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<SEC-DOCUMENT>0000950130-01-000946.txt : 20010224
<SEC-HEADER>0000950130-01-000946.hdr.sgml : 20010224
ACCESSION NUMBER: 0000950130-01-000946
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 11
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010220
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AK STEEL HOLDING CORP
CENTRAL INDEX KEY: 0000918160
STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312]
IRS NUMBER: 311401455
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-13696
FILM NUMBER: 1550276
BUSINESS ADDRESS:
STREET 1: 703 CURTIS ST
CITY: MIDDLETOWN
STATE: OH
ZIP: 45043
BUSINESS PHONE: 5134255000
MAIL ADDRESS:
STREET 1: 703 CURTIS ST
CITY: MIDDLETOWN
STATE: OH
ZIP: 45043
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-K
[X]Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 2000.
OR
[_]Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to .
Commission File No. 1-13696.
AK STEEL HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 31-1401455
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
703 Curtis Street, Middletown, Ohio 45043
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (513) 425-5000.
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
<S> <C>
Common Stock $.01 Par Value New York Stock Exchange
$3.625 Cumulative Convertible Preferred
Stock New York Stock Exchange
$1 Par Value
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes No X .
Aggregate market value of the registrant's voting stock held by non-
affiliates at February 16, 2001: $1,030,436,307.
At February 16, 2001 there were 107,895,589 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required to be furnished pursuant to Part III of this Form
10-K will be set forth in, and incorporated by reference from, the
registrant's definitive proxy statement for the annual meeting of
stockholders, (the "2001 Proxy Statement"), which will be filed with the
Securities and Exchange Commission not later than 120 days after the end of
the fiscal year ended December 31, 2000.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
AK Steel Holding Corporation
Table of Contents
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Item 1. Business....................................................... 1
Item 2. Properties..................................................... 5
Item 3. Legal Proceedings.............................................. 6
Item 4. Submission of Matters to a Vote of Security Holders............ 6
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................ 8
Item 6. Selected Financial Data........................................ 10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 11
Item 8. Financial Statements and Supplementary Data.................... 16
Item 9. Changes in and Disagreements with Accountants.................. 41
Item 10. Directors and Executive Officers of the Registrant............. 41
Item 11. Executive Compensation......................................... 41
Item 12. Security Ownership of Certain Beneficial Owners and Management. 41
Item 13. Certain Relationships and Related Transactions................. 41
Exhibits, Financial Statement Schedules and Reports on Form 10-
Item 14. K.............................................................. 41
</TABLE>
i
<PAGE>
PART I
Item 1. Business.
General
AK Steel Holding Corporation ("AK Holding"), through its wholly-owned
subsidiary, AK Steel Corporation ("AK Steel" and, together with AK Holding,
the "Company"), is a fully-integrated producer of flat-rolled carbon,
stainless and electrical steels. Its operations include those previously
conducted by Armco Inc. ("Armco"), which merged with and into AK Steel on
September 30, 1999 in a transaction accounted for as a pooling of interests.
The merger enhanced AK Steel's steel producing capability and market position
by allowing it to combine the distinct strengths of each company's individual
plants into a unified steelmaking operation. In addition to its flat-rolled
steel manufacturing and finishing operations ("Steel Operations"), the Company
owns and operates Sawhill Tubular Products, a manufacturer of a wide range of
steel pipe and tubing products; Douglas Dynamics, L.L.C., the largest North
American manufacturer of snowplows and ice control products for four-wheel
drive light trucks; and the Greens Port Industrial Park on the Houston, Texas
ship channel. During 2000, AK Steel's steel shipments, including both flat-
rolled and tubular products, totaled 6,493,000 tons, of which 90% consisted of
value-added coated and cold-rolled carbon steel products, stainless and
electrical steels and tubular products.
Operations
The Company's principal business focus is its Steel Operations. They consist
of seven steelmaking and finishing plants in Indiana, Kentucky, Ohio and
Pennsylvania that produce flat-rolled carbon steels, including premium quality
coated, cold-rolled and hot-rolled products, and specialty stainless and
electrical steels that are sold in slab, hot band, and sheet and strip form.
These products are sold primarily to the domestic automotive, appliance,
industrial machinery and equipment, and construction markets, as well as to
distributors, service centers and convertors. The Steel Operations also
include European trading companies that buy and sell steel and steel products.
In the fourth quarter of 2000, the Company acquired a 40% ownership interest
in a stainless and titanium processor. AK Steel is registered under the ISO
9002 international quality standard and certified under the QS 9000 quality
assurance program used by domestic automotive manufacturers and has received
numerous quality awards from many of its major customers. Additional
information about the Company's Steel Operations is set forth in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, and in Note 9 to the Consolidated Financial Statements, which is
set forth in Item 8.
AK Steel's other operations consist of Sawhill Tubular Products, Douglas
Dynamics, L.L.C. and Greens Port Industrial Park. Sawhill Tubular, with three
plants located in Ohio and Pennsylvania, manufactures a wide range of steel
pipe and tubing products for the non-residential construction, industrial,
plumbing and heating markets. Douglas Dynamics manufactures snowplows and ice
control products for four-wheel drive light trucks at plants in Maine,
Tennessee and Wisconsin. Its products are sold under the brand names Western
and Fisher through independent distributors in the United States and Canada.
Greens Port Industrial Park, which consists of approximately 650 acres on the
Houston, Texas ship channel, leases land, buildings and rail car storage
facilities to third parties and operates a deep water loading dock on the
channel.
Customers
AK Steel's flat-rolled carbon steel products are sold primarily to
automotive manufacturers and to customers in the appliance, industrial
machinery and equipment, and construction markets, consisting principally of
manufacturers of home appliances, heating, ventilation and air conditioning
equipment and lighting products. Hot-rolled, cold-rolled and semi-finished
steel products are also sold to distributors, service centers and convertors
who may further process these products or resell them without further
processing.
AK Steel sells its stainless steel products primarily to customers in the
automotive industry, as well as to manufacturers of food handling, chemical
processing, pollution control and medical and health equipment.
1
<PAGE>
Electrical steels, which are iron-silicon alloys with unique magnetic
properties, are sold primarily to manufacturers of power transmission and
distribution transformers, electrical motors and generators, and lighting
ballasts.
In conducting its Steel Operations, AK Steel's marketing efforts are
principally directed toward those customers, such as automotive manufacturers,
who require precise on-time delivery, technical support and the highest quality
flat-rolled steel. Management believes that AK Steel's enhanced product quality
and delivery capabilities, and its emphasis on customer technical support and
product planning, are critical factors in its ability to serve this segment of
the market. The following table sets forth the percentage of the Steel
Operations net sales attributable to various markets:
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Automotive................................................... 54% 55% 52%
Appliance, Industrial Machinery and Equipment, and
Construction................................................ 25% 25% 24%
Distributors, Service Centers and Convertors................. 21% 20% 24%
</TABLE>
Between 1999 and 2000, AK Steel's Steel Operations sales increased 5%. While
automotive market sales dollars remained flat between 1999 and 2000, they
declined as a percentage of total sales as sales to other markets continued to
increase. The Steel Operations segment is a major supplier to General Motors,
Ford Motor Company and DaimlerChrysler AG. Shipments to General Motors, AK
Steel's largest customer, accounted for approximately 12%, 15% and 15% of Steel
Operations net sales in 1998, 1999 and 2000, respectively. No other customer
accounted for more than 10% of net sales for any of these years.
AK Steel is party to agreements with all of its major automotive and most
appliance industry customers with terms that range from one to three years.
These agreements, which are typically finalized late in the year, set forth
prices to be paid for each product category during each year of their term.
Except for nickel and chrome, where surcharges may be passed on to the
customer, these agreements do not permit adjustment to reflect changes in
prevailing market conditions or raw material costs. During most periods,
approximately 75% of AK Steel's sales of flat-rolled steel products are made
pursuant to these agreements, with the balance being made in the spot market at
prevailing prices at the time of sale. However, due to a reduction in demand
from contract customers during the fourth quarter of 2000, contract sales in
the quarter were approximately 70% of total flat-rolled sales, resulting in a
higher percentage of shipments to the depressed spot market.
Raw Materials
The principal raw materials required for AK Steel's steel manufacturing
operations are carbon and stainless steel scrap, iron ore, coal, electricity,
natural gas, oxygen, chrome, nickel, silicon, molybdenum, zinc, limestone and
other commodity materials. In addition, AK Steel purchases carbon steel slabs
from other steel producers to supplement the production from its own
steelmaking facilities. Purchases of coal, iron ore and limestone, as well as
transportation services, are made at negotiated prices under multi-year
agreements. Purchases of carbon steel slabs, stainless steel scrap, natural gas
and other raw materials are made at prevailing market prices, which are subject
to price fluctuations in accordance with supply and demand. During 2000, AK
Steel incurred substantially higher costs for natural gas, as well as for steel
slabs and scrap. While prices for natural gas are likely to remain high and may
even increase further, AK Steel believes that adequate sources of supply exist
for all of its raw material and energy requirements.
Employees
As of December 31, 2000, the Company had approximately 11,500 employees.
Approximately 7,500 employees at seven of AK Steel's thirteen plants are
represented by international, national or independent unions,
2
<PAGE>
under contracts with expiration dates extending through 2006. Labor contracts
covering employees at the following plant locations expire in 2001.
<TABLE>
<CAPTION>
% of Total Contract
Location/Union Employees Expiration Date
-------------- ---------- ------------------
<S> <C> <C>
Ashland Works
-------------
Paper, Allied-Industrial, Chemical and
Energy Workers............................. 3% April 1, 2001
Butler Works
------------
Butler Armco Independent Union (Hourly)..... 20% September 30, 2001
</TABLE>
AK Steel's Mansfield Works was one of the facilities owned and operated by
Armco prior to its merger with AK Steel on September 30, 1999. On September 1,
1999, the contract between Armco and the United Steelworkers of America
covering approximately 600 hourly workers, including 100 on layoff status, at
the Mansfield Works expired. Because of production slowdowns, vandalism and
threats of violence on the part of union members, Armco informed the union,
and the Company understood, that it would lock out represented employees while
it continued to bargain with the union. Since September 1999, the Mansfield
Works has been operated by salaried employees and temporary replacement
workers.
Competition
AK Steel competes with domestic and foreign flat-rolled carbon, stainless
and electrical steel producers and producers of plastics, aluminum and other
materials that can be used in lieu of flat-rolled steels in manufactured
products. Price, service, quality and delivery are the primary competitive
factors and vary in relative importance according to the category of product
and customer requirements.
Domestic steel producers face significant competition from foreign producers
who typically have lower labor costs. In addition, many foreign steel
producers are owned, controlled or subsidized by their governments and their
decisions with respect to production and sales may be influenced more by
political and economic policy considerations than by prevailing market
conditions.
Environmental Matters
Domestic steel producers, including AK Steel, are subject to stringent
federal, state and local laws and regulations relating to the protection of
human health and the environment. Over the past three years, AK Steel has
expended the following for environmental related capital investments and
environmental compliance costs:
<TABLE>
<CAPTION>
Years Ended
December 31,
-----------------
1998 1999 2000
----- ----- -----
(in millions)
<S> <C> <C> <C>
Environmental related capital investments................. $20.2 $ 7.2 $10.1
Environmental compliance costs............................ 87.9 85.9 93.5
</TABLE>
Management does not anticipate any material impact on AK Steel's recurring
operating costs or future profitability as a result of its compliance with
current environmental regulations. Moreover, because all domestic steel
producers operate under the same set of federal environmental regulations,
management believes that AK Steel is not competitively disadvantaged by its
need to comply with these regulations.
3
<PAGE>
Environmental Remediation
AK Steel and its predecessors have been conducting steel manufacturing and
related operations for approximately 100 years. Although their operating
practices are believed to have been consistent with prevailing industry
standards during this time, hazardous materials may have been released at one
or more operating sites, including sites that are no longer owned by AK Steel.
Potential remediation expenditures have been estimated for those sites where
future remediation efforts are probable based on identified conditions,
regulatory requirements or contractual obligations arising from the sale of a
business.
Pursuant to the Resource Conservation and Recovery Act ("RCRA"), which
governs the treatment, handling and disposal of hazardous waste, the United
States Environmental Protection Agency ("EPA") and authorized state
environmental agencies may conduct inspections of RCRA regulated facilities to
identify areas where there have been releases of hazardous waste or hazardous
constituents into the environment and order the facilities to take corrective
action to remediate such releases. The Company's major steelmaking facilities
are subject to RCRA inspections by environmental regulators. While the Company
cannot predict the future actions of these regulators, the potential exists
for required corrective action at these facilities.
Under authority conferred by the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), the EPA and state environmental
authorities have conducted site investigations at certain of AK Steel's
facilities, portions of which previously had been used for disposal of
materials that are currently subject to regulation. While the results of these
investigations are still pending, in the future AK Steel could be directed to
expend funds for remedial activities at the former disposal areas. Given the
uncertain status of these investigations, however, management is unable to
predict if and when such expenditures might be required or their magnitude.
Environmental Proceedings
Federal regulations promulgated pursuant to the Clean Water Act impose
categorical pretreatment limits on the concentrations of various constituents
in coke plant wastewater prior to discharge into publicly owned treatment
works ("POTW"). Due to concentrations of ammonia and phenol in excess of these
limits in wastewater from the Middletown Works, AK Steel, through the
Middletown POTW, petitioned the EPA for "removal credits," a type of
compliance exemption, based on the Middletown POTW's satisfactory treatment of
the wastewater for ammonia and phenol. The EPA declined to review the petition
on the grounds that it had not yet promulgated new sludge management rules. AK
Steel thereupon sought and obtained from the United States District Court for
the Southern District of Ohio an injunction prohibiting the EPA from
instituting enforcement action against AK Steel for noncompliance with the
pretreatment limitations, pending the EPA's promulgation of the applicable
sludge management regulations. Management is unable to predict the outcome of
this matter. However, if the EPA eventually refuses to grant the petition for
removal credits, AK Steel could incur additional costs to construct
pretreatment facilities at the Middletown Works.
On February 27, 1995, the Ohio Environmental Protection Agency ("OEPA")
issued a Notice of Violation ("NOV") with respect to the Zanesville Works
alleging noncompliance with both a 1993 order and various state regulations
regarding hazardous waste management. AK Steel is continuing to work with the
OEPA and the Ohio Attorney General's Office to achieve final resolution of
this matter.
Subsequent to a multi-media inspection of Middletown Works during the fall
of 1996, the EPA Region V notified AK Steel that legal proceedings had been
initiated alleging violations of Clean Air Act and Clean Water Act
regulations. On June 29, 2000, the EPA filed a complaint against AK Steel in
the U. S. District Court for the Southern District of Ohio, for alleged
violations of the Clean Air Act, the Clean Water Act and the RCRA. On the same
date, AK Steel filed a Verified Complaint for Declaratory and Injunctive
Relief in the Court of Common Pleas for Butler County, Ohio against the State
of Ohio and the OEPA seeking a declaration that (a) AK Steel is in compliance
with its operating permits for the blast furnace and basic oxygen furnaces at
its Middletown Works, which would preclude the State of Ohio and the OEPA from
taking any action to order or enforce
4
<PAGE>
obligations on AK Steel with respect to those facilities, and (b) that any
emissions from the Middletown Works do not cause, or otherwise contribute to, a
public nuisance. On June 30, 2000, the State of Ohio moved to intervene in the
EPA action. AK Steel intends to vigorously contest this matter.
On September 30, 1998, Armco received an order from the EPA under Section
3013 of RCRA requiring Armco to develop a plan for investigation of eight areas
of the Mansfield Works that allegedly could be sources of contamination. On
October 30, 1998, Armco filed a complaint in the United States District Court
for the Northern District of Ohio seeking pre-enforcement review. On April 1,
1999, the Court dismissed the complaint on the basis that the statute did not
allow pre-enforcement review of agency orders. Thereafter, Armco filed a motion
for reconsideration, which was denied on October 26, 2000. The site
investigation began in November 2000 and is continuing.
On June 7, 2000, the EPA Region III issued to AK Steel's Butler Works an
Emergency Order ("Order") pursuant to the Safe Drinking Water Act, concerning
discharge of nitrate/nitrite compounds to the Connoquenessing Creek, an
occasional water source for the Borough of Zelienople. The Order was issued
without any prior notice to AK Steel. On June 9, 2000, AK Steel filed a
Petition for Review and a Motion for Emergency Stay with the Sixth Circuit
Court of Appeals. On June 13, 2000, the Sixth Circuit issued an order denying
AK Steel's Motion for Emergency Stay. AK Steel and the EPA Region III are
currently engaged in discussions in an effort to reach a settlement of this
matter.
In addition to the foregoing matters, the Company is or may be involved in
proceedings with various regulatory authorities that may require the Company to
pay fines, comply with more rigorous standards or other requirements or incur
capital and operating expenses for environmental compliance. Management
believes that the ultimate disposition of the foregoing proceedings will not
have, individually or in the aggregate, a material adverse effect on the
Company's consolidated financial condition, results of operations or cash
flows.
Item 2. Properties.
The Company's corporate headquarters are located in Middletown, Ohio.
Steelmaking and finishing operations are conducted at seven facilities in
Indiana, Kentucky, Ohio and Pennsylvania. Fabricating plants are located in
Pennsylvania, Ohio, Wisconsin, Maine and Tennessee, and an industrial park is
located in Houston, Texas. All of these facilities are owned by the Company.
Coke manufacturing plants, blast furnaces, basic oxygen furnaces and
continuous casters are located at the Ashland Works in Kentucky and the
Middletown Works in Ohio. A hot rolling mill, cold rolling mill, pickling
lines, annealing facilities and temper mills as well as four coating lines are
located at the Middletown Works, and one additional coating line is located at
the Ashland Works. Together, these facilities are located on approximately
5,400 acres of land.
The Rockport Works consists of a state-of-the-art continuous cold rolling
mill, a hot-dip galvanizing and galvannealing line, a continuous carbon and
stainless steel pickling line, a stainless steel annealing and pickling line,
hydrogen annealing facilities and a temper mill. The 1.7 million square-foot
plant is located on a 1,700-acre site in Spencer County, Indiana.
The Butler Works in Pennsylvania, which is situated on 1,300 acres with 3.2
million square feet of buildings, produces stainless and electrical steel.
Melting takes place in three electric arc furnaces that feed an argon-oxygen
decarburization unit and a vacuum degassing unit for refining molten metal.
These units feed two double strand continuous casters. The Butler Works also
includes a hot rolling mill, annealing and pickling units and two fully-
automated tandem cold rolling mills. It also has various intermediate and
finishing operations for both stainless and electrical steels.
The Coshocton Works in Ohio, located on 650 acres, consists of a 600,000
square-foot plant, containing three Sendzimer mills and two Z-high mills for
cold reduction, four annealing and pickling lines, ten bell
5
<PAGE>
annealing furnaces, three bright annealing lines and other processing
equipment, including temper rolling, slitting and packaging facilities.
The Mansfield Works in Ohio, which produces stainless steel, consists of a
1.4 million square-foot facility on a 445-acre site and includes a melt shop
with two electric arc furnaces, an argon-oxygen decarburization unit, a thin-
slab continuous caster, a six-stand hot rolling mill, a five-stand tandem cold
rolling mill and a pickling line.
The Zanesville Works in Ohio, with 508,000 square feet of buildings on 88
acres, is a finishing plant for some of the stainless and electrical steel
produced at the Butler Works and Mansfield Works and has a Sendzimer cold
rolling mill, annealing and pickling lines, high temperature box anneal and
other decarburization and coating units.
Item 3. Legal Proceedings.
In addition to the environmental matters discussed in Item 1 and the items
discussed below, there are various claims pending against the Company and its
subsidiaries involving product liability, reinsurance and insurance
arrangements, antitrust, employee benefits and other matters arising out of
the conduct of the business of the Company. In management's opinion, the
ultimate liability resulting from all claims, individually or in the
aggregate, will not materially affect the Company's consolidated financial
position, results of operations or cash flows.
On April 19, 2000, a purported class action was filed in the United States
District Court for the Southern District of Ohio by Bernard Fidel against AK
Steel Holding Corporation and certain of its directors and officers, alleging
material misstatements and omissions in the Company's public disclosure about
its business and operations. The defendants intend to vigorously defend this
action. AK Steel has filed a motion to dismiss the action, which currently is
pending.
A number of lawsuits regarding asbestos exposure are pending and continue
to be filed arising out of the operations of former Armco facilities. The
majority of these lawsuits are filed in Texas and arise out of Armco's former
Houston Works facility. Such cases typically involve a large number of
plaintiffs claiming against a large number of defendants. Armco is normally
named as a defendant by a small percentage of the overall plaintiffs who are
typically frequenters (independent contractors, delivery personnel, etc.)
claiming that Armco exposed them to asbestos while they were on the premises.
AK Steel is actively and vigorously defending these cases.
On January 20, 1998, judgment against AK Steel in the amount of $6.5 million
was entered by the United States District Court for the Southern District of
Ohio, following a jury trial in a disability discrimination lawsuit brought by
a former employee. On January 30, 1998, AK Steel moved for judgment in its
favor as a matter of law, reduction of the damages and a new trial. On January
20, 2000, the court reduced the jury verdict to $1.5 million. The Company
subsequently filed a motion for relief from that judgment, which was denied.
The Company and the former employee have filed cross-appeals in the U. S.
Court of Appeals for the Sixth Circuit, seeking to further reduce the verdict
and reinstate the original verdict, respectively.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of 2000.
6
<PAGE>
Executive Officers
The following table sets forth the name, age and principal position with the
Company of each of its executive officers as of February 19, 2001:
<TABLE>
<CAPTION>
Name Age Positions with the Company
---- --- --------------------------
<S> <C> <C>
Richard M. Wardrop, Jr.. 55 Chairman of the Board and Chief Executive Officer
James L. Wareham........ 61 President
John G. Hritz........... 46 Executive Vice President and General Counsel
James L. Wainscott...... 43 Senior Vice President, Treasurer and Chief Financial Officer
Michael T. Adams........ 43 Vice President, Sales and Marketing
James M. Banker......... 44 Vice President, Operations
Michael P. Christy...... 44 Vice President, Purchasing and Transportation
Thomas C. Graham, Jr.... 46 Vice President, Research and Engineering
Brenda S. Harmon........ 49 Vice President, Human Resources and Secretary
J. Theodore Holmes...... 56 Vice President, Customer Service
Donald B. Korade........ 58 Vice President and Controller
Alan H. McCoy........... 49 Vice President, Public Affairs
Ernest E. Rummler....... 49 Vice President, Manufacturing Planning & Steel Sourcing
James W. Stanley........ 56 Vice President, Safety and Health
</TABLE>
Richard M. Wardrop, Jr. has been Chairman of the Board since January 1997.
He has been a director since March 1995 and Chief Executive Officer since May
1995. Mr. Wardrop also served as President of the Company from April 1994
until March 1997.
James L. Wareham has been President since March 1997. Prior to joining the
Company, Mr. Wareham was Chairman, President and Chief Executive Officer of
Wheeling Pittsburgh Steel Corporation as well as President of WHX Corporation,
the parent company of Wheeling Pittsburgh Steel Corporation.
John G. Hritz was named Executive Vice President and General Counsel in
January 1999. From May 1998 until that date, Mr. Hritz was Senior Vice
President, General Counsel and Secretary of the Company, having previously
served as Vice President, General Counsel and Secretary from August 1996 until
May 1998. Mr. Hritz was named Assistant General Counsel in May 1993 and
Assistant Secretary in January 1994. Since June 1996, Mr. Hritz also has had
responsibility for the Company's employee and labor relations, and
environmental affairs.
James L. Wainscott has been the Company's Treasurer since April 1995 and its
Chief Financial Officer since July 1998. Mr. Wainscott was named Senior Vice
President in January 2000, having previously served as a Vice President from
April 1995.
Michael T. Adams was named Vice President, Sales and Marketing in December
2000. Mr. Adams had been Vice President, Manufacturing from July 1998 to that
date. From October 1995 until July 1998, he served as General Manager,
Manufacturing of the Company's Middletown Works.
James M. Banker was named Vice President, Operations in December 2000. From
May 1999 until that date he served as Vice President, Sales and Marketing.
From April 1992 to May 1999, Mr. Banker was General Manager, Sales for the
Company.
Michael P. Christy has been Vice President, Purchasing and Transportation
since November 1998. From January 1998 until that date, Mr. Christy had been
Vice President, Purchasing and Financial Analysis. Mr. Christy was named
Director, Purchasing and Financial Analysis in May 1997 after having served as
Director, Financial Planning and Analysis since June 1996. Prior to that Mr.
Christy held various positions in finance, planning and operations at National
Steel Corporation.
Thomas C. Graham, Jr. has been Vice President, Research and Engineering
since June 1996. From early 1994 until that date, he was General Manager
Sales, Construction for National Steel Corporation.
7
<PAGE>
Brenda S. Harmon has been Vice President, Human Resources since January
1998. She assumed the additional responsibilities of Corporate Secretary in
March 1999. Mrs. Harmon had been General Manager, Human Resources since
September 1996, after having been named Corporate Manager, Human Resources in
March 1995.
J. Theodore Holmes was named Vice President, Customer Service in January
2000. From May 1999 until that date, Mr. Holmes was Director, Customer
Service. Mr. Holmes was Director, Customer Service & Product Administration
from August 1998 to May 1999. From July 1997 to August 1998, Mr. Holmes served
as General Manager, Manufacturing Planning. From November 1992 to July 1997,
Mr. Holmes was General Manager, Customer Service.
Donald B. Korade was named Vice President and Controller in November 1999.
From September 1995 until that date, Mr. Korade served as Controller of the
Company.
Alan H. McCoy has been Vice President, Public Affairs since January 1997.
From March 1994 until that date, Mr. McCoy served as General Manager, Public
Relations.
Ernest E. Rummler was named Vice President, Manufacturing Planning & Steel
Sourcing in January 2000. From August 1998 until that date, Mr. Rummler served
as Director, Manufacturing Planning & Steel Sourcing. From July 1997 until
August 1998, Mr. Rummler was General Manager, Customer Service, and from June
1992 until July 1997, he was General Manager, Manufacturing Planning.
James W. Stanley has been Vice President, Safety and Health since January
1996. Prior to joining the Company, Mr. Stanley held various management
positions with the U.S. Department of Labor's Occupational Safety and Health
Administration since its inception in 1971.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
AK Holding's common stock has been listed on the New York Stock Exchange
since April 5, 1995 (symbol: AKS). The table below sets forth, for the
calendar quarters indicated, the reported high and low sale prices of the
common stock:
<TABLE>
<CAPTION>
1999 High Low
---- ---- ---
<S> <C> <C>
First Quarter........................................... $24 3/8 $19 11/16
Second Quarter.......................................... $29 5/8 $22 1/8
Third Quarter........................................... $24 1/2 $16 5/8
Fourth Quarter.......................................... $19 1/16 $13 3/4
<CAPTION>
2000 High Low
---- ---- ---
<S> <C> <C>
First Quarter........................................... $20 1/8 $7 7/8
Second Quarter.......................................... $12 $8
Third Quarter........................................... $11 7/16 $8 9/16
Fourth Quarter.......................................... $10 3/16 $7 1/2
</TABLE>
As of February 16, 2001, there were 107,895,589 shares of common stock
outstanding and held of record by 17,545 stockholders. Because depositories,
brokers and other nominees held many of these shares, the number of record
holders is not representative of the number of beneficial holders.
AK Holding has paid quarterly dividends on its common stock since November
15, 1995. During 1999 and 2000, AK Holding paid a quarterly common stock
dividend of $0.125 per share. The declaration and payment of cash dividends is
subject to restrictions imposed by the instruments governing its senior debt.
At December 31, 2000, AK Holding had $27.2 million available for the payment
of cash dividends.
8
<PAGE>
On January 18, 2001, the Board of Directors declared a reduced quarterly
common stock dividend of $0.0625 per share payable on February 28, 2001 to
shareholders of record on February 1, 2001. This 50% reduction was enacted in
light of currently depressed steel market conditions.
As more fully explained in Item 7 under the heading, "Merger with Armco," in
the fourth quarter of 1999, the Company issued shares of a new $3.625
convertible preferred stock to replace a substantially identical series of
Armco preferred stock. This stock, which is convertible into 2.6 shares of AK
Holding common stock, is listed on the New York Stock Exchange under the
symbol AKS pfB. During the fourth quarter of 1999, these preferred stock
shares traded at prices between a high of $54-7/16 and a low of $45-7/8. The
table below sets forth, for the calendar quarters indicated, the reported high
and low sale prices of the preferred stock during 2000:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
First Quarter.............................................. $57 1/8 $42 1/2
Second Quarter............................................. $47 $43 3/8
Third Quarter.............................................. $45 $42 1/2
Fourth Quarter............................................. $45 1/2 $38 1/8
</TABLE>
Since the fourth quarter of 1999, AK Holding has paid a regular quarterly
dividend of $0.90625 per share on its $3.625 preferred stock. As of February
16, 2001, 259,481 shares of the preferred stock were outstanding. Declaration
and payment of preferred stock dividends are subject to the same restrictions
imposed by the senior debt issues on common stock dividends.
On April 25, 2000, the Company announced that its Board of Directors had
authorized the Company to repurchase, from time to time, up to $100.0 million
of its outstanding equity securities. Through December 31, 2000, the Company
expended $40.5 million to purchase 3,702,600 shares of its common stock and
48,450 shares of its $3.625 convertible preferred stock pursuant to this
authorization. To maximize liquidity in light of adverse steel industry
conditions, no shares were purchased in the fourth quarter of 2000.
9
<PAGE>
Item 6. Selected Financial Data.
The following selected historical consolidated financial data for each of
the five years in the period ended December 31, 2000 have been derived from
the Company's audited consolidated financial statements after giving effect to
the merger of Armco with and into AK Steel (See Note 1 below). The selected
historical consolidated financial data presented herein are qualified in their
entirety by, and should be read in conjunction with, the consolidated
financial statements of the Company and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(dollars in millions, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data: (1)
Net sales......................... $3,999.7 $4,249.7 $4,101.0 $4,368.3 $4,611.5
Cost of products sold............. 3,262.8 3,436.4 3,297.8 3,503.3 3,773.7
Selling and administrative
expenses......................... 278.1 288.0 278.0 309.8 267.6
Depreciation...................... 134.8 141.0 161.2 210.7 232.0
Special charges and unusual items
(2).............................. 8.8 -- -- 99.7 --
-------- -------- -------- -------- --------
Total operating costs............. 3,684.5 3,865.4 3,737.0 4,123.5 4,273.3
-------- -------- -------- -------- --------
Operating profit.................. 315.2 384.3 364.0 244.8 338.2
Interest expense.................. 76.1 111.7 84.9 123.7 136.1
Other income...................... 25.4 48.4 30.3 20.8 8.0
-------- -------- -------- -------- --------
Income before income taxes and
minority interest................ 264.5 321.0 309.4 141.9 210.1
Provision for income taxes........ 169.7 127.5 105.5 63.9 77.7
Minority interest................. 8.1 8.1 8.1 6.7 --
-------- -------- -------- -------- --------
Income from continuing operations. 86.7 185.4 195.8 71.3 132.4
Discontinued operations........... 4.1 1.6 -- 7.5 --
-------- -------- -------- -------- --------
Income before extraordinary item
and cumulative effect of an
accounting change................ 90.8 187.0 195.8 78.8 132.4
Extraordinary loss on retirement
of debt.......................... -- 1.9 -- 13.4 --
Cumulative effect of a change in
accounting (3)................... -- -- 133.9 -- --
-------- -------- -------- -------- --------
Net income........................ $ 90.8 $ 185.1 $ 329.7 $ 65.4 $ 132.4
======== ======== ======== ======== ========
Basic earnings per share:
Income from continuing
operations..................... $ 0.71 $ 1.75 $ 1.86 $ 0.62 $ 1.20
Discontinued operations......... 0.04 0.02 -- 0.07 --
Extraordinary losses............ -- 0.02 -- 0.13 --
Cumulative effect of an
accounting change.............. -- -- 1.33 -- --
-------- -------- -------- -------- --------
Net income...................... $ 0.75 $ 1.75 $ 3.19 $ 0.56 $ 1.20
Diluted earnings per share:
Income from continuing
operations..................... $ 0.70 $ 1.68 $ 1.82 $ 0.62 $ 1.20
Discontinued operations......... 0.04 0.01 -- 0.07 --
Extraordinary losses............ -- 0.02 -- 0.13 --
Cumulative effect of an
accounting change.............. -- -- 1.24 -- --
-------- -------- -------- -------- --------
Net income...................... $ 0.74 $ 1.67 $ 3.06 $ 0.56 $ 1.20
Cash dividend per common share
(not adjusted for merger)........ $ 0.325 $ 0.425 $ 0.50 $ 0.50 $ 0.50
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data: (1)
Cash, cash equivalents and short-
term investments................. $ 908.5 $ 801.0 $ 353.7 $ 54.4 $ 86.8
Working capital................... 1,263.7 930.6 576.1 564.5 631.5
Total assets...................... 4,710.4 5,074.4 5,279.2 5,227.1 5,239.8
Current portion of long-term debt. 27.2 40.8 116.9 5.9 63.2
Long-term debt (excluding current
portion)......................... 1,219.3 1,301.8 1,395.7 1,451.0 1,387.6
Current portion of pension and
postretirement benefit
obligations...................... 65.8 68.0 65.5 68.8 66.6
Long-term pension and
postretirement benefit
obligations (excluding current
portion)......................... 1,596.2 1,560.7 1,416.5 1,416.3 1,420.2
Stockholders' equity.............. 877.7 1,005.3 1,262.7 1,277.8 1,319.3
</TABLE>
- --------
(1) Armco was merged with and into AK Steel on September 30, 1999 in a
transaction accounted for as a pooling of interests. Accordingly, except
with respect to cash dividends per common share, these consolidated
financial data reflect the Company's results and financial position as if
Armco and AK Steel had been combined for all periods presented.
(2) The 1996 special charges relate to the divestiture of certain businesses
and product lines. The 1999 special charge relates to expenses incurred as
a result of the merger with Armco.
(3) In 1998, the Company changed its accounting for pensions and other
postretirement benefits, recognizing a cumulative effect of a change in
accounting.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
(Dollars in millions, except per share and per ton amounts)
Merger with Armco
On September 30, 1999, Armco was merged with and into AK Steel. As a result
of the merger, in 1999, the Company recognized pre-tax special charges
totaling $99.7, including $28.5 of expenses incurred for investment banking,
legal, accounting and other transaction fees, $51.1 for employee severance and
certain required payments under the change-of-control provisions contained in
Armco's employee benefit plans and $20.1 for closure of the galvanizing plant
in Dover, Ohio. On November 6, 1999, the Company announced the closure of this
redundant facility effective January 29, 2000. On December 17, 1999,
production ceased at the plant. Approximately $54.0 of the $99.7 required the
outlay of cash in 1999 and additional payments of approximately $7.0 were made
in 2000. Cash outlays in 2001 are expected to be minimal. With the exception
of certain employee benefit and environmental expenditures that will be funded
over a long period of time, the remainder of the special charges do not
require the outlay of cash.
Operations Overview
AK Steel's principal business focus is its Steel Operations, which consist
of seven steelmaking and finishing plants that produce flat-rolled carbon
steels, including premium quality coated cold-rolled and hot-rolled products,
and specialty stainless and electrical steels that are sold in slab, hot band,
and sheet and strip form. These products are sold primarily to the domestic
automotive, appliance, industrial machinery and equipment, and construction
markets, as well as to distributors, service centers and convertors. The
Company's other operations include Sawhill Tubular Products, a manufacturer of
a wide range of steel pipe and tubing products; Douglas Dynamics, L.L.C., the
largest North American manufacturer of snowplows and ice control products for
four-wheel drive light trucks; and an industrial park on the Houston, Texas
ship channel.
2000 Compared to 1999
During 2000, net sales were $4,611.5, an increase of 6% from the $4,368.3
reported for 1999. Steel Operations contributed $4,277.3 to total net sales,
compared to $4,055.3 for 1999, an increase of 5%. These
11
<PAGE>
increases were due primarily to continued growth in the percentage of total
shipments attributable to value-added products, consisting primarily of
stainless and electrical steels and coated and cold-rolled carbon steels. For
the year 2000, value-added products, including tubular products, comprised
approximately 90% of total shipments, compared to 82% for 1999. Partly
offsetting the improved product mix were significantly lower prices in the
spot market. During most periods, approximately 75% of AK Steel's sales of
flat-rolled steel products are made pursuant to multi-year sales contracts,
with the balance being made in the spot market at prevailing prices at the
time of sale. However, due to a reduction in demand from contract customers
during the fourth quarter of 2000, contract sales were approximately 70% of
total flat-rolled sales in that quarter, resulting in a higher percentage of
shipments to the depressed spot market.
Total steel shipments during 2000, inclusive of tubular products, declined
slightly to 6,493,000 tons from the 6,541,000 tons shipped in 1999, reflecting
the Company's closure, in January 2000, of a redundant galvanizing facility in
Dover, Ohio, which accounted for shipments of almost 200,000 tons in 1999.
During 2000, an 8% increase in value-added steel shipments was a result of the
Company's move toward a richer product mix. Steel Operations shipments of
6,171,000 in 2000 were 1% below 1999 shipments due to the Dover closure.
Operating profit in 2000 totaled $338.2, or $52 per ton shipped, compared to
the $244.8 reported for 1999. Excluding the $99.7 merger-related special
charges, 1999 operating profit was $344.5, or $53 per ton shipped. Steel
Operations operating profit was $300.7 in 2000 and $201.7 ($301.4 excluding
the special charge) in 1999. The slight decrease in operating profit in 2000
was due primarily to substantially higher costs in comparison to 1999 for
steel scrap, purchased carbon steel slabs and, most particularly, natural gas
and, to a lesser extent, to the significant decline in spot market prices and
the increase in the percentage of the Company's sales to the spot market
during the fourth quarter of 2000. These negative factors were partly offset
by increased shipments of value-added products, which carry higher margins,
higher than expected merger synergies and other cost savings achieved through
more efficient utilization of production facilities.
Interest expense increased in 2000 by $12.4 over the prior year, due
primarily to an $18.9 reduction in the amount of interest that the Company
capitalized as a result of the completion of construction of its Rockport
Works in the second half of 1999. This was partially offset by the retirement
of certain debt in connection with the Armco merger. Other income, consisting
primarily of interest earned on cash balances, declined in 2000 due to lower
average cash balances compared to 1999.
During 2000, the Company incurred $77.7 in income tax expense, a book tax
rate of 37%. This amount included a noncash deferred tax provision of $91.4,
primarily attributable to accelerated tax depreciation in excess of book, book
pension credits in excess of actual funding of the pension plans, utilization
or expiration of tax loss carryovers and related changes in the deferred tax
asset valuation reserve. Partially offsetting the deferred tax provision was a
credit for current taxes of $13.7, which included a $15.0 federal tax refund
that resulted from the carryback of a tax net operating loss generated in
1999. The income tax provision for 1999 is net of an $11.6 recycling tax
credit received from the Commonwealth of Kentucky in that year, but which
related to prior years.
