufficient cash to meet our operating needs. In addition, financing of strategic acquisitions is expected to require the issuance of additional debt and equity securities or other consideration, subject to the restrictions in the senior credit facility and the indenture governing the new senior secured discount notes. We can make no assurance that additional financing or other sources of funds sufficient to fund acquisitions will be available to us. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The fair values of cash and cash equivalents, receivables and accounts payable approximated carrying values and were relatively insensitive to changes in interest rates at September 30, 2001 due to the short term maturity of these instruments. Our market risk strategy has generally been to obtain competitive prices for our products and services and allow operating results to reflect market price movements dictated by supply and demand for our products. We have a contract with USX Corporation to purchase blast furnace coke for a term that extends through December 31, 2001. We are currently negotiating an extension on revised terms, and we are also having discussions with other domestic producers. Under the contract, we must give notice each year of our required coke volumes for the following year, and we have the option to purchase up to 100% of our coke requirements for each year, subject to a minimum of either 80% of requirements or a fixed tonnage. If Weirton does not commit to take the tonnage above minimum requirements for any year, USX has the option of determining whether it will supply future tonnage above the minimum, until such time as it actually does so, after which Weirton again has the option to take its full requirements. Coke prices under the contract are based on the prevailing market, subject to a ceiling and floor over the life of the contract, with a limit on annual change. Scrap, tin, zinc and other raw materials are generally purchased in the open market and are subject to price fluctuation. As of September 30, 2001, we had no significant derivative financial instruments or derivative commodity instruments outstanding. We had the following financial liabilities (where fair value differed from carrying value) as of September 30, 2001 and October 26, 2001:
FAIR VALUE CARRYING ------------------------------------- VALUE SEPTEMBER 30, 2001 OCTOBER 26, 2001 -------- ------------------ ---------------- (DOLLARS IN MILLIONS) Long term debt obligations -- outstanding notes and series 1989 bonds................ 299.5 62.7 33.5 Long term debt obligations -- bank........... 49.0 49.0 49.0 Series A redeemable preferred stock.......... 20.8 0.7 0.7
52 IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In September 2000, SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities -- a replacement of FASB Statement No. 125" was issued. SFAS No. 140 revises criteria for accounting for asset securitization, other financial-assets transfers, and collateral and introduces new disclosures, but otherwise carries forward most of SFAS No. 125's provisions without amendment. SFAS No. 140 has an immediate impact through new disclosure requirements and amendments of the collateral provisions of SFAS No. 125. These changes must be applied for transactions occurring after March 31, 2001, except for certain required disclosures which must be applied for fiscal years ending after December 15, 2000. The required disclosures are included in Note 6 of the December 31, 2000 consolidated financial statements. In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, "Business Combinations," SFAS No. 142, "Goodwill and Other Intangible Assets," and SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. We do not believe that the prospective adoption of this standard will have a material impact on our consolidated results for the year ended December 31, 2001. SFAS No. 142 changes the accounting for goodwill and certain other intangible assets from an amortization method to an impairment only approach. The Company will adopt SFAS No. 142 effective January 1, 2002. At June 30, 2001, the Company had no goodwill or non-goodwill intangible assets recorded on its books. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset. We are required to adopt this standard on January 1, 2003 and are preparing a plan for implementation. In August 2001, the Financial Accounting Standards Board issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. We are required to adopt this standard in fiscal years ending after December 15, 2001 and are preparing a plan for implementation. 53 STEEL INDUSTRY OVERVIEW CURRENT STATE OF THE UNITED STATES STEEL INDUSTRY Overview. The United States steel industry is in a state of crisis characterized by record operating losses, more than two dozen bankruptcies, and the permanent closure of a significant amount of productive capacity, particularly in the last 15 months. The domestic steel industry is cyclical and highly competitive and is affected by excess world capacity that has limited price increases during periods of economic growth and led to greater price competition during periods of slowing demand and/or increasing supply. Factors contributing to this competitive environment and challenging industry conditions include: - current slowing economic conditions further exacerbated by the September 11, 2001 terrorist attacks on the United States; - a dramatic amount of imported steel resulting in depressed prices and record operating losses at most United States steel manufacturers. Steel imports into the United States totaled 41.5 million net tons in 1998, 35.7 million net tons in 1999 and 37.9 million net tons in 2000. By comparison, 1994 and 1995 imports totaled 30.1 and 24.4 million net tons, respectively; - price pressures and inefficiencies arising out of the fragmented structure of the United States steel industry, particularly the large number of producers competing in the market for flat-rolled sheet steel; - widespread operating efficiency improvements in mills throughout the world, which have added 1% to 2% annual increases in capacity; and - an increase in global supply through a combination of large increases in output at formerly state-owned companies now under the control of more aggressive managers and owners, the collapse of domestic markets in the former Soviet Union without a corresponding reduction in output levels, and greenfield projects in Asia which incorrectly anticipated continued rapid regional market growth rates. Recently, domestic steel prices have declined significantly to 20 year lows. Since the first half of 1998, flat-rolled sheet steel prices have declined almost 30%. At these low price levels, imports have declined in recent months to 14.4 million tons for the first half of 2001. However, the slowing economy in the United States has reduced domestic demand, especially in the automotive sector, exacerbating the supply and demand imbalance in the domestic marketplace. As a result of depressed prices driven by a decrease in demand for flat-rolled sheet steel, most integrated steel producers are posting significant losses. The following graph illustrates some of the results of these events and trends, including their effects on domestic steel industry capacity utilization and resulting recent steel producer bankruptcies: 54 [MAJOR STEEL BANKRUPTCIES CHART]
YEAR WEIRTON HR BAND CAPACITY UTILIZATION ---- --------------- -------------------- 1998 $311 90 1999 277 77.2 2000 289 88.6 2001 232 75.5
A decrease in global output would contribute to the improvement of our industry. Recently, several European and Japanese mills, including Corus, Usinor, and Nippon Steel have announced production cutbacks, which have, in part, caused prices and volumes to stabilize at current levels. In addition, a number of North American steel manufacturers have shut down all or a portion of their production capacity, including Acme Steel, Gulf States, Trico and the announced shutdown of LTV's Cleveland West facility, accounting for over 5.0 million net tons of raw steel capacity. Other steel producers that may shut all or part of their facilities include the balance of LTV, Wheeling-Pittsburgh Steel, Bethlehem Steel, and Algoma Steel, all of which would reduce capacity. Competition. Domestic producers face increasing competition from foreign steelmakers over a wide range of products. Competition in the industry is influenced increasingly by global trade patterns and currency fluctuations. As a percentage of domestic supply, steel imports excluding semi-finished products (primarily slabs) have surged to historical highs, amounting to approximately 26%, 21%, and 22% in 1998, 1999, and 2000, respectively. Imports of hot rolled and cold rolled products increased 44% from 1997 to 1998, but declined significantly in 1999 as a result of fair trade enforcement actions. Imports of hot rolled and cold rolled products increased 5% from 1999 to 2000. Although as of June 30, 2001, tin mill product imports in tons as compared to 2000 decreased approximately 6% due to government tariffs against Japanese tin mill product imports, imports of tin mill products have otherwise risen substantially in the past three years, amounting to approximately 16%, 20%, and 18% of domestic consumption in 1998, 1999, and 2000, respectively. Integrated steel makers also face strong competition from mini-mills, which are efficient, low-cost producers that generally produce steel by melting scrap in electric arc furnaces, utilize new technologies, 55 have lower employment costs and target regional markets. Mini-mills historically have produced lower margin commodity grade long products, such as bars, rods and wire and other commodity-type steel products not produced by us. However, thin slab technology has allowed mini-mills to enter sheet markets traditionally supplied by integrated producers, including hot rolled, cold rolled and galvanized marketplace. Mini-mills generally continue to have a cost advantage over integrated steel producers, particularly for labor and especially during periods of weak demand when scrap prices are low. Although most new capacity in the domestic industry has resulted from growth in mini-mill operations, there has also been a significant increase in both cold rolling and galvanizing capacity at independent processors. Our primary competitors in sheet products consist of most domestic and international integrated steel producers and mini-mills. Domestic tin mill products competitors include USX, USS-POSCO Industries Corporation, Bethlehem Steel, National Steel and Ohio Coatings (owned 50% by Wheeling-Pittsburgh Steel). However, imports have increasingly penetrated this market. Within the past twelve months, a number of the Weirton's competitors, including three integrated steel producers, LTV Corporation, Bethlehem Steel and Wheeling-Pittsburgh Steel, have sought protection in bankruptcy, and LTV's tin business was acquired by USX. Government Intervention. Competition with foreign steel producers has been marked by unfairly priced, or "dumped," products and subsidization. Dumping, which involves selling a product below cost or for less than in a home market, is a violation of United States trade laws. Given the strategic role of the steel industry in many countries, some foreign steelmakers are aligned with government interests and thereby influenced by political and economic policy considerations, as well as prevailing market conditions. As a result, these producers may maintain production capabilities at the expense of returns generally considered acceptable for the domestic industry to operate profitably and, when their home market demand is low, seek to gain market share in the United States with deeply discounted pricing. Since the steel import crisis began in 1998, United States steel companies have lobbied to stop unfair steel trade. One of the more significant accomplishments in 2000 was a decision by the federal government to assess duties for five years against imports of Japanese tin mill products. Many industry observers believe that the severity of the current crisis in the United States will lead to a necessary restructuring of the steel industry. In June 2001, the Bush Administration initiated an investigation by the ITC regarding the illegal dumping of steel from foreign competitors under section 201 of the Trade Practices Act of 1974. On October 22, 2001, the International Trade Commission found that twelve steel product lines representing 74% of the imports under investigation, have sustained serious injury because of foreign imports. These product lines include hot rolled, cold rolled, and galvanized sheet and coils and domestic tin mill products. The section 201 investigation now enters a remedy phase that will include the extent to which trade restrictions should be imposed on the twelve product categories singled out by the ITC as having caused or threatened serious injury. The Commission must release its recommendations by December 19, 2001. The remedies could include tariffs, quotas, or orderly marketing agreements. President Bush then has 60 days to adopt the recommendations, craft his own, or take no action. RESHAPING THE UNITED STATES STEEL INDUSTRY Weirton's management shares the view of many industry analysts and other steel industry executives that the current industry is experiencing the bottom of the cycle and that both overall economic and steel market conditions should begin to recover in mid 2002. Several events indicate that this crisis may have begun to fundamentally transform the industry, including: - The closure of certain assets (e.g.: Acme Steel, Gulf States, CSC, Geneva, Northwestern and Trico); - The anticipated shutdown of LTV's steel operations; - Recent integrated mill consolidation (e.g.: USS/LTV Tin, AK Steel/Armco and Bethlehem Steel/Lukens); 56 - The Bush Administration's decision to pursue a section 201 trade investigation and the ITC's recent finding of serious injury to twelve steel product lines produced by domestic steelmakers; and - The near consensus among management, financing sources and labor unions for industry consolidation. Prior to the events of September 11, 2001, industry analysts had expected a recovery of steel prices as early as fourth quarter 2001. Now the near term outlook is uncertain. Future price increases are predicated on easing supply because of production cuts in the United States and a decline in imports owing to the results of trade cases filed by steel producers and the impact of the ITC's section 201 remedy recommendations. We believe that surviving companies in the United States steel industry will be characterized by: - Stronger market focus and a greater ability to influence the market as a result of overall and segment-specific consolidation as a result of: - A higher proportion of more stable, long term customer contracts as opposed to spot sales; and - Resources deployed to promote market growth and collaborative customer relationships instead of seeking market share at the expense of gross margins. - Lower and more flexible cost structures, resulting in better earnings resiliency through the cycle due to: - A shift toward more buy versus make for major inputs and semi-finished products; - Increased use of business process outsourcing, including use of shared outsourcing models; and - Restructured labor contracts. - Much leaner balance sheets as a result of: - The strategic acquisition of assets at attractive prices which may be available in the current crisis environment; - Improved supply chain tools and processes resulting in reductions in inventories and cycle times; and - Debt restructuring. We have developed our strategic plan based on our evaluation of the United States steel industry's condition and prospects and our own competitive position within the industry. See "Business -- Strategic Plan" and "Business -- Our Competitive Advantages." 57 BUSINESS GENERAL We are a major integrated producer of flat-rolled carbon steel, with principal product lines consisting of tin mill products and sheet products. Tin mill products include tin plate, chrome coated and black plate steels and are consumed principally by the container and packaging industry for food cans, general line cans and closure applications, such as caps and lids. Tin mill products accounted for 48% of our revenues and 35% of tons shipped in the first nine months of 2001 compared to 39% of revenue and 30% of tons shipped in 2000 and 41% of revenue and 31% of tons shipped in 1999. Sheet products include hot and cold rolled and both hot-dipped and electrolytic galvanized steel and are used in numerous end-use applications, including among others the construction, appliance and automotive industries. Sheet products accounted for 52% of our revenues and 65% of tons shipped in the first nine months of 2001 compared to 61% of revenue and 70% of tons shipped in 2000 and 59% of revenue and 69% of tons shipped in 1999. In addition, we currently are providing tolling services at our hot strip mill for a major stainless steel producer, which accounts for almost 20% of the overall capacity of our hot strip mill. We are a Delaware corporation formed in 1982 with our offices and production facilities located in Weirton, West Virginia. We and our predecessor companies have been in the business of making and finishing steel products for over 90 years. From 1929 to 1984, we operated our business as the Weirton Steel Division of National Steel Corporation, and we acquired our principal operating assets from National Steel through a 1984 ESOP leveraged transaction. As an integrated steel producer, we produce carbon steel slabs in our primary steel making operations from raw materials to industry and customer specifications. In primary steel making, iron ore pellets, iron ore, coke, limestone and other raw materials are consumed in blast furnaces to produce molten iron or "hot metal." We then convert the hot metal into liquid steel through basic oxygen furnaces where impurities are removed, recyclable scrap is added and metallurgical tests are performed to assure conformity to customer specifications. Our basic oxygen process, or "BOP," shop is one of the largest in North America, employing two vessels, each with a steel making capacity of 360 tons per heat. Liquid steel from the BOP shop is then formed into slabs through our multi-strand continuous caster. The slabs are then reheated, reduced and finished into coils at our recently re-built hot strip mill and, in many cases, further cold reduced, plated or coated at our downstream finishing operations. Our hot strip mill is one of the best in North America for the production of tin mill products substrate and one of the few in the industry that is capable of rolling both carbon and stainless steel substrate. See "-- Properties." 58 The following flow chart illustrates both our primary steel making and downstream operations: [PROCESS FLOW GRAPHIC] From primary steel making through finishing operations, our assets are focused on the production of tin plate, which is typically light gauge, narrow width strip. We believe that our rolling and finishing equipment is near "best in class" in the production of light gauge strip used in the manufacture of tin mill products and other value-added products. Although, as a result of its 48" strip width limitation, Weirton is not a full line supplier of sheet products to certain markets such as automotive and appliance, our narrower strip capacity allows us to produce light gauge products more efficiently than larger integrated producers with rolling mills up to 80" in width. Consumers of light gauge, narrow width sheet products recognize our commitment to these products and our reliability of supply, which enhances the stability of our customer base. In addition, our wide range of coatings, including galvanized, galvanneal, electro, and galfan, is designed to meet the needs of our demanding and diverse customer base. The characteristics of the tin mill product and sheet product markets, when coupled with the comparative advantages of Weirton's steel making facilities, are the drivers behind our strategic plan, which is to continue to expand our more competitive tin mill business through strategic acquisitions and organic growth, as well as to further penetrate niche markets in narrow width zinc coated applications that take advantage of our recent galvanizing upgrades and multiple coatings capability. See "-- Our Competitive Advantages" and "-- Our Strategic Plan." OUR COMPETITIVE ADVANTAGES In pursuing our strategic objectives, we believe that we have a number of competitive advantages, including: - MARKET LEADER. We are the second largest United States producer of tin mill products, with a 25% market share of domestic shipments, and we enjoy strategic partnerships with many of our largest tin mill products customers. Over one-third of our shipments go to customers that have located facilities either directly on or contiguous to our property in order to maximize the benefits of these strategic relationships. We also enjoy a leadership position in the production of other light gauge coated products for use in the residential construction market. - MARKET INNOVATOR. We have a long history through our Weirtec unit of technological innovation in the manufacture of tin mill products. For example, we have developed innovations in can 59 manufacturing processes which have benefited our customers in the can manufacturing industry and which we believe have promoted the continued use of our tin mill products by customers in that industry. We also use our expertise in handling critical specifications to market our light gauge, narrow width products to potential coated sheet steel customers. - STABILITY OF THE TIN MILL PRODUCT MARKET. Demand for tin mill products is generally stable over the typical business cycle as compared to the markets for steel products used in the construction, appliance and automotive industries due to a more stable end market for canned food, aerosol and other consumer products. All of our tin mill product shipments are sold under contracts that extend a minimum of one year and are, therefore, less subject to price volatility than spot market sales. The number of domestic producers of tin mill products is relatively limited, and there are significant barriers to entry by new competitors. - HIGH QUALITY AND COMPETITIVE FACILITIES. We have a fully integrated steel manufacturing facility, including a number of rebuilt or modernized high quality finishing facilities, most of which have a maximum 48" strip width capacity. We believe that our state-of-the-art facilities are best configured for the production of narrow width value-added products, uniquely positioning us as a competitive producer of high quality tin mill products and other higher margin value-added sheet products, particularly as compared to other United States integrated steel producers with facilities more closely tailored to the production of broader width sheet steel. Over the past 15 years, we have invested approximately $1 billion in modernizing and upgrading our equipment, as a result of which we expect that only modest capital expenditures will be required through 2003. Of that $1 billion, approximately $500 million was expended on improvements to our continuous caster, hot strip mill and No. 9 tin tandem mill. We believe that this has enabled us to continue to produce superior quality steel substrate and, consequently, to maintain the high quality of our tin mill and other value-added products. Our recently-rebuilt hot strip mill is one of the few in the industry that is capable of rolling both carbon and stainless steel substrate. Our No. 9 tin tandem mill is one of the most modern in the United States and supplies nearly one million tons per year of substrate to our four tin platers which are rated, on average, the most productive in the domestic industry, as compared to other full-range tin mill product suppliers. Also, the recent addition of temper mills and tension leveling equipment to both our No. 3 and No. 5 galvanizing lines has significantly improved strip surface and flatness, allowing production of substrate suitable for pre-paint and other critical applications. - DIVERSIFIED ASSET, PRODUCT AND CUSTOMER BASE. We have a diversified asset base, including primary steel making facilities and downstream finishing operations. Our product diversification is best among our competitors serving the markets for tin mill and other coated products. Our customer base includes food and general line can manufacturers, oil filter manufacturers, residential entry and garage door manufacturers, residential framing manufacturers, appliance manufacturers, automotive stampers and various other customers. - LONG-STANDING COOPERATIVE RELATIONSHIP WITH THE ISU. We have had a cooperative relationship with the Independent Steelworkers' Union, which represents only employees of Weirton and no other steel producers. The ISU represents the substantial majority of our unionized workforce. Weirton and its predecessors have not experienced a work stoppage due to striking union members in over 45 years. In response to deteriorating market conditions and financial performance, management and the ISU have been able to negotiate new labor agreements, expiring no earlier than March 2004, that will significantly reduce the number of hourly employees, facilitated primarily through work rule changes. - POSITIONED TO BENEFIT FROM AN IMPROVEMENT IN AND RESTRUCTURING OF THE UNITED STATES STEEL INDUSTRY. The United States steel industry has been characterized by record losses, more than two dozen bankruptcies and the permanent closure of a significant amount of productive capacity, particularly in the past 15 months. We believe that, in this distressed climate, the United States industry is poised for further restructuring. The implementation of the first steps of our strategic 60 plan, including the completion of the concurrent exchange offers, will enable us to fundamentally reposition our business, principally through strategic acquisitions and targeted investments in the tin mill and coated products markets. As a result, we believe that we will be better positioned to benefit from a general improvement in steel pricing. For example, we estimate that every $10 per ton increase in domestic flat rolled steel prices will generate an additional $18 million in EBITDA, based on our sales and product mix in 2001. OUR STRATEGIC PLAN We seek to strengthen our position as a leading domestic full range producer of higher margin tin mill products by further shifting our product mix toward higher margin value-added products and away from lower margin, commodity flat-rolled sheet products. Our strategy to meet this objective is to capitalize on our extensive market presence and strong competitive position as the second largest domestic producer of tin mill products and to leverage our existing strengths. These strengths include our superior product quality and range of product offerings, our strategic partnerships with large existing customers, and the design and configuration of our principal steel making facilities which are best suited to the production of narrow width tin mill and coated products. We are also pursuing niche market opportunities for higher margin value-added sheet products. In general, commodity sheet products are produced and sold in high volume in standard dimensions and specifications, while our tin mill and other value-added products require further processing, generally command higher profit margins and typically are less affected by imports and domestic competition. The market for tin mill products generally remains stable over the typical business cycle as compared to more volatile markets for sheet steel products. Domestic supply of tin mill products has been limited by the relatively small number of domestic producers, recent facility rationalizations, and the anti-dumping determination made by the ITC in August 2000. In addition, all of our tin mill products sales are based upon contracts of one year or more and are, therefore, less subject to price volatility than spot market sales. In response to severe weaknesses in the domestic steel industry and our worsening financial condition, we have developed a strategic plan to reduce operating costs, improve our liquidity and working capital position, restructure our long-term debt and fundamentally reposition our business to focus on the production and sale of tin mill products and other higher margin value-added sheet products. Our strategic plan has five integral steps, and we will begin to recognize the benefits of the first three steps later in fourth quarter of 2001: REDUCING OPERATING COSTS. To remain competitive, we must continually improve productivity and reduce our operating costs. In part as a result of our recently negotiated labor contracts, we expect to achieve significantly lower and more flexible cost structures. The recent renegotiation of our collective bargaining agreements allows a reduction in our workforce by 450 persons facilitated through significant changes to work rules and job classifications, which we believe will allow us to both reduce labor costs and function more efficiently. We also agreed to streamline our management structure by eliminating non-core and redundant activities resulting in a reduction of over 100 management positions. We have also reduced our employee benefit costs and have made other operating changes resulting in additional cost savings. The aggregate annual cost savings from these reductions and changes are approximately $51 million when fully implemented in 2002. See "Business -- Employees." We believe that the acquisition of strategic assets, particularly those related to the manufacture of tin mill products, should also allow us to generate higher operating margins through greater efficiencies in our operations, lower costs of production and an improved product mix. 61 IMPROVING OUR LIQUIDITY AND LONG-TERM SUPPLIER RELATIONSHIPS. Under our vendor financing programs, we have negotiated arrangements with over 60 of our key vendors in the form of purchase credits, improved pricing or other concessions to improve our liquidity by at least $30 million in the aggregate. The vendor financing programs have been structured principally through a sale and leaseback transaction of our Foster-Wheeler Steam Generating Plant, including the related real property and certain related energy generating equipment, direct advances or concessions by certain vendors, and the expected sale and leaseback of our general office building and research and development building. We are also seeking to renegotiate our long term supply of other services and raw materials, such as coke. See "Description of Other Indebtedness and Financing Arrangements." INCREASING OUR BORROWING AVAILABILITY AND LIQUIDITY. On October 26, 2001, we entered into a refinancing of our working capital facilities, which consisted of an accounts receivable securitization program and a revolving credit facility secured by inventory, through a single asset-based senior credit facility. Through this new senior credit facility, we believe that we will be able to more effectively borrow against our current assets and generate additional availability of approximately $35 to $40 million (at existing current asset levels) to provide us with greater liquidity for our working capital requirements and general corporate purposes. See "Description of Other Indebtedness and Financing Arrangements." RESTRUCTURING OUR LONG-TERM DEBT. Through the concurrent exchange offers, we seek to lower our debt service costs, particularly during 2002 and 2003, and to extend debt maturities on the 11 3/8% Senior Notes due 2004 and the 10 3/4% Senior Notes due 2005 in order to improve our liquidity, provide financial stability and permit the strategic repositioning of our business. The exchange offers, if consummated on the terms proposed, would generate net annual cash savings in 2002 and 2003 of approximately $32 million per year. If we are unable to reduce our current debt obligations and extend debt maturities, we may be unable to attract the necessary outside debt or equity financing needed to implement our strategic plan. The consummation of the exchange offers is critical to the success of our strategic plan. FUNDAMENTAL REPOSITIONING OF OUR BUSINESS. In order to fundamentally reposition our business, we will seek to invest in and acquire strategic assets, including tin-related assets, expand our production of higher margin value-added coated and sheet products such as polymer film coated products, and optimize the use of our hot strip mill, which is able to roll both carbon and stainless steel slabs. Pursue Strategic Acquisitions. In order to strengthen our position as a leading domestic producer of a full range of higher margin tin mill products, we intend to pursue the acquisition of strategic assets, including tin-related assets, from other United States steel producers that are also seeking to reposition their businesses and leverage their core competitive strengths. Under current distressed industry conditions, we believe that we may have opportunities to purchase tin mill assets on acceptable terms in the near term. Potential acquisitions will be evaluated based on a variety of financial, strategic and operational criteria, including their ability to better serve our existing customers and attract new customers, add new product capabilities and meet well-defined financial criteria, including return on investment and enhancement of our operating cash flow. However, our ability to make acquisitions will be subject to obtaining the consent of our lenders under the senior credit facility and to our compliance with the provisions of the senior credit facility and the restrictive covenants in the indenture governing the new senior secured discount notes. We expect that acquisitions consistent with our strategic plan will be financed out of a combination of available internally generated funds, permitted working capital borrowings under our senior credit facility, outside debt or equity financing, and consideration acceptable to the seller. 62 Invest in Niche Markets. We intend to expand our existing pilot production of polymer film coated products into full commercial production in 2002. The polymer film process eliminates the need to lacquer tin product prior to use in food and beverage canning operations, is less expensive than the traditional lacquering process and offers significant environmental benefits. Commercialization of this line will further enhance our leadership position in the food and general line can market. Future benefits of this line could also include expanded zinc coated applications for construction and appliance end uses. We also will seek to optimize our existing multiple zinc coating capabilities, such as galvanized, electrogalvanized, galvanneal and galfan, through targeted investments. Optimize Utilization of Our Hot Strip Mill. Our hot strip mill is one of the few mills in the United States steel industry which is capable of rolling both carbon and stainless substrate. We have recently taken advantage of this capability by entering into a long-term tolling agreement with J&L Specialty Steel, a domestic stainless steel producer which is owned by a major foreign steel producer, to convert stainless slabs into stainless coils, which accounts for almost 20% of our hot strip mill's overall capacity. This tolling agreement provides higher, more stable profit margins than potential carbon slab conversion opportunities. The facility load from our existing tin and stainless conversion business now accounts for over 50% of the hot strip mill's overall capacity. The balance of the hot strip mill capacity supports our galvanizing operations and our hot and cold rolled commodity street production. Under our strategic plan, we anticipate that our hot strip mill will be further utilized through additional stainless conversion and increasing the proportion of our carbon steel rollings used in our downstream finishing operations in the production of tin mill and other higher margin value-added products. PRINCIPAL PRODUCTS AND MARKETS We have two principal products lines consisting of tin mill products and sheet steel products. Recently, we have also entered into a long-term tolling agreement with a major stainless steel producer to convert stainless slabs into stainless coils at our hot strip mill. The percentages of our total revenues (excluding conversion revenues, which are not material to total revenue and have historically been reported as a reduction of cost of sales) derived from the sale of sheet products and tin mill products for each year in the five-year period ended December 31, 2000 are shown on the following table. Total revenues include the sale of "secondary" products, which principally include those products not meeting prime specifications.
NINE MONTHS ENDED SEPTEMBER 30, 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ------------- Sheet products...................... 59% 62% 60% 59% 61% 52% Tin mill products................... 41 38 40 41 39 48 --- --- --- --- --- --- TOTAL..................... 100% 100% 100% 100% 100% 100% === === === === === ===
As illustrated by the following table, our shipments have historically been concentrated within seven major markets: steel service centers, containers, pipe and tube manufacturers, construction, converters, electrical equipment, and automotive. Our overall participation in the container market substantially exceeds the industry average, and our reliance on automotive shipments is substantially less than the industry average. 63 PERCENT OF TOTAL TONS SHIPPED
NINE MONTHS ENDED SEPTEMBER 30, MARKETS 1996 1997 1998 1999 2000 2001 ------- ---- ---- ---- ---- ---- ------------- Service centers..................... 37% 29% 30% 34% 36% 34% Containers/packaging................ 28 28 28 27 25 28 Pipe and tube....................... 16 15 13 11 11 12 Construction........................ 8 9 9 7 8 10 Converters.......................... 3 10 13 12 12 9 Electrical equipment................ 2 2 1 1 1 2 Automotive.......................... 1 2 1 1 1 1 All other........................... 5 5 5 7 6 4 --- --- --- --- --- --- 100% 100% 100% 100% 100% 100% === === === === === ===
Service Centers. Our shipments to steel service centers are heavily concentrated in the areas of hot rolled and hot dipped galvanized coils. Due to the 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 steel products to ultimate end users. In addition, steel service centers have become an efficient provider of first stage manufacturing. Many manufacturers focusing on core competencies have outsourced basic forming and stamping operations. Containers/Packaging. The vast majority of our shipments to the container market are concentrated in tin mill products, which are utilized extensively in the manufacture of food, aerosol and general line cans. Shipments in the container industry are directly to the can manufacturers who provide engineered cans for soup, vegetables, pet food, seafood, paint and other packaging requirements. Pipe and Tube. Shipments to the pipe and tube sector consist primarily of hot rolled coils for manufacture into welded pipe and tube. These products are used for automotive applications, structural components for commercial and residential construction and consumer products such as appliances and furniture. Construction. Our shipments to the construction industry are significantly influenced by residential and commercial construction in the United States We serve several segments of the construction industry including HVAC, residential and commercial garage and entry doors, roofing panels and structural components. Shipments in this sector consist primarily of electro- and hot dipped galvanized coils. Converters. This sector consumes full hard cold rolled substrate for conversion to hot dipped galvanized. Over the last decade, numerous independent galvanized lines were started to service growth in coated steel demand. 64 The following chart shows the significant changes in our product mix towards tin mill products based on tons shipped in 2000 and in the first nine months of 2001.
TONS SHIPPED % OF 2001 AS OF SALES AS OF TONS SHIPPED % OF 2000 SEPTEMBER SEPTEMBER PRODUCTS IN 2000 SALES 30, 2001 30, 2001 CHARACTERISTIC END-USE CUSTOMERS -------- ------------ --------- ------------ ----------- -------------- ----------------- TIN MILL 736,000 39% 595,000 48% Light gauge Food can manufacturing, general PRODUCTS Tin/chrome container packaging and other (FULL RANGE)(1) coated specialty metal fabricators ---------------------------------------------------------------------------------------------------------------------------- SHEET PRODUCTS Hot rolled(1) 704,000 19% 470,000 15% Unfinished/semi- Construction, steel service finished surface centers, pipe and tube manufacturers and converters ---------------------------------------------------------------------------------------------------------------------------- Cold rolled 393,000 15% 162,000 8% Finished surface Construction, steel service centers, commercial equipment and container market ---------------------------------------------------------------------------------------------------------------------------- Galvanized 615,000 27% 491,000 29% Anti-corrosive Electrical, construction, coatings automotive, container, appliance and steel service center ---------------------------------------------------------------------------------------------------------------------------- Total Sheet 1,712,000 61% 1,123,000 52% Products
-------------------------------------------------------------------------------- (1) Includes secondary products. Our products are sold primarily to customers within the eastern half of the United States. A substantial portion of our revenues are derived from long-time customers, although we actively seek new customers and new markets for our products. Over the past five years, our largest 10 customers (including steel service centers and strip converters) accounted for 50% of our sales in each year. Most of our service center and converter business eventually serves the construction market (doors and roof panels), furniture and appliance markets and some automotive markets. One customer accounted for 11% of sales in 1998 and 10% in 1999. Our backlog of unfilled orders at September 30, 2001, was 394,000 net tons, most of which we expect to be filled within the year, as compared to 420,000 net tons at September 30, 2000. In addition to utilizing manufacturing service centers for sales, we sell our products through our direct mill sales force of approximately 90 persons. Our products are primarily sold through salaried employees who operate from corporate headquarters and nine regional locations. The sales organization is closely linked with our technical service personnel who assist in product engineering and development. We believe that our sales organization plays an important role in identifying and achieving a more favorable strategic market mix for Weirton. To supplement our traditional sales force, since October 1996, we have sold products over the Internet. TIN MILL PRODUCTS Tin mill products represent a growing share of our total sales. In 1999, tin mill products represented 41% of total sales as compared to 39% in 2000 and 48% in the first nine months of 2001. Increases in sales of value-added tin mill products as a result of continued investment and strategic acquisitions represents an opportunity for growth in our business. During the first half of 2001 (the most recent available data), our market share increased to approximately 25% from 21%, largely as a result of the imposition of anti- dumping duties on Japanese producers in August 2000 and former customers of LTV contracting with us in order to maintain a reliable source of supply. We believe that our increase in market share is sustainable and that our excess production capacity can meet additional customer demand. We enjoy a reputation as a high quality producer of tin metal products. Our tin mill products comprise a full range of light gauge coated steels, including black plate, tin coated steel and electrolytic chromium coated steel. The tin mill products market is primarily directed at 65 food and general line cans, and the demand for tin mill products in the United States is approximately 3.8 million tons per year. Annual domestic production capacity is approximately 4.0 million tons, and has declined recently as both LTV and United States Steel have shut down a portion of their tin plating capacity in 2001. We are not aware of any planned or anticipated new capacity. The number of domestic producers of tin mill products is relatively limited. Significant capital requirements and product qualifications established by customers represent barriers to entry by new producers. Worldwide, almost all tin plate is produced using the basic oxygen furnace process due to critical metallurgical constraints. The following table provides information concerning our shipment of tin mill products relative to the domestic industry for the periods shown, including the six months ended June 30, 2001, reflecting the latest available market share data.
TIN MILL PRODUCT SHIPMENTS 1996 1997 1998 1999 2000 JUNE 30, 2001 -------------------------- ---- ---- ---- ---- ---- ------------- (IN MILLIONS OF TONS) Tin mill product industry shipments(1).......................... 4.1 4.1 3.7 3.8 3.7 1.6 Weirton shipments(1).................... 0.9 0.9 0.8 0.8 0.7 0.4 Weirton market share.................... 22% 21% 22% 20% 21% 25%
--------------- (1) Includes secondary products. The majority of our tin mill product sales have been to can manufacturing and packaging companies, most of which establish in advance by contract a substantial amount of their annual requirements. The balance of our tin mill product sales are to manufacturers of caps and closures and specialty products ranging from film cartridges, oil filters and battery jackets to cookie sheets and ceiling grids. Our facilities are located near many of our major customers, with over one-third of our output delivered to customers whose facilities are on or contiguous to our property in Weirton, West Virginia. Representative customers of our tin mill products include: Crown Cork & Seal; Ball Corp.; United States Can; B-Way Corp.; Impress USA Inc.; Seneca Foods; Steel Technologies; Sonoco Products; and Friskies Petcare Co. Demand for tin mill products generally remains stable over the typical business cycle due to the nature of the can manufacturing industry as compared to the more volatile markets for steel products used in the automotive, appliance and construction industries. All of our tin mill product shipments are sold under contracts that extend a minimum of one year and are, therefore, less subject to price volatility than spot market sales. Relatively modest declines in tin mill products prices that have occurred since 1998 are attributable to ongoing consolidation among can manufacturing and packaging companies, which we believe is now largely complete, and foreign imports of tin mill products. In August 2000, the federal government assessed duties for five years against imports of Japanese tin mill products, and on October 22, 2001, the ITC also found that domestic tin mill products, among twelve steel product lines, have sustained serious injury because of foreign imports. See "-- Competition and Imports." SHEET PRODUCTS Our commodity sheet steel products consist of hot rolled, cold rolled and galvanized hot-dipped and electrolytic sheet products. In general, commodity sheet products are produced and sold in high volume, in standard dimensions and specifications, and have lower margins than tin mill products. Recently, domestic flat-rolled sheet steel prices have declined significantly to 20 year lows. Commodity flat-rolled sheet prices, which have experienced significant volatility, have declined almost 30% since the first half of 1998. Hot rolled coils are sold directly from the hot strip mill as "hot bands," our least processed product, or are further finished using hydrochloric acid or temper passed to improve surface and are sold as "hot rolled pickled" or "hot rolled tempered passed." Hot roll is used for unexposed parts in machinery, construction products and other durable goods. Most of our sales of hot rolled products have been to steel service centers, pipe and tube manufacturers and converters. In 2000, we shipped 704,000 tons of hot rolled sheet, which accounted for 19% of our total revenues. In the first nine months of 2001, we shipped 66 470,000 tons, or 15% of our total revenues. Representative customers of our hot roll sheet include Steel Technologies, Wheatland Tube, Sharon Tube, Vanex and Heidtman Steel Products. Cold rolled sheet requires further processing, including additional rolling, annealing and tempering, to enhance ductility and surface characteristics. Cold rolled is used in the construction, commercial equipment and container markets, primarily for exposed parts where appearance and surface quality are important considerations. In addition, converters purchase significant quantities of cold rolled substrate for processing into corrosion-resistant coated products such as hot dipped and electrogalvanized sheet. In 2000, we shipped 393,000 tons of cold rolled sheet, which accounted for 15% of our total revenues. In the first nine months of 2001, we shipped 162,000 tons, or 8% of our total revenues. Representative customers of our cold rolled sheet include Wheeling-Nisshin, Winner Steel, Steel Technologies, Edgcomb Metals and Gibraltar. Galvanized hot-dipped and electrolytic sheet are coated primarily with zinc compounds to provide extended anti-corrosive properties. Galvanized sheet is sold to the electrical, construction, automotive, container, appliance and steel service center markets. In 2000, we shipped 615,000 tons of galvanized products, which accounted for 27% of our total revenues. In the first nine months of 2001, we shipped 491,000 tons, or 29% of our total revenues. Representative customers of our galvanized hot-dipped and electrolytic sheet include Therma-Tru, Midwest Manufacturing, Arrow Truline, Unimast, Thomas and Betts, New Process Steel and USG Industries. Our strategy for development of our sheet business focuses on increasing the mix of cold roll and galvanized products while identifying and serving customers and markets which require narrow, thin gauge products that we can competitively supply. We have also concentrated on enhancing the range of coatings, chemistries, and other product attributes that we can offer. The relative strength of markets for individual product offerings has a strong influence on the mix of products we ship in any given period. The following table sets forth our shipments of sheet products relative to the domestic industry. As our overall market share has decreased for sheet products since 1996 to 2.8% at June 30, 2001, our management has focused on increasing the percentage of coated products it ships compared to lower margin flat-rolled sheet steel. Cold rolled shipment volumes during the first half of 2001 have been adversely affected by increased cold rolled imports, as well as by the start up of new domestic capacity.