Income from continuing operations for 2000 was $132.4, or $1.20 per share,
compared to $71.3, or $0.62 per share, reported for 1999. Excluding the
special charge, minority interest, and certain other merger-related
adjustments, net of tax, 1999 income from continuing operations was $157.6.
From this amount, income from continuing operations decreased 16% in 2000,
reflecting the lower adjusted operating income, higher interest expense and
the decline in other income.
Certain of Armco's former businesses included operations in foreign
countries. At the time of their sale or closure, some of these operations had
outstanding tax issues. Following consultation with advisors in those
countries in 1999, Armco determined that it had resolved most of these issues
and reversed a majority of the related reserves, recognizing income from
discontinued operations of $7.5, or $0.07 per share.
During 1999, the Company recorded a combined after-tax extraordinary loss of
$13.4, or $0.13 per share, due to the early redemption of AK Steel's 10-3/4%
Senior Notes Due 2004 and Armco's 9-3/8% Senior Notes Due 2000.
12
<PAGE>
Net income in 2000 was $132.4, or $1.20 per share, compared to the $65.4, or
$0.56 per share, reported for 1999. Excluding the special charge, minority
interest, and certain other merger-related adjustments, as well as the income
from discontinued operations and extraordinary loss, net of tax, 1999 income
was $157.6. From this amount, income decreased 16% in 2000, reflecting the
lower adjusted operating income, higher interest expense and the decline in
other income.
1999 Compared to 1998
Net sales totaled $4,368.3 in 1999 versus $4,101.0 in 1998. Shipments
totaling 6,541,000 tons in 1999 were 469,000 tons above 1998 levels. Steel
Operations contributed $4,055.3 and $3,808.7 to the Company's net sales in
1999 and 1998, respectively, and 6,254,000 tons and 5,777,000 tons of its
shipments in the same years. The year-to-year increases reflect stronger
demand for the Company's products, particularly from the automotive industry.
Shipments of value-added products, including tubular products, constituted 82%
of total 1999 shipments, compared to 75% in 1998.
Operating profit in 1999, excluding special charges, was $344.5, or $53 per
ton shipped, compared to operating profit of $364.0, or $60 per ton, in 1998.
Excluding the same special charges, Steel Operations contributed operating
profit of $301.4 and $333.8 in 1999 and 1998, respectively. The decrease in
1999 operating profit is primarily due to higher depreciation at the Rockport
Works and excess costs related to the Mansfield labor dispute, partially
offset by the improved product mix.
Interest expense totaled $123.7 in 1999, an increase of $38.8 over 1998. The
increase was due, for the most part, to a reduction in the amount of interest
that was capitalized as a result of the completion of construction of the
Rockport Works.
Following the merger of AK Steel and Armco, but effective as of January 1,
1998, the Company conformed the AK Steel and Armco methods of amortizing
unrecognized net gains and losses related to their obligations for pensions
and other postretirement benefits, including conforming the measurement dates
for actuarial valuations. Under the conformed method, the Company recognizes
immediately into income unrecognized net gains and losses that exceed 10% of
the larger of benefit obligations or plan assets (the "corridor"), and
amortizes amounts inside the 10% corridor over the average remaining service
life of active participants (approximately 15 years). This method accelerates
the recognition into income of events that have occurred and, therefore, may
increase the sensitivity of the Company's results of operations to external
market volatility. In 1998, the Company recognized net-of-tax income of
$133.9, or $1.33 per share ($1.24 per diluted share) for the cumulative effect
of this accounting change.
Net income for 1999 totaled $65.4, or $0.56 per share, compared to 1998 net
income of $329.7, or $3.19 per share ($3.06 per diluted share). Excluding the
1999 special charges and other merger-related items, discontinued operations
and extraordinary loss, net of tax, and the 1998 cumulative effect of an
accounting change, 1999 income of $157.6 was lower than 1998 income of $195.8,
primarily due to higher depreciation and interest charges partially offset by
a richer product mix and lower income tax provision.
Outlook
The Company expects 2001 shipments to be approximately 6,700,000 tons, in
spite of softening demand in the automotive and appliance markets. Value-added
products are expected to remain above 90% of total shipments for the year.
However, pricing under long-term contracts is expected to be 2% lower across
all steel product lines and spot market pricing is expected to remain
significantly depressed through at least the first quarter.
Steel scrap and slab prices are expected to be lower in 2001 than in 2000,
potentially reducing costs $40.0 in the year. While the prices paid for a
portion of the Company's 2001 natural gas purchases have been set, these costs
are expected to be at least $25.0 higher than in 2000. In addition, the
Company expects to undertake two outages for blast furnace maintenance in
2001, costing approximately $10.0 each.
13
<PAGE>
Liquidity and Capital Resources
At December 31, 2000, the Company had $86.8 in cash and cash equivalents. In
addition, net of $75.3 used to support letters of credit, the Company had
$224.7 of availability under its $300.0 accounts receivable purchase credit
facility.
During 2000, cash flow from operations generated $329.9, attributed
primarily to $471.8 of income excluding noncash charges for depreciation,
amortization and deferred taxes, offset by the impact of working capital items
and a $55.6 improvement in the funded status of the Company's pension plans.
Working capital cash usage included $50.9 for inventories, primarily due to
increases in stainless steel required by the Rockport Works, growth of hold-
for-release inventory for contract sales, and higher than targeted slab
inventories. In addition, a $31.6 cash usage in current liabilities was
partially due to a reduction in incentive accruals.
Cash flows used in investing totaled $193.8. Capital investments totaled
$137.7, including $2.5 in capitalized interest. In addition, the Company used
$66.4 for the purchase of long-term investments.
Cash flows from financing activities resulted in a net use of $103.7,
including $55.9 for dividends on common and preferred stock and $41.4 for the
purchase of common and preferred stock.
Dividend Reduction
On January 18, 2001, the Board of Directors declared a reduced quarterly
common stock dividend of $0.0625 per share payable on February 28, 2001 to
shareholders of record on February 1, 2001. This 50% reduction was enacted in
light of currently depressed steel market conditions.
Anticipated Debt Service
At December 31, 2000, the Company's long-term debt, including the current
portion, totaled $1,450.8, consisting primarily of senior notes that mature in
the years 2006 through 2009 and that are not subject to amortization prior to
maturity. In addition, the Company's Senior Secured Notes Due 2004 are
repayable in four successive annual installments of $62.5 commencing in
December 2001. The Company's obligation to make principal payments in each of
the next five years is as follows: $63.2 in 2001, $63.3 in 2002, $62.5 in
2003, $62.5 in 2004 and zero in 2005. Interest expense for 2000, net of
capitalized interest of $2.5, totaled $136.1.
Capital Investments
The Company anticipates 2001 capital investments of approximately $125.0. At
December 31, 2000, commitments for future capital investments, including those
to ensure environmental compliance, totaled approximately $51.2, all of which
is expected to be funded in 2001 from available cash and cash generated from
operations.
Employee Benefit Obligations
As of December 31, 2000, the Company's major pension plans were fully funded
in accordance with accounting principles generally accepted in the U.S.
Funding levels in the near term (three to five years) are expected to be
minimal. The Company also has available a pension funding credit balance of
$434.6 that can be used to meet future funding requirements.
At December 31, 2000, the Company's liability for postretirement benefits
other than pensions totaled $1,454.3. The Company has established a health
care trust as a means of prefunding a portion of this liability. The balance
of the trust, including the earnings on trust investments, as of December 31,
2000, was $156.0, which was equivalent to less than one year of active and
retiree health care payments.
14
<PAGE>
Share Repurchase Plan
On April 25, 2000, the Company announced that its Board of Directors had
authorized the Company to repurchase, from time to time, up to $100.0 of its
outstanding equity securities. Through December 31, 2000, the Company expended
$40.5 to purchase 3,702,600 shares of its common stock and 48,450 shares of
its $3.625 convertible preferred stock pursuant to this authorization. To
maximize liquidity in light of adverse steel industry conditions, no shares
were purchased in the fourth quarter of 2000. Purchases in 2000 were, and
future purchases will be, funded by existing cash balances and cash generated
from operations.
New Accounting Standard
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 requires the Company to
mark-to-market its derivative instruments. The Company adopted the new
standard on January 1, 2001 and expects to record income of $27.5, net of tax,
in other comprehensive income. The Company is party to derivative contracts
that are designated and qualify as cash flow hedges under SFAS No. 133. They
include contracts for natural gas, nickel, zinc and aluminum, as well as for
the sale of euros. The Company does not enter into derivative contracts that
do not qualify for treatment as a hedge transaction.
Forward-Looking Statements
Certain statements made or incorporated by reference in this Form 10-K, or
made in press releases or in oral presentations made by Company employees,
reflect management's estimates and beliefs and are intended to be, and are
hereby identified as "forward-looking statements" for purposes of the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. In
particular, these include statements in the forgoing paragraphs entitled, Raw
Materials, Competition, Environmental Matters, Legal Proceedings, Outlook,
Liquidity and Capital Resources, and New Accounting Standard. In addition,
these include statements in the paragraph entitled Quantitative and
Qualitative Disclosure About Market Risk and in the Notes to Consolidated
Financial Statements in the paragraphs entitled, Fair Value of Financial
Instruments, New Accounting Standards, Concentrations of Credit Risk, Income
Taxes, Commitments, and Legal, Environmental Matters and Contingencies.
The Company cautions readers that such forward-looking statements involve
risks and uncertainties that could cause actual results to differ materially
from those currently expected by management. In addition to those noted in the
statements themselves, these factors include, but are not limited to, the
following: risks of a downturn in the general economy or in the domestic
automotive industry, or continuing depressed conditions in the highly cyclical
steel industry; volatility in financial markets, which may affect invested
pension plan assets and the calculation of benefit plan liabilities and
expenses; changes in demand for the Company's products, including the possible
need to shift shipments to the spot market from the contract market; unplanned
plant outages, equipment failures or labor difficulties; actions by the
Company's foreign and domestic competitors; unexpected outcomes of major
litigation and contingencies; changes in United States trade policy and
actions with respect to imports; unanticipated increases in the prices for, or
disruptions in the supply of, energy, particularly natural gas, and raw
materials; adverse developments within the AFSG insurance companies and
resulting actions by insurance regulators; and changes in application or scope
of environmental regulations applicable to the Company.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
In the ordinary course of business, the Company's market risk is limited to
changes in a) interest rates, b) the prices of raw materials and energy
sources, and c) foreign currency exchange rates. The Company manages interest
rate risk by issuing substantially all fixed rate debt as a source of
financing operations. The fair value of this debt as of December 31, 2000 is
$1,358.3 million. A reduction in prevailing interest rates of 1% would result
in an increase in the total fair value of long-term debt of approximately
$66.0 million. The fair value was
15
<PAGE>
determined primarily from quoted prices. The increase in total fair value due
to an assumed decline in interest rates was calculated based on a change in
the rate used to discount total future principal and interest payments. An
unfavorable effect on the Company's results and cash flows from exposure to
interest rate declines and a corresponding increase in the fair value of its
debt would result only if the Company elected to repurchase its debt at market
prices.
In the ordinary course of business, the Company is exposed to fluctuations
in the price of certain commodities. Since 70% to 75% of steel sales are under
long-term contracts where the Company may not be able to change its selling
price in response to changes in the prices it pays for raw materials and
energy, a rise in the price of natural gas or other commodities is for, the
most part, absorbed by the Company rather than passed on to the customer.
However, except in a small number of transactions where stainless steel prices
assume a fixed nickel content value, nickel prices are recovered in price
surcharges passed on to customers. The Company uses cash settled commodity
futures contracts to hedge the price of a portion of its natural gas, nickel,
aluminum, and zinc requirements. The resulting gains and losses from the use
of these contracts are deferred and recognized in the same period as the
underlying physical transaction. Based on the futures contracts outstanding at
December 31, 2000, the following table presents the amount of a negative
affect on pre-tax income (in millions of dollars) of a hypothetical 10% and
25% decrease in the market price of each of the indicated commodities.
<TABLE>
<CAPTION>
Commodity Derivative 10% Decrease 25% Decrease
-------------------- ------------ ------------
<S> <C> <C>
Natural Gas........................................ $7.9 $19.8
Nickel............................................. 0.6 1.0
Aluminum........................................... -- 0.1
Zinc............................................... 1.0 2.0
</TABLE>
Since these derivatives are structured as hedges, virtually all of the
losses realized would be offset by the benefit of lower commodity prices. The
Company does not enter into derivatives for trading purposes.
The Company is also subject to risks of exchange rate fluctuations on
receivables denominated in foreign currencies and forward currency contracts
are used to manage exposures to certain of these currency price fluctuations.
The Company has outstanding, at December 31, 2000, forward currency contracts
with a total nominal value of $18.2 million for the sale of euros. Based on
the contracts outstanding at the end of 2000, a 10% increase in the euro to
dollar rate would result in a $1.9 million loss in value, which would offset
the income generated by translation of the receivables collected.
Item 8. Financial Statements and Supplementary Data.
AK Steel Holding Corporation and Subsidiaries
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report........................................... 17
Consolidated Statements of Income for the Years Ended December 31,
1998, 1999 and 2000................................................... 18
Consolidated Balance Sheets as of December 31, 1999 and 2000........... 19
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1999 and 2000................................................... 20
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998, 1999 and 2000...................................... 21
Notes to Consolidated Financial Statements............................. 22
</TABLE>
16
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
AK Steel Holding Corporation:
We have audited the accompanying consolidated balance sheets of AK Steel
Holding Corporation and Subsidiaries as of December 31, 1999 and 2000, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1999 and 2000, and the results of its operations and its 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 of America.
As discussed in Note 8 to the consolidated financial statements, in 1998 the
Company changed its method of amortizing unrecognized net gains and losses
related to its obligations for pensions and other postretirement benefits.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
January 17, 2001
17
<PAGE>
AK STEEL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1998, 1999 and 2000
(dollars in millions, except per share data)
<TABLE>
<CAPTION>
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Net sales........................................ $4,101.0 $4,368.3 $4,611.5
Cost of products sold............................ 3,297.8 3,503.3 3,773.7
Selling and administrative expenses.............. 278.0 309.8 267.6
Depreciation (Note 1)............................ 161.2 210.7 232.0
Special charges (Note 10)........................ -- 99.7 --
-------- -------- --------
Total operating costs............................ 3,737.0 4,123.5 4,273.3
-------- -------- --------
Operating profit................................. 364.0 244.8 338.2
Interest expense................................. 84.9 123.7 136.1
Other income..................................... 30.3 20.8 8.0
-------- -------- --------
Income from continuing operations before income
taxes and minority interest..................... 309.4 141.9 210.1
Income tax provision (Note 5).................... 105.5 63.9 77.7
Minority interest (Note 2)....................... 8.1 6.7 --
-------- -------- --------
Income from continuing operations................ 195.8 71.3 132.4
Discontinued operations (Note 13)................ -- 7.5 --
-------- -------- --------
Income before extraordinary item and cumulative
effect of a change in accounting................ 195.8 78.8 132.4
Extraordinary loss on retirement of debt, net of
tax (Note 6).................................... -- 13.4 --
Cumulative effect of a change in accounting, net
of tax (Note 8)................................. 133.9 -- --
-------- -------- --------
Net income....................................... 329.7 65.4 132.4
Other comprehensive income, net of tax:
Foreign currency translation adjustment........ 0.3 (1.4) (2.1)
Unrealized gains on securities:
Unrealized holding gains arising during
period...................................... 0.5 0.7 0.1
Less: reclassification for gains included in
net income.................................. (1.0) (1.9) (1.4)
Minimum pension liability adjustment........... (2.6) 1.2 0.2
-------- -------- --------
Comprehensive income............................. $ 326.9 $ 64.0 $ 129.2
======== ======== ========
Earnings per share: (Note 1)
Basic earnings per share:
Income from continuing operations............ $ 1.86 $ 0.62 $ 1.20
Discontinued operations...................... -- 0.07 --
Extraordinary loss on retirement of debt..... -- 0.13 --
Cumulative effect of a change in accounting.. 1.33 -- --
-------- -------- --------
Net income................................... $ 3.19 $ 0.56 $ 1.20
======== ======== ========
Diluted earnings per share:
Income from continuing operations............ $ 1.82 $ 0.62 $ 1.20
Discontinued operations...................... -- 0.07 --
Extraordinary loss on retirement of debt..... -- 0.13 --
Cumulative effect of a change in accounting.. 1.24 -- --
-------- -------- --------
Net income................................... $ 3.06 $ 0.56 $ 1.20
======== ======== ========
Cash dividends per common share (Based on actual
outstanding shares, not adjusted for the
merger)......................................... $ 0.50 $ 0.50 $ 0.50
</TABLE>
See notes to consolidated financial statements.
18
<PAGE>
AK STEEL HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 2000
(dollars in millions)
<TABLE>
<CAPTION>
1999 2000
----------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................... $ 54.4 $ 86.8
Accounts receivable, net (Note 1)................... 507.2 517.7
Inventories, net (Note 1)........................... 797.6 848.4
Deferred tax asset (Note 5)......................... 64.5 54.7
Other current assets................................ 8.8 14.2
----------- ----------
Total Current Assets.............................. 1,432.5 1,521.8
----------- ----------
Property, Plant and Equipment (Note 1)................ 4,573.5 4,682.4
Less accumulated depreciation....................... (1,585.7) (1,796.7)
----------- ----------
Property, plant and equipment, net.................. 2,987.8 2,885.7
----------- ----------
Other Assets:
Investment in AFSG (Note 13)........................ 85.6 85.6
Other investments................................... 51.7 114.0
Goodwill and other intangible assets................ 121.3 119.1
Prepaid pension (Note 8)............................ 148.0 206.5
Deferred tax asset (Note 5)......................... 328.0 242.2
Other............................................... 72.2 64.9
----------- ----------
Total Assets...................................... $ 5,227.1 $ 5,239.8
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................... $ 496.0 $ 498.3
Accrued liabilities................................. 297.3 262.2
Current portion of long-term debt (Note 6).......... 5.9 63.2
Current portion of pension and other postretirement
benefit obligations (Note 8)....................... 68.8 66.6
----------- ----------
Total Current Liabilities......................... 868.0 890.3
----------- ----------
Noncurrent Liabilities:
Long-term debt (Note 6)............................. 1,451.0 1,387.6
Pension and other postretirement benefit obligations
(Note 8)........................................... 1,416.3 1,420.2
Other liabilities................................... 214.0 222.4
----------- ----------
Total Noncurrent Liabilities...................... 3,081.3 3,030.2
----------- ----------
Total Liabilities................................. 3,949.3 3,920.5
----------- ----------
Stockholders' Equity: (Note 3)
Preferred stock..................................... 14.9 12.5
Common stock, authorized 200,000,000 shares of $.01
par value each; issued 1999, 115,048,490 shares,
2000, 115,832,859 shares; outstanding 1999,
110,640,088 shares; 2000, 107,650,372 shares....... 1.2 1.2
Additional paid-in capital.......................... 1,793.6 1,803.2
Treasury stock, common shares at cost, 1999,
4,408,402; 2000, 8,182,487 shares.................. (80.2) (119.4)
Accumulated deficit................................. (450.0) (373.3)
Accumulated other comprehensive income (loss) (Note
1)................................................. (1.7) (4.9)
----------- ----------
Total Stockholders' Equity............................ 1,277.8 1,319.3
----------- ----------
Total Liabilities and Stockholders' Equity............ $ 5,227.1 $ 5,239.8
=========== ==========
</TABLE>
See notes to consolidated financial statements.
19
<PAGE>
AK STEEL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1999 and 2000
(dollars in millions)
<TABLE>
<CAPTION>
1998 1999 2000
------ ------- ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................... $329.7 $ 65.4 $132.4
------ ------- ------
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation...................................... 161.2 210.7 232.0
Amortization...................................... 16.1 16.4 16.0
Deferred income taxes............................. 71.8 57.7 91.4
Special charges................................... -- 99.7 --
Income from discontinued operations............... -- (7.5) --
Extraordinary loss on retirement of debt.......... -- 13.4 --
Cumulative effect of a change in accounting....... (133.9) -- --
Other items, net.................................. 5.5 (2.4) 1.4
Changes in assets and liabilities:
Accounts and notes receivable................... (47.6) (74.8) (11.2)
Inventories..................................... (48.9) (127.4) (50.9)
Current liabilities............................. (59.7) 19.4 (31.6)
Other assets.................................... 10.2 (0.9) (2.7)
Pension asset and obligation.................... (50.6) (19.0) (55.6)
Postretirement benefit obligation............... (7.4) 0.5 (0.3)
Other liabilities............................... (16.1) (1.9) 9.0
------ ------- ------
Total adjustments............................. (99.4) 183.9 197.5
------ ------- ------
Net cash flows from operating activities........ 230.3 249.3 329.9
------ ------- ------
Cash flows from investing activities:
Capital investments................................. (805.2) (337.2) (137.7)
Net sale of short-term investments.................. 255.9 6.8 --
Purchase of long-term investments................... (1.0) (0.2) (66.4)
Proceeds from the sale of investments............... 31.2 4.6 3.2
Proceeds from sale of property, plant and equipment. 10.1 2.1 6.2
Advances to investees............................... (6.1) -- --
Other items, net.................................... 0.3 0.8 0.9
------ ------- ------
Net cash flows from investing activities........ (514.8) (323.1) (193.8)
------ ------- ------
Cash flows from financing activities:
Proceeds from issuance of common stock.............. 2.0 24.7 1.6
Proceeds from issuance of long-term debt............ 221.9 460.0 --
Principal payments on long-term debt................ (51.2) (530.8) (6.0)
Purchase of treasury stock.......................... (39.6) (1.5) (39.2)
Purchase of preferred stock......................... -- (115.8) (2.2)
Preferred stock dividends paid...................... (9.8) (7.6) (1.0)
Common stock dividends paid......................... (29.7) (35.1) (54.9)
Underwriting discount and stock issuance expense.... (0.2) (10.8) --
Other items, net.................................... (0.3) (1.6) (2.0)
------ ------- ------
Net cash flows from financing activities........ 93.1 (218.5) (103.7)
------ ------- ------
Net increase (decrease) in cash and cash equivalents.. (191.4) (292.3) 32.4
Cash and cash equivalents, beginning of period...... 538.1 346.7 54.4
------ ------- ------
Cash and cash equivalents, end of period............ $346.7 $ 54.4 $ 86.8
====== ======= ======
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
AK STEEL HOLDING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in millions)
<TABLE>
<CAPTION>
Additional Accum-
Preferred Common Paid-In- Treasury ulated
Stock Stock Capital Stock Deficit Other Total
--------- ------ ---------- -------- ------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1997................... $ 130.4 $1.0 $1,682.5 $ (48.2) $(762.9) $ 2.5 $1,005.3
Net income.............. 329.7 329.7
Unrealized gain on
marketable securities.. (0.5) (0.5)
Stock options exercised. 2.0 2.0
Tax benefit from
exercise of stock
options................ 0.2 0.2
Tax benefit from vesting
of restricted stock.... 0.2 0.2
Purchase of stock....... (39.6) (39.6)
Preferred stock $.90625
cash dividend per
quarter................ (9.8) (9.8)
Common stock $.125 cash
dividend per quarter... (29.7) (29.7)
Translation adjustment.. 0.3 0.3
Minimum pension
liability.............. (2.6) (2.6)
Issuance of restricted
stock, net............. 0.1 8.5 8.6
Unamortized restricted
stock.................. (1.4) (1.4)
------- ---- -------- ------- ------- ----- --------
Balance, December 31,
1998................... 130.4 1.1 1,692.0 (87.8) (472.7) (0.3) 1,262.7
Net income.............. 65.4 65.4
Unrealized gain on
marketable securities.. (1.2) (1.2)
Stock options exercised. 31.7 31.7
Tax benefit from
exercise of stock
options................ 5.5 5.5
Purchase of treasury
stock.................. (1.5) (1.5)
Sale of treasury stock.. (1.1) 9.1 8.0
Conversion of preferred
stock to common stock.. (115.5) 0.1 115.4 --
Conversion of minority
interest preferred
stock.................. (62.3) (62.3)
Conversion of minority
interest to common
stock.................. 2.1 2.1
Preferred stock $.90625
cash dividend per
quarter................ (7.6) (7.6)
Common stock $.125 cash
dividend per quarter... (35.1) (35.1)
Translation adjustment.. (1.4) (1.4)
Minimum pension
liability.............. 1.2 1.2
Issuance of restricted
stock, net............. 10.8 10.8
Unamortized restricted
stock.................. (0.5) (0.5)
------- ---- -------- ------- ------- ----- --------
Balance, December 31,
1999................... 14.9 1.2 1,793.6 (80.2) (450.0) (1.7) 1,277.8
Net income.............. 132.4 132.4
Unrealized gain on
marketable securities.. (1.3) (1.3)
Stock options exercised. 4.2 4.2
Tax benefit from
exercise of stock
options................ (0.6) (0.6)
Purchase of treasury
stock.................. (39.2) (39.2)
Purchase of preferred
stock.................. (2.4) 0.2 (2.2)
Preferred stock $.90625
cash dividend per
quarter................ (1.0) (1.0)
Common stock $.125 cash
dividend per quarter... (54.9) (54.9)
Translation adjustment.. (2.1) (2.1)
Minimum pension
liability.............. 0.2 0.2
Issuance of restricted
stock, net............. 7.6 7.6
Unamortized restricted
stock.................. (1.6) (1.6)
------- ---- -------- ------- ------- ----- --------
Balance, December 31,
2000................... $ 12.5 $1.2 $1,803.2 $(119.4) $(373.3) $(4.9) $1,319.3
======= ==== ======== ======= ======= ===== ========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except per share amounts)
1. Summary of Significant Accounting Policies
Basis of Presentation: AK Steel Holding Corporation ("AK Holding") and its
wholly-owned subsidiary AK Steel Corporation ("AK Steel," and together with AK
Holding, the "Company") were formed effective March 29, 1994 as a result of
the recapitalization of Armco Steel Company, L.P.
There is no summarized financial information included for AK Steel because
there is no substantial difference in the operations of AK Steel and AK
Holding and because AK Steel's indebtedness for borrowed money is fully and
unconditionally guaranteed by AK Holding. AK Holding has no independent
operations.
As described more fully in Note 2, the Company completed a transaction on
September 30, 1999, whereby Armco Inc. ("Armco") merged with and into AK
Steel, and AK Steel became the surviving company. The transaction is accounted
for as a pooling of interests and, therefore, the consolidated financial
statements presented herein reflect the combined financial position, results
of operations and cash flows of Armco and the Company as if they had been
combined for all periods presented. Prior to September 30, 1999, AK Steel and
Armco, in the normal course of business, entered into certain transactions for
the purchase and conversion of material. These intercompany transactions have
been eliminated in the accompanying financial statements. All references to
the number of common shares outstanding and per share amounts, except
dividends per share, have given effect to the Armco merger.
These financial statements consolidate the operations and accounts of the
Company and all subsidiaries in which the Company has a controlling interest.
Further information about operating segments is included in Note 9.
Use of Estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the U.S. requires the use of
management estimates. Actual results could differ from those estimates.
Revenue Recognition: Revenue from sales of products is recognized at the
time products are shipped to the customer. Revenue from services performed is
recognized when the service is provided to the customer.
Cash Equivalents: Cash equivalents include short-term, highly liquid
investments that are readily convertible to known amounts of cash and are of
an original maturity of three months or less.
Supplemental Disclosure of Cash Flow Information:
<TABLE>
<CAPTION>
1998 1999 2000
----- ------ ------
<S> <C> <C> <C>
Cash paid (received) during the period for:
Interest (net of interest capitalized)................ $79.0 $114.3 $127.1
Income taxes.......................................... 25.7 6.2 (9.0)
</TABLE>
Supplemental Cash Flow Information Regarding Noncash Investing and Financing
Activities: The Company granted to certain employees shares of its common
stock with values, net of cancellations, of $8.6, $10.8 and $7.6 in 1998, 1999
and 2000, respectively, under its restricted stock award programs (Note 4).
During 1999, holders of the Company's $3.625 cumulative convertible preferred
stock converted their shares with a total redemption value of $115.5 into
common stock and holders of Armco's other preferred stock issues converted
their shares with a redemption value of $2.1 into common stock (Note 2).
Fair Value of Financial Instruments: The carrying value of the Company's
financial instruments does not differ materially from their estimated fair
value (primarily based on quoted market prices) in 1999 and 2000 with the
exception of the Company's long-term debt and certain derivative contracts. At
December 31, 2000, the fair
22
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in millions, except per share amounts)
value of the Company's long-term debt, including current maturities, was
approximately $1,358.3. This amount was determined primarily from quoted
market prices, where possible. The fair value estimate was based on pertinent
information available to management as of December 31, 2000. Management is not
aware of any significant factors that would materially alter this estimate
since that date. The fair value of the Company's long-term debt, including
current maturities, at December 31, 1999 was approximately $1,445.2.
At December 31, 2000, the Company had an unrecorded receivable of $46.5
related to the fair value of cash settled commodity futures contracts used to
hedge the future price of natural gas. The Company also had unrecorded
payables of $0.2 each for derivative hedges of nickel and zinc, and a payable
of $0.5 for foreign exchange contracts for the sale of euros. These contracts
had notional principal values of $62.8 for natural gas, $3.3 for nickel, $6.5
for zinc and $18.2 for foreign exchange. The values of similar contracts at
the end of 1999 were negligible.
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 requires the Company to
mark-to-market its derivative instruments. The Company adopted the new
standard on January 1, 2001 and expects to record income of $27.5, net of tax,
in other comprehensive income. The Company is a party to derivative forward
contracts that are designated and qualify as cash flow hedges under SFAS No.
133. They include contracts for natural gas, nickel, zinc and aluminum, as
well as for the sale of euros. The Company does not enter into derivative
contracts that do not qualify for treatment as a hedge transaction.
Accounts Receivable: The allowance for doubtful accounts was $4.5 and $5.0
at December 31, 1999 and 2000.
Inventories: Inventories are valued at the lower of cost or market. The cost
of the majority of inventories is measured on the last in, first out ("LIFO")
method. Other inventories are measured principally at average cost and consist
mostly of foreign inventories and certain raw materials.
<TABLE>
<CAPTION>
1999 2000
------ ------
<S> <C> <C>
Inventories on LIFO:
Finished and semifinished.................................. $620.1 $704.1
Raw materials and supplies................................. 175.5 161.5
Adjustment to state inventories at LIFO value.............. (22.8) (42.1)
------ ------
Total.................................................... 772.8 823.5
Other inventories............................................ 24.8 24.9
------ ------
Total inventories........................................ $797.6 $848.4
====== ======
</TABLE>
Investments: The Company has investments in associated companies (joint
ventures and an entity that the Company does not control). These investments
are accounted for under the equity method. Because these companies are
directly integrated in the basic steelmaking facilities, the Company includes
its proportionate share of the income (loss) of these associated companies in
cost of products sold.
23
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in millions, except per share amounts)
Property, Plant and Equipment: Plant and equipment are depreciated under the
straight line method over their estimated lives ranging from 2 to 40 years.
The Company's property, plant and equipment balances as of December 31, 1999
and 2000 are as follows:
<TABLE>
<CAPTION>
1999 2000
--------- ---------
<S> <C> <C>
Land, land improvements and leaseholds................. $ 137.5 $ 133.6
Buildings.............................................. 333.8 330.3
Machinery and equipment................................ 3,965.7 4,108.8
Construction in progress............................... 136.5 109.7
--------- ---------
Total................................................ 4,573.5 4,682.4
Less accumulated depreciation.......................... (1,585.7) (1,796.7)
--------- ---------
Property, plant and equipment, net..................... $ 2,987.8 $ 2,885.7
========= =========
</TABLE>
Goodwill and Other Intangible Assets: Goodwill and other intangible assets
primarily consist of goodwill recorded in connection with Armco's acquisition
of Cyclops Industries, Inc. on April 24, 1992. This goodwill is being
amortized using the straight-line method over 40 years. Also included are
goodwill and other intangible assets acquired in Armco's purchase of Douglas
Dynamics, L.L.C. on July 2, 1991. These assets are being amortized over their
estimated useful lives, the majority of which do not exceed 17 years.
Amortization expense was $6.1 in each of the years 1998, 1999 and 2000. At
December 31, 1999 and 2000, accumulated amortization of goodwill and other
intangible assets was $48.7 and $54.8, respectively.
The Company assesses whether its goodwill and other intangible assets are
impaired as required by Statement of Financial Accounting Standards No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," based on an evaluation of undiscounted projected cash flows
through the remaining amortization period. If an impairment exists, the amount
of such impairment is determined based on the estimated fair value of the
asset.
24
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in millions, except per share amounts)
Earnings Per Share: The reconciliation of the numerators and denominators of
the basic and diluted EPS computations is as follows:
<TABLE>
<CAPTION>
1998 1999 2000
------ ----- ------
<S> <C> <C> <C>
Income for calculation of basic earnings per share:
Income from continuing operations........................ $195.8 $71.3 $132.4
Less: Preferred stock dividends.......................... 9.8 7.6 1.0
------ ----- ------
Income from continuing operations available to common
stockholders............................................ 186.0 63.7 131.4
Income from discontinued operations...................... -- 7.5 --
Extraordinary loss on retirement of debt................. -- 13.4 --
Cumulative effect of a change in accounting.............. 133.9 -- --
------ ----- ------
Net income available to common stockholders.............. $319.9 $57.8 $131.4
====== ===== ======
Common shares outstanding (weighted average in millions)... 100.6 102.4 109.5
====== ===== ======
Basic earnings per share:
Income from continuing operations........................ $ 1.86 $0.62 $ 1.20
Discontinued operations.................................. -- 0.07 --
Extraordinary loss....................................... -- 0.13 --
Cumulative effect of a change in accounting.............. 1.33 -- --
------ ----- ------
Net income............................................... $ 3.19 $0.56 $ 1.20
====== ===== ======
Income for calculation of diluted earnings per share:
Income from continuing operations........................ $195.8 $71.3 $132.4
Less: Preferred stock dividends.......................... -- 7.6 1.0
------ ----- ------
Income from continuing operations available to common
stockholders............................................ 195.8 63.7 131.4
Discontinued operations.................................. -- 7.5 --
Extraordinary loss....................................... -- 13.4 --
Cumulative effect of a change in accounting.............. 133.9 -- --
------ ----- ------
Net income available to common stockholders.............. $329.7 $57.8 $131.4
====== ===== ======
Shares (weighted average in millions):
Common shares outstanding................................ 100.6 102.4 109.5
Assumed conversion of preferred stock.................... 7.0 -- --
Common stock options outstanding......................... 0.3 0.5 0.1
------ ----- ------
Common shares outstanding as adjusted.................... 107.9 102.9 109.6
====== ===== ======
Diluted earnings per share:
Income from continuing operations........................ $ 1.82 $0.62 $ 1.20
Discontinued operations.................................. -- 0.07 --
Extraordinary loss....................................... -- 0.13 --
Cumulative effect of a change in accounting.............. 1.24 -- --
------ ----- ------
Net income............................................... $ 3.06 $0.56 $ 1.20
====== ===== ======
</TABLE>
At the end of each year, the Company had outstanding stock options and/or
convertible preferred stock whose exercise or conversion could, under certain
circumstances, further dilute earnings per share. The following
25
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in millions, except per share amounts)
shares of potentially issuable common stock were not included in the above
weighted average shares outstanding because to do so would have had an
antidilutive effect on earnings per share for the years presented.
<TABLE>
<CAPTION>
(Common shares in millions) 1998 1999 2000
- --------------------------- ---- ---- ----
<S> <C> <C> <C>
Stock options.................................................... 2.4 0.6 3.3
$3.625 convertible preferred stock............................... -- 0.8 0.7
</TABLE>
Research and Development Costs: The Company conducts a broad range of
research and development activities aimed at improving existing products and
manufacturing processes and developing new products and processes. Research
and development costs are recorded as expense when incurred. Research and
development costs incurred in 1998, 1999 and 2000 were $18.6, $16.8 and $15.3,
respectively.
Concentrations of Credit Risk: The Company is primarily a producer of flat-
rolled carbon, stainless and electrical steels and steel products, which are
sold to a number of markets, including automotive, industrial machinery and
equipment, construction, power distribution and appliances. The Company sells
domestically to customers primarily in the Midwestern and Eastern United
States, while approximately 8% of sales are to foreign customers, primarily in
Canada, Mexico and Western Europe. Approximately 36% of trade receivables
outstanding at December 31, 2000 are due from businesses associated with the
U.S. automotive industry. Except in a few situations where the risk warrants
it, collateral is not required on trade receivables; and while it believes its
trade receivables will be collected, the Company anticipates that in the event
of default it would follow normal collection procedures. Overall, credit risk
related to trade receivables is limited due to the large number of customers
in differing industries and geographic areas.
Accumulated Other Comprehensive Income: The components of accumulated other
comprehensive income (loss) at December 31 are as follows:
<TABLE>
<CAPTION>
1998 1999 2000
----- ----- -----
<S> <C> <C> <C>
Foreign currency translation........................... $ 0.8 $(0.6) $(2.7)
Unrealized gain/(loss) on investments.................. 1.5 0.3 (1.0)
Minimum pension liability.............................. (2.6) (1.4) (1.2)
----- ----- -----
Total.................................................. $(0.3) $(1.7) $(4.9)
===== ===== =====
</TABLE>
Reclassifications: Certain amounts in the prior year financial statements
have been reclassified to conform to the 2000 presentation. In particular, the
Consolidated Statements of Income reflect the reclassification of freight
billed to customers as a component of net sales in accordance with Emerging
Issues Task Force Consensus 00-10, "Accounting for Shipping and Handling Fees
and Costs." Net sales and cost of products sold each increased over the
amounts previously reported by $71.3, $83.5 and $94.3 for the years 1998, 1999
and 2000, respectively.
2. Merger with Armco Inc.
On September 30, 1999, the Company consummated the merger of Armco with and
into AK Steel. Armco was a leading producer of stainless and electrical steels
and, in addition, owned and operated a manufacturer of steel pipe and tubing
products, a manufacturer of snowplows and ice control products for four-wheel
drive light trucks, and an industrial park on the Houston, Texas ship channel.
Upon the effectiveness of the merger, each outstanding share of Armco common
stock was converted into the right to receive .3829 shares of AK Holding
common stock. As a result, AK Holding issued 41,616,577 shares of common
stock. In addition, the outstanding shares of one of Armco's three series of
convertible preferred stock were converted into the right to receive a
26
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in millions, except per share amounts)
like number of shares of a substantially identical new series of cumulative
convertible preferred stock of AK Holding, which is described more fully in
Note 3.
Lastly, the Company paid cash of $116.5, including one month's dividends,
and issued 28,331 shares of its common stock to convert the outstanding shares
of the two remaining series of Armco's convertible preferred stock. For
periods prior to the merger, dividends on these two series of preferred stock
are reported as minority interest on the Consolidated Statements of Income.
Historically, Armco did not provide for federal income taxes at full
statutory rates. However, to reflect its book tax rate in income from
continuing operations on a combined basis, the Company accrued additional
income tax expense of $37.9 for 1998 and $17.5 for the first six months of
1999.
As more fully discussed in Note 8, the Company conformed the AK Steel and
Armco methods of amortizing unrecognized net gains and losses related to its
obligations for pensions and other postretirement benefits. In 1998, the
Company recognized income of $133.9 (net of tax), or $1.24 per diluted share,
for the cumulative effect of this accounting change.
The following presents a reconciliation of previously reported results of AK
Holding and Armco to the results of the merged Company. Eliminations/other
primarily reflects the elimination of intercompany transactions, the
additional accrual of income taxes, including taxes on extraordinary losses
and cumulative effect of the accounting change. The adjustment in
eliminations/other for stockholders' equity also includes cumulative credits
for revaluations of the deferred tax asset of $335.2 in 1998 and $210.0 in
1999.
<TABLE>
<CAPTION>
AK Elimination/
Holding Armco Other Total
-------- -------- ------------ --------
<S> <C> <C> <C> <C>
For the year 1998
Revenues............................. $2,448.3 $1,723.1 $ (70.4) $4,101.0
Cumulative effect of an accounting
change.............................. -- 237.5 (103.6) 133.9
Net income........................... 114.5 347.1 (131.9) 329.7
Stockholders' equity................. 929.5 178.7 154.5 1,262.7
Six months ended June 30, 1999
Revenues............................. $1,348.1 $ 884.9 $ (53.1) $2,179.9
Extraordinary loss on retirement of
debt................................ 12.0 2.8 (1.4) 13.4
Net income........................... 35.5 63.7 (29.9) 69.3
Stockholders' equity................. 957.4 235.5 132.0 1,324.9
</TABLE>
3. Stockholders' Equity
Preferred Stock: The Company's $3.625 preferred stock ranks senior to its
common stock with respect to dividends and upon liquidation. The holders of
this preferred stock are entitled to one vote per share with respect to all
matters to be voted upon by the stockholders of the Company. Each share may be
converted, at the holder's option, into 2.6 shares of the Company's common
stock. At the Company's option, each share of preferred stock may be redeemed
at a price of $50.725 until October 15, 2001. This price, then, is reduced at
twelve-month intervals until it reaches $50 per share on and after October 15,
2002. Upon dissolution, liquidation or winding up of the Company, whether
voluntary or involuntary, holders of the $3.625 preferred stock are entitled
to a payment of $50 per share plus accrued but unpaid dividends before
payments can be made to the holders of common stock. At December 31, 1999 and
2000, there were authorized and issuable 307,931 and 259,481 shares,
respectively, of $3.625 preferred stock with a $1 per share par value, all of
which were outstanding.
Common Stock: The holders of common stock are entitled to receive dividends
when and as declared by the Board of Directors out of funds legally available
for distribution. The holders have one vote per share in respect of all
matters and are not entitled to preemptive rights.
27
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in millions, except per share amounts)
Dividends: The Company has paid quarterly dividends on its common stock
since November 15, 1995. A dividend of $0.125 per share was paid in each
quarter of 1999 and 2000. In addition, since December 31, 1999, the Company
has paid regular quarterly dividends of $0.90625 per share on its preferred
stock. The declaration and payment of cash dividends on common and preferred
stock is subject to restrictions imposed by instruments governing its senior
debt. At December 31, 2000, the Company had $27.2 available under these
instruments for the payment of cash dividends.
On January 18, 2001, the Board of Directors declared a reduced quarterly
common stock dividend of $0.0625 per share payable on February 28, 2001 to
shareholders of record on February 1, 2001.
Stockholder Rights Plan: On January 23, 1996, the Board of Directors adopted
a Stockholder Rights Plan pursuant to which it has issued one Preferred Share
Purchase Right (collectively, the "Rights") for each share of common stock
outstanding. The Rights are generally not exercisable unless, and no sooner
than 10 business days after, any person or group acquires beneficial ownership
of 20% or more of the Company's voting stock or announces a tender offer that
could result in the acquisition of 30% or more of such voting stock. In
addition, each Right entitles the holder, upon occurrence of certain specified
events, to purchase 1/200th of a share of Series A Junior Preferred Stock
("Junior Preferred Stock") at an exercise price of $65 per share. Each share
of Junior Preferred Stock, if and when issued, will entitle the holder to 200
votes in respect of all matters submitted to a vote of the holders of common
stock. Upon the occurrence of certain events, holders of the Rights would be
entitled to purchase either shares of the Company or an acquiring entity at
half of market value. The Rights are redeemable, under certain circumstances,
at any time prior to their expiration on January 23, 2006.
4. Common Stock Compensation
AK Steel Holding Corporation's Stock Incentive Plan (the "SIP") permits the
granting of nonqualified stock options and restricted stock awards to
directors, officers and key management employees of the Company. These
nonqualified option and restricted stock awards may be granted with respect to
an aggregate maximum of 11 million shares through the period ending December
31, 2007. The exercise price of each option may not be less than the market
price of the Company's common stock on the date of the grant. Stock options
have a maximum term of 10 years and may not be exercised earlier than six
months following the date of grant (or such other term as may be specified in
the award agreement). Generally, 25% of the shares covered by a restricted
stock award vest two years after the date of the award and an additional 25%
vest on the third, fourth and fifth anniversaries of the date of the award.
The nonqualified stock options vest at the rate of 33% per year over three
years.
Prior to the merger, Armco maintained plans under which stock options and
restricted stock awards were granted. Effective with the merger, Armco's stock
options were converted into options to purchase the Company's common stock,
adjusting the option price and number of shares by the same .3829 ratio used
to convert outstanding shares of Armco common stock at the time of the merger.
In addition, all unvested options vested. Other provisions of these options
were similar to those of the Company and did not change. All outstanding
restricted stock awards of Armco vested upon the effectiveness of the merger
and the shares were converted into the Company's common stock.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and related interpretations in accounting for
the SIP. The compensation cost that has been charged against income for the
restricted stock awards issued under the SIP and Armco's award program was
$4.7, $8.1 and $5.9 for 1998, 1999 and 2000, respectively. The Company adopted
the pro forma disclosure requirements of SFAS No. 123, "Accounting for Stock-
Based Compensation" in 1996. Had compensation cost
28
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in millions, except per share amounts)
for the Company's SIP and Armco's plan been determined based on the fair value
at the grant dates for awards under these plans consistent with the
methodology of SFAS No. 123, the Company's net income and earnings per share
for 1998, 1999 and 2000 would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1999 2000
------ ----- ------
<S> <C> <C> <C> <C>
Net income..................................... As reported $329.7 $65.4 $132.4
Pro forma 327.4 62.6 129.8
Basic earnings per share....................... As reported 3.19 0.56 1.20
Pro forma 3.16 0.54 1.18
Diluted earnings per share..................... As reported 3.06 0.56 1.20
Pro forma 3.04 0.53 1.18
</TABLE>
The fair value of the options to purchase shares of AK Holding common stock
is estimated on the grant date using a Black-Scholes option pricing model
considering the appropriate dividend rates along with the following weighted
average assumptions:
<TABLE>
<CAPTION>
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Expected volatility.................................. 20.1% 25.2% 30.2%
Risk free interest rates............................. 5.67% 5.61% 6.64%
Expected lives....................................... 5.0 yrs. 5.0 yrs. 5.0 yrs.
The fair value of options to purchase Armco stock included the expectation
that no dividends would be paid on the stock along with the following weighted
average assumptions:
<CAPTION>
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Expected volatility.................................. 40.0% 40.0% N/A
Risk free interest rates............................. 5.50% 4.70% N/A
Expected lives....................................... 5.0 yrs. 5.0 yrs. N/A
</TABLE>
A summary of the status of stock options under the SIP and Armco's plan as
of December 31, 1998, 1999 and 2000 and changes during each of those years is
presented below:
<TABLE>
<CAPTION>
1998 1999 2000
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Stock Options Shares Price Shares Price Shares Price
- ------------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 3,558,350 $16.36 4,067,517 $16.27 2,883,471 $17.90
Granted................. 820,291 16.31 943,254 18.58 789,000 16.15
Exercised............... 142,416 14.07 1,702,851 14.34 252,952 13.02
Forfeited............... 97,373 17.81 391,658 16.97 14,000 19.27
Expired................. 71,335 23.06 32,791 31.60 -- --
--------- --------- ---------
Outstanding at end of
year................... 4,067,517 16.27 2,883,471 17.90 3,405,519 17.88
========= ========= =========
Options exercisable at
year end............... 2,570,283 15.98 1,956,169 15.68 2,156,047 17.60
Weighted average fair
value of options
granted during the
year................... 820,291 5.18 943,254 5.68 789,000 4.59
</TABLE>
29
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in millions, except per share amounts)
The following table summarizes information about stock options outstanding
at December 31, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Contractual Exercise Exercise
Prices Outstanding Life Price Exercisable Price
-------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 8.84 to $11.94.......... 462,772 6.1 yrs. $11.05 258,772 $11.70
$11.95 to $15.04.......... 503,784 4.1 yrs. 13.77 503,784 13.77
$15.05 to $18.14.......... 173,475 6.6 yrs. 17.57 125,812 17.54
$18.15 to $21.24.......... 1,663,160 7.2 yrs. 19.11 980,669 19.61
$21.25 to $24.33.......... 577,328 5.9 yrs. 23.13 278,675 22.70
$24.34 to $27.44.......... 25,000 8.3 yrs. 26.64 8,335 26.64
</TABLE>
During 1998, 1999 and 2000, the Company issued to certain employees 611,324,
650,973 and 476,641 shares of common stock, subject to restrictions, with
weighted average grant-date fair values of $16.31, $18.39 and $12.68 per
share, respectively.
5. Income Taxes
The Company and its subsidiaries file a consolidated federal income tax
return. This return includes all domestic companies 80% or more owned by the
Company and the proportionate share of the Company's interest in partnership
investments. State tax returns are filed on a consolidated, combined or
separate basis depending on the applicable laws relating to the Company and
its domestic subsidiaries.
The United States and foreign components of income before income taxes
consist of the following:
<TABLE>
<CAPTION>
1998 1999 2000
------ ------ ------
<S> <C> <C> <C>
United States........................................... $307.2 $140.0 $208.2
Foreign................................................. 2.2 1.9 1.9
------ ------ ------
Total................................................. $309.4 $141.9 $210.1
====== ====== ======
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
at December 31, 1999 and 2000 are as follows:
<TABLE>
<CAPTION>
1999 2000
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss and tax credit carryforwards............. $ 510.1 $ 420.4
Postretirement reserves..................................... 569.7 571.6
Other reserves.............................................. 131.2 124.0
Valuation reserve........................................... (210.5) (139.5)
------- -------
Total deferred assets..................................... 1,000.5 976.5
------- -------
Deferred tax liabilities:
Depreciable assets.......................................... (512.4) (573.3)
Inventories................................................. (47.2) (27.8)
Pension assets.............................................. (48.4) (78.5)
------- -------
Total deferred liabilities................................ (608.0) (679.6)
------- -------
Net asset................................................. $ 392.5 $ 296.9
======= =======
</TABLE>
30
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in millions, except per share amounts)
Temporary differences represent the cumulative taxable or deductible amounts
recorded in the consolidated financial statements in different years than
recognized in the tax returns. The postretirement benefit difference includes
amounts expensed in the consolidated financial statements for health care,
life insurance and other postretirement benefits, which become deductible in
the tax return upon payment or funding in qualified trusts. Other temporary
differences represent principally various expenses accrued for financial
reporting purposes which are not deductible for tax reporting purposes until
paid. The depreciable assets temporary difference represents generally tax
depreciation in excess of financial statement depreciation. The inventory
difference relates primarily to differences in the LIFO reserve, reduced by
tax overhead capitalized in excess of book amounts.
At December 31, 2000, the Company had regular tax net operating loss
carryforwards for federal tax purposes expiring as follows:
<TABLE>
<CAPTION>
Net
Operating Loss
Year Expiring Carryforward
------------- --------------
<S> <C>
2003...................................................... $ 9.1
2004...................................................... 129.4
2005...................................................... 243.1
2006...................................................... 199.2
2007...................................................... 139.8
2008...................................................... 33.3
2009...................................................... 44.4
2010...................................................... 35.1
2019...................................................... 64.6
2020...................................................... 18.0
------
Total................................................... $916.0
======
</TABLE>
At December 31, 2000 the Company had Alternative Minimum Tax ("AMT") net
operating loss carryforwards of $512.0 which, unless utilized, will expire in
the years 2001 through 2009. In addition, at December 31, 2000, the Company
had unused AMT credit carryforwards of $70.5, which may be used to offset
future regular income tax liabilities. These credits can be carried forward
indefinitely.
The Company's ability to utilize Armco's net operating loss, capital loss,
and tax credit carryforwards as of the date of the merger will be limited by
Section 382 of the Internal Revenue Code. The Company has recorded a valuation
reserve for those carryforward amounts that are expected to expire prior to
being used as a result of the limits imposed by Section 382.
31
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in millions, except per share amounts)
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1998 1999 2000
------ ----- -----
<S> <C> <C> <C>
Continuing operations:
Current:
Federal............................................. $ 29.7 $ 2.3 $(9.7)
State............................................... 2.9 3.5 (4.9)
Foreign............................................. 1.1 0.7 0.9
Deferred:
Federal............................................. 60.4 60.8 71.2
State............................................... 11.4 (3.4) 20.2
------ ----- -----
Total tax provision on continuing operations...... 105.5 63.9 77.7
Extraordinary loss on early retirement of debt.......... -- (8.7) --
Cumulative effect of a change in accounting............. 89.0 -- --
------ ----- -----
Total tax provision............................... $194.5 $55.2 $77.7
====== ===== =====
</TABLE>
The reconciliation of income tax on continuing operations computed at the
U.S. federal statutory tax rates to actual income tax expense is as follows:
<TABLE>
<CAPTION>
1998 1999 2000
------ ----- ------
<S> <C> <C> <C>
Income at statutory rate.............................. $107.5 $49.0 $ 72.9
State and foreign tax provisions...................... 15.4 0.8 16.2
Reduction in deferred tax asset valuation reserve..... (2.5) (0.2) (84.7)
Tax exempt state/local interest income................ (2.8) -- --
Non-taxable anti-trust damage recoveries.............. (3.7) -- --
Expired net operating and capital loss carryovers..... -- -- 73.9
Non-deductible severance and merger expenses.......... -- 14.5 --
Other permanent differences........................... (8.4) (0.2) (0.6)
------ ----- ------
Total tax provision on continuing operations........ $105.5 $63.9 $ 77.7
====== ===== ======
</TABLE>
The Company and the Internal Revenue Service have concluded the examinations
of federal income tax returns filed for the years 1994 through 1998. In
addition, in the normal course of business the state and local tax returns of
the Company and its subsidiaries are routinely subjected to examination by
various taxing jurisdictions. However, the Company believes that the outcomes
of these examinations will not have any material adverse impact on the
Company's financial position, results of operations or cash flows.
The statute of limitations has lapsed with respect to Armco's federal income
tax returns for 1996 and prior years, and as a result these returns are closed
to assessments of additional tax. However, the NOL carryforwards from these
years remain open to adjustment. Armco has been in a cumulative NOL
carryforward position since 1983. In addition, at the time of the merger in
1999, Armco had loss carryforwards that were substantially in excess of the
amounts that are expected to be used each year after the merger, because of
the limits on the loss utilization imposed by Section 382. Consequently, the
Company believes that any IRS audit adjustments to the loss carryforwards
would not be sufficient to reduce the carryovers below the amounts for which a
deferred tax benefit has been provided.
32
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in millions, except per share amounts)
6. Long-Term Debt and Other Financing
At December 31, 1999 and 2000, the Company's long-term debt was as follows:
<TABLE>
<CAPTION>
1999 2000
-------- --------
<S> <C> <C>
Senior Secured Notes Due 2004 (interest rates of 8.48% to
9.05%).................................................. $ 250.0 $ 250.0
9 1/8% Senior Notes Due 2006............................. 550.0 550.0
9% Senior Notes Due 2007................................. 117.4 117.4
8 7/8% Senior Notes Due 2008............................. 33.6 33.5
7 7/8% Senior Notes Due 2009............................. 450.0 450.0
Tax Exempt Financing Due 2008 through 2029 (variable
rates of 3.05% to 6.10% in 2000)........................ 51.7 50.9
Other, including unamortized discount.................... 4.2 (1.0)
-------- --------
Total debt........................................... 1,456.9 1,450.8
Less: current maturities................................. 5.9 63.2
-------- --------
Total long-term debt................................. $1,451.0 $1,387.6
======== ========
</TABLE>
At December 31, 2000, the maturities of long-term debt are as follows:
<TABLE>
<S> <C>
2001................................................................ $ 63.2
2002................................................................ 63.3
2003................................................................ 62.5
2004................................................................ 62.5
2005................................................................ --
2006 and thereafter................................................. 1,199.3
--------
Total........................................................... $1,450.8
========
</TABLE>
The proceeds of the Senior Secured Notes Due 2004 were used for the
construction of the Rockport Works and the notes are collateralized by
Rockport's hot-dip galvanizing and galvannealing line and its continuous cold
mill. In addition, at December 31, 1999 and 2000, $7.4 and $1.5, respectively,
of long-term debt, including current maturities, represents financing used to
construct certain other fixed assets, which are pledged as collateral.
On January 14, 1999, Armco redeemed the entire $111.0 outstanding principal
amount of its 9-3/8% Senior Notes Due 2000 at a price of 101.75% of their
principal amount. The redemption resulted in an extraordinary loss of $2.8
($1.7 after taxes, or $0.02 per share).
On February 10, 1999, AK Steel issued $450.0 principal amount of 7-7/8%
Senior Notes Due 2009 at 99.623% of their principal amount. On April 1, 1999,
AK Steel used $338.1 of the net proceeds from the sale of these notes to
finance the redemption of its 10-3/4% Senior Notes Due 2004 at a price of
104.031% of their principal amount. The redemption resulted in an
extraordinary loss of $19.3 ($11.7 after taxes, or $0.11 per share).
At December 31, 2000, net of $75.3 used to support letters of credit, the
Company had $224.7 of availability under its $300.0 accounts receivable
purchase credit facility, which expires September 30, 2004.
33
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in millions, except per share amounts)
7. Operating Leases
Rental expense was $21.3, $25.2 and $25.7 for 1998, 1999 and 2000,
respectively.
At December 31, 2000, obligations to make future minimum lease payments were
as follows:
<TABLE>
<S> <C>
2001.................................................................... $1.7
2002.................................................................... 1.4
2003.................................................................... 1.1
2004.................................................................... 0.8
2005.................................................................... 0.4
</TABLE>
8. Pension and Other Postretirement Benefit Plans
The Company provides noncontributory pension benefits to most employees and
provides various health care and life insurance benefits to most retirees. At
December 31, 2000, pension funding credits of $434.6 were available to offset
future minimum funding requirements under the Employee Retirement Income
Security Act of 1974. Although most retiree health and life insurance benefits
are funded as claims are paid, the Company has established a health care trust
as a means of prefunding a portion of these benefits.
Effective January 1, 1998, the Company conformed the AK Steel and Armco
methods of amortizing unrecognized net gains and losses related to obligations
for pensions and other postretirement benefits and conformed the measurement
dates for actuarial valuations. In 1998, the Company recognized net of tax
income of $133.9, or $1.33 per share ($1.24 on a diluted basis), as a
cumulative effect of this accounting change. At the time it originally adopted
the standards governing the accounting for pensions and other postretirement
benefits, the Company chose to use the minimum amortization method, whereby
unrecognized net gains and losses, to the extent they exceeded 10% of the
larger of the benefit obligations or plan assets (the "corridor"), were
amortized over the average remaining service life of active participants
(approximately 15 years). Under the new accounting method, the Company
recognizes into income, as a fourth quarter adjustment, any unrecognized net
gains and losses that exceed the 10% corridor, and amortizes amounts inside
the corridor over the average remaining service life of active participants.
34
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------ --------------------
1999 2000 1999 2000
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Change in benefit obligations:
Benefit obligations at beginning
of year.......................... $3,482.2 $3,229.8 $ 1,461.9 $ 1,412.0
Service cost...................... 35.9 33.9 9.5 8.3
Interest cost..................... 228.8 239.7 96.7 105.2
Plan participants' contributions.. -- -- 10.3 13.4
Actuarial loss/(gain)............. (280.5) (72.0) (59.7) 58.7
Amendments........................ 45.1 22.8 -- 0.4
Benefits paid..................... (293.7) (317.5) (111.2) (121.5)
Curtailments...................... 4.6 -- 2.3 --
Settlements....................... 6.1 -- -- --
Special termination benefits...... 1.3 -- 2.2 --
-------- -------- --------- ---------
Benefit obligations at end of
year............................. $3,229.8 $3,136.7 $ 1,412.0 $ 1,476.5
======== ======== ========= =========
Change in plan assets:
Fair value of plan assets at
beginning of year................ $3,478.8 $3,521.5 $ 172.9 $ 167.9
Actual return on plan assets...... 333.4 261.1 21.2 11.8
Employer contributions............ 15.9 7.3 74.7 90.0
Plan participants' contributions.. -- -- 10.3 13.4
Settlements....................... (12.9) -- -- --
Benefits paid..................... (293.7) (317.5) (111.2) (121.5)
-------- -------- --------- ---------
Fair value of plan assets at end
of year........................ $3,521.5 $3,472.4 $ 167.9 $ 161.6
======== ======== ========= =========
Funded status....................... $ 291.7 $ 335.7 $(1,244.1) $(1,314.9)
Unrecognized net actuarial gain..... (288.3) (280.9) (107.8) (52.4)
Unrecognized prior service cost..... 104.4 114.4 (102.7) (87.0)
Unrecognized initial net benefit
obligation......................... 14.6 8.2 -- --
-------- -------- --------- ---------
Net amount recognized........... $ 122.4 $ 177.4 $(1,454.6) $(1,454.3)
======== ======== ========= =========
Amounts recognized in the
consolidated balance sheets consist
of:
Prepaid benefit cost.............. $ 148.0 $ 206.5 $ -- $ --
Accrued benefit liability......... (30.5) (32.5) (1,454.6) (1,454.3)
Intangible asset.................. 3.5 2.2 -- --
Accumulated other comprehensive
income........................... 1.4 1.2 -- --
-------- -------- --------- ---------
Net amount recognized........... $ 122.4 $ 177.4 $(1,454.6) $(1,454.3)
======== ======== ========= =========
</TABLE>
During the periods prior to the merger, Armco and AK Steel used different
assumptions in the preparation of this information. Weighted average
assumptions at year end for the consolidated Company are as follows:
<TABLE>
<CAPTION>
Pension
Benefits Other Benefits
----------------- -----------------
1998 1999 2000 1998 1999 2000
---- ---- ----- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
Discount rate.......................... 6.85% 7.75% 8.00% 6.85% 7.75% 8.00%
Expected return on plan assets......... 8.75% 9.50% 10.00% 8.75% 9.50% 10.00%
Rate of compensation increase.......... 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
</TABLE>
For measurement purposes, health care costs are assumed to increase 6.5%
during 2001, and thereafter decrease 1/2% per year until reaching the ultimate
trend rate of 5% in 2004.
35
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in millions, except per share amounts)
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for pension plans with an accumulated benefit obligation
in excess of plan assets were $33.5, $26.2 and $1.3, respectively, for 1999
and $42.1, $28.4 and $1.6, respectively, for 2000.
The components of net periodic benefit costs for the years 1998, 1999 and
2000, excluding the cumulative effect of a change in accounting method
recorded in 1998, are as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------------- ----------------------
1998 1999 2000 1998 1999 2000
------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Components of net
periodic benefit cost:
Service cost........... $ 33.2 $ 35.9 $ 33.9 $ 9.8 $ 9.5 $ 8.3
Interest cost.......... 232.2 228.8 239.7 99.0 96.7 105.2
Expected return on plan
assets................ (313.4) (299.0) (321.2) (14.9) (14.3) (14.0)
Amortization of prior
service cost.......... 7.8 8.8 12.9 (12.9) (14.4) (14.3)
Recognized net
actuarial loss/(gain). (9.5) 3.2 (20.4) (7.7) (3.4) (7.7)
Settlement curtailment
loss/(gain)........... -- 13.8 1.1 -- (0.7) --
Amortization of
unrecognized net
obligation............ 6.3 6.4 6.3 -- -- --
------- ------- ------- ------ ------ ------
Net periodic benefit
cost (income)....... $ (43.4) $ (2.1) $ (47.7) $ 73.3 $ 73.4 $ 77.5
======= ======= ======= ====== ====== ======
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for health care plans. A one-percentage-point change in the
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
One-Percentage-Point
-----------------------
Increase Decrease
---------- -----------
<S> <C> <C>
Effect on total service cost and interest cost
components....................................... $ 11.5 $ (10.4)
Effect on postretirement benefit obligation....... 132.7 (119.7)
</TABLE>
In addition to defined benefit pension plans, most employees are eligible to
participate in various defined contribution plans. Total expense related to
these plans was $11.6 in 1998, $11.5 in 1999 and $12.6 in 2000.
9. Segment Information
The Company's Steel Operations currently consist of steel production and
finishing plants in Butler, Pennsylvania; Ashland, Kentucky; Coshocton,
Mansfield, Middletown, and Zanesville, Ohio; and Rockport, Indiana that
produce flat-rolled steels, including premium quality coated, cold-rolled and
hot-rolled carbon steel, and specialty stainless and electrical steels
produced in slab, hot band, and sheet and strip form. Steel products are
primarily for sale to the domestic automotive, appliance, industrial machinery
and equipment, and construction markets. Steel Operations also include
European trading companies that buy and sell steel and manufactured steel
products. At the beginning of 2000, a redundant galvanizing line in Dover,
Ohio was shut down (Note 10).
In addition, the Company owns and operates Sawhill Tubular Products, a
manufacturer of a wide range of steel pipe and tubing products; Douglas
Dynamics, L.L.C., the largest North American manufacturer of snowplows and ice
control products for four-wheel drive light trucks; and an industrial park on
the Houston, Texas ship channel. These businesses are included in Other
Operations, below.
Accounting policies for the Steel Operations are the same as those described
in the summary of significant accounting policies in Note 1. Management
evaluates the performance of the Steel Operations based on its operating
profit. All "Corporate" expenses and assets are reflected in the Steel
Operations segment.
36
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in millions, except per share amounts)
Information regarding the Company's operating segment is as follows:
<TABLE>
<CAPTION>
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Net Sales:
Steel Operations................................ $3,808.7 $4,055.3 $4,277.3
Other Operations................................ 292.3 313.0 334.2
-------- -------- --------
Total......................................... $4,101.0 $4,368.3 $4,611.5
======== ======== ========
Operating Profit:
Steel Operations................................ $ 333.8 $ 201.7 $ 300.7
Other Operations................................ 30.2 43.1 37.5
-------- -------- --------
Total......................................... $ 364.0 $ 244.8 $ 338.2
======== ======== ========
Depreciation:
Steel Operations................................ $ 153.7 $ 202.7 $ 223.8
Other Operations................................ 7.5 8.0 8.2
-------- -------- --------
Total......................................... $ 161.2 $ 210.7 $ 232.0
======== ======== ========
Capital Expenditures:
Steel Operations................................ $ 797.8 $ 314.5 $ 127.2
Other Operations................................ 7.4 22.7 10.5
-------- -------- --------
Total......................................... $ 805.2 $ 337.2 $ 137.7
======== ======== ========
Total Assets:
Steel Operations................................ $5,098.9 $5,042.1 $5,044.0
Other Operations................................ 180.3 185.0 195.8
-------- -------- --------
Total......................................... $5,279.2 $5,227.1 $5,239.8
======== ======== ========
</TABLE>
Steel Operations operating profit in 1999 includes $99.7 of special charges
(Note 10). Steel Operations operating profit also includes income (loss) from
equity companies of $(1.0), $2.1 and $(1.4) for the years 1998, 1999 and 2000,
respectively.
Steel Operations net sales to General Motors, the Company's largest
customer, accounted for approximately 12%, 15% and 15% of the segment's net
sales in 1998, 1999 and 2000, respectively. No other customer accounted for
more than 10% of segment net sales for any of these years.
Steel Operations net sales to customers located outside the United States
totaled $246.3, $263.1 and $332.0 for 1998, 1999 and 2000, respectively.
10. Special Charges
In 1999, the Company recognized $99.7 in special charges for merger-related
costs, including $28.5 of expenses incurred for banking, legal, accounting and
other transaction fees, $51.1 for employee severance and certain required
payments under the change-of-control provisions contained in Armco's employee
benefit plans and $20.1 for the closure of a redundant facility. Approximately
$54.0 of the $99.7 required the outlay of cash in 1999, with additional cash
payments of approximately $7.0 made in 2000. With the exception of certain
employee benefits and environmental expenditures that will be funded over a
long period of time, the remainder of the special charges do not require the
outlay of cash.
37
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in millions, except per share amounts)
The charge for closure of a redundant facility relates to the shutdown of
the carbon steel galvanizing plant in Dover, Ohio. The plant ceased production
on December 17, 1999. The announced closure, effective January 29, 2000,
resulted in the termination of 120 employees, the majority of which were
represented hourly production workers. The following provides details of that
portion of the special charge relating to the closure:
<TABLE>
<S> <C>
Asset impairments..................................................... $ 7.7
Benefit plan curtailment losses....................................... 9.7
Termination benefits.................................................. 1.0
Environmental liabilities............................................. 1.0
Other expenditures.................................................... 0.7
-----
Total............................................................... $20.1
=====
</TABLE>
Cash expenditures, totaling $0.7, primarily related to termination benefits,
were paid in 2000. Some employee benefit and environmental expenditures will
be made over a long period of time.
11. Commitments
The principal raw materials required for AK Steel's steel manufacturing
operations are carbon and stainless steel scrap, iron ore, coal, electricity,
natural gas, oxygen, chrome, nickel, silicon, molybdenum, zinc, limestone and
other commodity materials. In addition, AK Steel purchases carbon steel slabs
from other steel producers to supplement the production from its own
steelmaking facilities. Purchases of coal, iron ore and limestone, as well as
transportation services, are made at negotiated prices under multi-year
agreements. Purchases of carbon steel slabs, stainless steel scrap, natural
gas and other raw materials are made at prevailing market prices, which are
subject to fluctuation in accordance with supply and demand. AK Steel believes
that adequate sources of supply exist for all of its energy and raw material
requirements.
At December 31, 2000, commitments for future capital investments, including
those made to assure environmental compliance, totaled approximately $51.2,
all of which will be funded in 2000.
12. Legal, Environmental Matters and Contingencies
Domestic steel producers, including the Company, are subject to stringent
federal, state and local laws and regulations relating to the protection of
human health and the environment.
The Company has expended the following for environmental-related capital
investments and environmental compliance:
<TABLE>
<CAPTION>
1998 1999 2000
----- ---- -----
<S> <C> <C> <C>
Environmental related capital investments.................. $20.2 $7.1 $10.1
Environmental compliance costs............................. 87.9 85.9 93.5
</TABLE>
In addition to the items discussed below, the Company is involved in routine
litigation, environmental proceedings, and claims pending with respect to
matters arising out of the normal conduct of the business. In management's
opinion, the ultimate liability resulting from all claims, individually or in
the aggregate, will not materially affect the Company's consolidated financial
position, results of operations or cash flows.
Federal regulations promulgated pursuant to the Clean Water Act impose
categorical pretreatment limits on the concentrations of various constituents
in coke plant wastewaters prior to discharge into publicly owned
38
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in millions, except per share amounts)
treatment works ("POTW"). Due to concentrations of ammonia and phenol in
excess of these limits at the Middletown Works, the Company, through the
Middletown POTW, petitioned the EPA for "removal credits," a type of
compliance exemption, based on the Middletown POTW's satisfactory treatment of
the Company's wastewater for ammonia and phenol. The EPA declined to review
the Company's application on the grounds that it had not yet promulgated new
sludge management rules. The Company thereupon sought and obtained from the
Federal District Court for the Southern District of Ohio an injunction
prohibiting the EPA from instituting enforcement action against the Company
for noncompliance with the pretreatment limitations, pending the EPA's
promulgation of the applicable sludge management regulations. Although the
Company is unable to predict the outcome of this matter, if the EPA eventually
refuses to grant the Company's request for removal credits, the Company could
incur additional costs to construct pretreatment facilities at the Middletown
Works.
On April 19, 2000, a purported class action was filed in the United States
District Court for the Southern District of Ohio by Bernard Fidel against AK
Steel Holding Corporation and certain of its directors and officers, alleging
material misstatements and omissions in the Company's public disclosure about
its business and operations. The defendants intend to vigorously defend this
action. AK Steel has filed a motion to dismiss the action, which currently is
pending.
A number of lawsuits regarding asbestos exposure are pending and continue to
be filed arising out of the operations of former Armco Inc. facilities. The
majority of these lawsuits are filed in Texas and arise out of Armco's former
Houston Works facility. Such cases typically involve a large number of
plaintiffs claiming against a large number of defendants. Armco is normally
named as a defendant by a small percentage of the overall plaintiffs who are
typically frequenters (independent contractors, delivery personnel, etc.)
claiming that Armco exposed them to asbestos while they were on the premises.
AK Steel is actively and vigorously defending these cases.
On January 20, 1998, judgment against AK Steel in the amount of $6.5 million
was entered by the United States District Court for the Southern District of
Ohio, following a jury trial in a disability discrimination lawsuit brought by
a former employee. On January 30, 1998, AK Steel moved for judgment in its
favor as a matter of law, reduction of the damages and a new trial. On January
20, 2000, the court reduced the jury verdict to $1.5 million. The Company
subsequently filed a motion for relief from that judgment, which was denied.
The Company and the former employee have filed cross-appeals in the U. S.
Court of Appeals for the Sixth Circuit, seeking to further reduce the verdict
and reinstate the original verdict, respectively.
At December 31, 2000, the Company had recorded $10.3 in current accrued
liabilities and $40.4 in noncurrent other liabilities on its Consolidated
Balance Sheets for estimated probable costs relating to environmental matters.
13. Discontinued Operations
Certain of Armco's former businesses included operations in foreign
countries. At the time of their sale or closure, some of these operations had
unresolved tax issues in those countries. Following consultation with local
country advisors in 1999, Armco determined that it had resolved most of these
issues and reversed a majority of the related reserves, recognizing income of
$7.5, or $0.07 per share, in discontinued operations.
The Company's investment in AFSG Holdings, Inc. represents the net assets of
its discontinued insurance and finance leasing businesses, which have been
largely liquidated. The remaining operating companies are being "runoff" and
the group is accounted for as discontinued operations under the liquidation
basis of accounting, whereby future cash inflows and outflows are considered.
39
<PAGE>
AK STEEL HOLDING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(dollars in millions, except per share amounts)
14. Consolidated Quarterly Sales and Earnings (Unaudited)
Earnings per share for each quarter and the year are calculated individually
and may not add to the total for the year.
<TABLE>
<CAPTION>
1999
---------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales..................... $1,044.9 $1,135.0 $1,075.5 $1,112.9 $4,368.3
Gross profit.................. 202.3 217.5 214.5 230.7 865.0
Income (loss) before
extraordinary item........... 41.3 41.4 2.4 (6.3) 78.8
Basic earnings per share.... 0.39 0.38 0.00 (0.06) 0.69
Diluted earnings per share.. 0.38 0.38 0.00 (0.06) 0.69
Net income (loss)............. 39.6 29.7 2.4 (6.3) 65.4
Basic earnings per share.... 0.37 0.27 0.00 (0.06) 0.56
Diluted earnings per share.. 0.36 0.27 0.00 (0.06) 0.56
<CAPTION>
2000
---------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales..................... $1,162.0 $1,249.7 $1,140.0 $1,059.8 $4,611.5
Gross profit.................. 203.3 243.7 221.3 169.5 837.8
Net income.................... 26.5 49.1 41.3 15.5 132.4
Basic earnings per share.... 0.24 0.44 0.38 0.14 1.20
Diluted earnings per share.. 0.24 0.44 0.38 0.14 1.20
</TABLE>
Net Income in 1999 includes the extraordinary losses described in Note 6.
40
<PAGE>
Item 9. Changes in and Disagreements with Accountants.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information with respect to the Company's Executive Officers is set forth in
Part I of this Annual Report pursuant to General Instruction G of Form 10-K.
The information required to be furnished pursuant to this item with respect to
Directors of the Company will be set forth under the caption "Election of
Directors" in the Company's proxy statement (the "2001 Proxy Statement") to be
furnished to stockholders in connection with the solicitation of proxies by
the Company's Board of Directors for use at the Annual Meeting of
Stockholders, and is incorporated herein by reference.
The information required to be furnished pursuant to this item with respect
to compliance with Section 16(a) of the Exchange Act will be set forth under
the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Proxy Statement, and is incorporated herein by reference.
Item 11. Executive Compensation.
The information required to be furnished pursuant to this item will be set
forth under the caption "Executive Compensation" in the 2001 Proxy Statement,
and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required to be furnished pursuant to this item will be set
forth under the caption "Stock Ownership," in the 2001 Proxy Statement, and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
The information required to be furnished pursuant to this item will be set
forth under the captions "Certain Relationships and Transactions" in the 2001
Proxy Statement, and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-K.
(a) The list of financial statements filed as part of this report is
submitted as a separate section, the index to which is located on page 16.
Financial statement schedules are omitted because of the absence of the
conditions under which they are required or because the information is set
forth in the financial statements or notes thereto.
(b) Reports on Form 8-K filed during the fourth quarter of 2000 were:
<TABLE>
<CAPTION>
Item Reported Date
------------- -----------------
<S> <C>
Earnings Release........................................... October 26, 2000
Announcing a Change in Vice Presidents' Responsibilities... November 28, 2000
Announcing Expectation of Lower Fourth Quarter Revenues and
Profits................................................... December 22, 2000
</TABLE>
(c) Exhibits:
List of exhibits begins on next page.
41
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
3.1 Certificate of Incorporation of the Company, filed with the Secretary
of State of the State of Delaware on December 20, 1993, as amended
(incorporated herein by reference to Exhibit 3.1.1 to the Company's
Current Report on Form 8-K, as filed with the Commission on May 27,
1998).
3.2 By-laws of the Company (incorporated herein by reference to Exhibit
3.2 to the Company's Registration Statement on Form S-1 (Registration
No. 33-74432), as filed with the Commission on January 26, 1994).
3.3 Certificate of Designations, Preferences, Rights and Limitations of
Series A Junior Preferred Stock (included in Exhibit 10.16).
3.4 Certificate of Designations of Series B $3.625 Cumulative Convertible
Preferred Stock (incorporated herein by reference to Exhibit 3.4 to
the Company's Annual Report on Form 10-K for the year ended December
31, 1999).
4.1 Indenture, dated as of October 1, 1992, relating to the Company's 9%
Senior Notes Due 2007 (the "1992 Indenture") (incorporated herein by
reference to Exhibit 4 to the Registration Statement of Armco Inc. on
Form S-3 (Registration No. 33-51806), as filed with the Commission on
September 9, 1992).
4.2 Supplemental Indenture No. 2, dated as of September 1, 1997, to the
1992 Indenture (incorporated herein by reference to Exhibit 4.4 to the
Registration Statement of Armco Inc. on Form S-4 (Registration No.
333-36691), as filed with the Commission on September 30, 1997).