YTD JUNE 30, SHEET PRODUCT SHIPMENTS 1996 1997 1998 1999 2000 2001 ----------------------- ---- ---- ---- ---- ---- -------- (IN MILLIONS OF TONS) Industry shipments(1)...................... 50.6 52.3 51.0 55.9 57.4 27.2 ---- ---- ---- ---- ---- ---- Hot Rolled............................... 1.1 0.8 0.8 0.7 0.7 0.3 55% 44% 44% 41% 38% 41% Cold Rolled.............................. 0.3 0.4 0.3 0.4 0.4 0.1 13% 20% 18% 21% 22% 13% Galvanized............................... 0.6 0.6 0.6 0.6 0.6 0.3 29% 31% 32% 32% 33% 40% Excess Prime and Secondary Products........ 0.1 0.1 0.1 0.1 0.1 0.0 ---- ---- ---- ---- ---- ---- Weirton shipments(1)....................... 2.0 1.9 1.8 1.7 1.7 0.8 Weirton market share....................... 3.9% 3.7% 3.5% 3.1% 3.0% 2.8%
--------------- (1) Includes secondary products. TOLLING ARRANGEMENTS In February 2001, we entered into a long-term tolling agreement with J&L Specialty Steel, a domestic stainless steel producer, which is owned by a major foreign steel producer, to convert stainless slabs into stainless coils on our hot strip mill. Under this agreement, which expires on January 31, 2006, 67 we are required to process slab for a fee based on the grade and size of stainless coil produced. Future escalation is based upon natural gas pricing and the producer price index. In addition, the agreement contains both a bonus clause and a penalty clause based on our quality performance. We may terminate the tolling agreement, and may be entitled to liquidated damages under the agreement, if during given periods specified in the agreement we are not offered for processing at our hot strip mill a sufficient volume of slabs as specified in the agreement. The stainless steel producer for whom we are providing tolling services under the tolling agreement may also be entitled to terminate the agreement under certain circumstances, including if it purchases or invests in another hot strip mill or ceases production of stainless steel slabs, in which case we may also be entitled to liquidated damages under the agreement. Because stainless is rolled at slower rates than carbon steels, this agreement accounts for almost 20% of the overall capacity of our hot strip mill and provides higher, more stable profit margins than potential carbon slab conversion opportunities. RAW MATERIALS AND ENERGY We have a contract with a subsidiary of Cleveland-Cliffs Inc. to purchase our standard and flux grade iron ore pellet requirements. This contract provides for the supply of a minimum annual tonnage of pellets based on mine production capacity, with pricing primarily dependent on mine production costs. Cleveland- Cliffs is one of the participating suppliers in our vendor financing programs. We also have a contract with USX Corporation to purchase blast furnace coke for a term that extends through December 31, 2001. Under the contract, we must give notice each year of our required coke volumes for the following year, and we have the option to purchase up to 100% of our coke requirements for each year, subject to a minimum of either 80% of requirements or a fixed tonnage. If Weirton does not commit to take the tonnage above minimum requirements for any year, USX has the option of determining whether it will supply future tonnage above the minimum, until such time as it actually does so, after which Weirton again has the option to take its full requirements. Coke prices under the contract are based on the prevailing market, subject to a ceiling and floor over the life of the contract, with a limit on annual change. We are currently negotiating an extension on revised terms, and we are also having discussions with other domestic producers. We continue to develop and utilize alternative sources of coke, including from overseas suppliers. In addition, we are also evaluating several potential coke plant acquisitions. We obtain our limestone, tin, zinc, scrap metal and other raw materials requirements from multiple sources. The primary sources of energy other than coke that we use in our steel manufacturing processes are natural gas and electricity. We have been able to reduce our natural gas consumption through the use of alternative operating configurations and fuels. For the nine months ended September 30, 2001, gas prices averaged $5.69 per mcf. Prices under current forward contracts for delivery of natural gas in the fourth quarter of 2001 range from $3.30 to $5.90 per mcf. We have no long-term commitments to purchase natural gas beyond February 2002. We also have a contract, expiring in 2011, for the supply of our industrial gas requirements. This agreement significantly reduced our oxygen and nitrogen supply costs compared to prior arrangements. Our principal supplier is also a participant in our vendor financing programs. Weirton has the internal capacity to generate a significant amount of electricity and steam for its processing operations from a mixture of blast furnace gas and natural gas. We have in effect through 2003 a power generation deferral agreement with our outside electric utility, which permits us to purchase outside power at reduced rates in exchange for limiting our internal power generation. Also, under our sale and leaseback arrangements involving the Foster-Wheeler Steam Generating Plant and related electricity generating equipment, we expect to sell electric power in excess of our energy needs through a subsidiary of our outside electric utility and to use any net energy payments we receive as a result to prepay our obligations under those arrangements through 2012. See "Description of Other Indebtedness and Financing Arrangements -- Vendor Financing Programs." 68 EMPLOYEES As of September 30, 2001, we had 3,965 active employees, of whom 3,058 were engaged in the manufacture of steel products, 474 in support services, 90 in sales and marketing activities and 343 in management and administration. The Independent Steelworkers Union represents our production and maintenance workers, clerical workers and nurses. In addition, the Independent Guard Union represents our security personnel. We have had a cooperative relationship with the ISU, which represents only employees of Weirton and no other steel producers. Weirton has not experienced a work stoppage due to striking union members in over 45 years. In response to deteriorating market conditions and financial performance, management and the ISU have been able to negotiate new labor agreements, expiring no earlier than March 2004, that will significantly reduce the number of hourly employees, primarily through work rule changes. The agreement for our production and maintenance employees provides for the permanent elimination of a minimum of 372 jobs. The office, clerical and technical agreement provides for the right to eliminate a minimum of 78 jobs. We will also streamline our management structure by eliminating non-core and redundant activities resulting in a reduction of 100 management positions. We have also made significant changes to the employee benefit package resulting in additional cost savings. After full implementation of the recently negotiated workforce reductions, we will have approximately 3,600 active employees. The cumulative impact of the labor cost savings, together with the other elements of our operating cost savings program, will total approximately $51 million in annual cost reductions, or approximately $37 million in annual cash savings. PROPERTIES Weirton owns approximately 2,700 acres in the Weirton, West Virginia area that are devoted to the production and finishing of steel products, as well as research and development, storage, support services, and administration facilities. We own trackage and railroad rolling stock for materials movement, watercraft for barge docking and a variety of heavy industrial equipment. We have no material leases for real property except that under our vendor financing programs we are leasing our Foster-Wheeler Steam Generating Plant and related electricity generating assets, and plan to enter into a similar transaction with respect to our executive offices and research and development facility. Our No. 9 tin tandem mill secures certain borrowings under our senior credit facility, and our hot strip mill will be collateral for the new senior secured discount notes and the new secured series 2001 bonds. Our mill and related facilities are accessible by water, rail and road transportation. We believe that our facilities are suitable to our needs and are adequately maintained. Over the last 15 years, we have invested approximately $1 billion in modernizing and upgrading our equipment, including approximately $500 million on our continuous caster, hot strip mill, and No. 9 tin tandem mill. We believe this has enabled us to continue to produce a superior quality steel substrate, and, consequently, to maintain the high quality of our tin mill and other value-added products. Our primary steel making facilities include two blast furnaces, a two vessel basic oxygen process shop, a CAS-OB facility, two RH degassers, and a four strand continuous caster with an annual slab production capacity of up to 3.2 million tons. Our downstream operations include a hot strip mill with a practical capacity of 3.4 million tons per year, two continuous picklers, three tandem cold reduction mills, three hot dip galvanize lines, one electro-galvanize line, two tin platers, one chrome plater, one bi-metallic chrome/tin plating line and various annealing, temper rolling, shearing, cleaning and edge slitting lines, together with packaging, storage and shipping and receiving facilities. 69 The name and area of each of our primary steel making facilities and principal downstream manufacturing facilities, all of which are located in Weirton, West Virginia, together with the principal products that they are equipped to produce as of September 30 2001, are as follows:
NOMINAL PRODUCTION (000'S) CAPACITY ------------------------------------- (000'S) 1997 1998 1999 2000 2001 PRINCIPAL PRODUCTS -------- ----- ----- ----- ----- ----- ------------------ PRIMARY STEEL MAKING FACILITIES Two blast furnaces...... 3,100 2,539 2,392 1,577 2,131 2,083 Hot metal Two basic oxygen 3,400 2,874 2,778 1,831 2,517 2,459 Liquid steel furnaces.............. Slab caster............. 3,200 2,837 2,741 1,802 2,484 2,425 Cast slabs ROLLING AND FINISHING FACILITIES Hot strip mill.......... 3,400 3,156 2,914 2,852 2,864 2,716 Hot rolled bands Two continuous 2,300 2,251 2,049 2,003 1,980 1,894 Hot rolled pickle & oil picklers.............. Three tandem mills...... 2,400 2,069 1,902 1,825 1,806 1,708 Cold rolled Four tin/TFS lines...... 1,100 840 809 748 735 758 Tin/tin free steel Four galvanizing 750 724 664 614 588 630 Galvanized, lines................. electrogalvanized, galvannealed, galfan
Blast Furnaces Nos. 1 and 4. Iron ore pellets, iron ore, coke, limestone and other raw materials are consumed in our blast furnaces to produce molten iron or "hot metal." Basic Oxygen Furnaces. In the basic oxygen furnaces, impurities are removed, scrap is added to the hot metal, and metallurgical tests are performed on the resulting liquid steel to ensure conformity to customer specifications. Although the resulting product is all molten steel, metallurgical determinations with respect to use are determined on a batch by batch basis. Our basic oxygen shop is one of the largest in North America. It employs two vessels, each with a capacity of 360 tons per heat. Multi-Strand Continuous Caster. Molten steel is poured into the multi-strand continuous caster where it is formed into steel slabs measuring up to 48" wide, 400" long and 9" thick. These slabs are then transferred to the hot strip mill for rolling. Hot Strip Mill. Our hot strip mill is an integral part of our downstream steel processing operations and one of the few of its kind in the industry. It is an energy efficient, low-cost mill capable of rolling both carbon and stainless steel substrate into thin gauge, narrow width sheet. In addition to rolling our own slabs, we are capable of rolling purchased slabs and slabs supplied by other steel manufacturers and have entered into a long-term tolling agreement with a major stainless steel producer to convert stainless slabs into stainless coils, which account for almost 20% of our hot strip mill overall capacity. Hot roll is used for unexposed parts in machinery, construction products and other durable goods. Our hot strip mill was totally rebuilt beginning in 1988, with the major portion completed by 1994, at a cost of $360 million. Hot strip mill assets include: walking beam reheat furnaces, hydraulic seals breaker, reversing roughing mill, R-5 roughing stand, heat retention covers, rotary crop shear, finishing mill, laminar flow cooling system, downcoilers and mill automation system. For information concerning a recent independent appraisal, see "Description of Senior Secured Discount Notes -- Description of Collateral." Continuous Pickling Plant. In our continuous pickling plant, hot bands are processed through a hydrochloric acid bath to remove surface scale and are sold as "hot rolled pickled" or further and processed into higher value-added products at our downstream facilities. Tandem Mills. Our tandem mills include one four and two five stand cold reduction rolling mills which cold reduce heavy gauge hot bands into light gauge cold roll and black plate product. The No. 9 tin tandem mill is a continuous operation and was completely rebuilt in 1994 and is dedicated to our tin mill product lines. 70 Annealing. In both of our continuous and batch annealing operations, cold rolled substrate is processed through an annealing furnace to enhance the ductility of the steel for further forming and drawing. Our facilities are capable of most specified tempers. DR Mills. We have two similarly designed 2-stand, 4-high cold rolling mills which reduce black plate steel from the tandem mills to required tin mill product gauges. Temper Mills. We have two similarly designed 2-stand, 2-high cold rolling mills which reduce black plate steel from the tandem mills to required tin mill product gauges. Electrolytic Tin/Chrome Lines. We have four electrolytic tin lines that apply a coating of either tin or chrome to black plate steel substrate through the use of electricity and chemicals. All lines are capable of making most tin mill product gauges and coating weights at very high speeds. Electrolytic Galvanizing Line. We have one electrolytic galvanizing line that applies a coating of zinc to black plate steel through the use of electricity and chemicals. The product processed through this line is generally light gauge with narrow widths and is used predominantly in the construction market. Hot-dip Galvanizing Lines. We have three hot-dipped galvanizing lines that apply a coating of zinc to cold rolled steel by submerging the substrate through a bath of hot zinc. The lines are capable of a variety of coating weights, gauges, and widths (up to 48") as well as coating requirements (galvanized, galvannealed and galvan). Our No. 9 tin tandem mill secures certain borrowings under our senior credit facility, and our hot strip mill will be collateral for the new senior secured discount notes and the new secured series 2001 bonds. COMPETITION AND IMPORTS Weirton faces significant competition in the sale of its steel products from both domestic and foreign competitors. See "Steel Industry Overview." We also face increasing competition from foreign steelmakers over a wide range of products. Competition in the industry is influenced increasingly by global trade patterns and currency fluctuations. As a percentage of domestic supply, steel imports excluding semi-finished products (primarily slabs) have surged to historic highs, amounting to approximately 26%, 21%, and 22% in 1998, 1999 and 2000, respectively. Imports of hot rolled and cold rolled products increased 44% from 1997 to 1998, but declined significantly in 1999 as a result of fair trade enforcement actions. Imports of hot rolled and cold rolled products increased 5% from 1999 to 2000. Although as of June 30, 2001, tin mill product imports in tons as compared to 2000 decreased 6% due to government tariffs against Japanese tin mill imports, imports of tin mill products have otherwise risen substantially in the past three years, amounting to approximately 16%, 20%, and 18% of domestic consumption in 1998, 1999, and 2000, respectively. Integrated steel makers also face strong competition from mini-mills, which are efficient, low-cost producers that generally produce steel by melting scrap in electric arc furnaces, utilize new technologies, have lower employment costs and target regional markets. Mini-mills historically have produced lower margin commodity grade long products, such as bars, rods and wire and other commodity-type steel products not produced by us. However, thin slab technology has allowed mini-mills to enter sheet markets traditionally supplied by integrated producers, including the hot rolled, cold rolled and galvanized markets. Mini-mills generally continue to have a cost advantage over integrated steel producers, particularly for labor and especially during periods of weak demand when scrap prices are low. Although most new capacity in the domestic industry has resulted from growth in mini-mill operations, there has also been a significant increase in both cold rolling and galvanizing capacity at independent processors. Since the steel import crisis began in 1998, United States steel companies have lobbied to stop unfair steel trade. One of the more significant accomplishments in 2000 was a decision by the federal government to assess duties for five years against imports of Japanese tin mill products. 71 In June 2001, the Bush Administration initiated an investigation by the ITC regarding the illegal dumping of steel from foreign competitors under section 201 of the Trade Practices Act of 1974. On October 22, 2001, the ITC found that twelve steel product lines, representing 74% of the imports under investigation, have sustained serious injury because of foreign imports. These product lines include hot rolled, cold rolled, and galvanized sheet and coil and tin mill products. The section 201 investigation now enters a remedy phase that will include the extent to which trade restrictions should be imposed on the twelve product categories singled out by the ITC as having caused or threatened serious injury. The Commission must release its recommendations by December 19, 2001. The remedies could include tariffs, quotas, or orderly marketing agreements. President Bush then has 60 days to adopt the recommendations, craft his own, or take no action. We are the second largest domestic manufacturer of tin mill products, with a 25% domestic share of domestic shipments in the first half of 2001. Our primary competitors in sheet products consist of most domestic and international integrated steel producers and mini-mills. Domestic tin mill products competitors include USX, USS-POSCO Industries Corporation, Bethlehem Steel Corporation, National Steel Corporation and Ohio Coatings (owned 50% by Wheeling-Pittsburgh Steel). However, imports have increasingly penetrated this market. Within the past twelve months, a number of the Weirton's competitors, including three integrated steel producers, LTV Corporation, Bethlehem Steel and Wheeling-Pittsburgh Steel, have sought protection in bankruptcy, and LTV's tin business was acquired by USX. RESEARCH AND DEVELOPMENT Weirton engages in research and development for the improvement of existing products and processes and the development of new products and product applications. During 1998, 1999 and 2000, we spent approximately $5.9 million, $2.0 million and $2.7 million, respectively, for research and development activities. WEIRTEC, our research and development center, is the industry leader in the advancement of steel can making technology, maintaining prototype steel packaging manufacturing facilities, analytical laboratory facilities and computer simulation systems in Weirton, West Virginia. WEIRTEC assists customers in the development of new products and collaborates with the American Iron and Steel Institute in the development of new product lines and production techniques to increase the use and quality of steel as a material of choice. Due in part to the contribution of WEIRTEC, Weirton earned ISO9002 accreditation, an internationally recognized standard of superior and consistent quality. Our longer-term research projects also include clean steel production techniques, polymer to steel lamination, and the application of galvanized steel products to the residential and commercial construction industry. We believe that the WEIRTEC scientists, engineers, technicians and facilities enhance Weirton's technical excellence, product quality and customer service. We also pioneered the development of an e-commerce sales exchange platform for steel products through our subsidiary, MetalSite, Inc. In December 1999, we sold a portion of our interest in MetalSite to a third party for $170 million. Our research and development efforts have also led to our entry into additional markets. For example, we formed WeBCo, a joint venture with the Balli Group, plc, which has played a key role in funding and developing tin mill product market opportunities in Germany and the United Kingdom. In addition, we formed W&A Manufacturing LLC, a joint venture with ATAS International, which has permitted us to enter the steel roofing products market. We own a number of patents that relate to a wide variety of products and applications and steel manufacturing processes, have pending a number of patent applications, and have access to other technology through agreements with other companies. We also own a number of registered trademarks related to our products. We believe that none of our patents or licenses, which expire from time to time, or any group of patents or licenses relating to a particular product or process, or any of our trademarks is of material importance to our overall business. 72 ENVIRONMENTAL MATTERS We are subject to extensive federal, state and local laws and regulations governing discharges into the air and water, as well as the handling and disposal of solid and hazardous wastes. We are also subject to federal and state requirements governing the remediation of environmental contamination associated with past releases of hazardous substances. In recent years, environmental regulations have been marked by increasingly strict compliance standards. Violators of these regulations may be subject to civil or criminal penalties, injunctions, or both. Third parties also may have the right to enforce compliance. Capital expenditures for environmental control facilities were approximately $11.5 million in 1998, $0.7 million in 1999, $1.7 million in 2000, and are estimated to be approximately $2.2 million in 2001. As of September 30, 2001, we had accrued approximately $9.0 million for environmental cleanup costs. In the past, Weirton has resolved environmental compliance issues through negotiated consent orders and decrees with environmental authorities, pursuant to which it has paid civil penalties. Although we believe that Weirton is in substantial compliance with its environmental control consent orders and decrees, provided below is a more detailed description of some of our outstanding environmental issues. Current Compliance Issues In 1996, following a multi-media audit of our operations, we entered into a consent decree with the United States Environmental Protection Agency, or EPA, the United States Department of Justice, or DOJ, and the West Virginia Division of Environmental Protection, or DEP. The consent decree required us to implement certain changes to ensure compliance with water, air and waste-related regulations, the majority of which have been completed. We do not anticipate that any additional capital expenditures will be needed to meet the remaining requirements under the consent decree. The consent decree provides for stipulated penalties for violations of the decree and for violations of various regulatory agreements. Such penalties are paid in response to a joint demand from the federal and state agencies. Stipulated penalties were assessed in 1998 and 1999 in the aggregate amount of $293,500 and there is a potential that the agencies could issue additional stipulated penalty demands. We do not believe that our liability for such potential penalty demands or increased costs associated with meeting the remaining requirements under the consent decree will be material to our results of operations. In 1996, EPA also issued a RCRA corrective action order that required us to conduct investigative activities to determine the extent to which hazardous substances are located on our property and to evaluate, propose and implement corrective measures that are needed to abate any unacceptable risks. As part of the evaluation phase, we divided our property into twelve areas. At this time, we have only conducted investigations on the two highest priority areas. Consequently, we have not evaluated a majority of our property and it is not possible at the present time to estimate the ultimate cost to comply with the order or to conduct any required remedial activity. We believe that we will continue to be entitled to indemnification for certain of our environmental costs pursuant to an indemnification agreement that we have with National Steel Corporation. This indemnification agreement was executed in connection with our 1984 purchase of the Weirton Steel Division assets from National Steel. Under the indemnification agreement, National Steel agreed to indemnify us for certain environmental liabilities, including governmental and third party claims, that arose prior to the acquisition, and subject to the $1.0 million limitation applicable to the Hanover site described below, we are generally entitled to reimbursement for all clean-up costs related to facilities, equipment or areas involved in the management of solid or hazardous wastes, as long as such facilities, equipment or areas were not used by us after the acquisition. However our ability to obtain indemnification under this agreement turns on, among other issues, National Steel's continued financial viability and on the nature of our future claims for indemnification. West Virginia Water Quality Standards generally require that a public water supply be protected by prohibiting the discharge of any pollutants in excess of drinking water standards for one-half mile upstream of a public water supply intake. The standard is known as the "half mile rule." We currently discharge wastewater at a point on the Ohio River that is less than one half mile upstream from our own water 73 supply intake. Because of the proximity of our discharge and intake, our wastewater discharge permit requires our discharge at that one location to meet drinking water standards. At the same time it issued the permit, DEP issued a consent order deferring those requirements until we had time to upgrade our facilities (both the discharge and the filtration plant at the point of intake). Under a current extension of the consent order, we have until June 30, 2003 to meet the standard, and we have secured, until the same deadline, a temporary waiver from the application of the half mile rule. We are currently reviewing several options for resolving this issue permanently, such as through a rule change or permanent exemption. In the event that such a rule change or exemption is not obtained, we may incur some capital costs, such as for installing a connection to the municipal water supply for our plant drinking water, or moving our water intake. We do not believe that costs, including associated ongoing expenses, would be material to our results of operations. We have operated with a variance from certain state water discharge limitations with respect to our discharge to Harmon Creek since 1986. This variance, however, expires in June of 2004. We may be required to upgrade our wastewater treatment system if this variance is not renewed. Potential Compliance Issues and Proposed Regulations In December 2000, the EPA proposed effluent limitation guidelines for iron and steel making operations and finishing operations that would establish technology requirements and wastewater discharge limitations applicable to our operations and to those of other steel making and finishing plants. After guidelines are adopted as final rules, they are incorporated in wastewater discharge permits when the permits are renewed. Our existing wastewater discharge permit is currently under review. If the existing permit is renewed prior to the adoption of final rules, the limitations in the renewed permit should be based on the existing effluent limitation guidelines. We do not expect that we will have to address any revised guidelines until the renewed permit expires and is reissued at least five years after the issuance of the renewed permit. To comply with the proposed guidelines, we would have to make significant capital expenditures to upgrade the wastewater treatment plants at our hot strip mill, basic oxygen process shop and blast furnaces. The amount of capital expenditures required and their timing cannot be determined until the guidelines are final but could be substantial. The proposed guidelines are under review and have a final action deadline of April 2002. Environmental Claims In May 1992 and again on October 9, 2001, the property owner of a former non-hazardous waste disposal site known as the Hanover Site received notice from the Pennsylvania Department of Environmental Protection that it was considering a closure and post-closure plan for a solid waste landfill facility where we and our predecessors disposed of solid wastes. At this time, definitive closure and post-closure plans have not been adopted. We believe that we are entitled to $1 million in indemnification from National Steel for the clean-up and closure costs and expenses associated with closing the facility. At this time, we do not anticipate that closure costs will exceed $1 million. LEGAL PROCEEDINGS From time to time, a number of lawsuits, claims and proceedings have been or may be asserted against us relating to the conduct of our business, including those pertaining to commercial, labor, employment and employee benefits matters. While the outcome of litigation cannot be predicted with certainty, and some of these lawsuits, claims or proceedings may be determined adversely to us, we do not believe that the disposition of any such pending matters is likely to materially affect us. 74 MANAGEMENT DIRECTORS Pursuant to our restated certificate of incorporation, air members of the board of directors are divided into three classes. Each class serves a three-year term, and the terms are staggered so that the term of one class expires at each year's annual meeting of stockholders. As of this time, the annual meeting for 2001 has not been held. Consequently, the successors for the Class II directors will be selected at that meeting. Information with respect to those persons who serve as directors is set forth below.
NAME, AGE, OCCUPATION AND CLASS ------------------------------- John H. Walker (44)....................... Mr. Walker was named chief executive officer in January President and Chief Executive Officer 2001 and was named president and chief operating officer (Class III) in March 2000. He was employed by Kaiser Aluminum Corporation as corporate vice president and president of Flat Rolled Products from July 1997 to March 2000 and as vice president of operations from September 1996 to July 1997. Michael Bozic (60)........................ Mr. Bozic has been a member of our board of directors Private Investor (Class I) since 1994. He was vice chairman of Kmart Corporation from 1998 to 2000. He served as chairman, chief executive officer and director of Levitz Furniture Corporation from 1995 to 1998. He is also a director of Morgan Stanley Dean Witter Advisors, Inc. and Boys and Girls Clubs of America -- Midwest Region. Richard R. Burt (54)...................... Mr. Burt has been a member of our board of directors Chairman of the Board (Class I) Chairman since 1996. He has been chairman of the board of Weirton of IEP Advisors LLC since April 1996. He is also a director of Archer Daniels Midland Company, Hollinger International Inc., and HCL Technologies, Ltd. Robert J. D'Anniballe, Jr. (45)........... Mr. D'Anniballe has been a member of our board of Shareholder, Marshall, Dennehey, Warner, directors since 1990. He has been a shareholder at Coleman & Goggin Marshall, Dennehey, Warner, Coleman & Goggin since 1999, (Class III) and managing attorney of the firm's West Virginia and Ohio offices since July 1999. He was a partner in Alpert, D'Anniballe & Visnic prior to July 1999. He has also served as general counsel to the ISU since 1985. George E. Doty, Jr. (47).................. Mr. Doty has been a member of our board of directors Private Investor (Class III) since 1999. Prior to July 2000, Mr. Doty was a Managing Director of Bear, Stearns & Co. Inc. Mark G. Glyptis (50)...................... Mr. Glyptis has been a member of our board of directors President of ISU (Class III) since 1991. He has been president of the ISU since August 1991, and has been an employee of Weirton since 1973. Ralph E. Reins (61)....................... Mr. Reins has been a member of our board of directors Chairman and Chief Executive Officer of since 1998. He has been chairman and chief executive Qualitor, Inc. (Class II) officer of Qualitor, Inc. since May 1999 and chairman and chief executive officer of Reins Enterprises since January 1998. He served as president and chief executive officer of A P Parts International from 1995 to January 1998. He is also a director of Rofin/Sinar Technologies, Inc.
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NAME, AGE, OCCUPATION AND CLASS ------------------------------- Robert S. Reitman (67).................... Mr. Reitman has been a member of our board of directors Principal Riverbend Advisors (Class II) since 1995. He has been a principal at Riverbend Advisors, a consulting firm, since February 1998. He has been Chairman Emeritus and a director of The Tranzonic Companies, a manufacturer of paper and plastic products since February 1998. Prior to February 1998, he served as chairman, chief executive officer and director of The Tranzonic Companies. Richard F. Schubert (64).................. Mr. Schubert has been a member of our board of directors Senior Vice President EXCN, Inc. (Class since 1983. He has been senior vice president EXCN, Inc. II) since 1998. Prior to that, he was Chairman Emeritus of the International Youth Foundation. He is also a director of National Alliance of Business and Management Training Corporation. Thomas R. Sturges (57).................... Mr. Sturges has been a member of our board of directors Private Investor (Class I) since 1986. Until June 2001, he was executive vice president and chief financial officer of Hawkeye Communication, LLC. Prior to that, he served as executive vice president of The Harding Group Inc. from February 1990 to January 2000. Ronald C. Whitaker (53)................... Mr. Whitaker has been a member of our board of directors President, Chief Executive Officer and since 1995. He has been President and CEO of Strategic Director of Strategic Distribution Distribution Incorporated since September 2000. He Incorporated (Class II) served as president, chief executive officer and director of Johnson Worldwide Associates from October 1996 to March 1999. He is also a director of Code-Alarm, Inc., Precision Navigation Instruments, Inc., Firearms Training Systems, Inc., and is a trustee of The College of Wooster. D. Leonard Wise(67)....................... Mr. Wise has been a member of our board of directors Former President and Chief Executive since 1998. He was president and chief executive officer Officer Carolina Steel Corporation of Carolina Steel Corporation from October 1994 to March (Class II) 1997. He is also a director of Universal Stainless & Alloy Corporation.
THE BOARD OF DIRECTORS: COMMITTEES, MEETINGS AND COMPENSATION Audit Committee The audit committee of our board of directors currently is composed of Messrs. Reins, Burt, D'Anniballe, Sturges and Wise, four of whom are independent directors. Mr. Reins serves as chairman of the committee. The audit committee reviews, at least annually, the services performed and to be performed by our independent public accountants and the fees charged for their services, and, in that connection, considers the effect of those fees on the independence of the accountants. The audit committee also discusses with our independent public accountants and management our accounting policies and reporting practices, including the impact of alternative accounting policies. The audit committee also reviews with our internal audit department the scope and results of internal auditing procedures and the adequacy of accounting and financial systems and internal controls. The audit committee held five meetings during 2000 and has held three meetings in 2001. Management Development and Compensation Committee The management development and compensation committee of our board of directors currently is composed of Messrs. Reitman, Bozic, Schubert, Whitaker and Wise. Mr. Reitman serves as chairman of the committee. The management development and compensation committee held five meetings in 2000 and has held four meetings in 2001. 76 Nominating Committee The Nominating Committee of our board currently is composed of Messrs. Bozic, Glyptis, Walker, Whitaker and Wise. Mr. Bozic serves as chairman of the committee. The nominating committee identifies and recommends to the board of directors candidates to be nominated as independent directors. The nominating committee held three meetings in 2000 and has held three meetings in 2001. Corporate Responsibility Committee The corporate responsibility committee of our board currently is composed of Messrs. Schubert, Burt, D'Anniballe, Doty, Glyptis and Wise. Mr. Schubert serves as chairman of the committee. The corporate responsibility committee advises our management concerning matters of public and internal policy with regard to such matters as governmental and regulatory affairs, safety and health of employees, charitable contributions and environment, and recommends, for action by the full board, policies concerning those types of matters where appropriate. The corporate responsibility committee held one meeting in 2000 and has held no meetings in 2001. Finance and Strategic Planning Committee The finance and strategic planning committee of our board currently is composed of Messrs. Whitaker, Bozic, Burt, Doty, Glyptis, Reins, Reitman, Sturges and Wise. Mr. Whitaker serves as chairman of the committee. The committee reviews and confers with management on the following subject matters in the finance function, including our projected financial condition and financial plans; our financial policies, including dividend recommendations; the management and performance of our employee benefit funds; and our policies and practices on financial risk management. In the strategic planning area, the committee assists management in the development of a viable strategic plan including projections of the market and competitive assessment of our core strengths and weaknesses; identification of key opportunities and threats; and articulation of our long-range direction, including action plans addressing both the core business and growth opportunities. The finance and strategic planning committee held three meetings in 2000 and has held one meeting in 2001. Meetings and Attendance Our board of directors held six regular meetings in 2000 and has held four regular and six special meetings in 2001. All directors who served during 2000 attended at least 75% of the aggregate of the meetings of the board of directors and board committees occurring while they served in 2000, with the exception of Mr. Bozic who attended 74%. All directors who served during any portion of 2001 attended at least 75% of the aggregate of the meetings of the board of directors and board committees occurring during the portion of 2001 for which they have served. Directors' Compensation Directors who are not officers or employees of Weirton receive an annual retainer of $25,000, $10,000 of which is in the form of shares of our common stock, and the remaining $15,000 of which is payable monthly in cash. Those directors also receive a meeting fee of $800 for each meeting of the board of directors attended, together with a meeting fee of $700 for each meeting of a committee of the board of directors attended. The chairman of each committee is paid an additional $200 for each meeting chaired. The chairman of the board of directors serves as a non-executive chairman, devoting substantial time to this position and receives an annual retainer of $120,000, payable quarterly, but does not receive additional fees for attendance at meetings of the board or its committees. Directors who are officers or other employees of Weirton do not receive a retainer or meeting fees. All directors who are not officers or other employees of Weirton are eligible to participate in our deferred compensation plan for directors. The Plan permits participants to defer part or all of their directors' fees for a specified year. Amounts representing deferred fees are used to purchase shares of our common stock at 90% of the market price of our common stock on the first or last trading day of the year, whichever is lower. As to the portion of the directors' 77 retainer paid in the form of shares of our common stock and not deferred, pricing at 100% of the then prevailing market price of the our common stock. Shares representing amounts of deferred compensation are held in trust until distributed to the respective participants in accordance with their election. EXECUTIVE OFFICERS AND KEY EMPLOYERS Set forth below is certain information relating to the ages and business experience of non-director executive officers of Weirton as of November 21, 2001.
NAMES, AGE AND POSITION ----------------------- Mark E. Kaplan (39)....................... Mr. Kaplan was appointed senior vice president of Senior Vice President of Finance and finance and administration in November 2001. Prior to Administration this appointment, he served as vice president and chief financial officer from June 2000 to November 2001, as vice president of information technology from March 1999 to June 2000 and controller from September 1995 to March 1999. Prior to joining Weirton, Mr. Kaplan was a senior audit manager for Arthur Andersen LLP where he worked for 11 years and worked as an engagement manager for the Weirton Steel account. David L. Robertson (58)(1)................ Mr. Robertson has served as the executive vice president Executive Vice President of Human of human resources and corporate law since March 1996. Resources and Corporate Law Prior to that, he was a senior partner in the law firm of Volk, Robertson & Hellerstedt for 11 years. Mr. Robertson began his career in 1968 in the legal department of National Steel Corp.'s Weirton Division. Mr. Robertson served as counsel to the ISU in assisting the study and organization of Weirton Steel's ESOP and was a charter member of the corporation's board of directors for more than nine years. Thomas W. Evans (65)(1)................... Mr. Evans has been Vice President -- Materials Vice President -- Materials Management Management since 1988. He is also President of WebCo, a joint venture in which we own an interest. William R. Kiefer (51).................... Mr. Kiefer is currently general counsel. Prior to that, General Counsel he served as vice president of law and secretary from May 1990 to November 2001. Mr. Kiefer joined Weirton in 1985 as corporate attorney and assistant secretary and was named director of legal affairs and secretary in 1988. He began his career in 1974, as an associate attorney with the Weirton legal firm of Bogard & Robertson and in 1978 became partner. In 1982 through 1983, he worked as a counsel for the ISU in Weirton's formation of an employee-owned company. Michael J. Scott (38)..................... Mr. Scott was named vice president of sales and Vice President of Sales and Marketing marketing in March 2000. Prior to joining Weirton, he was employed by National Steel Corporation from 1997 through 1999 as general manager of the construction sales group. He also was employed at National from 1986 to 1994, during which time he held the positions of manager of marketing, area manager for midwest sales division and sales representative. From 1995 to 1996, he was employed by Cresco Steel Service Center as general manager.
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NAMES, AGE AND POSITION ----------------------- Edward L. Scram (43)...................... Mr. Scram was named vice president of operations in Vice President of Operations April 2000. Prior to that appointment, he served as general manager of operations since 1996. He was also manager of management work practices and a manager at both the ironmaking and steelmaking units of Weirton. Mr. Scram began his career at Weirton in 1981 as a ceramic engineer. Frank G. Tluchowski (51).................. Mr. Tluchowski was appointed to the position of vice Director of Restructuring president of engineering and technology in February 1998. Prior to that appointment, he served as general manager of engineering from September 1996 until February 1998. Mr. Tluchowski joined Weirton in 1970 as a mechanical engineer.
--------------- (1)Mr. Robertson resigned his position effective December 31, 2001 and Mr. Evans retired effective December 31, 2001. Mr. Evans will continue as President of WebCo. EXECUTIVE COMPENSATION The following table sets forth information for each of our last three fiscal years, summarizing the compensation paid to our former chief executive officer, our current chief executive officer and each of our next four most highly compensated executive officers or "named executive officers" who were serving as such at the end of our last completed fiscal year. SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION AWARDS ANNUAL COMPENSATION ----------------------------- ---------------------------------- SECURITIES OTHER ANNUAL UNDERLYING SALARY BONUS COMPENSATION OPTIONS/SARS) COMPENSATION NAME & PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) (#)(3) ($)(4) ------------------------- ---- -------- -------- ------------ -------------- ------------ John H. Walker* 2000 $234,783 $ -0- $ 24,726 402,500 $ -- President and Chief 1999 n/a -- -- -- -- Executive Officer 1998 n/a -- -- -- -- David L. Robertson 2000 $260,400 $ -0- $1,159,103 290,478 $ -- Executive Vice Pres. 1999 240,000 245,000 56,825 -- -- Human Resources & Law 1998 231,795 19,507 56,183 -- 218 Thomas W. Evans 2000 $170,352 $100,000 $ 241,812 28,750 $ -- Vice President- 1999 163,392 -- -- -- -- Materials Management 1998 157,008 14,064 36,895 -- 218 Richard K. Riederer** 2000 $435,000 $ -0- $1,845,556 517,500 $ -- Former Chief Executive Officer 1999 435,000 875,000 422,600 -- -- 1998 425,000 54,167 349,626 -- 219 Earl E. Davis*** 2000 $260,400 $ -0- $1,473,711 100,000 $ -- Former Executive Vice 1999 240,000 245,000 47,917 -- -- President-Affiliated Operations 1998 225,006 19,507 43,759 21,000 219
--------------- * Mr. Walker served as Chief Operating Officer from March 2000 until January 2001 and became Chief Executive Officer on January 25, 2001. See "Employment Agreements with Certain Executives" for information about employment agreements with Messrs. Walker, Robertson and Evans. ** Mr. Riederer resigned as chief executive officer effective January 25, 2001. *** Mr. Davis resigned as an officer effective February 28, 2001. (1) Bonuses for 1999 were awarded by the management development and compensation Committee of our board of directors to the named executive officers in the amounts indicated for developing and realizing value for stockholders through the sale of a portion of our interest in MetalSite L.P. which 79 generated net cash proceeds of $170.1 million. Not shown in the table were performance incentive plan awards, which had been reported in previous years. (2) Under the terms of our supplemental executive retirement plans, or "SERPs," we pay income taxes associated with contributions made to trusts established under the SERPs on behalf of the named executive officers while the SERPs are being funded. The following "tax gross-up" payments are included in the table: $396,343, $199,654, $777,368, $49,853 and $24,726 for Messrs. Riederer, Robertson, Davis, Evans, and Walker, respectively. The amount of SERP contribution, in the case of any individual, is determined by various factors including: age, compensation, years of service with us and anticipated retirement benefits from qualified pension plans. As shown in the tables below, the named executive officers exercised previously granted stock options during 2000. The following amounts of option related compensation have been included in this column: $1,449,213, $696,343, $959,449, and $191,359 for Messrs. Riederer, Davis, Robertson, and Evans, respectively. Aggregate amounts of perquisites and other personal benefits that are the lesser of $50,000 or 10% of each of the respective named executive officer's combined salary and bonuses, have been omitted from the table in accordance with SEC rules. (3) For 1999 and 2000, the figures reflect numbers of shares underlying options granted under our 1998 stock option plan. For 1998, the figures reflect numbers of shares underlying options granted under our 1987 stock option plan. (4) Amounts reported represent contributions made by us on behalf of the named executive officers pursuant to the terms of Weirton's 1989 ESOP. OPTION/SAR GRANTS The following table sets forth information about stock options and/or stock appreciation rights (SARs) granted during 2000 to the named executive officers. Option/SAR Grants in last fiscal year -- Individual Grants
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE % OF TOTAL APPRECIATION FOR OPTIONS OPTIONS OPTION TERM GRANTED GRANTED TO EXERCISE OR EXPIRATION ----------------------- NAME IN 2000#(1) EMPLOYEES BASE PRICE(3) DATE(2) 5%($)(3) 10%($)(3) ---- ----------- ---------- -------------- ---------- --------- ---------- J.H. Walker.......... 402,500 20.2% $5.56 5/24/10 $-- $ -- D.L. Robertson....... 290,478 14.6% $6.69 5/24/10 $-- $ -- T.W. Evans........... 28,750 1.4% $6.69 5/24/10 $-- $ -- R.K. Riederer........ 517,500 25.9% $6.69 5/24/10 $-- $ -- E.E. Davis........... 100,000 5.0% $6.69 5/24/10 $-- $ --
--------------- (1) Options granted pursuant to our 1998 stock option plan were granted in October 2000 at a price of $5.56 for Mr. Walker and $6.69 for the other named executive officers, with an expiration date of May 24, 2010. The options are subject to an accelerated vesting schedule based on the price of our common stock. (2) The dates shown are those assuming continued employment with Weirton for the full term of the options. Options held by Mr. Riederer expired unexercised April 25, 2001. Options held by Mr. Davis expired unexercised May 28, 2001. (3) On October 26, 2001, the closing price was $0.36 per share of our common stock. Given that these options are, at present, significantly "out of the money," and in light of our current financial condition and the recent de-listing of our common stock from the New York Stock Exchange, it is our view that these options are of negligible value. 80 OPTION/SAR EXERCISE/OUTSTANDING OPTIONS AND YEAR-END VALUES The following table sets forth information regarding the exercise of stock options and SARs during 2000 and the unexercised options/SARs held as of the end of the 2000 fiscal year by the named executive officers. AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF VALUE OF SECURITIES UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS OPTIONS/SARS AT FISCAL AT FISCAL YEAR- YEAR END (#) END ($) SHARES --------------------- --------------- ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE NAME (#) ($) (1) (2) ---- ----------- --------- --------------------- --------------- J.H. Walker............................ -- -- -0-/402,500 $ -- D.L. Robertson......................... 290,478 959,449 145,022/290,478 $ -- T.W. Evans............................. 28,750 191,959 100,250/28,750 $ -- R.K. Riederer.......................... 557,500 1,449,213 50,000/517,500 $ -- E.E. Davis............................. 100,000 696,343 337,500/100,000 $ --
--------------- (1) The figures shown represent options granted under our 1987 option plan and our 1998 Option Plan. Of the options granted prior to December 31, 1999 under our 1998 option plan, 60% became exercisable on February 3, 2000, and the remaining 40% on March 27, 2000. The options granted in October 2000 under our 1998 option plan remain unexercisable. Options held by Mr. Riederer expired unexercised on April 25, 2001. Options held by Mr. Davis expired unexercised on May 28, 2001. (2) The "Value of Unexercised In-the-Money Options/SARs at Fiscal Year-End" is zero because the closing price ($1.19 per share) of our common stock on the New York Stock Exchange on its last trading day in 2000 (December 29, 2000) was less than the exercise price ($4.375 for the options granted in 1995, $2.50 for the options granted in 1996, $3.88 for the options granted in 1998, $5.56 and $6.69 for options granted in 2000). EMPLOYMENT AGREEMENTS WITH CERTAIN EXECUTIVES Mr. Walker, our president and chief executive officer, who also serves as a member of our board of directors, has an employment agreement with Weirton providing a base salary of $375,000. The agreement also provides for supplemental disability income and supplemental life insurance. The agreement may be terminated by us or by the employee. The agreement requires us to pay 24 months compensation in a lump sum within 10 days of the termination date if such agreement is terminated by us without cause. Mr. Robertson and Mr. Evans have employment agreements with us which requires us to pay 24 months compensation in a lump sum within 10 days of the termination date if such agreements are terminated by us without cause. Each of the agreements may be terminated by us or by the employee. 81 PENSION PLAN PENSION PLAN TABLE
YEARS OF SERVICE ----------------------------------------------------- FINAL AVERAGE EARNINGS 15 20 25 30 35 ---------------------- ------------- ------- ------- ------- ------- $125,000......................... 61,875 68,750 68,750 67,750 74,375 150,000.......................... 74,250 82,500 82,500 82,500 89,250 200,000.......................... 99,000 110,000 110,000 110,000 119,000 250,000.......................... 123,750 137,500 137,500 137,500 148,750 300,000.......................... 148,500 165,000 165,000 165,000 178,500 400,000.......................... 198,000 220,000 220,000 220,000 238,000 500,000.......................... 247,500 275,000 275,000 275,000 297,500 600,000.......................... 297,500 330,000 330,000 330,000 357,000 700,000.......................... 346,500 385,000 385,000 385,000 416,500 800,000.......................... 396,000 440,000 440,000 440,000 476,000
The figures in the pension table reflect the sum of annual benefits from the qualified pension plan plus expected annual benefits from the non-qualified SERPs (both administered by Weirton), payable for life following assumed retirement at age 62. The SERPs are "target benefit" plans under which we contribute to separate trusts actuarially determined amounts which are calculated to produce the defined target annual benefit at age 62. Under both the qualified pension plan and the SERPs, the amount of pension is based upon the employee's average earnings (average of the highest five years of the last fifteen years). For those participating in a SERP, expected benefits are based on earnings defined as annual cash compensation (as reported in the salary and bonus columns of the summary compensation table) and pension service credited under the SERPs. The benefits reflected in the pension table include maximum total benefits, under all plans, of 55% of final average earnings upon attainment of 16 2/3 years of pension service. Under a contract between Weirton and Mr. Walker, his maximum total benefit is 70% of final average earnings at age 62 and attainment of 10 years of service. For the named executive officers, pension service as of December 31, 2000 for the purpose of calculating retirement benefits under the SERPs was as follows: Mr. Walker: 9.33 years; Mr. Robertson: 12.25 years; Mr. Riederer: 11.92 years; Mr. Evans: 14.75 years; Mr. Davis: 30.58 years. Under a contract with us, Mr. Robertson, who had prior pension service with us through its predecessor, was entitled to an additional five years of benefit service under the SERPs upon commencement of employment. Effective December 31, 2001 the senior SERP will be terminated. 82 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following tables set forth the beneficial ownership of Weirton's common stock and Series A convertible preferred stock as of September 30, 2001 by each person or group known by us to beneficially own more than five percent of the outstanding common stock and Series A convertible preferred stock, by each director and executive officer and by all directors and executive officers as a group. Included are those shares of common stock, if any, allocated under the 1984 ESOP. The table also sets forth the number of shares of Series A convertible preferred stock, if any, allocated under the 1989 ESOP through the latest allocation date (December 31, 1998), and the percentage of outstanding common stock and Series A convertible preferred stock represented thereby. Unless otherwise indicated, and except for shares allocated to the accounts of employees under the terms of the 1984 ESOP and 1989 ESOP, the holders of all shares shown in the table have sole voting and investment power with respect to such shares. In determining the number and percentage of shares beneficially owned by each person, shares that may be acquired by such person pursuant to options or convertible stock exercisable or convertible within 60 days of the date hereof are deemed outstanding for the purposes of determining the total number of outstanding shares for such person and are not deemed outstanding for such purpose for all other stockholders. Except as indicated in the footnotes, Weirton believes that the person named in the table have the sole voting and investment power with respect to all shares shown as beneficially owned by them. COMMON STOCK
SHARES PERCENT NAME AND ADDRESS BENEFICIALLY OWNED OWNED BENEFICIALLY(1) ---------------- ------------------ --------------------- United National Bank, as Trustee under the 1984 ESOP.... 7,838,957(2) 18.5% 21 Twelfth Street Wheeling, WV 26003 Wendell W. Wood......................................... 3,751,500(3) 8.9% P.O. Box 5548 Charlottesville, VA 22905 John W. Adams, et al(4)................................. 3,570,500(3) 8.4% 885 Third Avenue, 34th floor New York, NY 10022 Dimensional Fund Advisors, Inc. ........................ 3,473,650(3) 8.2% 1299 Ocean Avenue, 11th floor Santa Monica, CA 90401 Michael Bozic........................................... 106,400(5)(7) * Richard R. Burt......................................... 43,660(5) * Robert J. D'Anniballe, Jr. ............................. 20,521(5) * Earl E. Davis........................................... 359,512(6) * George E. Doty, Jr...................................... 48,559(5)(7) * Thomas W. Evans......................................... 141,775(6) * Mark G. Glyptis......................................... 3,719 * Ralph E. Reins.......................................... 40,521(7) * Robert S. Reitman....................................... 73,476 * Richard K. Riederer..................................... 117,775(6) * David L. Robertson...................................... 445,800(6) * Richard F. Schubert..................................... 21,821(7) * Thomas R. Sturges....................................... 47,733(5)(7) * John H. Walker.......................................... 603,731(6) * Ronald C. Whitaker...................................... 119,852(5)(7) * D. Leonard Wise......................................... 10,055(7) * All directors and executive officers as a group (21 3,767,835(8) 8.9% persons)..............................................
83 SERIES A CONVERTIBLE PREFERRED STOCK
SHARES PERCENT NAME AND ADDRESS BENEFICIALLY OWNED OWNED BENEFICIALLY(1) ---------------- ------------------ --------------------- United National Bank, as Trustee under the 1989 ESOP...... 1,467,027(9) 96.7% 21 Twelfth Street Wheeling, WV 26003 Earl E. Davis............................................. 691 * Thomas W. Evans........................................... 882 * Mark G. Glyptis........................................... 421 * Richard K. Riederer....................................... 1,065 * David L. Robertson........................................ 288 * John H. Walker............................................ 518 * All directors and executives as a group (21 persons)...... 6,035 *
--------------- (1) An asterisk in this column indicates ownership of less than 1%. (2) All shares have been allocated to the accounts of participants in the 1984 ESOP consisting of approximately 5,263 employees and former employees of the Company. Participants generally have full voting but limited dispositive power over securities allocated to their accounts. (3) Based on Schedules 13G and 13D filed by the named beneficial owners with the SEC as follows: Schedule 13D filed by Wendell W. Wood dated January 7, 2000; Schedule 13G filed by John W. Adams, et al, dated December 31, 2000; and Schedule 13G filed by Dimensional Fund Advisors, Inc. dated December 31, 2000. (4) Includes 2,164,500 shares beneficially owned by JWA Investments II, L.P., and 1,406,000 shares beneficially owned by JWA Investments III, L.P. JWA Investments Corp., of which Mr. Adams is the sole stockholder, is the general partner of JWA Investments II, L.P., and JWA Investments III, L.P. (5) Includes 94,043, 43,660, 48,559, 43,349, and 117,852 shares credited to the accounts of Messrs. Bozic, Burt, Doty, Sturges, and Whitaker, respectively, under the Deferred Compensation Plan for Directors, over which shares the named individuals do not exercise voting and/or investment power until distribution. (6) Includes shares subject to options currently exercisable (or exercisable within 60 days): Messrs. Davis 337,500, Evans 129,000, Walker 66,667, Riederer 50,000, and Robertson 145,022. Mr. Riederer had 517,500 options which expired unexercised April 25, 2001. Mr Davis has 100,000 options which expired unexercised May 28, 2001. (7) Includes stock credited for 2000 directors' fees. (8) Includes 792,773 shares subject to options currently exercisable as of September 15, 2001. (9) All shares have been allocated to the accounts of participants in the 1989 ESOP consisting of approximately 6,192 employees and former employees of the Company. Participants generally have full voting but limited dispositive power over securities allocated to their accounts. 84 DESCRIPTION OF OTHER INDEBTEDNESS AND FINANCING ARRANGEMENTS SENIOR CREDIT FACILITY On October 26, 2001 we entered into a new $200 million syndicated senior secured credit facility with Fleet Capital Corporation, which serves as agent for itself and the other lenders under the facility, Foothill Capital Corporation, which serves as syndication agent for the facility, and The CIT Group/Business Credit Inc., and GMAC Business Credit LLC, which serve as co-documentation agents for the facility, to refinance our existing revolving credit facility and accounts receivable securitization program. Through this new asset-based facility, we believe that we will be able to more effectively borrow against our current assets and generate additional availability of approximately $35 to 40 million (based on existing levels of current assets) to provide us with greater liquidity for our working capital requirements and general corporate purposes. The senior credit facility, which matures on March 31, 2004, consists of up to $200.0 million of available loans secured by our accounts receivable (including related general intangibles) and inventory, including a $25.0 million letter of credit subfacility and a $25.0 million tandem mill subfacility, which in addition to the collateral described above, is also secured by the real property constituting our No. 9 tin tandem mill and all equipment and fixtures located on that property. Although a portion of the senior credit facility will be secured by our No. 9 tin tandem mill, we will be permitted, with the reasonable consent of the lenders under the facility, to enter into a sale and leaseback or other financing involving the No. 9 tin tandem mill subject to reductions in availability under the senior credit facility. Amounts actually available to us from time to time under the senior credit facility are limited to the lesser of $200.0 million less reserves or our borrowing base less reserves. The borrowing base is defined as the sum of: - 85% of our eligible accounts receivable calculated on a daily basis (subject to adjustment by the agent in its reasonable judgment); plus - up to 85% of the appraised net orderly liquidation percentage of certain of our inventory calculated on a weekly basis (subject to adjustment by the agent in its reasonable judgment), not to exceed $100 million; minus - the unpaid balance of the No. 9 tin tandem mill subfacility; minus - an availability reserve initially equal to $20 million, which will increase to $30 million in the event that we enter into a sale and leaseback or other permitted financing transaction related to our No. 9 tin tandem mill. Borrowings under our senior credit facility bear interest at variable rates on the basis of either LIBOR or the prime rate announced from time to time by Fleet National Bank, at our option, plus an applicable margin. During the first year of our credit facility the applicable margins will be 3.50% with respect to borrowings accruing interest on a LIBOR basis and 2.00% with respect to borrowings accruing interest on the basis of Fleet's prime rate. Thereafter, the applicable margin with respect to borrowings under the LIBOR option will range from 3.00% to 3.75% per annum, and with respect to borrowings under the prime rate option will range from 1.50% to 2.25% per annum. In either case, the applicable margin will be adjusted quarterly beginning in October 2002 and will be lowered as the unborrowed availability under the senior credit facility increases. In addition to such interest, we will also pay a commitment fee equal to 0.50% per annum on unused portions of the facility. Our senior credit facility also contains various restrictive covenants that, among other things, impose limitations on: - our ability to merge or consolidate with or otherwise make capital acquisitions and expenditures except for capital acquisitions, including certain capitalized leases, not exceeding specified maximum annual amounts in each fiscal year; 85 - prepay the new senior secured discount notes upon a change of control or similar event; - our ability to incur additional indebtedness or allow the creation of additional liens on our assets (except under certain circumstances, including most significantly indebtedness which is subordinated to our obligations under the senior credit facility and approved by the lenders, purchase money indebtedness and indebtedness incurred with a permitted financing relating to our No. 9 tin tandem mill); - certain transactions among affiliates; - certain dispositions of our assets (with certain exceptions, including most significantly, inventory disposed of in the ordinary course, the sale and leaseback of our Foster-Wheeler Steam Generating Plant by certain of our vendors as described elsewhere in this prospectus and the disposition of the No. 9 tin tandem mill as permitted under the senior credit facility); - our ability to make certain types of investments and loans or enter into joint ventures; - our ability to make amendments to documents evidencing certain of our indebtedness, including, after completion of this exchange offer, the indentures evidencing series 1989 bonds, the new secured series 2001 bonds, the outstanding notes and the new senior secured discount notes; and - our ability to make dividend and other distributions to our shareholders. We are also prohibited from entering into any agreements which would limit our ability to create liens upon any of our property, except pursuant to the senior credit facility and the indenture governing the outstanding notes and the new senior secured discount notes. Our senior credit facility also requires us to demonstrate to the lenders that within 120 days of the closing of the senior credit facility, we will achieve additional liquidity of at least $30 million through our vendor financing programs, and that within 180 days of the closing of the senior credit facility that we will achieve the projected labor-related savings as a result of our new labor contract and related changes in labor practices and operations. The senior credit facility also contains default provisions which, if triggered, permit the lenders to stop advancing funds, to us and allow the lenders to accelerate the maturity of all indebtedness under the senior credit facility. These default provisions include failure to pay principal or interest when due, breach of covenants, breach of obligations under related loan documents, the determination that any of our representations or warranties made to the lenders are false or misleading in any material respect, defaults under our other debt instruments, the acquisition by a person or entity of greater than 50% of our voting stock or the power to elect a majority of our board and the entry of judgment of a specific size against us and the failure to satisfy such judgment. Under the senior credit facility, following the consummation of the exchange offers on the terms and conditions described in this prospectus, we will be able to make scheduled semi-annual cash interest payments on the new senior secured discount notes and in respect of the new secured series 2001 bonds, provided that these cash payments are reserved for against availability under the facility. The reserve will reduce amounts available to us under the senior credit facility up to a maximum of approximately $6 million in any six month period, assuming valid tenders of all of the aggregate principal amount of the outstanding notes and series 1989 bonds. In the event that less than all of the aggregate principal amount of the outstanding notes and series 1989 bonds are tendered in the exchange offers, we are permitted to make cash interest payments on any remaining outstanding notes and series 1989 bonds of up to $4 million in any year subject to similar reservation against availability under the facility. If we do not successfully complete the exchange offers, under our voluntary financing restructuring plan presented to our senior bank lenders and as reflected in our senior credit facility, we will not make scheduled cash interest payments for a period of at least one year on any outstanding notes and series 1989 bonds. Thereafter, any interest payments will be made, provided that these payments are included in the reserve under the senior credit facility described above. 86 VENDOR FINANCING PROGRAMS We have obtained assistance from our key vendors through our vendor financing programs to improve our near term liquidity. Under the vendor financing programs, we have negotiated arrangements with over 60 vendors in the form of purchase credits or other concessions to achieve one-time cash benefits of at least $30 million in the aggregate. The vendor financing programs have been structured principally as a sale and leaseback transaction of our Foster-Wheeler Steam Generating Plant, including the related real property and certain related energy generating equipment, and direct advances or concessions by certain vendors. In addition, we expect to enter into a sale and leaseback of our general office building and research and development building. The Foster-Wheeler sale and leaseback transaction has been accounted for as a financing or borrowing transaction. Under the Foster Wheeler financing transaction, the basic rental payment is an amount calculated on a straight line amortization basis derived by taking the lease balance, amortized over the then remaining years between January 1, 2003 and December 31, 2012, at an interest rate equal to 12% until December 31, 2007 and 16% after such date, with level annual payments made on a quarterly basis. Although the lease may be prepaid at any time, such prepayments are to be applied against the unamortized lease balance in the inverse order of maturity. The lease will terminate prior to the end of the lease term if the unamortized lease balance has been paid in full. Upon such termination, the assets may be repurchased for $10.00. Until December 31, 2007, we are required to make prepayments on a quarterly basis in an amount equal to the net profits, if any, received by us in the immediately preceding calendar quarter under the terms of a power sales agreement between us and Allegheny Power. We are also required to make annual prepayments beginning on March 31, 2003, based on the average annual hot band prices in excess of $305 per ton in the preceding year. If we receive net cash proceeds of at least $100 million resulting from a non-recurring, non-operating gain arising out of an asset disposition or substantially similar transaction or achieve an average net income of at least $12.5 million per quarter over eight consecutive quarters, the lessor under the lease may require us to repurchase the assets at a price equal to the then unamortized lease balance, provided that any such repurchase does not conflict with or violate any of our financing arrangements, debt instruments or other agreements evidencing indebtedness. SENIOR NOTES DUE 2004 AND SENIOR NOTES DUE 2005 As of September 30, 2001, $122.7 million in principal amount of 11 3/8% Senior Notes due 2004 is outstanding, and $121.3 million in principal amount of 10 3/4% Senior Notes due 2005 is outstanding. The 11 3/8% Senior Notes due 2004 have a maturity date of July 1, 2004, and the 10 3/4% Senior Notes due 2005 have a maturity date of June 1, 2005. The Senior Notes due 2004 bear interest at a rate of 11 3/8% per annum, and the Senior Notes due 2005 bear interest at a rate of 10 3/4% per annum. We pay the interest semi-annually on July 1 and January 1 of each year to holders of record of the 11 3/8% Senior Notes due 2004 at the close of business on June 15 or December 15 immediately preceding each such interest payment date. We pay the interest semi-annually on June 1 and December 1 of each year to holders of record of the 10 3/4% Senior Notes due 2005 at the close of business on May 15 or November 15 immediately preceding each such interest payment date. The outstanding notes are unsecured obligations and are pari passu with all of our existing and future senior unsecured indebtedness. In a bankruptcy, obligations represented by the outstanding notes would be treated as unsecured claims, together with other unsecured claims, such as the obligations represented by the series 1989 bonds indebtedness under the new senior secured discount notes, the new secured series 2001 bonds and the senior credit facility, to the extent the collateral securing those claims is insufficient, trade payables, contract rejection and litigation claims, together with unsecured employee benefit claims. Of the unsecured claims, in the event a bankruptcy case is commenced, certain administrative expenses may be entitled to priority status for payment purposes over other unsecured claims. Claims that may be entitled to priority status, include but are not limited to, claims for professional fees, claims for operational shutdown and liquidation costs, and to a limited extent, claims for employee wages and benefits and 87 contributions to pension plans. As of September 30, 2001, total unsecured claims in a liquidation of Weirton are estimated to exceed $2 billion. Of those claims, a significant amount could be assigned priority status under applicable bankruptcy laws. Consequently, in a bankruptcy, owners of the outstanding notes may receive repayment of little or none of the principal amount of their outstanding notes. We can redeem the outstanding notes at our option in whole or in part at any time prior to maturity upon not less than 30 nor more than 60 days' notice. Upon redemption, holders of the 11 3/8% Senior Notes due 2004 will receive the redemption price set out below, expressed as a percentage of the principal amount of the 11 3/8% Senior Notes due 2004, together with accrued interest to the redemption date.