4.3 Supplemental Indenture No. 3, dated as of July 30, 1999, to the 1992
Indenture (incorporated herein by reference to Exhibit 4.3 to the
Company's Current Report on Form 8-K, as filed with the Commission on
October 21, 1999).
4.4 Supplemental Indenture No. 4, dated as of September 30, 1999, to the
1992 Indenture (incorporated herein by reference to Exhibit 4.4 to the
Company's Current Report on Form 8-K, as filed with the Commission on
October 21, 1999).
4.5 Supplemental Indenture No. 5, dated as of October 1, 1999, to the 1992
Indenture (incorporated herein by reference to Exhibit 4.5 to the
Company's Current Report on Form 8-K, as filed with the Commission on
October 21, 1999).
4.6 Indenture, dated as of November 1, 1993, relating to the Company's 8-
7/8% Senior Notes Due 2008 (the "1993 Indenture") (incorporated herein
by reference to Exhibit 4 to the Registration Statement of Armco Inc.
on Form S-3 (Registration No. 33-50205), as filed with the Commission
on September 9, 1993).
4.7 Supplemental Indenture No. 2, dated as of December 15, 1998, to the
1993 Indenture (incorporated herein by reference to Exhibit 4.3 to the
Registration Statement of Armco Inc. on Form S-4 (Registration No.
333-71203), as filed with the Commission on January 26, 1999).
4.8 Supplemental Indenture No. 3, dated as of July 30, 1999, to the 1993
Indenture (incorporated herein by reference to Exhibit 4.8 to the
Company's Current Report on Form 8-K, as filed with the Commission on
October 21, 1999).
4.9 Supplemental Indenture No. 4, dated as of September 30, 1999, to the
1993 Indenture (incorporated herein by reference to Exhibit 4.9 to the
Company's Current Report on Form 8-K, as filed with the Commission on
October 21, 1999).
4.10 Supplemental Indenture No. 5, dated as of October 1, 1999, to the 1993
Indenture (incorporated herein by reference to Exhibit 4.10 to the
Company's Current Report on Form 8-K, as filed with the Commission on
October 21, 1999).
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
4.11 Indenture, dated as of December 17, 1996, relating to the Company's 9-
1/8% Senior Notes Due 2006 (the "1996 Indenture") (incorporated herein
by reference to Exhibit 4.1 to the Company's Registration Statement on
Form S-4 (Registration No. 333-19781), as filed with the Commission on
January 14, 1997).
4.12 First Supplemental Indenture, dated as of August 6, 1999, to the 1996
Indenture (incorporated herein by reference to Exhibit 4.11 to the
Company's Current Report on Form 8-K, as filed with the Commission on
October 21, 1999).
4.13 Second Supplemental Indenture, dated as of October 1, 1999, to the
1996 Indenture (incorporated herein by reference to Exhibit 4.12 to
the Company's Current Report on Form 8-K, as filed with the Commission
on October 21, 1999).
4.14 Indenture, dated as of February 10, 1999, relating to the Company's 7-
7/8% Senior Notes Due 2009 (the "1999 Indenture") (incorporated herein
by reference to Exhibit 1 to the Company's Current Report on Form 8-K,
as filed with the Commission on February 17, 1999).
4.15 First Supplemental Indenture, dated as of August 6, 1999, to the 1999
Indenture (incorporated herein by reference to Exhibit 4.13 to the
Company's Current Report on Form 8-K, as filed with the Commission on
October 21, 1999).
4.16 Second Supplemental Indenture, dated as of October 1, 1999, to the
1999 Indenture (incorporated herein by reference to Exhibit 4.14 to
the Company's Current Report on Form 8-K, as filed with the Commission
on October 21, 1999).
4.17 Form of Note Purchase Agreement, dated as of December 17, 1996,
relating to the Company's Senior Secured Notes, Series A-E, Due 2004
(incorporated herein by reference to Exhibit 4.5 to the Company's
Registration Statement on Form S-4 (Registration No. 333-19781), as
filed with the Commission on January 14, 1997).
4.18 Supplemental Agreement, dated as of July 28, 1999, amending the Note
Purchase Agreements, dated as of December 17, 1996, relating to the
Company's Senior Secured Notes, Series A-E, Due 2004 (incorporated
herein by reference to Exhibit 4.15 to the Company's Current Report on
Form 8-K, as filed with the Commission on October 21, 1999).
4.19 Guarantee Agreement, dated as of September 30, 1999, by Douglas
Dynamics, L.L.C. pursuant to the Note Purchase Agreements, dated as of
December 17, 1996, as amended, relating to the Company's Senior
Secured Notes, Series A-E, Due 2004 (incorporated herein by reference
to Exhibit 4.16 to the Company's Current Report on Form 8-K, as filed
with the Commission on October 21, 1999).
*10.1 Form of Executive Officer (Other Than CEO) Severance Agreement, as
amended and restated through March, 2000.
10.2 Form of Executive Officer Severance Agreement--Richard M. Wardrop, Jr.
(incorporated herein by reference to Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.3 Form of Executive Officer Severance Agreement--James L. Wareham
(incorporated herein by reference to Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997).
10.4 Annual Management Incentive Plan (incorporated herein by reference to
Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998).
10.5 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.8
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998).
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*10.6 Executive Minimum and Supplemental Retirement Plan, amended and
restated as of January 20, 2000.
*10.7 Amended and Restated Receivables Purchase Agreement, dated as of
October 1, 1999, between AK Steel and AK Steel Receivables Ltd.
*10.8 Amended and Restated Purchase and Servicing Agreement, dated as of
October 1, 1999, among AK Steel Receivables Ltd., AK Steel, the
institutions from time to time party thereto and PNC Bank, National
Association.
*10.9 First Consent and Amendment Agreement, dated as of December 21, 1999,
to the Purchase and Servicing Agreement, dated as of October 1, 1999,
among AK Steel Receivables Ltd., AK Steel, the institutions from time
to time party thereto and PNC Bank, National Association.
10.10 Deferred Compensation Plan for Management (incorporated herein by
reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.11 Deferred Compensation Plan for Directors (incorporated herein by
reference to Exhibit 10.30 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.12 Rights Agreement, dated as of January 23, 1996, between the Company
and the Bank of New York as predecessor to Fifth Third Bank, as Rights
Agent, with respect to the Company's Stockholder Rights Plan
(incorporated by reference to Exhibit 1 to the Company's Registration
Statement on Form 8-A under the Securities Exchange Act of 1934, as
filed with the Commission on February 5, 1996).
10.13 Substitution of The Fifth Third Bank as Successor Rights Agent and
Amendment No. 1, dated September 15, 1997, to Rights Agreement dated
as of January 23, 1996 (incorporated herein by reference to Exhibit
4.1 to the Company's Current Report on Form 8-K, as filed with the
Commission on September 15, 1997).
10.14 Instrument of Resignation, Appointment and Acceptance, dated as of
September 15, 1997, with respect to resignation of The Bank of New
York as Trustee and the appointment of The Fifth Third Bank as
Successor Trustee under the 1996 Indenture (incorporated herein by
reference to Exhibit 4.3 to the Company's Current Report on Form 8-K,
dated September 15, 1997).
10.15 Long Term Performance Plan (incorporated herein by reference to
Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998).
10.26 First Amendment, dated July 17, 1997, to Executive Minimum and
Supplemental Retirement Plan (incorporated herein by reference to
Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997).
*11 Statement re: Computation of Per Share Earnings.
*12 Statement re: Computation of Ratio of Earnings to Fixed Charges.
*21 Subsidiaries of the Company.
*23 Independent Auditors' consent.
*27 Financial Data Schedule.
</TABLE>
- --------
* Filed herewith
44
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized in the City of Middletown, State of
Ohio, on February 19, 2001.
AK Steel Holding Corporation
/s/ James L. Wainscott
By: _________________________________
James L. Wainscott
Senior Vice President, Treasurer
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed below by the following persons on behalf of the Company in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Richard M. Wardrop, Jr. Chairman of the Board and February 19, 2001
______________________________________ Chief Executive Officer
Richard M. Wardrop, Jr.
/s/ James L. Wareham President February 19, 2001
______________________________________
James L. Wareham
/s/ James L. Wainscott Senior Vice President, February 19, 2001
______________________________________ Treasurer and Chief
James L. Wainscott Financial Officer
/s/ Donald B. Korade Vice President and February 19, 2001
______________________________________ Controller
Donald B. Korade
______________________________________ Director
Allen Born
/s/ Donald V. Fites Director February 19, 2001
______________________________________
Donald V. Fites
/s/ John A. Georges Director February 19, 2001
______________________________________
John A. Georges
/s/ Dr. Bonnie G. Hill Director February 19, 2001
______________________________________
Dr. Bonnie G. Hill
/s/ Robert H. Jenkins Director February 19, 2001
______________________________________
Robert H. Jenkins
/s/ Lawrence A. Leser Director February 19, 2001
______________________________________
Lawrence A. Leser
/s/ Daniel J. Meyer Director February 19, 2001
______________________________________
Daniel J. Meyer
/s/ Dr. James A. Thomson Director February 19, 2001
______________________________________
Dr. James A. Thomson
</TABLE>
45
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>EXECUTIVE OFFICER (OTHER THAN CEO) SEVERANCE AGRMT
<TEXT>
<PAGE>
Exhibit 10.1
EXECUTIVE OFFICER (OTHER THAN CEO) SEVERANCE AGREEMENT
(as amended and restated to reflect certain March, 2000 language changes)
__________________, 2000
(Addressee)
Dear (Addressee):
Reference is made to the agreement between us, dated _____________, 19___ (the
"Agreement"), setting forth the benefits to be provided to you in the event of
the termination of your employment upon the circumstances therein specified.
Upon your execution of a counterpart of this letter, the Agreement shall be
deemed amended and, as so amended, is restated in its entirety to read as
hereinafter set forth.
AK Steel Corporation ("AKS"), since its formation, has established itself as a
strong competitor in the steel industry. Continuity of the management of AKS is
a critical factor to the continued growth and success of AKS. The Board of
Directors ("Board") of AK Steel Holding Corporation ("Holding"), of which AKS is
a wholly-owned subsidiary, believes it is in the best interest of Holding and
AKS to reinforce and encourage the continued attention and dedication of key
members of management to their assigned duties.
In consideration of the mutual promises contained herein, it is hereby agreed
that Holding shall cause AKS to provide and AKS shall provide to you, and you
shall receive from AKS, the benefits set forth in this Agreement if your
employment by AKS (including, for the purposes hereof, its subsidiaries and
Affiliates, as hereinafter defined) is terminated during the term of this
Agreement as provided herein.
1. Purpose
-------
This Agreement establishes certain basic terms and conditions relating to
your employment with AKS, and special arrangements relating to the
termination of your employment with AKS for any reason other than: (i) your
voluntary retirement; (ii) your becoming totally and permanently disabled
under the AKS long-term disability plan or policy; or (iii) your death.
This Agreement supersedes all prior agreements with AKS or any predecessor
business, as well as all other AKS severance policies and practices, except
to the extent incorporated or restated herein. Subject to the foregoing,
neither the termination of your employment nor anything contained in this
Agreement shall have any affect upon your rights under (i) any tax-
qualified "pension benefit plan", as such term is defined in the Employee
Retirement Income
<PAGE>
Security Act of 1974, as amended (ERISA), (ii) any "welfare benefit plan"
as defined in ERISA, including by way of illustration and not limitation,
any medical, surgical or hospitalization benefit coverage or long-term
disability benefit coverage, or (iii) any non-qualified deferred
compensation arrangement, including by way of illustration and not
limitation, any non-qualified pension plan or deferred compensation plan.
2. Employment
----------
During the term of this Agreement:
(a) you will be employed by AKS (including for this purpose any direct
or indirect subsidiary or Affiliate of AKS to which you may be
transferred) in your present position or in a position that is at
least comparable to your present position in compensation,
responsibility and stature and for which you are suited by education
and background; and
(b) you will be eligible to participate in any employee benefit plan of
AKS (excluding any severance policies and practices other than this
Agreement) in accordance with the terms of said plans as they may be
amended from time to time.
Plans, policies and practices that generally apply to other members of
management of AKS will be referred to in this Agreement as your "Employment
Benefits." Your Employment Benefits may be modified from time to time after
the date hereof without violation of this Agreement if the changes apply
generally to other members of management of AKS.
3. Term of Agreement
-----------------
This Agreement shall be deemed effective as of ________________________,
200__ (the "Effective Date") and shall continue in effect through the later
of: (i) the fifth anniversary of the Effective Date or (ii) the completion
of full payment of all benefits promised hereunder except for the benefits
payable pursuant to the pension benefit plans referenced in Section 1
above. This Agreement shall be automatically renewed annually from and
after the fifth anniversary of the Effective Date unless written notice of
non-renewal is given by you or by AKS at least ninety (90) days prior to
the expiration of the term, including any extension thereof.
4. Termination of Employment
-------------------------
Your employment may be terminated during the term of this Agreement in
accordance with any of the following paragraphs. The date upon which the
termination of your employment becomes effective is hereinafter referred to
as the "Date of Termination". The period between the date of notice of
termination and the Date of Termination is referred to as the "Notice
Period". AKS may relieve you of your employment duties upon the giving of
any notice of termination or at any time during any Notice Period; provided
however, during such Notice
-2-
<PAGE>
Period or the balance thereof, you shall continue to receive your full
salary and Employment Benefits.
(a) Involuntary Termination Without Cause
-------------------------------------
AKS may terminate your employment without Cause (as defined in
Section 4(b) below), but only upon written notice given to you by
AKS not less than thirty (30) days prior to the Date of Termination.
From and after the Date of Termination, pursuant to this Section
4(a), you shall be entitled to those benefits provided under Section
5.
(b) Involuntary Termination For Cause
---------------------------------
AKS may terminate your employment for Cause, but only upon written
notice, specifying the facts or circumstances constituting such
Cause, which notice may be given on or at any time prior to the Date
of Termination. For the purposes of this Section 4(b), "Cause" means
a willful engaging in gross misconduct materially and demonstrably
injurious to AKS. "Willful" means an act or omission in bad faith
and without reasonable belief that such act or omission was in or
not opposed to the best interests of AKS. From and after your Date
of Termination, pursuant to this Section 4 (b), you shall only be
entitled to those benefits provided under Section 8.
(c) Voluntary Termination Without Good Reason
-----------------------------------------
You may voluntarily terminate your employment without Good Reason
(as defined in Section 4 (d) below), but only upon written notice
given to AKS by you not less than thirty (30) days prior to the Date
of Termination. From and after the Date of Termination, pursuant to
this Section 4 (c), you shall only be entitled to those benefits
provided under Section 8.
(d) Voluntary Termination For Good Reason
-------------------------------------
You may voluntarily terminate your employment for Good Reason (as
herein defined), but only upon written notice, specifying the facts
or circumstances constituting such Good Reason, given to AKS by you
at least thirty (30) days prior to the Date of Termination and not
more than sixty (60) days following the occurrence of the
circumstances constituting such Good Reason. For the purposes of
this Section 4(d), "Good Reason" shall mean the occurrence, without
your express written consent, of any of the following circumstances
(unless, in the case of clauses (i), (v), (vi), (vii) or (viii)
below, such circumstances are fully corrected prior to the Date of
Termination specified in the notice of termination):
-3-
<PAGE>
(i) the assignment to you of any duties inconsistent with your
position within AKS or a significant adverse alteration in
the nature or status of the responsibilities of your
employment;
(ii) a reduction by AKS in your annual base salary, but no such
reduction shall be effective with respect to your benefits
under Section 5 if you have given timely notice pursuant to
this Section 4(d);
(iii) a requirement by AKS that you be based anywhere other than
the principal executive offices of AKS except for required
travel on AKS business to an extent substantially consistent
with customary business travel obligations;
(iv) the failure of AKS to pay to you any portion of your
compensation within seven (7) days of the date such
compensation is due;
(v) the failure of AKS, at any time within 24 months following
the occurrence of a Change In Control (as defined in Section
7(b) hereof), to continue in effect any compensation plan in
which you participated immediately prior to such Change In
Control, which plan is material to your total compensation,
unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to
such plan, or the failure of AKS to continue your
participation in such compensation plan (or in such
substitute or alternative plan) on a basis not materially
less favorable to you, both in terms of the amount of
benefits provided and the level of your participation
relative to other participants, than that existing
immediately prior to such Change In Control;
(vi) any material reduction, except to the extent permitted by
Section 2 hereof, in your Employment Benefits;
(vii) the failure of AKS to obtain a satisfactory agreement from
any successor corporation to assume and agree to perform this
Agreement, as contemplated in Section 15 hereof;
(viii) any purported termination of your employment by AKS that is
not effected in compliance with the provisions of Section
4(a) or 4(b) hereof, as the case may be;
(ix) notice of non-renewal is given by AKS pursuant to Section 3
of this Agreement.
If you give notice of termination for Good Reason, then, during the
Notice Period (which shall not exceed 60 days), your full base
salary and Employment Benefits shall
-4-
<PAGE>
be the same as in effect prior to the occurrence of the
circumstances constituting such Good Reason, subject to the right of
AKS to make changes to your Employment Benefits to the extent
permitted by Section 2. From and after the Date of Termination,
pursuant to this Section 4 (d), you shall be entitled to those
benefits provided under Section 5.
(e) Voluntary Termination After A Change In Control
-----------------------------------------------
You may voluntarily terminate your employment, with or without Good
Reason, during the thirty (30)-day period immediately following the
six (6)-month anniversary of a Change In Control, but only upon
written notice given to AKS by you during such thirty (30)-day
period specifying the Date of Termination which, unless otherwise
agreed by you and AKS, shall not be less than thirty (30) days nor
more than sixty (60) days following the end of such thirty (30)-day
period. From and after the Date of Termination, pursuant to this
Section 4(e), you shall be entitled to those benefits provided under
Section 5.
5. Special Severance Benefits
--------------------------
(a) If your employment with AKS is involuntarily terminated by AKS
without Cause in accordance with Section 4(a), you voluntarily
terminate your employment for Good Reason in accordance with Section
4(d), or you voluntarily terminate your employment after a Change In
Control in accordance with Section 4(e), then you shall receive the
following benefits:
(i) Severance pay equal to your base salary shall be paid for a
period (hereafter, the "Severance Pay Period") of (1) 36
months from the Date of Termination, if the notice of your
termination is given within 24 months after the occurrence of
a Change In Control or (2) 24 months from your Date of
Termination, if the notice of your termination is given at
any time other than within 24 months after the occurrence of
a Change In Control. The aggregate base salary payable in
accordance with this Section 5(a)(i) shall be paid to you in
a single, undiscounted, lump sum payment within ten (10) days
following the Date of Termination unless you have requested,
in writing, at any time prior to your Date of Termination to
receive payments of your base salary in regular monthly
payments throughout the Severance Pay Period.
(ii) (1) Within ten (10) days following the Date of Termination,
you will receive a lump-sum payment equal in amount to
the result obtained by application of the following
formula: P = (x) times (y) times (z), where:
P = the lump-sum payment;
-5-
<PAGE>
(x) = twelve times your monthly base salary;
(y) = the fraction obtained by dividing your annual
incentive compensation which was paid or is
payable to you for the immediately preceding
calendar year by your actual base salary for
such year; and
(z) = 3.0 (if the notice of your termination is
given within 24 months after the occurrence
of a Change In Control, or 2.0 (if the notice
of your termination is given at any time
other than within 24 months after the
occurrence of a Change in Control).
(2) Within ten (10) days following the date that payment is
made to active employees of AKS, you shall receive a
pro-rata payment of the annual incentive payment you
would have received for the year in which your Date of
Termination occurs. Such payment shall be: (A) pro-
rated based upon your Date of Termination and (B)
determined without giving effect to any contrary
provision of the applicable incentive plan, and without
giving effect to any reduction in such annual incentive
payment that could result from any amendment to or
termination of such annual incentive plan or a
reduction in your level of participation in connection
with a Change In Control. For purposes of this
calculation, a termination for Good Reason under
Section 4(d) or after a Change In Control under Section
4(e) shall not be considered a voluntary termination
under the annual incentive plan. If the plan is amended
or terminated subsequent to a Change In Control such
that a pro-rated payment cannot be calculated, then you
shall receive the maximum payment, at your level of
participation prior to the Change In Control, pro-rated
based upon your Date of Termination.
(3) Without giving effect to any contrary provision of the
applicable long-term incentive plan, you shall receive:
(A) payment for the prior year's performance under the
plan at the same time as all other participants receive
such payments, and (B) an additional amount equal to
the amount in (A) within sixty (60) days of your Date
of Termination. If the amount in (A) has not yet been
paid at your Date of Termination, you shall receive an
amount equal to two times the amount in (A) at the next
long-term incentive payment date or within sixty (60)
days of your Date of Termination, whichever is earlier.
For purposes of this calculation, a termination for
Good Reason under Section 4(d) or after a Change In
Control under Section 4(e) shall not be considered a
voluntary termination under the long-term incentive
-6-
<PAGE>
plan. Such payment shall be determined without giving
effect to any reduction in such long-term incentive
payment that could result from any amendment to or
termination of such plan or a reduction in your level
of participation in connection with a Change In
Control. If the plan is amended or terminated such that
no calculation of the payment in (A) above for the
prior year's performance can be made, then you shall
receive twice the maximum payment in cash, at your
level of participation prior to the Change In Control,
in full payment of the amounts in (A) and (B) above.
(iii) Notwithstanding any provision to the contrary in the AK Steel
Holding Corporation Stock Incentive Plan as amended or any
other similar plan of AKS or Holding (each, a "Plan"), or
under the terms of any grant, award agreement or form for
exercising any right under the Plan, you shall have the
right:
(1) to exercise any stock option awarded to you under the
Plan without regard to any waiting period required by
the Plan or award agreement (but subject to a minimum
six month holding period from the date of award and any
restrictions imposed by law) from the first day of your
Notice Period until the first to occur of the third
anniversary of your Date of Termination or the date the
award expires by its terms, and
(2) to the absolute ownership of any shares of stock
granted to you under the Plan, free of any restriction
on your right to transfer or otherwise dispose of the
shares (but subject to a minimum six month holding
period from the date of grant and any restrictions
imposed by law), regardless of whether entitlement to
the shares is contingent or absolute by the terms of
the grant; and Holding and AKS shall take such action
within the Notice Period as is necessary or appropriate
to eliminate any restriction on your ownership of, or
your right to sell or assign, any such shares; or AKS
shall pay you, in exchange for such shares, no later
than ten (10) days after the Date of Termination, an
amount in cash equal to the greatest aggregate market
value of the shares during the Notice Period.
You agree, for a period of six (6) months after your
Termination Date, to continue to comply with all AKS and
Holding policies and directives related to trading in Holding
stock which were in effect prior to your notice of
termination. If your compliance with such policies and
directives precludes you from exercising any stock options or
selling any shares of stock described in paragraphs (1) and
(2) above for a period of more than sixty (60) days from the
first day of your Notice Period, then AKS will pay you in
cash the
-7-
<PAGE>
difference between the average share price during the Notice
Period and, if less, the actual share price received by you
at the time of sale provided you have completed such sale
within sixty (60) days from your first opportunity to do so.
The average sale price during the Notice Period will be
determined by averaging the highest share price and the
lowest share price during the Notice Period. Any such
differential payment will be paid to you within thirty (30)
days after you provide written notice to AKS requesting such
payment. Such notice is to be directed to the attention of
the Secretary of AKS and contain the relevant stock
transaction dates and actual share price information.
(iv) During the Severance Pay Period your Employment Benefits
shall be continued, subject to the right of AKS to make any
changes to your Employment Benefits permitted in accordance
with Section 2; provided, however, that you shall not:
(1) accumulate vacation pay for periods after the Date of
Termination;
(2) first qualify for sickness and accident, salary
continuation, and long-term disability plan benefits by
reason of an accident occurring or a sickness first
manifesting itself after the Date of Termination;
(3) be eligible to continue to make contributions to any
Internal Revenue Code (S) 401(k) plan maintained by AKS
or qualify for a share of any employer contribution
made to any tax-qualified defined contribution plan; or
(4) be eligible to accumulate service for pension plan
purposes; and
provided, further, that if, during the Severance Pay Period,
you are (and for so long as you remain) employed by any other
employer, the obligations of AKS to continue to provide you
with life insurance, medical, hospital and other health
insurance benefits shall be limited solely to those benefits
necessary to assure that, together with the corresponding
benefits provided to you under any other plans, you receive
total benefits comparable to those to which you were entitled
at the Date of Termination.
(v) You shall qualify for full COBRA health benefit continuation
coverage upon the expiration of the Severance Pay Period.
(vi) You shall be entitled, at no cost to you, to up to twelve
(12) months of full executive outplacement assistance with an
agency selected by AKS.
-8-
<PAGE>
(b) You shall receive payment of your benefit under the AK Steel
Corporation Executive Minimum and Supplemental Retirement Plan (the
"SERP") in accordance with the provisions of the SERP.
Notwithstanding the foregoing, if your employment with AKS is
involuntarily terminated by AKS without Cause in accordance with
Section 4(a), or if at any time after a Change In Control you
voluntarily terminate your employment with AKS (or any Affiliate,
any successor of AKS, or any entity which as a result of the
completion of the transactions causing a Change In Control becomes
affiliated with AKS) for Good Reason (as defined in Section 4(d)) or
after a Change In Control in accordance with Section 4(e), within
ten (10) days following the Date of Termination you will receive, in
addition to any benefits you may be entitled to under Section 5(a)
above, a lump sum payment in an amount equal to the benefit you
would be entitled to under the SERP determined as if (i) your
Vesting Date (as defined under the SERP) had occurred prior to the
Date of Termination (if it has not already occurred as of the Date
of Termination) and (ii) you had attained age 60 prior to the Date
of Termination (if you have not already attained age 60 as of the
Date of Termination). The amount of any such additional benefit
shall be calculated as of the Date of Termination in accordance with
the benefit formula under the SERP (as if you had attained age 60,
or your actual age if greater), and the payment of such benefit
shall be in lieu of any payment under the SERP.
(c) You shall receive payment of your account under the AK Steel
Corporation Deferred Compensation Plan (the "DCP") in accordance
with provisions of the DCP. Notwithstanding the foregoing, voluntary
termination of your employment with AKS for Good Reason under
Section 4(d) or Section 4(e) shall not be considered a voluntary
termination under the DCP. Accordingly, if you terminate your
employment with AKS for Good Reason under Section 4(d) or after a
Change In Control under Section 4(e), you will be fully vested in
the interest credited to your account under the DCP and will be paid
your entire account at such time as provided under the DCP.
(d) You shall not be required to mitigate the amount of any payment
provided for in this Section 5 by seeking other employment or
otherwise, nor shall the amount of any payment or benefits provided
for in this Section 5 be reduced by any compensation or benefits
earned by you as the result of employment by another employer
(except as expressly provided in Section 5(a)(iv) above) or by
retirement benefits, or be offset against any amount claimed to be
owed by you to AKS or any of its Affiliates or successors.
(e) For purposes of calculating any amount due under this Agreement the
effect of any deferral of income shall be disregarded and all sums
due shall be calculated as if no such deferral had been made.
-9-
<PAGE>
6. Certain Tax Matters
-------------------
(a) If any of the payments provided to you pursuant to Section 5 hereof
(the "Contract Payments") or any other portion of the Total Payments
(as defined below) becomes subject at any time to the tax (the
"Excise Tax") imposed by section 4999 of the Internal Revenue Code
of 1986, as amended (the "Code"), AKS shall pay to you at the time
specified in section 6(b) below, an additional amount (the "Gross-Up
Payment") such that the net amount retained by you, after deduction
of the Excise Tax on any Contract Payments and/or other Total
Payments, any federal and state and local income tax and Excise Tax
upon the payment(s) provided for by this paragraph, and any
interest, penalties or additions to tax payable by you with respect
thereto, shall be equal to the present value of the Contract
Payments and such other Total Payments. For purposes of determining
whether any of the foregoing payments will be subject to the Excise
Tax and the amount of such Excise Tax, (i) any other payments or
benefits received or to be received by you in connection with a
Change In Control or the termination of your employment (whether
such payments are Contract Payments or are payable pursuant to the
terms of any other plan, arrangement or agreement with AKS, Holding
or any of their respective Affiliates or successors, any person
whose actions result in a Change In Control or any corporation
which, as a result of the completion of the transactions causing a
Change In Control, will become affiliated with AKS or Holding within
the meaning of section 1504 of the Code (such other payments,
together with the Contract Payments, the "Total Payments")) shall be
treated as "parachute payments" within the meaning of section
28OG(b)(2) of the Code, and all "excess parachute payments" within
the meaning of section 28OG(b)(1) shall be treated as subject to the
Excise Tax, except to the extent that, in the opinion of tax counsel
selected by AKS' independent auditors and acceptable to you ("Tax
Counsel"), the Total Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute payments are
otherwise not subject to the Excise Tax, (ii) the amount of the
Total Payments that shall be treated as subject to the Excise Tax
shall be equal to the lesser of (1) the total amount of the Total
Payments or (2) the amount of excess parachute payments within the
meaning of sections 28OG(b)(1) (after applying clause (i) hereof),
and (iii) the value of any noncash benefits or any deferred payment
or benefit shall be determined by AKS' independent auditors in
accordance with the principles of sections 28OG(d)(3) and (4) of the
Code. For purposes of determining the amount of the Gross-Up
Payment(s), you shall be deemed to pay federal income taxes at the
highest marginal rate of federal income taxation applicable to
individuals in the calendar year in which the Gross-Up Payment(s) is
(are) to be made and state and local income taxes at the highest
marginal rates of taxation applicable to individuals as are in
effect in the state and locality of your residence in the calendar
year in which the Gross-Up Payment(s) is (are) to be made, net of
the maximum reduction in federal income taxes that could be obtained
from deduction of such state and local taxes. In the event that the
Excise Tax is subsequently determined to be less than the amount
taken into account
-10-
<PAGE>
hereunder, you shall repay to AKS at the time that the amount of
such reduction in Excise Tax is finally determined the portion of
the Gross-Up Payment attributable to such reduction (plus the
portion of the Gross-Up Payment attributable to the Excise Tax and
federal and state and local income tax imposed on the Gross-Up
Payment being repaid by you if such repayment results in a federal
and state and local income tax deduction), plus interest on the
amount of such repayment at the applicable federal rate (as defined
in section 1274(d) of the Code). In the event that the Excise Tax is
determined to exceed the amount taken into account hereunder
(including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-up Payment), AKS shall
make an additional gross-up payment in respect of such excess (plus
any interest payable with respect to such excess) at the time that
the amount of such excess is finally determined.
(b) The Gross-up Payment(s) provided for in section 6(a) above shall be
made not later than the tenth day following the Date of Termination
or, with respect to any portion of the Excise Tax not determined on
or before such date to be due, upon the imposition of such portion
of the Excise Tax; provided, however, that if the amounts of such
payments cannot be finally determined on or before such date, AKS
shall pay to you on such day an estimate, as determined in good
faith by AKS, of the minimum amount of such payments and shall pay
the remainder of such payments (together with interest at the rate
provided in section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined but in no event later than the thirtieth
day after the Date of Termination. In the event that the amount of
the estimated payments exceeds the amount subsequently finally
determined to have been due, such excess shall constitute a loan by
the Corporation to you, payable on the tenth day after demand by the
Corporation (together with interest at the rate provided in section
1274(b)(2)(B) of the Code).
(c) In the event of any change in, or further interpretation of,
sections 28OG or 4999 of the Code and the regulations promulgated
thereunder, you shall be entitled, by written notice to AKS, to
request an opinion of Tax Counsel regarding the application of such
change to any of the foregoing, and AKS shall use its best efforts
to cause such opinion to be rendered as promptly as practicable. All
fees and expenses of Tax Counsel incurred in connection with this
Agreement shall be borne by AKS.
7. Definitions
-----------
For purposes of this Agreement the following terms shall have the following
meanings:
(a) "Affiliate" of any specified person means (i) any other person
---------
which, directly or indirectly, is in control of, is controlled by or
is under common control with such specified person or (ii) any other
person who is a director of officer (1) of such specified person,
(2) of any subsidiary of such specified person or (3) of any person
-11-
<PAGE>
described in clause (i) above. For purposes of this definition,
control of a person means the power, direct or indirect, to direct
or cause the direction of the management and policies of such person
whether by contract or otherwise and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
(b) "Change In Control" means the occurrence of any of the following
-----------------
events:
(i) any "Person" (as such term is used in Sections 13(d) and
14(d) of Securities Exchange Act of 1934, as amended (the
"Exchange Act"), is or becomes the beneficial owner (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have "beneficial
ownership" of all shares that any such Person has the right
to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of
more than 40% of the total voting power of the Voting Equity
Interests of Holding; provided, however, that a Person shall
-------- -------
not be deemed the "beneficial owner" of shares tendered
pursuant to a tender or exchange offer made by that Person or
any Affiliate of that Person until the tendered shares are
accepted for purchase or exchange;
(ii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board
(together with any new directors whose election by such
Board, or whose nomination for election by the shareholders
of Holding, as the case may be, was approved by a vote of 66-
2/3% of the directors then still in office who were either
directors at the beginning of such period or whose election
or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board then in
office; or
(iii) Holding fails to own 100% of the outstanding stock of AKS;
provided, however, that it shall not be deemed a Change in
--------- -------
Control if Holding merges into AKS except that, in such case,
AKS shall be substituted for Holding for purposes of this
definition of "Change in Control" and this clause (iii) shall
not longer be applicable.
(c) "Voting Equity Interests" of a corporation means all classes of
-----------------------
stock then outstanding and normally entitled to vote in the election
of directors or other governing body of such corporation.
8. Benefits Upon Voluntary Termination or Termination for Cause
------------------------------------------------------------
Upon your Date of Termination for Cause in accordance with Section 4(b) or
your Date of Termination without Good Reason in accordance with Section
4(c), all benefits under this
-12-
<PAGE>
Agreement will be void, but you nevertheless shall be eligible for any
benefits provided in accordance with the plans and practices of AKS which
are applicable to employees generally.
9. Arbitration
-----------
Any dispute under this Agreement (except for disputes arising under
Sections 10 and 12 below) shall be submitted to binding arbitration subject
to the rules of the American Arbitration Association. Except as
hereinafter provided, AKS and you shall each bear your own attorney's fees
and shall share equally the cost of arbitration. However, if you prevail
in a challenge by you to AKS' assertion of the existence of Cause for
termination or in a challenge by AKS to your assertion of the existence of
Good Reason for termination, you shall be reimbursed by AKS for all
reasonable costs or expenses incurred by you in such challenge, including
reasonable attorney's fees.
10. Confidentiality
---------------
You will not disclose to any person or use for the benefit of yourself or
any other person any confidential or proprietary information of AKS without
the prior written consent of an elected officer of AKS. Upon your
termination of employment, you will return to AKS all written or
electronically stored memoranda, notes, plans, records, reports or other
documents of any kind or description (including all copies in any form
whatsoever) relating to the business of AKS.
11. Conflicts of Interest
---------------------
You agree for so long as you are employed by AKS to avoid dealings and
situations which would create the potential for a conflict of interest with
AKS. In this regard, you agree to comply with the AKS policy regarding
conflicts of interest.
12. Covenant Not to Compete
-----------------------
During the term of this Agreement and for a period of one year following
your Date of Termination for any reason, you agree not to be employed by,
or serve as director of or consultant or advisor to, any business engaged
directly or indirectly in the melting, hot rolling, cold rolling, or
coating of carbon, electrical or stainless steel, or in the manufacturing
of steel pipe and tubing products, or that is reasonably likely to engage
in such business during the one-year period following your termination of
employment; provided however, if a Change in Control occurs, the foregoing
-------- -------
restriction applicable to the one year period following your Date of
Termination shall lapse and be null and void.
-13-
<PAGE>
13. Notice
------
Notices required or permitted under this Agreement shall be in writing and
shall be deemed to have been given when personally delivered or mailed by
United States certified mail, return receipt requested, postage prepaid,
addressed to the intended recipient at its or his address first above
written. Notices to AKS shall be marked for the attention of the Chief
Executive Officer of AKS.
14. Modification; Waiver
--------------------
No provision of this Agreement may be waived, modified or discharged except
pursuant to a written instrument signed by you and the Chairman of the
Board or the Chief Executive Officer of AKS.
15. Successors; Binding Agreement
-----------------------------
(a) AKS and Holding will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of AKS to expressly
assume and agree to perform this Agreement in the same manner and to
the same extent that AKS would be required to perform it if no such
succession had taken place. Failure of AKS or Holding to obtain such
assumption and agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement.
(b) This Agreement shall inure to the benefit of and be enforceable by
you and your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If you should die while any amount would still be payable
to you hereunder had you continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee,
or, if there is no such devisee, legatee or designee, to your
estate.
-14-
<PAGE>
16. Validity; Counterparts
----------------------
This Agreement shall be governed by and construed under the law of the
State of Delaware. The validity or unenforceability of any provision hereof
shall not affect the validity or enforceability of any other provision
hereof. This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
Sincerely,
AK STEEL HOLDING CORPORATION
Accepted and agreed to this _____ day
______________, 200__. By:________________________________
____________________________________
(Signature) AK STEEL CORPORATION
__________________________________ By:________________________________
(Name of Employee)
-15-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.6
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>EXECUTIVE MINIMUM AND SUPPLEMENTAL RETIREMENT PLAN
<TEXT>
<PAGE>
EXHIBIT 10.6
AK STEEL CORPORATION
EXECUTIVE MINIMUM AND SUPPLEMENTAL RETIREMENT PLAN
_____________________________________
(as amended and restated as of January 20, 2000)
<PAGE>
AK STEEL CORPORATION
EXECUTIVE MINIMUM AND SUPPLEMENTAL RETIREMENT PLAN
(as amended and restated as of January 20, 2000)
ARTICLE 1: INTRODUCTION AND PURPOSE
AK Steel Corporation hereby amends and restates the AK Steel Corporation
Executive Minimum and Supplemental Retirement Plan, effective as of January 20,
2000. The Plan was last amended and restated as of January 1, 1996 and was
subsequently amended on July 17, 1997 and September 18, 1997. The purpose of
the Plan is to aid the Company and its subsidiaries and affiliates in attracting
and retaining key personnel.
The Plan is an unfunded deferred compensation arrangement maintained by the
Company for the purpose of providing supplemental retirement benefits for a
select group of management or highly compensated employees within the meaning of
Section 201(2) and 301(a)(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). Any obligations under the Plan shall be the joint
and several obligations of AK Steel Holding Corporation, the Company and each of
their respective subsidiaries and affiliates.
ARTICLE 2: DEFINITIONS
As used in the Plan, the following terms, when capitalized, shall have the
following meanings, except when otherwise indicated by the context:
2.1 "Administrator" means the Compensation Committee of the Board, or any
successor Committee duly empowered by the Board.
2.2 "Average Monthly Earnings" means a Member's average monthly earnings
during the highest three (3) calculation years of the last ten (10) calculation
years. For this purpose, earnings includes all compensation for services
rendered, including base salary, bonus and any elective deferrals made with
respect to any calendar year under the AK Steel Corporation Deferred
Compensation Plan, the AK Steel Corporation Thrift Plan or under any plan
established under section 125 of the Code. Compensation attributable to
reimbursement of business or relocation expenses; Company contributions after
1991 to any Company sponsored employee benefit plans established under sections
401(k) or 125 of the Code; and income under any stock option, restricted stock
or phantom stock plan, shall be disregarded. The term "calculation years" means
fiscal years measured by the twelve (12) consecutive calendar months ending with
the last day of the month coincident with or immediately preceding the date of a
Member's Termination Date.
2.3 "Board" means the Board of Directors of AK Steel Holding Corporation or
any successor thereto, as the same shall be constituted from time to time.
2.4 "Chairman" means the Chairman of the Board.
1
<PAGE>
2.5 "Change in Control" has the same meaning under this Plan as under the
Trust Agreement for the AK Steel Corporation Non-Qualified Supplemental
Retirement Plans.
2.6 "Code" means the Internal Revenue Code of 1986, as amended.
2.7 "Company" means AK Steel Corporation and any successor to all or
substantially all of the assets or business of AK Steel Corporation.
2.8 "Key Management Service" means a Member's Service as an elected officer or
in any other position which, during the Member's period of incumbency, is
identified by the Chairman and approved from time to time by the Administrator,
as a key management position. Except as otherwise determined by the
Administrator and set forth in written notice to the Member, years of employment
in one or more key management positions shall be aggregated, and Key Management
Service shall include service in a key management position with Armco Steel
Company, L.P. and Armco Inc.. The Administrator's determination that a position
qualifies as a key management position and that certain periods of Service
qualify as Key Management Service shall be final.
2.9 "Member" means any elected officer or member of key management of the
Company who is selected by the Chairman and who is approved by the Administrator
to be a participant eligible for benefits under this Plan.
2.10 "NCPP" means the AK Steel Corporation Noncontributory Pension Plan as
amended, and any predecessor, substitute or successor Qualified DB Plan.
2.11 "NCPP Benefit" means for any Member who, as of his Termination Date, is
entitled to a vested accrued benefit under the NCPP, the Member's vested accrued
benefit under the NCPP, determined in accordance with the limitations under
sections 401(a)(17) and 415 of the Code (or any substitute or similar provision
limiting benefits permitted under the NCPP).
2.12 "Qualified DB Plan" means any tax-qualified defined benefit pension plan
in which a Member has an accrued benefit as of his or her Termination Date
including the NCPP or any other tax-qualified defined benefit pension plan
sponsored by the Company or by any previous employer of any Member.
2.13 "Qualified DC Plan" means any tax-qualified defined contribution plan
offered instead of a Qualified DB Plan as determined by the Administrator. For
purposes of this definition, however, the AK Steel Corporation Thrift Plan A and
any predecessor, substitute or successor thrift plan shall not be deemed to be a
Qualified DC Plan.
2.14 "Qualified Plan" means any Qualified DB Plan and any Qualified DC Plan.
2.15 "Service" means a Member's years of employment with the Company, including
years of employment with Armco Steel Company, L.P. or Armco Inc. and including
years of employment with any other predecessor organization approved by the
Administrator.
2
<PAGE>
2.16 "Spouse" means the person to whom a Member is married as of the Member's
Termination Date.
2.17 "Termination Date" means the date a Member's employment with the Company
terminates for any reason, including death, on or after the Member's Vesting
Date.
2.18 "Trust" means the Trust Agreement for the AK Steel Corporation Non-
Qualified Supplemental Retirement Plans, as amended, and any successor or
replacement trust for such trust.
2.19 "Unlimited NCPP Benefit" means for any Member who, as of his Termination
Date, is entitled to a vested accrued benefit under the NCPP, the Member's
vested accrued benefit under the NCPP, determined without regard to the
limitations under sections 401(a)(17) and 415 of the Code (or any substitute or
similar provision limiting benefits permitted under the NCPP) and based upon
Average Monthly Earnings as defined in Section 2.2.
2.20 "Vesting Date" means the last to occur of the date a Member (i) completes
five (5) years of Key Management Service and (ii) completes ten (10) years of
Service; or such other date as determined by the Administrator in its sole
discretion. Notwithstanding the foregoing, in the event of a Member's death
prior to his or her Vesting Date as determined under the preceding sentence,
such Member's Vesting Date for purposes of this Plan shall be the Member's date
of death if the Member had completed at least five (5) years of Service as of
his or her date of death.
ARTICLE 3: ADMINISTRATION OF THE PLAN
This Plan shall be administered by the Administrator or its delegate as the
Administrator may designate from time to time. Except as otherwise provided
herein, it is intended that the Administrator (or such delegate) shall have full
discretion to interpret the Plan's terms and to resolve claims which may arise
under the Plan.
ARTICLE 4: SOURCE OF BENEFITS
4.1 Source of Benefits
The Company may pay benefits due under the terms of this Plan directly from
its assets or from assets held in the Trust. All assets held by the Trust
shall at all times be assets of the Company. The benefits payable under
this Plan shall be unfunded for all purposes of the Code and ERISA.
3
<PAGE>
4.2 Assets of the Company
Nothing contained in this Plan shall give or be deemed to give any Member
or any other person any interest in any property of the Trust or of the
Company or any right except to receive such payments as are expressly
provided hereunder.
4.3 Liability of Officers and Directors
No current or former employee, officer or director of AK Steel Holding
Corporation or the Company shall be personally liable to any Member or
other person under any provision of this Plan.
4.4 Funding upon Change in Control
In the event of a Change in Control, the Company shall fully fund all
benefits then accrued under this Plan by delivering sufficient assets to
the Trustee in cash or in kind. Such funding obligation may be secured by
an irrevocable letter of credit issued to the Trustee by such bank or other
lending institution as approved by the Administrator.
ARTICLE 5: ELIGIBILITY FOR PARTICIPATION
5.1 Selection of Members
Participation in this Plan shall be limited to those members of management
who have been selected by the Chairman and approved from time to time by
the Administrator. No affirmative election is required on the part of any
person selected to become a Member.
5.2 Removal of Members
The Board may remove any Member from participation in this Plan. Such
removal shall not affect the removed Member's vested rights from and after
the Member's Vesting Date.
5.3 Notification of Members
The Company shall notify in writing those employees selected as Members
pursuant to Section 5.1 of their Member status and shall notify in writing
any Member removed from membership pursuant to Section 5.2.
4
<PAGE>
ARTICLE 6: BENEFITS
6.1 Benefit Defined
Subject to the provisions of Article 7, a Member's accrued benefit under
this Plan (the "Benefit") is the sum of the Member's Regular Benefit and
the Member's Early Retirement Benefit if applicable, as defined in Sections
6.2 and 6.3 respectively. No Benefit shall be payable under this Plan if a
Member's employment with the Company terminates for any reason prior to the
Member's Vesting Date.
6.2 Regular Benefit
A Member's Regular Benefit is the value of a monthly payment deemed to
commence on the later of the Member's 60th birthday or the Member's
Termination Date which, for any month, is in an amount equal to the greater
of:
(a) the Member's Unlimited NCPP Benefit; or
(b) except as otherwise provided in any other agreement between the
Company and a Member and approved by the Administrator, 45% of Average
Monthly Earnings with respect to any Member who is not an elected
officer of the Company, or 50% of Average Monthly Earnings with
respect to any Member who is an elected officer of the Company.
6.3 Early Retirement Benefit
A Member's Early Retirement Benefit is the value of a monthly payment equal
to the Member's Unlimited NCPP Benefit during the period between the
Member's Early Retirement Date and commencement of the Regular Benefit.
The Member's Early Retirement Date is the earliest date that a Member is
entitled to receive benefits under the NCPP after the Member's Termination
Date.
6.4 Maximum Benefit
Notwithstanding the foregoing, the monthly payments determined in
accordance with Sections 6.2 and 6.3 above with respect to any Member who
is not an elected officer of the Company shall not exceed 75% of such
Member's highest monthly rate of base salary, ignoring any salary deferrals
to any Company-sponsored benefit plans, during the Member's period of
employment with the Company.
6.5 Non-Duplication
A Member shall not be eligible for benefits under any other non-qualified
supplemental retirement benefit plan maintained by the Company for the
purpose of providing benefits not permitted to be paid under any Qualified
DB Plan. Nothing herein shall prohibit participation by any Member in the
AK Steel Corporation Deferred Compensation Plan.
5
<PAGE>
ARTICLE 7: PAYMENT
7.1 Payment of Benefits
Except as provided in Section 9.4, a Member's Benefit shall be paid in a
single lump-sum payment, the amount of which shall be determined in
accordance with Section 7.2, as reduced by the amount determined in
accordance with Section 7.3. Payment shall be made to the Member, or in
the case of the Member's death, to the Member's designated beneficiary,
within 30 days following the Member's Termination Date. Any designation of
beneficiary shall be made by the Member on an election form filed with the
administrator and may be changed by the Member at any time by filing
another election form containing the revised instructions. If no
beneficiary is designated or no designated beneficiary survives the Member,
payment shall be made to the Member's estate.
7.2 Lump-Sum Valuation
(a) To calculate the lump-sum present value of a Member's Benefit, it
shall be assumed that the Benefit is payable as a lifetime annuity for
an unmarried Member or as a joint and 50% surviving spouse's annuity
for a married Member. A Member is deemed to be married for the
purposes of this Section 7.2(a) if the Member has a Spouse on his or
her Termination Date.
(b) Subject to the provisions of Section 7.2(c), the lump-sum present
value of a Member's Benefit shall be determined by the enrolled
actuary for the NCPP based upon assumptions approved by the
Administrator in the Administrator's sole discretion. The assumptions
may be changed at any time, and from time to time, but any change
shall only be valid with respect to Termination Dates occurring twelve
or more months after the change is approved.
(c) Unless otherwise directed by the Administrator, the lump-sum present
value of a Member's Benefit shall be calculated as of the Member's
Termination Date based upon (i) the 3-month average of the Pension
Benefit Guaranty Corporation immediate annuity interest rate in effect
during each of the 3 months preceding the month in which the
Termination Date occurs, (ii) the age of the Member, (iii) the 1984
Unisex Pension Table (UP84) and (iv) such other actuarial assumptions
as would apply under the NCPP.
7.3 Offset for Other Pensions
The lump-sum present value of a Member's Benefit determined in accordance
with Section 7.2 shall be reduced by an amount equal to the present value
as of the Member's Termination Date of (i) any accrued benefit under any
employer provided Qualified DB Plan; and (ii) the aggregate amount of any
employer provided vested benefits accumulated under any Qualified DC Plan.
6
<PAGE>
ARTICLE 8: INTERPRETATION, AMENDMENT AND TERMINATION
8.1 Interpretation of the Plan
This document contains the terms of the Plan. However, the Administrator
shall have, and the Board expressly reserves to itself and its designate,
the broadest possible power to exercise its discretion to interpret the
terms of this Plan and to resolve any question regarding any person's
rights under the Plan. Any such interpretation shall be final and binding
upon a Member, the Member's spouse and heirs and subject to review only in
accordance with Section 8.2.
8.2 Claims Procedure
Any Member or other person questioning the rights of any person under the
Plan shall submit such question in writing to the Administrator, or its
designate, for resolution. No person shall have any claim or cause of
action for any benefit under this Plan until the Administrator, or its
designate, has responded to such written claim, which response shall not be
unreasonably delayed. Except as to disputes described in Sections 9.2 and
9.4, it is the intent of the Company, and each Member agrees as a condition
of membership, that any judicial review of any decision hereunder shall be
limited to a determination of whether the Administrator, or its designate,
acted arbitrarily or capriciously, and that any decision of the
Administrator, or its designate shall be enforced unless the action taken
is found by a court of competent jurisdiction to have been arbitrary or
capricious. Disputes described in Sections 9.2 and 9.4 may be resolved by
binding arbitration, if mutually agreed by the Member and the
Administrator, or by litigation; and in either case such action may proceed
without the necessity of exhausting any other remedies that may be
available under this Plan.
8.3 Amendment or Termination of the Plan
The Board may, at any time, with or without notice to any person, amend or
terminate this Plan. No such amendment or termination shall adversely
affect a Member's rights under this Plan after a Member's Vesting Date.
8.4 No Cause of Action
No Member shall have any right, claim or cause of action against any person
or entity to appeal the denial of a benefit by the Administrator except as
provided in Sections 8.1 and 8.2. In addition, no Member, and no person
claiming by, through or on behalf of a Member, shall have any claim to or
cause of action for any benefit under this Plan which might have been
earned but for the amendment or termination of the Plan, or the termination
of the Member's employment or the removal of the Member from participation
under this Plan.
7
<PAGE>
ARTICLE 9: MISCELLANEOUS
9.1 Unsecured General Creditor
Any and all rights created under this Plan shall be unfunded and unsecured
contractual rights of the Members against the Company. The Company's
obligation under this Plan shall be a mere promise by the Company to make
the benefit payments described herein. Members shall have no legal or
equitable right, interest or other claim in any property or assets of the
Company by reason of the establishment of this Plan.
9.2 Obligations to the Company
If a Member becomes entitled to a distribution of benefits under this Plan,
and if at such time the Member has any outstanding debt, obligation or
other liability representing an amount certain owed to the Company, then
the Company may offset such amount against the amount of benefits otherwise
distributable under the Plan. Such determination shall be made by the
Administrator.
9.3 Assignability
No Member shall have any right to anticipate, alienate, assign, sell,
transfer, pledge, encumber, attach, mortgage or otherwise hypothecate or
convey in advance of actual receipt the amounts, if any, payable hereunder.
No part of the amounts payable hereunder shall, prior to actual payment, be
subject to seizure or sequestration for the payment of any debts,
judgments, alimony or separate maintenance, nor shall any person have any
other claim to any benefit payable under this Plan as a result of a divorce
or the Member's, or any other person's bankruptcy or insolvency.
9.4 Forfeiture
Any Member terminated for Cause shall forfeit all rights under this Plan.
"Cause" means a willful engaging in gross misconduct materially and
demonstrably injurious to the Company. "Willful" means an act or omission
in bad faith and without reasonable belief that such act or omission was in
or not opposed to the best interests of the Company. Any such
determination shall be made by the Board. Each Member shall be entitled to
a statement of the facts alleged as a basis for the Board's determination
that a Member has been terminated for cause and shall be permitted an
opportunity to present, in person, for the Board's consideration, in such
manner as the Board shall direct, any facts or arguments on the Member's
behalf as the Member or his representative may determine.
9.5 Sale of Business
The sale as a going business of (i) the Company or (ii) substantially all
of the assets of the Company shall not be a termination of Service for the
purpose of establishing a Member's right to receive benefits under this
Plan.
8
<PAGE>
9.6 Employment Not Guaranteed
The establishment of this Plan, a Member's appointment as a Member of the
Plan, any provision of this Plan, or any action taken hereunder, shall not
be or be construed as a contract of employment for any definite term. The
Company may take any action related to a Member's employment without regard
to the effect such action has or may have on a Member's rights hereunder.
9.7 Captions
The captions to the articles, sections and paragraphs of this Plan are for
convenience only and shall not control or affect the meaning or
construction of any of its provisions.
9.8 Validity
In the event any provision of this Plan is found by a court of competent
jurisdiction to be invalid, void or unenforceable, such provision shall be
stricken and the remaining provisions shall continue in full force and
effect.
9.9 Applicable Law
This Plan is subject to interpretation under federal law and, to the extent
applicable, the law of the State of Ohio.
AK STEEL HOLDING CORPORATION
AK STEEL CORPORATION
By: ___________________________________
John G. Hritz, Executive Vice President
and General Counsel
Adopted December 12, 1989
Amended and Restated January 1, 1994
Amended and Restated January 1, 1995
Amended and Restated January 1, 1996
Amended July 17, 1997
Amended September 18, 1997
Amended and Restated January 20, 2000
9
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>AMENDED & RESTATED RECEIVABLES PURCHASE AGREEMENT
<TEXT>
<PAGE>
EXHIBIT 10.7
--------------------------------
AMENDED AND RESTATED
RECEIVABLES PURCHASE AGREEMENT
between
AK STEEL CORPORATION
and
AK STEEL RECEIVABLES LTD.
Dated as of October 1, 1999
--------------------------------
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
ARTICLE I Definitions.......................................................... 2
1.1 Definitions.......................................................... 2
1.2 Other Definitional Provisions........................................ 3
1.3 Computation of Time Periods.......................................... 4
ARTICLE II Purchase and Sale of Receivables..................................... 4
2.1 Purchase and Sale of Receivables..................................... 4
2.2 Timing of Purchases.................................................. 5
2.3 Consideration For Purchases.......................................... 5
2.4 Calculation of Purchase Price........................................ 5
2.5 Payment of Purchase Price............................................ 8
2.6 Application of Collections.......................................... 10
2.7 Further Assurances.................................................. 10
2.8 Armco Receivables................................................... 11
ARTICLE III The Servicer........................................................ 11
3.1 Seller to Act as Servicer........................................... 11
3.2 Eligibility and Concentration Determinations........................ 12
3.3 Deemed Collections.................................................. 12
ARTICLE IV Covenants, Representations and Warranties........................... 13
4.1 Representations and Warranties of the Seller........................ 13
4.2 Affirmative Covenants of the Seller................................. 17
4.3 Negative Covenants of the Seller.................................... 19
4.4 Obligations Unaffected.............................................. 21
4.5 Representations and Warranties of the Buyer......................... 21
4.6 General Covenants of the Buyer...................................... 22
ARTICLE V Conditions to Effectiveness and Purchases........................... 22
5.1 Closing Date........................................................ 22
5.2 Conditions to All Purchases......................................... 23
ARTICLE VI Events of Termination............................................... 24
6.1 Termination Events.................................................. 24
ARTICLE VII Miscellaneous....................................................... 24
7.1 Payments............................................................ 24
7.2 Costs and Expenses; Indemnifications................................ 24
7.3 Successors and Assigns.............................................. 27
</TABLE>
- i -
<PAGE>
<TABLE>
<S> <C>
7.4 Governing Law, Waiver of Jury Trial, Jurisdiction, Consent to
Service of Process.................................................. 28
7.5 No Waiver; Cumulative Remedies...................................... 28
7.6 Amendments and Waivers.............................................. 29
7.7 Severability........................................................ 29
7.8 Notices............................................................. 29
7.9 Counterparts........................................................ 29
7.10 Construction of Agreement........................................... 29
7.11 Termination......................................................... 29
</TABLE>
- ii -
<PAGE>
AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT, dated as of
October 1, 1999, by and between AK Steel Corporation, a Delaware corporation (in
its capacity as originator of the Receivables and as seller hereunder, the
"Seller"; in its capacity as servicer hereunder and under the Purchase and
------
Servicing Agreement, the "Servicer"), and AK Steel Receivables Ltd., an Ohio
--------
limited liability corporation (the "Buyer").
-----
WHEREAS, the Buyer and the Seller are parties to that certain
Receivables Purchase Agreement, dated as of December 1, 1994 (as amended,
supplemented and otherwise modified prior to the date hereof, the "Original
Receivables Purchase Agreement"); and
WHEREAS, the Buyer is an indirect wholly-owned subsidiary of the Seller
and a portion of the Receivables were transferred to the Buyer by the Seller as
a capital contribution to the Buyer on December 1, 1994; and
WHEREAS, the Seller has sold to the Buyer all of its right, title and
interest in, to and under certain Receivables pursuant to the Original
Receivables Purchase Agreement; and
WHEREAS, the Seller desires to continue to sell to the Buyer, and the
Buyer desires to continue to buy from the Seller, on the Closing Date and
thereafter as they arise, all of the Seller's right, title and interest in, to
and under all of the remaining Receivables existing on the Closing Date or
thereafter created; and
WHEREAS, pursuant to that certain Amended and Restated Purchase and
Servicing Agreement, dated of even date herewith (the "Purchase and Servicing
----------------------
Agreement"), among the Buyer, AKSR Investments, Inc., as Managing Member, the
- ---------
Servicer, PNC Bank, National Association, as Agent for the Purchasers party
thereto (the "Agent"), and such Purchasers, the Buyer has agreed to transfer and
-----
convey to the Purchasers an undivided interest in, to and under the Transferor
Receivables and the other Transferred Assets; and
WHEREAS, the Seller and Armco have merged pursuant to the AK Steel
Merger, with the Seller being the surviving entity; and
WHEREAS, the Buyer and AFC have merged pursuant to the AKR Merger, with
the Buyer being the surviving entity; and
WHEREAS, the parties desire to amend and restate in its entirety the
Original Receivables Purchase Agreement as set forth below; and
WHEREAS, (A) prior to the AK Steel Merger, AFC was indebted to Armco
pursuant to the "Seller Note" (as defined in the Armco Purchase and Sale
Agreement) from AFC to the order of Armco (as heretofore amended, supplemented
and otherwise modified, the "AFC Note"); (B) as a consequence of the AK Steel
Merger, AFC became indebted to Seller pursuant to the AFC Note, and (C) as a
consequence of the AKR Merger, Buyer is indebted to Seller pursuant to the AFC
Note; and
<PAGE>
WHEREAS, pursuant to the Original Receivable Purchaser Agreement, Buyer
is indebted to Seller pursuant to the Subordinated Note (as defined in the
Original Receivables Purchase Agreement); and
WHEREAS, Buyer and Seller wish to combine the indebtedness of Buyer to
Seller under the Subordinated Noted (as defined in the Original Receivable
Purchase Agreement) and under the AFC Note into one new subordinated note in the
form of Exhibit B hereto, so that all references in this Amended and Restated
Receivables Purchase Agreement to the Subordinated Note shall be deemed to mean
such new combined subordinated note;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Original Receivables Purchase Agreement is
amended and restated to read in its entirety as follows:
ARTICLE I
Definitions
1.1 Definitions. Capitalized terms used herein but not otherwise
-----------
defined shall have the meanings set forth in the Purchase and Servicing
Agreement. In addition, the term "Agreement" means this Amended and Restated
---------
Receivables Purchase Agreement, as the same may from time to time be amended,
supplemented or otherwise modified. The following capitalized terms shall have
the following meanings:
"Armco Purchase and Sale Agreement" means the Purchase and Sale
---------------------------------
Agreement dated as of December 22, 1995, between Armco and AFC, as amended,
supplemented and otherwise modified from time to time.
"Armco Receivables" means the Purchased Receivables, as defined in the
-----------------
Armco Purchase and Sales Agreement which are outstanding at the time of the AKR
Merger.
"Closing Date" shall mean the closing date of the Original Receivables
------------
Purchase Agreement, which was December 1, 1994.
"Early Termination" shall have the meaning specified in Article VI.
----------------- ----------
"Effective Period" shall mean the period beginning on the Closing Date
----------------
and terminating on the close of business on the Business Day immediately
preceding the day on which a Termination Event occurs.
"Initial Capital Contribution" shall mean the capital contribution made
----------------------------
by the Seller to the Buyer on the Closing Date pursuant to the Original
Receivables Purchase Agreement.
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<PAGE>
"Purchase Date" shall mean the Closing Date and each subsequent day
-------------
during the Effective Period that the Seller is open for business.
"Receivable" shall mean (i) an Armco Receivable, and (ii) an account
----------
receivable of the Seller arising from the sale of merchandise or providing of
services by the Seller in the ordinary course of business of the Seller,
including all monies due or to become due and all Collections and other amounts
received from time to time with respect to such Receivable and all proceeds
(including "proceeds" as defined in the UCC of the jurisdiction the law of which
governs the perfection of the interest on the Receivables transferred hereunder)
thereof and "Receivables" shall mean all such Receivables; provided, however,
-------- -------
that "Receivables" shall not include any amounts payable to the Seller with
respect to licenses of intangible assets.
"Related Assets" means, as to any Receivable: (a) all of Seller's
--------------
right, title and interest (including any right, title and interest acquired by
the Seller in the AK Steel Merger) in and to the receipt of payments (including
the right to sue for or enforce collection of such Receivable) of Receivables
under all Contracts that relate to such Receivable; (b) all of Seller's interest
(including any right, title and interest acquired by the Seller in the AK Steel
Merger) in the goods (including returned goods), if any, relating to the sale
which gave rise to such Receivable; (c) all other security interests or Liens
and property subject thereto from time to time purporting to secure payment of
such Receivable; (d) the assignment to the Buyer of all UCC financing statements
covering any collateral securing payment of such Receivable; (e) all guarantees
and other agreements or arrangements of whatever character from time to time
supporting or securing payment of such Receivable; (f) all of the Records; and
(g) all proceeds (including "proceeds" as defined in the UCC of the jurisdiction
the law of which governs the perfection of the interest in such Receivable) of
such Receivable and the foregoing.
"Termination Event" shall have the meaning specified in Article VI.
----------------- ----------
1.2 Other Definitional Provisions. (a) All terms defined in this
-----------------------------
Agreement shall have the defined meanings when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein;
(b) As used herein and in any certificate or other document made or
delivered pursuant hereto or thereto, accounting terms not defined in this
Agreement, and accounting terms partly defined in this Agreement to the extent
not defined, shall have the respective meanings given to them under generally
accepted accounting principles. To the extent that the definitions of accounting
terms herein are inconsistent with the meanings of such terms under generally
accepted accounting principles, the definitions contained herein shall control;
(c) The words "hereof', "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references contained in this Agreement are references to Sections,
Schedules and Exhibits in or to this Agreement unless otherwise specified, and
the term "including" means "including without limitation";
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<PAGE>
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms; and
(e) Any reference to a specific time of day shall mean such time of day
in Cincinnati, Ohio.
1.3 Computation of Time Periods. Unless otherwise stated in this
---------------------------
Agreement, in the computation of a period of time from a specified date to a
later specified date, the word "from" means "from and including" and the words
"to" and "until" mean "to but excluding."
ARTICLE II
Purchase and Sale of Receivables
2.1 Purchase and Sale of Receivables. Subject to the terms and
--------------------------------
conditions of this Agreement and in consideration of the Purchase Price, the
Seller shall sell, assign and transfer to the Buyer, and the Buyer shall
purchase and accept from the Seller, during the Effective Period (without
recourse except as specifically provided herein), all right, title and interest
of the Seller in, to and under:
(i) all Receivables existing at the close of business on the
Cut-Off Date and thereafter created from time to time (except those
collected prior to the Closing Date and those constituting the Initial
Capital Contribution), until the termination of the Effective Period;
and
(ii) all of the Related Assets.
The foregoing transfer and the Initial Capital Contribution do not
constitute and are not intended to result in an assumption by the Buyer of any
obligation or liability of the Seller or any other Person in connection with the
Receivables, any Related Asset or under any agreement or instrument relating
thereto, including any obligation to any Obligor or any other customer or client
of the Seller or any Affiliate thereof. All purchases hereunder and the Initial
Capital Contribution shall be made without recourse, but shall be made pursuant
to and in reliance upon the representations, warranties and covenants of the
Seller set forth in this Agreement and in each other Transaction Document. The
Seller and the Buyer intend the transactions hereunder to constitute true sales
of the Receivables and the Related Assets by the Seller to the Buyer, providing
the Buyer with the full risks and benefits of ownership of the Receivables and
the Related Assets.
Without limiting the foregoing, the parties hereto hereby ratify and
confirm as capital contributions or true sales:
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<PAGE>
(A) All transfers of Receivables and Related Assets which were made
by Seller to Buyer pursuant to the Original Receivables Purchase Agreement; and
(B) All transfers of Armco Receivables which were made by Armco to
AFC prior the AKR Merger.
2 .2 Timing of Purchases.
-------------------
(a) Closing Date Purchases. On the Closing Date, the Seller made the
----------------------
Initial Capital Contribution and sold to the Buyer, and the Buyer purchased and
acquired, pursuant to Section 2.1, all of the Seller's right, title and interest
-----------
in (i) each Receivable that existed as of the close of business on the Cut-Off
Date (except those collected prior to the Closing Date and those constituting
the Initial Capital Contribution), (ii) all Receivables created by the Seller
from and including the close of business on the Cut-Off Date to and including
the Closing Date (except those collected prior to the Closing Date), and (iii)
all Related Assets associated therewith.
(b) Regular Purchases. After the Closing Date, each Receivable and
-----------------
all Related Assets created or originated by the Seller shall be sold to, and
shall be purchased by, the Buyer (without any further action by any Person) upon
the creation or origination of such Receivable and Related Assets.
2.3 Consideration For Purchases. On the terms and subject to the
-----------------------------
conditions set forth in this Agreement, the Buyer agrees to make all Purchase
Price payments to the Seller in accordance with Section 2.5.
-----------
2.4 Calculation of Purchase Price. (a) On the Closing Date and as
-----------------------------
early as reasonably practicable in each calendar month thereafter, but not later
than the Determination Date occurring in such month, the Servicer shall deliver
to the Buyer and the Agent a report in substantially the form of Exhibit A (each
---------
such report being herein called a "Purchase Price Report") with respect to the
---------------------
Buyer's purchases of Receivables and Related Assets from the Seller:
(i) that arose on or prior to the Cut-Off Date (in the
case of the Purchase Price Report to be delivered on the Closing
Date); and
(ii) that arose after the Cut-Off Date and during the
Collection Period immediately preceding the date of such Purchase
Price Report (in the case of each subsequent Purchase Price Report;
provided, however, that in the case of the December 1994 Purchase
Price Report, those Receivables arising during the period from
November 24, 1994 through November 30, 1994 shall be included in such
report at the same Purchase Price as those Receivables purchased on
the Closing Date).
(b) On each Purchase Date, the "Purchase Price" to be paid by the
--------------
Buyer to the Seller in accordance with the terms of Section 2.5 on such day for
-----------
the Receivables and Related Assets
- 5 -
<PAGE>
that are to be sold hereunder on such day shall be determined in accordance with
the following formula:
PP = AOB - PD
where:
-----
PP = the aggregate Purchase Price for the Receivables and Related
Assets to be purchased from the Seller on such day;
AOB = the aggregate Outstanding Balance of the Receivables that are
to be purchased from the Seller on such day; and
PD = the Purchase Discount in effect on such day as determined
pursuant to Section 2.4(c).
For purposes of calculating the Purchase Price and the Purchase Discount on the
Closing Date, AOB equaled the aggregate Outstanding Balance of all Receivables
that existed and were owing to the Seller as measured at the Cut-Off Date
(excluding, in each case, all Receivables that had been written off the books of
the Seller as uncollectible), less an amount equal to the sum of (A) the
----
aggregate Outstanding Balance of all Receivables that comprised the amount of
the Initial Capital Contribution, and (B) the aggregate Collections received by
the Seller prior to the Closing Date.
(c) Definitions and Calculations Related to Purchase Discount
---------------------------------------------------------
(i) "Purchase Discount" for the Receivables to be sold
-----------------
hereunder on any Purchase Date during a Collection Period shall mean
the amount determined in accordance with the following formula:
PD = AOB x (LDR + FDR)
where:
-----
PD = the Purchase Discount in effect on such Purchase Date;
AOB = the aggregate Outstanding Balance of the Receivables to be
sold hereunder on such Purchase Date;
LDR = the Loss Discount Rate (expressed as a percentage) in effect
on such Purchase Date as determined pursuant to clause (ii)
-----------
below; and
- 6 -
<PAGE>
FDR = the Funding Discount Rate (expressed as a percentage) in
effect on such Purchase Date, as determined pursuant to
clause (iii) below.
------------
The Purchase Discount, the Loss Discount Rate and the Funding Discount
Rate shall initially be computed by the Servicer on the Closing Date
and thereafter shall be recomputed by the Servicer on the date of each
Purchase Price Report and shall become effective on the Closing Date
or on the first day of the month in which the Purchase Price Report is
delivered, as the case may be.
(ii) "Loss Discount Rate" in effect for any day during a
------------------
Collection Period means a percentage equal to the product of
(i) (A) the sum of the aggregate reductions in the
Outstanding Balance of Receivables as a result of credit
write-offs during the twelve calendar-month period next preceding
such Collection Period (or, in the case of the Closing Date, the
twelve-month period ending October 31, 1994), divided by (B) the
----------
aggregate Outstanding Balance of the Receivables as of the last
day of such twelve-month period, divided by 12, and multiplied by
----------
(ii) the Turnover Rate applicable to such Collection
Period.
(iii) "Funding Discount Rate" for the Receivables to be sold
---------------------
hereunder on the Closing Date or on any day during a Collection Period shall
mean a percentage determined in accordance with the following formula:
FDR = TR x FR
--
12
where:
-----
FDR = the Funding Discount Rate in effect on such day;
TR = the Turnover Rate applicable to such Collection Period;
and
FR = the Funding Rate, which shall be equal to the Alternate
Base Rate in effect on the Closing Date or the first
day of such Collection Period, as the case may be, plus
2.50%.
(iv) "Turnover Rate" means, on any day in a Collection Period,
-------------
the decimal equivalent of a fraction, the numerator of which is the sum of the
outstanding amounts of Receivables as of the last day of each of the three (3)
most recent calendar months which ended prior to such Collection Period (or, in
the case of the Closing Date, which ended on October 31, 1994), and the
denominator of which is the aggregate Collections received during such
three-month period.
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<PAGE>
(d) Adjustments to Purchase Price. The Purchase Price for the
-----------------------------
Receivables and Related Assets sold hereunder on each Purchase Date in any
Collection Period prior to the delivery of the Purchase Price Report for such
Collection Period shall, as a reasonable estimation, be calculated based on the
Purchase Price Report for the immediately preceding Collection Period (or the
Closing Date, in the case of December, 1994) and shall be subsequently adjusted
upon delivery of the Purchase Price Report for the Collection Period in which
such purchases actually occurred to reflect the Purchase Price set forth in such
Purchase Price Report.
2.5 Payment of Purchase Price. (a) By 11:00 a.m. on each Business Day
-------------------------
during the Effective Period (other than the Closing Date), all amounts to be
paid by the Buyer to the Seller on such day shall be paid to such account as may
be designated by the Seller from time to time in accordance with the terms
hereof in immediately available Dollars, except as provided in Sections (b) and
------------
(c) below.
- ---
(b) Subject to Section 2.5(c) below, the Purchase Price shall be paid
--------------
to Seller in Dollars to the extent that such funds are available to the Buyer
after (i) satisfaction of all other obligations then due and payable under the
Purchase and Servicing Agreement and (ii) a reduction or satisfaction of the
principal amount of the Subordinated Note until the unpaid principal amount of
the Subordinated Note has been reduced to zero or, if greater, the aggregate
face amount of all Letters of Credit then outstanding, including any Letters of
Credit to be issued on such day. No payment shall be made on the Subordinated
Note if the effect of such payment would be to reduce the aggregate principal
amount of the Subordinated Note to an amount that is less than the aggregate
face amount of all Letters of Credit then outstanding, including any Letters of
Credit to be issued on such day. The excess of the Purchase Price for the
Receivables and Related Assets transferred to the Buyer on any Purchase Date
over the cash payment therefor set forth in the second preceding sentence shall
be evidenced by an increase in the loan by the Seller to the Buyer (the
"Subordinated Loan"), evidenced by the Subordinated Note of the Buyer
-----------------
substantially in the form attached hereto as Exhibit B (such promissory note, as
---------
it may be amended, supplemented, enclosed or otherwise modified from time to
time in substitution therefor or renewal thereof in accordance with the
Transaction Documents, being herein called a "Subordinated Note"). The
-----------------
Subordinated Loan shall be fully subordinated to Senior Debt (as defined in the
Subordinated Note).
The parties agree that as of August 31, 1999 the principal indebtedness
of Buyer to Seller under the Subordinated Note which was issued pursuant to the
Original Purchase Agreement was $268,608,316, and the principal indebtedness of
AFC to Armco, and following the AK Steel Merger, to Seller, under the "Seller
Note" (as defined in the Armco Purchase and Sale Agreement) was $136,492,000.
The parties agree that, from and after the Restatement Effective Date, the
indebtedness of Buyer to Seller under such Subordinated Note and such Seller
Note shall be combined and shall be evidenced by (and governed solely by the
terms of) the Subordinated Note in the form of Exhibit B. Interest accrued on
---------
such indebtedness prior to the Restatement Effective Date shall be paid on the
Restatement Effective Date. Such indebtedness is a continuing indebtedness, and
nothing herein shall be construed to deem paid the indebtedness evidenced by
either of such combined promissory notes. Promptly after the
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<PAGE>
Restatement Effective Date, the parties will determine the total outstanding
indebtedness under such new Subordinated Note, and shall make appropriate
entries in their books and records to reflect such total.
(c) (i) The Seller may request that the Buyer cause the L/C Issuing
Bank to issue Letters of Credit in favor of beneficiaries requested by the
Seller, in each case subject to the satisfaction of the conditions for issuance
of such Letters of Credit under the Purchase and Servicing Agreement, and to the
requirements of this Section 2.5(c). Each such Letter of Credit must be in form
--------------
and substance acceptable to the Buyer and the L/C Issuing Bank and the Seller
shall on a timely basis provide the Buyer and the L/C Issuing Bank with such
information as is necessary for the Buyer to obtain such Letter of Credit from
the L/C Issuing Bank. The Buyer, but not the Seller, shall have full
reimbursement obligations in respect of each Letter of Credit. To the extent
that Armco (or Seller as Armco's successor by merger) has any reimbursement
obligation to AFC (or Buyer as AFC's successor by merger) in respect of letters
of credit which were issued pursuant to the Armco Purchase and Sale Agreement,
such liability is released.
(ii) No Letter of Credit may be requested hereunder on any day if,
after giving effect to such issuance and to any purchase of Receivables by the
Buyer and any payments on the Subordinated Note on such day, the aggregate
outstanding principal amount of the Subordinated Note will be less than the
aggregate face amount of all outstanding Letters of Credit, including all
Letters of Credit to be issued on such day.
(iii) Subject to the foregoing, Letters of Credit may be requested
either
(1) in connection with any net increase in the Subordinated
Note resulting from any Purchase on any day as provided in Section
-------
2.5(b) above; or
------
(2) on a day when no such net increase will be made if,
without any such corresponding net increase, the aggregate outstanding
principal amount of the Subordinated Note on such day would be equal to
or greater than the aggregate face amount of all Letters of Credit
outstanding on such day, after giving effect to any Letters of Credit
requested to be issued on such day.
(iv) The principal amount of the Subordinated Note shall be
automatically reduced and deemed paid in an amount equal to the amount of any
payments made by the L/C Issuing Bank on any Letter of Credit.
(d) The making of each Subordinated Loan and each increase or reduction
of the Subordinated Note may be evidenced by recording the date and amount
thereof on the grid attached to the Subordinated Note; provided that failure to
--------
make any such recordation on such grid or any error in such grid shall not
adversely affect the parties' respective rights to recover the outstanding
unpaid principal amount or interest on the Subordinated Note.
- 9 -
<PAGE>
2 .6 Application of Collections. The Seller hereby agrees that any
--------------------------
payment by an Obligor in respect of any indebtedness or other obligations owed
by such Obligor to the Seller, shall, except as otherwise specified by such
Obligor or otherwise required by law, be applied as a Collection of a Receivable
(in the order of the age by invoice date of such Receivables, starting with the
oldest such Receivable, as determined under the Credit Policy Manual) to the
extent of any amounts then due and payable thereunder before being applied to
(i) any Receivable arising subsequent to the Amortization Date which has not
been sold hereunder or (ii) any other indebtedness of such Obligor to the
Seller.