PERIOD COMMENCING REDEMPTION PRICE ----------------- ---------------- July 1, 2001................................................ 102.8438% July 1, 2002 and thereafter................................. 100.0000%
Upon redemption, holders of the 10 3/4% Senior Notes due 2005 will receive the redemption price set out below, expressed as a percentage of the principal amount of the 10 3/4% Senior Notes due 2005, together with accrued interest to the redemption date.
PERIOD COMMENCING REDEMPTION PRICE ----------------- ---------------- June 1, 2001................................................ 102.6875% June 1, 2002 and thereafter................................. 100.0000%
If less than all of a series of outstanding notes are redeemed, the applicable trustee will select which notes will be redeemed (in principal amounts of $1,000 or integral multiples thereof) on a pro rata basis or by a method that complies with applicable legal and stock exchange requirements. In the event that a change in control occurs, holders of the outstanding notes have the right, at their option, to require us to repurchase all or any part of their outstanding notes for a price equal to 101% of the principal amount of their outstanding notes plus accrued interest, if any. A change in control includes, among other things, the following events: - any person or group becomes the beneficial owner of more than 50% of the voting power of our outstanding voting capital stock (other than 1984 ESOP, 1989 ESOP or any other of our employee benefit plans); - we sell, lease or otherwise transfer more than 75% of our assets to any person other than one of our wholly-owned subsidiaries; - our continuing directors cease to form a majority of our board of directors; and - our shareholders approve any plan or proposal for our liquidation or dissolution. The following are events of default with respect to our obligations under the outstanding notes: - the failure by us to pay principal when due; - the failure by us to pay interest on any note when due, which continues for 30 days; - the failure by us to perform any of our other covenants in the indenture continuing for 60 days after notice from the trustee; - acceleration of the maturity of our other indebtedness in excess of $25 million, which acceleration is not rescinded or discharged within 10 days after notice; and - certain events of bankruptcy, insolvency or reorganization involving us. If an event of default with respect to the outstanding notes occurs and continues, the trustee or the holders of at least 25% in aggregate principal amount of the outstanding notes outstanding may, by notice, 88 declare all unpaid principal and accrued interest on the outstanding notes then outstanding to be due and payable immediately. At any time after such declaration of acceleration has been made, the holders of a majority in aggregate principal amount of the outstanding notes may, under certain circumstances, waive such declaration. Except in limited situations, the trustee is under no obligation to exercise any of its rights or powers under the indenture at the request of holders of the outstanding notes unless the trustee received security and indemnity satisfactory to it. The holders of a majority in aggregate principal amount of all outstanding notes have the right to direct the time, method and place of conducting any proceeding for exercising any remedy or power available to the trustee, provided that such direction does not conflict with any rule of law or with the indenture. The holders do not have any right to institute any proceeding with respect to the indentures unless: - the trustee has failed to act within 60 days after notice of an event of default; - the holders of at least 25% in principal amount of the outstanding notes have made a request to the trustee; and - the trustee has received an indemnity satisfactory to it. These limitations do not apply to a suit instituted by a holder of the outstanding notes for enforcement of any overdue payment. Under the terms of the indentures governing the outstanding notes, we cannot consolidate or merge with or into any other person and will not sell, lease, convey or otherwise dispose of all or substantially all of our assets unless: - the person formed by such consolidation or merger, or the person which acquires by transfer, conveyance, sale, lease or other disposition all or substantially all of our assets as an entity be a company organized and validly existing under the laws of the United States or any state thereof, including the District of Columbia, and will expressly, through a supplemental indenture, all of our obligations under the outstanding notes and the indenture; - immediately after the transaction, no event of default will have occurred and be continuing; and - the person formed by such consolidation or merger, or the person which acquires by transfer, conveyance, sale, lease or other disposition all or substantially all of our assets as an entity satisfies certain financial covenants. We and the applicable trustee may make modifications and amendments to the indentures governing the outstanding notes with the consent of the holders of not less than a majority in principal amount of the outstanding 11 3/8% Senior Notes due 2004 or 10 3/4% Senior Notes due 2005, as applicable. However, we cannot make any of the following modifications or amendments to the 11 3/8% Senior Notes due 2004 or 10 3/4% Senior Notes due 2005 without the consent of each holder interest who is affected by any of the following: - reduction of the interest rate on any 11 3/8% Senior Notes due 2004 or 10 3/4% Senior Notes due 2005 or changes to the time and place for interest rate payments; - reduction of the amount payable on redemption; - reduction of the principal of any 11 3/8% Senior Notes due 2004 or 10 3/4% Senior Notes due 2005 or changes to the fixed maturity and the place of payment for the principal; - changes to the currency in which principal or interest is payable; - reduction in the principal amount of outstanding 11 3/8% Senior Notes due 2004 or 10 3/4% Senior Notes due 2005 required for modification or amendment of the indenture or for waiver of compliance with certain provisions of the indenture or the waiver of certain defaults; 89 - impairment of the right to institute a lawsuit for the enforcement of any payment on the 11 3/8% Senior Notes due 2004 or 10 3/4% Senior Notes due 2005; or - modifications to any of the foregoing requirements. The holders of not less than a majority in principal amount of each series of the outstanding notes may waive certain past defaults. The outstanding notes and the indentures governing them are governed by the laws of the State of New York. For more information regarding the outstanding notes, see "Summary Comparison of Key Differences Between the Senior Secured Discount Notes and the Outstanding Notes." POLLUTION CONTROL REVENUE BONDS SERIES 1989 BONDS The City of Weirton, West Virginia issued the series 1989 bonds in the aggregate principal amount of $56.3 million pursuant to an indenture of trust between the City of Weirton and Pittsburgh National Bank, the bond trustee. The series 1989 bonds bear interest at a rate of 8 5/8% per annum, payable on May 1 and November 1 of each year until maturity. Pursuant to a loan agreement, the City of Weirton loaned the proceeds from the sale of the series 1989 bonds to us for the purpose of financing the cost of refunding certain pollution control bonds that had previously been issued by the City of Weirton to finance or refinance the acquisition, construction and installation of certain pollution control equipment which was leased by the City of Weirton to, or owned by, us. We have entered into a loan agreement with the City of Weirton which requires us to repay the loan to the City of Weirton at the times and in the amounts necessary to enable the City of Weirton to make full and timely payment of the principal of, premium, if any, and interest on, the series 1989 bonds when due. Our obligations under the loan agreement are unsecured obligations and are pari passu with all of our unsecured and unsubordinated indebtedness. Pursuant to the indenture of trust, the City of Weirton assigned to the bond trustee, for the benefit of the holders of the series 1989 bonds, certain of the City of Weirton's rights under the loan agreement, including, but not limited to, the City of Weirton's right under the loan agreement to receive payments from us of the principal of, premium, if any, and interest due, on our loan from the City of Weirton. The series 1989 bonds are limited obligations of the City of Weirton payable solely from the revenues derived by the City of Weirton from us under the loan agreement to the extent pledged by the City of Weirton to the bond trustee under the terms of the Indenture and from certain other funds pledged and assigned as part of the trust estate under the Series 1989 Bond indenture. Neither the City of Weirton, the State of West Virginia nor any other political subdivision of the State of West Virginia is obligated to pay the principal of the series 1989 bonds or the interest thereon or other costs incident thereto except from the revenues and other amounts pledged for such payments. Neither the general credit nor the taxing power of the City of Weirton or the State of West Virginia or any other political subdivision thereof is pledged to the payment of the principal of, premium, if any, or interest on the series 1989 bonds or other costs incident to those bonds. The series 1989 bonds and the interest thereon are not a charge upon the tax revenues of the City of Weirton, or a charge upon any other revenues or property of the City of Weirton not specifically pledged. The series 1989 bonds were sold on the basis that, assuming we continue to comply with covenants contained in the loan agreement and other documents, instruments and agreements executed in connection with the loan agreement, and with certain exceptions, interest on the series 1989 bonds indenture would not be includable in the gross income of the holders thereof for federal income tax purposes and that such interest is also exempt from taxation by the State of West Virginia except for inheritance, estate and transfer taxes. 90 We have requested the City of Weirton to amend, and the City has begun the process of amending, certain provisions of the series 1989 bonds indenture or the loan agreement to, among other things, eliminate the limitations on liens and limitation on sale and leaseback covenants and to modify other provisions, subject to the prior written consent of the holders of the Series 1989 Bond indenture as required pursuant to the terms of the series 1989 bonds indenture, and to issue its 9% Secured Pollution Control Revenue Refunding Bonds (Weirton Steel Corporation Project) Series 2001 due 2014 in exchange for all of its outstanding series 1989 bonds. The aggregate principal amount of the new secured series 2001 bonds, provisions regarding interest payments and redemption, and other covenants and provisions will be established by the City of Weirton by requisite municipal action expected to occur in November 2001 so that the series 1989 bonds exchange offer can be made concurrently with this exchange offer. It is intended that the terms of the series 1989 bonds exchange offer will be substantially equivalent to those contained in this exchange offer and that the economic terms of the new secured series 2001 bonds, including interest payment and accrual features and redemption provisions, will be substantially as set forth in the "Unaudited Pro Forma Consolidated Financial Statements." SECURED SERIES 2001 BONDS The new secured series 2001 bonds will be issued by the City of Weirton, West Virginia, under a new indenture with Chase Manhattan Trust Company, National Association, as Trustee. The new secured series 2001 bonds will be issued in exchange for series 1989 bonds as limited obligations of the City of Weirton. Upon issuance of the new secured series 2001 bonds in exchange for series 1989 bonds, the City of Weirton will be deemed to have made a loan to Weirton in an amount equal to the aggregate principal amount of the new secured series 2001 bonds pursuant to a new agreement in order to refinance all or a portion of our obligations with respect to the series 1989 bonds tendered in exchange for new secured series 2001 bonds. The series 1989 bonds were issued for the purpose of financing or refinancing a portion of the cost of acquiring, constructing and installing certain pollution control equipment in the steel manufacturing plant of Weirton located in the City of Weirton. All of the City of Weirton's rights under the agreement will be assigned to the trustee as security for the payment of the principal of, premium if any, and interest on the new secured series 2001 bonds, except for certain rights to notices, fees and indemnification payments. Concurrently with, and as a condition to the issuance of the new secured series 2001 bonds, we will grant a security interest in our hot strip mill pursuant to a deed of trust and other security documents to secure our obligations under the agreement. The City of Weirton, as issuer, will also assign its rights under the deed of trust to the trustee for the benefit of the holders of new secured series 2001 bonds. The new secured series 2001 bonds will be issued on the basis that, assuming we continually comply with certain covenants contained in the 2001 loan agreement and certain of the documents, instruments and agreements executed in connection therewith, and with certain exceptions, the original issue discount (which will include all stated interest) on the new secured series 2001 bonds generally will not be includable in the gross income of the holders thereof for United States federal income tax purposes under existing laws, regulations, published rulings and judicial decisions (except for original issue discount on any bonds held by certain holders) and will not be an "item of tax preference" for the purposes of the individual and corporate alternative minimum taxes imposed by the Code, and that such interest will also be exempt from taxation by the State of West Virginia except for inheritance, estate and transfer taxes. General No interest will be payable or will accrue on the new secured series 2001 bonds prior to January 2, 2004, although for United States federal income tax purposes, the new secured series 2001 bonds will be treated as having been issued with original issue discount. The new secured series 2001 bonds will bear interest at the rate of 9% per annum, from January 1, 2004, payable semiannually on January 1 and July 1 of each year, commencing July 1, 2004, to holders of record at the close of business on December 15 or 91 June 15 immediately preceding each such interest payment date. The new secured series 2001 bonds will be due on January 1, 2014, and will be issued only in registered form, without coupons, in denominations of $1,000 and integral multiples of $1.00. Ranking Our obligations under the new agreement and deed of trust which the City of Weirton has pledged to secure the new secured series 2001 bonds will be senior obligations of Weirton. Our obligations under the agreement which the City of Weirton has pledged to secure new secured series 2001 bonds will be secured pari passu with the new senior secured discount notes by a deed of trust and first priority security interest in our hot strip mill and will, therefore, (except as described in the following sentence) effectively rank senior to all of our unsecured indebtedness, including the series 1989 bonds, to the extent of the value of the hot strip mill. Our credit facility is secured by a first priority security interest in its accounts receivable and inventory (including related intangibles) and its No. 9 tin tandem mill and all related equipment and, therefore, effectively ranks senior to the new secured series 2001 bonds to the extent of the value of the collateral securing the senior credit facility. The new secured series 2001 bonds will be senior in right of payment to any indebtedness or obligation of Weirton (and any accrued and unpaid interest in respect thereof) that by its terms is subordinate or junior in any respect to any other indebtedness or obligation of Weirton, including any future subordinated obligations. Security for the Bonds and Source of Payment The new secured series 2001 bonds and the interest thereon will be limited obligations of the City of Weirton, as issuer, under the agreement, the deed of trust, and other amounts pledged pursuant to the terms of the indenture. Under the indenture, the City of Weirton will pledge and assign all of its right, title and interest in and to the agreement and all revenues and receipts payable thereunder (other than certain indemnification rights and certain fees and expenses of the City of Weirton) to the trustee for the benefit of the holders of the new secured series 2001 bonds. The new secured series 2001 bonds will be secured by a first priority lien (subject to certain liens to be permitted under the terms of the new indenture, the new agreement and the deed of trust) to be perfected on our hot strip mill, which is an integral part of our downstream steel processing operations. Our new senior secured discount notes will also be secured by a deed of trust and first priority security interest in our hot strip mill on a pari passu basis with the new secured series 2001 bonds. The hot strip mill, together with all other property and assets that are from time to time subject to the deed of trust and other security documents is herein collectively referred to as the "collateral." The collateral will be pledged to the trustee for the benefit of the holders of the new secured series 2001 bonds pursuant to the deed of trust, security agreements and other documents and agreements. For additional information about our hot strip mill, and the recent independent appraisal, see "Description of Senior Secured Discount Notes" and "Business -- General" and "-- Properties." Neither the City of Weirton, the State of West Virginia nor any political subdivision thereof shall be obligated to pay the principal of, premium, if any, or interest on the new secured series 2001 bonds or other costs incidental thereto except from the revenues and other amounts pledged therefore, and neither the general credit nor the taxing power of the City of Weirton, the State or any political subdivision thereof is pledged to the payment of the principal of, premium, if any, or interest on the new secured series 2001 bonds or other costs incidental thereto. No bondholder shall have the right to demand payment of the principal of, premium, if any, or interest on the new secured series 2001 bonds out of any funds to be raised by taxation. If the new secured series 2001 bonds become due and payable prior to their maturity for any reason, other than an optional redemption by the City of Weirton, or are not paid in full at their maturity and after any applicable grace period has expired, the trustee will have the exclusive right to foreclose or decline to foreclose upon, or otherwise exercise or decline to exercise remedies in respect of, the collateral in accordance with instructions from the holders of a majority in principal amount at maturity of the new 92 secured series 2001 bonds or, in the absence of such instructions, in such manner as the trustee deems appropriate in its sole and absolute discretion. If an event of default occurs under the indenture, as a result of a payment default or otherwise, and a declaration of acceleration of the new secured series 2001 bonds occurs as a result, the trustee, on behalf of the holders of the new secured series 2001 bonds, in addition to any rights or remedies available to it under the indenture, may take such action as it deems advisable to protect and enforce its rights in the collateral, including the institution of foreclosure proceedings. Proceeds from the sale of collateral will first be applied to the payment of the costs and expenses of the proceedings resulting in the collection of such monies and of the expenses, liabilities and advances made or incurred by the trustee and then applied to repay the new secured series 2001 bonds and the new senior secured discount notes, with any remaining proceeds to be payable to Weirton or as may otherwise be required by law. Monies paid in respect of the new secured series 2001 bonds will be applied to the payment of the principal and interest then due and unpaid, without preference or priority of principal over interest, or of interest over principal, or of any installment of interest over any other installment of interest, or of any new secured series 2001 bond over any other new secured series 2001 bond, ratably, according to the amounts due, respectively, for principal and interest. The collateral release provisions of the indenture and the security documents may permit the release of collateral without substitution of collateral of equal value under specified circumstances. Purchase in Lieu of Redemption Any new secured series 2001 bonds called for redemption under the indenture may be purchased by us, or any third party designated by us, on the date upon which such new secured series 2001 bonds were to have been redeemed at a purchase price equal to redemption price thereof, plus accrued interest thereon, if any, to, but not including, the repurchase date. Optional Redemption The new secured series 2001 bonds may not be redeemed at the option of the Issuer prior to January 1, 2004, except as described below under the heading "Extraordinary Optional Redemption." The new secured series 2001 bonds will be subject to redemption by the Issuer, at the direction of the Company in whole, at any time or in part on any interest payment date on or after January 1, 2004, at the following redemption prices (expressed as percentages of the principal amount at maturity), plus accrued or unpaid interest, if any, to the date fixed for redemption, if redeemed during the 12-month period beginning January 1 of the years indicated below:
YEAR REDEMPTION PRICE ---- ---------------- 2004........................................................ 105% 2005........................................................ 104% 2006........................................................ 103% 2007........................................................ 102% 2008........................................................ 101% 2009 and thereafter......................................... 100%
Extraordinary Optional Redemption The new series 2001 bonds will be subject to redemption by the Issuer in whole at any time at 100% of the principal amount thereof at maturity, plus interest accrued thereon to the date set for the redemption, if we elect to terminate the agreement upon the occurrence of the following events: - the Project (as defined in the indenture) shall have been damaged or destroyed, on which prevents our normal operation of the Project for a period of six months; 93 - title to, or the temporary use of all or substantially all, of the Project shall have been condemned by a competent authority which prevents our normal operation of the Project for a period of six months; or - as a result of constitutional, governmental or judicial actions, the agreement becomes void or unenforceable or the agreement becomes impossible of performance in accordance or unreasonable burdens or excessive liabilities are imposed upon us by reason of the operation of the Project; or - a change shall have occurred in the economic availability of raw materials, manufactured products, energy sources, operating supplies or facilities necessary for the operation of the Project, or such technological or other changes shall have occurred that, the Project is rendered uneconomic, impractical or unfeasible for the purposes for which it was originally constructed. Mandatory Redemption The new secured series 2001 bonds are subject to mandatory redemption prior to their maturity upon a "determination of taxability" with respect to any new secured series 2001 bond. If so called for redemption, the new secured series 2001 bonds shall be redeemed by the City of Weirton in whole at any time within 180 days after such determination of taxability, at 100% of the aggregate principal amount thereof at maturity, plus accrued interest to the date fixed for redemption. Designated Event Tender Option Right In the event there shall occur a designated event, equivalent to a "change of control" event, each holder of the new secured series 2001 bonds shall have the right, at the holder's option, to require the Issuer to purchase all or any part of such holder's new secured series 2001 bonds, at 101% of (a) the accreted value thereof, if such designated event occurs prior to January 1, 2004, or (b) the principal amount at maturity of the new secured series 2001 bonds plus accrued interest, if any, to the repurchase date, if such designated event occurs on or after January 1, 2004. Under the terms of this indenture, Weirton will be required to provide to the trustee sufficient cash funds to allow such repurchase. The occurrence of certain of the events which would constitute a designated event would constitute a default under Weirton's senior credit facility. Future senior indebtedness of Weirton may contain prohibitions of certain events which, if such events had been consummated, would have constituted a designated event or require such senior indebtedness to be repurchased upon a designated event. A designed event means: - any sale, lease or other transfer of more than 75% of the assets of Weirton; - a person or group (other than our ESOPs or any other employee benefit plan) becomes the "beneficial owner" of capital stock of Weirton representing more than 50% of the voting power of such capital stock, unless such acquisition of beneficial ownership of shares of voting power of Capital Stock of Weirton occurs, directly or indirectly, in connection with the financing of a Permitted Acquisition; - continuing directors cease to constitute at least a majority of the board of directors of Weirton; or - the stockholders of Weirton approve any plan or proposal for the liquidation or dissolution of Weirton. A Permitted Acquisition has the same meaning in the indenture governing the new senior secured discount notes. CERTAIN COVENANTS Under the new agreement between the City of Weirton and us, we are subject to two restrictive covenants. These restrictive covenants prohibit us issuing, assuming or guaranteeing any indebtedness secured by a lien, other than permitted liens, and from entering into certain sale and leaseback 94 transactions, subject to certain exceptions. These covenants are the same as those contained in the indenture governing the new senior secured discount notes. DEFAULTS AND REMEDIES Any of the following events will constitute an "event of default" or "default" under the indenture: (1) default in the payment of interest on any new secured series 2001 bond within 3 days after such payment was due; (2) default in the due and punctual payment of the principal of, or premium, if any, on any new secured series 2001 bond, whether at the stated maturity thereof, or upon proceedings for redemption thereof, or upon the maturity thereof by declaration; (3) default in the performance or observance of any other of the covenants, agreements or undertakings on the part of the City contained in the indenture or in the new secured series 2001 bonds and failure to remedy the same within 90 days after notice as provided in the indenture; or (4) A default in the due and punctual payment by Weirton of the purchase price of any new secured series 2001 bond tendered by the holder thereof pursuant to the tender option right set forth in the indenture, as required by the loan agreement; or (5) the occurrence and continuance of any "event of default" under the loan agreement. Upon the occurrence of an event of default under the indenture, the trustee may, and upon the written request of the holders of not less than 25% in aggregate principal amount of the new secured series 2001 bonds then outstanding shall, by notice in writing delivered to the City and us, declare the principal of all bonds then outstanding and the interest accrued thereon to be immediately due and payable. Upon any declaration of acceleration, the trustee shall immediately declare an amount equal to all amounts then due and payable on the new secured series 2001 bonds to be immediately due and payable under the loan agreement. 95 THE EXCHANGE OFFER AND CONSENT SOLICITATION This section of this prospectus describes this exchange offer and consent solicitation. WHILE WE BELIEVE THAT THE FOLLOWING DESCRIPTION COVERS THE MATERIAL TERMS OF THIS EXCHANGE OFFER AND CONSENT SOLICITATION, THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. FOR A MORE COMPLETE UNDERSTANDING OF THIS EXCHANGE OFFER AND CONSENT SOLICITATION, YOU SHOULD CAREFULLY READ THE ENTIRE DOCUMENT AND THE OTHER DOCUMENTS TO WHICH WE REFER. We are offering to exchange our 10% Senior Secured Discount Notes due 2008 for up to 100% of our 11 3/8% Senior Notes due 2004 and our 10 3/4% Senior Notes due 2005 on the terms set forth in this prospectus and in the accompanying consent and letter of transmittal. Concurrently with the exchange offer, we are soliciting consents to amend the indentures that govern the outstanding notes. If you tender any of your outstanding notes, you will automatically consent to amendments to the indentures governing those notes. The proposed amendments to the indentures include the elimination of certain restrictive covenants and events of default that are more fully described elsewhere in this prospectus. THE EXCHANGE OFFER PURPOSE OF THIS EXCHANGE OFFER We are making this exchange offer and the concurrent series 1989 bond exchange offer as a critical part of our overall strategic plan to reduce operating costs, improve our liquidity and working capital position, restructure our long-term debt and fundamentally reposition our business to focus on the production and sale of tin mill products and other higher margin value-added sheet products. Our strategic plan has five integral steps, the first three of which are now in place: - reducing our operating costs on an annual basis through the full implementation of a cost savings program which includes a workforce reduction, reductions to our employee benefits costs and other operating cost savings, which became effective in late October 2001 (estimated to generate approximately $51 million in annual cost savings when fully implemented in 2002); - improving our liquidity and long-term supplier relationships through vendor financing programs we entered into with over 60 suppliers, effective in late October 2001, and through ongoing negotiations with other suppliers of services and raw materials, such as coke (estimated to generate at least $30 million in additional near term liquidity); - increasing our borrowing availability and liquidity through the refinancing of our bank credit and asset securitization facilities, which became effective in late October 2001 (estimated to result in $35 million to $40 million in additional availability based on existing current asset levels); - restructuring our long-term debt and lowering our debt service costs through this exchange offer and the series 1989 bonds exchange offer by year end in order to increase our liquidity and financial flexibility by approximately $32 million per year in 2002 and 2003, as well as to provide greater overall financial stability, and to permit the fundamental repositioning of our business through strategic acquisitions and targeted investments; and - fundamental repositioning of our business to focus on tin mill and other higher margin value-added sheet products and significantly reduce our presence in the commodity flat-rolled product market through strategic acquisitions and targeted investments and further improvements to our operating cost structure by increasing the use of our hot strip mill capacity dedicated to tolling and converting stainless steel slabs and increasing the proportion of our coils used in our downstream finishing operations in the production of tin mill and other higher margin products. We seek to strengthen our position as a leading domestic full range producer of higher margin tin mill products by further shifting our product mix toward higher margin value-added products and away from 96 lower margin, commodity flat-rolled sheet products. Our strategy to meet this objective is to capitalize on our extensive market presence and strong competitive position as the second largest domestic producer of tin mill products and to leverage our existing strengths. These strengths include our superior product quality and range of product offerings, our strategic partnerships with large existing customers, and the design and configuration of our principal steel making facilities which are best suited to the production of narrow width tin mill and coated products. We are also pursuing niche market opportunities for higher margin value-added sheet products. The consummation of the concurrent exchange offers to restructure our long term debt is the critical next step in our plan. If we are unable to reduce our current debt obligations and extend debt maturities on the outstanding notes through the concurrent exchange offers and thus improve our liquidity and financial stability, we may be unable to attract the necessary outside debt or equity financing needed to implement the final step of our plan, the fundamental repositioning of our business through strategic acquisitions and targeted investments. If we are not successful in repositioning our business, the corporate restructuring and refinancing steps that we have taken to date may be inadequate to ensure our long term viability and competitiveness. IF WE ARE UNABLE TO CONSUMMATE THIS EXCHANGE OFFER AND THE SERIES 1989 BONDS EXCHANGE, WE MAY HAVE TO SEEK BANKRUPTCY PROTECTION OR COMMERCE LIQUIDATION OR ADMINISTRATIVE PROCEEDINGS. IN THAT CASE, OWNERS OF THE OUTSTANDING NOTES AND THE SERIES 1989 BONDS MAY ONLY RECEIVE REPAYMENTS OF LITTLE OR NONE OF THE PRINCIPAL AMOUNT OF THEIR NOTES OR BONDS. IN A BANKRUPTCY PROCEEDING, OUR ABILITY TO REPOSITION OUR BUSINESS WOULD ALSO BE SIGNIFICANTLY IMPAIRED, DELAYED OR MAY NEVER OCCUR. A NUMBER OF UNITED STATES STEEL PRODUCERS WHICH HAVE FILED FOR BANKRUPTCY PROTECTION OVER THE PAST TWO YEARS HAVE SUBSEQUENTLY COMMENCED LIQUIDATION PROCEEDINGS. TERMS OF THIS EXCHANGE OFFER AND CONSENT SOLICITATION If you tender outstanding notes before the exchange offer expires, you will receive $300 principal amount at maturity of new senior secured discount notes for each $1,000 principal amount of outstanding notes that you tender. In addition, for each $1,000 principal amount of outstanding notes that you tender before the consent solicitation expires, you will receive an additional $50 principal amount at maturity of new senior secured discount notes. The issue price of new senior secured discount notes will be $822.70 per $1,000 principal amount at maturity, which represents a yield to maturity of 10%. The new senior secured discount notes will be issued in multiples of $50, rounded down to the nearest $50. Upon the terms and subject to the conditions of the consent solicitation (including, if the consent solicitation is extended or amended, the terms and conditions of any such extension or amendment), we are also soliciting consents with respect to the proposed amendments to the indentures governing the outstanding notes. This consent solicitation is being made in order to obtain the requisite number of consents of the holders of the 11 3/8% Senior Notes due 2004 and 10 3/4% Senior Notes due 2005. Each indenture may be amended upon the consent of holders of at least a majority of the principal amount of notes outstanding under that indenture. If you desire to tender your outstanding notes pursuant to this exchange offer, you are required to consent to the proposed amendments, and the completion, execution and delivery of the consent and letter of transmittal by you, or the sending of an agent's message in connection with a book-entry transfer of notes, in connection with the tender of outstanding notes held by you will constitute consent by you to the proposed amendments with respect to such notes. If your outstanding notes are not properly tendered pursuant to this exchange offer on or prior to the date that the consent solicitation expires, or if your consent either is not properly delivered or is revoked and not properly redelivered, on or prior to the date that the consent solicitation expires, you will not receive the additional $50 principal amount at maturity of new senior secured discount notes, even though, assuming that we receive the requisite consents, the proposed amendments will be effective as to any outstanding notes that you tender after the consent solicitation expires but prior to the expiration of the exchange offer and to any outstanding notes that you do not tender for exchange. 97 IF YOU TENDER OUTSTANDING NOTES THAT YOU HOLD AFTER THE CONSENT SOLICITATION EXPIRES BUT BEFORE THE EXCHANGE OFFER EXPIRES, YOU WILL ONLY RECEIVE THE EXCHANGE OFFER CONSIDERATION AND YOU WILL NOT RECEIVE THE CONSENT PAYMENT. If we make a material change in the terms of this exchange offer or the information concerning this exchange offer or waive a material condition of this exchange offer, we will disseminate additional materials regarding this exchange offer and extend this exchange offer to the extent required by law. If the consent solicitation is amended on or prior to the date that the consent solicitation expires in a manner determined by us to constitute a material change to you, we will promptly disclose the amendment and, if necessary, extend the consent solicitation for a period deemed by us to be adequate to permit you to deliver consents. If any such amendment occurs after the consent solicitation expires, we may terminate the supplemental indentures with respect to each series of the outstanding notes and solicit consents for revised supplemental indentures. If you tender outstanding notes after the consent solicitation expires, you may validly withdraw those notes at any time up until the exchange offer expires. You will not be permitted to withdraw outstanding notes that you tender before the consent solicitation expires unless we reduce the exchange offer consideration or the consent payment or laws otherwise require that you be permitted to withdraw outstanding notes that you have tendered. You may not validly revoke a consent unless you validly withdraw your tendered notes, and your valid withdrawal will constitute the concurrent valid revocation of your consent. INTEREST We will not pay any of the interest on the outstanding notes tendered in this exchange offer, which has been accruing since the last payment of interest on the outstanding notes. Instead, any accrued and unpaid interest will be included as part of the total consideration received by you in the exchange. The last payment of interest on the 11 3/8% Senior Notes due 2004 was July 1, 2001 and the last payment of interest on the 10 3/4% Senior Notes due 2005 was June 1, 2001. MARKET TRADING AND INFORMATION REGARDING THE EXISTING NOTES The outstanding notes are listed on the New York Stock Exchange. The trading markets for outstanding notes are limited and sporadic, and prices may fluctuate significantly depending on the volume of trading in those notes and the balance between buy and sell orders for those notes. The most recent actual trading prices were 12.125% of par on $12,000 principal amount of the 10 3/4% Senior Notes due 2005 and 11.875% of par on $57,000 principal amount of the 11 3/8% Senior Notes due 2004, as reported on the New York Stock Exchange on October 23, 2001. We encourage you to obtain current price quotations. CONDITIONS TO THIS EXCHANGE OFFER AND CONSENT SOLICITATION Notwithstanding any other provision of this exchange offer, we will not be required to accept for exchange notes tendered pursuant to this exchange offer and may terminate, extend or amend this exchange offer and may (subject to Rule 14e-1 under the Exchange Act, which requires that an offeror pay the consideration offered or return the securities deposited by or on behalf of the holders thereof promptly after the termination or withdrawal of a tender offer) postpone the acceptance for exchange of, and payment for, notes so tendered on or prior to the date the exchange offer expires, in the event of any of the following conditions have not been satisfied or waived by us on or prior to the date the exchange offer expires: - we have not received valid tenders for at least 95% of the aggregate principal amount of our outstanding 11 3/8% Senior Notes due 2004 and at least 95% of the aggregate principal amount of outstanding 10 3/4% Senior Notes due 2005; - we have not consummated the series 1989 bonds exchange offer; 98 - there shall have been instituted, threatened or be pending any action or proceeding before or by any court, governmental, regulatory or administrative agency or instrumentality, or by any other person, in connection with this exchange offer, that is, or is reasonably likely to be, in our sole judgment, materially adverse to our business, operations, properties, condition (financial or otherwise), assets, liabilities or prospects, or which would or might, in our sole judgment, prohibit, prevent, restrict or delay consummation of this exchange offer; - there shall have occurred any development which would, in our sole judgment, materially adversely affect our business; - an order, statute, rule, regulation, executive order, stay, decree, judgment or injunction shall have been proposed, enacted, entered, issued, promulgated, enforced or deemed applicable by any court or governmental, regulatory or administrative agency or instrumentality that, in our sole judgment, would or might prohibit, prevent, restrict or delay consummation of this exchange offer, or that is, or is reasonably likely to be, materially adverse to our business, operations, properties, condition (financial or otherwise), assets, liabilities or prospects; - there shall have occurred or be likely to occur any event affecting our business or financial affairs, that, in our sole judgment, would or might prohibit, prevent, restrict or delay consummation of this exchange offer; - the trustees of the outstanding notes shall have objected in any respect to or taken any action that could, in our sole judgment, adversely affect the consummation of this exchange offer or our ability to effect any of the proposed amendments, or shall have taken any action that challenges the validity or effectiveness of the procedures used by us in soliciting the consents (including the form thereof) or in the making of this exchange offer or the acceptance of, or exchange of payment for, the notes or the consents; or - there shall have occurred - any general suspension of, or limitation on prices for, trading in securities in United States securities or financial markets, - any significant change in the price of the notes or which is adverse to us, - a material impairment in the trading market for debt securities, - a declaration of a banking moratorium or any suspension of payments in respect to banks in the United States, - any limitation (whether or not mandatory) by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, or other event that, in our reasonable judgment, might affect the extension of credit by banks or other lending institutions, - a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States, or - in the case of any of the foregoing existing on the date hereof, a material acceleration or worsening thereof. The conditions to this exchange offer are for our sole benefit and may be asserted by us in our sole discretion regardless of the circumstances giving rise to such conditions or may be waived by us, in whole or in part, in our sole discretion, whether or not any other condition of this exchange offer also is waived. We have not made a decision as to what circumstances would lead us to waive any such condition, and any such waiver would depend on circumstances prevailing at the time of such waiver. Any determination by us concerning the events described in this section will be final and binding upon all persons. 99 EXPIRATION DATE; EXTENSION; AMENDMENT; TERMINATION. If we receive the requisite consents, we intend to execute the supplemental indentures containing the proposed amendments on or promptly following the date that the consent solicitation expires and, upon such execution, the requisite consents will become irrevocable and you will become bound by the terms of the supplemental indentures. However, the proposed amendments will not become operative until we exchange all notes that are validly tendered. We expressly reserve the right, in our sole discretion, to terminate this exchange offer and consent solicitation if any of the conditions set forth above under "-- Conditions to this Exchange Offer and Consent Solicitation" shall not have occurred. Any such termination will be followed promptly by a public announcement. In the event that we terminate this exchange offer, we will give immediate notice thereof to the exchange agent. If this exchange offer is terminated, withdrawn or otherwise not completed, the total consideration will not be paid or become payable to you, even if you have validly tendered your notes and delivered consents in connection with this exchange offer, and any notes you have tendered that we have not accepted for exchange will be returned promptly to you. PROPOSED AMENDMENTS TO INDENTURES We are soliciting consents to the proposed amendments and to the execution and delivery of the supplemental indenture for each of the 11 3/8% Senior Notes due 2004 and 10 3/4% Senior Notes due 2005 to this exchange offer, copies of which indentures are available upon request from Weirton or the trustee and have been filed as exhibits to the registration statement of which the prospectus is a part. The restrictive covenants applicable to the 11 3/8% Senior Notes due 2004 and the 10 3/4% Senior Notes due 2005, have substantially similar terms. If the requisite consents are obtained, the proposed amendments would modify the provisions regarding change of control to permit any person to acquire beneficial ownership of 50% or more of the voting power of Weirton's capital stock in connection with the financing of permitted acquisitions without triggering a right to require us to purchase the new senior secured discount notes and to eliminate the following restrictive covenants and references thereto, as well as the events of default related solely to such restrictive covenants and to judgment defaults and cross defaults, contained in the indentures for outstanding notes and would make certain other changes in the indentures of a technical or conforming nature: - Section 3.9 limitations on indebtedness - Section 3.10 limitations on restricted payments - Section 3.11 limitation on transactions with affiliates - Section 3.12 restrictions on disposition of assets of the issuer - Section 3.13 limitations on liens - Section 3.14 limitations on sale and leaseback transactions - Section 3.15 limitation on dividend and other payment restrictions affecting subsidiaries - Section 4.1(d) event of default with respect to a default in another debt instrument with an amount outstanding in excess of $25,000,000 and acceleration of such debt - Section 8.1 covenant not to merge, consolidate, sell or convey property (clauses(d) except under certain conditions and (e))
Approval of the proposed amendments requires the receipt of the requisite consents from holders of at least a majority of the outstanding principal amount of each series of outstanding 11 3/8% Senior Notes due 2004 and 10 3/4% Senior Notes due 2005. Each of the supplemental indentures containing the proposed amendments will become effective upon execution by us and the respective trustee and, upon such execution, the requisite consents will become irrevocable and you and the other holders of the applicable outstanding notes will become bound by the terms of the applicable supplemental indenture. The proposed amendments will not become operative until the expiration date, and each of the indentures will remain in effect, without giving effect to the proposed amendments, until the proposed amendments become operative on the expiration date. 100 The proposed amendments to each of the indentures constitute a single proposal and you must consent to the proposed amendments to each of the indentures as an entirety and may not consent selectively with respect to certain of the proposed amendments or to certain of the indentures. The valid tender by you of outstanding notes pursuant to this exchange offer will be deemed to constitute the giving of consent by you to the proposed amendments to the applicable supplemental indenture or indentures. We are not soliciting, and will not accept, your consent if you are not tendering all or a portion of your outstanding notes pursuant to this exchange offer. PERIOD FOR TENDERING THE EXISTING NOTES As set forth in this prospectus and in the accompanying letter of transmittal, we will accept for exchange any and all of the outstanding notes that are properly tendered on or prior to the expiration date and are not withdrawn as permitted below. The term "expiration date" means 5:00 p.m., New York time on , 2001. However, if we extend the period of time for which this exchange offer is open, the term expiration date means the latest time and date to which this exchange offer is extended. We expressly reserve the right, at any time or from time to time, to extend the period of time during which this exchange offer is open, and thereby delay acceptance for exchange of the outstanding notes, by announcing an extension of this exchange offer as described below. During any extension, all of the outstanding notes previously tendered will remain subject to this exchange offer and may be accepted for exchange by us. We also expressly reserve the right, at any time or from time to time, regardless of whether or not the conditions to this exchange offer have been satisfied, subject to applicable law, to: - delay the acceptance for exchange of outstanding notes; - terminate this exchange offer; - extend the expiration date and retain all of the outstanding notes that have been tendered, subject to the right of the owners thereof to withdraw their tendered notes; - refuse to accept tendered outstanding notes and return all notes that have been tendered to us; - waive any condition or otherwise amend the terms of this exchange offer in any respect prior to the expiration of this exchange offer; or - accept all properly tendered outstanding notes that have not been withdrawn, with respect to each of the above by giving written notice of such extension, amendment or termination to the exchange agent. Any extension, amendment or termination will be followed as promptly as practicable by public announcement thereof, with the announcement in the case of an extension to be issued no later than the earlier of: (i) 9:00 a.m., Eastern Standard Time, on the first business day after the previously scheduled expiration date of the offer; or (ii) the first opening of the New York Stock Exchange on the next business day after the previously scheduled expiration date of the offer. Without limiting the manner in which we may choose to make any public announcement, we will have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a release to the Dow Jones News Service and to the Company Announcements Office of the New York Stock Exchange. In our sole discretion, we will decide whether to exercise our right to extend the expiration date for this exchange offer. PROCEDURES FOR EXCHANGING NOTES We contemplate that the new senior secured discount notes will be delivered in book-entry form through DTC. If you have any questions or need assistance in tendering your outstanding notes, please call D.F. King & Co., Inc., the information agent, whose address and contact details appear in the section entitled "The Information Agent" below. 101 Only holders of record are authorized to tender their outstanding notes for exchange. If you wish to tender outstanding notes in this exchange offer and you are not a participant in DTC, you should contact your broker, dealer, commercial bank, trust company or other nominee promptly regarding the procedures to follow to tender your notes. If you wish to exchange outstanding notes in this exchange offer on your own behalf, you must, before completing and signing the letter of transmittal and delivering your outstanding notes, make appropriate arrangements to register the ownership of those outstanding notes in your name. This may take considerable time and may not be able to be completed before the expiration date of this exchange offer. The tender of outstanding notes pursuant to this exchange offer and in accordance with the procedures described below will be deemed to constitute a consent with respect to the proposed amendments to the indenture governing the notes tendered and to the execution and delivery of the supplemental indenture for each of the 11 3/8% Senior Notes due 2004 and the 10 3/4% Senior Notes due 2005. Tender of outstanding notes held through a custodian. If your outstanding notes are held of record by a broker, dealer, commercial bank, trust company or other nominee, you must contact the holder of record promptly and instruct the holder of record to tender your notes on your behalf. Any beneficial owner of outstanding notes held of record by DTC or its nominee, through authority granted by DTC may direct the holder of record to tender on the beneficial owner's behalf. Tender of outstanding notes held through DTC. To tender outstanding notes that are held through DTC, you should transmit your acceptance through the Automated Tender Offer Program, and DTC will then edit and verify the acceptance and send an Agent's Message to the exchange agent for its acceptance. Delivery of tendered outstanding notes must be made to the exchange agent pursuant to the book-entry delivery procedures set forth below. You should send letters of transmittal and consent only to the exchange agent and not to us. The delivery of outstanding notes and letters of transmittal and consent, any required signature guarantees and all other required documents, including delivery through DTC and any acceptance of an Agent's Message transmitted through the Automated Tender Offer Program or otherwise, is at the election and risk of the holder tendering those outstanding notes and delivering the letter of transmittal. Except as otherwise provided in the letter of transmittal and consent, delivery will be deemed made only when actually received by the exchange agent. If delivery is by mail, we recommend that the holder use properly insured, registered mail with return receipt requested, and that the mailing be made sufficiently in advance of the expiration date to assure timely delivery to the exchange agent. Except as provided below, unless the outstanding notes being tendered for exchange are deposited with the exchange agent on or before the expiration date, accompanied by a properly completed and duly executed letter of transmittal or a properly transmitted Agent's Message, we may, at our option, treat the tender of the notes as defective for purposes of the right to exchange pursuant to this exchange offer. Exchange of the outstanding notes will be made only against deposit of the tendered outstanding notes and delivery of all other required documents. Guaranteed Delivery. If a registered holder of outstanding notes desires to tender any outstanding notes and the outstanding notes are not immediately available, or time will not permit the holder's outstanding notes or other required documents to reach the exchange agent before the expiration date of the exchange offer, or the procedures for book-entry transfer cannot be completed on a timely basis, a tender may be effected if: - the tender is made through an eligible institution; - before the expiration date of the exchange offer, the exchange agent received from the eligible institution a properly completed and duly executed letter of transmittal and notice of guaranteed delivery, substantially in the form provided by us. The notice of guaranteed delivery must state the name and address of the holder of the outstanding notes and the amount of the outstanding notes 102 tendered, the tender is being made and guaranteeing that within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery, the certificates for all physically tendered original notes, in proper form for transfer, or a book-entry confirmation and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent; and - the certificates for all physically tendered outstanding notes, in proper form for transfer, or a book-entry confirmation and all other documents required by the applicable letter of transmittal are received by the exchange agent within three New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery. Book-entry delivery procedures. The exchange agent will establish accounts with respect to the outstanding notes at DTC for purposes of this exchange offer within two business days after the date of this prospectus, and any financial institution that is a participant in DTC may make book-entry delivery of the notes by causing DTC, as appropriate, to transfer such outstanding notes into the exchange agent's account in accordance with DTC's procedures for such transfer. Although delivery of outstanding notes may be effected through book-entry into the exchange agent's account at DTC, the letter of transmittal and consent, or facsimile of it, with any required signature guarantees, or an Agent's Message in connection with a book-entry transfer, and any other required documents, must, in any case, be transmitted to and received by the exchange agent on or before the expiration date, as applicable. Delivery of documents to DTC does not constitute delivery to the exchange agent. The confirmation of a book-entry transfer into the exchange agent's account at DTC as described above is referred to as a "Book-Entry Confirmation." "Agent's Message" means a message transmitted by DTC, received by the exchange agent, and made a part of a Book-Entry Confirmation. The message states that DTC has received an express acknowledgement from the person tendering the notes that the person has received and agrees to be bound by the terms of the letter of transmittal and that we may enforce such agreement against the holder. Tender of outstanding notes held in physical form and delivery of consents. If you hold outstanding notes in physical form, to validly tender those outstanding notes, you should properly complete and validly execute the letter of transmittal and consent (or a manually signed facsimile thereof), together with any signature guarantees and any other documents required by the instructions to the letter of transmittal and consent. The letter of transmittal and consent must be received by the exchange agent at its address set forth on the back cover of this exchange offer, and certificates for tendered notes must be received by the exchange agent at such address prior to the expiration date. However, consent payments will be made only if consents are validly delivered and the related notes are accepted for exchange. Signature guarantees. Signatures on all letters of transmittal must be guaranteed by a recognized participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchange Medallion Program, unless the relevant old notes are tendered: - by a participant in DTC whose name appears on a security position listing as the owner of the outstanding notes being tendered who has not completed the box entitled "Special Delivery Instructions" or "Special Exchange Instructions" on the letter of transmittal and consent; or - for the account of a member firm of a registered national securities exchange, a member of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States, which entities we refer to as "eligible institutions." 103 The signatures on the letter of transmittal and consent accompanying tendered outstanding notes must be guaranteed by a Medallion Signature Guarantor if: - the outstanding notes are registered in the name of a person other than the signer of the letter of transmittal and consent; or - the outstanding notes are not accepted for exchange and are to be returned. Determination of validity. We will determine in our sole discretion all questions as to the validity, form, eligibility, including time or receipt, and acceptance and withdrawal of tendered notes. We reserve the absolute right to reject any and all notes not properly tendered or any notes whose acceptance by us would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to any particular notes either before or after the expiration date. Our interpretation of the terms and conditions of this exchange offer, including the instructions in the letter of transmittal and consent, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of notes must be cured within a time period that we will determine. Neither we, the exchange agent nor any other person will have any duty or will incur any liability for failure to give such notification. Tenders of notes will not be considered to have been made until any defects or irregularities have been cured or waived. Any notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the exchange agent to the tendering owners, unless otherwise provided in the letter of transmittal and consent, as soon as practicable following the expiration date. Backup United States federal income tax withholding. To prevent backup federal income tax withholding, you must provide the exchange agent with your current taxpayer identification number and certify that you are not subject to backup federal income tax withholding by completing the applicable Form W-8 or Form W-9 included in the letter of transmittal. See "Material United States Federal Income Tax Consequences." WITHDRAWALS OF TENDERS AND REVOCATION OF CONSENTS You may validly withdraw outstanding notes that you tender after the consent solicitation expires at any time up until the exchange offer expires. You will not be permitted to withdraw outstanding notes that you tender before the consent solicitation expires unless we reduce the exchange offer consideration or the consent payment. Except as otherwise provided in this prospectus, tendered notes may be withdrawn at any time prior to 5:00 p.m., New York time on the expiration date of the exchange offer. For a withdrawal of tendered notes to be effective, a written notice of withdrawal must be received by the exchange agent on or prior to the expiration of this exchange offer at the address set forth below under "Exchange Agent." Any notice of withdrawal must: - specify the name of the person who tendered the notes to be withdrawn; - identify the notes to be withdrawn, including the name and number of the account at the applicable book-entry transfer facility to be credited; and - be signed by the holder in the same manner as the original signature on the letter of transmittal by which the notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer sufficient to have the trustee or other applicable person register transfer of the notes into the name of the person withdrawing the tender. If you have tendered your outstanding notes through a custodian but wish to withdraw them, you must withdraw your tender through the custodian prior to the expiration of this exchange offer. All questions as to the validity, form and eligibility, including time or receipt, of notices of withdrawal will be determined by us. Our determination will be final and binding on all parties. Any notes withdrawn will be deemed not to have been validly tendered for purposes of this exchange offer and no new notes or warrants will be issued in exchange unless the notes so withdrawn are validly retendered. Any notes which 104 have been tendered but which are effectively withdrawn will be credited by the exchange agent to the appropriate account at DTC without expense to the withdrawing person as soon as practicable after withdrawal. Properly withdrawn notes may be retendered by following one of the procedures described above under "-- Procedures for Exchanging Notes" at any time prior to the expiration date. EXCHANGE OF NOTES We will issue new senior secured discount notes upon the terms of this exchange offer and applicable law with respect to the outstanding notes validly tendered and not withdrawn for exchange under this exchange offer promptly after the expiration date. For purposes of this exchange offer, we will be deemed to have accepted for exchange validly tendered notes for defectively tendered notes with respect to which we have waived such defect, if, as and when we give oral (confirmed in writing) or written notice of such waiver to the exchange agent. We will exchange the outstanding notes for new senior secured discount notes. In all cases, credits of new senior secured discount notes will only be made as soon as practicable after the expiration date of this exchange offer and assuming receipt by the exchange agent of: - timely confirmation of a book-entry transfer of the outstanding notes into the exchange agent's account at DTC, Euroclear or Clearstream pursuant to the procedures set forth in "-- Procedures for Exchanging Notes -- Book-Entry Delivery Procedures" above; - a properly completed and duly signed letter of transmittal, or facsimile copy, or a properly transmitted Agent's Message; and - any other documents required by the letter of transmittal. If we do not accept any tendered notes for exchange pursuant to this exchange offer for any reason, the exchange agent will, without expense and promptly after expiration or termination of this exchange offer credit such notes to the account maintained at DTC from which the outstanding notes were delivered. FUTURE TRANSACTIONS INVOLVING SENIOR NOTES DUE 2004 AND SENIOR NOTES DUE 2005 We reserve the right, in our sole discretion and if we are so permitted by the terms of our indebtedness, to purchase or make offers for any 11 3/8% Senior Notes due 2004 or 10 3/4% Senior Notes due 2005 that remain outstanding after the expiration date of this exchange offer. To the extent permitted by applicable law and regulation, we may make these purchases, if any, in the open market, in privately negotiated transactions, or in additional exchange offers. The terms of these purchases, if any, could differ from the terms of this exchange offer. It is possible that future purchases, if any, of outstanding notes may be on less or more favorable terms than the terms offered in this exchange offer. We make no promises that we will purchase or make offers for any 11 3/8% Senior Notes due 2004 or 10 3/4% Senior Notes due 2005 that remain outstanding after the expiration date of this exchange offer. We do not currently contemplate that any circumstances will arise in which we will make any such purchases and, in any event, we may not have the financing to do so. "BLUE SKY" COMPLIANCE We are making this exchange offer to all holders of outstanding notes. We are not aware of any jurisdiction in which the making of this exchange offer is not in compliance with applicable law. If we become aware of any jurisdiction in which the making of this exchange offer would not be in compliance with applicable law, we will make a good faith effort to comply with any such law. If, after such good faith effort, we cannot comply with any such law, this exchange offer will not be made to, nor will tenders of outstanding notes be accepted from or on behalf of, the holders of outstanding notes residing in such jurisdiction. 105 EXCHANGE AGENT Chase Manhattan Trust Company, National Association has been appointed as the exchange agent for this exchange offer. We have agreed to pay the exchange agent reasonable and customary fees for its services and will reimburse the exchange agent for its reasonable out-of-pocket expenses. All executed letters of transmittal and any other required documents should be sent or delivered to the exchange agent at the address set forth below. 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 indicated on the back cover of this prospectus. Delivery of a letter of transmittal to an address other than that for the exchange agent as set forth above or transmission of instructions via facsimile other than as set forth above does not constitute a valid delivery of a letter of transmittal. DEALER MANAGER We have retained Lehman Brothers Inc. as our exclusive dealer manager in connection with this exchange offer. We will pay a customary fee for its services a portion of which will be based on the successful completion of the exchange offer. We have also agreed to reimburse Lehman Brothers Inc. for its expenses and to indemnify it against certain expenses and liabilities, including liabilities under federal securities laws. Weil, Gotshal & Manges LLP, New York, New York, will pass upon certain legal matters for the dealer manager. INFORMATION AGENT D.F. King & Co., Inc. has been appointed the information agent for this exchange offer. We have agreed to pay D.F. King & Co., Inc. reasonable and customary fees for its services and will reimburse D.F. King & Co., Inc. for its reasonable out-of-pocket expenses. Any questions concerning the procedures of this exchange offer or requests for assistance or additional copies of this prospectus or the letters of transmittal may be directed to the information agent at: D.F. King & Co., Inc. 77 Water Street, 20(th) Floor New York, New York 10005 Banks and Brokers call: (212)296-5550 (call collect) All others call: (800)431-9643 (toll-free) FEES AND EXPENSES We will bear the expenses of soliciting tenders for this exchange offer. We are making the principal solicitation by mail. However, where permitted by applicable law, we may make additional solicitations by telegraph, telephone or in person by officers and regular employees of ours and those of our affiliates. In addition to payments to Lehman Brothers Inc. as our exclusive dealer manager, we may make payments to brokers, dealers or others soliciting acceptance of this exchange offer. We will also pay the exchange agent and the information agent reasonable and customary fees for their services and will reimburse them for their reasonable out-of-pocket expenses. We will pay the cash expenses to be incurred in connection with this exchange offer, which are estimated in the aggregate to be approximately $4 million. Such expenses include fees and expenses of the trustee, accounting and legal fees and printing costs, among others. 106 TRANSFER TAXES Owners who tender their outstanding notes for exchange will not be obligated to pay any transfer taxes. If, however: - new senior secured discount notes are to be delivered to, or issued in the name of, any person other than the registered owner of the tendered notes; - the notes are registered in the name of any person other than the person signing the letter of transmittal; or - a transfer tax is imposed for any reason other than the exchange of new senior secured discount notes for outstanding notes in connection with this exchange offer; then the amount of any transfer taxes, whether imposed on the registered owner or any other persons, will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption from them is not submitted with the letter of transmittal, the amount of such transfer taxes will be billed directly to the tendering holder. ACCOUNTING TREATMENT The accounting treatment will follow the requirements of Statement of Financial Accounting Standards No. 15 "Accounting by Debtors and Creditors for Troubled Debt Restructurings." The accounting treatment requires that a comparison be made between the future cash outflows, associated with the new senior secured discount notes (including principal, interest and related costs), and the recorded liabilities related to the existing 11 3/8% Senior Notes due 2004 and the 10 3/4% Senior Notes due 2005 and the existing series 1989 bonds as of the date of the exchange. The following discussion reflects an assumption that 100% of the outstanding notes will be exchanged prior to the expiration of the consent solicitation. The future cash outflows are expected to be significantly less than the recorded liabilities. The difference resulting from this comparison, of approximately $145.2 million, will be recognized as a gain as of the date of the consummation of the exchange offer. This gain will be accounted for as an extraordinary item. Interest expense over the life of the new senior secured discount notes and new secured series 2001 bonds will be included in the related carrying amounts (liabilities) and, accordingly, interest expense will not be recognized in future financial statements. As a result of the exchange offer annual interest expense for financial reporting purposes will decrease by approximately $33.1 million. Annual cash interest payments will be approximately $10.3 million beginning in January 2004 as compared to approximately $31.8 million presently. UNITED STATES INCOME TAX CONSIDERATIONS For federal income tax purposes, our net operating losses will be reduced by reason of the elimination of principal and interest pursuant to the exchanges of outstanding notes and series 1989 bonds for new senior secured discount notes and new secured series 2001 bonds (based principally on the issue price for federal income tax purposes of the new senior secured discount notes and the new secured series 2001 bonds). Because our net operating losses for 2001 are expected to exceed the amount of principal and interest eliminated, we do not anticipate that the exchange will give rise to a significant federal or state income tax liability. If the exchange offer is consummated in 2002, however, it is possible that the exchange could give rise to liability under federal alternative minimum tax and/or state income tax laws. We have not provided a reserve for any such potential liability. See "Material United States Federal Income Tax Consequences" for a discussion of certain material United States federal tax consequences to holders of 11 3/8% Senior Notes due 2004 and 10 3/4% Senior Notes due 2005 acquiring, owning, and disposing of new senior secured discount notes or retaining their outstanding notes. APPRAISAL RIGHTS You will not have any right to dissent and receive appraisal of your outstanding notes in connection with this exchange offer. 107 DESCRIPTION OF THE SENIOR SECURED DISCOUNT NOTES The following is a summary of the terms of the new senior secured discount notes that we are offering in exchange for all of the outstanding notes. We urge you to read the indenture with respect to the new senior secured discount notes in its entirety. You may obtain a copy of the indenture from us. See "Where You Can Find More Information." The new senior secured discount notes will be issued under an indenture between Weirton and the trustee. The terms of the new senior secured discount 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 new senior secured discount notes are subject to all such terms, and prospective investors are referred to the indenture and the Trust Indenture Act for a statement of such terms, a copy of which is available upon request from Weirton or the trustee and has been filed as an exhibit to the registration statement of which this prospectus is a part. The following statements are summaries of the material terms of the new senior secured discount notes and the indenture. Unless indicated otherwise, the terms "we," "our" and "Weirton" in this description refer only to Weirton Steel Corporation and not its subsidiaries. GENERAL No cash interest will accrue on the new senior secured discount notes prior to January 1, 2004, although for United States federal income tax purposes, you generally will recognize a significant amount of original issue discount as such discount accretes. See "Material United States Federal Income Tax Consequences" for a discussion regarding the calculation and taxation of this original issue discount. The new senior secured discount notes will bear 10% interest from and including January 1, 2004, payable semiannually on January 1 or July 1 of each year, commencing January 1, 2004, to holders of record at the close of business on December 15 or June 15 immediately preceding each such interest payment date. The new senior secured discount notes will be due on January 1, 2008, and will be issued only in registered form, without coupons, in denominations of $50 and integral multiples of $50. RANKING The new senior secured discount notes will be senior obligations of Weirton and will rank equal in right of payment to all existing and future senior indebtedness of Weirton, including our senior credit facility and our obligations under the new secured series 2001 bonds. The new senior secured discount notes and the new secured series 2001 bonds will be secured pari passu by a deed of trust and first priority security interest in our hot strip mill and will, therefore, effectively rank senior to all of our unsecured indebtedness, including the outstanding notes, to the extent of the value of the hot strip mill. Our senior credit facility will be secured by a first priority security interest in our accounts receivable and inventory (including related intangibles) and the No. 9 tin tandem mill and all related equipment and will, therefore, effectively rank senior to the new senior secured discount notes to the extent of the value of the collateral securing the senior credit facility. The new senior secured discount notes will be senior in right of payment to any indebtedness or obligation of Weirton (and any accrued and unpaid interest in respect thereof) that by its terms is subordinate or junior in any respect to any other indebtedness or obligation of Weirton, including any future subordinated obligations. SECURITY The new senior secured discount notes will be secured by a deed of trust and a first priority (subject to certain liens to be permitted under the terms of the indenture and the deed of trust) lien to be perfected on our hot strip mill, which is an integral part of our downstream processing operations. We refer to the hot strip mill, together with all other property and assets that are from time to time subject to the deed of trust, collectively as the collateral. The collateral will be pledged to the trustee for the benefit of the holders of the new senior secured discount notes pursuant to the deed of trust, security agreements and 108 other documents and agreements. For additional information about our hot strip mill, and the recent independent appraisal, see "-- Description of Collateral" below. The deed of trust contains customary covenants made by us for the benefit of the trustee, with respect to the collateral. These covenants include that we have good and marketable title to the collateral, free and clear of all liens, except permitted liens (including the lien and security interest in the collateral held by the trustee under the indenture governing the new secured series 2001 bonds. We will maintain the lien of the deed of trust as a first lien on the collateral, subject only to permitted liens, so long as the new senior secured discount notes are outstanding. We have also represented and covenanted that the land and the improvements constituting the collateral and the use of them has complied with and will continue to comply with all laws, that we will satisfy all taxes and assessments, that we will maintain certain insurance, that we will maintain the collateral in good operating condition and that we will not transfer any of the collateral, except in accordance with the terms of the deed of trust. The deed of trust provides that an event of default has occurred if we fail to perform any covenant or condition contained in the deed of trust and fail to cure the default for a specified period of days after we have received notice of such default. The deed of trust further provides that the occurrence of an event of default under the indenture also constitutes an event of default under the deed of trust. If an event of default occurs under the deed of trust, the trustee may, with the consent of the holders of 25% of the outstanding new senior secured discount notes, declare all amounts due and payable under the indenture, appoint a receiver to take possession of the collateral or foreclose on the collateral and sell it for cash. DESCRIPTION OF THE COLLATERAL. The collateral securing our obligations under the indenture is our hot strip mill, including all the machinery and equipment, land and easements and rights of way related to the hot strip mill, which is located in Weirton, West Virginia. Our hot strip mill is an integral part of our downstream steel processing operations and one of the few of its kind in the industry, which is capable of rolling both carbon and stainless substrate. It is an energy efficient, low-cost mill capable of rolling substrate into thin gauge, narrow width sheet. Hot roll is used for unexposed parts in machinery, construction products and other durable goods. Our hot strip mill was totally rebuilt beginning in 1988, with the major portion completed by 1994, at a cost of $360 million. Hot strip mill assets include: walking beam reheat furnaces, hydraulic seals breaker, reversing roughing mill, R-5 roughing stand, heat retention covers, rotary crop shear, finishing mill, laminar flow cooling system, downcoilers and mill automation system. In addition to rolling slabs produced by Weirton, the hot strip mill is capable of rolling purchased slabs and slabs supplied by other steel manufacturers. We have entered into a long-term tolling agreement with J&L Specialty Steel, a domestic stainless steel producer which is owned by a major foreign steel producer, to convert stainless slabs into stainless coils, accounting for almost 20% of our hot strip mill overall capacity. This tolling agreement provides higher, more stable profit margins than potential carbon slab conversion opportunities at this time. The facility load from our existing tin and stainless conversion business now accounts for over 50% of the hot strip mill's overall capacity. The balance of the hot strip mill capacity supports our galvanizing operations and our hot and cold rolled commodity sheet production. Under our strategic plan, we anticipate that our hot strip mill will be further utilized through additional stainless conversion and increasing the proportion of our carbon steel rollings used in our downstream finishing operations in the production of tin mill and other higher margin value-added products. Hot Strip Mill Appraisal. In connection with the development of our strategic plan, we obtained an independent appraisal of our hot strip mill. The appraisal report, dated as of June 30, 2001, using procedures in accordance with the Uniform Standard of Professional Appraisal Practice and generally accepted approaches to value such as cost, sales comparison and income capitalization, concluded that Weirton's hot strip mill has a "liquidation-in-place" value of $ million, an "in place, in use" value ranging from $191 million to $236 million and, based on assumptions regarding future hot band steel 109 prices, an estimated discounted cash flow value of $255 million. On the other hand, in the event of a stand-alone or piecemeal liquidation of the hot strip mill, the hot strip mill equipment is estimated to have an orderly liquidation value of $12 million and an auction value of approximately $6 million. We believe that in a reorganization under bankruptcy protection, or even in a liquidation, our hot strip mill would be operated by us, or another operator, using purchased steel slabs and stainless steel slabs provided under tolling arrangements. In addition, our hot strip mill and our No. 9 tin tandem mill would continue to supply substrate for our tin mill products business. We believe that our tin finishing assets would continue to operate because of the very competitive nature of our equipment as well as the relative supply and demand balance existing in the United States tin plate market. Integral Role of Hot Strip Mill in Weirton's Downstream Processing Operations. As an integrated steel producer, we produce carbon steel slabs in our primary steel making operation from raw materials to industry and customer specifications. These slabs are rolled in the hot strip mill before further processing. Our hot strip mill is an integral part of our rolling and finishing operations. Our facilities include the hot strip mill with a practical capacity of 3.4 million tons per year, two continuous picklers, three tandem cold reduction mills, three hot dip galvanize lines, one electro-galvanize line, two tin platers, one chrome plater, one bi-metallic chrome/tin plating line and various annealing, temper rolling, shearing, cleaning and edge slitting lines, together with packaging, storage and shipping and receiving facilities. Our primary steel making facilities include two blast furnaces, a two vessel basin oxygen process shop, a CAS-OB facility, two RH degassers, and a four strand continuous caster with an annual slab production capacity of up to 3.2 million tons. All of our manufacturing facilities are located in Weirton, West Virginia. From primary steel making through finishing operations, our assets are focused on the production of tin plate, which is typically light gauge, narrow width strip. We believe that our rolling and finishing equipment is near "best in class" in the production of light gauge strip used in the manufacture of tin mill products and other value-added products. Although, as a result of its 48" strip width limitation, we are not a full line supplier of sheet products to certain markets such as automotive and appliance, our narrower strip capacity allows us to produce light gauge products more efficiently than larger integrated producers with rolling mills up to 80" in width. Consumers of light gauge, narrow width sheet products recognize our commitment to these products and our reliability of supply, which enhances the stability of our customer base. In addition, our wide range of coatings, including galvanized, galvanneal, electro, and galfan, is designed to meet the needs of our demanding and diverse customer base. For additional information concerning our hot strip mill and properties, see "Business -- General" and "-- Properties." IMPAIRMENT OF SECURITY INTEREST Weirton shall not, and shall not permit any of its subsidiaries to take, or knowingly or negligently omit to take any action, which action or omission might or would have the result of materially impairing the security interest in favor of the trustee on behalf of the holders of the new senior secured discount notes with respect to our hot strip mill Weirton shall not grant to any person (other than the trustee on behalf of the holders of the new senior secured discount notes and the trustee on behalf of the holders of the new secured series 2001 bonds) any interest whatsoever in our hot strip mill other than as permitted by the Security Documents. RELEASE OF COLLATERAL Upon compliance by Weirton with the conditions set forth below with respect to satisfaction and discharge, and upon delivery by Weirton to the trustee of an opinion of counsel to the effect that such conditions have been met, the trustee will release all of the collateral from the Lien of the deed of trust and other security documents and reconvey the released interest to Weirton. The collateral release provisions of the indenture, the deed of trust and any other security documents may permit the release of collateral without substitution of collateral of equal value under specified circumstances. As described under "-- Certain Covenants -- Change of Control Option," the net proceeds 110 of any disposition of collateral may be required to be utilized to make an offer to purchase new senior secured discount notes. FORECLOSURE ON COLLATERAL If the new senior secured discount notes become due and payable prior to their maturity for any reason, other than an optional redemption by Weirton, or are not paid in full at their maturity and after any applicable grace period has expired, the trustee will have the exclusive right to foreclose or decline to foreclose upon, or otherwise exercise or decline to exercise remedies in respect of, the collateral in accordance with instructions from the holders of a majority in principal amount at maturity of the new senior secured discount notes or, in the absence of such instructions, in such manner as the trustee deems appropriate in its sole and absolute discretion. Proceeds from the sale of collateral will first be applied to the reasonable expenses of the trustee in retaking, holding, preparing for sale or lease, selling, leasing and the like of the collateral, attorney's fees and other reasonable legal expenses incurred by the trustee and then applied to repay the new senior secured discount notes and the new secured series 2001 bonds, with any remaining proceeds to be payable to Weirton or as may otherwise be required by law. There can be no assurance that the proceeds from the sale of the collateral would be sufficient to satisfy payments due on the new senior secured discount notes. In the case of a default, there may not be sufficient available collateral to satisfy the obligations under the new senior secured discount notes. By its nature, some or all of the collateral will be illiquid and may have no readily ascertainable market value. Accordingly, there can be no assurance that the collateral can be sold in a short period of time, or at all. If an event of default occurs under the indenture and a declaration of acceleration of the new senior secured discount notes occurs as a result, the trustee, on behalf of the holders of the new senior secured discount notes, in addition to any rights or remedies available to it under the indenture, may take such action as it deems advisable to protect and enforce its rights in the collateral, including the institution of foreclosure proceedings. The proceeds received by the trustee from any foreclosure will be applied by the trustee first to pay the expenses of such foreclosure and fees and other amounts then payable to the trustee under the indenture, and thereafter to pay the principal, premium or interest, if any, on the new senior secured discount notes. FRAUDULENT TRANSFER AND PREFERENCE LAWS The new senior secured discount notes and the part of the security interest in our hot strip mill that will secure their payment may not be enforceable under federal and state fraudulent transfer laws if certain conditions cannot be found to exist at the time of issuance. In addition, the grant of a security interest in our hot strip mill may, in certain circumstances, be avoided as a preferential transfer in the event a petition for relief under the Bankruptcy Code is filed by or against Weirton. See "Risk Factors." Fraudulent Transfer Laws. A court may void the issuance of the new senior secured discount notes or the grant of a security interest in the hot strip mill as security for the new senior secured discount notes if the court finds that the transaction is avoidable under federal or state fraudulent transfer laws. If a court makes such a finding, the holders of the new senior secured discount notes may not receive payment on those obligations, or may receive only a reduced payment. Under federal or state fraudulent transfer laws, if a court were to find that, at the time the new senior secured discount notes were issued we: - issued the new senior secured discount notes with the intent of hindering, delaying or defrauding current or future creditors, or - received less than fair consideration or reasonably equivalent value for incurring the indebtedness represented by the new senior secured discount notes or for the transfer of the security interest; and - we were insolvent at the time of the issuance of the new senior secured discount notes and new secured series 2001 bonds or the transfer of the security interest; 111 - we were rendered insolvent by reason of the issuance of the new senior secured discount notes and new secured series 2001 bonds or the transfer of the security interest; - we were engaged, or about to engage, in a business or transaction for which our assets were unreasonably small; or - we intended to incur, or believes, or should have believed, we would incur, debts beyond our ability to pay as such debts mature, then a court could: - void all or a portion of our obligations to the holders of the new senior secured discount notes; - subordinate our obligations to the holders of the new senior secured discount notes to other existing and future indebtedness of us, as the case may be, the effect of which would be to entitle the other creditors to be paid in full before any payment could be made on those notes; or - take other action harmful to the holders of the new senior secured discount notes, including nullification of the security interest and the return of any distribution made to them. The measures of insolvency for purposes of determining whether a fraudulent transfer has occurred varies depending on the law applied. Generally, however, a company would be considered insolvent if: - at fair valuations, the sum of its debts, including contingent liabilities, were greater than the fair saleable value of all of its assets; - the present fair saleable value of its assets were less than the amount that would be required to pay the probable liability on its existing debts, including contingent liabilities, as they became absolute and mature; or - it could not pay its debts as they come due. For a transfer to be voidable, the transfer must occur within a certain time period prior to a specified event, such as the filing of a bankruptcy case. The period of time will vary depending on the applicable federal or state fraudulent transfer law. Preferential Transfers. The grant to the holders of the new senior secured discount notes of a security interest in our hot strip mill may be avoided as a preferential transfer in the event a petition for relief under the United States Bankruptcy Code is filed by or against us. The transfer of the security interest may be avoided as a preferential transfer if a court finds that: - we made the transfer to or for the benefit of a creditor; - we made the transfer for or on account of a debt owed prior to the time of transfer; - we were insolvent at the time of the transfer; - we made the transfer within 90 days before the commencement of our Chapter 11 case, or within one year before the commencement of our Chapter 11 case if the holders of the new senior secured discount notes are deemed to have been insiders at the time of the transfer; and - the transfer resulted in an improvement in the creditor's position so that the creditor received more than it would have received had the preferential transfer not been made and the creditor had participated in the distribution of our assets in a liquidation proceeding under Chapter 7 of the Bankruptcy Code. After such a finding, similar to the possible actions as described in connection with the finding that the exchange offer was a fraudulent transfer, the court could nullify the security interest in our hot strip mill granted to the holders of the new senior secured discount notes, rendering the new senior secured discount notes unsecured obligations of Weirton and making the value of the hot strip mill available for application to our unsecured creditors, and the court may require the holders to return any distribution made to them. 112 The bankruptcy laws further provide an exception, in that a transfer which would otherwise be considered a preference may not be avoidable if: - the transfer was intended by the parties to be and was in fact a substantially contemporaneous exchange for which Weirton received new value; or - the debt was incurred in the ordinary course of business or financial affairs of both parties and any payment made was made in the ordinary course of business or financial affairs of both parties. This exchange offer may be considered by a court to involve a preferential transfer because the issuance of the new senior secured discount notes and new secured series 2001 bonds alters the status of the holders from unsecured to secured creditors. Depending on the value of Weirton, in the event of a liquidation, a holder of the new senior secured discount notes or new secured series 2001 bonds, as a secured creditor may receive a greater recovery than such a holder would have received absent the exchange offer, and as a result the exchange offer may be bound to be a preferential transfer. However, the grant of the security interest in the hot strip mill may not be avoided if a court further finds that the transaction constituted a substantially contemporaneous exchange for which we received new value. If a court were to determine that the exchange offer is a preferential transfer and that the transfer does not qualify for defenses described above, we cannot assure you that you will ever receive payment on the outstanding notes or the new senior secured discount notes and new secured series 2001 bonds. In any of these events, we could not assure that the holders of the new senior secured discount notes would receive the intended benefit from the liens securing those notes or that holders of the new senior secured discount notes would ever receive payment on those notes. CERTAIN BANKRUPTCY LIMITATIONS The right of the trustee to repossess and dispose of, or otherwise exercise remedies in respect of, the collateral upon the occurrence of an event of default is likely to be significantly impaired by applicable bankruptcy law if a bankruptcy proceeding were to be commenced by or against Weirton prior to the trustee having repossessed and disposed of, or otherwise exercised remedies in respect of, the collateral. Under the Bankruptcy Code, secured creditors such as the holders of the new senior secured discount notes, are prohibited from repossessing their security from a debtor in a bankruptcy case, or from disposing of security repossessed from the debtor, without bankruptcy court approval. Moreover, the United States Bankruptcy Code permits the debtor to continue to retain and to use collateral even though the debtor is in default under the applicable debt instruments, provided that the secured creditor is given "adequate protection." The meaning of the term "adequate protection" may vary according to circumstances, but it is intended in general to protect the value of the secured creditor's interest in the collateral and may include cash payments or the granting of additional security, if and at such times as the court in its discretion determines, for any diminution in the value of the collateral as a result of the stay of repossession or disposition or any use of the collateral by the debtor during the pendency of the bankruptcy case. In view of the lack of a precise definition of the term "adequate protection" and the broad discretionary powers of a bankruptcy court, it is impossible to predict how long payments under the indenture and the new senior secured discount notes could be delayed following the commencement of a bankruptcy case, whether or when the trustee could repossess or dispose of the collateral or whether or to what extent holders of the new senior secured discount notes would be compensated for any delay in payment or loss of value of the collateral. REDEMPTION Optional Redemption. The new senior secured discount notes may not be redeemed at the option of Weirton prior to January 1, 2004. The new senior secured discount notes will be subject to redemption at any time on or after January 1, 2004, at the option of Weirton, in whole or in part, at the following redemption prices (expressed as percentages of the principal amount at maturity), plus accrued or unpaid 113 interest, if any, to the redemption date, if redeemed during the 12-month period beginning January 1 of the years indicated below:
YEAR REDEMPTION PRICE ---- ---------------- 2004........................................................ 107.50% 2005........................................................ 105.00% 2006........................................................ 102.50% 2007 and thereafter......................................... 100.00%
Any redemption by us would be subject to restrictions contained in our senior credit facility or other senior indebtedness then existing at the time Weirton may elect to redeem the new senior secured discount notes. See "Description of Other Indebtedness and Financing Arrangements." Accordingly, we have no present intention to redeem any or part of the new senior secured discount notes. Selection and Notice of Redemption. In the event that less than all of the new senior secured discount notes are to be redeemed at any time, selection of new senior secured discount 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 new senior secured discount notes are listed or, if the new senior secured discount notes are not listed on a national securities exchange, on a pro rata basis; provided, however, that the new senior secured discount notes will be redeemed only in the amount of $50 or integral multiples thereof. Notice of redemption to the holders of new senior secured discount notes to be redeemed in whole or in part shall be given by mailing notice of such redemption by first-class mail, postage prepaid, at least 30 days and not more than 60 days prior to the date fixed for redemption to such holders of new senior secured discount notes at their last addresses as they shall appear upon the registry books. On and after the redemption date, interest (as defined herein), if any, will cease to accrue on new senior secured discount notes or portions thereof called for redemption. Sinking Fund. There will be no sinking fund for the new senior secured discount notes. CERTAIN COVENANTS The following is a summary of certain covenants that are contained in the indenture. Such covenants will be applicable (unless waived or amended as permitted by the indenture) so long as any of the new senior secured discount notes are outstanding. Limitations on Indebtedness. Weirton will not, and will not permit any Subsidiary to, create, incur, assume, become liable for or guarantee the payment of (collectively, an "incurrence") any Indebtedness (including Acquired Indebtedness), other than Permitted Indebtedness, or permit any Subsidiary to issue any Preferred Stock other than Preferred Stock that is issued to and held by Weirton or a wholly owned Subsidiary of Weirton (so long as Weirton or a wholly owned Subsidiary owns such Preferred Stock); provided that Weirton may incur, and may permit any Subsidiary to incur, Indebtedness (including Acquired Indebtedness) if (a) at the time of such event and after giving effect thereto, on a pro forma basis, the ratio of Consolidated EBITDA to Consolidated Fixed Charges for the four fiscal quarters immediately preceding such event for which financial information is available consistent with Weirton's prior practice, taken as one period and calculated on the assumption that such Indebtedness had been incurred on the first day of such four-quarter period and, in the case of Acquired Indebtedness, on the assumption that the related acquisition (whether by means of purchase, merger or otherwise) also had occurred on such date with the appropriate adjustments with respect to such acquisition being included in such pro forma calculation, would have been greater than 1.75 to 1, and (b) no Default or Event of Default shall have occurred and be continuing at the time or as a consequence of the incurrence of such Indebtedness. 114 Limitations on Restricted Payments. Weirton will not, and will not permit any of its Subsidiaries to, directly or indirectly, make any Restricted Payment unless: (a) no Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to such Restricted Payment; and (b) immediately after giving effect to such Restricted Payment, the aggregate of all Restricted Payments (the fair market value of any such Restricted Payment, if other than cash, as determined in good faith by Weirton's Board of Directors and evidenced by a resolution of such Board) declared or made after the Issue Date does not exceed the sum of: (1) 50% of the Consolidated Net Income of Weirton on a cumulative basis during the period (taken as one accounting period) from and including January 1, 2002 and ending on the last day of Weirton's last fiscal quarter ending prior to the date of such Restricted Payment (or in the event such Consolidated Net Income shall be a deficit, minus 100% of such deficit); plus (2) 100% of the aggregate net cash proceeds of, and the fair market value of marketable securities (as determined in good faith by Weirton's Board of Directors and evidenced by a resolution of such Board) received by Weirton from, the issue or sale after January 1, 2002 of Capital Stock of Weirton (other than the issue or sale of (x) Disqualified Stock, (y) Capital Stock of Weirton to any Subsidiary of Weirton or (z) Capital Stock convertible (whether at the option of the Company or the holder thereof or upon the happening of any event) into any security other than its Capital Stock) and any Indebtedness or other securities of Weirton convertible into or exercisable for Capital Stock (other than Disqualified Stock) of Weirton which has been so converted or exercised, as the case may be; plus (3) the amount by which Indebtedness of Weirton is reduced on Weirton's balance sheet upon the conversion or exchange (other than by a Subsidiary of Weirton) subsequent to the Issue Date of any Indebtedness of Weirton convertible or exchangeable for Capital Stock (other than Disqualified Stock) of Weirton (less the amount of any cash or the fair market value of other property distributed to Weirton upon such conversion or exchange). Notwithstanding the foregoing, (1) Weirton and its Subsidiaries shall be permitted to make Permitted Payments, and (2) Weirton and any Subsidiary shall be permitted to make Investments in Permitted Joint Ventures if at the time of such Investment and after giving effect thereto, on a pro forma basis, (x) Weirton could incur at least $1.00 of Indebtedness (other than Permitted Indebtedness) pursuant to clause (a) of the "Limitations on Indebtedness" covenant (assuming for purposes of such calculation, if such Investment is made other than with borrowed funds or funds obtained by the issuance of Capital Stock specifically for the purpose of such Investment, that Weirton incurred Indebtedness in an amount equal to such Investment bearing interest at the weighted average rate of interest paid by Weirton on its outstanding Indebtedness during the four fiscal quarters most recently ended) or otherwise pursuant to clause (k) of the definition of "Permitted Indebtedness," (y) the aggregate amount of Investments made pursuant to this clause (2), less the aggregate amount of dividends, other distributions of earnings and returns of capital received by Weirton from such Permitted Joint Ventures in cash, does not exceed $50 million and (z) no Default or Event of Default shall have occurred and be continuing. Moreover, the foregoing clause (b) shall not prevent: (x) the payment of any dividend within 60 days of its declaration if such dividend could have been made on the date of its declaration without violation of the provisions of this covenant; or (y) the redemption, repurchase, retirement or other acquisition of any Capital Stock of Weirton in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary of Weirton) of other Capital Stock of Weirton (other than any Disqualified Stock); 115 provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (b)(2) above; or (z) the defeasance, redemption or repurchase of Indebtedness which is subordinated in right of payment to the new senior secured discount notes with the net cash proceeds from an incurrence of Refinancing Indebtedness or the substantially concurrent sale (other than to a Subsidiary of Weirton) of other Capital Stock of Weirton (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement or other acquisition shall be excluded from clause (b)(2) above. Limitations on Mergers, Consolidations and Sales of Assets. Weirton will not consolidate or merge with or into, or sell, lease, convey or otherwise dispose of all or substantially all of its assets (as an entirety or substantially an entirety in one transaction or a series of related transactions) to any Person (other than a merger with or into a Wholly Owned Subsidiary; provided that such Wholly Owned Subsidiary is not organized in a foreign jurisdiction), unless: (a) the entity formed by or surviving any such consolidation or merger (if other than Weirton), or to which sale, lease, conveyance or other disposition shall have been made (the "Surviving Entity"), is a corporation organized and existing under the laws of the United States, any state thereof or the District of Columbia; (b) the Surviving Entity assumes by supplemental indenture all of the obligations of Weirton on the new senior secured discount notes and the indenture; (c) immediately after the transaction, no Default or Event of Default shall have occurred and be continuing; (d) immediately after giving effect to such transaction, the Consolidated Net Worth of the Surviving Entity would be at least equal to the Consolidated Net Worth of Weirton immediately prior to such transaction; and (e) immediately after giving effect to such transaction on a pro forma basis, the Surviving Entity could incur at least $1.00 of Indebtedness (other than Permitted Indebtedness) pursuant to clause (a) of the "Limitations on Indebtedness" covenant. Limitations on Transactions with Affiliates. So long as any of the new senior secured discount notes remain outstanding, neither Weirton nor any of its Subsidiaries will directly or indirectly enter into any transaction or series of related transactions involving aggregate consideration in excess of $1 million in any fiscal year with any Affiliate or holder of 5% or more of any class of Capital Stock of Weirton (including any Affiliates of such holders) except for any transaction (including any loans or advances by or to any Affiliate): (a) the terms of which are fair and reasonable to Weirton or such Subsidiary, as the case may be, and are at least as favorable as the terms which could be obtained by Weirton or such Subsidiary, as the case may be, in a comparable transaction made on an arm's-length basis with Persons who are not such a holder, an Affiliate of such holder or Affiliate of Weirton; and (b) which has been approved by a majority of Weirton's directors (including a majority of Weirton's independent directors, if any) in the exercise of their fiduciary duties; provided that any transaction shall be conclusively deemed to be on terms which are fair and reasonable to Weirton or any of its Subsidiaries and on terms which are at least as favorable as the terms which could be obtained on an arm's-length basis with Persons who are not such a holder, an Affiliate of such a holder or Affiliate of Weirton, if such transaction is approved by the board of directors (including a majority of Weirton's independent directors, if any). This covenant does not apply to: (1) any transaction between Weirton and any of its Wholly Owned Subsidiaries or between any of its Wholly Owned Subsidiaries; 116 (2) any Restricted Payment not otherwise prohibited by the "Limitations on Restricted Payments" covenant, including Permitted Payments; (3) any transaction pursuant to an agreement in existence on the date of the indenture and included as an exhibit to the Exchange Act reports; (4) transactions between Weirton and the 1984 ESOP, 1989 ESOP or any other employee benefit plan; or (5) any transaction with a Subsidiary or a Permitted Joint Venture which would constitute a transaction with an Affiliate solely because Weirton or a Subsidiary owns an equity interest in or otherwise controls such Subsidiary or Permitted Joint Venture. Restrictions on Disposition of Assets of Weirton. Subject to the provisions of the "Limitations on Mergers, Consolidations and Sales of Assets" covenant, Weirton will not, and will not permit any of its Subsidiaries to, make any Asset Disposition unless: (a) Weirton (or the Subsidiary, as the case may be) receives consideration at the time of such sale or other disposition at least equal to the fair market value thereof (as determined in good faith by Weirton's board of directors and evidenced by a resolution of such board, provided that no resolution of the board shall be required in connection with the disposition of approximately 200 contiguous acres adjacent to Weirton's headquarters at 400 Three Springs Drive, Weirton, West Virginia); (b) not less than 75% of the consideration received by Weirton (or the Subsidiary, as the case may be) is in the form of cash or Cash Equivalents; and (c) the Net Cash Proceeds of the Asset Disposition are within 270 days, (1) at Weirton's election, invested in the business or businesses of Weirton as of the Issue Date or any related business, or, (2) to the extent Weirton elects (or is required by the terms of any Indebtedness), to prepay or repay the Credit Facility, and (3) to the extent of the balance of such Net Cash Proceeds after application in accordance with clauses (1) and (2), to make an Asset Disposition Offer (as defined in the indenture) to the holders of the new senior secured discount notes (on a pro rata basis if the amount available for such purchase offer is less than 100% of the Accreted Value of the new senior secured discount notes) and any other secured Indebtedness which is pari passu with the new senior secured discount notes, at a purchase price of 100% of the Accreted Value or the principal amount at maturity thereof plus accrued and unpaid interest, if any, as the case may be, to the date of repayment. Notwithstanding the foregoing, Weirton and its Subsidiaries will not be required to apply any Net Cash Proceeds in accordance with this provision except to the extent that the aggregate gross proceeds from all Asset Dispositions which are not applied in accordance with this provision exceed $25 million. Limitations on Liens. Weirton will not, and will not permit any Subsidiary to, issue, assume or guarantee any Indebtedness secured by a Lien (other than a Permitted Lien) of or upon any Property of Weirton or any Subsidiary or any shares of stock or debt of any Subsidiary which owns Property, whether such Property is owned at the date of the indenture or thereafter acquired, without making effective provision whereby the new senior secured discount notes (together with, if Weirton shall so determine, any other debt of Weirton ranking equally with the new senior secured discount notes and then existing or thereafter created) shall be secured by such Lien equally and ratably with such Indebtedness, so long as such Indebtedness shall be so secured; provided, however, that the foregoing prohibition shall not apply to Liens with respect to transactions regarding the No. 9 tin tandem mill. Limitations on Sale and Leaseback Transactions. Weirton will not, and will not permit any Subsidiary to, enter into any sale and leaseback transaction with respect to any Property (whether now owned or hereafter acquired) unless: (a) the net proceeds of the sale or transfer of the property to be leased are at least equal to the fair market value (as determined by the board of directors of Weirton) of such Property; and 117 (b) unless Weirton or such Subsidiary would be entitled under the "Limitations on Indebtedness" and "Limitations on Liens" covenants, to issue, assume or guarantee Indebtedness secured by a mortgage on such property in an amount at least equal to the Attributable Debt in respect of such sale and leaseback transaction; provided, however, that the foregoing prohibition does not apply to: (1) leases between Weirton and a Subsidiary or between Subsidiaries; (2) sale and leaseback transactions with respect to the No. 9 tin tandem mill; or (3) sale and leaseback transactions with respect to the Vendor Financing Programs. Limitations on Dividend and Other Payment Restrictions Affecting Subsidiaries. Weirton will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary of Weirton to: (a)(1) pay dividends or make any other distributions on its Capital Stock, or any other interest or participation in or measured by its profits, owned by Weirton or a Subsidiary of Weirton, or (2) pay any Indebtedness owed to Weirton or a Subsidiary of Weirton; (b) make loans or advances to Weirton or a Subsidiary of Weirton; or (c) transfer any of its properties or assets to Weirton or a Subsidiary of Weirton, except for Permitted Liens and such other encumbrances or restrictions existing under or by reason of: (1) any restrictions, with respect to a Subsidiary that is not a Subsidiary on the date of the indenture, under any agreement in existence at the time such Subsidiary becomes a Subsidiary (unless such agreement was entered into in connection with, or in contemplation of, such entity becoming a Subsidiary on or after the date of the indenture); (2) any restrictions under any agreement evidencing any Acquired Indebtedness of a Subsidiary of Weirton incurred pursuant to the provisions described under the "Limitations on Indebtedness" covenant; provided that such restrictions shall not restrict or encumber any assets of Weirton or its Subsidiaries other than such Subsidiary; (3) terms relating to the nonassignability of any operating lease; (4) any encumbrance or restriction existing under any agreement that refinances or replaces the agreements containing restrictions described in clauses (1) through (3), provided that the terms and conditions of any such restrictions are no less favorable to the holders of the new senior secured discount notes than those under the agreement so refinanced or replaced; or (5) any encumbrance or restriction due to applicable law. Change of Control Option. In the event that there shall occur a Change of Control, each holder of the new senior secured discount notes shall have the right, at the holder's option, to require Weirton to purchase all or any part of such holder's new senior secured discount notes, on the date (the "Repurchase Date") that is 90 days after notice of the Change of Control, at 101% of (a) the Accreted Value thereof, if such Change of Control occurs prior to January 1, 2004, or (b) the principal amount at maturity of the new senior secured discount notes plus accrued interest, if any, to the Repurchase Date, if such Change of Control occurs on or after January 1, 2004. On or before the thirtieth day after the Change of Control, Weirton is obligated to mail, or cause to be mailed, to all holders of record of such new senior secured discount notes a notice regarding the Change of Control and the repurchase right ("Change of Control Offer"). Substantially simultaneously with mailing of the notice, Weirton shall cause a copy of such notice to be published in a newspaper of general circulation in the Borough of Manhattan, the City of New York. To exercise a repurchase right, the holder of such new senior secured discount notes must deliver, at least two business days prior to the Repurchase Date, written notice to Weirton (or an agent designated by Weirton for such purpose) of the 118 holder's exercise of such right, together with the new senior secured discount notes with respect to which the right is being exercised, duly endorsed for transfer. Such written notice from the holder shall be irrevocable unless the rescission thereof is duly approved by the Continuing Directors (as defined herein). Weirton will comply with all applicable tender offer rules and regulations, including Section 14(e) of the Exchange Act and the rules thereunder, if Weirton is required to give a notice of right of repurchase as a result of a Change of Control. The occurrence of certain of the events which would constitute a Change of Control would constitute a default under the senior credit facility. Future senior Indebtedness of Weirton may contain prohibitions of certain events which would constitute a Change of Control or require such senior Indebtedness to be repurchased upon a Change of Control. Prior to the mailing of the notice referred to above, but in any event within 30 days following the date on which Weirton becomes aware that a Change of Control has occurred, if the purchase of the new senior secured discount notes would violate or constitute a default under any other Indebtedness of Weirton, then Weirton must, to the extent needed to permit such purchase of new senior secured discount notes, either repay all such Indebtedness and terminate all commitments outstanding thereunder or request the holders of such Indebtedness to give the requisite consents to permit the purchase of the new senior secured discount notes as provided above. Until such time as Weirton is able to repay all such Indebtedness and terminate all commitments outstanding thereunder or such time as such requisite consents are obtained, Weirton will not be required to make the Change of Control Offer or purchase the notes pursuant to the provisions described above. Finally, Weirton's ability to pay cash to the holders of the new senior secured discount notes upon a repurchase may be limited by its then existing financial resources. We can make no assurance that sufficient funds will be available when necessary to make any required repurchase. If Weirton is otherwise permitted by the terms of the senior credit facility and any other Indebtedness to make an offer to repurchase the new senior secured discount notes as a result of a Change of Control, the provisions under the indenture related to such offer and repurchase, may only be waived or modified with the written consent of the holders of a majority in principal amount of the new senior secured discount notes. See "Risk Factors -- We may not be able to purchase the notes upon a change of control." Weirton's failure to repurchase a holder's new senior secured discount notes, in the event of a Change of Control, for a period of 60 days after the date on which Weirton received written notice specifying such failure, shall create an Event of Default. Such notice is a "Notice of Default" under the indenture and must demand that Weirton remedy its failure to repurchase. The Notice of Default must be given by registered or certified mail, return receipt requested, to Weirton by the trustee, or to Weirton and the trustee by the holders of at least 25% in aggregate principal amount at maturity of the new senior secured discount notes at the time outstanding. "Change of Control" means: (a) any sale, lease or other transfer (in one transaction or a series of transactions) of more than 75% of the assets of Weirton to any Person (other than a Wholly Owned Subsidiary of Weirton); (b) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act (other than the 1984 ESOP, the 1989 ESOP or any other employee benefit plan of Weirton)) becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of Capital Stock of Weirton representing more than 50% of the voting power of such Capital Stock, unless such acquisition of beneficial ownership of shares of voting power of Capital Stock of Weirton occurs, directly or indirectly, in connection with the financing of a Permitted Acquisition; (c) Continuing Directors cease to constitute at least a majority of the board of directors of Weirton; or (d) the stockholders of Weirton approve any plan or proposal for the liquidation or dissolution of Weirton. 