2.7 Further Assurances. (a) The Seller (including in its capacity as
------------------
Servicer, when appropriate) agrees that from time to time, at its expense, it
will do and perform any and all acts and will promptly execute and deliver all
further instruments and documents, and take all further action (whether or not
requested by the Buyer or its assignee or designee), in order to perfect,
protect or more fully evidence the purchases hereunder or the purposes of the
Transaction Documents, or to enable the Buyer or its assigns to exercise or
enforce any of their respective rights with respect to the Receivables and the
Related Assets. Without limiting the generality of the foregoing, the Seller
will (whether or not upon the specific request of the Buyer or its designee):
(i) execute and file such financing or continuation
statements, or amendments thereto or assignments thereof, and such
instruments or notices, as may be necessary or appropriate; and
(ii) mark conspicuously each Related Asset evidencing each
Receivable with a legend, acceptable to the Buyer and the Agent,
evidencing that the related Receivables have been sold in accordance
with this Agreement, and clearly and unambiguously mark all computer
records and all microfiche storage files, if any, regarding the
Receivables and Related Assets with such legend, and the Seller shall
maintain such records in a manner such that the Buyer's perfected
first priority interest in the Receivables and Related Assets shall
not be adversely affected in any material respect.
(b) The Seller hereby authorizes the Buyer or its designee to file one
or more financing or continuation statements, and amendments thereto and
assignments thereof, relative to all or any of the Receivables and the Related
Assets now existing or hereafter arising.
(c) Without limiting the generality of Section 2.7(a) above, the Seller
--------------
shall, not earlier than six (6) months and not later than three (3) months prior
to the fifth (5th) anniversary of the date of filing of the financing statements
filed in connection with the Closing Date or any other financing statement filed
pursuant to this Agreement (including this Section 2.7 (c)), if the Final
---------------
Collection Date (as defined below) shall not have occurred:
(i) execute and deliver and file or cause to be filed
appropriate continuation statements;
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<PAGE>
(ii) deliver or cause to be delivered to the Buyer and the
Agent an opinion of counsel for the Seller reasonably satisfactory to
the Buyer and the Agent, in form and substance reasonably satisfactory
to the Buyer and the Agent, confirming and updating the opinion
delivered in connection with the Closing Date relating to the
perfection of the Buyer's interests in the Receivables; and
(iii) to the extent that the Seller is not the Servicer,
cooperate fully with the Servicer in carrying out its duties.
For purposes of this Agreement, "Final Collection Date" means the date, after
---------------------
purchases under this Agreement have been terminated pursuant to a Termination
Event, upon which the last Receivable purchased by the Buyer pursuant to this
Agreement has been collected or written off as uncollectible.
2.8 Armco Receivables. Each of the parties hereto agrees that (a) the
-----------------
Buyer, as successor by merger to AFC, is the beneficiary of all the
representations, warranties and indemnities which were made by Armco to AFC in
connection with each sale of Armco Receivables under the Armco Purchase and Sale
Agreement, (b) that the Seller, as successor by merger to Armco, is obligated to
Buyer in respect of such representations, warranties and indemnities to the same
extent as Armco was so obligated to AFC, (c) for the purpose of any calculation
that relates to, or is otherwise affected by, the Armco Receivables, including,
without limitation, any calculation of the Purchase Price, pursuant to Section
-------
2.4, to the extent any such calculations include periods ending on or prior to
- ---
the Restatement Effective Date, shall be based on the actual performance of the
Armco Receivables and the actual performance of the Receivables owned by AKR, in
each case, for the applicable periods prior to the Restatement Effective Date,
and (d) the obligations and agreements and the representations and warranties
contained in this Agreement and the other Transaction Documents with respect to
the Receivables shall from and after the Restatement Effective Date apply
equally to the Armco Receivables as if the Armco Receivables had been purchased
by the Buyer pursuant to this Agreement.
ARTICLE III
The Servicer
3.1 Seller to Act as Servicer. Notwithstanding the sale and
-------------------------
contribution of Receivables pursuant to this Agreement and the Original
Receivables Purchase Agreement, the Seller shall continue to be responsible for
the servicing, administration and collection of the Receivables (including any
Armco Receivables) pursuant to the Purchase and Servicing Agreement, subject to
any rights to terminate the Seller as servicer pursuant to the Purchase and
Servicing Agreement. It is expected that the Seller will be a party to the
Purchase and Servicing Agreement as servicer and that such Purchase and
Servicing Agreement will set out further conditions as to the Seller's rights,
responsibilities and compensation as servicer.
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<PAGE>
3.2 Eligibility and Concentration Determinations. Among its other
--------------------------------------------
responsibilities as servicer, the Seller shall determine for the Buyer on each
day, to the extent necessary to assure compliance with the Purchase and
Servicing Agreement, what newly created Receivables and Armco Receivables comply
with any eligibility standards under the Purchase and Servicing Agreement and
whether excess concentrations exist with respect to particular Obligors under
the standards set forth in the Purchase and Servicing Agreement. It is
understood that the Buyer will rely upon those determinations in making certain
representations and warranties under the Purchase and Servicing Agreement and,
consequently, that the Buyer will have the rights specified in Section 3.3(b) in
--------------
the event that any such determination is incorrect.
3.3 Deemed Collections. (a) If on any day the Outstanding Balance of
------------------
any Receivable (i) is reduced or adjusted as a result of any defective,
rejected, returned, repossessed or foreclosed merchandise, any defective or
rejected services, any discount or other adjustment by the Seller or any other
Person (including on account of credits, rebates, chargebacks, inventory
transfers, allowances for early payments and other allowances) or any obligation
of the Seller or any other Person to make such a discount or adjustment, (ii) is
reduced or canceled as a result of a setoff in respect of any claim by the
Obligor thereof against the Seller or any other Person (whether such claim
arises out of the same or a related or an unrelated transaction) or (iii)
otherwise is less than the amount reported by the Seller, as servicer, in any
report delivered pursuant to the Purchase and Servicing Agreement (for any
reason other than receipt of Collections on such Receivable or such Receivable
becoming a Defaulted Receivable), then, on such day (which, in the case of any
reduction, cancellation or adjustment described in clauses (i) or (ii) above,
shall be the day when such reduction, cancellation or adjustment is registered
as a chargeback on the books of the Seller in good faith and consistent with
past practice), the Seller shall be deemed to have received a Collection of such
Receivable in the amount of such reduction or cancellation (net of any debit
reversals to the extent that such debits were previously deemed to be
Collections under this Section 3.3) or the difference between the actual
-----------
Outstanding Balance and the amount reported by the Seller, as applicable.
(b) If on any day it is determined that (i) any of the representations
or warranties of the Buyer set forth in the Purchase and Servicing Agreement
were not true when made as to any Receivable, (ii) any of the representations or
warranties of the Seller set forth in Section 4.1(k), (r), (w) or (x) is no
-------------- --- --- ---
longer true as to any Receivable or (iii) any Receivable fails to satisfy any
requirement set forth in clause (x) or (xiii) of the definition of "Eligible
--------------------
Receivable", then, on such day, the Seller shall be deemed to have received a
Collection of such Receivable in the amount of the Outstanding Balance of such
Receivable.
(c) Not later than the first Business Day after the Seller is deemed
pursuant to this Section 3.3 to have received any Collections, the Seller shall
-----------
transfer to the Buyer immediately available funds in the amount of such deemed
Collections, provided that if and to the extent that the amount which is
--------
required to be so transferred is equal to or less than the outstanding principal
amount of the Subordinated Note on such day, and provided further that (1) no
-------- -------
Termination Event shall have occurred, (2) such day is not a Required Coverage
Non-Compliance Date, and (3) such day is a date on which the Buyer would not
otherwise be
- 12 -
<PAGE>
prohibited from making payments on the Subordinated Note pursuant to Section
9.04(l) of the Purchase and Servicing Agreement, the Seller may elect not to
make such transfer on such day, in which event the principal amount of the
Subordinated Note shall be reduced, but not below the greater of (A) zero and
(B) the aggregate face amount of the Letters of Credit then outstanding and to
be issued on such day.
ARTICLE IV
Covenants, Representations and Warranties
4.1 Representations and Warranties of the Seller. The Seller
--------------------------------------------
represents and warrants to the Buyer as of the Closing Date and each Purchase
Date that:
(a) Organization and Good Standing. The Seller is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to own its properties and
conduct its business as presently owned or conducted, and to execute, deliver
and perform its obligations under this Agreement or any other Transaction
Document to which it is a party.
(b) Due Qualification. The Seller is duly qualified to do business
-----------------
and is in good standing as a foreign corporation, and has obtained all necessary
licenses and approvals, in each jurisdiction in which such failure to so qualify
or to obtain such licenses or approvals would have a material adverse effect on
the Seller's ability to perform its obligations under this Agreement and the
Transaction Documents to which it is a party.
(c) Due Authorization. The execution, delivery and performance by the
-----------------
Seller of this Agreement and the Transaction Documents to which it is a party
and the consummation by the Seller of the transactions provided for herein or
therein have been duly authorized by all necessary corporate action on the part
of the Seller.
(d) Enforceability. Each of this Agreement and the other Transaction
--------------
Documents to which the Seller is a party constitutes a legal, valid and binding
obligation of the Seller enforceable against the Seller in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or other similar laws affecting
creditors' rights generally, now or hereafter in effect, and except as such
enforceability may be limited by general principles of equity (whether
considered in a suit at law or in equity). This Agreement is in full force and
effect, and is not subject to any dispute, offset, counterclaim or defense.
(e) No Conflict. The Seller's execution and delivery of this
-----------
Agreement and the other Transaction Documents to which it is a party, and its
performance of the transactions contemplated by this Agreement and the other
Transaction Documents, and fulfillment of the terms hereof and thereof
applicable to the Seller, do not conflict with or violate any
- 13 -
<PAGE>
Requirements of Law applicable to the Seller or its property, conflict with its
certificate of incorporation or bylaws, or conflict with, result in any breach
of any of the terms and provisions of, or constitute (with or without notice or
lapse of time or both) a default under, any indenture, contract, agreement,
mortgage, deed of trust or other instrument to which the Seller is a party or by
which it or its properties are bound, which conflict, violation or breach would
have a material adverse effect on Seller's ability to perform its obligations
hereunder or on the ownership by the Buyer or the Purchasers of the Receivables.
(f) No Proceedings. There are no proceedings or investigations
--------------
pending or, to the best knowledge of the Seller, threatened against the Seller
or any of its properties, businesses, assets or revenues before any Governmental
Authority (i) asserting the illegality, invalidity or unenforceability, or
seeking any determination or ruling that would affect the legality, binding
effect, validity or enforceability of this Agreement, the Purchase and Servicing
Agreement or any other Transaction Document, (ii) seeking to prevent the
consummation of any of the transactions contemplated by this Agreement, the
Purchase and Servicing Agreement or any other Transaction Document, or (iii)
seeking any determination or ruling that is reasonably likely to materially and
adversely affect the financial condition or results of operations of the Seller
or the performance by the Seller of its obligations under this Agreement or any
other Transaction Document or the performance of the Receivables.
(g) Consents. No authorization, consent, license, order or approval
--------
of, registration or declaration with any Governmental Authority is required to
be obtained, effected or given by the Seller in connection with the execution
and delivery of this Agreement by the Seller or its performance of its
obligations hereunder and thereunder or the transactions contemplated hereby and
thereby except for (i) the filings of the financing statements or other
documents required to have been filed on or prior to the Closing Date pursuant
to Section 2.7, all of which were so filed and are in full force and effect, and
-----------
(ii) the filing of any amendments, assignments or continuation statements which
may become applicable pursuant to Section 2.7.
-----------
(h) Liens. Each Receivable is owned by the Seller free and clear of
-----
any Lien except as created under the Transaction Documents; and no effective
financing statement or other instrument similar in effect covering any
Receivable or Collections with respect thereto is on file in any recording
office except such as may be filed in favor of the Buyer and the Agent and the
Purchasers. The Seller is not a party to any contract, agreement, lease or
instrument (other than this Agreement) the performance of which, either
unconditionally or upon the happening of an event, will result in or require the
creation of any Lien or any Receivable or Related Asset or otherwise result in a
violation of this Agreement. Upon the purchase of Receivables and Related Assets
by the Buyer hereunder on the Closing Date, and upon the creation of Receivables
and Related Assets at any time thereafter during the Effective Period, and with
respect to the Armco Receivables, the consummation of the AKR Merger, the Buyer
shall acquire a valid and perfected first priority ownership interest in each
such Receivable and Related Asset, free and clear of any Lien.
- 14 -
<PAGE>
(i) Locations. The chief place of business and chief executive office
---------
of the Seller are located at the address of the Seller referred to in Schedule
--------
4.1, and the Seller has not changed the location of its chief executive office
- ---
or its name, identity or corporate structure within the four months prior to the
date of this Agreement and the locations of the offices where the Seller keeps
the originals of its books, records and documents regarding the Transferred
Assets are listed on Schedule 4.1 hereto (or at such other locations in
------------
jurisdictions with respect to which all applicable action required by Section
-------
2.7 has been taken and completed).
- ---
(j) Information. (i) Each certificate, report, information, exhibit,
-----------
financial statement, document, book, record or report furnished by the Seller to
Buyer in connection with this Agreement and (ii) any information contained in
the documents set forth in Schedule III to the Purchase and Servicing Agreement
------------
regarding the Seller provided by the Seller to the Buyer, the Agent and the
Purchasers is accurate in all material respects as of its date, when considered
as a whole with all other such documents, and no such document contains any
material misstatement of fact or omits to state any fact necessary to make the
statements contained therein not materially misleading.
(k) Valid Transfers. The Armco Purchase and Sale Agreement
---------------
constituted a valid and true sale, transfer and assignment to AFC of all right,
title and interest to the Armco Receivables which were outstanding as of the
time of the AKR Merger. This Agreement constitutes a valid and true sale,
transfer and assignment to the Buyer of, and the Buyer is the legal and
beneficial owner of, all right, title and interest of the Seller, Armco and AFC
in and to such Armco Receivables and in and to the Receivables and Related
Assets now existing or hereafter created during the Effective Period, and the
proceeds thereof, enforceable against the Seller (including in its capacity as
successor by merger to Armco), and against creditors of, and purchasers from,
the Seller and Armco, as the case may be (except as such enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or
other similar laws affecting creditors' rights generally, now or hereafter in
effect, and by general principles of equity, whether considered in a suit at law
or in equity). The Buyer's ownership interest in such Armco Receivables is free
and clear of any Lien. Upon each purchase of Receivables and Related Assets
pursuant to Section 2.1, the Buyer shall have an ownership interest in those
-----------
Receivables and Related Assets free and clear of any Lien. The Seller has marked
clearly and unambiguously all its computer records and all its microfiche
storage files, if any, regarding the Receivables and Related Assets and such
Armco Receivables as the property of the Buyer and, to the extent of the
Purchased Interest, the Purchasers, and shall maintain such records in a manner
such that the Buyer's and the Purchasers' respective ownership interest in the
Receivables and Related Assets and such Armco Receivables shall not be adversely
affected in any respect. No financing statement or other similar instrument
covering any Receivable including any Armco Receivables, any interest therein,
or any other Transferred Asset is on file in any recording office except such as
may be filed (a) in favor of the Buyer in accordance with this Agreement or (b)
in favor of the Purchasers in accordance with the Purchase and Servicing
Agreement.
- 15 -
<PAGE>
(l) Collection Accounts. Schedule I to the Purchase and Servicing
------------------- ----------
Agreement is a complete and accurate list of each Collection Account as of the
Closing Date.
(m) Solvency. The Seller is solvent and will not become insolvent
--------
after giving effect to the transactions contemplated by this Agreement; the
Seller is currently repaying all of its indebtedness as such indebtedness
becomes due; and, after giving effect to the transactions contemplated by this
Agreement, the Seller has adequate capital to conduct its business as presently
conducted.
(n) Compliance. The Seller has complied in all material respects with
----------
all applicable Requirements of Law with respect to it, its business and
properties and all Receivables sold or contributed hereunder and the Related
Assets.
(o) No Rescission. Neither any Receivable sold or contributed
-------------
hereunder nor the Related Assets has been satisfied, subordinated or rescinded
or except as disclosed in writing to the Buyer, amended in any manner and the
amounts billed under such Receivables have not, except as permitted under the
Purchase and Servicing Agreement, been compromised, adjusted, extended,
satisfied, subordinated, rescinded or modified.
(p) No Payment. The Seller has no knowledge of any fact which would
----------
lead it to expect that, when billed, the amount billed under any Receivable sold
or contributed hereunder would not be paid in accordance with its terms when
due.
(q) No Fraudulent Conveyance. The Seller is not entering into the
------------------------
transactions contemplated hereby with the intent of hindering, delaying or
defrauding creditors.
(r) Eligible Receivables. Each Receivable classified as an "Eligible
--------------------
Receivable" by the Seller on its records or in any document or report delivered
hereunder will satisfy the requirements of eligibility contained in the
definition of Eligible Receivable.
(s) Liens on Inventory. As of the Closing Date, neither the Seller
------------------
nor any Subsidiary thereof is a party to agreement which represents or could
create a Lien on inventory.
(t) Other Receivables. As of the Closing Date, the Seller does not
-----------------
own or has not otherwise originated any receivables or similar assets other than
the Receivables and Related Assets sold to the Buyer hereunder.
(u) Investment Company Act. The Seller is not an "investment
----------------------
company", or an "affiliated person" of, or "promoter" or "principal underwriter"
for, an "investment company", as such terms are defined in the Investment
Company Act.
(v) Tradenames. The legal name of the Seller is as set forth on the
----------
signature page of this Agreement and the Seller has no tradenames, fictitious
names, assumed names or "doing business as" names.
- 16 -
<PAGE>
(w) Investment Company Act. Each sale of Receivables to the Buyer
----------------------
hereunder constitutes a purchase or other acquisition of notes, drafts,
acceptances, open accounts receivable or other obligations representing part or
all of the sales price of merchandise or services within the meaning of Section
3(c)(5) of the Investment Company Act.
(x) No Claim or Interest. Except as otherwise provided in the
--------------------
Purchase and Servicing Agreement, neither the Seller nor any other person
claiming through or under the Seller has any claim to or interest in the
Collection Accounts, the Concentration Account, the Cash Collateral Account or
the Agent's Account.
Upon the discovery of a breach of any of the foregoing representations
and warranties, the Seller shall give prompt written notice to the Buyer and the
Agent.
4.2 Affirmative Covenants of the Seller. The Seller hereby covenants
-----------------------------------
that, until the termination of the Effective Period:
(a) Compliance with Law. The Seller will comply with all Requirements
-------------------
of Law applicable to the Seller, its business and properties and the
Receivables, where failure to so comply would have a material adverse effect on
the Receivables or the ability of the Seller to perform in any material respect
its obligations hereunder or under the Purchase and Servicing Agreement.
(b) Preservation of Corporate Existence. Except as otherwise
-----------------------------------
permitted by Section 11.04(s) of the Purchase and Servicing Agreement, the
Seller will preserve and maintain its corporate existence, rights, franchises
and privileges, and qualify and remain qualified in good standing as a foreign
corporation in each jurisdiction where the failure to maintain such
qualification would materially and adversely affect (i) the interest of the
Buyer in the Receivables or Related Assets, (ii) the collectibility of the
Receivables or (iii) the ability of the Seller to perform its obligations
hereunder or under the Purchase and Servicing Agreement.
(c) Keeping of Records and Books of Account. The Seller will (i) keep
---------------------------------------
or cause to be kept proper books of record and account, which shall be
maintained or caused to be maintained by the Seller and shall be separate and
apart from those of any Affiliate of the Seller, in which full and correct
entries shall be made of all financial transactions and the assets and business
of the Buyer in accordance with generally accepted accounting principles, and
(ii) maintain and implement administrative and operating procedures (including
an ability to recreate records evidencing Receivables in the event of the
destruction of the originals thereof) and keep and maintain all documents,
books, records and other information reasonably necessary or advisable for the
collection of all Receivables (including records adequate to permit the daily
identification of each new Receivable and all Collections of and adjustments to
each existing Receivable).
The Seller shall provide to the Buyer and the Purchaser Parties and
their agents and auditors access to the documentation regarding the Receivables
and to the officers and
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<PAGE>
employees having knowledge of said matters, such access being afforded without
charge but, if no Early Amortization Event shall have occurred and be
continuing, only (i) upon reasonable written request (which may be given one (1)
Business Day in advance if there then exists a Potential Early Amortization
Event), (ii) during normal business hours, (iii) subject to the Seller's normal
security and confidentiality procedures and (iv) at reasonably accessible
offices in the continental United States designated by the Seller.
(d) Performance and Compliance with Receivables. The Seller will at
-------------------------------------------
its expense timely and fully perform and comply with all provisions, covenants
and other promises required to be observed by it under the Contracts to the same
extent as if the Receivables had not been sold hereunder, except where the
failure to so perform or comply would not have a material adverse effect on the
collectibility of the Receivables or Seller's ability to perform in all material
respects its obligations hereunder.
(e) Location of Records; Name. The Seller will keep its chief place
-------------------------
of business and chief executive office, and the offices where it keeps its
records concerning the Receivables related thereto (and all original documents
relating thereto), at the address of the Seller referred to in Schedule 4.1 or,
------------
upon 45 days' prior written notice to the Buyer and the Agent, at such other
location in a jurisdiction with respect to which all action required by Section
-------
2.7 shall have been taken and completed. The Seller will not change in its name
- ---
or use any assumed business or trade name except upon like notice and after all
action required by Section 2.7 shall have been completed.
-----------
(f) Change in Credit Policy Manual. The Seller shall comply with and
------------------------------
perform its servicing obligations with respect to the Receivables, and shall
take or cause to be taken all such actions as may be necessary or advisable to
collect each Receivable from time to time, all in accordance with applicable
laws, rules and regulations, with reasonable care and diligence, in accordance
in all material respects with the Credit Policy Manual. The Seller may not
change the terms and provisions of the Credit Policy Manual (A) without the
prior written approval of the Agent, which shall not be unreasonably withheld,
or (B) in any case, in any manner which is reasonably likely to impair the
collectibility of any Receivable.
(g) Protection of Buyer's Interest in Receivables.
---------------------------------------------
(i) The Seller will not create, permit or suffer to exist, and
will defend the Buyer's, the Agent's and the Purchasers' rights to the
Receivables against, and take such other actions as are necessary to
remove, any Lien, claim or right in, to or on the Receivables, other
than the Liens created hereby and by the Purchase and Servicing
Agreement, and will defend the right, title and interest of the Buyer,
the Agent and the Purchasers in and to the Receivables against any
Liens thereon or the claims and demands of all persons whomsoever
based on breaches of representations and warranties in this Agreement.
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<PAGE>
(ii) The Seller will advise the Buyer, the Agent and the
Purchasers promptly, in reasonable detail, (i) of any Lien or claim
asserted against any of the Receivables, other than the Liens created
hereby and by the Purchase and Servicing Agreement, (ii) of the
occurrence of any breach by the Seller of any of its representations,
warranties and covenants contained herein and (iii) of the occurrence
of any other event which in the case of clauses (i) or (ii) would have
a material adverse effect on the value of the Receivables.
(iii) The Seller shall execute and file such continuation
statements and any other documents reasonably requested by the Buyer
or which may be required by law to fully preserve and protect the
interests of the Buyer hereunder and of the Agent and the Purchasers
under the Purchase and Servicing Agreement in and to the Receivables.
(iv) The Seller will, at its own expense, prior to the Closing
Date and at all times thereafter, indicate in its computer records
that the Receivables and Related Assets have been sold or contributed
to the Buyer in accordance with this Agreement and that such interest,
to the extent of the Purchased Interest therein, has been sold, and a
security interest in the remainder of such interest has been granted,
by the Buyer to the Purchasers in accordance with the Purchase and
Servicing Agreement.
(h) Stock of Buyer; Subordinated Note. The Seller shall at all times
---------------------------------
remain the owner of 100% of the stock of the Managing Member and AKS
Investments, Inc. and the holder of the Subordinated Note, and will not, and
will not permit any Affiliate to, sell, pledge or otherwise permit any Lien on
such stock or Subordinated Note or its interest therein (provided that the
--------
Seller may pledge such stock and the Subordinated Note in connection with a
financing, but only if subject to an intercreditor agreement, as contemplated by
Section 11.04(r) of the Purchase and Servicing Agreement).
4.3 Negative Covenants of the Seller. The Seller will not until the
--------------------------------
termination of the Effective Period:
(a) Sales, Liens, Etc. Except as otherwise provided herein, the
-----------------
Seller will not sell, pledge, assign, transfer or otherwise dispose of (by
operation of law or otherwise), or grant, create, incur, assume or suffer to
exist any Lien on, any Receivable or Related Asset, including any account to
which Collections are sent, or any right to receive proceeds from or in respect
of any of the foregoing, whether now existing or hereafter created, or any
interest therein, and the Seller shall defend the right, title and interest of
the Buyer in and to the Receivables and Related Assets, whether now existing or
hereafter created, against all claims of third parties claiming through or under
the Buyer.
(b) Extension or Amendment of Receivables. Except as permitted by
-------------------------------------
Section 11.01(c) of the Purchase and Servicing Agreement, the Seller will not
- ----------------
(i) extend, amend or otherwise modify (or consent or fail to object to any such
extension, amendment or modification by the Buyer of) the terms of any
Receivable, or amend, modify or waive (or
- 19 -
<PAGE>
consent or fail to object to any such amendment, modification or waiver or
change by the Buyer of) any payment term or condition of any invoice related
thereto (other than as provided in the Credit Policy Manual and in a manner
which the Seller believes in good faith will maximize Collections), or (ii) make
a change in the Credit Policy Manual if the effect of such change in the Credit
Policy Manual would be to impair the collectibility of any Receivable or
otherwise materially and adversely affect the rights, interests or remedies of
any Purchaser Party under any Transaction Document. The Seller will not rescind
or cancel, or permit the rescission or cancellation of, any Receivable except as
ordered by a court of competent jurisdiction or other Governmental Authority.
Notwithstanding the foregoing provisions of this Section 4.3(b), the Seller may
--------------
extend, amend, modify, cancel or rescind any Diluted Receivable in connection
with a valid dispute; provided, however, that such amendment, modification,
-------- -------
cancellation or rescission shall not have an adverse effect on the rights,
interests or remedies of the Buyer which effect is not cured pursuant to Section
-------
3.3.
- ---
(c) Deposits to Collection Accounts. If the Seller or any Affiliate
-------------------------------
thereof receives any Collections, the Seller agrees to hold, or cause such
Affiliate to hold, all such Collections in trust and to deposit, or cause such
Affiliate to deposit, such Collections to the appropriate Collection Account or
the Concentration Account as soon as practicable, but in no event later than two
(2) Business Days after receipt thereof by the Seller or such Affiliate, and
shall clearly mark its records to reflect such trust. The Seller will not
deposit or otherwise credit, or cause to be so deposited or credited, or consent
or fail to object to any such deposit or credit, to the Concentration Account or
any Collection Account cash or cash proceeds other than Collections.
(d) No Actions Against Obligors. Except in accordance with the Credit
---------------------------
Policy Manual and the Purchase and Servicing Agreement, commence or settle any
legal action to enforce collection of any Receivable.
(e) No Bankruptcy Filing Against the Buyer. Commence, or cause to be
--------------------------------------
commenced, any case, proceeding or other action of the type described in Section
-------
6.1(a) below against the Buyer, the Managing Member or AKS Investments, Inc..
- ------
(f) Limitation on Use of Proceeds. Use any of the proceeds of any
-----------------------------
purchase hereunder to acquire any security in any transaction which is subject
to Sections 13 and 14 of the Exchange Act.
(g) Intercreditor Agreement. The Seller will not, and will not permit
-----------------------
any of its Affiliates to, enter into any agreement which would create a Lien on
inventory except in accordance with the requirements of Section 11.04(r) of the
Purchase and Servicing Agreement relating to an intercreditor agreement.
(h) Other Receivables. The Seller will not generate or otherwise
-----------------
originate any receivables or similar assets other than the Receivables and
Related Assets sold to the Buyer hereunder; provided, however, that
-------- -------
"Receivables" shall not include any amounts payable to the
- 20 -
<PAGE>
Seller with respect to licenses of intangible assets. The Seller will not, under
any circumstances, sell any receivables to any Person other than to the Buyer
pursuant to this Agreement.
(i) Receivables Not to be Evidenced by Promissory Notes. The Seller
---------------------------------------------------
will take no action to cause any Receivable to be evidenced by any "instrument"
(as defined in the UCC of the State the law of which governs the perfection of
the interest in such Receivable created hereunder), except in connection with
its enforcement, in which event the Seller shall deliver such instrument to the
Agent as soon as reasonably practicable but in no event more than three (3)
Business Days after execution thereof.
4.4 Obligations Unaffected. The obligations of the Seller to the
----------------------
Buyer under this Agreement shall not be affected by reason of any invalidity,
illegality or irregularity of any Receivable or any sale of a Receivable.
4.5 Representations and Warranties of the Buyer. The Buyer represents
-------------------------------------------
and warrants to Seller as follows:
(a) Legal Existence. The Buyer is a limited liability company duly
---------------
organized and validly existing in the State of Ohio incorporation and is duly
qualified to transact business in each jurisdiction in which failure to so
qualify would have a material adverse effect on the Buyer's ability to perform
its obligations under this Agreement and the Transaction Documents to which it
is a party.
(b) Authorization. The execution, delivery and performance by the
-------------
Buyer of this Agreement and the Transaction Documents to which it is a party,
and the consummation by the Buyer of the transactions provided for herein or
therein have been duly authorized by all necessary corporate and other action on
the part of the Buyer.
(c) Enforceability. Each of this Agreement and the other Transaction
--------------
Documents to which the Buyer is a party is the legally valid and binding
obligation of the Buyer, enforceable against the Buyer in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting Creditor's
rights generally, now or hereafter in effect, and except as such enforceability
may be limited by general principles of equity (whether considered in a suit at
law or in equity).
(d) Compliance with Laws. The Buyer is in material compliance with
--------------------
all Requirements of Law. The execution, delivery and performance by the Buyer of
this Agreement and the other Transaction Documents to which the Buyer is a party
do not require any authorization, approval or other action by, or notice to or
filing with, any Governmental Authority, except for the filings of UCC financing
statements which have been made prior to the date hereof and are consistent with
the requirements of the Transaction Documents.
(e) No Default. The Buyer is not in breach of or default under any
----------
contract to which it is a party or by which its property is bound or affected,
and the execution, delivery and
- 21 -
<PAGE>
performance by the Buyer of this Agreement or any other Transaction Document to
which it is a party shall not constitute a breach or default under any such
contract.
4.6 General Covenants of the Buyer. At all times during the Effective
------------------------------
Period, the Buyer shall:
(a) Legal Status. Preserve its legal status and franchises and pay
------------
all taxes and annual fees in connection therewith.
(b) Compliance with Law. Comply in all material respects with all
-------------------
federal, state and local laws, regulations and orders applicable to its business
or property.
(c) Limitation on Activities. Not incur or permit to exist any
------------------------
Indebtedness except as permitted under the Transaction Documents.
ARTICLE V
Conditions to Effectiveness and Purchases
5.1 Closing Date. This Amended and Restated Receivables Purchase
------------
Agreement shall become effective on October 1, 1999 or such other date agreed
upon by the parties in writing (the "Restatement Effective Date") on which:
(a) There shall have been delivered to the Buyer a file-stamped copy
of the financing statement relating to the Receivables, naming the Seller as
seller/debtor and the Buyer as purchaser/secured party that was filed on or
prior to the Closing Date with the Ohio Secretary of State and the Recorder of
Butler County, Ohio.
(b) There shall have been delivered to the Buyer a copy of the
Certificate of Incorporation of the Seller, certified as of a recent date by the
Secretary of State of Delaware.
(c) There shall have been delivered to the Buyer a certificate of the
Secretary of State of Delaware as to the good standing of the Seller and as to
the documents on file in the office of such Secretary of State.
(d) There shall have been delivered to the Buyer a certificate of the
Secretary or A ssistant Secretary of the Seller, dated as of the Closing Date,
and certifying (i) that attached thereto is a true and complete copy of the
bylaws of the Seller as in effect on the date of such certification, (ii) that
attached thereto is a true and complete copy of resolutions adopted by the Board
of Directors of the Seller authorizing the transactions provided for herein and
the execution, delivery and performance of this Agreement and any other
documents required or contemplated hereunder, (iii) that the Certificate of
Incorporation of the Seller has not been amended since the date of the last
amendment thereto indicated on the certificate of the Secretary of State
furnished pursuant to clause (c) above and (iv) as to the incumbency of the
officers of
- 22 -
<PAGE>
the Seller executing this Agreement, and any other documents contemplated
hereunder and appropriate evidence of the incumbency of such Secretary or
Assistant Secretary.
(e) There shall have been delivered to the Seller a certificate of
the Secretary or Assistant Secretary of the Buyer and the Managing Member, dated
the Closing Date, and certifying (i) that attached thereto is a true and
complete copy of resolutions adopted by the Board of Directors of the Buyer and
the Managing Member, as the case may be, authorizing the transactions provided
for herein and the execution, delivery and performance of this Agreement, the
Purchase and Servicing Agreement and any other documents required or
contemplated hereunder, (ii) that attached thereto is a true and complete copy
of (A) Operating Agreement, in the case of the Buyer, and (B) bylaws, in the
case of the Managing Member and (iii) as to the incumbency of the officers of
the Buyer and the Managing Member, as the case may be, executing this Agreement,
the Purchase and Servicing Agreement and any other documents contemplated
hereunder and appropriate evidence of the incumbency of such Secretary or
Assistant Secretary.
(f) The Purchase and Servicing Agreement and all documentation to be
delivered in connection therewith shall have been executed and delivered and all
conditions thereto shall have been satisfied.
(g) There shall have been delivered to each of the Buyer and the
Seller an opinion of counsel in the form of Exhibit C hereto.
---------
(h) All legal matters incident to the execution and delivery of this
Agreement and to the purchases by the Buyer of the Receivables from the Seller
shall be satisfactory to counsel for the Buyer.
5.2 Conditions to All Purchases. The obligation of the Buyer to
---------------------------
purchase the Receivables on any Purchase Date is subject to the following
conditions precedent:
(a) On such Purchase Date the Seller shall have complied in all
material respects with all of its covenants hereunder and shall have fulfilled
in all material respects all of its obligations hereunder; and
(b) No Termination Event shall have occurred and then be continuing.
The acceptance by the Seller of any payment for any Receivables shall
be deemed to be a representation and warranty by the Seller as of such
acceptance date as to the matters in this Section 5.2.
-----------
- 23 -
<PAGE>
ARTICLE VI
Events of Termination
6.1 Termination Events. If any of the following events (each herein
------------------
called a "Termination Event") shall have occurred:
(a) With respect to the Seller or the Buyer, an Insolvency Event
shall occur; or
(b) The Amortization Date shall have occurred;
then, so long as any of the foregoing events shall have occurred and be
continuing, the Effective Period shall automatically terminate without notice,
demand, protest or other requirement of any kind.
ARTICLE VII
Miscellaneous
7.1 Payments. Each payment to be made by either the Buyer or the
--------
Seller hereunder shall be made on the required payment date, or on the next
succeeding Business Day if the required payment date is not a Business Day, in
lawful money of the United States and in immediately available funds at the
office of the payee set forth below its signature hereto or to such other office
as may be specified by either party in a written notice to the other party
hereto.
7.2 Costs and Expenses; Indemnifications. The Seller agrees to pay or
------------------------------------
reimburse the Buyer for all its reasonable out-of-pocket costs and expenses
incurred in connection with the transactions contemplated herein and in the
Purchase and Servicing Agreement, including all reasonable fees and
disbursements of its counsel, in connection with (a) the development,
preparation, execution, delivery and administration of this Agreement or of any
amendment or restatement hereof or of any waiver relating hereto, (b) except as
expressly provided herein, the sale of the Receivables hereunder and (c) the
perfection as against all third parties whatsoever of the right, title and
interest of the Buyer and any permitted transferee of the Buyer in, to and under
the Receivables. In addition, without limiting any other rights which the Buyer
may have hereunder or under applicable law, the Seller hereby agrees to
indemnify the Buyer from and against any and all claims, losses, damages,
liabilities, costs and expenses (including reasonable attorneys' fees and
expenses) (all of the foregoing being collectively referred to as "Indemnified
Amounts") arising out of or resulting from this Agreement, the activities of the
Buyer in connection herewith, the Seller's use of proceeds of sales of
Receivables, the interest conveyed hereunder in the Receivables or any Related
Assets, or otherwise in respect of any Receivable or the Purchase and Servicing
Agreement; excluding, however, (1) recourse for uncollectible Receivables
--------- -------
(except as provided herein) or to insure against default by the Obligors, (2)
any overall net income, franchise or other taxes (or interest or penalties with
respect thereto) incurred
- 24 -
<PAGE>
by the Buyer arising out of or as a result of this Agreement or the interest
conveyed hereunder in respect of any Receivable or (3) Indemnified Amounts to
the extent resulting from willful misconduct, bad faith or gross negligence of
the Buyer of any of its obligations and duties. Without in any way limiting the
foregoing, except as otherwise provided in this Section 7.2, the Seller shall
-----------
pay to the Buyer, on demand, any and all amounts necessary to indemnify the
Buyer from and against any and all Indemnified Amounts relating to or resulting
from:
(i) any representation or warranty, certificate, report or
other information delivered pursuant to any Transaction Document or
statement made or deemed made by the Seller, or any of its officers,
under or in connection with this Agreement or the Purchase and
Servicing Agreement or any other Transaction Document which shall have
been incomplete or incorrect in any respect when made;
(ii) the failure by the Seller to comply with this Agreement
or the Purchase and Servicing Agreement or any other Transaction
Document, or the failure by the Seller to comply with any applicable
Requirement of Law with respect to any Receivable or the related
Contract or the Purchase and Servicing Agreement, or the nonconformity
of any Receivable or the related invoice or the Purchase and Servicing
Agreement or other Transaction Document with any Requirement of Law;
(iii) the failure of the Seller to vest and maintain vested in
the Buyer or to transfer to the Buyer, legal and equitable title to and
ownership of the Receivables and other interests which are, or are
purported to be, sold by the Seller under this Agreement, free and
clear of any Lien (other than Liens created in favor of the Buyer
hereunder and Liens created in favor of the Purchaser Parties under the
Purchase and Servicing Agreement and under the other Transaction
Documents);
(iv) the failure to have filed, or any delay in filing,
financing statements or other similar instruments or documents under
the UCC of any applicable jurisdiction or other applicable laws with
respect to any Receivable or Related Asset, whether at the time of
purchase by Buyer thereof or reinvestment of the proceeds thereof or at
any subsequent time;
(v) any investigation, litigation, action or proceeding
related to this Agreement, the Purchase and Servicing Agreement or any
other Transaction Document, or the use of proceeds of purchases of
Receivables, reinvestments of proceeds thereof, the ownership of the
Receivables and the Related Assets or in respect of any Receivable or
Contract, other than any litigation or proceeding between the Seller
or the Buyer or any Affiliate thereof, on the one hand, and the Agent
or any Purchaser or any Affiliate thereof, on the other hand, in which
the Seller or the Buyer or an Affiliate thereof prevails as to
liability in a final non-appealable judgment by a court of competent
jurisdiction;
- 25 -
<PAGE>
(vi) the commingling of Collections at any time with other
funds prior to the distribution thereof in accordance with the
Purchase and Servicing Agreement;
(vii) any tax (other than any overall net income or franchise
tax, or any interest or penalties with respect thereto) imposed by
reason of ownership of the Receivables and the Related Assets by the
Buyer;
(viii) the failure by the Seller to be duly qualified to do
business, to be in good standing or to have filed appropriate
fictitious or assumed name registration documents in any jurisdiction
where such action is so required;
(ix) any dispute, claim, offset or defense to the payment of
any Receivable (other than discharge in bankruptcy or under similar
insolvency law) which is, or is purported to be, sold by the Seller
hereunder which dispute, claim, offset or defense is based on the
Receivable or related invoice not being a legal, valid and binding
obligation of the related Obligor, enforceable in accordance with its
terms, or which relates to Dilution, or to such Receivable or related
invoice being an illegal or invalid receivable on the date of purchase
on any ground not related to the creditworthiness of the applicable
Obligor or any other claim asserted against any Indemnitee resulting
from the sale of the goods, merchandise or services related to such
Receivable or the furnishing or failure to furnish such goods,
merchandise or services;
(x) any products liability claim or personal injury or
property damage suit or other similar or related claim or action of
whatever sort arising out of or in connection with the goods and/or
merchandise or services that are the subject of any Receivable
generated by the Seller or related invoice;
(xi) the failure of the Seller to pay when due any sales
taxes or other charges imposed in connection with the Seller's sale of
Receivables or any Related Asset hereunder;
(xii) the failure of the Seller or any of its agents or
representatives to perform its duties and obligations in accordance
with the provisions of this Agreement or any other Transaction
Document;
(xiii) the violation of any provision of any PBGC requirements
or agreements, any IRS requirements or agreements, or any ERISA
requirements or agreements, the engaging by the Seller, or any ERISA
Affiliate thereof, in any prohibited transaction for which such Person
may be liable for excise tax under the Internal Revenue Code or
otherwise liable under ERISA and for which an exemption is not
available or has not been previously obtained from the Department of
Labor, the existence of any accumulated funding deficiency, as defined
in Section 302(a) of ERISA and Section 412(a) of the Internal Revenue
Code, with respect to any Benefit Plan other than a Multiemployer
Plan; the failure by the Seller, or any ERISA Affiliate thereof, to
make a
- 26 -
<PAGE>
payment to any Multiemployer Plan that such Person is required to
make, the termination by such Person of any Benefit Plan or the
withdrawal by such Person from any Multiemployer Plan, or the
existence of a reportable event described in Title IV of ERISA;
(xiv) any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any delay in paying,
any sales, gross receipts, intangible personal property, privilege or
license taxes, but not including taxes imposed upon the Buyer under
the laws of the United States or any jurisdiction within the United
States in which the Buyer is organized or maintains its principal
office or in which the Buyer books this transaction;
(xv) any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any delay in paying,
any taxes which may arise at any time and from time to time in the
future in respect of this Agreement, the transactions contemplated
hereby and the subject matter hereof and thereof; and
(xvi) costs, expenses and reasonable counsel fees in
defending against the same, whether arising by reason of the acts to
be performed by the Seller hereunder or imposed against the Buyer or
the Seller, the property involved or otherwise.