119 "Continuing Director" means a director who either was a member of the board of directors of Weirton on the date of the indenture, or who became a director of Weirton subsequent to such date and whose election, or nomination for election by Weirton's stockholders, was duly approved by a majority of the Continuing Directors then on the board of directors of Weirton. Because the events described above could be expected to occur in connection with certain forms of takeover attempts, these provisions could deter hostile or friendly acquisitions of Weirton where the person attempting the acquisition views itself as unable to finance the purchase of the principal amount at maturity of new senior secured discount notes which may be tendered to Weirton upon occurrence of a Change of Control. Subject to the limitations discussed below, we could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the indenture, but that could increase the amount of Indebtedness outstanding at such time or otherwise affect Weirton's capital structure or credit ratings. Restrictions on the ability of Weirton to incur additional Indebtedness are contained in the covenants described under "Certain Covenants -- Limitations on Indebtedness" and "Limitation on Liens." Such restrictions can only be waived with the consent of the holders of at least a majority in principal amount of the new senior secured discount notes then outstanding. Reports to Holders of the Senior Secured Discount Notes. So long as Weirton is subject to the periodic reporting requirements of the Exchange Act, it will continue to furnish the information required thereby to the Commission and to the trustee. The indenture provides that even if Weirton is entitled under the Exchange Act not to furnish such information to the Commission, it will nonetheless continue to furnish information under Section 13 of the Exchange Act to the trustee as if it were subject to such periodic reporting requirements so long as at least 10% of the new senior secured discount notes remain outstanding. In addition, whether or not required by the rules and regulations of the Commission, Weirton will file a copy of all such information and reports with the Commission for public availability (unless the Commission will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, at all times prior to the date of effectiveness of a registration statement, upon the request of any holder or any prospective purchaser of the new senior secured discount notes designated by a holder, Weirton shall supply to such holder or such prospective purchaser the information required by Rule 144A under the Securities Act, unless Weirton is then subject to Section 13 or 15(d) of the Exchange Act and reports filed thereunder satisfy the information requirements of Rule 144A(d), as then in effect. The foregoing covenants set forth in full the protections offered holders of new senior secured discount notes in the event of a highly-leveraged transaction, reorganization, restructuring, merger or similar transaction involving Weirton that may adversely affect the holders. See " -- Modification and Waiver" for provisions relating to the waiveability of the foregoing covenants. EVENTS OF DEFAULT The term "Event of Default" when used in the indenture means any one of the following: (a) failure of Weirton to pay interest, if any, for 30 days or principal when due; (b) failure of Weirton to perform any other covenant in the indenture or the Security Documents for 60 days after notice from the trustee or the holders of 25% in principal amount at maturity of the new senior secured discount notes outstanding; (c) acceleration of the maturity of other indebtedness of Weirton in excess of $25 million which acceleration is not rescinded or annulled, or which indebtedness is not discharged, within 10 days after notice; (d) the repudiation by Weirton of any of its obligations under the Security Documents or the unenforceability of the Security Documents against Weirton; and 120 (e) certain events of bankruptcy, insolvency or reorganization of Weirton. The indenture provides that the trustee shall, within 90 days after the occurrence of any Default (the term "Default" to include the events specified above without grace or notice) known to it, give to the holders of new senior secured discount notes notice of such Default; provided that, except in the case of a Default in the payment of principal of, or interest, if any, on any of the new senior secured discount notes, the trustee shall be protected in withholding such notice if it in good faith determines that the withholding of such notice is in the interest of the holders of new senior secured discount notes. The indenture requires Weirton to certify to the trustee annually as to whether any default occurred during such year. In case an Event of Default shall occur and be continuing, the trustee or the holders of at least 25% in aggregate principal amount at maturity of the new senior secured discount notes then outstanding, by notice in writing to Weirton (and to the trustee if given by the holders of new senior secured discount notes), may declare all unpaid principal and accrued interest on the new senior secured discount notes then outstanding to be due and payable immediately. Such acceleration may be annulled and past Defaults (except, unless theretofore cured, a Default in payment of principal of or interest on the new senior secured discount notes) may be waived by the holders of a majority in principal amount at maturity of the new senior secured discount notes then outstanding, upon the conditions provided in the indenture. The indenture provides that no holder of a new senior secured discount note may institute any action or proceeding at law or equity or in bankruptcy or otherwise in pursuit of any remedy under the indenture unless the trustee shall have failed to act within 60 days after notice of an Event of Default and request by holders of at least 25% in principal amount at maturity of the new senior secured discount notes and the offer to the trustee of indemnity satisfactory to it; provided, however, that such provision does not affect the right to sue for enforcement of any overdue payment on the new senior secured discount notes. MODIFICATION AND WAIVER Except as set forth below, modification and amendment of the indenture and the Security Documents may be made by Weirton and the trustee with the consent of the holders of not less than a majority in principal amount at maturity of the outstanding new senior secured discount notes, provided that no such modification or amendment may, without the consent of the holder of each new senior secured discount note affected thereby, (i) reduce the rate, or change the time or place for payment, of interest, if any, on any new senior secured discount note, or reduce any amount payable on the redemption hereof, (ii) reduce the principal, or change the fixed maturity or place of payment, of any new senior secured discount note, (iii) change the currency of payment of principal of or interest, if any, on any new senior secured discount note, (iv) reduce the principal amount at maturity of outstanding new senior secured discount notes necessary to modify or amend the indenture, (v) impair the right to institute suit for the enforcement of any payment on or with respect to any new senior secured discount note or (vi) modify any of the foregoing provisions or reduce the principal amount at maturity of outstanding new senior secured discount notes necessary to waive any covenant or past Default. Holders of not less than a majority in principal amount at maturity of the outstanding new senior secured discount notes may waive certain past Defaults. See "-- Events of Default and Notice Thereof." With the consent of the holders of at least 85% in the aggregate principal amount of the new senior secured discount notes then outstanding, Weirton and the trustee may amend or waive provisions of the indenture and the Security Documents relating to the Collateral. SATISFACTION AND DISCHARGE OF INDENTURE The indenture will be discharged upon payment in full of all the new senior secured discount notes outstanding thereunder, or upon the deposit with the trustee, in trust, of cash and/or direct obligations of the United States of America backed by its full faith and credit which, through the payment of interest, if any, and principal in respect thereof in accordance with their terms, will provide money in an amount sufficient to pay principal of, and each installment of interest, if any, on the new senior secured discount notes, on the stated maturity of such payments in accordance with the terms of the Indenture and the new 121 senior secured discount notes. In the case of any such deposit, certain of Weirton's obligations under the indenture, including the obligation to pay the principal of and any interest, if any, on such new senior secured discount notes, shall continue until the new senior secured discount notes are paid in full. Weirton will be entitled to make such deposit if Weirton has delivered to the trustee: (a)(1) a ruling directed to the trustee from the Internal Revenue Service to the effect that the holders of the new senior secured discount notes will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance of the indenture and will be subject to federal income tax on the same amount and in the same manner and at the same times, as would have been the case if such deposit and defeasance had not occurred, or (2) an opinion of counsel (who may be an employee of or counsel for Weirton), reasonably satisfactory to the trustee, to the same effect as clause (a)(1) above accompanied by a ruling to the same effect published by the Internal Revenue Service; and (b) an opinion of counsel (who may be an employee of or counsel for Weirton), reasonably satisfactory to the trustee, to the effect that, after the passage of 90 days following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally. CONCERNING THE TRUSTEE The indenture contains certain limitations on the rights of the trustee, should it become a creditor of Weirton, 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; provided, however, if it acquires any conflicting interest (as defined in Section 310(b) of the Trust Indenture Act), it must eliminate such conflict or resign. The holders of a majority in principal amount at maturity of all outstanding new senior secured discount notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy or power available to the trustee, provided that such direction does not conflict with any rule of law or with the indenture. In case an Event of Default shall occur (and shall not be cured or waived), the trustee will be required to exercise its powers with the degree of care and skill of a prudent person 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 of the holders of new senior secured discount notes, unless they shall have offered to the trustee security and indemnity satisfactory to it. DELIVERY AND FORM; BOOK-ENTRY PROCEDURES The certificates representing the new senior secured discount notes will be issued in fully registered form and may, if agreed by Weirton and the holder, be issued in the form of a permanent global certificate in fully registered form (the "Global Note") and will be deposited with the trustee as custodian for The Depository Trust Company ("DTC") and registered in the name of Cede & Co., as nominee of the DTC. So long as DTC, or its nominee, is the registered owner or holder of the Global Note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the new senior secured discount notes represented by such Global Note for all purposes under the indenture and the new senior secured discount notes. No beneficial owner of an interest in the Global Note will be able to transfer that interest except in accordance with DTC's applicable procedures, in addition to those provided for under the Indenture. DTC is a limited-purpose trust company that was created to hold securities for its participating organizations (collectively, the "Participants" or the "DTC's Participants") and to facilitate the clearance and settlement of transactions in such securities between Participants through electronic computerized book-entry changes in accounts of its Participants. DTC's Participants include securities brokers and dealers, banks and trust companies, clearing corporations and certain other organizations. Access to DTC's 122 system is also available to other entities such as banks, brokers, dealers and trust companies (collectively, "DTC's Indirect Participants") that clear through or maintain a custodial relationship with a Participant, either directly or indirectly. Persons who are not Participants may beneficially own securities held by or on behalf of the DTC only through DTC's Participants or DTC's Indirect Participants. Weirton expects that pursuant to procedures established by DTC (a) upon deposit of the Global Note, DTC will credit the accounts of Participants with portions of the principal amount at maturity of the Global Note and (b) ownership of the new senior secured discount notes evidenced by the Global Note will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the interests of DTC's Participants), DTC's Participants and DTC's Indirect Participants. DTC's records reflect only the identity of the Participants to whose accounts portions of the principal amount at maturity of the Global Note are credited, which may or may not be the beneficial owners of such interests in the Global Note. Prospective purchasers are advised that the laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer new senior secured discount notes evidenced by the Global Note will be limited to such extent. Except as described below, owners of interests in the Global Note will not have new senior secured discount notes registered in their names, will not receive physical delivery of new senior secured discount notes in definitive form and will not be considered the registered owners or holders thereof under the indenture for any purpose. The deposit of the Global Note with DTC and its registration in the name of Cede & Co. effects no change in the beneficial owners of interests in the Global Note. Payments of the principal of, premium (if any) and interest on, the Global Note will be made to DTC or its nominee, as the case may be, as the registered owner thereof. Neither Weirton, the trustee nor any paying agent will have any responsibility or liability for any aspect of the record relating to or payments made on account of beneficial ownership interests in the Global Note or for maintaining, supervising or reviewing any record relating to such beneficial ownership interest. Weirton believes, however, that it is currently the policy of DTC to immediately credit the accounts of the relevant Participants with such payments, in amounts proportionate to their respective holdings of beneficial interest in the relevant security as shown on the records of DTC. Payments by DTC's Participants and DTC's Indirect Participants to the beneficial owners of the new senior secured discount notes will be governed by standing instructions and customary practice and will be the responsibility of DTC's Participants or DTC's Indirect Participants. DTC has advised Weirton that it will take any action permitted to be taken by a holder of new senior secured discount notes (including the presentation of new senior secured discount notes for exchange as described below) only at the direction of one or more Participants to whose account the DTC interest in the Global Note is credited and only in respect of such portion of the aggregate principal amount at maturity of new senior secured discount notes as to which such participant or participants has or have given such direction. However, if there is an Event of Default under the new senior secured discount notes or the indenture, DTC will exchange the Global Note for new senior secured discount notes in definitive form, which it will distribute to its Participants. Although DTC customarily agrees to the foregoing procedures in order to facilitate transfers of interests in global notes among participants of DTC, it is under no obligation to perform such procedures, and such procedures may be discontinued at any time. Neither Weirton nor the trustee will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. Certificated Securities If DTC is at any time unwilling or unable to continue as a depository for the Global Note and a successor depository is not appointed by Weirton within 90 days, new senior secured discount notes in definitive form will be issued in exchange for the Global Note. 123 GOVERNING LAW The indenture and the new senior secured discount notes are governed by and construed in accordance with the laws of the State of New York. CERTAIN DEFINITIONS Set forth below is a summary of certain of the defined terms used in the indenture. Reference is made to the indenture for the full definition of all such terms as well as any other capitalized terms used herein for which no definition is provided. "Accreted Value" means, as of any date (the "Specified Date"), the amount provided below for each $50 principal amount of new senior secured discount notes: (a) if the Specified Date occurs on one of the following dates (each, a "Semi-Annual Accrual Date"), the Accreted Value will equal the amount set forth below for such Semi-Annual Accrual Date:
SEMI-ANNUAL ACCRUAL DATE ACCRETED VALUE ------------------------ -------------- January 1, 2002....................................... $41.135 July 1, 2002.......................................... 48.192 January 1, 2003....................................... 45.352 July 1, 2003.......................................... 47.617 January 1, 2004....................................... 50.000
(b) if the Specified Date occurs between two Semi-Annual Accrual Dates, the Accreted Value will equal to the sum of (1) the Accreted Value for the Semi-Annual Accrual Date immediately preceding such Specified Date and (2) an amount equal to the product of (x) the Accreted Value for the immediately following Semi-Annual Accrual Date less the Accreted Value for the immediately preceding Semi-Annual Accrual Date multiplied by (y) a fraction, the numerator of which is the number of days elapsed from the immediately preceding Semi-Annual Accrual Date to the Specified Date, using a 360-day year of twelve 30-day months, and the denominator of which is 180 (or, if the Semi-Annual Accrual Date immediately preceding the Specified Date is the Issue Date, the denominator of which is the number of days from and including the Issue Date to and excluding the next Semi-Annual Accrual Date); or (c) if the Specified Date occurs after the last Semi-Annual Accrual Date, the Accreted Value will equal $50. "Acquired Indebtedness" means Indebtedness or Preferred Stock of any Person existing at the time such Person became a Subsidiary of Weirton (or such Person is merged into Weirton or one of Weirton's Subsidiaries), or assumed in connection with the acquisition of assets from any such Person (other than assets acquired in the ordinary course of business), excluding Indebtedness or Preferred Stock incurred in connection with, or in contemplation of, such Person becoming a Subsidiary of Weirton. "Affiliate" means, when used with reference to a specified Person, any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Person specified. 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. "Asset Disposition" means (a) the sale, lease, conveyance or other disposition of any assets or rights, other than sales of inventory in the ordinary course of business consistent with past practices; provided, however, that the sale, conveyance or other disposition of all or substantially all of the assets of Weirton and its Subsidiaries taken as a whole will be governed by the provisions of the indenture described under the 124 caption "-- Certain Covenants -- Change of Control Option" and/or the provisions described above under the "-- Certain Covenants -- Limitations on Mergers, Consolidations and Sales of Assets" and not by the provisions of the "-- Certain Covenants -- Limitations on Asset Dispositions" covenant; and (b) the issuance of Capital Stock by any of Weirton's Subsidiaries or the sale of Capital Stock in any of its Subsidiaries. Notwithstanding the preceding, the following items shall not be deemed to be Asset Dispositions: (1) any single transaction or series of related transactions that: (a) involves assets having a fair market value of less than $1.0 million; or (b) results in net proceeds to Weirton and its Subsidiaries of less than $1.0 million; (2) a transfer of assets between or among Weirton and its Wholly Owned Subsidiaries and in connection with the Vendor Financing Programs; (3) an issuance of Capital Stock by a Wholly Owned Subsidiary to Weirton or to another Wholly Owned Subsidiary; (4) the sale or lease of equipment, inventory, accounts receivable or other assets in the ordinary course of business; (5) the sale or other disposition of assets if additional assets were acquired within 270 days prior to such disposition for the purpose of replacing the assets disposed of; (6) the sale or other disposition of cash or Cash Equivalents; (7) the sale or other disposition of assets in exchange for similar assets or for cash where the proceeds are deposited in a trust and employed to acquire similar property in a transaction qualifying as a like-kind exchange pursuant to Section 1031 of the Internal Revenue Code of 1986 or any successor provision; (8) the sale or other disposition of the Brown's Island property; (9) a Restricted Payment that is permitted by the "Limitations on Restricted Payments" covenant, including Permitted Payments; (10) the sale or other disposition of the No. 9 tin tandem mill; and (11) an Asset Swap. "Asset Swap" means the execution of a definitive agreement, subject only to customary closing conditions that Weirton in good faith believes will be satisfied, for a substantially concurrent purchase and sale, or exchange, of assets used or usable in the business or businesses of Weirton as of the Issue Date or any related business between Weirton or any of its Subsidiaries and another Person or group of affiliated Persons; provided, however, that any amendment to or waiver of any closing condition that individually or in the aggregate is material to the Asset Swap shall be deemed to be a new Asset Swap. "Attributable Debt" means, with respect to any sale and leaseback transaction, at the date of determination, the present value (discounted at the rate of interest implicit in the terms of the lease) of the obligation of the lessee for net rental payments during the remaining term of the lease (including any period for which such lease has been extended or may, at the option of the lessor, be extended); provided, however, there shall not be deemed to be any Attributable Debt in respect of any sale and leaseback transaction if Weirton or a Subsidiary would be entitled pursuant to the provisions of clauses (a) through (i) under the "Permitted Liens" definition to issue, assume or guarantee debt secured by a mortgage upon the property involved in such transaction without equally and ratably securing the new senior secured discount notes. "Net rental payments" under any lease for any period means the sum of such rental and other payments required to be paid in such period by the lessee thereunder, not including, however, any amount required to be paid by such lessee (whether or not designated as rent or additional rent) on account of maintenance and repairs, insurance, taxes, assessments, water rates or similar charges required 125 to be paid by such lessee thereunder or any amounts required to be paid by such lessee thereunder contingent upon the amount of sales, maintenance and repairs, insurance, taxes, assessments, water rates or similar charges. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interest in (however designated) equity of such Person, including, without limitation, membership interests in limited liability companies and any Preferred Stock, but excluding any debt securities convertible into such equity. "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 (provided that the full faith and credit of the United States is pledged in support 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 and a Thompson Bank Watch Rating of "B" or better; (d) repurchase obligations with a term of not more than seven 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; (e) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Corporation and in each case maturing within six months after the date of acquisition; (f) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (a) through (e) of this definition; and (g) for purposes of "Restrictions on Disposition of Assets of Weirton" covenant, the following are also deemed to be cash or Cash Equivalents: (1) any liabilities (as shown on Weirton's or on any of its Subsidiaries' most recent balance sheet or in the notes thereto) of Weirton or any Subsidiary (other than liabilities that are by their terms subordinated to the new senior secured discount notes) that are assumed by the transferee of such assets without recourse to Weirton or any of its Subsidiaries; and (2) any notes or other obligations received by Weirton or such Subsidiary from such transferee that are converted by Weirton or such Subsidiary into cash (to the extent of the cash received) within 180 days following the closing of the relevant Asset Disposition. "Commodity Agreement" means any option or futures contract or similar agreement or arrangement designed to protect Weirton against fluctuations in commodity prices. "Consolidated EBITDA" means, for any period, on a consolidated basis for Weirton and its Subsidiaries, the sum for such period (without duplication) of: (a) Consolidated Net Income; (b) income taxes (other than income taxes positive or negative attributable to extraordinary and non-recurring gains or losses on asset sales) with respect to such period determined in accordance with GAAP; (c) net interest expense for such period determined in accordance with GAAP; 126 (d) depreciation and amortization expenses (including, without duplication, amortization of debt discount and debt issue costs), determined in accordance with GAAP; and (e) other non-cash items reducing Net Income, minus non-cash items increasing Net Income, determined in accordance with GAAP. "Consolidated Fixed Charges" means, for any period, the sum of: (a) the net interest expense of Weirton and its Subsidiaries for such period whether paid or accrued (including, without limitation, amortization of 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 and imputed interest with respect to Attributable Debt); (b) interest incurred during the period and capitalized by Weirton; (c) any interest expense on Indebtedness of another Person that is guaranteed by Weirton or one of its Subsidiaries or secured by a Lien on assets of Weirton or one of its Subsidiaries (whether or not such guarantee or Lien is called upon); and (d) the product of (i) all cash dividend payments on any series of Preferred Stock of any Subsidiary or Disqualified Stock of Weirton or any of its Subsidiaries, 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 rate of Weirton and its Subsidiaries, expressed as a decimal, in each case, on a consolidated basis in accordance with GAAP. "Consolidated Net Income" of Weirton for any period means the Net Income (or loss) of Weirton and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided, however, that there shall be excluded from Consolidated Net Income: (a) the Net Income of any Person other than a consolidated Subsidiary in which Weirton or any of its consolidated Subsidiaries has a joint interest with a third party except to the extent of the amount of dividends or distributions actually paid in cash to Weirton or a consolidated Subsidiary during such period; (b) the Net Income of any other Person accrued prior to the date it becomes a Subsidiary with respect to which Consolidated Net Income is calculated, or is merged into or consolidated with such Person or any of its Subsidiaries or that Person's assets are acquired by such Person or any of its Subsidiaries; (c) the Net Income (but only if positive) of any Subsidiary to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary to such Person or to any other Subsidiary of such Net Income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary; and (d) without duplication, any gains or losses attributable to the sale, lease, conveyance or other disposition of assets (including without limitation Capital Stock of any Subsidiary of such Person), whether owned on the date of issuance of the new senior secured discount notes or thereafter acquired, in one or more related transactions outside the ordinary course of business. "Consolidated Net Worth" means, with respect to any Person engaged in a merger, consolidation or sale of assets, the consolidated stockholder's equity of such Person and its Subsidiaries, as determined in accordance with GAAP but excluding any restructuring charges taken by such Person in connection with such merger, consolidation or sale of assets. "Credit Facility" means any senior credit facility to be entered into by Weirton and the lenders referred to therein, together with the related documents thereto (including the notes thereunder, any guarantees and security documents), as amended, extended, renewed, restated, supplemented or otherwise 127 modified (in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time, and any agreement (and related document) governing Indebtedness incurred to refinance, in whole or in part, the borrowings and commitments then outstanding or permitted to be outstanding under such Credit Facility or a successor Credit Facility, whether by the same or any other lender or group of lenders. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect Weirton against fluctuations in currency values. "Disqualified Stock" means any Capital Stock: (a) 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 or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the final maturity date of the new senior secured discount notes; or (b) upon which Weirton or any of its Subsidiaries has a contractual obligation to compensate the holder thereof for losses incurred upon the sale or other disposition thereof; provided, however, that any portion or series of such Capital Stock which by its terms, or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund or otherwise, no earlier than the day following the maturity date of the new senior secured discount notes shall not constitute Disqualified Stock; and provided, further, however, that any Capital Stock which would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require Weirton to repurchase or redeem such Capital Stock upon the occurrence of a change in control occurring on or prior to the maturity date of the new senior secured discount notes shall not constitute Disqualified Stock if (i) the change in control provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions of the "Change in Control Option" and (ii) such Capital Stock specifically provides that Weirton will not repurchase or redeem any such stock pursuant to such provisions prior to Weirton's repurchase of such new senior secured discount notes as are required to be repurchased pursuant to the provisions of the "Change in Control Option." "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 may be approved by a significant segment of the accounting profession of the United States, as in effect on the Issue Date. "Indebtedness" means, without duplication: (a) any liability of any entity (1) for borrowed money, or under any reimbursement obligation relating to a letter of credit, (2) evidenced by a bond, note, debenture or similar instrument (including a purchase money obligation) given in connection with the acquisition of any businesses, properties or assets of any kind or with services incurred in connection with capital expenditures, or (3) in respect of capitalized lease obligations; (b) any liability of others described in the preceding clause (a) that the entity has guaranteed or that is otherwise its legal liability; (c) to the extent not otherwise included, obligations under Currency Agreements, Commodity Agreements or Interest Protection Agreements; (d) all Disqualified Stock valued at the greatest amount payable in respect thereof on a liquidation (whether voluntary or involuntary) plus accrued and unpaid dividends; and (e) any amendment, supplement, modification, deferral, renewal, extension or refunding of any liability of the types referred to in clauses (a) through(d) above, provided that Indebtedness shall not include accounts payable (including, without limitation, accounts payable to Weirton by any Subsidiary or to any such Subsidiary by Weirton or any other Subsidiary, in each case, in accordance 128 with customary industry practice) or liabilities to trade creditors of any entity arising in the ordinary course of business. "Interest Protection Agreement" of any Person means any interest rate swap agreement, interest rate collar agreement, option or future contract or other similar agreement or arrangement designed to protect such Person or any of its Subsidiaries against fluctuations in interest rates. "Investments" of any Person means: (a) all investments by such Person in any other Person in the form of loans, advances or capital contributions; (b) all guarantees of Indebtedness or other obligations of any other Person by such Person; (c) all purchases (or other acquisitions for consideration) by such Person of Indebtedness, Capital Stock or other securities of any other Person; and (d) all other items that would be classified as investments (including, without limitation, purchases of assets outside the ordinary course of business) on a balance sheet of such Person prepared in accordance with GAAP. "Issue Date" means the date on which the new senior secured discount notes are originally issued under the Indenture. "Lien" means, with respect to any Property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such Property. For purposes of this definition, Weirton shall be deemed to own subject to a Lien any Property which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such Property. "Net Cash Proceeds" from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise (including any cash received upon sale or disposition of such note or receivable), but only as and when received), excluding any other consideration received in the form of assumption by the acquiring Person of Indebtedness or other obligations relating to the Property disposed of in such Asset Disposition or received in any other non-cash form unless and until such non-cash consideration is converted into cash therefrom, in each case, net of all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all federal, state, provincial, foreign and local taxes required to be accrued as a liability under GAAP as a consequence of such Asset Disposition and, in each case net of a reasonable reserve for the after-tax cost of any indemnification payments (fixed and contingent) attributable to seller's indemnities to the purchaser undertaken by Weirton or any of its Subsidiaries in connection with such Asset Disposition (but excluding any payments, which by the terms of the indemnities will not, under any circumstances, be made during the term of the new senior secured discount notes), and net of all payments made on any Indebtedness which is secured by such Property, in accordance with the terms of any Lien upon or with respect to such Property or which must by its terms or by applicable law be repaid out of the proceeds from such Asset Disposition, and net of all distributions and other payment made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition. "Net Income" of any Person for any period means the consolidated net income or loss, as the case may be, of such Person and its Subsidiaries for such period determined in accordance with GAAP; provided that there shall be excluded all extraordinary gains or losses net of respective tax effects (less, without duplication, all fees and expenses relating thereto). "Permitted Acquisition" means any one or more transactions or series of transactions by Weirton or a Subsidiary after the Issue Date, whether effected by merger, consolidation, purchase, lease or other transfer of assets or otherwise, to acquire the properties and related business (whether through the direct purchase of assets or of the Capital Stock of the Person owning such assets) of any other Person (a) where the Person to be acquired has been engaged, or the assets involved have been deployed, in the 129 business of making, processing or distributing steel products, including without limitation tin mill products or other coated steel products, (b) the consummation of any such transaction would not otherwise result in any Event of Default immediately thereafter, and (c) at the time of such transaction and giving effect thereto, on a pro forma basis, the ratio of Consolidated EBITDA to Consolidated Fixed Charges for the four fiscal quarters immediately preceding such event for which financial information is available consistent with Weirton's prior practice, taken as one period and calculated on the assumption that all Indebtedness had been incurred on the first day of such period and that the related Permitted Acquisition and all its adjustments being included in such pro forma calculation had also occurred on such date, would not be reduced. "Permitted Indebtedness" means: (a) Indebtedness of Weirton and its Subsidiaries outstanding immediately following the issuance of the new senior secured discount notes, including any outstanding 11 3/8% Senior Notes due 2004 and 10 3/4% Senior Notes due 2005, the new secured series 2001 bonds, any outstanding series 1989 bonds, Indebtedness of Weirton's 1989 ESOP guaranteed by Weirton even if acquired by Weirton, and any put obligation imposed on Weirton by law relating to Weirton's 1984 ESOP; (b) the new senior secured discount notes; (c) Indebtedness in respect of obligations of Weirton to the trustee under the indenture; (d) Indebtedness incurred by Weirton pursuant to the Credit Facility; provided, however, that immediately after giving effect to any such incurrence, the aggregate principal amount of all Indebtedness incurred under this clause (d) and then outstanding does not exceed (1) the sum of (x) 65% of the inventory of Weirton and its Subsidiaries and (y) 85% of the accounts receivable of Weirton and its Subsidiaries (in each case as such amounts are reflected on the consolidated financial statements of Weirton) ("Permitted Working Capital Indebtedness"); plus (2) $50 million; (e) intercompany obligations (including intercompany debt or Disqualified Stock of a Subsidiary which is held by Weirton or a Subsidiary of Weirton) of Weirton and each of its Subsidiaries; provided, however, that the obligations of Weirton to any of its Subsidiaries with respect to such Indebtedness shall be subject to a subordination agreement between Weirton and its Subsidiaries providing for the subordination of such obligations in right of payment from and after such time as all new senior secured discount notes issued and outstanding shall become due and payable (whether at stated maturity, by acceleration or otherwise) to the payment and performance of Weirton's obligations under the indenture and the new senior secured discount notes; provided further that any Indebtedness or Disqualified Stock of Weirton or any Subsidiary owed to any other Subsidiary that ceases to be a Subsidiary shall be deemed to be incurred and shall be treated as an incurrence for purposes of the covenant described under "Limitations on Indebtedness" at the time the Subsidiary in question ceased to be a Subsidiary; (f) Indebtedness of Weirton under any Currency Agreements, Commodity Agreements or Interest Protection Agreements; (g) the guarantee by Weirton or any of its Subsidiaries of Indebtedness of Weirton or a Subsidiary of Weirton that was permitted to be incurred by another provision of this definition or the "Limitation on Indebtedness" covenant; (h) the accrual of interest, accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock; (i) Indebtedness (including Acquired Indebtedness) incurred in connection with a Permitted Acquisition; 130 (j) Indebtedness arising from a financing transaction involving the No. 9 tin tandem mill including without limitation a sale and leaseback transaction; (k) additional Indebtedness of Weirton or its Subsidiaries the aggregate principal amount at maturity of which does not exceed $100 million; (l) Indebtedness of Weirton and its Subsidiaries in connection with the Vendor Financing Programs; (m) obligations in respect of performance bonds, bankers' acceptances, letters of credit and surety or appeal bonds provided by Weirton or any of its Subsidiaries in the ordinary course of business in an amount not to exceed $10 million in the aggregate; and (n) any Refinancing Indebtedness, provided that (1) the original issue amount of the Refinancing Indebtedness shall not exceed the maximum principal amount at maturity herein and accrued interest of the Indebtedness to be repaid (or if such Indebtedness was issued at an original issue discount, the original issue price plus amortization of the original issue discount at the time of the incurrence of the Refinancing Indebtedness less the amount of any prepayments on or prior to the date of the indenture), plus the reasonable fees and expenses directly incurred in connection with such Refinancing Indebtedness, (2) Refinancing Indebtedness incurred by any Subsidiary shall not be used to repay or refund outstanding Indebtedness of Weirton or any other Subsidiary, and (3) with respect to any Refinancing Indebtedness that refinances Indebtedness ranking junior in right of payment to the new senior secured discount notes, (x) the Refinancing Indebtedness does not require any principal payments prior to the maturity of the new senior secured discount notes and has an average weighted life that is equal to or greater than the average weighted life of the new senior secured discount notes and (y) the Refinancing Indebtedness is subordinated to the new senior secured discount notes to the same or greater extent and on substantially the same terms or terms more favorable to the holders of the new senior secured discount notes. For purposes of determining compliance with the "Limitations on Indebtedness" covenant, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Indebtedness described in clauses (a) through (m) above, or is entitled to be incurred pursuant to the first paragraph of the "Limitations on Indebtedness" covenant, Weirton will be permitted to classify such item of Indebtedness on the date of its incurrence in any manner that complies with the "Limitations on Indebtedness" covenant. "Permitted Joint Venture" means the interest of Weirton in any corporation, association or other business entity of which 50% or less, but not less than 10%, of the total voting stock or other interest is at the time owned or controlled, directly or indirectly, by Weirton or one of more of its Subsidiaries or a combination thereof, provided that such corporation, association or entity is engaged in the business or businesses of Weirton or any related business. "Permitted Liens" means: (a) Liens on the assets of Weirton and any Subsidiary securing Indebtedness and other obligations under the Credit Facility and the Vendor Financing Programs; (b) Liens in favor of Weirton or its Subsidiaries; (c) Liens on property or shares of Capital Stock of a Person existing at the time such Person is acquired by or merged with or into or consolidated with Weirton or any of its Subsidiaries; provided, however, that such Liens were in existence prior to the consummation of such acquisition, merger or consolidation and do not extend to any property other than the property or shares of Capital Stock being acquired by Weirton or its Subsidiaries (other than property affixed or appurtenant thereto); (d) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; 131 (e) Liens to secure up to $25 million of Indebtedness permitted by clause (a) of the "Limitation on Indebtedness" covenant or by clause (k) of the "Permitted Indebtedness" definition; (f) Liens existing on the Issue Date; (g) 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 concluded, provided, however, that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor; (h) Liens securing industrial revenue or pollution control bonds, including the new secured series 2001 bonds, for which Weirton has payment obligations; provided, however, that such Liens relate solely to the project being financed; (i) (1) Liens on assets subject to a sale and leaseback transaction securing Attributable Debt permitted to be incurred pursuant to the "Limitation on Indebtedness" covenant, (2) Liens in connection with a financing or sale and leaseback transaction involving or relating to the No. 9 tin tandem mill, and (3) Liens in connection with long-term tolling or product supply agreements with respect to the use of the Collateral, provided that the terms of such agreements do not, in the good faith determination of the board of directors of Weirton and taking into account any additional collateral pledged to secure the new senior secured discount notes, impair the value of the Collateral; (j) Liens (1) arising from or in connection with clause (i) of the "Permitted Indebtedness" definition or (2) incurred to finance the acquisition of property or assets acquired by Weirton or any of its Subsidiaries after the Issue Date, so long as such Lien is created within 90 days of such acquisition; provided that in either clause (1) or (2), such Liens do not extend to any property or assets other than the property or assets acquired by Weirton or its Subsidiaries; (k) minor survey exceptions, minor encumbrances, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property or Liens incidental to the conduct of the business of Weirton or its Subsidiaries or to the ownership of its properties which were not incurred in connection with Indebtedness and which do not individually or in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of Weirton; (l) Liens arising from judgments or similar awards in an amount permitted by the Credit Facility; and (m) Liens to secure any Refinancing Indebtedness secured by any Lien referred to in the foregoing clause (c), (e), (f) or (h); provided, however, that: (1) such new Lien shall be limited to all or part of the same property and assets that secured or, under the written agreements pursuant to which the original Lien arose, could secure the original Lien (plus improvements and accessions to, such property or proceeds or distributions thereof); and (2) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (x) the outstanding principal amount or, if greater, committed amount of the Indebtedness described under clause (c), (e), (f) or (h) at the time the original Lien became a Permitted Lien and (y) an amount necessary to pay any fees and expenses, including premiums, related to such refinancing, refunding, extension, renewal or replacement. "Permitted Payments" means, with respect to Weirton or any of its Subsidiaries: (a) any dividend on shares of Capital Stock payable solely in shares of Capital Stock (other than Disqualified Stock) or in options, warrants or other rights to purchase Capital Stock (other than Disqualified Stock); 132 (b) any dividend or other distribution with respect to Capital Stock payable to Weirton by any of its Subsidiaries or by a Subsidiary to another Subsidiary; and (c) payments made by Weirton in satisfaction of any put obligation imposed on Weirton by the plan or by law (including Section 409 of the Internal Revenue Code of 1986, and any successor provision), relating to shares of Weirton's Capital Stock, authorized and issued on or before the Issue Date and initially issued to Weirton's 1989 ESOP or 1984 ESOP. "Person" means any individual, corporation, limited or general partnership, joint venture, association, joint stock company, trust, unincorporated organization or any other entity or organization or government or any agency of political subdivision thereof. "Preferred Stock" of any Person means all Capital Stock of such Person which has a preference in liquidation or a preference with respect to the payment of dividends. "Prohibited Investment" means, with respect to any Person, any Investment by such Person in another Person that is not a Subsidiary of such first Person, other than: (a) an Investment in Cash Equivalents; (b) to the extent not included in clause (a), (1) negotiable instruments held for collection, (2) outstanding travel, moving or other similar advances to officers, employees and consultants of such Person, (3) lease or utility deposits or other similar deposits or (4) Capital Stock, debt obligations or similar securities received in settlement of debts owed to such Person or its Subsidiaries as a result of the foreclosure, perfection or enforcement of any Liens by such Person or any of its Subsidiaries, but, in each case, only to the extent such Investments are made in the ordinary course of business; (c) sales of goods on trade credit terms consistent with the past practices of such Person or otherwise consistent with trade credit terms in common use in the industry; and (d) Investments made in connection with Permitted Acquisitions. "Property" of any Person means all types of real, personal, tangible, intangible or mixed property owned by such Person whether or not included in the most recent consolidated balance sheet of such Person and its Subsidiaries under GAAP. "Refinancing Indebtedness" means any renewals, extensions, substitutions, refundings, refinancings or replacements of the Indebtedness referred to in clauses (a) through (h) of the definition of Permitted Indebtedness. "Restricted Payment" means any of the following: (a) the declaration or payment of any dividend or any other distribution on Capital Stock of Weirton or any Subsidiary of Weirton or any payment made to the direct or indirect holders (in their capacities as such) of Capital Stock of Weirton or any Subsidiary of Weirton (other than (1) dividends or distributions payable solely in Capital Stock (other than Disqualified Stock) and (2) in the case of Subsidiaries of Weirton, dividends or distributions payable to Weirton or to a Subsidiary of Weirton); (b) the purchase, redemption or other acquisition or retirement for value of any Capital Stock, or any option, warrant, or other right to acquire shares of Capital Stock, of Weirton or any of its Subsidiaries; 133 (c) the making of any principal payment on, or the purchase, defeasance, repurchase, redemption or other acquisition or retirement for value, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment, of any Indebtedness which is subordinated in right of payment to the new senior secured discount notes; (d) the making of any Prohibited Investment or guarantee of any Prohibited Investment in any Person; and (e) the making of any payment to a holder of Capital Stock of Weirton to reimburse such holder for losses incurred by such holder upon the disposition of such Capital Stock by such holder. "Subsidiary" means, with respect of any Person, any corporation or other entity of which a majority of the Capital Stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person. "Vendor Financing Programs" means the sale and leaseback transaction of Weirton's Foster-Wheeler Steam Generating Plant, including related real property and certain related energy generating equipment, the sale and leaseback transaction of Weirton's general office building and research and development building located in Weirton, West Virginia, and other Indebtedness of Weirton or its Subsidiaries in connection with the foregoing and related transactions with vendors of Weirton as summarized in the prospectus. "Wholly Owned Subsidiary" means, at any time, a Subsidiary all of the Capital Stock of which (except directors' qualifying shares) are at the time owned directly or indirectly by Weirton. 134 SUMMARY COMPARISON OF KEY DIFFERENCES BETWEEN THE SENIOR SECURED DISCOUNT NOTES AND THE OUTSTANDING NOTES The following statements are summaries of the key differences between certain restrictive covenants and other provisions of the new senior secured discount notes as compared to our outstanding notes, and the reasons why we believe these changes will help us implement the strategic plan described in the prospectus. Copies of the indentures governing each of the respective series of notes and the new senior secured discount notes are available upon request from Weirton and have been filed with the Securities and Exchange Commission. For additional information, see "Description of the Senior Secured Discount Notes."
Senior Secured Outstanding Notes Indenture Discount Notes Indenture -------------------------------------------- -------------------------------------------- SECURITY. The 11 3/8% Senior Notes due 2004 SECURITY. The new senior secured discount and the 10 3/4% Senior Notes due 2005 are notes have a deed of trust and first unsecured obligations. As of September 30, priority security interest in our hot strip 2001, total unsecured claims in a mill in Weirton, West Virginia on a pari liquidation of Weirton are estimated to passu basis with the new secured series 2001 exceed $2 billion. Of those unsecured bonds. Our hot strip mill is an integral claims, a substantial amount could be part of our downstream steel processing assigned priority status under applicable operations and one of the few hot strip bankruptcy laws. Of the unsecured claims, in mills in the industry that is capable of the event a bankruptcy case is commenced, rolling both carbon and stainless steel certain administrative expenses may be substrate. According to a recent independent entitled to priority status for payment appraisal, our hot strip mill has an purposes over other unsecured claims. Claims "liquidation-in-place" value range of $ that may be entitled to priority status million to $ million. include but are not limited to claims for We believe that in a bankruptcy proceeding professional fees, claims for operational our hot strip mill would continue to be shutdown and liquidation costs paid, to a operated using purchased steel slabs and limited extent, claims for employee wages stainless steel slabs provided under tolling and benefits. arrangements. We also believe that our hot strip mill and No. 9 tin tandem mill would continue to supply substrate for our tin finishing mills, which would continue to operate because of the very competitive nature of the equipment as well as the relative supply and demand balance existing in the domestic tin plate market. REDEMPTION. We can redeem the 11 3/8% Senior REDEMPTION. To conform these redemption Notes due 2004 as follows: provisions to market expectations for a new - from July 1, 2001 to June 30, 2002 at issuance of a similar security, we cannot 102.8438% of par; and redeem the new senior secured discount notes - thereafter until maturity at 100.00% of prior to January 1, 2004. Thereafter, we can par. redeem the new senior secured discount notes We can redeem the 10 3/4% Senior Notes due as follows: 2005 as follows: - from January 1, 2004 to December 31, 2004 - from June 1, 2001 to May 31, 2002 at at 107.50% of par; 102.6875% of par; and - from January 1, 2005 to December 31, 2005 - thereafter until maturity at 100.00% of at 105.00% of par; par - from January 1, 2006 to December 31, 2006 at 102.50% of par; and - thereafter until maturity at 100.00% of par.
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Senior Secured Outstanding Notes Indenture Discount Notes Indenture -------------------------------------------- -------------------------------------------- CHANGE OF CONTROL. Upon a change in control, CHANGE OF CONTROL. Substantially identical; each holder of outstanding notes is entitled however the definition of "change of to require us to purchase the outstanding control" has been modified to permit any notes at 101.00% of par, plus accrued and person or group to acquire beneficial unpaid interest. ownership of 50% or more of the voting power of Weirton's capital stock, in connection with the financing of Permitted Acquisitions without triggering a right to require us to purchase the new senior secured discount notes. LIMITATIONS ON INDEBTEDNESS. We cannot and LIMITATIONS ON INDEBTEDNESS. Substantially we cannot allow any of our Subsidiaries to identical except the definition of incur any Indebtedness or issue any "Permitted Indebtedness" was modified to preferred stock other than Permitted allow: Indebtedness unless following the incurrence (1) additionally flexibility for our new of that Indebtedness (a) the ratio of Credit Facility and our vendor financing Consolidated EBITDA to Consolidated Fixed programs; Charges for the four fiscal quarters (2) us to incur indebtedness in connection immediately preceding such event, on a pro with Permitted Acquisitions necessary to forma basis, would have been greater than effect our strategic plan; 1.75 to 1, and (b) no default or event of (3) us to enter into a financing or sale and default shall have occurred or be leaseback transaction with respect to continuing. the No. 9 tin tandem mill; and Notwithstanding the foregoing, we cannot (4) us to incur obligations for performance permit any Subsidiary to incur Indebtedness bonds and letters of credit in the ordinary unless the sum of (i) the aggregate amount course of business up to $10 million. of Indebtedness of our Subsidiaries plus The definition of "Permitted Indebtedness" (ii) the aggregate amount of all outstanding continues to include additional indebtedness Indebtedness secured by Liens, issued, of up to $100 million. assumed or guaranteed by us or our There is no 110% of Consolidated Net Subsidiaries plus (iii) the aggregate amount Tangible Assets limit on secured of Attributable Debt incurred by us or any Indebtedness, Indebtedness of Subsidiaries Subsidiary in respect of sale and leaseback or Attributable Debt because the new senior transactions does not at such time exceed secured discount notes will be secured. 10% of Consolidated Net Tangible Assets. Acquisitions are a critical part of our The definition of "Permitted Indebtedness" strategic plan and will be permitted if (a) includes permitted working capital financing the assets acquired are in the business of and up to $100 million of additional making, processing or distributing steel Indebtedness. products, including tin mill products and As of September 30, 2001, after giving coated steel products, (b) the consummation effect to the senior credit facility and our of the transaction would not result in an vendor financing programs, the maximum Event of Default, and (c) our ratio of amount of indebtedness that we could incur Consolidated EBITDA to Consolidated Fixed under the existing indentures was Charges would not be reduced as a result of approximately $73 million. such acquisition. LIMITATIONS ON RESTRICTED PAYMENTS. We LIMITATIONS ON RESTRICTED PAYMENTS. There is cannot nor can we allow any of our no general Restricted Payments basket of Subsidiaries to make Restricted Payments $5,000,000 and the capacity to make unless: Restricted Payments builds from January 1, (a) no Default or Event of Default shall 2002. We have added an have
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Senior Secured Outstanding Notes Indenture Discount Notes Indenture -------------------------------------------- -------------------------------------------- occurred and be continuing at the time of or additional Restricted Payments basket after giving effect to such Restricted relating to the conversion or exchange of Payment; certain Indebtedness into our capital stock. (b) immediately after giving effect to such The definition of "Permitted Payments" was restricted Payment, the aggregate of all modified to include put obligations with Restricted Payments declared or made after respect to the 1984 ESOP, which is legally the issuance of the notes does not exceed required as a result of delisting our common the greater of (1) $5,000,000 or (2) the sum stock from the New York Stock Exchange. of (A) 50% of our Consolidated Net Income The definition of "Prohibited Investments" from and including April 1, 1993 and ending was modified to exclude Investments made in on the last day of our fiscal quarter ending connection with Permitted Acquisitions, prior to the date of such Restricted which is a new term added to provide us the Payment, plus (B) 100% of the aggregate Net flexibility to pursue acquisitions in Cash Proceeds of, and the fair market value furtherance of our strategic plan. In of marketable securities received by us addition, we have greater flexibility to from, the issue or sale after March 1, 1993 make Investments in Permitted Joint Ventures of our Capital Stock (other than the issue provided we are able to incur additional or sale of (x) Disqualified Stock, minus (C) Indebtedness, including up to a maximum of $25 million in respect of the redemption of $50 million if permitted under our ratio of the Issuer's Preferred Stock, Series B, in Consolidated EBITDA to Consolidated Fixed September 1994, plus (D) $5,000,000. Charges or otherwise out of our general $100 Notwithstanding the foregoing, we can make million basket of Permitted Indebtedness. (a) Permitted Payments and (b) Investments in Permitted Joint Ventures if at the time of such Investment, we could incur (x) at least $1.00 of Indebtedness pursuant to the Limitations on Indebtedness covenant, (y) the aggregate amount of Investments made less the aggregate amount of dividends, other distributions of earnings and returns of capital received by us from such Permitted Joint Ventures in cash does not exceed $50,000,000, and (Z) no Default or Event of Default shall have occurred and be continuing. RESTRICTIONS ON DISPOSITION OF ASSETS OF THE RESTRICTIONS ON DISPOSITION OF ASSETS OF THE ISSUER. We cannot make any Asset Disposition ISSUER. Substantially identical; however, unless (a) we receive consideration at the the Net Cash Proceeds of Asset Dispositions time of such sale or other disposition at may be applied, at our election, to repay least equal to the fair market value the Credit Facility, or any other secured thereof, (b) not less than 75% of the Indebtedness, in addition to making an Asset consideration we receive is in the form of Disposition Offer (as defined in the cash or Cash Equivalents and (c) the Net indenture) to purchase the new senior Cash Proceeds of the Asset Disposition are secured discount notes. within 270 days, at our election, (A) The definition of "Asset Disposition" is invested in the our business or related substantially different to reflect current business, or (B) to the extent not so market terms, including the exclusion from invested are applied (1) to make an Asset the definition sales of assets or property Disposition Offer (as defined in the of $1 million or less, like-kind exchanges indenture) to purchase the notes (on a pro and the sale or disposition of our Brown's rata basis if the amount available for such Island property, and transfers in connection repurchase is less than the outstanding with our Vendor Financing Programs. In principal amount of the notes) or (2) to any addition, we are permitted to sell or other Indebtedness that is pari passu with dispose of assets in connection with a the notes, at a purchase price of 100% of Permitted Acquisition. the
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Senior Secured Outstanding Notes Indenture Discount Notes Indenture -------------------------------------------- -------------------------------------------- principal amount thereof plus accrued Also, the types of consideration qualifying interest to the date of repayment. as cash or cash equivalents has been Notwithstanding the foregoing, we will not modified to include property which is be required to apply any net cash proceeds convertible into cash within 180 days and in accordance with this provision except to liabilities which are assumed by the the extent that the aggregate gross proceeds transferee. from all Asset Dispositions that are not applied in accordance with this provision exceed $25,000,000. LIMITATIONS ON LIENS. We cannot, and cannot LIMITATION ON LIENS. Substantially permit any of our Subsidiaries to, issue, identical; however, the 10% of Net Tangible assume or guarantee any Indebtedness secured Assets limitation on secured Indebtedness, by a Lien (other than a Permitted Lien) of Indebtedness of Subsidiaries and or upon any of our shares of stock or debt, Attributable Debt with respect to sale and without making effective provision whereby leaseback transactions has been eliminated the notes will be secured by such Lien because the new senior secured discount equally and ratably with such Indebtedness, notes will be secured. so long as such Indebtedness shall be so Also, the definition of "Permitted Liens" secured; provided that the foregoing was expanded to conform to our senior credit prohibition does not apply to (i) Liens with facility, to include our vendor financing respect to accounts receivable or inventory programs, to reflect market terms for new securing Permitted Working Capital senior secured discount notes and to Indebtedness or (ii) Liens with respect to incorporate modifications to the definition sale and leaseback transactions regarding of "Permitted Indebtedness" and in other the facility known as the "No. 9 tin tandem ways to provide us the flexibility to pursue mill". our strategic plan. In addition, we will be However, we and our subsidiaries may issue, permitted to grant Liens to secure up to $25 assume or guarantee indebtedness secured by million in Indebtedness incurred under liens without equally and ratably securing either the covenant relating to our ratio of the notes, provided that, after giving Consolidated EBITDA to Consolidated Fixed effect thereto, without duplication, the sum Charges or our general basket of $100 of (i) the aggregate amount of all million for Permitted Indebtedness. We also outstanding Indebtedness secured by Liens so will be permitted to grant Liens securing a issued, assumed or guaranteed (excluding financing or sale and leaseback transaction indebtedness secured by permitted liens), involving the No. 9 tin tandem mill or plus (ii) the aggregate amount of relating to long-term tolling or product Attributable Debt incurred by us or any of supply agreements involving our hot strip our Subsidiaries in respect of sale and mill, provided that the terms of such leaseback transactions, plus (iii) the agreements do not, in the good faith aggregate amount of Indebtedness (including determination of our board of directors, Acquired Indebtedness and Permitted impair the value of the collateral pledged Indebtedness) of all of our Subsidiaries of to secure the new senior secured discount the Issuer does not at such time exceed 10% notes. of Consolidated Net Tangible Assets. LIMITATION ON SALE AND LEASEBACK LIMITATION ON SALE AND LEASEBACK TRANSACTIONS. We cannot, and cannot permit TRANSACTIONS. Substantially identical, any of our Subsidiaries to, enter into any except that any sale and leaseback sale and leaseback transaction unless (a) transactions relating to our Vendor the net proceeds are at least equal to the Financing Programs are excluded from the fair market value of the assets sold, and general prohibition. (b) Weirton or its Subsidiary would be entitled to incur Indebtedness at least equal to the Attributable Debt incurred in connection with the transaction. Sale and leaseback transactions involving the No. 9 tin tandem mill and the
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Senior Secured Outstanding Notes Indenture Discount Notes Indenture -------------------------------------------- -------------------------------------------- Foster-Wheeler Steam Generating Plant are excluded from this prohibition. LIMITATION ON TRANSACTIONS WITH AFFILIATES. LIMITATIONS ON TRANSACTIONS WITH AFFILIATES. We cannot enter into any transaction in Substantially identical, except for excess of $1 million with any affiliate or permitted transactions between Weirton and holder of 5% or more of our capital stock the ESOPs or other employee benefit plan, or except on terms that are fair and reasonable any transaction with a subsidiary or a to Weirton, and that have been approved by permitted joint venture which would the board of directors of Weirton. constitute a transaction with an affiliate solely because Weirton or a subsidiary owns an equity interest in or controls the subsidiary or permitted joint venture.
139 MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES The following discussion represents the opinion of Kirkpatrick & Lockhart LLP, our counsel, as to the material United States federal income tax consequences to you if you tender your outstanding notes in this exchange offer or if you do not tender your outstanding notes in the exchange offer and retain your outstanding notes subject to the amendments made to the applicable indentures. This discussion is based upon the best judgment of our counsel regarding the application of current provisions of the Internal Revenue Code of 1986, as amended, or the Code, treasury regulations promulgated under the Code, proposed regulations, Internal Revenue Service, or IRS, rulings and pronouncements and judicial decisions now in effect, all of which are subject to change at any time by legislative, judicial or administrative action. Any such changes may be applied retroactively. We have not sought and will not seek any rulings from the IRS with respect to the United States federal income tax consequences discussed below. Although the discussion below represents counsel's best judgment as to the matters discussed herein, it does not in any way bind the IRS or the courts or in any way constitute an assurance that the United States federal income tax consequences discussed herein will be accepted by the IRS or the courts. The tax treatment of a tendering holder or non-tendering holder may vary depending on such holder's particular situation or status. This discussion is limited to holders who hold their outstanding notes as capital assets and it does not address aspects of United States federal income taxation that may be relevant to persons who are subject to special treatment under United States federal income tax laws, such as dealers in securities, financial institutions, insurance companies, tax-exempt entities, persons holding outstanding notes through a partnership or similar pass-through entity, persons that hold their outstanding notes as part of a hedge, conversion transaction, straddle or other risk reduction transaction, and persons that are subject to loss disallowance rules with respect to their outstanding notes such as, but not limited to, the wash sale rules (which disallow losses on the sale of securities when the taxpayer acquires substantially identical securities within 30 days). In addition, the discussion does not consider the effect of any applicable foreign, state, local or other tax laws, or estate or gift tax considerations or the alternative minimum tax. The determination of whether an instrument constitutes debt or equity for United States federal income tax purposes depends upon an overall analysis of the facts and circumstances surrounding the instrument. In the opinion of our counsel, the outstanding notes (before and after amendment pursuant to the consent solicitation) and the new senior secured discount notes should constitute debt for United States federal income tax purposes. However, the facts and circumstances nature of the analysis regarding whether an instrument constitutes debt or equity for United States federal income tax purposes and the absence of direct controlling legal authority with respect to the specific facts relating to the outstanding notes and new senior secured discount notes do not permit a more definitive opinion. For purposes of this discussion, a United States holder is a holder that is: - a citizen or resident of the United States, including, an alien resident who is a lawful permanent resident of the United States or who meets the substantial presence test under Section 7701(b) of the Code; - a corporation (or other entity taxable as a corporation for United States federal income tax purposes) created or organized under the laws of the United States or any political subdivision thereof; - an estate, if its income is subject to United States federal income taxation regardless of its source; or - a trust, if a United States court is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or if it has made a valid election to be treated as a United States person. 140 A non-United States holder is an individual, corporation, entity, estate or trust other than a United States holder. HOLDERS OF OUTSTANDING NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THIS EXCHANGE OFFER, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS AND OF CHANGES IN APPLICABLE TAX LAWS. FEDERAL INCOME TAX CONSEQUENCES TO TENDERING HOLDERS The Exchange of Outstanding Notes for Senior Secured Discount Notes. An exchange of outstanding notes for new senior secured discount notes will be a taxable exchange for purposes of United States federal income taxation unless it qualifies as a recapitalization under Section 368(a)(1)(E) of the Code. We intend to report the exchange of outstanding notes for new senior secured discount notes (other than new senior secured discount notes received as a consent payment) as a recapitalization. The exchange will qualify as a recapitalization if both the outstanding notes and the new senior secured discount notes are considered "securities" for United States federal income tax purposes. None of the Code, the applicable treasury regulations, or judicial decisions define clearly the term securities. The determination of whether a debt instrument is a security for United States federal income tax purposes depends upon an overall evaluation of the facts and circumstances surrounding the debt instrument, including the nature of the debt instrument, the holder's degree of participation and the extent of proprietary interest compared with the similarity of the note to a cash payment. One important factor is the length to maturity of that instrument. Generally, a debt instrument with an original maturity of 10 years or more constitutes a security, while a debt instrument with an original maturity of 5 years or less or arising out of the extension of trade credit does not. It is not certain whether the outstanding notes (with an original maturity of approximately 9 years), and the new senior secured discount notes (with an original maturity of approximately 6 years) qualify as securities, and thus whether the exchange of outstanding notes for new senior secured discount notes will qualify as a recapitalization. However, based on the terms of the outstanding notes and new senior secured discount notes, we intend to treat both the outstanding notes and new senior secured discount notes as securities for United States federal income tax purposes and to report the exchange of those notes as a recapitalization. Provided that the exchange so qualifies and subject to the discussion below under "Accrued Interest" and "Consent Payment," a tendering holder that exchanges outstanding notes for new senior secured discount notes will not recognize taxable gain or loss as a result of the exchange, will have a tax basis in the new senior secured discount notes equal to its adjusted tax basis in the outstanding notes surrendered in the exchange, and will include its holding period for the outstanding notes in its holding period for the new senior secured discount notes. Due to the facts and circumstances nature of the determination regarding whether a debt instrument is a security, the IRS or a court could determine that either or both of the outstanding notes or the new senior secured discount notes do not constitute securities. In that event, a tendering holder would recognize capital gain or loss on the exchange equal to the difference between the fair market value of the new senior secured discount notes received, as measured by their issue price (which should equal the fair market value of the outstanding notes tendered), and the holder's adjusted tax basis in its outstanding notes, subject to the discussion under "Accrued Interest" and "Market Discount" below. Unless clearly stated to the contrary, the remainder of this discussion of "Material United States Federal Income Tax Consequences" assumes that the exchange will be a recapitalization. Accrued Interest. We will not pay any interest on the outstanding notes tendered in this exchange offer that has accrued since the last payment of interest on the outstanding notes. The United States federal income tax consequences to a tendering holder resulting from the nonpayment of accrued interest are not certain. For purposes of the information reporting and backup withholding rules, we intend to treat 141 the new senior secured discount notes issued in the exchange offer as payment solely on the principal of the outstanding notes for which they are exchanged (other than notes received as a consent payment). If this treatment is respected, a tendering holder who previously recognized interest income on the outstanding notes may be able to recognize a loss to the extent of any such previously recognized interest income that will not be paid. We cannot assure you, however, that the IRS will respect this treatment. The IRS could treat the new senior secured discount notes as received by a tendering holder in whole or in part in satisfaction of accrued but unpaid interest on the outstanding notes. In this circumstance, the amount so treated would be taxable as ordinary interest income to cash-basis tendering holders. Accrual-basis tendering holders would not recognize a loss to the extent that any new senior secured discount notes were treated as received by the tendering holder in satisfaction of accrued but unpaid interest. Tendering holders should consult their tax advisor regarding the allocation of the new senior secured discount notes to, and taxation of, accrued but unpaid interest on their outstanding notes. Stated Interest and OID. The new senior secured discount notes will be issued with original issue discount, or OID. Although the new senior secured discount notes will have stated interest, the first interest payment on the new senior secured discount notes will not be made until July 1, 2004. Because the stated interest on the new senior secured discount notes will not be unconditionally payable at least annually, the stated interest on the new senior secured discount notes will be treated as OID (as described below). Additionally, because the face amount of the new senior secured discount note exceeds the issue price of the new senior secured discount note (which will equal the fair market value of an outstanding note on the date of the exchange), a new senior secured discount note also will bear OID in an amount equal to such excess. Generally, tendering holders will be required to include the OID on the new senior secured discount notes in their gross income for United States federal income tax purposes as it accrues. The OID will accrue daily in accordance with a constant yield method based on a compounding of interest. The OID allocable to any accrual period will equal the product of the adjusted issue price of the new senior secured discount notes as of the beginning of such period and the notes' yield to maturity. The adjusted issue price of a new senior secured discount note as of the beginning of any accrual period will equal its issue price, increased by the amount of OID previously includible in the gross income of the applicable holder, and decreased by the amount of any payment made on the new senior secured discount note. Notwithstanding these general rules, a tendering holder may be permitted to exclude all or a portion of this OID from its taxable income depending on the holder's adjusted tax basis in the new senior secured discount notes for United States federal income tax purposes. Accordingly, depending on a particular tendering holder's individual situation, the holder may be subject to the rules governing acquisition premium or amortizable bond premium. These rules are discussed below. Acquisition Premium. Generally, a new senior secured discount note acquired pursuant to this exchange offer will have acquisition premium if a tendering holder's adjusted tax basis in the new senior secured discount note immediately after the exchange is greater than the new senior secured discount note's adjusted issue price but is less than or equal to the sum of all amounts payable on the new senior secured discount note after its acquisition by the holder. If a new senior secured discount note has acquisition premium, the amount of OID that the holder must include in income is reduced by the amount of the OID multiplied by a fraction, the numerator of which is the excess of the holder's adjusted tax basis in the new senior secured discount note immediately after its acquisition over its adjusted issue price, and the denominator of which is the excess of the sum of all amounts payable on the new senior secured discount note after it is acquired by the holder over the adjusted issue price. This fraction is referred to as the acquisition premium fraction. As an alternative to applying the acquisition premium fraction, a tendering holder of a new senior secured discount note with acquisition premium may elect to treat the new senior secured discount note as having an issue price equal to the holder's adjusted basis immediately after acquisition of the new senior 142 secured discount note and applying the mechanics of the constant yield method. The tax treatment of such an election is described below under the heading "-- Election to Report All Interest as OID." Amortizable Bond Premium. Generally, a new senior secured discount note will have amortizable bond premium if a tendering holder's adjusted basis in the new senior secured discount note immediately after the exchange is greater than the sum of all amounts payable on the new senior secured discount note after the exchange date. In such a case, the holder is not required to include any OID in income. Whether a tendering holder acquires a new senior secured discount note with amortizable bond premium will depend upon the facts and circumstances of the particular holder, and in particular on the tendering holder's tax basis in the new senior secured discount note. Any excess of amortizable bond premium over the amount of OID on a new senior secured discount note will be additional basis giving rise to capital loss or reduced gain on disposition of the note. Market Discount. If, in the hands of a tendering holder, an outstanding note has market discount, that market discount likely will carry over to the new senior secured discount note received by the tendering holder. A tendering holder likely would have market discount on its outstanding note if it acquired the outstanding note subsequent to its original issuance for an amount that was less than its adjusted issue price. The amount of market discount on the outstanding note would equal the excess of the adjusted issue price of the outstanding note over the amount paid for such note (unless the excess is less than a de minimis amount). Generally, a holder is required to treat any gain recognized on the disposition of a note having market discount as ordinary income to the extent of the market discount that accrued on the note while held by the holder. Such gain accrues on a straight-line basis unless the holder elects to accrue market discount on a constant interest basis. Such an election is made on a note-by-note basis and is irrevocable. Alternatively, the holder may elect to include market discount in income currently over the life of the note (a "Current Inclusion Election"). A Current Inclusion Election will apply to all market discount notes that the holder acquires on or after the first day of the first taxable year to which the election applies and is revocable only with the consent of the IRS. A holder could be required to defer the deduction of a portion of the interest paid on any indebtedness incurred or maintained to purchase or carry a note with market discount, unless the holder makes a Current Inclusion Election. In addition, a holder may elect to accrue the market discount into income under the constant yield method, which election is also made on a note-by-note basis and is irrevocable. See also the discussion under the heading "-- Election to Report All Interest as OID." The current market discount on outstanding notes held by a tendering holder who did not make a Current Inclusion Election, likely will carry over to, and be treated as, accrued market discount on the holder's new senior secured discount notes. However, such tendering holder would not be required to include the accrued market discount in income unless the holder sells the new senior secured discount note for an amount in excess of its adjusted basis in the new senior secured discount note. If a tendering holder acquired its outstanding notes at a market discount and made a Current Inclusion Election, the tendering holder would be required to accrue market discount currently on the new senior secured discount notes if and to the extent that the market discount carries over to the new senior secured discount notes. Election to Report All Interest as OID. Holders of new senior secured discount notes may elect to treat all interest on the new senior secured discount notes as OID and calculate the amount to be included in gross income under the constant yield accrual method. For purposes of this election, interest includes stated interest, OID, de minimis OID, market discount and unstated interest, as adjusted by any amortizable bond premium. The election must be made for the taxable year in which the holder acquires the new senior secured discount notes, and may not be revoked without the consent of the IRS. This election will apply only to the notes for which it is made. Tendering holders should consult with their own tax advisors about the election to report all interest on the new senior secured discount notes as OID using the constant yield method. 143 THE TAX RULES GOVERNING INSTRUMENTS ISSUED WITH OID AND THE INTERPLAY DISCUSSED ABOVE UNDER "ACQUISITION PREMIUM," "AMORTIZABLE BOND PREMIUM," "MARKET DISCOUNT" AND "ELECTION TO REPORT ALL INTEREST AS OID" ARE COMPLEX AND THEIR APPLICATION TO A TENDERING HOLDER WILL DEPEND UPON SUCH HOLDER'S INDIVIDUAL SITUATION. TENDERING HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISOR ABOUT THE APPLICATION OF THESE RULES TO THE HOLDER. THE IRS HAS NOT ISSUED REGULATIONS CONCERNING ASPECTS OF THE MARKET DISCOUNT RULES RELEVANT TO TENDERING HOLDERS RECEIVING NEW SENIOR SECURED DISCOUNT NOTES IN THIS EXCHANGE OFFER. TENDERING HOLDERS ALSO SHOULD CONSULT THEIR TAX ADVISOR CONCERNING THE APPLICATION OF THESE RULES. Applicable High Yield Discount Obligation. The new senior secured discount notes likely will constitute "applicable high yield discount obligations." An "applicable high yield discount obligation" is any debt instrument that (1) has a maturity date which is more than five years from the date of issue, (2) has a yield to maturity which equals or exceeds the applicable federal rate ("AFR") released by the IRS for the calendar month in which the obligation was issued plus five percentage points and (3) has "significant original issue discount." A debt instrument generally has "significant original issue discount" if, as of the close of any accrual period ending more than five years after the date of issue, the excess of the interest (including OID) that has accrued on the obligation over the interest that is required to be paid thereon exceeds the product of the issue price of the instrument and its yield to maturity. Provided that the new senior secured discount notes are applicable high yield discount obligations, the OID on the new senior secured discount notes would not be deductible by us until we pay it. Moreover, if the new senior secured discount notes' yield to maturity exceeds the AFR plus six percentage points, a ratable portion of our deduction for OID (the "Disqualified OID") (based on the portion of the yield to maturity that exceeds the AFR plus six percentage points) would be non-deductible to us. For purposes of the dividends-received deduction under Section 243 of the Code, the Disqualified OID should be treated as a dividend to corporate note holders to the extent it would have been so treated had such amount been distributed by us with respect to our stock. A corporate holder should consult with its tax advisor regarding the treatment to it of holding an applicable high yield discount obligation. Consent Payment. We will make a consent payment of $50 principal amount of new senior secured discount notes for each $1,000 principal amount of outstanding notes tendered by a tendering holder prior to the expiration of the consent solicitation. The tax consequences to a tendering holder who receives a consent payment are not certain. We intend to treat the consent payment consideration as a payment that is not part of the recapitalization described above under the heading "-- The Exchange of Outstanding Notes for Senior Secured Discount Notes." Accordingly, we intend to allocate the new senior secured discount notes issued pursuant to the consent payment to the consent payment and not to the principal of the outstanding notes exchanged by the tendering holder. If this treatment of the consent payment is respected, a tendering holder would recognize ordinary income in an amount equal to the fair market value of the new senior secured discount notes allocated to the consent payment. The new senior secured discount notes received as a consent payment will have an adjusted tax basis equal to their fair market value on the date of issuance and a holder's holding period for such notes will commence on the day after their issuance. We cannot assure you that the IRS will respect our allocation of the consent payment consideration for United States federal income tax purposes. If the new senior secured discount notes received by a tendering holder as consent payment consideration were treated as issued in exchange for the tendering holder's outstanding notes, the tendering holder would not recognize income upon receipt of such new senior secured discount notes. Instead, the tendering holder would treat the receipt of such new senior secured discount notes as part of the recapitalization consideration as described above under the heading "The Exchange of Outstanding Notes for new senior secured discount notes." Sale, Exchange and Retirement of New Notes. Subject to the discussion above under "Market Discount," when a tendering holder disposes of a new senior secured discount note (or a modified note), the holder will recognize capital gain or loss equal to the difference between the amount of cash and the fair market value of any property received and the holder's adjusted tax basis in the note. A tendering holder's adjusted basis in a note at the time of such disposition will be equal to the initial basis allocated 144 to the note, increased by any OID and market discount included in income under a Current Inclusion Election, and reduced by any payments that the holder receives and amounts amortized as bond premium. The capital gain or loss will be long-term capital gain or loss if the holding period of the note exceeds one year at the time of the disposition. Some noncorporate taxpayers, including individuals, are eligible for preferential rates of taxation of long-term capital gain. The deductibility of capital losses is subject to limitations. Information Reporting and Backup Withholding. Under the Code, tendering holders of notes may be subject, under certain circumstances, to information reporting and backup withholding at a rate of up to 30.5% with respect to cash payments in respect of principal (and premium, if any), OID, interest, and the gross proceeds from the disposition thereof. Backup withholding applies only if the tendering holder (i) fails to furnish its social security or other taxpayer identification number, or TIN, within a reasonable time after a request therefore, (ii) furnishes an incorrect TIN, (iii) fails to report properly interest or dividends, or (iv) fails under certain circumstances to provide a certified statement, signed under penalty of perjury, that the TIN provided is its correct number and that it is not subject to backup withholding. Any amount withheld from a payment to a tendering holder under the backup withholding rules is allowable as a credit (and may entitle such holder to a refund) against such holder's United States federal income tax liability, provided that the required information is provided to the IRS. Certain persons are exempt from backup withholding including corporations and financial institutions. Tendering holders of outstanding notes should consult with their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining such exemption. FEDERAL INCOME TAX CONSEQUENCES TO NON-TENDERING HOLDERS Modification of Outstanding Notes. A non-tendering holder who does not tender its outstanding notes in exchange for new senior secured discount notes may nevertheless be deemed to have exchanged its outstanding notes for modified notes in a taxable transaction. Generally, under applicable regulations, a "significant modification" of a note will result in the deemed exchange of the note for a new modified note if the modifications are economically significant. Whether the amendments to the applicable indentures (as described in "The Exchange Offer and Consent Solicitation -- Proposed Amendments to Indentures") constitute a significant modification of the terms of the outstanding notes is not certain. However, we intend to treat the amendments to the applicable indentures as significant modifications. Under this treatment, non-tendering holders would be viewed as exchanging their outstanding notes for modified notes. This deemed exchange will be a taxable disposition of the outstanding notes for purposes of United States federal income taxation unless the exchange qualifies as a recapitalization under Section 368(a)(1)(E) of the Code. As described above under the heading "-- Federal Income Tax Consequences to Tendering Holders -- The Exchange of Outstanding Notes for Senior Secured Discount Notes," the exchange will qualify as a recapitalization if both the outstanding notes and the modified notes received in exchange therefor are considered securities for United States federal income tax purposes. Because the modified notes will have original terms of substantially less than five years, we intend to take the position that the modified notes will not constitute securities for United States federal income tax purposes. Provided that either the modified notes or the outstanding notes are not treated as securities, a non-tendering holder would recognize a capital gain or loss on the exchange equal to the difference between the fair market value of the modified notes received, and the holder's tax basis in its outstanding notes, subject to the treatment of accrued but unpaid interest on the outstanding notes. (See the discussion above under the heading "-- Federal Income Tax Consequences to Tendering Holders -- Accrued Interest" and the discussion below of market discount.) The remainder of this discussion assumes that the modification of the outstanding notes resulting from the amendments to the applicable indentures will constitute a significant modification and that the exchange of outstanding notes for modified notes will not be treated as a recapitalization for United States federal income tax purposes. 145 Stated Interest and OID. The stated interest on the modified notes will be included in income by a non-tendering holder in accordance with such holder's usual method of accounting for United States federal income tax purposes unless the holder makes the election described above under the heading "Election to Report All Interest as OID." The modified notes will be issued with OID in an amount equal to the excess of the stated redemption price at maturity (which will equal the face amount of the modified notes) over their issue price (which should equal the fair market value of the holder's outstanding notes at the time of the consummation of the exchange offer). Accordingly, the amount of this OID is anticipated to be substantial. A non-tendering holder will include the OID in its income over the remaining term of the modified notes as described in the second paragraph under the heading "-- Federal Income Tax Consequences to Tendering Holders -- Stated Interest and OID." Market Discount. If a non-tendering holder acquired an outstanding note subsequent to its original issuance for an amount that is less than its adjusted issue price, the note will be considered to have market discount equal to that difference (unless the difference is less than a de minimis amount). A non- tendering holder will be required to treat any gain recognized on the deemed disposition of an outstanding note having market discount as ordinary income to the extent of the market discount that accrued on the outstanding note and was not previously included in income as a result of a Current Inclusion Election while held by the non-tendering holder. Sale, Exchange and Retirement of Modified Notes. See the discussion above under the Heading "Federal Income Tax Consequences to Tendering Holders -- Sale, Exchange and Retirement of New Notes" for a description of the federal income tax consequences to a non-tendering holder's income of the sale, exchange and retirement of modified notes. MATERIAL FEDERAL INCOME TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS The following discussion is limited to certain United States federal income tax consequences to non-United States holders. For purposes of the discussion below, stated interest, OID and gain on the sale, exchange or other disposition of a note will be considered to be "United States trade or business income" if such income or gain is: - effectively connected with the conduct of a United States trade or business or - in the case of a treaty resident, attributable to a United States permanent establishment (or, in the case of an individual, a fixed base) in the United States. Stated Interest and OID. Generally, stated interest and OID paid to a non-United States holder will not be subject to United States federal income or withholding tax if such stated interest or OID is not United States trade or business income and is "portfolio interest." Generally, stated interest and OID will qualify as portfolio interest if the non-United States holder: - does not actually or constructively own 10% or more of the total combined voting power of all classes of our stock; - is not a controlled foreign corporation with respect to which we are a "related person" within the meaning of the Code; - is not a bank receiving interest on the extension of credit made pursuant to a loan agreement made in the ordinary course of its trade or business; and - certifies, under penalties of perjury, that such holder is not a United States person and provides such holder's name and address. The gross amount of payments of stated interest and OID that are United States trade or business income will not be subject to United States withholding tax but will be taxed at regular graduated United States rates rather than a 30% gross rate. In the case of a non-United States holder that is a corporation, such United States trade or business income also may be subject to the branch profits tax. The gross amount of payments of stated interest and OID that does not qualify for the portfolio interest exception 146 generally will be subject to United States withholding tax at a rate of 30% unless a treaty applies to reduce or eliminate withholding. Payments of OID that do not qualify for the portfolio interest exception generally will be subject to United States withholding tax at a rate of 30% on the redemption of the notes or upon certain sales or exchanges of the notes unless a treaty applies to reduce or eliminate withholding. To claim an exemption from withholding in the case of United States trade or business income, or to claim the benefits of a treaty, a non-United States holder must provide a properly executed Form W-8ECI (in the case of United States trade or business income) or Form W-8BEN (in the case of a treaty), or any successor form, as applicable, prior to the payment of stated interest or OID. These forms must be periodically updated. A non-United States holder who is claiming the benefits of a treaty may be required, in certain instances, to obtain a United States taxpayer identification number and to provide certain documentary evidence issued by foreign governmental authorities to prove residence in the foreign country. Also, special procedures are provided under applicable regulations for payments through qualified intermediaries. Consent Payment. As described above under the heading "Federal Income Tax Consequences to Tendering Holders -- Consent Payment," we will make a consent payment to a tendering non-United States holder who tenders outstanding notes before the consent solicitation expires and we intend to take the position that recipients will recognize ordinary income in an amount equal to the fair market value of the new senior secured discount notes allocated to the consent payment. Provided that a consent payment received by a non-United States holder is treated as United States-source income, the consent payment generally will be subject to United States withholding tax at a rate of 30% unless a treaty applies to reduce or eliminate withholding or the consent payment is United States trade or business income. Non-United States holders will consent to the immediate sale by us of a portion of their consent payment notes in order to satisfy this withholding tax. United States trade or business income will be subject to United States federal income tax as described above under the heading "Material Federal Income Tax Consequences to Non-United States Holders -- Stated Interest and OID." To claim an exemption from withholding, a non-United States holder must provide a properly executed Form W8-ECI (in the case of United States trade or business income) or Form W-8BEN (in the case of a treaty), or any successor form, as applicable, prior to the payment of the consent payment. If the consent payment is not treated as United States-source income and is withheld upon, holders may be entitled to a refund of the withholding tax if they file the appropriate form with the IRS. Sale, Exchange or Redemption of Notes. As described above under the heading "Federal Income Tax Consequences to Tendering Holders -- The Exchange of Outstanding Notes for Senior Secured Discount Notes," a non-United States holder that exchanges outstanding notes for new senior secured discount notes should not recognize taxable gain or loss as a result of the exchange. Except as described below and subject to the discussion concerning backup withholding, any gain recognized by a non-United States holder on the sale, exchange or redemption of a note (including gain recognized on the deemed exchange of an outstanding note for a modified note) generally will not be subject to United States federal income tax, unless: - such gain is United States trade or business income; - subject to certain exceptions, the non-United States 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 - the non-United States holder is subject to tax pursuant to the provisions of United States tax law applicable to certain United States expatriates. Upon a sale, exchange or redemption of a note, no United States tax withholding will apply to accrued and unpaid OID to the extent that such OID qualifies for an exemption as described above under the heading "Material Federal Income Tax Consequences to non-United States Holders -- Stated Interest and OID." If the accrued and unpaid OID does not so qualify, United States tax withholding will apply in the manner described above under the heading "Material Federal Income Tax Consequences to Non- 147 United States Holders -- Stated Interest and OID" upon redemption of a note, and in certain circumstances, upon a sale or exchange of a note. Non-Tendering Holders. As described above under the heading "Federal Income Tax Consequences to Tendering Holders -- Modification of Outstanding Notes," we intend to take the position that a non-tendering holder would recognize a capital gain or loss on the exchange equal to the difference between the fair market value of the modified notes deemed received and the holder's adjusted tax basis in its outstanding notes. Such gain or loss will be taken into account as described above under the heading "Material Federal Income Tax Consequences to non-United States Holders -- Sale, Exchange or Redemption of Notes." Federal Estate Tax. The notes held (or treated as held) by an individual who is a non-United States holder at the time of his death will not be subject to United States federal estate tax, provided that the individual does not actually or constructively own 10% or more of the total voting power of our voting stock and income on the notes was not United States trade or business income. Information Reporting and Backup Withholding. We must report annually to the IRS and to each non-United States holder any stated interest and OID or other United States-source income that is subject to United States withholding tax or that is exempt from withholding 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-United States holder resides. Backup withholding may apply to such payments even though the requisite certification, as described above, has been received or an exemption otherwise established, if either we or our paying agent have actual knowledge that the holder is a United States holder or that the conditions of any other exemption are not, in fact, satisfied. Backup withholding and information reporting will not apply to payments of principal on the notes to a non-United States holder, if the holder certifies as to its non-United States status under penalties of perjury or otherwise establishes an exemption, provided that neither we nor our paying agent has actual knowledge that the holder is a United States Holder or that the conditions of any other exemption are not, in fact, satisfied. Payments of the proceeds from the sale of the notes to or through a foreign office or broker will not be subject to information reporting or backup withholding, unless the broker is (i) a United States person, (ii) a foreign person that derives 50% or more of its gross income for certain periods from activities that are effectively connected with the conduct of a trade or business in the United States, (iii) a controlled foreign corporation for United States federal income tax purposes or (iv) a foreign partnership more than 50% of the capital or profits of which is owned by one or more United States persons or which engages in a United States trade or business. Payment of the proceeds of any such sale effected outside the United States by a foreign office of any broker that is described in (i), (ii), (iii), or (iv) of the preceding sentence may be subject to backup withholding tax, and will be subject to information reporting requirements unless such broker has documentary evidence in its records that the beneficial owner is a non-United States Holder and certain other conditions are met, or the beneficial owner otherwise establishes an exemption. Payment of the proceeds of any such sale to or through the United States office of a broker is subject to information reporting and backup withholding requirements, unless the broker has documentary evidence in its files that the owner is a non-United States holder and the broker has no knowledge to the contrary. Any amounts withheld under the backup withholding rules from a payment to a non-United States holder will be allowed as a refund or a credit against such non-United States holder's United States federal income tax liability, provided that the requisite procedures are followed. THE PRECEDING DISCUSSION OF MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES IS NOT TAX ADVICE. ACCORDINGLY, EACH INVESTOR SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISOR AS TO PARTICULAR TAX CONSEQUENCES TO IT OF THE EXCHANGE OFFER AND HOLDING AND DISPOSING OF SENIOR 148 SECURED DISCOUNT NOTES OR MODIFIED NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY PROPOSED CHANGES IN APPLICABLE LAW. PLAN OF DISTRIBUTION We will receive no proceeds in connection with this exchange offer or the series 1989 bonds exchange offer. We will distribute the new senior secured discount notes in the manner described in "The Exchange Offer and Consent Solicitation" above. LEGAL MATTERS Certain legal matters with respect to the exchange offer and the validity of the new senior secured discount notes will be passed upon for us by Kirkpatrick & Lockhart LLP, Pittsburgh, Pennsylvania. Weil, Gotshal & Manges LLP, New York, New York will pass upon certain legal matters for the dealer manager. EXPERTS The audited financial statements and schedules included in this prospectus and elsewhere in the registration statement have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included in this prospectus in reliance upon the authority of said firm as experts in giving said reports. Reference is made to said report, which includes an explanatory paragraph with respect to the uncertainty regarding the Company's ability to continue as a going concern as discussed in Note 23 to the financial statements. WHERE YOU CAN FIND MORE INFORMATION Weirton files annual, quarterly and special reports and other information with the Securities and Exchange Commission, or SEC. You may read and copy any reports, statements or other information that Weirton files with the SEC at the SEC's public reference facilities maintained by the SEC at the public reference rooms of the SEC, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such information can also be obtained by mail from the public reference room of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates or accessed electronically on the SEC website at www.sec.gov. Please call the SEC at 1-800-SEC-0330 for further information about the public reference rooms. Our outstanding notes are listed on the New York Stock Exchange, and information concerning them may also be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. Our filings with the SEC are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at "http://www.sec.gov." Reports, proxy statements and other information about Weirton may also be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. Weirton filed a registration statement on Form S-4 on November 1, 2001 to register with the SEC the 10% Senior Secured Discount Notes due 2008 in this exchange offer and consent solicitation and the amended 11 3/8% Senior Notes due 2004 and amended 10 3/4% Senior Notes due 2005 as a result of the consent solicitation. This prospectus is a part of that registration statement. As allowed by SEC rules, this prospectus does not contain all of the information you can find in the registration statement or the exhibits to the registration statement. The concurrent series 1989 bonds exchange offer is being made through a private offering memorandum directly to the holders of the series 1989 bonds in a transaction not subject to registration under the Securities Act of 1933, as amended. 149 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Public Accountants.................... F-2 Consolidated Statements of Income (Loss) for the Years Ended December 31, 2000, 1999 and 1998.......................... F-3 Consolidated Balance Sheets as of December 31, 2000 and 1999...................................................... F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998.......................... F-5 Consolidated Statement of Changes in Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998...... F-6 Notes to Consolidated Financial Statements.................. F-8 Unaudited Consolidated Condensed Statements of Income (Loss) for the Three Months Ended September 30, 2001 and 2000 and for the Nine Months Ended September 30, 2001 and 2000..... F-31 Unaudited Consolidated Condensed Balance Sheet as of September 30, 2001 and December 31, 2000.................. F-32 Unaudited Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000..... F-33 Notes to Unaudited Consolidated Condensed Financial Statements................................................ F-34
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE BOARD OF DIRECTORS OF WEIRTON STEEL CORPORATION: We have audited the accompanying consolidated balance sheets of Weirton Steel Corporation (a Delaware corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted in the United States. 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 consolidated financial position of Weirton Steel Corporation and subsidiaries as of December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. As discussed further in Note 23, subsequent to March 8, 2001 the date of our original report, the Company incurred a pretax loss of $199 million for the nine months ended September 30, 2001 and has announced a planned financial restructuring program. The Company has indicated that unless it is able to complete its financial restructuring program and consummate its exchange offers; the Company may have to seek bankruptcy protection or commence liquidation or administrative proceedings. These factors among others, as described in Note 23, created substantial doubt about the Company's ability to continue as a going concern and an uncertainty as to the recoverability and classification of recorded asset amounts and the amounts and classification of liabilities. The accompanying financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. /s/ ARTHUR ANDERSEN LLP -------------------------------------- Arthur Andersen LLP Pittsburgh, Pennsylvania March 8, 2001 (except for Note 23 which is dated October 26, 2001) F-2 WEIRTON STEEL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (LOSS)
YEAR ENDED DECEMBER 31, ------------------------------------ 2000 1999 1998 ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NET SALES................................................ $1,117,829 $1,130,432 $1,296,670 Operating costs: Cost of sales............................................ 1,052,867 1,076,077 1,159,339 Selling, general and administrative expenses............. 41,673 44,806 39,219 Depreciation............................................. 63,968 60,866 60,822 Restructuring charge..................................... -- -- 2,871 Asset impairment......................................... -- 22,522 -- Profit sharing provision................................. -- 15,473 -- ---------- ---------- ---------- TOTAL OPERATING COSTS............................... 1,158,508 1,219,744 1,262,251 ---------- ---------- ---------- INCOME (LOSS) FROM OPERATIONS............................ (40,679) (89,312) 34,419 Gain on sale of MetalSite investment, net................ -- 170,117 -- Income (loss) from unconsolidated subsidiaries........... (26,208) (1,105) 34 Interest expense......................................... (34,633) (44,223) (44,338) Other income, net........................................ 4,797 2,198 4,684 ESOP contribution........................................ -- (1,305) (2,610) ---------- ---------- ---------- Income (loss) before income taxes and minority interest............................................... (96,723) 36,370 (7,811) Income tax provision (benefit)........................... (11,607) 8,227 (1,391) ---------- ---------- ---------- Income (loss) before minority interest................... (85,116) 28,143 (6,420) Minority interest in loss of subsidiary.................. -- 2,804 293 ---------- ---------- ---------- NET INCOME (LOSS)........................................ $ (85,116) $ 30,947 $ (6,127) ========== ========== ========== PER SHARE DATA: Weighted average number of common shares (in thousands): Basic.................................................. 41,401 41,600 41,924 Diluted................................................ 41,401 43,299 41,924 Net income (loss) per share: Basic.................................................. $ (2.06) $ 0.74 $ (0.15) Diluted................................................ $ (2.06) $ 0.71 $ (0.15)
The accompanying notes are an integral part of these statements. F-3 WEIRTON STEEL CORPORATION CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, ----------------------- 2000 1999 --------- ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) ASSETS: CURRENT ASSETS: Cash and equivalents, including restricted cash of $775 and $810, respectively.................................. $ 32,027 $ 209,270 Receivables, less allowances of $9,008 and $10,231, respectively............................................ 74,987 103,718 Inventories............................................... 202,377 186,710 Deferred income taxes..................................... 39,654 42,517 Other current assets...................................... 11,342 3,167 -------- ---------- TOTAL CURRENT ASSETS................................. 360,387 545,382 Property, plant and equipment, net.......................... 487,664 514,464 Investment in unconsolidated subsidiaries................... 19,375 6,833 Deferred income taxes....................................... 114,111 109,110 Other assets and deferred charges........................... 8,834 10,804 -------- ---------- TOTAL ASSETS................................................ $990,371 $1,186,593 ======== ========== LIABILITIES: CURRENT LIABILITIES: Payables.................................................. $ 76,415 $ 133,001 Employment costs.......................................... 68,751 81,688 Taxes other than income taxes............................. 12,886 13,805 Other current liabilities................................. 9,122 17,511 -------- ---------- TOTAL CURRENT LIABILITIES............................ 167,174 246,005 Long term debt obligations.................................. 299,253 304,768 Long term pension obligation................................ 79,994 91,295 Postretirement benefits other than pensions................. 319,320 327,665 Other long term liabilities................................. 40,619 39,886 -------- ---------- TOTAL LIABILITIES.................................... 906,360 1,009,619 REDEEMABLE STOCK: Preferred stock, Series A, $0.10 par value; 1,555,470 and 1,664,469 shares authorized and issued; 1,536,688 and 1,647,214 subject to put.................................. 21,728 23,147 Less: Preferred treasury stock, Series A, at cost, 42,797 and 12,207 shares......................................... (617) (174) -------- ---------- TOTAL REDEEMABLE STOCK............................... 21,111 22,973 STOCKHOLDERS' EQUITY: Preferred stock, Series A, $0.10 par value; 18,782 and 17,255 shares not subject to put.......................... 273 250 Common stock, $0.01 par value; 50,000,000 shares authorized; 43,788,832 and 43,499,363 shares issued................... 438 435 Additional paid-in capital.................................. 460,521 458,249 Common stock issuable, 279,792 and 304,113 shares........... 279 431 Retained earnings (deficit)................................. (383,310) (298,194) Less: Common treasury stock, at cost, 2,498,198 and 1,885,682 shares.......................................... (15,301) (7,170) -------- ---------- TOTAL STOCKHOLDERS' EQUITY........................... 62,900 154,001 -------- ---------- TOTAL LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY.................................................... $990,371 $1,186,593 ======== ==========
The accompanying notes are an integral part of these statements. F-4 WEIRTON STEEL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 -------- --------- ------- (DOLLARS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)......................................... $(85,116) $ 30,947 $(6,127) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation............................................ 63,968 60,866 60,822 (Income) loss from unconsolidated subsidiaries.......... 26,208 1,105 (34) Amortization of deferred financing costs................ 1,987 1,899 1,662 Restructuring charge.................................... -- -- 2,871 Asset impairment........................................ -- 22,522 -- ESOP contribution....................................... -- 1,305 2,610 Minority interest....................................... -- (2,804) (293) Deferred income taxes................................... (5,001) (153) (5,889) Cash provided (used) by working capital items: Receivables............................................. 28,731 7,179 29,003 Inventories............................................. (15,667) 72,622 1,601 Other current assets.................................... (5,312) 6,716 (2,831) Payables................................................ (56,586) 20,685 (11,407) Other current liabilities............................... (22,245) 20,772 (6,805) Long term pension obligation............................ (11,301) 9,387 (17,713) Proceeds from sale of investment, net................... -- (170,117) -- Other................................................... (4,585) (2,342) 2,754 -------- --------- ------- Net cash provided (used) by operating activities............ (84,919) 80,589 50,224 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from gain on sale of investment, net............. -- 170,117 -- Loans and advances to unconsolidated subsidiaries......... (40,858) (3,178) -- Investment in unconsolidated subsidiaries................. -- -- (7,561) Distribution from unconsolidated subsidiary............... 1,000 -- -- Capital spending.......................................... (37,770) (21,614) (50,382) -------- --------- ------- Net cash provided (used) by investing activities............ (77,628) 145,325 (57,943) CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of debt obligations............................. (5,831) (84,232) (42,831) Purchase of treasury stock................................ (15,990) -- (6,283) Reissuance of treasury stock.............................. 7,205 -- -- Issuance of common stock.................................. 72 -- -- Common shares issuable.................................... (152) (101) 532 Deferred financing costs.................................. -- (700) -- -------- --------- ------- Net cash used by financing activities....................... (14,696) (85,033) (48,582) -------- --------- ------- Net change in cash and equivalents.......................... (177,243) 140,881 (56,301) Cash and equivalents at beginning of period................. 209,270 68,389 124,690 -------- --------- ------- Cash and equivalents at end of period....................... $ 32,027 $ 209,270 $68,389 ======== ========= ======= SUPPLEMENTAL CASH FLOW INFORMATION Interest paid, net of capitalized interest................ $ 34,630 $ 46,147 $45,953 Income taxes paid (refunded), net......................... 5,127 (3,191) 7,803
The accompanying notes are an integral part of these statements. F-5 WEIRTON STEEL CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK ------------------------- ADDITIONAL SHARES AMOUNT PAID-IN CAPITAL ------------ -------- ----------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STOCKHOLDERS' EQUITY AT DECEMBER 31, 1997...... 42,846,184 $428 $456,379 Net loss.................................................... -- -- -- Conversion of preferred stock............................... 43,527 2 631 Exercise of preferred stock put options..................... -- -- 177 Purchase of treasury stock.................................. -- -- 2 Reclassification of preferred Series A not subject to put... -- -- -- Employee stock purchase plan: Shares issued............................................. 247,865 2 564 Shares issuable........................................... -- -- -- Board of Directors compensation plan: Shares issued............................................. 40,558 -- 98 Shares issuable........................................... -- -- -- Deferred compensation....................................... -- -- -- ---------- ---- -------- CONSOLIDATED STOCKHOLDERS' EQUITY AT DECEMBER 31, 1998...... 43,178,134 432 457,851 Net income.................................................. -- -- -- Conversion of preferred stock............................... 30,167 -- 437 Exercise of preferred stock put options..................... -- -- 124 Purchase of treasury stock.................................. -- -- 2 Reclassification of preferred Series A not subject to put... -- -- -- Employee stock purchase plan: Shares issued............................................. 285,430 3 376 Shares issuable........................................... -- -- -- Board of Directors compensation plans: Shares issued............................................. 5,632 -- (541) Shares issuable........................................... -- -- -- Amortization of deferred compensation....................... -- -- -- Deferred compensation....................................... -- -- -- ---------- ---- -------- CONSOLIDATED STOCKHOLDERS' EQUITY AT DECEMBER 31, 1999...... 43,499,363 435 458,249 Net loss.................................................... -- -- -- Conversion of preferred stock............................... 91,744 1 1,329 Exercise of preferred stock put options..................... -- -- 275 Purchase of treasury stock.................................. -- -- 3 Reclassification of preferred Series A not subject to put... -- -- -- Exercise of stock options................................... 30,250 -- 1,215 Employee stock purchase plan: Shares issued............................................. 167,475 2 230 Shares issuable........................................... -- -- -- Board of Directors compensation plans: Shares issued............................................. -- -- (780) Shares issuable........................................... -- -- -- Amortization of deferred compensation....................... -- -- -- Deferred compensation....................................... -- -- -- ---------- ---- -------- CONSOLIDATED STOCKHOLDERS' EQUITY AT DECEMBER 31, 2000...... 43,788,832 $438 $460,521 ========== ==== ========
The accompanying notes are an integral part of these statements. F-6
COMMON SHARES PREFERRED SERIES A ISSUABLE RETAINED COMMON TREASURY STOCK NOT SUBJECT TO PUT ----------------- DEFERRED EARNINGS --------------------- ------------------- STOCKHOLDERS' SHARES AMOUNT COMPENSATION (DEFICIT) SHARES AMOUNT SHARES AMOUNT EQUITY ------ ------ ------------ --------- ---------- -------- -------- -------- ------------- 288,423 $ 664 $(471) $(323,014) 209,514 $ (1,587) 8,838 $128 $132,527 -- -- -- (6,127) -- -- -- -- (6,127) -- -- -- -- -- -- (491) (7) 626 -- -- -- -- -- -- -- -- 177 -- -- -- -- 1,774,047 (6,285) -- -- (6,283) -- -- -- -- -- -- 7,713 112 112 (247,865) (566) -- -- -- -- -- -- -- 285,430 379 -- -- -- -- -- -- 379 (40,558) (98) -- -- -- -- -- -- -- 98,132 153 (153) -- -- -- -- -- -- -- 132 -- -- -- -- -- 132 -------- ----- ----- --------- ---------- -------- ------ ---- -------- 383,562 532 (492) (329,141) 1,983,561 (7,872) 16,060 233 121,543 -- -- -- 30,947 -- -- -- -- 30,947 -- -- -- -- -- -- (5,080) (74) 363 -- -- -- -- -- -- -- -- 124 -- -- -- -- 253 -- -- -- 2 -- -- -- -- -- -- 6,275 91 91 (285,430) (379) -- -- -- -- -- -- -- 167,475 231 -- -- -- -- -- -- 231 (98,132) (153) -- -- (98,132) 702 -- -- 8 136,638 200 (200) -- -- -- -- -- -- -- -- 683 -- -- -- -- -- 683 -- -- 9 -- -- -- -- -- 9 -------- ----- ----- --------- ---------- -------- ------ ---- -------- 304,113 431 -- (298,194) 1,885,682 (7,170) 17,255 250 154,001 -- -- -- (85,116) -- -- -- -- (85,116) -- -- -- -- -- -- (3,895) (56) 1,274 -- -- -- -- -- -- -- -- 275 -- -- -- -- 2,605,329 (15,990) -- -- (15,987) -- -- -- -- -- -- 5,422 79 79 -- -- -- -- (1,855,894) 6,879 -- -- 8,094 (167,475) (231) -- -- -- -- -- -- 1 59,978 61 -- -- -- -- -- -- 61 (136,638) (200) -- -- (136,919) 980 -- -- -- 219,814 218 -- -- -- -- -- -- 218 -- -- (679) -- -- -- -- -- (679) -- -- 679 -- -- -- -- -- 679 -------- ----- ----- --------- ---------- -------- ------ ---- -------- 279,792 $ 279 $ -- $(383,310) 2,498,198 $(15,301) 18,782 $273 $ 62,900 ======== ===== ===== ========= ========== ======== ====== ==== ========