It is expressly agreed and understood by the parties that these
indemnification provisions are not intended to constitute a guarantee of the
collectibility or payment of the Receivables.
The agreements in this Section 7.2 shall survive the collection of all
-----------
Receivables, the termination of this Agreement and the payment of all amounts
payable hereunder. For purposes of this Section 7.2, any reference to the Buyer
-----------
shall include any officer, director, employee, agent or affiliate thereof.
7.3 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the Seller and the Buyer and their respective permitted
successors and assigns. The Seller acknowledges that the Buyer shall assign to
the Purchasers in accordance with the Purchase and Servicing Agreement. The
Seller agrees that it will not assign or transfer all or any portion of its
rights or obligations hereunder without the prior written consent of the Buyer
and a Majority in Interest of the Purchasers. The Seller acknowledges that the
Buyer shall assign to the Purchasers, as collateral security for the Buyer's
obligations under the Purchase and Servicing Agreement, all of the Buyer's
rights, remedies, powers and privileges hereunder (including the right to give
any notice which the Buyer may provide to the Seller hereunder), provided that
the Buyer shall not assign or delegate any of its duties or obligations
hereunder to the Agent or the Purchasers.
- 27 -
<PAGE>
7.4 Governing Law, Waiver of Jury Trial, Jurisdiction, Consent to
-------------------------------------------------------------
Service of Process.
- ------------------
(a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
-------------
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF OHIO WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
(b) WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY EXPRESSLY WAIVES
--------------------
ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND
ANY RIGHTS UNDER THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR UNDER ANY
AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY BANKING OR
OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
TRANSACTION DOCUMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT A JURY TRIAL.
(c) Jurisdiction. Each of the parties hereto hereby irrevocably and
------------
unconditionally submits to the nonexclusive jurisdiction of any federal court of
the United States of America sitting in Cincinnati, Ohio or, if jurisdiction is
not available in such federal court, any Ohio state court sitting in Hamilton
County, Ohio or Butler County, Ohio, and any appellate court from any thereof,
in any action or proceeding arising out of or relating to this Agreement, and
each of the parties hereto hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be heard and
determined in such Ohio state or, to the extent permitted by law, in such
federal court. Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
(d) Consent to Service of Process. Each party to this Agreement
-----------------------------
irrevocably consents to service of process in the manner provided for notices in
Section 7.8. Nothing in this Agreement will affect the right of any party to
- -----------
this Agreement to serve process in any other manner permitted by law.
7.5 No Waiver; Cumulative Remedies. No failure to exercise and no
------------------------------
delay in exercising, on the part of the Buyer, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege. The rights, remedies, powers and privileges herein provided
are cumulative and not exhaustive of any rights, remedies, powers and privileges
provided by law.
- 28 -
<PAGE>
7.6 Amendments and Waivers. Neither this Agreement nor any terms
----------------------
hereof may be amended, supplemented or modified except in writing signed by the
Buyer and the Seller, and approved in writing by the Agent and a Majority in
Interest of the Purchasers.
7.7 Severability. If any provision hereof is void or unenforceable in
------------
any jurisdiction, such voiding or unenforceability shall not affect the validity
or enforceability of (i) such provision in any other jurisdiction or (ii) any
other provision hereof in such or any other jurisdiction.
7.8 Notices. Unless otherwise expressly permitted hereby, all
-------
notices, requests and demands to or upon any party hereto to be effective shall
be in writing delivered by hand or by facsimile and, unless otherwise expressly
provided herein, shall be deemed to have been duly given or made when delivered
by hand to the address set forth below its signature hereto or such address as
may be hereafter notified by it to the other party hereto, or, in the case of
notice by facsimile, when telecopied to the number set forth below its signature
hereto.
7.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original, and all of which
taken together shall constitute one and the same agreement.
7.10 Construction of Agreement. It is the intention of the parties
-------------------------
hereto that, pursuant to this Agreement, the Seller shall sell and transfer all
of its right, title and interest in and to the Receivables to the Buyer and that
the Buyer shall purchase and receive all of the Seller's right, title and
interest in and to the Receivables. It is not the intention of the parties that
the Seller merely transfer to the Buyer a security interest in the Receivables.
All references in this Agreement to the filing or amendment of financing
statements and continuation statements in order to perfect the Seller's interest
in the Receivables relate to the parties' intention to comply with the
applicable provisions of the Uniform Commercial Code which may require the
filing of a financing statement to perfect an ownership interest, rather than a
security interest, in accounts. Such references are not intended to evidence or
suggest that Seller merely transferred to the Buyer a first priority security
interest in the Receivables. If, however, such transactions are deemed to be
loans by a court of competent jurisdiction, (i) the Seller hereby grants to the
Buyer a first priority security interest in all of the Seller's right, title and
interest in and to the Receivables and Related Assets now existing and hereafter
created, including all monies due or to become due and all amounts and other
proceeds received with respect thereto, to secure all the Seller's obligations
hereunder, and (ii) this Agreement shall constitute a security agreement under
applicable law. The parties agree to use their best efforts to support the
treatment of the transfer as a sale and not as a financing.
7.11 Termination. This Agreement will terminate upon the occurrence of
-----------
a Termination Event; provided, however, that the indemnities of the Seller to
-------- -------
the Buyer set forth in this Agreement shall survive such termination and
provided, further, that the Buyer shall remain entitled to receive any
- -------- -------
collections on Receivables sold hereunder which have become Defaulted
- 29 -
<PAGE>
Receivables after it shall have completed its collection efforts in respect
thereof. The Buyer shall remain entitled to receive any collections on
Receivables sold hereunder which have become Defaulted Receivables after it
shall have completed its collection efforts in respect thereof.
- 30 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Receivables
Purchase Agreement to be executed by their respective officers thereunto duly
authorized, all as of the day and year first above written.
AK STEEL CORPORATION,
as Seller
By:____________________________________
Name:
Title:
Address: __________________
__________________
AK STEEL CORPORATION,
as Servicer
By:____________________________________
Name:
Title:
Address: __________________
__________________
S- 1
<PAGE>
AK STEEL RECEIVABLES LTD.
as Buyer
By: AKSR INVESTMENTS, INC.,
as Managing Member
By:____________________________________
Name:
Title:
Address: __________________
__________________
and
By: AKS INVESTMENTS, INC.,
its only other member
By:____________________________________
Name:
Title:
S- 2
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>AMENDED & RESTATED PURCHASE & SERVICING AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.8
_____________________________________________________________
AK STEEL RECEIVABLES LTD.,
as Transferor,
AK STEEL CORPORATION,
as Servicer and Originator,
THE PURCHASERS PARTY HERETO,
and
PNC BANK, NATIONAL ASSOCIATION,
as Agent
AK STEEL REVOLVING TRADE RECEIVABLES PURCHASE FACILITY
AMENDED AND RESTATED
PURCHASE AND SERVICING AGREEMENT
Dated as of October 1, 1999
_____________________________________________________________
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
ARTICLE I DEFINITIONS............................................................ 2
SECTION 1.01 Definitions.............................................. 2
SECTION 1.02 Other Definitional Provisions............................ 26
SECTION 1.03 Certain Calculations..................................... 26
SECTION 1.04 Computation of Time Periods.............................. 27
ARTICLE II SALE AND TRANSFER OFRECEIVABLES; PURCHASES............................. 27
SECTION 2.01 Transfer of Receivables.................................. 27
SECTION 2.02 Acceptance by Purchasers................................. 29
SECTION 2.03 Agent's Books and Records................................ 29
SECTION 2.04 Purchases................................................ 29
SECTION 2.05 Purchase Limits.......................................... 29
SECTION 2.06 Procedure for Making Purchases........................... 30
SECTION 2.07 Defaulting Purchasers.................................... 31
SECTION 2.08 Purchases in Connection with Letters of Credit........... 32
ARTICLE III LETTERS OF CREDIT...................................................... 32
SECTION 3.01 Issuance of Letters of Credit............................ 32
SECTION 3.02 Limits on Obligation to Issue............................ 32
SECTION 3.03 Conditions............................................... 33
SECTION 3.04 Letter of Credit Fees.................................... 33
SECTION 3.05 Automatic Participations................................. 33
SECTION 3.06 Procedures for Issuance of Letters of Credit............. 34
SECTION 3.07 Reimbursement Obligations................................ 34
SECTION 3.08 Payments under the Letters of Credit..................... 35
SECTION 3.09 Documentation............................................ 36
SECTION 3.10 Determination to Honor Drawing Requests.................. 36
SECTION 3.11 Nature of Participation and Reimbursement
Obligations...................................... 36
SECTION 3.12 Indemnification; Exoneration............................. 38
SECTION 3.13 Cash Collateral for Letters of Credit.................... 39
ARTICLE IV SWING LINE............................................................. 39
SECTION 4.01 Commitment to Lend....................................... 39
SECTION 4.02 Swing Line Advance Procedures............................ 40
SECTION 4.03 Swing Note............................................... 40
SECTION 4.04 Principal and Interest................................... 41
SECTION 4.05 Participation Obligations................................ 41
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE V FEES, YIELD AND ALLOCATION ANDAPPLICATION OF COLLECTIONS.............. 42
SECTION 5.01 Purchased Interest...................................... 42
SECTION 5.02 Fees; Default Interest.................................. 43
SECTION 5.03 Yield................................................... 44
SECTION 5.04 Payment Dates........................................... 45
SECTION 5.05 Establishment of Collection Accounts and Concentration
Account................................................ 46
SECTION 5.06 Establishment of Agent's Account........................ 48
SECTION 5.07 Settlement Procedures................................... 48
SECTION 5.08 Deemed Collections...................................... 54
SECTION 5.09 Transferor's Optional Reduction of Aggregate Cash
Investment............................................. 55
ARTICLE VI YIELD PROTECTION...................................................... 55
SECTION 6.01 Eurodollar Rate Unavailable............................. 55
SECTION 6.02 Yield Protection........................................ 56
SECTION 6.03 Funding Losses.......................................... 57
SECTION 6.04 Taxes................................................... 58
SECTION 6.05 Mitigation.............................................. 59
SECTION 6.06 Sharing of Payments..................................... 60
ARTICLE VII PAYMENTS AND COMPUTATIONS............................................. 60
SECTION 7.01 Payments, Computations, etc............................. 60
SECTION 7.02 Release of Funds From Accounts.......................... 61
SECTION 7.03 Reliance on Certificates and Reports.................... 62
ARTICLE VIII CONDITIONS PRECEDENT.................................................. 62
SECTION 8.01 Conditions to Initial Purchase.......................... 62
SECTION 8.02 Conditions to all Purchases, Reinvestments, Swing Loans
and Letter of Credit Issuances......................... 63
ARTICLE IX REPRESENTATIONS, WARRANTIES ANDCOVENANTS OF TRANSFEROR AND THE
MANAGING MEMBER....................................................... 64
SECTION 9.01 Representations and Warranties of the Transferor
and the Managing Member................................ 64
SECTION 9.02 Representations and Warranties of the Transferor
and the Managing Member Relating to this Agreement
and the Transferred Assets............................. 67
SECTION 9.03 Affirmative Covenants of the Transferor and Managing
Member................................................. 69
SECTION 9.04 Negative Covenants of the Transferor and Managing
Member................................................. 72
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE X EARLY AMORTIZATION EVENTS............................................. 76
SECTION 10.01 Early Amortization Events.............................. 76
SECTION 10.02 Additional Rights Upon the Occurrence of any
Early Amortization Event........................ 79
ARTICLE XI ADMINISTRATION AND SERVICING OF RECEIVABLES........................... 80
SECTION 11.01 Acceptance of Appointment and Other Matters
Relating to the Servicer........................ 80
SECTION 11.02 Servicing Compensation; Servicer's Expenses............ 82
SECTION 11.03 Representations and Warranties of the Servicer......... 83
SECTION 11.04 Covenants of the Servicer.............................. 85
SECTION 11.05 Reports and Records for the Agent...................... 91
SECTION 11.06 Annual Certificate of Servicer......................... 92
SECTION 11.07 Annual Servicing Report of Independent Public
Accountants................................. 92
SECTION 11.08 Tax and Usury Treatment................................ 92
SECTION 11.09 Notices to AK Steel.................................... 93
SECTION 11.10 Adjustments............................................ 93
SECTION 11.11 Securities and Exchange Commission Filings............. 93
SECTION 11.12 Rights of Agent........................................ 93
SECTION 11.13 Application of Collections............................. 94
ARTICLE XII SERVICER DEFAULTS..................................................... 94
SECTION 12.01 Servicer Defaults...................................... 94
SECTION 12.02 Agent to Act; Appointment of Successor Servicer........ 97
SECTION 12.03 Notification to Purchasers............................. 98
ARTICLE XIII OTHER MATTERS RELATING TO THE SERVICER................................ 98
SECTION 13.01 Limitations on Liability............................... 98
SECTION 13.02 Servicer Indemnification............................... 98
SECTION 13.03 The Servicer Not to Resign............................. 99
SECTION 13.04 Examination of Records................................. 99
ARTICLE XIV OTHER MATTERS RELATING TO THE TRANSFEROR AND THE MANAGING MEMBER...... 100
SECTION 14.01 Obligations not Assignable............................. 100
SECTION 14.02 Limitations on Liability............................... 100
SECTION 14.03 Indemnification of the Agent and the
Purchaser Parties............................... 100
ARTICLE XV TERMINATION........................................................... 104
SECTION 15.01 Termination............................................ 104
ARTICLE XVI THE AGENT............................................................. 104
SECTION 16.01 Authorization and Action............................... 104
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
SECTION 16.02 Nature of Agent's Duties.............................. 105
SECTION 16.03 UCC Filings........................................... 105
SECTION 16.04 Agent's Reliance, Etc................................. 105
SECTION 16.05 Agent and Affiliates.................................. 106
SECTION 16.06 Credit Decision....................................... 107
SECTION 16.07 Indemnification of the Agent by the Purchasers........ 107
SECTION 16.08 Successor Agent....................................... 108
SECTION 16.09 Direction by the Purchasers........................... 108
SECTION 16.10 Notice of Amortization Event.......................... 109
SECTION 16.11 Duty of Care.......................................... 109
SECTION 16.12 Purchasers............................................ 109
SECTION 16.13 Calculations by the Agent............................. 109
SECTION 16.14 Delegation of Agency.................................. 110
SECTION 16.15 Beneficiaries......................................... 111
ARTICLE XVIII MISSCELLANEOUS PROVISIONS............................................ 111
SECTION 17.01 Amendment............................................. 111
SECTION 17.02 Protection of Right, Title and Interest to
Receivables.................................... 113
SECTION 17.03 Limitation on Liability of Purchasers................. 113
SECTION 17.04 Governing Law: Jurisdiction: Consent to Service of
Process................................... 113
SECTION 17.05 Notices: Payments..................................... 114
SECTION 17.06 Severability of Provisions............................ 114
SECTION 17.07 Assignment............................................ 115
SECTION 17.08 Further Assurances.................................... 116
SECTION 17.09 No Waiver; Cumulative Remedies........................ 116
SECTION 17.10 Counterparts.......................................... 116
SECTION 17.11 Third-Party Beneficiaries............................. 116
SECTION 17.12 Actions by Purchasers................................. 117
SECTION 17.13 Merger and Integration................................ 117
SECTION 17.14 Headings.............................................. 117
SECTION 17.15 WAIVER OF JURY TRIAL.................................. 117
SECTION 17.16 Confidentiality....................................... 117
SECTION 17.17 AKR Merger............................................ 120
ARTICLE XVII SECURITY AGREEMENTS.................................................. 121
SECTION 18.01 Grant of Security Interest............................ 121
SECTION 18.02 Continuing Liability of the Transferor................ 122
SECTION 18.03 Responsibilities of the Transferor.................... 122
</TABLE>
iv
<PAGE>
Exhibits
A - Notice of Purchase (Section 2.06(a))
B - Letter of Credit Application (Section 3.06(a))
C - Form of Letter of Credit (Section 3.06(c))
D-1 - Form of Swing Line Notice (Section 4.02)
D-2 - Form of Swing Note (Section 4.03)
E - Form of Collection Account Letter (Section 5.05(c))
F - Form of Concentration Account Letter (Section 5.05(c))
G - Form of Officer's Certificate of Transferor (Section 5.07(c))
H - Forms of Opinion of Frost & Jacobs LLP and Joseph W. Plye, Esq.
(Section 8.01(e))
I - Form of Determination Date Certificate (Section 11.05(d))
J - Form of Annual Certificate of Servicer (Section 11.06)
K - Form of Monthly Report (Section 11.05(c))
L - Credit Policy Manual
M - Accountants' Annual Servicing Report (Section 11.07)
Schedules
I - Collection Accounts/Concentration Account (Sections 5.05(a) and 11.03(h))
II - Location of Books and Records (Section 9.01(k))
III - Information Provided to Purchasers (Section 9.01(n))
IV - Approved Obligors/Concentration Limits
V - Outstanding Letters of Credit on Restatement Effective Date
VI - Letter of Credit No. S900710PGH (formerly No. A-307205) by PNC Bank,
National Association
v
<PAGE>
AMENDED AND RESTATED PURCHASE AND SERVICING AGREEMENT, dated as of
October 1, 1999, among AK STEEL RECEIVABLES LTD. ("AKR"), an Ohio limited
---
liability corporation, as Transferor, AKSR INVESTMENTS, INC., an Ohio
corporation, as the managing member of AKR (in such capacity, the "Managing
--------
Member"), AK STEEL CORPORATION ("AK Steel"), a Delaware corporation, as Servicer
- ------ --------
and Originator, the institutions from time to time party hereto as Purchasers,
and PNC BANK, NATIONAL ASSOCIATION, as L/C Issuing Bank, as lender under Swing
Line Advances, and as Agent for the Purchasers.
BACKGROUND
WHEREAS, AK Steel and AKR are parties to that certain Receivables
Purchase Agreement, dated as of December 1, 1994, (as amended, supplemented and
otherwise modified prior to the date hereof, the "Original Receivables Purchase
-----------------------------
Agreement") pursuant to which AK Steel agreed to sell, and AKR agreed to
- ---------
purchase, certain Transferor Receivables and related Transferor Assets
originated by AK Steel;
WHEREAS, AK Steel, AKR, the Purchasers from time to time party
thereto, PNC and the Agent are parties to that certain Purchase and Servicing
Agreement, dated as of December 1, 1994 (as amended, supplemented or otherwise
modified prior to the date hereof, the "Original Purchase and Servicing
-------------------------------
Agreement"), pursuant to which AKR agreed to sell, and the Purchasers agreed to
- ---------
purchase, Undivided Fractional Interests in such Transferor Receivables and
related Transferor Assets;
WHEREAS, AK Steel and Armco have entered into a Plan and Agreement of
Merger, dated as of September 30, 1999, pursuant to which AK Steel and Armco
have merged, with AK Steel being the surviving entity from such merger (the "AK
--
Steel Merger");
- ------------
WHEREAS, AKR and Armco Funding Corporation, a Delaware corporation
("AFC") have entered into a Plan and Agreement of Merger, dated as of October 1,
---
1999, pursuant to which AKR and AFC has merged, with AKR being the surviving
entity from such merger (the "AKR Merger"); and
----------
WHEREAS, the parties desire to amend and restate in its entirety the
Original Purchase and Servicing Agreement in order to, among other things (i)
add certain parties hereto as Purchasers, and (ii) provide for the inclusion of
the Armco Receivables as Transferor Receivables under this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the Original Purchase and Servicing Agreement is
hereby amended and restated to read in its entirety as follows:
1
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions. Whenever used in this Agreement, the
-----------
following words and phrases shall have the following meanings, and the
definitions of such terms are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and neuter
genders of such terms.
"Adjusted Eurodollar Rate" shall mean, with respect to the subject
------------------------
Eurodollar Tranche and the subject Yield Period, an interest rate per annum
equal to (a) the Eurodollar Rate calculated with respect to the subject
Eurodollar Tranche and the relevant Yield Period, plus (b) 0.50%.
"AFC" shall have the meaning specified in the recitals hereto.
---
"Affiliate" shall mean, with respect to any specified Person, any
---------
other Person controlling, controlled by or under common control with such
specified Person and, without limiting the generality of the foregoing, shall be
presumed to include (A) any Person which beneficially owns or holds 10% or more
of any class of voting securities of such designated Person or 10% or more of
the equity interest in such designated Person and (B) any Person of which such
designated Person beneficially owns or holds 10% or more of any class of voting
securities or in which such designated Person beneficially owns or holds 10% or
more of the equity interest. For the purposes of this definition, "control" when
used with respect to any specified Person shall mean the power to direct the
management and policies of such specified Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Agent" shall mean PNC, in its capacity as Agent on behalf of the
-----
Purchasers, or its successor in interest, or any successor agent appointed as
herein provided.
"Agent's Account" shall mean the special account (account no.
---------------
4110350608), under the dominion and control of the Agent, maintained at PNC in
Cincinnati, Ohio, or such other account at such other bank, under the dominion
and control of the Agent, as the Agent may designate for such purpose from time
to time.
"Aggregate Commitment" shall mean the sum of the Commitments
--------------------
outstanding hereunder, whether or not used, which shall not exceed $300,000,000
"Aggregate Cash Investment" shall mean, as of any date, the aggregate
-------------------------
principal amount paid by the Purchasers in cash for the Purchased Interest
pursuant to Sections 2.04, 2.08 and 3.08 (but not Reinvestments), less the
------------- ---- ----
aggregate amount of
2
<PAGE>
Collections theretofore actually distributed to the Purchasers and applied to
reduce the Aggregate Cash Investment pursuant to Sections 5.07(b), 5.07(e) and
---------------- -------
5.09 (and not rescinded or returned for any reason).
- ----
"Aggregate Participation Amount" shall mean, as of any date, the sum
------------------------------
of the L/C Participation Amount, the Swing Line Outstandings and the Aggregate
Cash Investment.
"Agreement" shall mean this Purchase and Servicing Agreement, as the
---------
same may from time to time be amended, modified or otherwise supplemented.
"AKR" shall have the meaning specified in the preamble.
--- --------
"AKR Merger" shall have the meaning specified in the recitals hereto.
----------
"AK Steel" shall have the meaning specified in the preamble.
-------- --------
"AK Steel Merger" shall have the meaning specified in the recitals
---------------
hereto.
"Alternate Base Rate" shall mean a fluctuating interest rate
-------------------
per annum as shall be in effect from time to time, which rate shall at all times
be equal to the higher of:
(i) the rate of interest announced publicly by the Reference Bank in
Cincinnati, Ohio, from time to time as the Reference Bank's prime rate; and
(ii) the Federal Funds Rate plus 0.50%.
"Alternate Base Rate Tranche" shall mean an Asset Tranche with respect
---------------------------
to which Yield will be calculated at the Alternate Base Rate.
"Amortization Date" shall mean September 30, 2004, or, if earlier, the
-----------------
date specified as the Amortization Date pursuant to Section 10.01 following the
occurrence of an Early Amortization Event or by the Transferor pursuant to
Section 15.01.
"Amortization Period" shall mean the period beginning on the
-------------------
Amortization Date, and ending on the date of the last to occur of (A) the
payment in full in cash to the Purchasers of the Aggregate Cash Investment and
all accrued and unpaid Yield thereon, (B) the payment in full in cash to PNC of
all Swing Line Advances and all accrued and unpaid interest thereon, (C) the
payment in full in cash of all Obligations and other amounts then due and
payable to the Purchaser Parties or other Indemnified Parties hereunder or under
the other Transaction Documents, and (D) the deposit of cash into the Cash
Collateral Account in an amount sufficient to fully collateralize (to the extent
then reasonably estimable) all outstanding Letters of Credit, and other
Obligations not yet due and payable, including all letter of credit fees,
indemnities and
3
<PAGE>
other fees and amounts which will accrue under any of the Transaction Documents
through the last expiration date of any outstanding Letter of Credit.
"Applicable Commitment Fee Percentage" shall mean, for any day, (a)
------------------------------------
0.15% per annum, if Rating Level 1 applies on such day, (b) 0.20% per annum, if
Rating Level 2 applies on such day, or (c) 0.30% per annum, if Rating Level 3
applies on such day. Each change in the Applicable Commitment Fee Percentage
resulting from a change in the Rating Level shall become effective as of the
opening of business on the date of announcement or publication by the respective
Rating Agencies of a change in such rating or, in the absence of such
announcement or publication as of the opening of business on the effective date
of such changed rating. In calculating the Applicable Commitment Fee Percentage,
Rating Level 3 shall be deemed to apply on any day on which either (i) an Early
Amortization Event shall have occurred and be continuing, or (ii) either Rating
Agency suspends or withdraws its rating of any long-term unsecured debt issues
of the Originator including, without limitation, any such debt of the Originator
as successor by merger to Armco.
"Approved Obligor" shall mean each of General Motors Corporation,
----------------
Daimler Chrysler A.G. and Ford Motor Corporation, in each case so long as S&P's
or Moody's lowest published debt rating for its outstanding long-term unsecured
debt issues is not worse than BBB- or Baa3, respectively, and any additional
Approved Obligor included from time to time on Schedule IV by mutual agreement
-----------
of the Transferor and the Agent with the consent of the Majority in Interest.
"Armco" shall mean Armco Inc., an Ohio corporation.
-----
"Armco Receivable" shall mean the Purchased Receivables, as defined in
----------------
the Armco Purchase and Sale Agreement (as defined in the Receivables Purchase
Agreement) which are outstanding at the time of the AKR Merger, the rights of
which have been transferred to AKR pursuant to the AKR Merger.
"Asset Tranche" shall mean at any time a portion of the Aggregate Cash
-------------
Investment selected by the Transferor pursuant to Section 2.06(a) or Section
--------------- -------
5.03.
- ----
"Available Commitment" shall mean, as of any date of determination
--------------------
thereof, an amount equal to the amount by which the Aggregate Commitment exceeds
the sum of the L/C Participation Amount and the Aggregate Cash Investment.
"Average Default Ratio," as of any date, shall mean the arithmetic
---------------------
mean of the Default Ratios for the preceding three (3) calendar months for the
last of which a Determination Date Certificate has been received by the Agent,
computed in compliance with Section 1.03.
------------
4
<PAGE>
"Average Dilution Ratio," as of any date, shall mean the arithmetic
----------------------
mean of the Dilution Ratios for the preceding three (3) calendar months for the
last of which a Determination Date Certificate has been received by the Agent,
computed in compliance with Section 1.03.
------------
"Benefit Plan" shall mean an employee benefit plan (other than a
------------
Multiemployer Plan) covered by Title IV of ERISA and maintained for employees of
AK Steel or any of its ERISA Affiliates.
"Business Day" shall mean any day other than (A) a Saturday or Sunday
------------
or (B) a day on which national banking associations or state banking
institutions in New York, New York, or the city in which the Agent is located
are authorized or obligated by law, executive order or governmental decree to be
closed, or (C) with respect to the setting of any Yield Period, or the funding
or payment of any Eurodollar Tranche, or Yield thereon, a day on which banks in
the London interbank market are not dealing in Dollar deposits.
"Canadian Obligors" shall mean each Obligor who is a resident of
-----------------
Canada.
"Canadian Receivables" shall mean United States dollar-denominated
--------------------
accounts receivable generated from sales to Canadian Obligors.
"Cash Collateral Account" shall have the meaning set forth in Section
----------------------- -------
3.13.
- ----
"Change of Control" shall mean the occurrence of any of the following
-----------------
events:
(i) any "Person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the beneficial owner (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all shares that any such Person has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 40% of the total
voting power of the equity securities of Holding for purposes of the election of
directors; provided, however, that the Person shall not be deemed the
-------- -------
"beneficial owner" of shares tendered pursuant to a tender or exchange offer
made by that Person or any Affiliate of that Person until the tendered shares
are accepted for purchase or exchange;
(ii) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors of Holding
(together with any new directors whose election by such Board of Directors of
Holding, or whose nomination for election by the shareholders of Holding, as
the case may be, was approved by a vote of 66-2/3% of the directors then still
in office who were either
5
<PAGE>
5 directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of Holding then in office; or
(iii) (A) Holding fails to own 100% of the stock of AK Steel or
(B) AK Steel fails to own 100% of the stock of each of the Managing Member and
AKS Investments, Inc. free and clear of any Lien except for a Lien in favor of
a lender that has executed and delivered an intercreditor agreement as required
by Section 11.04(r); or (C) either of Managing Member or AKS Investments, Inc.
----------------
ceases to be a Member of Transferor, or Managing Member and AKS Investments,
Inc. cease to be the only members and Interest Holders (as defined in the
Operating Agreement of AKR) of Transferor, provided, however, that it shall not
-------- -------
be deemed a Change in Control if Holding merges into AK Steel except that, in
such case, AK Steel shall be substituted for Holding for purposes of this
definition of "Change in Control" and clause (iii)(A) shall no longer be
applicable, provided, that neither the AK Steel Merger nor the AKR Merger shall
constitute a Change of Control for purposes of this definition.
"Closing Date" shall mean December 1, 1994.
------------
"Collateral" shall have the meaning specified in Section 18.01.
---------- -------------
"Collection Account" shall have the meaning specified in Section 5.05.
------------------ ------------
"Collection Account Bank" shall have the meaning specified in Section
----------------------- -------
5.05.
- ----
"Collection Account Letter" shall have the meaning specified in
-------------------------
Section 5.05.
- ------------
"Collection Period" shall mean, with respect to any Distribution Date,
-----------------
the calendar month immediately preceding the calendar month in which such
Distribution Date occurs.
"Collections" shall mean (a) all cash collections or other cash
-----------
proceeds deposited to any Collection Account or Concentration Account, or
received (or deemed to be received) by the Originator, the Servicer or the
Transferor, in respect of Transferor Receivables, whether in the form of cash,
checks, wire transfers, electronic transfers or any other form of cash payment,
and (b) all interest and other investment earnings (net of losses and investment
expenses) on Collections (including funds on deposit in the Cash Collateral
Account) as a result of the investment thereof pursuant to Section 5.05(b).
---------------
"Commercial L/C" shall mean a commercial documentary letter of credit
--------------
under which the L/C Issuing Bank agrees to make payments in dollars for the
account of
6
<PAGE>
the Originator, in respect of obligations of the Originator in connection with
the purchase or sale of goods by the Originator in the ordinary course of
business.
"Commitment" shall mean, as to any Purchaser, the commitment of such
----------
Purchaser to fund Purchases, to make Reinvestments and to participate in Swing
Line Advances and Letters of Credit, in the aggregate amount at any time
outstanding not to exceed the amount set forth opposite such Purchaser's
signature below.
"Commitment Fee" shall have the meaning set forth in Section 5.02(c).
-------------- ---------------
"Commitment Percentage" shall mean, as to any Purchaser at any time,
---------------------
the percentage set forth under the heading "Commitment Percentage" opposite its
signature below, as such percentage may be modified by assignments made from
time to time pursuant to Section 17.07.
-------------
"Concentration Account" shall have the meaning specified in Section
--------------------- -------
5.05.
- ----
"Concentration Account Bank" shall initially be PNC, and shall have
--------------------------
the meaning specified in Section 5.05.
------------
"Concentration Account Letter" shall have the meaning specified in
----------------------------
Section 5.05.
- ------------
"Concentration Amount" shall mean as of any date, with respect to each
--------------------
Concentration Limit, the product of (a) such Concentration Unit and (b) the
aggregate Outstanding Balance of the Eligible Receivables on such date.
"Concentration Limit" shall mean, (i) with respect to Receivables from
-------------------
any Approved Obligor listed in Schedule IV hereto and its Affiliates, in the
-----------
aggregate, the percentages shown on such Schedule, (ii) with respect to any
Approved Obligor and its Affiliates, in the aggregate, designated by agreement
of the Transferor and the Agent at any time hereafter, the percentage specified
in such agreement, and (iii) with respect to Receivables from any single Obligor
(other than an Approved Obligor) and its Affiliates, in the aggregate, the
percentage of the aggregate Outstanding Balance of Eligible Receivables set
forth as follows: (a) Eligible Receivables of any Obligor that has a short-term
unsecured debt rating of at least "A-1" by S&P or at least "P-l" by Moody's, 6%;
(b) Eligible Receivables of any Obligor that has a short-term unsecured debt
rating below "A-1" but at least "A2" by S&P or below "P-l" but at least "P-2" by
Moody's, 5%; (c) Eligible Receivables of any Obligor that has a short-term
unsecured debt rating below "A-2" but at least "A-3" by S&P or below "P-2" but
at least "P-3" by Moody's, 4%; (d) Eligible Receivables of any Obligor that has
a short-term unsecured debt rating below "A-3" by S&P or below "P-3" by Moody's
or that is not rated on its short-term unsecured debt, 3%; and (e) Eligible
Receivables of all Obligors that are state or municipal Governmental
Authorities, in the aggregate 1%; provided, that if the ratings of
--------
7
<PAGE>
any Obligor most recently published by S&P and Moody's differ, the higher rating
shall apply.
"Confidential Information" shall mean, in relation to any Person, any
------------------------
written information delivered or made available by or on behalf of AK Steel (or
its Affiliates or subsidiaries) or the Transferor to such Person in connection
with or pursuant to this Agreement or the transactions contemplated hereby which
is marked as Confidential at the time it is so delivered or made available,
other than information (i) which was publicly known, or otherwise known to such
Person, at the time of disclosure (except pursuant to disclosure in connection
with this Agreement or otherwise previously provided by AK Steel on a
confidential basis), (ii) which subsequently becomes publicly known through no
act or omission by such Person, or (iii) which otherwise becomes known to such
Person other than through disclosure by AK Steel or the Transferor; provided,
--------
however, that any files or other information of the Originator, the Transferor
- -------
or the Servicer reviewed by any Purchaser Party or its representatives pursuant
to the last paragraph of Section 9.03(c) or to Section 11.04(g) shall be deemed
--------------- ----------------
to be confidential, whether or not so marked.
"Contract" shall mean an agreement between the Originator (or, in the
--------
case of an Armco Receivable, Armco) and an Obligor, pursuant to or under which
such Obligor shall be obligated to pay from time to time for the sale or lease
of merchandise delivered or to be delivered or services performed or to be
performed, together with any purchase orders, invoices and other agreements
relating thereto.
"Credit Policy Manual" shall mean those credit and collection policies
--------------------
and practices of AK Steel described in its credit policy manual in effect on the
date hereof relating to Receivables, including Armco Receivables, a copy of
which is attached hereto as Exhibit L hereto, as the same may be amended or
modified from time to time in compliance with Section 11.04(i).
"Cut-Off Date" shall mean the close of business on November 23, 1994.
------------
"Daily Report" shall mean an Officer's Certificate of the Servicer
------------
substantially in the form of Exhibit K hereto.
"Default Rate" shall mean a per annum rate equal to the Alternate Base
------------
Rate plus 2%.
"Default Ratio" shall mean, for any calendar month for which a
-------------
Determination Date Certificate has been received by the Agent, the ratio of (i)
the aggregate Outstanding Balance of all Transferor Receivables that become
Defaulted Receivables during such month to (ii) Gross Sales during the fourth
months preceding such month.
8
<PAGE>
"Defaulted Receivable" shall mean a Receivable (i) of an Obligor with
--------------------
respect to which Obligor an Insolvency Event has occurred and is continuing,
(ii) as to which any payment, or part thereof, remains unpaid by the Obligor
thereof for 61 days or more from the original due date for such payment
specified in the original relevant invoice applicable hereto, or (iii) which,
consistent with the Credit Policy Manual, would be written off as uncollectible,
provided, that in the case of clause (ii) or (iii) above, only the portion of
the Receivable so unpaid or written off shall be a Defaulted Receivable.
"Determination Date" shall mean, with respect to any Distribution
------------------
Date, the second Business Day preceding such Distribution Date.