F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, OR IN MILLIONS OF DOLLARS WHERE INDICATED NOTE 1 BASIS OF PRESENTATION The financial statements herein include the accounts of Weirton Steel Corporation and its consolidated subsidiaries. Entities of which the Company owns a majority interest and controls are consolidated; entities of which the Company owns a less than majority interest and does not control are not consolidated and are reflected in the consolidated financial statements using the equity method of accounting. All intercompany accounts and transactions with consolidated subsidiaries have been eliminated in consolidation. Weirton Steel Corporation and/or Weirton Steel Corporation together with its consolidated subsidiaries are hereafter referred to as the "Company." In the Company's consolidated balance sheets, MetalSite is accounted for under the equity method as of December 31, 2000 and 1999. MetalSite's results of operations are consolidated with the Company's results through December 29, 1999, and are reported under the equity method thereafter. The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. Certain reclassifications have been made to prior year amounts to conform with current year presentation. NOTE 2 ORGANIZATION AND BACKGROUND The Company and its predecessor companies have been in the business of making and finishing steel products for over 90 years. From November 1929 to January 1984, the Company's business was operated as either a subsidiary or a division of National Steel Corporation ("NSC"). Incorporated in Delaware in November 1982, the Company acquired the principal assets of NSC's former Weirton Steel Division in January 1984. The Company's authorized capital consists of 50.0 million shares of Common Stock, par value $0.01 per share, and 7.5 million shares of Preferred Stock, par value $0.10 per share, issuable in series, as designated by the Company's Board of Directors. Prior to 1989, the Company was owned entirely by its employees through an Employee Stock Ownership Plan (the "1984 ESOP"). In June 1989, the Company's Common Stock commenced trading publicly on the New York Stock Exchange following an underwritten secondary offering from the 1984 ESOP. In connection with that offering, the Company established a second Employee Stock Ownership Plan (the "1989 ESOP") and funded it with 1.8 million shares of Convertible Voting Preferred Stock, Series A (the "Series A Preferred"). Substantially all of the Company's employees participate in the 1984 ESOP and the 1989 ESOP which owned approximately 24% of the issued and outstanding common shares and substantially all the preferred shares of the Company as of December 31, 2000. The common and preferred shares held by the 1984 ESOP and the 1989 ESOP collectively represent 42% of the voting power of the Company's voting stock as of December 31, 2000. Approximately 83% of the Company's workforce is covered under collective bargaining agreements with the Independent Steelworkers' Union (the "ISU") and Independent Guard Union (the "IGU"). In 1997, the Company reached agreements with the ISU and IGU which extend into 2001. The Company is F-8 currently conducting negotiations with the represented employees in an effort to reach new collective bargaining agreements. NOTE 3 SIGNIFICANT ACCOUNTING POLICIES Cash The liability representing outstanding checks drawn against a zero-balance general disbursement bank account is included in accounts payable for financial statement presentation. Such amounts were $8.6 million and $12.4 million as of December 31, 2000 and 1999, respectively. Cash Equivalents Cash equivalents, which consist primarily of certificates of deposit, commercial paper and time deposits, are stated at cost, which approximates fair value. For financial statement presentation, the Company considers all highly liquid investments purchased with a maturity of 90 days or less to be cash equivalents. Inventories Inventories are stated at the lower of cost or market, cost being determined by the first-in, first-out method. Inventory costs include materials, labor and manufacturing overhead. Property, Plant and Equipment Property, plant and equipment is valued at cost. Major additions are capitalized, while the cost of maintenance and repairs which do not improve or extend the lives of the respective assets is charged to expense in the year incurred. Interest costs applicable to facilities under construction are capitalized. Gains or losses on property dispositions are credited or charged to income. Depreciation of steelmaking facilities is determined by the production-variable method which adjusts straight-line depreciation to reflect actual production levels. The cost of relining blast furnaces is amortized over the estimated production life of the lining. All other assets are depreciated on a straight-line basis. Buildings have estimated useful lives of 40 years and machinery, equipment and other have estimated useful lives in the range of 3-15 years. Employee Stock Ownership Plan (ESOP) Accounting The Company recognizes as compensation expense an amount based upon its required contributions to the ESOPs. The resulting expense approximates the cost to the ESOPs for the shares allocated to participants for the period. Shares may be contributed to the ESOPs by the Company or their purchase may be financed by the ESOPs. For financed shares, the number of shares allocated to participants for the period is determined based on the ratio of the period's ESOP debt principal payment to the total estimated debt principal payments. Shares are then allocated to individual participants based on the participant's relative compensation. Employee Profit Sharing There were no provisions for employee profit sharing in 2000 and 1998. The provision for 1999 of $15.5 million for employee profit sharing was calculated in accordance with the Profit Sharing Plan as amended in 1994. F-9 Research and Development The Company incurs research and development costs to improve existing products, develop new products and develop more efficient operating techniques. The costs are charged to expense as incurred and totaled $2.7 million, $2.0 million and $5.9 million in 2000, 1999 and 1998, respectively. Shipping and Handling Fees and Costs In the fourth quarter of 2000, the Company adopted Emerging Issues Task Force Issue 00-10, "Accounting for Shipping and Handling Fees and Costs" ("EITF 00-10"), which addresses the diversity in the income statement classification of amounts charged to customers for shipping and handling, as well as for costs incurred related to shipping and handling. EITF 00-10 requires all amounts billed to a customer in a sales transaction related to shipping and handling be classified as revenue and that shipping and handling charges incurred by the Company not be recorded as a reduction of revenue. Therefore, the Company has reclassified from net sales to cost of sales $42.4 million, $39.0 million and $41.5 million for 2000, 1999 and 1998 respectively which represent those shipping and handling charges incurred by the Company and previously recorded as a reduction of revenue. Derivative Instruments In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement 133"). The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The impact of the Company's implementation of Statement 133, effective January 1, 2001, was immaterial to the Company's financial position. Revenue Recognition Revenue is recognized when the product is shipped to the customers and collectibility of the resulting receivable is reasonably assured, which generally occurs in the period in which title to product passes to the customer. The Company accrues for anticipated sales returns and other allowances based on historical experience. Revenue from toll processing services provided to other carbon steel and stainless steel producers is not considered part of the our primary business of producing and shipping flat rolled carbon steel products and therefore is recorded as a reduction of cost of sales. We record the reduction in cost of sales after the toll processing service has been completed and the processed materials has been shipped back to our customer. On December 3, 1999, the SEC staff released Staff Accounting Bulletin No. 101 "Revenue Recognition" ("SAB 101") to provide guidance on the recognition, presentation and disclosure of revenue in the financial statements. SAB 101 does not change existing literature on revenue recognition, but rather it clarifies the staff's position on pre-existing literature. The new standard did not require management to change existing revenue recognition policies and therefore had no impact on the Company's reported financial position or results of operations as of December 31, 2000 and 1999. F-10 NOTE 4 INVENTORIES Inventories consisted of the following:
DECEMBER 31, ------------------- 2000 1999 -------- -------- Raw materials............................................... $ 84,120 $ 61,254 Work-in-process............................................. 40,242 41,044 Finished goods.............................................. 78,015 84,412 -------- -------- $202,377 $186,710 ======== ========
NOTE 5 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following:
DECEMBER 31, --------------------- 2000 1999 --------- --------- Land........................................................ $ 1,112 $ 1,129 Buildings................................................... 9,270 9,409 Machinery, equipment and other.............................. 959,298 973,651 Construction-in-progress.................................... 14,173 6,285 --------- --------- 983,853 990,474 Less: Allowances for depreciation........................... (496,189) (476,010) --------- --------- $ 487,664 $ 514,464 ========= =========
During the fourth quarter of 1999, the Company recognized an asset impairment charge of $22.5 million related to a slab sizing press. The service potential of the asset was impaired as a result of changes in world slab markets and the Company's decision to restart the No. 4 Blast Furnace. Further, the Company terminated discussions with an entity concerning a strategic combination, which if consummated would have provided support for the viability of the asset. Given the existing facts and circumstances pertaining to the slab sizing press, the Company has no plans to utilize the asset. In the event those facts and circumstances change significantly, the Company may reconsider its decision. The fair value was determined based upon the value of individual components and the absence of opportunities to sell the slab sizing press. Capitalized interest applicable to facilities under construction for the years ended December 31, 2000 and 1998 amounted to $0.2 million and $0.4 million, respectively. There was no capitalized interest applicable to facilities under construction for the year ended December 31, 1999. In 2000, the Company incurred capital expenditures of $7.3 million on a project to install new equipment related to a new polymer coating process. The Company has temporarily suspended the project. The Company plans to continue installation of the equipment when resources for capital projects are more readily available. The Company expects to incur capital spending of $3.8 on the project in 2001 to satisfy outstanding purchase commitments. F-11 NOTE 6 FINANCING ARRANGEMENTS Debt Obligations
DECEMBER 31, --------------------- 2000 1999 -------- -------- 11 3/8% Senior Notes due 7/1/04....................... $122,724 $124,930 10 3/4% Senior Notes due 6/1/05....................... 121,256 124,882 8 5/8% Pollution Control Bonds due 11/1/14............ 56,300 56,300 -------- -------- 300,280 306,112 Less: Unamortized debt discount....................... (1,027) (1,344) -------- -------- Total debt obligations................................ $299,253 $304,768 ======== ========
The indentures governing the senior notes are substantially similar and contain covenants that limit, among other things, the incurrence of additional indebtedness, the declaration and payment of dividends and distributions on the Company's capital stock, investments in joint ventures, as well as mergers, consolidations, liens and sales of certain assets. As of December 31, 2000, the Company's ability to incur additional indebtedness was limited to $100.0 million, excluding certain types of permitted indebtedness such as under the "Inventory Facility" referred to below. Under covenants affecting the Company's ability to pay dividends on its common stock, the Company is limited as to the payment of aggregate dividends after March 31, 1993, to the greater of (i) $5.2 million or (ii) $5.0 million plus one-half of the Company's cumulative consolidated net income since March 31, 1993, plus the net proceeds from future issuances of certain capital stock less certain allowable payments. As of December 31, 2000, pursuant to this covenant, the Company's ability to pay dividends on its common stock was limited to $42.8 million. Upon the occurrence of a change in control, as defined under the indentures, holders of the senior notes will have the option to cause the Company to repurchase their senior notes at 101% of the principal amount, plus accrued interest to the date of repurchase. The Company has $122.7 million in principal payments due in 2004, $121.3 million due in 2005 and $56.3 million due thereafter. During 1999, the Company paid off the remaining $84.0 million outstanding on its 10 7/8% Senior Notes at maturity. Receivables Participation Agreements On March 29, 1999, through its wholly-owned subsidiary, Weirton Receivables Inc. ("WRI"), the Company amended its existing receivables facility with a group of three banks (the "WRI Amended Receivables Facility"). The WRI Amended Receivables Facility provides for a total commitment by the banks of up to $80.0 million, including a letter of credit tandem mill subfacility of up to $25.0 million. The Company sells substantially all of its accounts receivable as they are generated to WRI. During 2000, the Company negotiated an amendment and a prospective waiver to the WRI Receivables Participation Agreement. The amendment excludes accounts receivable from certain affiliated entities and provides the Company with additional flexibility in financing and other arrangements with certain affiliates. The amendment is effective through March 2004. The waiver, dated November 21, 2000, relaxed a performance ratio for a period from November 30, 2000 through April 30, 2001. Without the waiver, an event of default may have occurred. The Company anticipates that it will remain in compliance with all of the financial tests subsequent to April 30, 2001. The amount of participation interests committed to be purchased by the banks fluctuates depending upon the amounts and nature of receivables generated by the Company which are sold into the program, and certain financial tests applicable to them. The financial tests that were applicable to the receivable facility prior to March 29, 1999 were amended so that, in most cases, the amount of participation interest F-12 available for cash sale to the banks is greater under the WRI Amended Receivables Facility than under the pre-existing facility. The March 29, 1999 amendment also modified the events and circumstances that would cause the termination of the facility. The other terms and conditions of the WRI Amended Receivables Facility are substantially the same as those of the pre-existing facility. Funded purchases of participation interests by the banks under the WRI Amended Receivables Facility are generally available on a revolving basis for three years, subject to extension as agreed to by the banks. In 1999, the facility was extended through March 2004. Weirton Steel Corporation continues to act as servicer of the assets sold into the program and continues to make billings and collections in the ordinary course of business according to its established credit practices. Except for warranties given by Weirton Steel Corporation concerning the eligibility of receivables sold to WRI under the program, the transactions under the facility are generally nonrecourse. WRI's commitments to the banks, which do not include warranties as to collectibility of the receivables, include those typical of sellers of similar property and are secured by its interest in the receivables and related security. WRI is subject to certain restrictions regarding its indebtedness, liens, asset sales not contemplated by the facility, guarantees, investments, other transactions with its affiliates, including Weirton Steel Corporation, and the maintenance of a minimum net worth of not less than the greater of $5.0 million or 10% of the outstanding receivables. As of December 31, 2000, WRI was in compliance with these requirements. WRI has been set up as a bankruptcy-remote" subsidiary so that the banks and other creditors of WRI have a priority claim on all assets of WRI prior to those assets becoming available to any of Weirton Steel Corporation's creditors. Because the WRI Amended Receivables Facility contains concentration limitation provisions, from time to time, receivables from one of the Company's major customers were ineligible to be considered in the calculation of participation interest available for cash sale to the banks. As a result, on August 9, 1999, WRI and one of the participating banks agreed to a second receivable facility ("Additional Receivable Facility") based on the receivables of the aforementioned major customer of the Company. The Additional Receivable Facility originally provided for a total commitment by the participating bank of up to $20.0 million. Pursuant to the Additional Receivable Facility Agreement, the total commitment was reduced to $15.0 million as of December 31, 1999. The amount of participation interest in the accounts receivable from the major customer available for sale to the bank fluctuates depending upon the nature and amount of receivables from the customer generated by the Company which are sold into the program and certain financial tests applicable to them. Events that would cause the termination of the Additional Receivable Facility are similar to those that exist under the WRI Amended Receivables Facility. As of December 31, 2000 and 1999, $25.0 million and $35.0 million, respectively, of funded participation interest had been sold to the banks under the WRI Amended Receivables Facility. For 2000 and 1999, the Company recognized $0.3 million and $0.6 million, respectively, in discount expense from the sale of the funded participation interest. Discount expense was recorded as a reduction to other income for financial reporting purposes. As of December 31, 2000 and 1999, $8.8 million and $12.7 million, respectively, in letters of credit under the tandem mill subfacility were in place, and no funded participation under the Additional Receivable Facility had been sold. After sale of funded participation interests and amounts in place under the letter of credit tandem mill subfacility, the base amount available for cash sale under both facilities was approximately $3.6 million at December 31, 2000. The Company values its accounts receivable based on the face value of invoices outstanding with allowances for uncollectible accounts and other potential claims and deductions. The Company values the portion of the participation interest it retained by WRI as its outstanding accounts receivable balance, after allowances, less cash received in exchange for the participation interest sold. The participation interest sold to the banks is secured by the interest retained by WRI. The Company continues to service and collect all accounts receivable. The key assumption used in valuing the participation interest retained by WRI is the allowance recorded against its accounts receivable. At December 31, 2000 and 1999, the Company had recorded a F-13 valuation allowance of $7.8 million and $9.3 million, respectively. Any hypothetical difference between the valuation allowance recorded and the actual credit losses and other deductions will entirely affect WRI's accounts receivable participation because that interest secures the participation interest held by the banks. During the years ended December 31, 2000 and 1999, the Company recorded net losses for uncollectible accounts of $6.2 million and $2.3 million, respectively. Inventory Facility In November 1999, the Company and a bank agreed to a new working capital facility of up to $100.0 million secured by a first priority lien on the Company's inventory (the "Inventory Facility"). Borrowings under the Inventory Facility are based upon the levels and composition of the Company's inventory and generally are available on a revolving basis through October 2004. The amount available for borrowing is limited by both the Inventory Facility agreement and the Company's senior notes indentures which permit borrowing only up to 50% of the Company's inventory balance. At the option of the Company, the Inventory Facility bears interest at a prime or LIBOR rate. Based upon the amount outstanding, basis points ranging from 0.00% to 2.50% are added to the prime or LIBOR rate. The agreement establishing the facility contains a number of restrictive financial and other covenants typical of facilities of this kind and substantially similar to those in the Company's current senior notes indentures. However, certain of the covenants under the Inventory Facility become more restrictive than under the senior notes indentures when borrowing availability under the facility is less than $25.0 million. The amount available can be reduced if the Company fails to achieve a certain minimum operating ratio. As of December 31, 2000, no amounts were outstanding under the Inventory Facility, and $90.6 million was available for borrowing. The amount available for borrowing at December 31, 2000 had been reduced because the Company had not achieved the minimum operating ratio. The Company's financing facilities contain typical default provisions, including cross default provisions. Generally, termination events under the WRI facilities and defaults under the senior notes constitute events of default under the Inventory Facility, and events of default under instruments for at least $25.0 million of borrowed money constitute events of default under the senior notes indentures. Leases The Company uses certain lease arrangements to supplement its financing activities. Rental expense under operating leases was $9.0 million, $7.8 million and $8.0 million for the years ended December 31, 2000, 1999 and 1998, respectively. The minimum future lease payments under noncancelable operating leases are $8.4 million, $7.5 million, $6.2 million, $5.0 million and $1.3 million for the years ending 2001 through 2005, respectively, and $0.6 million thereafter. NOTE 7 EMPLOYEE RETIREMENT BENEFITS In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosure about Pensions and Other Postretirement Benefits." SFAS No. 132 establishes amended standards for pension and other postretirement benefits disclosures. The standard disclosures established in SFAS No. 132 are included herein. Pensions The Company has a noncontributory defined benefit pension plan which covers substantially all employees (the "Pension Plan"). The Pension Plan provides benefits that are based generally upon years of service and compensation during the final years of employment. The Company's funding policy is influenced by its general cash requirements but, at a minimum, complies with the funding requirements of federal laws and regulations. There were no employer contributions to the Pension Plan during 2000 and 1999. During the year ended December 31, 1998, the F-14 Company contributed $43.0 million to the Pension Plan. The Pension Plan's assets are held in trust, the investments of which consist primarily of common stocks, fixed income securities and short term investments. Benefits Other Than Pensions The Company provides healthcare and life insurance benefits to substantially all of the Company's retirees and their dependents. The healthcare plans contain cost-sharing features including co-payments, deductibles and lifetime maximums. The life insurance benefits provided to retirees are generally based upon annual base pay at retirement for salaried employees and specific amounts for represented employees. The funded status and amounts recognized in the Company's consolidated financial statements related to employee retirement benefits are set forth in the following table (in thousands):
PENSION BENEFITS OTHER BENEFITS --------------------------- --------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Change in benefit obligation: Benefit obligation at beginning of year.................................. $699,119 $772,167 $308,801 $336,857 Service cost............................. 13,532 15,894 4,771 5,696 Interest cost............................ 53,899 49,926 23,874 21,245 Plan amendments.......................... -- -- -- -- Actuarial (gain) loss.................... 39,397 (85,363) 10,466 (31,796) Special termination benefits............. -- -- -- -- Benefits paid............................ (51,961) (53,505) (26,472) (23,201) -------- -------- -------- -------- Benefit obligation at end of year........ $753,986 $699,119 $321,440 $308,801 ======== ======== ======== ======== Change in plan assets: Fair value of plan assets at beginning of year.................................. $787,114 $687,537 $ -- $ -- Actual return on plan assets............. (7,996) 153,082 -- -- Employer contributions................... -- -- 26,472 23,201 Benefits paid............................ (51,961) (53,505) (26,472) (23,201) -------- -------- -------- -------- Fair value of plan assets at end of year.................................. $727,157 $787,114 $ -- $ -- ======== ======== ======== ======== Reconciliation of funded status: Accumulated benefit obligation........... $678,064 $635,029 Effect of projected compensation increases............................. 75,922 64,090 -------- -------- -------- -------- Actuarial present value of projected benefit obligation.................... 753,986 699,119 $321,440 $308,801 Plan assets at fair value................ 727,157 787,114 -- -- -------- -------- -------- -------- Projected benefit obligation greater than (less than) plan assets............... 26,829 (87,995) 321,440 308,801 Items not yet recognized: Prior service cost.................... (61,688) (70,777) 31,575 42,092 Actuarial gains (losses).............. 131,035 273,639 (8,693) 1,773 Remaining net obligation at transition.......................... (16,182) (23,572) -- -- -------- -------- -------- -------- Accrued benefit obligation............... $ 79,994 $ 91,295 $344,322 $352,666 ======== ======== ======== ========
F-15
PENSION BENEFITS OTHER BENEFITS ------------------------------------------ ------------------------------------------ DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 2000 1999 1998 ------------ ------------ ------------ ------------ ------------ ------------ Components of net periodic benefit cost: Service cost................... $ 13,532 $ 15,894 $ 15,704 $ 4,771 $ 5,696 $ 5,462 Interest cost.................. 53,899 49,926 48,902 23,874 21,245 24,136 Expected return on plan assets....................... (79,982) (69,810) (54,471) -- -- -- Amortization of transition amount....................... 7,390 7,390 7,390 -- -- -- Amortization of prior service cost......................... 9,089 9,089 9,089 (10,517) (10,517) (4,325) Recognized net actuarial gain......................... (15,229) (3,102) (1,367) -- -- -- -------- ----------- ----------- -------- ----------- ----------- Net periodic benefit cost...... $(11,301) $ 9,387 $ 25,247 $ 18,128 $ 16,424 $ 25,273 ======== =========== =========== ======== =========== =========== Weighted-average assumptions as of end of year: Discount rate.................. 7.50% 8.00% 6.75% 7.50% 8.00% 6.75% Expected return on plan assets....................... 10.50% 10.50% 9.25% -- -- -- Assumed increase in compensation levels.......... 3% 2% for 2% for 3% 2% for 2% for 1 year 2 years 1 year 2 years and 3% and 3% and 3% and 3% thereafter thereafter thereafter thereafter
FOR RETIREES WHO HAVE FOR RETIREES WHO ARE NOT YET REACHED AGE 65 AGE 65 AND OLDER ----------------------- --------------------- 2000 1999 1998 2000 1999 1998 ----- ----- ----- ----- ----- ----- Base medical cost trend: Rate in first year............................. 5.75% 6.50% 7.25% 5.25% 5.75% 6.50% Ultimate rate.................................. 4.50% 5.00% 4.00% 4.50% 5.00% 4.00% Year in which ultimate rate is reached......... 2003 2003 2003 2003 2003 2003 Major medical cost trend: Rate in first year............................. 6.25% 7.50% 8.50% -- -- -- Ultimate rate.................................. 4.50% 5.00% 4.00% -- -- -- Year in which ultimate rate is reached......... 2003 2003 2003 -- -- -- Administrative expense trend..................... 4.50% 5.00% 4.00% 4.50% 5.00% 4.00%
A one-percentage-point change in the assumed health care cost trend rates would have the following effects:
ONE PERCENTAGE POINT INCREASE ONE PERCENTAGE POINT DECREASE ----------------------------- ----------------------------- Effect on total of service and interest cost components for 2000....................... $ 1,316 $ (1,478) Effect on 2000 accumulated postretirement benefit obligation........................ $16,071 $(17,148)
During 1998, the Company amended its retiree healthcare plans to provide eligible retirees an option to elect coverage under a Medicare Plus Choice Program (the "Program"). For participants in the Program, medicare, major medical coverage and the Company's medical benefits coverage are replaced by a single insurance plan. Rather than funding coverage under the current supplemental plan, the Company pays a portion of the Program premiums totaling $60 per participant per month. The amendment resulted in a $33.2 million decrease in the Company's accumulated postretirement benefit obligation for 1998. F-16 Other As a condition of the purchase of the Company's assets from NSC, NSC agreed to retain liability for pension service and the cost of life and health insurance for employees of the Company's predecessor business who retired through May 1, 1983. NSC also retained the liability for pension service through May 1, 1983 for employees of the predecessor business who subsequently became active employees of the Company. NOTE 8 POSTEMPLOYMENT BENEFITS The components comprising the Company's obligations for postemployment benefits are (i) workers' compensation; (ii) severance programs which include medical coverage continuation; and (iii) sickness and accident protection, which includes medical and life insurance benefits. Actuarial assumptions and demographic data, as applicable, that were used to measure the postemployment benefit obligation as of December 31, 2000 and 1999, were consistent with those used to measure pension and other postretirement benefit obligations for each respective year. As of December 31, 2000 and 1999, the Company had accrued $31.9 million and $27.4 million, respectively, for postemployment benefit obligations. NOTE 9 RESTRUCTURING CHARGES In 1998, the Company recognized a $2.9 million restructuring charge stemming from a special voluntary retirement window offered to certain supervisory and managerial employees. The charge related to early retirement benefits. The 1998 restructuring charge consisted of a $2.1 million charge to the Company's accrued pension cost and a $0.8 million charge to other long term liabilities. The Company paid $0.2 million in 2000 and 1999 related to the other long term liability component of the 1998 restructuring charge, leaving a remaining liability associated with the other long term portion of the charge of $0.4 million. The Company made no pension contributions in 2000 and 1999. The liability associated with the accrued pension portion of the 1998 restructuring charge was included in the Company's total accrued pension cost as of December 31, 2000 and 1999. NOTE 10 INCOME TAXES Deferred income tax assets and liabilities are recognized reflecting the future tax consequences of net operating loss and tax credit carryforwards and differences between the tax basis and the financial reporting F-17 basis of assets and liabilities. The components of the Company's deferred income tax assets and liabilities were as follows:
DECEMBER 31, -------------------- 2000 1999 -------- --------- Deferred tax assets: Net operating loss and tax credit carryforwards........... $115,023 $ 89,240 Deductible temporary differences: Allowance for doubtful accounts........................ 2,396 2,973 Inventories............................................ 4,225 17,691 Pensions............................................... 31,198 35,605 Workers' compensation.................................. 11,348 10,673 Postretirement benefits other than pensions............ 135,256 138,544 Equity investments..................................... 4,287 -- Other deductible temporary differences................. 27,373 16,822 Valuation allowance....................................... (61,811) (39,712) -------- --------- 269,295 271,836 Deferred tax liabilities: Accumulated depreciation.................................. (115,530) (120,209) -------- --------- Net deferred tax asset...................................... $153,765 $ 151,627 ======== =========
As of December 31, 2000, the Company had available, for federal and state income tax purposes, regular net operating loss carryforwards of approximately $239.7 million expiring in 2007 through 2020; an alternative minimum tax credit of approximately $13.5 million; and general business tax credits of approximately $8.1 million expiring in 2001 to 2005. In 2000, 1999 and 1998, as a result of its deferred tax attributes, the Company did not generate any liability for regular federal income tax. In 2000, the Company did not generate any liability for alternative minimum tax. However, in 1999 and 1998, the Company did generate liability for alternative minimum tax. The Company recognized a liability for alternative minimum tax of $8.4 million and $3.3 million in 1999 and 1998, respectively. The Company has recognized that it is more likely than not that certain future tax benefits will not be realized as a result of current and future income. Accordingly, the valuation allowance has been increased in the current year to reflect lower than anticipated net deferred tax asset utilization. At December 31, 2000, the deferred tax asset related to postretirement benefits other than pensions was $135.3 million. Based upon the length of the period during which this deferred tax asset can be utilized and the Company's expectations that under its current business strategy it will be able to generate taxable income over the long term, the Company believes that it is more likely than not that future taxable income will be sufficient to fully offset these future deductions. The length of time associated with the carryforward period available to utilize net operating losses and certain tax credits not associated with postretirement benefits other than pension liabilities is more definite. A significant portion of these net operating losses are attributable to the realization of differences between the tax basis and financial reporting basis of the Company's fixed assets. In the aggregate, such differences, including depreciation, are expected to reverse within the allowable carryforward periods. In addition, certain tax planning strategies that include, but are not limited to, changes in methods of depreciation for tax purposes, adjustments to employee benefit plan funding strategies and potential sale-leaseback arrangements, could be employed to avoid expiration of the attributes. Notwithstanding the Company's belief that it will be able to utilize its deferred tax assets, the Company has recorded a valuation allowance of $61.8 million against its deferred tax assets at December 31, 2000. F-18 The elements of the Company's deferred income taxes associated with its results for the years ended December 31, 2000, 1999 and 1998, respectively, are as follows:
2000 1999 1998 -------- ------- ------- Current income tax provision (benefit): Federal........................................... $(10,292) $ 8,381 $ 3,265 Deferred income tax provision (benefit)................ (23,414) 7,002 (5,977) Valuation allowance.................................... 22,099 (7,156) 1,321 -------- ------- ------- Total income tax provision (benefit)............ $(11,607) $ 8,227 $(1,391) ======== ======= =======
The total income tax provision (benefit) recognized by the Company for the years ended December 31, 2000, 1999 and 1998, reconciled to that computed under the federal statutory corporate rate as follows:
2000 1999 1998 -------- ------- ------- Tax provision (benefit) at federal statutory rate...... $(33,853) $13,711 $(2,631) State income taxes, net of federal..................... (3,869) 1,567 (301) Other.................................................. 4,016 105 220 Change in valuation allowance.......................... 22,099 (7,156) 1,321 -------- ------- ------- Income tax provision (benefit)......................... $(11,607) $ 8,227 $(1,391) ======== ======= =======
NOTE 11 REDEEMABLE STOCK In June 1989, the Company sold 1.8 million shares of the Series A Preferred to the 1989 ESOP which has since allocated those shares to participants. Each share of Series A Preferred is convertible at any time into one share of common stock, subject to adjustment, is entitled to 10 times the number of votes allotted to the common stock into which it is convertible, and has a preference on liquidation over common stock of $5 per share. The Series A Preferred has no preference over common stock as to dividends. The Series A Preferred is not intended to be readily tradable on an established market. As such, participants to whom shares of Series A Preferred are distributed from the 1989 ESOP following termination of service are given a right, exercisable for limited periods prescribed by law, to cause the Company to repurchase the shares at fair value. The Company also has a right of first refusal upon proposed transfers of distributed shares of Series A Preferred. In 1994, the 1989 ESOP was amended to provide for recontribution to the plan by the Company for shares of Series A Preferred reacquired for allocation among active employee participants on a per capita basis. If not repurchased by the Company or reacquired for allocation by the 1989 ESOP, shares of Series A Preferred automatically convert into common stock upon transfer by a distributee. NOTE 12 STOCK PLANS The Company has two stock option plans (the "1987 Stock Option Plan" and the "1998 Stock Option Plan"), an employee stock purchase plan (the "2000 Employee Stock Purchase Plan") and deferred and stock compensation plans for nonemployee members of the board of directors (the "Directors' Deferred Compensation Plan" and the "Directors' Stock Compensation Policy"). 1987 and 1998 Stock Option Plans The Company may grant options for up to 750,000 shares under the 1987 Stock Option Plan as amended. Under the plan, the option exercise price equals the stock's market price on the date of grant. Generally, the options granted under the 1987 Stock Option Plan vest in one-third increments beginning F-19 on the date of grant, with the remaining two-thirds becoming exercisable after the first and second years. The options expire approximately 10 years from the date of grant. During 2000, the 1998 Stock Option Plan was amended to increase the number of options the Company may grant from 3,250,000 shares to 6,500,000 shares. The option price and vesting requirements are determined by a Stock Option Committee appointed by the board of directors. The options granted during 2000 under the 1998 Stock Option Plan vest on May 23, 2010 and expire the following day. The options are subject to accelerated vesting based on the continued employment of the recipients and the attainment of certain market prices for the Company's common stock. The stock prices necessary for accelerated vesting range from $6.12 to $12.41 and must be maintained for 20 consecutive trading days for accelerated vesting to occur. Options that vest pursuant to the accelerated vesting provisions expire on May 24, 2010. All the options granted during 1999 and 1998 under the 1998 Stock Option Plan had vested as of December 31, 2000 and will expire on June 24, 2002. The following is a summary of stock option activity under the 1987 and 1998 Stock Option Plans:
1987 STOCK OPTION PLAN 1998 STOCK OPTION PLAN --------------------------- ----------------------------- WEIGHTED AVERAGE WEIGHTED AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE -------- ---------------- ---------- ---------------- Balance Dec. 31, 1997.................. 581,666 $7.71 -- $ -- Granted.............................. 173,000 3.13 2,875,000 3.88 Exercised............................ -- -- -- -- Repurchased/Forfeited................ (169,666) 8.53 -- -- -------- ----- ---------- ----- Balance Dec. 31, 1998.................. 585,000 6.12 2,875,000 3.88 Granted.............................. 176,250 1.75 99,750 3.88 Exercised............................ (1,834) 2.50 -- -- Repurchased/Forfeited................ (62,500) 7.32 (201,250) 3.88 -------- ----- ---------- ----- Balance Dec. 31, 1999.................. 696,916 4.91 2,773,500 3.88 Granted.............................. 70,500 2.63 1,994,894 6.26 Exercised............................ (94,666) 3.38 (1,794,894) 3.88 Repurchased/Forfeited................ (123,582) 6.84 -- -- -------- ----- ---------- ----- Balance Dec. 31, 2000.................. 549,168 $4.45 2,973,500 $5.48
The following table represents additional information with regard to the 1987 and 1998 Stock Option Plans at December 31, 2000:
OUTSTANDING EXERCISABLE --------------------------------------------- -------------------------- WEIGHTED WEIGHTED AVERAGE WEIGHTED RANGE OF NUMBER OF AVERAGE REMAINING NUMBER OF AVERAGE EXERCISE PRICES SHARES EXERCISE PRICE CONTRACTUAL LIFE SHARES EXERCISE PRICE --------------- --------- -------------- ---------------- --------- -------------- 1987 Stock Option Plan: $1.75-3.13.................. 373,168 $2.45 7.79 years 279,685 $2.53 $8.69-8.89.................. 176,000 $8.71 3.89 years 176,000 $8.71 1998 Stock Option Plan: $3.88-6.69.................. 2,973,500 $5.48 6.78 years 978,606 $3.88
F-20 The fair value of each stock option grant is estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions for grants in 2000, 1999 and 1998:
2000 1999 1998 -------- ---------- -------- 1987 Stock Option Plan: Fair value of option granted....................... $1.76 $1.08 $1.90 Average risk free interest rate.................... 5.93% 5.35% 5.53% Expected dividend yield............................ 0% 0% 0% Expected life of options........................... 7 years 7 years 7 years Expected volatility rate........................... 0.62 0.55 0.53 1998 Stock Option Plan: Weighted average fair value of options granted..... $2.06 $1.91 $0.70 Average risk free interest rate.................... 6.65% 6.25% 6.30% Expected dividend yield............................ 0% 0% 0% Expected life of options........................... 5 years 2.5 years 5 years Expected volatility rate........................... 0.66 0.76 0.39
2000 Employee Stock Purchase Plan In May 2000, the Company replaced the 1994 Employee Stock Purchase Plan, which expired in 1999, with the 2000 Employee Stock Purchase Plan. The Company reserved 1.0 million shares of its common stock to be offered over a four and a half year period beginning July 1, 2000 to eligible employees under its 2000 Employee Stock Purchase Plan. The 2000 Employee Stock Purchase Plan provides for participants to purchase the Company's common stock at 85% of the lesser of the stock's closing price at the beginning or the end of each year. (For 2000, 85% of the lesser of the stock's closing price on July 1, 2000 or December 31, 2000 was used to determine the purchase price.) As of December 31, 2000, 59,978 shares valued at approximately $0.1 million were issuable in accordance with the 2000 Employee Stock Purchase Plan. As of December 31, 1999, 167,475 shares valued at approximately $0.2 million were issuable in accordance with the 1994 Employee Stock Purchase Plan. Directors' Deferred Compensation Plan During 1991, the Company adopted a deferred compensation plan (the "Directors' Deferred Compensation Plan") to permit nonemployee members of the board of directors to receive shares of common stock in lieu of cash payments for total compensation or a portion thereof for services provided in their capacity as a member of the board of directors. The Company reserved 445,000 shares for issuance under the Directors' Deferred Compensation Plan. During 2000, the Directors' Deferred Compensation Plan was modified to allow directors to either defer shares issuable to a non-qualified trust maintained by an institutional trustee until such time as the shares are distributed to the directors or to defer share equivalents to a separate account maintained by the Company. The cost of the shares held in the trust are accounted for as a reduction to equity. The liability to compensate the directors is retained until such time as the shares are issued from the trust. The Directors' Deferred Compensation Plan provides for the stock portion of the directors' compensation to be valued at 90% of the lesser of the stock's average trading price at the beginning or the end of each year. As of December 31, 2000, 127,606 shares valued at $0.1 million were issuable to the directors who elected to defer compensation to the trust for 2000, and a total of 285,400 shares with a cost of $0.6 million were held by the trust for future distribution. As of December 31, 2000, 92,208 shares valued at $0.1 million were deferred by directors choosing not to have shares issued to the trust. F-21 Directors' Stock Compensation Policy Under a stock compensation policy initiated in 1998, the Company's non-employee directors receive a portion of their annual retainers payable in shares of the Company's common stock. The directors may elect to defer all or a portion of the shares under the Directors' Deferred Compensation Plan. As of December 31, 2000, no shares were issuable to non-employee directors; all shares otherwise attributable to retainers for 2000 were deferred under the Directors' Deferred Compensation Plan. NOTE 13 STOCK BASED COMPENSATION The Company accounts for its stock plans under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," under which compensation costs, if applicable, have been determined. Had compensation costs for these plans been determined consistent with Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based Compensation," (SFAS No. 123), net income (loss) and earnings per share would have been reduced to the following:
2000 1999 1998 -------- ------- ------- Net income (loss): As reported....................................... $(85,116) $30,947 $(6,127) Pro forma......................................... (89,836) 30,549 (6,598) Basic income (loss) per share: As reported....................................... $ (2.06) $ 0.74 $ (0.15) Pro forma......................................... (2.17) 0.73 (0.16) Diluted income (loss) per share: As reported....................................... $ (2.06) $ 0.71 $ (0.15) Pro forma......................................... (2.17) 0.71 (0.16)
Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the resulting pro forma compensation costs may not be representative of that expected in future years. NOTE 14 ESOP FINANCING The purchase by the 1989 ESOP of the Series A Preferred was financed through the issuance of a $26.1 million promissory note to the Company payable ratably over a 10 year period. The Company's contribution to the 1989 ESOP for the principal and interest components of debt service was immediately returned. As such, the respective interest income and expense on the ESOP notes were entirely offset within the Company's net financing costs. As of December 31, 2000, 1,485,936 shares of Series A Preferred were allocated to participants of the 1989 ESOP. NOTE 15 REPURCHASES OF COMMON STOCK FOR TREASURY During April 1998, the Company announced that it had been authorized by the board of directors to repurchase up to 10%, or approximately 4.2 million shares, of its outstanding common stock. In February 2000, the Company announced that it had been authorized by the board of directors to repurchase an additional 12% of its capital stock. Under these stock repurchase programs, the Company paid $16.0 million during 2000 to repurchase approximately 2.6 million shares of its outstanding common stock at prices ranging from $2.38 to $9.00 per share. There were no repurchases of outstanding common stock during 1999 pursuant to the stock repurchase program. Repurchased shares of common stock are held in the Company's treasury and made available for stock issuance needs. F-22 NOTE 16 EARNINGS PER SHARE For the years ended December 31, 2000 and 1998, basic and diluted earnings per share were the same; however, securities totaling 1,583,062 shares and 1,725,548 shares, respectively, were excluded from the diluted earnings per share calculation due to their anti-dilutive effect. For 2000, 1999 and 1998, there were an additional 722,149, 3,430,000 and 3,553,869 options, respectively, outstanding for which the exercise price was greater than the average market price. The following represents a reconciliation between basic earnings per share and diluted earnings per share for the year ended December 31, 1999:
FOR THE YEAR ENDED INCOME DECEMBER 31, 1999 INCOME SHARES PER SHARE ------------------ ------- ---------- --------- Basic earnings per share: Net income......................................... $30,947 41,600,077 $ 0.74 Effect of dilutive securities: Series A Preferred................................. -- 1,669,869 (0.02) Stock options...................................... -- 28,736 (0.01) ------- ---------- ------ Diluted earnings per share: Net income......................................... $30,947 43,298,682 $ 0.71 ======= ========== ======
NOTE 17 ENVIRONMENTAL COMPLIANCE, LEGAL PROCEEDINGS AND COMMITMENTS AND CONTINGENCIES Environmental Compliance The Company, as well as its domestic competitors, is subject to stringent federal, state and local environmental laws and regulations concerning, among other things, waste water discharges, air emissions and waste disposal. The Company spent approximately $0.9 million for pollution control capital projects in 2000. The Company continued its environmental remediation and regulatory compliance activities required under its 1996 consent decree with federal and state environmental authorities that had settled certain water discharge, air emissions and waste handling enforcement issues. Under the consent decree, the Company committed to undertake environmental upgrade and modification projects totaling approximately $19.8 million, of which $16.1 million had been spent through December 31, 2000. As part of a related corrective action order, the Company also continued its investigative activities and interim corrective measures aimed at determining the nature and extent of hazardous substances which might be located on its property. These activities are being accomplished on an area by area basis and generally are at an early stage. Because the Company does not know the nature and extent of hazardous substances which may be located on its properties, it is not possible at this time to estimate the ultimate cost to comply with the corrective action order. At December 31, 2000, the Company had accrued approximately $9.0 million related to the consent decree, the corrective action order, and other environmental liabilities. The Company believes that NSC is obligated to reimburse the Company for a portion of the costs that have been and may be incurred by the Company to comply with the corrective action order. Pursuant to the agreement whereby the Company purchased the former Weirton Steel Division of NSC in 1984, NSC retained liability for cleanup costs related to solid or hazardous waste facilities, areas or equipment as long as such were not used by the Company in its operations subsequent to the acquisition. As potentially reimbursable costs are incurred, the Company has been and may continue to be reimbursed by NSC. F-23 Legal Proceedings The Company, in the ordinary course of business, is the subject of, or party to, various pending or threatened legal actions. The Company believes that any ultimate liability resulting from these actions will not have a material adverse effect on its financial position or results of operations. On a quarterly and annual basis, management establishes or adjusts financial provisions and reserves for contingencies in accordance with SFAS No. 5, "Accounting for Contingencies." Commitments and Contingencies In October 1991, the Company entered into a supply agreement with a subsidiary of Cleveland-Cliffs Inc. to provide the majority of its iron ore pellet requirements beginning in 1992. The Company has a 15-year agreement expiring in 2011 to purchase 100% of its oxygen and nitrogen requirements from an independent party. The contract specifies that the Company will pay a base monthly charge that is adjusted annually based upon a percentage of the change in the producers price index for industrial commodities. In 1996, the Company entered into an agreement commencing on January 1, 1997 through December 31, 2001, with USX Corporation to purchase blast furnace coke. The agreement provides for the purchase of the greater of 850,000 tons of blast furnace coke annually, or 80% of the actual annual requirement of the Company. Such quantities are subject to adjustment based upon changes in the Company's operating levels. The price is to be the prevailing market price (subject to a ceiling and floor) for blast furnace coke. The Company participates in partner loan facilities with MetalSite whereby the Company funded a significant portion of MetalSite's operations in 2000. The Company expects to continue to fund up to $1.0 million of MetalSite's operations in 2001. The Company's ownership percentage in MetalSite may be decreased by options granted to MetalSite employees (see Note 20 "Subsidiaries and Joint Ventures") and by options which may be exercised by Internet Capital Group, Inc. (see Note 21 "Sale of MetalSite Investment"). NOTE 18 OPERATING SEGMENT INFORMATION In June of 1997, the FASB issued SFAS No. 131 "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way public companies report information about operating segments and it establishes standards for related disclosures about products, services, geographic areas and major customers. The Company operates a single segment, the making and finishing of carbon steel products including sheet and tin mill products. F-24 NOTE 19 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS AND SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Equivalents The carrying amount approximates fair value because of the short maturity of those investments. Redeemable Preferred Stock The fair value of the Series A Preferred stock was determined based upon an independent appraisal performed as of December 31, 2000 and 1999. Long Term Debt Obligations The fair values of the Company's long term debt obligations are estimated based upon quoted market prices. The estimated fair values of the Company's financial instruments are as follows as of December 31, 2000 and 1999, respectively:
2000 1999 --------------------- --------------------- CARRYING CARRYING AMOUNT FAIR VALUE AMOUNT FAIR VALUE -------- ---------- -------- ---------- Cash and equivalents....................... $ 32,027 $ 32,027 $209,270 $209,270 Redeemable Preferred stock................. 21,111 1,815 22,973 10,740 Long term debt obligations................. $299,253 $121,758 $304,768 $302,957
Significant Group Concentrations of Credit Risk One customer accounted for 10% and 11% of net sales in 1999 and 1998, respectively. One customer accounted for 10% of trade receivables as of December 31, 2000 and 1999. NOTE 20 SUBSIDIARIES AND JOINT VENTURES The Company currently has investments in four joint ventures which the Company accounts for using the equity method of accounting at December 31, 2000. The Company has made advances to and investments in debt and other non-equity instruments of MetalSite and GalvPro, classified as investment in unconsolidated subsidiaries in the Company's consolidated balance sheets. Because of these non-equity investments, the Company has recorded equity losses in excess of its equity investments using the book value liquidation approach prescribed in Emerging Issues Task Force Issue 99-10, "Percentage Used to Determine the Amount of Equity Method Losses." F-25 Summarized consolidated financial information for MetalSite and GalvPro follows:
2000 1999 1998 ------- -------- ----- Income data(1) Revenues............................................... $60,147 $ 2,299 $ 1 Operating loss......................................... (37,192) (13,916) (834) Net loss............................................... (51,786) (13,278) $(612) Balance sheet data Current assets........................ 35,589 10,958 Noncurrent assets...................................... 48,527 49,915 Current liabilities.................................... 78,922 10,742 Noncurrent liabilities................................. $56,102 $ 49,840
--------------- (1) For MetalSite, income data is presented for the years ended December 31, 2000 and 1999 and for the period from MetalSite's inception (November 15, 1998) through December 31, 1998. For GalvPro, income data is presented for the years ended December 31, 2000 and 1999 and for the period from GalvPro's inception (January 16, 1998) through December 31, 1998. MetalSite MetalSite L.P. and MetalSite General Partner LLC (collectively "the Partnership") were formed in November 1998 to develop and offer a secure web-based marketplace for the online purchase of metal products from various suppliers and to provide the latest industry news and information. Prior to November 1998, the Company incurred research and development expenditures related to the creation of the infrastructure of the Partnership of $3.0 million. On December 29, 1999, the Company sold a portion of its investment in the Partnership to Internet Capital Group, Inc. (See Note 21 "Sale of MetalSite Investment.") On July 27, 2000, MetalSite General Partner LLC and MetalSite L.P. were merged into MetalSite,Inc. ("MetalSite"), a Delaware corporation. In exchange for its interest in the Partnership, the Company was given an equivalent interest in the common stock of MetalSite. On October 10, 2000, the Company agreed to loan MetalSite $10.0 million in exchange for a Convertible Promissory Note (the "Note") and warrants to purchase additional shares of MetalSite common stock. The Note carries a term of 18 months with an interest rate of 5%. The Company may opt to convert the principal and interest of the Note into MetalSite common stock at defined ratios upon the occurrence of specific transactions and events as defined in the Note agreement. The warrants entitle the Company to purchase 250,000 shares of MetalSite common stock at $0.01 per share. The warrants expire in 10 years. As of December 31, 2000, the Company owned 6,546,000 or 21.82% of the outstanding shares of MetalSite. Of these shares, 545,455 or 1.82% of the outstanding shares of MetalSite were held in escrow pursuant to option agreements of MetalSite employees. Subject to certain performance measures, the employees of MetalSite may exercise options and require the Company to issue shares from escrow to the employees. GalvPro GalvPro LP ("GalvPro" formerly "GalvStar LP") was formed in 1998 with affiliates of Dutch steelmaker Koninklijke Hoogovens (now a unit of Corus Group plc) for the purpose of constructing and operating a 300,000 ton hot-dipped galvanizing line. Construction of GalvPro's Indiana facility was finally completed in 2000 although initial production commenced in the fourth quarter of 1999. As of December 31, 2000, the Company had an indirect 45% ownership interest in GalvPro, and the net carrying amount of the Company's investment in GalvPro was $12.2 million. For the year ended December 31, 2000, the Company recorded equity losses related to GalvPro of $15.9 million. F-26 Construction of GalvPro's facility and its day to day working capital needs were financed primarily through a ten year loan secured by GalvPro's assets and a working capital facility secured by GalvPro's inventory and receivables. As of December 31, 2000, $35.6 million was outstanding under the term loan facility and $12.2 million was outstanding under the working capital facility. Both the term loan and the working capital facility are without recourse to any equity owner. As a result of failure to comply with a financial covenant, GalvPro incurred an event of default under the term loan facility during the third quarter of 2000. GalvPro's lender proposed a significant restructuring of the loan as a means of curing the default, but GalvPro, the lender and GalvPro's investors were unable to agree upon satisfactory terms. Although the lender has accelerated portions of GalvPro's indebtedness and is entitled under the terms of the facility to accelerate all the indebtedness, it has not done so thus far. Aside from the bank facility, GalvPro's working capital requirements have been financed by advances from the Company and Corus. As of December 31, 2000, the Company had made advances to the joint venture totaling $24.7 million. In the fourth quarter of 2000, the Company and Corus re-evaluated their strategic direction regarding GalvPro. The Company and Corus engaged a third party consultant to evaluate potential alternatives related to GalvPro, including sale of the Company's and Corus' interests in GalvPro. If a sale cannot be negotiated, the Company and Corus will consider other alternatives, including asset swaps, mergers, other joint ventures and other business combinations involving GalvPro or its assets. Due to continuing adverse market conditions, GalvPro plans to temporarily idle its facility in the first quarter of 2001 while the above strategic alternatives are considered or implemented. Not withstanding the Company's belief that its investment in GalvPro is properly stated as of the balance sheet date, alternatives available to GalvPro and potential continued adverse business conditions may result in the recognition of future additional equity losses. WeBCo WeBCo International LLC ("WeBCo") was formed in 1997 with the Balli Group, plc. The primary function of WeBCo is to market and sell the partners' products globally. As of December 31, 2000, the Company owned 50% of WeBCo, and the carrying amount of the Company's investment in WeBCo was $1.5 million. WeBCo has receivables due from major foreign customers denominated in Pounds Sterling and Deutsche Marks. WeBCo utilizes forward contracts to mitigate the risk associated with fluctuations in foreign currency exchange rates that would affect the amounts ultimately collectible from these receivables. These contracts mature on or before January 31, 2001. WeBCo's net realized gain resulting from the forward contracts for the years ended December 31, 2000 and 1999 was $1.4 million and $1.1 million, respectively. The Company recognizes its percentage of unrealized and realized gains and losses related to these contracts based on the equity method of accounting. W&A W&A Manufacturing LLC ("W&A") was formed in 1998 with ATAS International for the purpose of manufacturing steel roofing products. No investments in W&A were made in 2000 or 1999. During 1998, the Company invested $0.9 million in W&A. As of December 31, 2000, the Company owned 50% of W&A, and the carrying amount of the Company's investment in W&A was $0.7 million. Related Party Transactions The Company's purchases of goods and services from unconsolidated subsidiaries totaled $27.4 million, $62.6 million and $27.7 million in 2000, 1999 and 1998, respectively. The Company's sales of steel to unconsolidated subsidiaries totaled $42.8 million, $36.0 million and $6.0 million in 2000, 1999 and 1998, respectively. These transactions arose in the ordinary course of business and were transacted at arms-length. Pursuant to certain service agreements, the Company provides services to unconsolidated F-27 subsidiaries. The Company billed for these arrangements at amounts approximating the cost to provide the service. Such amounts totaled $1.3 million in 2000, $0.4 million in 1999 and $0.4 million in 1998. At December 31, 2000 and 1999, the Company had outstanding trade receivables from unconsolidated subsidiaries of $3.9 million and $15.9 million, respectively. At December 31, 2000 and 1999, MetalSite had borrowed $9.4 million and $3.2 million, respectively, from the Company under a partner loan facility at the PNC Bank prime interest rate plus 1%. Also at December 31, 2000 and 1999, the Company had a promissory note from MetalSite for $1.8 million at an 8% fixed interest rate. The Company's equity in MetalSite's losses has been netted against the Note, the partner loan facility and the promissory note. In 2000, the Company received a distribution of $1.0 million from WeBCo. There were no dividends or partnership distributions received from equity affiliates in 1999 or 1998. NOTE 21 SALE OF METALSITE INVESTMENT Prior to December 29, 1999, the Company had a majority interest in MetalSite. On December 29, 1999, the Company sold a portion of its investment in MetalSite to Internet Capital Group, Inc. ("ICG") resulting in a net pretax gain of $170.1 million. MetalSite's results of operations are consolidated with the Company's results through December 29, 1999, and are reported under the equity method thereafter. Pursuant to the purchase agreement, ICG has been granted options to purchase an additional interest in MetalSite from the Company upon the occurrence of certain events, including completion of an underwritten public offering of equity securities by MetalSite. NOTE 22 SUBSEQUENT EVENT The Company established and implemented the 2001 Workforce Downsizing Program effective March 8, 2001. The program will reduce non-represented staff employees by approximately 10%. After the program, the Company will operate with approximately 630 non-represented employees and approximately 3,500 represented employees. Due to the program, the Company will record a first quarter 2001 restructuring charge of $11.0 million to $13.0 million consisting of $5.4 million of pension benefits and $3.9 million of other postretirement benefits. The remaining $1.7 million to $3.7 million will result from other separation and severance benefits provided to the affected employees. NOTE 23 MANAGEMENT'S PLAN Recessionary conditions continue to prevail in the domestic steel industry materially and adversely affecting the Company and its competitors. The Company incurred a pretax loss of $199 million for the nine months ended September 30, 2001. The Company has offered to exchange its 10% Senior Secured Discount Notes due 2008 for all of its outstanding 11 3/8% Senior Notes due 2004 and its outstanding 10 3/4% Senior Notes due 2005. Concurrently, the Company has requested the City of Weirton to offer to exchange all of its outstanding 8 5/8% Pollution Control Revenue Refunding Bonds (Weirton Steel Corporation Project) Series 1989 due 2014 for its 9% Secured Pollution Control Revenue Refunding Bonds (Weirton Steel Corporation Project) Series 2001 due 2014. These concurrent exchange offers are a critical part of a strategic plan to reduce operating costs, improve its liquidity and working capital position, restructure its long-term debt and fundamentally F-28 reposition its business to focus on the production and sale of tin mill products and other higher margin sheet products. The Company's strategic plan has five integral steps, and we will begin to recognize the benefits of the first three steps later in the fourth quarter of 2001: - reducing our operating costs on an annual basis through the full implementation of a cost savings program which includes a workforce reduction, reductions to our employee benefits costs and other operating cost savings, which became effective in late October 2001 (estimated to generate approximately $51 million in annual cost savings when fully implemented in 2002); - improving the Company's liquidity and long-term supplier relationships through vendor financing programs we entered into with over 60 suppliers in late October 2001 and through ongoing negotiations with other suppliers of services and raw materials, such as coke; (estimated to require at least $30 million in additional near term liquidity) - increasing the Company's borrowing availability and liquidity through the refinancing of our bank credit and asset securitization facilities, which became effective in October 2001 (estimated to result in $35 million to $45 million in additional availability based on existing current asset levels); - restructuring the Company's long-term debt and lowering our debt service costs through this exchange offer and the series 1989 bonds exchange offer by year end in order to increase our liquidity and financial flexibility by approximately $32 million per year in 2002 and 2003, as well as to provide greater overall financial stability and to permit the fundamental repositioning of our business through strategic acquisitions and targeted investments; and - fundamental repositioning of the Company's business to focus on tin mill and other higher margin sheet products and significantly reduce our presence in the commodity flat-rolled product market through strategic acquisitions and targeted investments and further improvements to our operating cost structure by increasing the use of our hot strip mill capacity dedicated to tolling or converting stainless steel slabs and increasing the proportion of our coils used in our downstream finishing operations in the production of tin mill and other higher margin value-added products. The consummation of the concurrent exchange offers to restructure our long-term debt is the critical next step in our plan. If we are unable to reduce our current debt obligations and extend debt maturities on the outstanding notes through the concurrent exchange offers, and thus improve our liquidity and financial stability, we may be unable to attract the necessary outside debt or equity financing needed to implement the final step of our plan, the fundamental repositioning of our business through strategic acquisitions and new investments. If we are not successful in repositioning our business, the corporate restructuring and refinancing steps that we have taken to date may be inadequate to ensure our long term viability and competitiveness. The consummation of the exchange offers is critical to the success of our strategic plan. If we are unable to consummate this exchange offer and the series 1989 bonds exchange, we may have to seek bankruptcy protection or commence liquidation or administrative proceedings. In that case, owners of the outstanding notes and the series 1989 bonds may only receive repayments of little or none of the principal amount of their notes or bonds. In a bankruptcy proceeding, our ability to reposition our business would be significantly impaired, delayed, or may never occur. F-29 SELECTED QUARTERLY FINANCIAL DATA
QUARTERLY PERIODS IN 2001 QUARTERLY PERIODS IN 2000 (DOLLARS IN MILLIONS, EXCEPT PER -------------------------- ------------------------------------ SHARE DATA) 3RD 2ND 1ST 4TH 3RD 2ND 1ST -------------------------------- ------ ------ ------ ------ ------ ------ ------ Net sales(3).................. $ 242 $ 240 $ 252 $ 210 $ 273 $ 305 $ 330 Gross profit.................. (26) (29) (11) (25) 14 38 37 Operating income (loss)....... (51) (54) (48) (50) (14) 12 12 Net income (loss)............. (60) (218)(4) (75) (60) (26) 0.5 0.7 Basic earnings per share...... $(1.45) $(5.24) $(1.81) $(1.46) $(0.63) $ 0.01 $ 0.02 Diluted earnings per share.... $(1.45) $(5.24) $(1.81) $(1.46) $(0.63) $ 0.01 $ 0.02 QUARTERLY PERIODS IN 1999 (DOLLARS IN MILLIONS, EXCEPT PER ------------------------------------ SHARE DATA) 4TH 3RD 2ND 1ST -------------------------------- ------ ------ ------ ------ Net sales(3).................. $ 290 $ 290 $ 276 $ 274 Gross profit.................. 9 17 25 3 Operating income (loss)....... (62)(1) (6) 0.1 (22) Net income (loss)............. 82(2) (14) (9) (28) Basic earnings per share...... $ 1.96 $(0.33) $(0.22) $(0.67) Diluted earnings per share.... $ 1.88 $(0.33) $(0.22) $(0.67)
--------------- (1)Includes an asset impairment charge of $22.5 million and a profit sharing provision of $15.5 million. (2)Includes gain on sale of investment of $170.1 million. (3)In accordance with Emerging Issues Task Force Issue 00-10, "Accounting for Shipping and Handling Fees and Costs," the Company reclassed from net sales to cost of sales shipping and handling costs incurred by the Company. (4)Includes a charge of $153.8 million to fully reserve deferred tax assets. F-30 WEIRTON STEEL CORPORATION UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF INCOME (LOSS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------- ---------------------- 2001 2000 2001 2000 --------- --------- ---------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NET SALES......................................... $241,495 $273,099 $ 733,827 $907,614 OPERATING COSTS: Cost of sales................................... 267,081 258,803 800,063 817,956 Selling, general and administrative expenses.... 8,643 13,026 25,750 30,899 Depreciation.................................... 16,350 16,249 49,011 49,338 Restructuring charge............................ -- -- 12,338 -- Profit sharing provision........................ -- (590) -- -- -------- -------- --------- -------- TOTAL OPERATING COSTS...................... 292,074 287,488 887,162 898,193 -------- -------- --------- -------- INCOME (LOSS) FROM OPERATIONS..................... (50,579) (14,389) (153,335) 9,421 Loss from unconsolidated subsidiaries........... (38) (10,448) (18,518) (18,359) Interest expense................................ (9,453) (8,746) (28,347) (26,270) Other income (expense), net..................... (94) 1,221 677 4,341 -------- -------- --------- -------- Loss before income taxes........................ (60,164) (32,362) (199,523) (30,867) Income tax provision (benefit).................. -- (6,179) 153,765 (5,865) -------- -------- --------- -------- NET LOSS.......................................... $(60,164) $(26,183) $(353,288) $(25,002) ======== ======== ========= ======== PER SHARE DATA: Weighted average number of common shares (in thousands): Basic........................................... 41,589 41,313 41,578 41,456 Diluted......................................... 41,589 41,313 41,578 41,456 NET LOSS PER SHARE: Basic........................................ $ (1.45) $ (0.63) $ (8.50) $ (0.60) Diluted...................................... $ (1.45) $ (0.63) $ (8.50) $ (0.60)
The accompanying notes are an integral part of these financial statements. F-31 WEIRTON STEEL CORPORATION UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 2001 2000 ------------- ------------ (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSETS: CURRENT ASSETS: Cash and equivalents, including restricted cash of $775... $ 38,930 $ 32,027 Receivables, less allowances of $8,046 and $9,008, respectively........................................... 71,829 74,987 Inventories............................................... 124,913 202,377 Deferred income taxes..................................... -- 39,654 Other current assets...................................... 3,736 11,342 --------- --------- TOTAL CURRENT ASSETS................................... 239,408 360,387 Property, plant and equipment, net.......................... 447,202 487,664 Investment in unconsolidated subsidiaries................... 1,622 19,375 Deferred income taxes....................................... -- 114,111 Other assets and deferred charges........................... 8,649 8,834 --------- --------- TOTAL ASSETS................................................ $ 696,881 $ 990,371 ========= ========= LIABILITIES: CURRENT LIABILITIES: Payables.................................................. $ 75,167 $ 76,415 Employment costs.......................................... 71,051 68,751 Taxes other than income taxes............................. 12,530 12,886 Other current liabilities................................. 10,890 9,122 --------- --------- TOTAL CURRENT LIABILITIES.............................. 169,638 167,174 Long term debt obligations.................................. 348,454 299,253 Long term pension obligation................................ 94,140 79,994 Postretirement benefits other than pensions................. 313,262 319,320 Other long term liabilities................................. 40,518 40,619 --------- --------- TOTAL LIABILITIES...................................... 966,012 906,360 Redeemable stock, net....................................... 20,812 21,111 STOCKHOLDERS' EQUITY (DEFICIT): Common stock, $0.01 par value; 50,000,000 shares authorized; 43,809,370 and 43,788,832 shares issued, respectively..... 438 438 Additional paid-in-capital.................................. 459,694 460,521 Retained earnings (deficit)................................. (736,598) (383,310) Other stockholders' equity.................................. (13,477) (14,749) --------- --------- TOTAL STOCKHOLDERS' EQUITY (DEFICIT)................... (289,943) 62,900 --------- --------- TOTAL LIABILITIES, REDEEMABLE STOCK, NET, AND STOCKHOLDERS' EQUITY (DEFICIT).......................................... $ 696,881 $ 990,371 ========= =========
The accompanying notes are an integral part of these financial statements. F-32 WEIRTON STEEL CORPORATION UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 2001 2000 ---------- ---------- (DOLLARS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss.................................................. $(353,288) $ (25,002) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation........................................... 49,011 49,338 Deferred income taxes.................................. 153,765 (5,865) Loss from unconsolidated subsidiaries.................. 18,518 18,359 Restructuring charge................................... 12,338 -- Amortization of deferred financing costs............... 1,273 1,263 Cash provided (used) by working capital items: Receivables.......................................... 3,158 (33,468) Inventories.......................................... 77,464 (27,520) Other current assets................................. 7,509 (488) Payables............................................. (1,448) (10,390) Employment costs..................................... 37 (11,679) Other current liabilities............................ 1,412 (8,104) Long term pension obligation........................... 8,775 (8,476) Postretirement benefits other than pensions............ (9,960) (5,480) Other.................................................. (1,300) (8,455) --------- --------- NET CASH USED BY OPERATING ACTIVITIES....................... (32,736) (75,967) CASH FLOWS FROM INVESTING ACTIVITIES: Capital spending.......................................... (8,549) (20,197) Loans and advances to unconsolidated subsidiaries......... (793) (30,319) --------- --------- NET CASH USED BY INVESTING ACTIVITIES....................... (9,342) (50,516) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under long term debt obligations............... 65,000 -- Repayment of debt obligations............................. (16,019) (5,831) Purchase of treasury stock................................ -- (15,972) Reissuance of treasury stock.............................. -- 7,205 Issuance of common stock.................................. -- 67 --------- --------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES............ 48,981 (14,531) --------- --------- NET CHANGE IN CASH AND EQUIVALENTS.......................... 6,903 (141,014) CASH AND EQUIVALENTS AT BEGINNING OF PERIOD................. 32,027 209,270 --------- --------- CASH AND EQUIVALENTS AT END OF PERIOD....................... $ 38,930 $ 68,256 ========= ========= SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid, net of capitalized interest................ $ 26,668 $ 25,291 Income taxes paid (refunded), net......................... (6,822) 7,663
The accompanying notes are an integral part of these financial statements. F-33 NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, OR IN MILLIONS OF DOLLARS WHERE INDICATED NOTE 1 BASIS OF PRESENTATION The financial statements herein are unaudited. Unless context otherwise requires, the terms "Weirton," "the Company," "we," "us" and "our" refer to Weirton Steel Corporation and its consolidated subsidiaries. Entities of which the Company owns a majority interest and controls are consolidated; entities of which the Company owns a less than a majority interest and does not control are not consolidated and are reflected in the consolidated condensed financial statements using the equity method of accounting. All intercompany accounts and transactions with consolidated subsidiaries have been eliminated in consolidation. Certain information and footnote disclosures normally prepared in accordance with accounting principles generally accepted in the United States have been either condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Although the Company believes that all adjustments necessary for a fair presentation have been made, interim periods are not necessarily indicative of the financial results of operations for a full year. As such, these financial statements should be read in conjunction with the audited financial statements and notes thereto included or incorporated by reference in the Company's 2000 Annual Report on Form 10-K. During the nine months ended September 30, 2001, the Company's liquidity from cash and available working capital financing facilities declined $89.9 million to $41.8 million. The Company's future liquidity will be dependent on operating performance, which is closely related to business conditions in the domestic steel industry, the full implementation of employment cost reduction programs and sources of financing. See Note 3 "Liquidity and Financing Arrangements." The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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. Certain reclassifications have been made to prior period amounts to conform with current year presentation. NOTE 2 INVENTORIES Inventories consisted of the following:
SEPTEMBER 30, DECEMBER 31, 2001 2000 ------------- ------------ Raw materials....................................... 29,747 $ 84,120 Work-in-process..................................... 29,190 40,242 Finished goods...................................... 65,976 78,015 -------- -------- $124,913 $202,377 ======== ========
NOTE 3 LIQUIDITY AND FINANCING ARRANGEMENTS Total liquidity from cash and available financing facilities amounted to $41.8 million at September 30, 2001 compared to $131.7 million at December 31, 2000. The Company's available working capital F-34 financing facilities include a bank credit facility of up to $100.0 million secured by a first priority lien on the Company's inventory (the "Inventory Facility") and, through its wholly owned subsidiary Weirton Receivables Inc. ("WRI"), Receivables Participation Agreements providing for a total commitment of up to $95.0 million, including a letter of credit subfacility of up to $25.0 million. Actual amounts available under the facilities depend on the values of the underlying assets. As of September 30, 2001, the Company had borrowed $49.0 million under the Inventory Facility and had utilized $28.0 million from the sale of receivables under the Receivables Participation Agreements. No additional amounts were available under the Inventory Facility and $2.8 million was available under the receivables facilities. On October 26, 2001 the Company entered into a new $200.0 million syndicated senior secured revolving credit facility with a consortium of lenders to refinance the existing Inventory Facility and Receivables Participation Agreements. Through this new asset-based facility, management believes it will be able to more effectively borrow against the Company's accounts receivable and inventory and generate additional availability of approximately $35 to $40 million (at existing asset levels). The senior credit facility, which matures on March 31, 2004, consists of up to $200.0 million of available revolving loans secured by the Company's accounts receivable and inventory, including a $25.0 million letter of credit subfacility and a $25.0 million term subfacility, which in addition to the collateral described above, is also secured by the real property constituting our No. 9 tin tandem mill and all equipment and fixtures located on that property. Although a portion of the senior credit facility will be secured by the No. 9 tin tandem mill, the Company will be permitted, with reasonable consent of the lenders under the facility, to enter into a sale and leaseback or other financing involving the No. 9 tin tandem mill subject to potential reductions in availability under the senior credit facility. Amounts actually available to the Company from time to time under the facility are based upon the level of qualifying accounts receivable and inventory subject to a minimum availability reserve. Borrowings under the senior credit facility bear interest at variable rates on the basis of either LIBOR or the prime rate announced from time to time by Fleet National Bank, at our option plus an applicable margin. In addition to such interest, we will also pay a commitment fee equal to 0.50% per annum on the unused portion of the credit facility. In October 2001, the Company also obtained assistance from certain key vendors through vendor financing programs to improve our near term liquidity. Under the vendor financing programs, we have negotiated arrangements with over 60 vendors in the form of cash contributions purchase credits or other concessions to achieve one-time cash benefits of approximately $30.0 million in the aggregate. The principal transactions under the vendor financing programs are a sale and leaseback of our Foster-Wheeler Steam Generating Plant, including the related real property and certain related energy generating equipment, direct advances or concessions by certain vendors, and the expected sale and leaseback of our general office building and research and development building. The sale and leaseback transaction of our Foster-Wheeler Steam Generating Plan has been accounted for as a financing or borrowing transaction. In addition to efforts to enhance its financing arrangements, the Company has also initiated an operating cost savings program effective in late October 2001. As part of that program, management and the Independent Steelworkers Union and Independent Guards Union have been able to negotiate new labor agreements, expiring in March 2004, that will significantly reduce the number of hourly employees, primarily facilitated through work rule changes. The agreement for our production and maintenance employees provides for the permanent elimination of a minimum of 372 jobs. The office clerical and technical agreement provides for the right to eliminate a minimum of 78 jobs. As part of our operating cost savings plan plan, we also plan to reduce our non-represented workforce by 100 people. We also intend to make significant changes to the employee benefits package resulting in additional cost savings. We expect to record a fourth quarter restructuring charge of between $75.0 and $85.0 million related to the workforce reduction. F-35 As another part of our strategic plan, we are attempting to restructure our long-term debt and lower our debt service costs through concurrent exchange offers of new debt issues for our outstanding senior notes and series 1989 bonds. Under the senior credit facility, following the consummation of the exchange offers on the terms and conditions described in this prospectus, we will be able to make scheduled semi-annual cash interest payments on the new senior secured discount notes and in respect of the new secured series 2001 bonds, provided that these cash payments are reserved for against availability under the facility. The reserve will reduce amounts available to us under the senior credit facility up to a maximum of approximately $6 million in any six month period, assuming valid tenders of all of the aggregate principal amount of the outstanding notes and series 1989 bonds. In the event that less than all of the aggregate principal amount of the outstanding notes and series 1989 bonds are tendered in the exchange offers, we are permitted to make cash interest payments on any remaining outstanding notes and series 1989 bonds of up to $4 million in any year subject to similar reservation against availability under the facility. If we do not successfully complete the exchange offers, under our voluntary financing restructuring plan presented to our senior bank lenders and as reflected in our senior credit facility, we will not make scheduled cash interest payments for a period of at least one year on any outstanding notes and series 1989 bonds. Thereafter, any interest payments will be made, provided that these payments are included in the reserve under the senior credit facility described above. In either event, failure to pay interest on the outstanding notes and bonds would result in an event of default and may cause an acceleration of the outstanding notes and series 1989 bonds, unless the payment defaults were cured. In addition, an acceleration of the principal of our outstanding notes and series 1989 bonds would constitute a default under our senior credit facility. In such circumstances, we may have to seek bankruptcy protection or commence liquidation or administrative proceedings. NOTE 4 EARNINGS PER SHARE For the three and nine months ended September 30, 2001, basic and diluted earnings per share were the same; however, securities totaling 1,510,854 and 1,521,716 respectively, were excluded from both the basic and diluted earnings per share calculations due to their anti-dilutive effect. For the three and nine months ended September 30, 2000, basic and diluted earnings per share were the same; however, securities totaling 1,676,943 and 2,262,943 respectively, were excluded from both the basic and diluted earnings per share calculations due to their anti-dilutive effect. For the three months ended September 30, 2001 and 2000, there were an additional 2,445,250 and 1,178,606 options, respectively, outstanding for which the exercise price was greater than the average market price. For the nine months ended September 30, 2001 and 2000, there were an additional 3,159,582 and 188,372 options, respectively, outstanding for which the exercise price was greater than the average market price. NOTE 5 JOINT VENTURES GalvPro The Company incurred equity losses, including a charge to write its investment in GalvPro to zero, of $12.2 million during the first quarter of 2001. In August 2001, GalvPro LP ("GalvPro") filed for Chapter 11 bankruptcy. The Company has no direct liability resulting from GalvPro's filing and therefore continues to carry a zero balance for its investment in GalvPro. F-36 MetalSite The Company incurred equity losses, including a charge to write its investment in MetalSite to zero, of $5.8 million during the first quarter of 2001. The Company maintains a zero equity investment balance related to MetalSite on its balance sheet. NOTE 6 RESTRUCTURING CHARGE The Company established and implemented the 2001 Workforce Downsizing Program effective March 8, 2001. The program reduced non-represented staff employees by approximately 10%. After the program, the Company is operating with approximately 630 non-represented employees and approximately 3,500 represented employees. Due to the program, the Company recorded a $12.3 million restructuring charge during the first quarter of 2001. The restructuring charge consisted of $5.4 million of pension benefits and $3.9 million of other postretirement benefits. The remaining $3.0 million was related to other separation and severance benefits provided to the affected employees. For the nine months ended September 30, 2001, the Company paid $0.7 million related to the restructuring charge. As of September 30, 2001, the Company had a $1.7 million severance benefits liability related to the program. NOTE 7 DEFERRED TAX ASSETS At March 31, 2001, the Company had deferred tax assets of about $245.0 million (net of deferred tax liabilities) before any valuation allowance. These assets arose from a $144.4 million federal income tax net operating losses (NOLs) and tax credit carryforwards and about $100.6 million of net temporary differences for amounts previously expensed in the Company's financial accounting results that will be deductible for federal income tax purposes in the future. The NOLs expire in varying amounts from 2007 to 2020 if the Company is unable to use the amounts to offset taxable income in the future. FASB Statement No. 109, "Accounting for Income Taxes," requires that the Company record a valuation allowance when it is "more likely than not that some portion or all of the deferred tax assets will not be realized." It further states, "forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses in recent years." The Company's results to date and the current outlook for the remainder of 2001 are worse than the Company anticipated at the beginning of the year. In the absence of specific favorable factors, application of FASB Statement No. 109, issued in 1992, and its subsequent interpretations require a 100% valuation allowance for any deferred tax asset when a company has cumulative financial accounting losses, excluding unusual items, over several years. Accordingly, the Company has provided a 100% valuation allowance for its deferred tax assets during the quarter ended June 30, 2001, increasing the non-cash provision for income taxes and net loss for that quarter by $153.8 million, or $3.70 per diluted share. The Company will continue to provide a 100% valuation allowance for the deferred income tax assets until it returns to an appropriate level of financial accounting income. The ultimate realization of the net deferred tax assets depends on the Company's ability to generate sufficient taxable income in the future. The Company has tax planning opportunities that could generate taxable income, including sales of assets and timing of contributions to the pension fund. If the Company's current plans and strategies to improve profitability for 2002 and beyond are successful, the Company believes that its deferred tax assets may be realized by future operating results and tax planning strategies. If the Company is able to generate sufficient taxable income in the future, the Company will reduce the valuation allowance through a reduction of income tax expense (increasing stockholders' equity). F-37 NOTE 8 ENVIRONMENTAL COMPLIANCE The Company, as well as its domestic competitors, is subject to stringent federal, state and local environmental laws and regulations concerning, among other things, waste water discharges, air emissions and waste disposal. As a consequence, the Company has incurred, and will continue to incur, substantial capital expenditures and operating and maintenance expenses in order to comply with regulatory requirements. As of September 30, 2001, the Company had an accrued liability of $9.0 million for known and identifiable environmental related costs to comply with negotiated and mandated settlements of various actions brought by the United States Environmental Protection Agency (the "EPA") and the West Virginia Department of Environmental Protection. The EPA is also requiring the Company to conduct investigative activities to determine the nature and extent of hazardous substances which may be located on the Company's properties and to evaluate and propose corrective measures needed to abate any unacceptable risks. Because the Company does not currently know the nature or the extent of hazardous substances which may be located on its properties, it is not possible at the present time to estimate the ultimate cost to comply with the EPA's requirements or to conduct remedial activity that may be required. F-38 You or your broker, dealer, commercial bank, trust company or other nominee should send your consent and letter of transmittal, certificate(s) for the outstanding notes and any other required documents to: CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION
By Overnight Courier and By Hand By Registered or Certified Mail: By Hand Before 4:30 p.m.: After 4:30 p.m.: [Address] [Address] [Address]
Any questions regarding procedures for tendering outstanding notes and delivering consents or requests for additional copies of this prospectus or the consent and letter of transmittal should be directed to: D.F. KING & CO., INC. 77 Water Street, 20(th) Floor New York, New York 10005 Banks and Brokers call: (212) 269-5550 (call collect) All others call: (800) 431-9643 (toll-free) Any other questions regarding the terms of this exchange offer and consent solicitation should be directed to: LEHMAN BROTHERS INC. Liability Management Group 101 Hudson St., 31(st) Floor Jersey City, NJ 07302 (212) 681-2265 (call collect) (212) 455-3326 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Under Section 145 of the Delaware General Corporation Law (the "Delaware Law"), a corporation may indemnify its directors, officers, employees and agents and its forms directors, officers, employees and agents and those who serve, at the corporation's request, in such capacity with another enterprise, against expenses (including attorney's fees), as well as judgments, fines and settlements in nonderivative lawsuits, actually and reasonably incurred in connection with the defense of any action, suit or proceeding in which they or any of them were or are made parties or are threatened to be made parties by reason of their serving or having served in such capacity. The Delaware General Corporation Law provides, however, that such person must have acted in good faith and in a manner such person reasonably believed to be in (or not opposed to) the best interests of the corporation and, in the right of the corporation, where such person has been adjudged liable to the corporation, unless, and only to the extent, that a court determines that such person fairly and reasonably is entitled to indemnity for the costs the court deems proper in light of liability adjudication. Indemnity is mandatory to the extent a claim, issue or matter has been successfully defended. The Certificate of Incorporation and Bylaws of Weirton provide for mandatory indemnification of directors and officers on generally the same terms as permitted by the Delaware General Corporation Law. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits: The following is a list of all the exhibits filed as part of this Registration Statement.
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Restated Certificate of Incorporation of the Company (incorporated by Reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 Filed May 3, 1989, Commission File No. 33-28515). 3.2 Certificate of Amendment to the Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, Commission File No. 1-10244). 3.3 By-laws of the Company (incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-1 filed May 3, 1989, Commission File No. 33-28515). 3.4 Amendment to the by-laws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal Year ended December 31, 1994, Commission File No. 1-10244). 3.5 Certificate of the Designation, Powers, Preferences and Rights of the Convertible Voting Preferred Stock, Series A (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal Year ended December 31, 1989, Commission File No. 1-10244). 4.2 Indenture dated as of June 12, 1995 between the Company and Bankers' Trust Company, as trustee, relating to $125,000,000 principal amount of 10 3/4% Senior Unsecured Notes due 2005, including Form of Note (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-4 filed on July 27, 1995, Commission File No. 33-61345). 4.3 First Supplemental Indenture dated as of August 12, 1996 between the Company and Bankers' Trust Company, as trustee, relating to the Company's 10 3/4% Senior Unsecured Notes due 2005 (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, Commission File No. 1-10244).
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.4 Indenture dated July 3, 1996 between the Company and Bankers' Trust Company, as trustee, relating to the Company's 11 3/8% Notes due 2004 (incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-4 filed on July 10, 1996, Commission File No. 333-07913). 4.5 Form of Indenture between the Company and Chase Manhattan Trust Company, National Association, as trustee, relating to the Company's 10% Senior Secured Discount Notes due 2008.* 4.6 Form of Deed of Trust between the Company and Chase Manhattan Trust Company, National Association, as trustee, relating to the Company's 10% Senior Secured Discount Notes due 2008.* 4.7 Form of First Supplemental Indenture between the Company and Bankers' Trust Company, as trustee, relating to the Company's 11 3/8% Senior Notes due 2004.* 4.8 Form of Second Supplemental Indenture between the Company and Bankers' Trust Company, as trustee, relating to the Company's 10 3/4% Senior Notes due 2005.* 4.9 Loan Agreement dated November 1, 1989 between the Company and the City of Weirton, West Virginia, as issuer, relating to the Series 1989 Bonds due 2014.* 4.10 Form of First Amendment to Loan Agreement between the Company and the City of Weirton, West Virginia, as issuer, relating to the Series 1989 Bonds due 2014.* 4.11 Form of Secured Loan Agreement between the Company and the City of Weirton, West Virginia, as issuer, relating to the Secured Series 2001 Bonds due 2014.* 5.1 Opinion of Kirkpatrick & Lockhart LLP.* 8.1 Tax Opinion of Kirkpatrick & Lockhart LLP.* 10.1 Redacted Pellet Sale and Purchase Agreement dated as of September 30, 1991 between Cleveland-Cliffs Iron Company and the Company (incorporated by reference to Exhibit 10.18 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992, Commission File No. 1-10244). 10.2 Coke Sale Agreement dated December 9, 1996 between the Company and USX Corporation (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, Commission File No. 1-10244). 10.3 Note and Warrant Purchase Agreement among MetalSite, Inc. and the Company dated as of October 10, 2000 (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.4 Securities Purchase Agreement evidencing the sale of a portion of the Company's interest in MetalSite L.P. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of Internet Capital Group, Inc., filed on January 11, 2000, Commission File No. 000-26929). 10.5 Loan and Security Agreement dated as of November 17, 1999 among various financial institutions, Bank of America and the Company (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.6 First Amendment dated as of February 29, 2000 to Loan and Security Agreement (incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.7 Amended and Restated Receivables Participation Agreement among Weirton Steel Corporation, various financial institutions and PNC Bank (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, Commission File No. 1-10244).
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.8 Waiver and Amendment No. 2 dated as of August 23, 2000 to Amended and Restated Receivables Participation Agreement (incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.9 Amendment No. 3 dated as of March 2, 2001 to Amended and Restated Receivables Participation Agreement (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.10 Waiver dated as of November 21, 2000 to Amended and Restated Receivables Participation Agreement (incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.11 Ball Receivables Participation Agreement dated as of August 6, 1999 among the Company, various financial institutions and PNC Bank (incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.12 1984 Employee Stock Ownership Plan, as amended and restated (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K For the fiscal year ended December 31, 1989, Commission File No. 1-10244). 10.13 1989 Employee Stock Ownership Plan (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year Ended December 31, 1989, Commission File No. 1-10244). 10.14 Amendments to the 1984 and 1989 Employee Stock Ownership Plans, effective May 26, 1994 (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.15 Weirton Steel Corporation 1987 Stock Option Plan (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1 filed May 3, 1989, Commission File No. 33-28515). 10.16 Weirton Steel Corporation 1998 Stock Option Plan, as amended and restated (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.17 Deferred Compensation Plan for Directors, as amended and restated through December 1, 2000 (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.18 Weirton Steel Corporation Executive Healthcare Program effective date July 1, 1999 (incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, Commission File No. 1-10244.) 10.19 Weirton Steel Corporation Supplemental Senior Executive Retirement Plan (incorporated by reference to Exhibit 10.10 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, Commission File No. 1-10244). 10.20 Weirton Steel Corporation Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.11 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, Commission File No. 1-10244). 10.21 Employment Agreement between John H. Walker and the Company dated March 13, 2000 (incorporated by reference to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, Commission File No. 1-10244).
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EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.22 Employment Agreement between David L. Robertson and the Company dated February 2000 (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, Commission File No. 1-10244). 10.23 Employment Agreement between Mark E. Kaplan and the Company dated February 10, 2000 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, Commission File No. 1-10244). 10.24 Employment Agreement between Thomas W. Evans and the Company dated September 25, 2000 (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.25 Employment Agreement between William R. Kiefer and the Company dated February 14, 2000 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, Commission File No. 1-10244). 10.26 Employment Agreement between Frank G. Tluchowski and the Company dated March 23, 2000 (incorporated by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, Commission File No. 1-10244). 10.27 Employment Agreement between Edward L. Scram and the Company dated April 1, 2000 (incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, Commission File No. 1-10244). 10.28 Employment Agreement between Michael J. Scott and the Company dated April 1, 2000 (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, Commission File No. 1-102440). 10.29 Employment Agreement between John H. Walker and the Company dated January 25, 2001 (filed herewith). 10.30 Form of Stand Still Agreement for certain optionees to refrain from exercising options in exchange for monetary compensation (incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.31 Purchase Agreement dated as of October 26, 2001 by and among MABCO Steam Company, LLC, FW Holdings, Inc., and the Company (filed herewith). 10.32 Lease Agreement dated as of October 26, 2001 between MABCO Steam Company, LLC, and FW Holdings, Inc (filed herewith). 10.33 Loan and Security Agreement dated as of October 26, 2001 by and among the Company, various lenders party thereto, and Fleet Capital Corporation as agent of the lenders (filed herewith). 12.1 Statement regarding computation of ratio of earnings to fixed charges (filed herewith). 21.1 Subsidiaries of the Company (previously filed). 23.1 Consent of Arthur Andersen LLP, independent public accountants (filed herewith). 23.2 Consent of Kirkpatrick & Lockhart LLP (included in Exhibits 5.1 and 8.1). 24.1 Power of Attorney (previously filed as part of signature page). 25.1 Statement of Eligibility of Trustee.* 99.1 Consent and Letter of Transmittal.* 99.2 Notice of Guaranteed Delivery.*
--------------- * To be filed as an amendment hereto. II-4 ITEM 22. UNDERTAKINGS The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose 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. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report, to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. (5) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement on Form S-4 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Weirton, West Virginia on the 20th day of November, 2001. WEIRTON STEEL CORPORATION By: /s/ MARK E. KAPLAN ------------------------------------ Name: Mark E. Kaplan Title:Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- * President and Chief Executive November 20, 2001 --------------------------------------------- Officer (Principal Executive John H. Walker Officer) * Vice President and Chief Financial November 20, 2001 --------------------------------------------- Officer (Principal Financial and Mark E. Kaplan Accounting Officer) * Director November 20, 2001 --------------------------------------------- Michael Bozic * Director November 20, 2001 --------------------------------------------- Richard R. Burt * Director November 20, 2001 --------------------------------------------- Robert J. D'Anniballe, Jr. * Director November 20, 2001 --------------------------------------------- George E. Doty, Jr. * Director November 20, 2001 --------------------------------------------- Mark G. Glyptis * Director November 20, 2001 --------------------------------------------- Ralph E. Reins * Director November 20, 2001 --------------------------------------------- Robert S. Reitman * Director November 20, 2001 --------------------------------------------- Richard F. Schubert * Director November 20, 2001 --------------------------------------------- Thomas R. Sturges * Director November 20, 2001 --------------------------------------------- Ronald C. Whitaker * Director November 20, 2001 --------------------------------------------- D. Leonard Wise
*By: /s/ WILLIAM R. KIEFER -------------------------------------------------------- Pursuant to Power of Attorney EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Restated Certificate of Incorporation of the Company (incorporated by Reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 Filed May 3, 1989, Commission File No. 33-28515). 3.2 Certificate of Amendment to the Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, Commission File No. 1-10244). 3.3 By-laws of the Company (incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-1 filed May 3, 1989, Commission File No. 33-28515). 3.4 Amendment to the by-laws of the Company (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal Year ended December 31, 1994, Commission File No. 1-10244). 3.5 Certificate of the Designation, Powers, Preferences and Rights of the Convertible Voting Preferred Stock, Series A (incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal Year ended December 31, 1989, Commission File No. 1-10244). 4.2 Indenture dated as of June 12, 1995 between the Company and Bankers' Trust Company, as trustee, relating to $125,000,000 principal amount of 10 3/4% Senior Unsecured Notes due 2005, including Form of Note (incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-4 filed on July 27, 1995, Commission File No. 33-61345). 4.3 First Supplemental Indenture dated as of August 12, 1996 between the Company and Bankers' Trust Company, as trustee, relating to the Company's 10 3/4% Senior Unsecured Notes due 2005 (incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, Commission File No. 1-10244). 4.4 Indenture dated July 3, 1996 between the Company and Bankers' Trust Company, as trustee, relating to the Company's 11 3/8% Notes due 2004 (incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-4 filed on July 10, 1996, Commission File No. 333-07913). 4.5 Form of Indenture between the Company and Chase Manhattan Trust Company, National Association, as trustee, relating to the Company's 10% Senior Secured Discount Notes due 2008.* 4.6 Form of Deed of Trust between the Company and Chase Manhattan Trust Company, National Association, as trustee, relating to the Company's 10% Senior Secured Discount Notes due 2008.* 4.7 Form of First Supplemental Indenture between the Company and Bankers' Trust Company, as trustee, relating to the Company's 11 3/8% Senior Notes due 2004.* 4.8 Form of Second Supplemental Indenture between the Company and Bankers' Trust Company, as trustee, relating to the Company's 10 3/4% Senior Notes due 2005.* 4.9 Loan Agreement dated November 1, 1989 between the Company and the City of Weirton, West Virginia, as issuer, relating to the Series 1989 Bonds due 2014.* 4.10 Form of First Amendment to Loan Agreement between the Company and the City of Weirton, West Virginia, as issuer, relating to the Series 1989 Bonds due 2014.* 4.11 Form of Secured Loan Agreement between the Company and the City of Weirton, West Virginia, as issuer, relating to the Secured Series 2001 Bonds due 2014.* 5.1 Opinion of Kirkpatrick & Lockhart.* 8.1 Tax Opinion of Kirkpatrick & Lockhart LLP.*
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.1 Redacted Pellet Sale and Purchase Agreement dated as of September 30, 1991 between Cleveland-Cliffs Iron Company and the Company (incorporated by reference to Exhibit 10.18 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992, Commission File No. 1-10244). 10.2 Coke Sale Agreement dated December 9, 1996 between the Company and USX Corporation (incorporated by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, Commission File No. 1-10244). 10.3 Note and Warrant Purchase Agreement among MetalSite, Inc. and the Company dated as of October 10, 2000 (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.4 Securities Purchase Agreement evidencing the sale of a portion of the Company's interest in MetalSite L.P. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of Internet Capital Group, Inc., filed on January 11, 2000, Commission File No. 000-26929). 10.5 Loan and Security Agreement dated as of November 17, 1999 among various financial institutions, Bank of America and the Company (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.6 First Amendment dated as of February 29, 2000 to Loan and Security Agreement (incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.7 Amended and Restated Receivables Participation Agreement among Weirton Steel Corporation, various financial institutions and PNC Bank (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, Commission File No. 1-10244). 10.8 Waiver and Amendment No. 2 dated as of August 23, 2000 to Amended and Restated Receivables Participation Agreement (incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.9 Amendment No. 3 dated as of March 2, 2001 to Amended and Restated Receivables Participation Agreement (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.10 Waiver dated as of November 21, 2000 to Amended and Restated Receivables Participation Agreement (incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.11 Ball Receivables Participation Agreement dated as of August 6, 1999 among the Company, various financial institutions and PNC Bank (incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.12 1984 Employee Stock Ownership Plan, as amended and restated (incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K For the fiscal year ended December 31, 1989, Commission File No. 1-10244). 10.13 1989 Employee Stock Ownership Plan (incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year Ended December 31, 1989, Commission File No. 1-10244).
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.14 Amendments to the 1984 and 1989 Employee Stock Ownership Plans, effective May 26, 1994 (incorporated by reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995). 10.15 Weirton Steel Corporation 1987 Stock Option Plan (incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1 filed May 3, 1989, Commission File No. 33-28515). 10.16 Weirton Steel Corporation 1998 Stock Option Plan, as amended and restated (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.17 Deferred Compensation Plan for Directors, as amended and restated through December 1, 2000 (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.18 Weirton Steel Corporation Executive Healthcare Program effective date July 1, 1999 (incorporated by reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999, Commission File No. 1-10244.) 10.19 Weirton Steel Corporation Supplemental Senior Executive Retirement Plan (incorporated by reference to Exhibit 10.10 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, Commission File No. 1-10244). 10.20 Weirton Steel Corporation Supplemental Executive Retirement Plan (incorporated by reference to Exhibit 10.11 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, Commission File No. 1-10244). 10.21 Employment Agreement between John H. Walker and the Company dated March 13, 2000 (incorporated by reference to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, Commission File No. 1-10244). 10.22 Employment Agreement between David L. Robertson and the Company dated February 2000 (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, Commission File No. 1-10244). 10.23 Employment Agreement between Mark E. Kaplan and the Company dated February 10, 2000 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, Commission File No. 1-10244). 10.24 Employment Agreement between Thomas W. Evans and the Company dated September 25, 2000 (incorporated by reference to Exhibit 10.24 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.25 Employment Agreement between William R. Kiefer and the Company dated February 14, 2000 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, Commission File No. 1-10244). 10.26 Employment Agreement between Frank G. Tluchowski and the Company dated March 23, 2000 (incorporated by reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, Commission File No. 1-10244). 10.27 Employment Agreement between Edward L. Scram and the Company dated April 1, 2000 (incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, Commission File No. 1-10244). 10.28 Employment Agreement between Michael J. Scott and the Company dated April 1, 2000 (incorporated by reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, Commission File No. 1-102440). 10.29 Employment Agreement between John H. Walker and the Company dated January 25, 2001 (filed herewith).
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.30 Form of Stand Still Agreement for certain optionees to refrain from exercising options in exchange for monetary compensation (incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000, Commission File No. 1-10244). 10.31 Purchase Agreement dated as of October 26, 2001 by and among MABCO Steam Company, LLC, FW Holdings, Inc., and the Company (filed herewith). 10.32 Lease Agreement dated as of October 26, 2001 between MABCO Steam Company, LLC, and FW Holdings, Inc. (filed herewith). 10.33 Loan and Security Agreement dated as of October 26, 2001 by and among the Company, various lenders party thereto, and Fleet Capital Corporation, as agent of the lenders (filed herewith). 12.1 Statement regarding computation of ratio of earnings to fixed charges (filed herewith). 22.1 Subsidiaries of the Company (previously filed). 23.1 Consent of Arthur Andersen LLP, independent public accountants (filed herewith). 23.2 Consent of Kirkpatrick & Lockhart LLP (included in Exhibits 5.1 and 8.1). 24.1 Power of Attorney (previously filed as part of signature page). 25.1 Statement of Eligibility of Trustee.* 99.1 Consent and Letter of Transmittal.* 99.2 Notice of Guaranteed Delivery.*
--------------- * To be filed as an amendment hereto.