"Determination Date Certificate" shall mean, with respect to any
------------------------------
Determination Date, a report prepared by a Servicing Officer for such
Determination Date as of the end of the immediately preceding calendar month in
substantially the form set forth as Exhibit 1.
---------
"Diluted Receivable" shall mean, that portion of any Receivable which
------------------
is (or, for purposes of computing the Dilution Ratio, was) reduced, adjusted or
canceled, or is otherwise less than the amount thereof included in calculating
the Net Pool Balance for purposes of any certificate or report delivered
hereunder, in each case for any of the reasons set forth in Section 5.08(a);
---------------
provided, that for purposes of calculating the Dilution Ratio, Diluted
- --------
Receivables are calculated assuming that all chargebacks, net of debit
reversals, are resolved in any Obligor's favor.
"Dilution" shall mean any of the events or conditions which cause a
--------
Receivable to become a Diluted Receivable.
"Dilution Ratio" shall mean as of any date, the ratio of (i) the
--------------
aggregate balance of Receivables that were Diluted Receivables at the end of the
most recent month preceding such date of calculation for which the Agent has
received a Determination Date Certificate to (ii) Gross Sales during the month
which immediately preceded such month. The Dilution Ratio shall be computed in
compliance with Section 1.03.
------------
"Dilution Volatility Factor" shall mean as of any date a percentage
--------------------------
equal to the product of (i) the amount by which (A) the highest Average Dilution
Ratio for any month-end during the most recently ended twelve-month period (for
the last month of which twelve-month period the Agent has received a
Determination Date Certificate) exceeds (B) the arithmetic mean of the Average
Dilution Ratios for each month-end during such twelve-month period and (ii)(A)
the highest Average Dilution Ratio for any month-end during such twelve-month
period, divided by (B) the arithmetic mean of the Average Dilution Ratios during
such twelve-month period.
9
<PAGE>
"Discount Amount" shall mean with respect to any day in any Collection
---------------
Period, an amount equal to the aggregate of (A) the interest accrued for such
day on each Swing Line Advance pursuant to Section 4.04, (B) any other fees or
------------
other amounts accrued for such day pursuant to Section 5.02, and (C) any amount
------------
owing to the Servicer pursuant to Section 11.02(a), and, in the event a
----------------
Successor Servicer is appointed, all reasonable and appropriate out-of-pocket
costs and expenses of the Successor Servicer of servicing, collecting and
administering the Transferor Receivables (including reasonable attorneys' fees
and other legal expenses) to the extent not covered by the Servicer's Fee
previously received by it.
"Distribution Date" shall mean, with respect to any Collection Period,
-----------------
the fifteenth day of the calendar month immediately following such Collection
Period, or, if such day is not a Business Day, the next succeeding Business Day.
The first Distribution Date after the Restatement Effective Date shall be
October 15, 1999.
"Dollars and $" shall mean lawful money of the United States of
---------------
America.
"Early Amortization Event" shall have the meaning specified in Section
------------------------ -------
10.01.
- ------
"Eligible Institution" shall mean a depository institution organized
--------------------
under the laws of the United States of America or any one of the states thereof,
including the District of Columbia (or any domestic branch of a foreign bank),
which at all times is a member of the FDIC, has a combined capital and surplus
of at least $100,000,000 and satisfies one (1) of the following two (2)
criteria: (i) it or its holding company has (A) a long-term unsecured debt
rating of at least A- or better by Moody's or (B) a certificate of deposit
rating or short-term unsecured debt rating of P-1 by Moody's, or (ii) it or its
holding company has (A) a long-term unsecured debt rating of at least A- or
better by S&P or (B) a certificate of deposit rating or short-term unsecured
debt rating of A-1 by S&P.
"Eligible Investments" shall mean book-entry securities entered on the
--------------------
books of the registrar of such security and held in the name or on behalf of the
Agent or negotiable instruments or securities represented by instruments in
bearer or registered form (registered in the name of the Agent or its nominee)
which evidence:
(i) direct obligations of, or obligations fully guaranteed as to
timely payment by, the United States of America or any agency or instrumentality
thereof, maturing in 12 months or less from the date of acquisition;
(ii) demand deposits, time deposits or certificates of deposit (having
original maturities of no more than 270 days) of depository institutions or
trust companies incorporated under the laws of the United States of America or
any state thereof (or domestic branches of foreign banks), subject to
supervision and examination
10
<PAGE>
by Federal or state banking or depository institution authorities, and having,
at the time of the investment or contractual commitment to invest therein,
short-term unsecured debt ratings from S&P and Moody's of at least A-1 and P-1,
respectively;
(iii) commercial paper (having original maturities of no more
than 270 days) having, at the time of the investment or contractual commitment
to invest therein, short-term ratings from S&P and Moody's of at least A-1 and
P-1, respectively;
(iv) investments in no load money market funds having a rating
from each rating agency rating such fund (and in any case at least one of S&P
and Moody's) in its highest investment category (but only if appropriate
actions have been taken to the Agent's reasonable satisfaction to perfect the
Purchaser Parties' interest therein);
(v) notes or bankers' acceptances (having original maturities
of no more than 270 days) issued by any depository institution or trust company
referred to in clause (ii) above; or
(vi) repurchase agreements secured by other Eligible Investments.
"Eligible Receivable" shall mean each Transferor Receivable (including
-------------------
any Armco Receivables) other than Armco Receivables in respect of amounts
payable to the Originator (including as successor by merger to Armco) with
respect to licenses of intangible assets or portion thereof:
(i) the Obligor of which is a United States resident or a
Canadian Obligor not a resident of Quebec or the Maritime Provinces;
(ii) the Obligor of which is not an Affiliate of either AK Steel
or the Transferor;
(iii) which is not a Government Receivable;
(iv) the Obligor of which is not the Obligor of Defaulted
Receivables in excess of 25% of the aggregate balance of Transferor Receivables
relating to such Obligor;
(v) which is not a Defaulted Receivable;
(vi) as to which, at the time of the Transfer of the Purchased
Interest in such Receivable to the Purchasers, the Transferor or the Purchasers
will have title thereto free and clear from Liens except as created hereunder,
and which, with respect to, and to the extent of, the Purchased Interest therein
has been the subject of either a valid transfer and assignment from the
Transferor to the Purchasers of all the Transferor's right, title and interest
therein (and in the proceeds thereof), or the grant of
11
<PAGE>
a first priority perfected "security interest" (within the meaning of the UCC of
the jurisdiction the law of which governs the perfection of the interest in such
Receivable created hereunder) therein (and in the proceeds thereof);
(vii) which satisfies all applicable requirements of the
Credit Policy Manual, including payment terms that conform to the provisions of
the Credit Policy Manual;
(viii) which does not have payment terms exceeding 45 days;
provided that Extended Term Receivables may be included in the Net Pool Balance
- --------
in an amount up to 20% of Eligible Receivables; and provided, further, that
-------- -------
Receivables from General Motors Corporation that are otherwise Eligible
Receivables and the payment terms of which provide that they are payable no
later than the second day of the second month following the month in which they
are invoiced ("2nd day, 2nd month") shall be Eligible Receivables;
(ix) which is denominated and payable only in Dollars in the
United States;
(x) which arose in the ordinary course of business of the
Originator or Armco, as the case may be, and is an account receivable
representing all or part of the sales price of merchandise or services within
the meaning of Section 3(c)(5) of the Investment Company Act, the Obligor of
which is primarily liable with respect thereto, and which is not the subject of
any dispute, claim or offset (provided that if only a portion of any such
Receivable is subject to such dispute, claim or offset, the remainder of such
Receivable may be an Eligible Receivable if it meets the other requirements
hereof);
(xi) which is not subject to any provision prohibiting the
sale, transfer or assignment by the Originator or Armco, as the case may be, of
such Transferor Receivable without the consent of the Obligor;
(xii) which is an "account" (within the meaning of Section
9-106 of the UCC of the jurisdiction the law of which governs the perfection of
the interest in such Receivable created hereunder), but which has in all
respects been earned by the Originator's or Armco's, as the case may be,
delivery of the goods or performance of the services giving rise to such
account;
(xiii) which will at all times be the legal and assignable
payment obligation of the Obligor of such Receivable, enforceable against such
Obligor in accordance with its terms except as such enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or
other laws affecting creditors' rights generally, and except as such
enforceability may be limited by general principles of equity (whether
considered in a suit at law or in equity); and
12
<PAGE>
(xiv) as to which the Agent has not notified the Transferor
that the Receivable is not acceptable in the reasonable opinion of the Agent.
"ERISA" shall mean the Employee Retirement Income Security Act
-----
of 1974, as amended from time to time, and the rules and regulations thereunder.
"ERISA Affiliate" shall mean, as to any Person, any trade or
---------------
business (whether or not incorporated) which is a member of a group of which
such Person is a member and which is treated as a single employer under Section
414(b), (c), (m) or (o) of the Internal Revenue Code.
"Eurodollar Rate" shall mean, with respect to any Yield
---------------
Period, the interest rate per annum determined by the Agent (which determination
shall be conclusive absent manifest error) by dividing (the resulting quotient
rounded upward to the nearest 1/100 of 1% per annum) (i) the rate of interest
determined by the Agent in accordance with its usual procedures to be the
average of the London interbank offered rates for U.S. Dollars quoted by the
British Bankers' Association as set forth on Dow Jones Markets Service (formerly
known as Telerate) display page 3750 (or appropriate successor or, if the
British Bankers' Association or its successor ceases to provide such quotes, a
comparable replacement determined by the Agent) two (2) Business Days prior to
the first day of such Yield Period for an amount comparable to the subject Asset
Tranche and having a borrowing date and a maturity comparable to such Yield
Period, by (ii) a number equal to 1.00 minus the Eurodollar Rate Reserve
Percentage. The Eurodollar Rate shall be adjusted with respect to any Asset
Tranche outstanding on the effective date of any change in the Eurodollar Rate
Reserve Percentage as of such effective date. The Agent shall give prompt notice
to the Transferor of the Eurodollar Rate as determined or adjusted in accordance
herewith, which determination shall be conclusive absent manifest error.
"Eurodollar Rate Reserve Percentage" shall mean, with respect
----------------------------------
to the calculation of any Eurodollar Rate, the maximum percentage (expressed as
a decimal rounded upward to the nearest 1/100 of 1%) as determined by the Agent
(which determination shall be conclusive absent manifest error) which is in
effect during any relevant period, as prescribed by the Board of Governors of
the Federal Reserve System (or any successor) for determining the reserve
requirements (including supplemental, marginal and emergency reserve
requirements) with respect to eurocurrency funding of a member bank in the
Federal Reserve System.
"Eurodollar Tranche" shall mean an Asset Tranche with respect
------------------
to which Yield will be calculated at an Adjusted Eurodollar Rate.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
------------
as amended.
13
<PAGE>
"Extended Term Receivable" shall mean a Receivable that is
------------------------
otherwise an Eligible Receivable, and which has payment terms that exceed 50
days but do not exceed 60 days.
"FDIC" shall mean the Federal Deposit Insurance Corporation or
----
any successor.
"Federal Funds Rate" shall mean, for any day, the rate per
------------------
annum (based on a year of 360 days and actual days elapsed and rounded upward to
the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or
any successor) on such day as being the weighted average of the rates on
overnight Federal Funds transactions arranged by Federal Funds brokers on the
previous trading day, as computed and announced by such Federal Reserve Bank (or
any successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; provided that, if such Federal
--------
Reserve Bank (or its successor) does not announce such rate on any day, the
"Federal Funds Rate" for such day shall be the Federal Funds Rate for the last
day with respect to which such rate was announced.
"Fee Letter" shall have the meaning specified in Section
---------- -------
5.02(c).
- -------
"Floating Allocation Percentage" shall mean the fraction that
------------------------------
determines the amount of the Purchased Interest, the numerator of which is the
sum of (a) the Aggregate Cash Investment plus (b) the Holdback, and the
denominator of which is the Net Pool Balance.
"Government Receivable" shall mean a Receivable with respect
---------------------
to which the Obligor is a Governmental Authority that is not a state or
municipal Governmental Authority of one of the United States or the District of
Columbia.
"Governmental Authority" shall mean any country or nation, any
----------------------
political subdivision, state or municipality of such country or nation, and any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government of any country or nation or political
subdivision thereof, or any agency or instrumentality of any of the foregoing.
"Gross Sales" shall mean for any period the aggregate Dollar
-----------
amount of all new Receivables invoiced by the Originator during such period,
prior to any adjustments for Dilution.
"Holdback" shall mean, as of any date, the amount of the
--------
purchase price of the Purchased Interest not paid in cash and calculated as
equal to
14
<PAGE>
(a) (1) the Aggregate Participation Amount on such date plus the
Yield Reserve
divided by
----------
(2) one (1) minus the greater of
-----
(i) 15% plus the Average Dilution Ratio, and
----
(ii) (A) three (3) multiplied by the Average
----------
Dilution Ratio, plus (B) the Dilution
----
Volatility Factor plus (C) three (3)
----
multiplied by the Average Default Ratio,
----------
minus
-----
(b) the Aggregate Participation Amount.
"Holding" shall mean AK Steel Holding Corporation.
-------
"Indemnified Amounts" shall have the meaning specified in
-------------------
Section 14.03.
- -------------
"Indemnified Party" shall have the meaning specified in
-----------------
Section 14.03.
- -------------
"Indebtedness" of any Person shall mean, without duplication, (i) the
------------
principal of and premium (if any) in respect of (a) indebtedness of such Person
for money borrowed and (b) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such Person is responsible or
liable; (ii) all lease obligations of such Person which would be classified and
accounted for as a capital lease under generally accepted accounting principles;
(iii) all obligations of such Person issued or assumed as the deferred purchase
price of property, all conditional sale obligations of such Person and all
obligations of such Person under any title retention agreement (but excluding
trade accounts payable arising in the ordinary course of business); (iv) all
obligations of such Person for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in clauses (i) through (iii) above) entered into in the
ordinary course of business of such Person to the extent such letters of credit
are not drawn upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the third Business Day following receipt by such Person
of a demand for reimbursement following payment on the letter of credit); (v)
the amount of all obligations of such Person with respect to the redemption,
repayment or other repurchase of any redeemable equity interests (but excluding
any accrued dividends); (vi) all obligations of such Person under interest rate
swap or similar agreements, or foreign currency or commodity hedge, exchange or
similar agreements of such Person; (vii) all obligations
15
<PAGE>
of the type referred to in clauses (i) through (vi) of other Persons and all
dividends of other Persons for the payment of which, in either case, such Person
is responsible or liable, directly or indirectly, as obligor, guarantor or
otherwise, including by means of any guarantee; and (viii) all obligations of
the type referred to in clauses (i) through (vii) of other Persons secured by
any Lien on any property or asset of such Person (whether or not such obligation
is assumed by such Person), the amount of such obligation being deemed to be the
lesser of the value of such property or assets or the amount of the obligation
so secured.
"Independent Public Accountants" shall mean any of (a) Arthur
------------------------------
Andersen & Co., (b) Deloitte & Touche, (c) Ernst & Young, (d) KPMG Peat Marwick
and (e) PriceWaterhouseCoopers or any of their successors so long as such
successor is one of the five largest national accounting firms, provided, that
such firm is independent with respect to the Servicer within the meaning of the
Exchange Act.
"Insolvency Event" shall mean, with respect to a specified
----------------
Person, any of the following events: (a) (i) a case or other proceeding shall be
commenced, without the application or consent of such Person, in any court,
seeking the liquidation, reorganization, debt arrangement, dissolution, winding
up or composition or readjustment of debts of such Person, the appointment of a
trustee, receiver, custodian, liquidator, assignee, sequestrator or other
similar official for such Person or for any substantial part of its property, or
any similar action as to such Person under any law relating to bankruptcy,
insolvency, reorganization, winding up or composition or adjustment of debts,
and such case or proceeding shall continue unstayed or undismissed for a period
of 60 days; or (ii) an order for relief in respect of such Person shall be
entered in an involuntary case under the Federal bankruptcy laws or other
similar laws now or hereafter in effect; or (b) the commencement by such Person
of a voluntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or the consent by such Person to the entry of an
order for relief in an involuntary case under any such law, or the consent by
such Person to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, sequestrator or similar official for such
Person or for any substantial part of its property, or the making by such Person
of any general assignment for the benefit of creditors, or the failure by such
Person generally to pay its debts as such debts become due or the admission by
such Person in writing (as to which the Agent shall have written notice) of its
inability to pay its debts generally as they become due or, if a corporation or
similar entity, its board of directors shall vote to implement any of the
foregoing described in this clause (b).
"Internal Revenue Code" shall mean the Internal Revenue Code
---------------------
of 1986, as amended from time to time.
"Investment Company Act" shall mean the Investment Company Act
----------------------
of 1940, as amended from time to time.
16
<PAGE>
"IRS" shall mean the Internal Revenue Service.
---
"L/C Fees" shall mean any and all fees of the L/C Issuing
--------
Bank, the Agent or the Purchasers with respect to any Letter of Credit as
specified in Section 5.02(a).
---------------
"L/C Issuing Bank" shall mean PNC.
----------------
"L/C Participation Amount" shall mean, as of any date, the
------------------------
aggregate outstanding face amount of all Letters of Credit, plus, to the extent
not reimbursed to the L/C Issuing Bank through Purchases as provided in Section
-------
2.08, any amounts paid by the L/C Issuing Bank pursuant to drawings under any
- ----
Letters of Credit.
"Letter of Credit" shall mean a Commercial L/C or a Standby
----------------
L/C.
"Lien" shall mean any mortgage, deed of trust, pledge,
----
hypothecation, assignment, encumbrance, lien (statutory or other and including a
Lien created by the PBGC), preference, participation interest, priority or other
security interest or preferential arrangement of any kind or nature whatsoever,
whether voluntarily or involuntarily given, including any conditional sale or
other title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing and the filing of any financing
statement or similar document under the UCC or comparable law of any
jurisdiction to evidence any of the foregoing (whether or not a lien or other
encumbrance is created or exists at the time of filing).
"Majority in Interest" shall mean the Purchasers owning 60% or
--------------------
more of the Purchased Interest, or, if the Purchased Interest is zero, having
60% or more of the Commitments.
"Managing Member" shall have the meaning specified in the
---------------
preamble.
- --------
"Measurement Date" shall mean:
----------------
(a) if the Servicer is required to furnish a Daily Report
pursuant to Section 11.05(a), the Business Day as of the close of which the
----------------
information in such Daily Report is stated; or
(b) if the Servicer is required to furnish a Weekly Report
pursuant to Section 11.05(b), the last Business Day of the week covered by such
----------------
Weekly Report; and
(c) with respect to each Monthly Report furnished pursuant to
Section 11.05(c), the last day of the month covered by such Monthly Report.
- ----------------
17
<PAGE>
"Monthly Report" shall mean an Officer's Certificate of the
--------------
Servicer in substantially the form of Exhibit K hereto.
---------
"Moody's" shall mean Moody's Investors Service, Inc. or its
-------
successor.
"Multiemployer Plan" shall mean a "multiemployer plan" as
------------------
defined in Section 4001(a)(3) of ERISA with respect to which AK Steel or any of
its ERISA Affiliates is obligated to make contributions.
"Net Pool Balance" shall mean at any time the excess, if any,
----------------
of (a) the aggregate Outstanding Balance of Eligible Receivables at such time
over (b) the sum of (i) the Overconcentration Amount at such time, plus (ii) the
----
excess of (A) the Outstanding Balance of Extended Term Receivables which have
not been included in the Overconcentration Amount, over (B) 20% of the
Outstanding Balance of the Eligible Receivables, plus (iii) the aggregate amount
----
of Collections of the type described in clause (a) of the definition of
Collections that have not been applied to the corresponding Transferor
Receivables on the records of the Servicer.
"Non-Paying Party" shall have the meaning set forth in Section
---------------- -------
2.07.
- ----
"Notices" shall have the meaning specified in Section
------- -------
17.05(a).
- --------
"Obligations" shall mean all obligations or liabilities of the
-----------
Transferor and the Servicer to the Purchaser Parties, the other Indemnified
Parties and their respective successors, permitted transferees and assigns,
arising under or in connection with the Transaction Documents, howsoever
created, arising or evidenced, whether direct or indirect, absolute or
contingent, now or hereafter existing, or due or to become due.
"Obligor" shall mean each Person who is obligated to pay for
-------
goods or services provided by the Originator (or, in the case of an Armco
Receivable, Armco) which gave rise to a Transferor Receivable, including any
guarantor of such Person's obligations.
"Officer's Certificate" shall mean, unless otherwise specified
---------------------
in this Agreement, a certificate signed by the President, any Vice President,
the Chief Financial Officer, the Treasurer or Controller of the Transferor, or
of the Servicer, or any Successor Servicer, as the case may be, and delivered to
the Agent.
"Opinion of Counsel" shall mean a written opinion of counsel,
------------------
who may be counsel for the Person providing the opinion and who shall be
reasonably acceptable to the Agent.
"Original Purchase and Servicing Agreement" shall have the
-----------------------------------------
meaning specified in the recitals hereto.
18
<PAGE>
"Original Receivables Purchase Agreement" shall have the
---------------------------------------
meaning specified in the Recitals hereto.
"Originator" shall mean AK Steel and any of its successors.
----------
"Outstanding Balance" of any Receivable at any time shall mean
-------------------
the then outstanding balance thereof, excluding all interest, late payment
charges, delinquency charges and extension or collection fees; provided that the
--------
Outstanding Balance of any Receivable shall not be decreased unless and until
any Collections received with respect thereto have been applied in accordance
herewith.
"Overconcentration Amount" shall mean at any time the sum of
------------------------
the amounts, if any, by which the aggregate Outstanding Balance of Eligible
Receivables of the types specified in the definition of Concentration Limit
exceeds the aggregate of the respective Concentration Amounts.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
----
"Person" shall mean any individual, corporation, partnership,
------
joint venture, association, joint-stock company, trust, unincorporated
organization, Governmental Authority or any other entity of similar nature.
"PNC" shall mean PNC Bank, National Association.
---
"Potential Early Amortization Event" shall mean an event or
----------------------------------
occurrence which with the giving of notice or the passage of time or both would
become an Early Amortization Event.
"Potential Servicer Default" shall mean an event or occurrence
--------------------------
which with the giving of notice or the passage of time or both would become a
Servicer Default.
"Purchase" shall mean each increase in the Aggregate Cash
--------
Investment pursuant to Section 2.04, 2.08 or 3.08 funded by the Purchasers and
------------ ---- ----
paid to the Transferor or the L/C Issuing Bank or PNC by the Agent pursuant to
Section 2.06(c) or 3.08, and includes deferred payment for the Holdback portion
- --------------- ----
of the Floating Allocation Percentage, which Holdback portion shall be paid
pursuant to Section 5.07(e)(iv). "Purchase" shall not include Reinvestments
-------------------
pursuant to Section 5.07.
------------
"Purchase Date" shall have the meaning set forth in Section
------------- -------
2.06(a).
- -------
"Purchased Interest" shall mean, with respect to any date, the
------------------
Purchasers' undivided interest in the Transferor Receivables and related
Transferred Assets, which shall at all times be equal to the product of the
Floating Allocation Percentage as of such date and the Outstanding Balance of
Transferor Receivables as of such date.
19
<PAGE>
"Purchaser Collections" shall mean, with respect to any date,
----------------------
that portion of the Collections deposited to the Concentration Account equal to
the product of (a) the Floating Allocation Percentage as of such date and (b)
the aggregate amount of such Collections.
"Purchaser Parties" shall mean, collectively, the Agent, the
-----------------
L/C Issuing Bank, PNC as the lender under Swing Line Advances and the
Purchasers.
"Purchasers" shall mean the financial institutions party
----------
hereto which are listed on the signature page hereof as "Purchasers", and their
respective successors and assigns.
"Purchasers' Tranche Investment" shall have the meaning set
------------------------------
forth in Section 5.03(a).
---------------
"Rating Agency" shall mean each of Moody's and S&P.
-------------
"Rating Level 1" shall mean, as at any date of determination
--------------
thereof, that the rating of any long-term unsecured debt issues of the
Originator (a) most recently published by S&P is BBB- or better or (b) most
recently published by Moody's is Baa3 or better.
"Rating Level 2" shall mean, as at any date of determination
--------------
thereof, that the rating of any long-term unsecured debt issues of the
Originator (a) most recently published by S&P is BB- or better or (b) most
recently published by Moody's is Ba3 or better, but is not Rating Level 1.
"Rating Level 3" shall mean, as at any date of determination
--------------
thereof, that the rating of any long-term unsecured debt issues of the
Originator (a) most recently published by S&P is less than BB- and (b) most
recently published by Moody's is less than Ba3;
provided, that for purposes of the definitions of "Rating Level 1", "Rating
- --------
Level 2" and "Rating Level 3", (A) all reference to debt of the Originator shall
include debt of the Originator as successor by merger to Armco, and (B) if the
rating of the long-term unsecured debt issues of the Originator most recently
published by S&P differs by more than one rating step from such rating published
by Moody's, the applicable Rating Level shall be based only on the lower of such
ratings.
For purposes of the definitions of "Rating Level 1", "Rating
Level 2" and "Rating Level 3", the following shall be deemed to be the
equivalent rating steps of S&P and Moody's respectively:
Equivalent
20
<PAGE>
S&P Rating Step Moody's Rating Step
--------------- -------------------
BBB+ - Baa1
BBB - Baa2
BBB- - Baa3
BB+ - Ba1
BB - Ba2
BB- - Ba3
B+ - B1
B - B2
"Receivable" shall mean (i) an Armco Receivable, and (ii) an account
----------
receivable of the Originator arising from the sale of merchandise or providing
of services by the Originator in the ordinary course of business of the
Originator, including all monies due or to become due and all Collections and
other amounts received from time to time with respect to such Receivable and all
proceeds (including "proceeds" as defined in the UCC of the jurisdiction the law
of which governs the perfection of the interest on the Receivables transferred
hereunder) thereof and "Receivables" shall mean all such Receivables; provided,
--------
however, that "Receivables" shall not include any amounts payable to the
- -------
Originator with respect to licenses of intangible assets.
"Receivables Purchase Agreement" shall mean the Original Receivables
------------------------------
Purchase Agreement as amended and restated by the Amended and Restated
Receivables Purchase Agreement between the Originator and the Transferor, dated
as of the date hereof, as the same may from time to time be amended, modified or
otherwise supplemented.
"Records" shall mean books, documents, instruments and other records
-------
(including computer programs, tapes and disks) which evidence the Transferor
Receivables and the Related Assets, or which are otherwise necessary or
desirable to collect the Transferor Receivables.
"Reference Bank" shall mean PNC and its successors and assigns.
--------------
"Regulatory Change" shall mean the introduction of, or any change in the
-----------------
text or interpretation of, any law, guideline, rule, regulation, directive or
request of any Governmental Authority, whether or not having the force of law.
"Regulation D" shall mean Regulation D of the Board of Governors (or any
------------
successor) of the Federal Reserve System, as the same may be amended or
supplemented from time to time.
"Reinvestment" shall have the meaning specified in Section 5.07(a).
------------ ---------------
21
<PAGE>
"Reinvestment Conditions" shall have the meaning provided in Section
----------------------- -------
5.07(a).
- -------
"Reinvestment Period" shall mean the period beginning on the Closing Date
-------------------
and terminating on the close of business on the Business Day immediately
preceding the Amortization Date.
"Related Assets" shall mean, as to any Transferor Receivable: (a) all of
--------------
the Originator's or the Transferor's right, title and interest (including any
right, title and interest acquired by the Originator in the AK Steel Merger or
by the Transferor in the AKR Merger) in and to the receipt of payments of
Receivables under all Contracts that relate to such Transferor Receivable,
including any right to sue for or enforce collection of such Receivable; (b)
all of Originator's interest (including any interest acquired by the Originator
in the AK Steel Merger or by the Transferor in the AKR Merger) in the goods
(including returned goods), if any, relating to the sale which gave rise to
such Transferor Receivable; (c) all other security interests or liens and
property subject thereto from time to time purporting to secure payment of such
Transferor Receivable; (d) the assignment to the Purchaser Parties of all UCC
financing statements covering any collateral securing payment of such
Transferor Receivable; (e) all guarantees and other agreements or arrangements
of whatever character from time to time supporting or securing payment of such
Transferor Receivable; (f) all of the Records; and (g) all proceeds of such
Transferor Receivable and the foregoing.
"Required Coverage Non-compliance Date" shall mean any day on which the Net
-------------------------------------
Pool Balance is less than the Required Net Pool Balance.
"Required Net Pool Balance" shall mean the sum of the Aggregate
-------------------------
Participation Amount plus the Holdback.
"Requirements of Law" shall mean any requirement created by any law,
-------------------
treaty, rule or regulation, or final determination of an arbitrator or
Governmental Authority, and, when used with respect to any Person, the
certificate of incorporation and by-laws or other organizational or governing
documents of such Person.
"Responsible Officer" shall mean, (i) when used with respect to the Agent,
-------------------
any officer of the Agent including any vice president, assistant vice
president, secretary, assistant secretary, treasurer, assistant treasurer,
trust officer or any other officer of the Agent who customarily performs
functions similar to those performed by the persons who at the time shall be
such officers, respectively, or to whom any corporate trust matter is referred
because of such officer's knowledge of and familiarity with the particular
subject and (ii) when used with respect to the Transferor or Servicer, any of
the President, Chief Executive Officer, Vice President, Secretary, Treasurer,
Controller or Chief Financial Officer.
22
<PAGE>
"Restatement Effective Date" shall have the meaning specified in Section
-------------------------- -------
8.01.
----
"S&P" shall mean Standard & Poor's Corporation or Standard & Poor's
---
Ratings Group, as applicable, or the successor of either of them.
"Service Transfer" shall have the meaning specified in Section 12.01.
---------------- -------------
"Servicer" initially shall mean AK Steel in its capacity as Servicer
--------
pursuant to this Agreement, and after any Service Transfer shall mean the
Successor Servicer.
"Servicer Default" shall have the meaning specified in Section 12.01.
---------------- -------------
"Servicing Fee" shall have the meaning specified in Section 11.02(a).
------------- ----------------
"Standby L/C" shall mean an irrevocable letter of credit under which the
-----------
L/C Issuing Bank agrees to make payments in dollars for the account of the
Originator in respect of obligations of the Originator incurred pursuant to
contracts made or performances undertaken or to be undertaken or like matters
relating to contracts to which the Originator is or proposes to become a party
or in respect of Indebtedness or obligation (including contingent obligations)
incurred or proposed to be incurred by the Originator or any of its
Subsidiaries, including without limitation, for insurance purposes or in respect
of advance payments, or as bid or performance bonds, or to support Indebtedness
or other obligations (including contingent obligations) of the Originator or any
of its Subsidiaries. Any Standby L/C may, if approved by the L/C Issuing Bank,
be a "direct pay" letter of credit and/or contain provisions for the
reinstatement of the face or stated amount thereof following drawings
thereunder.
"Standstill Period" shall mean any period prior to the Amortization Date,
-----------------
during which any of the Reinvestment Conditions is not satisfied.
"Subsidiary" shall mean, as to any Person, a corporation, partnership or
----------
other entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests having
such power only by reason of the happening of a contingency) to elect a majority
of the board of directors or other managers of such corporation, partnership or
other entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or both,
by such Person.
"Successor Servicer" shall have the meaning specified in Section 12.02(a).
------------------ ----------------
"Swing Line Advance" shall have the meaning specified in Section 4.01.
------------------ ------------
23
<PAGE>
"Swing Line Notice" shall have the meaning specified in Section 4.02(a).
----------------- ---------------
"Swing Line Outstandings" shall mean, as of any date, the aggregate
-----------------------
outstanding amount of Swing Line Advances made by PNC to the Transferor.
"Swing Line Repayment Date" shall have the meaning set forth in Section
-------
4.02(a).
- -------
"Swing Note" shall have the meaning specified in Section 4.03.
---------- ------------
"Tangible Net Worth" shall mean, as at any date of determination, the
------------------
amount by which (a) the total tangible assets of the Transferor exceed (b) the
total liabilities of the Transferor, each as determined in conformity with
generally accepted accounting principles.
"Taxes" shall have the meaning specified in Section 6.04.
----- ------------
"Termination Notice" shall have the meaning specified in Section 12.01.
------------------ -------------
"Transaction Documents" shall mean the collective reference to this
---------------------
Agreement, the Receivables Purchase Agreement, the Collection Account Letters,
the Concentration Account Letter, any Letters of Credit and applications
therefor, the Swing Note and the Certificate of Incorporation and the By-Laws of
the Servicer (if AK Steel or an Affiliate thereof is the Servicer) and the
Transferor, the Fee Letter and any other agreements or documents or other
instruments related or delivered pursuant to or in connection with any of the
foregoing documents.
"Transfer" shall have the meanings specified in Section 2.01(a), it being
-------- ---------------
understood that the date of Transfer of an interest in any Receivable shall be
the date on which such Receivable shall be acquired by the Transferor under the
Receivables Purchase Agreement.
"Transferor" shall mean AK Steel Receivables Ltd., an Ohio limited
----------
liability corporation and any of its successors.
"Transferor Collections" shall mean, with respect to any date, that portion
----------------------
of the Collections deposited to the Concentration Account equal to the product
of (i) the Transferor Percentage on such date times (ii) the aggregate amount of
such Collections.
"Transferor Interest" shall have the meaning specified in Section 5.01(a).
------------------- ---------------
"Transferor Percentage" shall mean at any time 100% minus the Floating
---------------------
Allocation Percentage.
24
<PAGE>
"Transferor Receivable" shall mean (i) the Armco Receivables, and (ii) each
---------------------
Receivable acquired by the Transferor pursuant to the Receivables Purchase
Agreement, whether now existing or hereafter acquired.
"Transferor's Account" shall mean the special account (account number
--------------------
4110350616), under the dominion and control of the Transferor, for deposits by
the Servicer, maintained at PNC in Cincinnati, Ohio, or such other account at
such other bank, under the dominion and control of the Transferor, as the
Transferor may designate for such purpose from time to time.
"Transferred Assets" shall have the meaning set forth in Section 2.01(a).
------------------ ---------------
"Turnover Rate" shall mean for any date the percentage equivalent of a
-------------
fraction, the numerator of which is the sum of the outstanding amounts of
Transferor Receivables as of the last day of each of the three (3) most recently
ended months, ending with a month for which the Agent has received a
Determination Date Certificate, and the denominator of which is the aggregate
Collections received during such three-month period.
"UCC" shall mean the Uniform Commercial Code, as amended from time to time,
---
as in effect in any applicable or specified jurisdiction.
"Undivided Fractional Interest" shall mean the undivided fractional
-----------------------------
interest in the Purchased Interest held by a Purchaser, consisting of a
fraction, the numerator of which is the sum of the principal amount of all
Purchases funded by such Purchaser less amounts actually received by such
Purchaser for application in reduction thereof, as at the time of determination,
and the denominator of which is the Aggregate Cash Investment at such time; or
if no Purchases are then outstanding, a fraction, the numerator of which is the
Commitment of such Purchaser and the denominator of which is the Aggregate
Commitment.
"Weekly Report" shall mean an Officer's Certificate of the Servicer,
-------------
substantially in the form of Exhibit K attached hereto.
---------
"Yield" shall have the meaning set forth in Section 5.03.
----- ------------
"Yield Period" shall mean with respect to any Eurodollar Tranche, the
------------
period commencing on (and including) the date on which such Asset Tranche is
funded as, or pursuant to Section 2.06(d) is continued as or converted to a
---------------
Eurodollar Tranche, and ending on (but excluding) the day which numerically
corresponds to such date one (1), two (2) or three (3) months (or, if shown on
the "LIBO" page of the Reuters Money Market Service (or any successor), seven
(7) days) thereafter (or if such month has no numerically corresponding day, on
the last Business Day of such month), in each case as the Transferor may select
in accordance with Sections 2.06(a) or 5.03(c).
---------------- -------
25
<PAGE>
"Yield Reserve" shall mean as of any date the sum of the Default Rate plus
-------------
the Servicing Fee, divided by twelve and multiplied by the product of (a) 300%
of the Turnover Rate for such date and (b) the Aggregate Participation Amount
with respect to such date.
SECTION 1.02 Other Definitional Provisions. (a) All terms defined in this
-----------------------------
Agreement shall have the defined meanings when used in any other Transaction
Document unless otherwise defined therein.
(b) As used herein and in any certificate or other document made or
delivered pursuant hereto or thereto, accounting terms not defined in this
Agreement, and accounting terms partly defined in this Agreement to the extent
not completely defined, shall have the respective meanings given to them under
generally accepted accounting principles, as applicable and in effect from time
to time. To the extent that the definitions of accounting terms herein are
inconsistent with the meanings of such terms under generally accepted accounting
principles, the definitions contained herein shall control.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; and Section, Schedule and
Exhibit references contained in this Agreement are references to Sections,
Schedules and Exhibits in or to this Agreement unless otherwise specified; and
the term "including" means "including without limitation".
(d) Any reference to a specific time of day shall mean such time of day in
Cincinnati, Ohio unless otherwise specifically provided.
SECTION 1.03 Certain Calculations. Any calculation that relates to, or is
--------------------
otherwise affected by, the Armco Receivables, including, without limitation, any
calculation of the Net Pool Balance or the Holdback, to the extent such
calculation includes periods ending on or prior to the Restatement Effective
Date, shall be based on the actual performance of the Armco Receivables and the
actual performance of the Receivables owned by AKR, in each case, for the
applicable periods prior to the Restatement Effective Date.
SECTION 1.04 Computation of Time Periods. Unless otherwise stated in this
---------------------------
Agreement, in the computation of a period of time from a specified date to a
later specified date, the word "from" means "from and including" and the words
"to" and "until" mean "to but excluding".
26
<PAGE>
ARTICLE II
SALE AND TRANSFER OF RECEIVABLES; PURCHASES
SECTION 2.01 Transfer of Receivables. (a) By execution of this
-----------------------
Agreement and for the Commitments and any Purchases made hereunder, in
consideration of the Aggregate Cash Investment and the Holdback, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Transferor does hereby sell, transfer, assign, set-over and
otherwise convey without recourse except as expressly provided herein, (the
making of such sale, transfer, assignment, set-over and conveyance being a
"Transfer", and so to sell, transfer, assign, set-over and otherwise convey
--------
being to "Transfer") to the Purchasers:
--------
(i) an undivided interest, equal to the Floating Allocation
Percentage thereof, in, to and under all Transferor Receivables
existing at the close of business on the Cut-Off Date and thereafter
created from time to time except those collected prior to the Closing
Date, and conveyed to the Transferor under the Receivables Purchase
Agreement from time to time, until the termination of the Reinvestment
Period, and all Armco Receivables owned by the Transferor as successor
by merger to AKR and all monies due or to become due and all Purchaser
Collections and other amounts received from time to time with respect
to such Transferor Receivables and all proceeds (including "proceeds"
as defined in the UCC of the jurisdiction the law of which governs the
perfection of the interest in the Transferor Receivables transferred
hereunder) thereof;
(ii) all of the Transferor's rights, remedies, powers and privileges
under the Receivables Purchase Agreement; and
(iii) the Related Assets.
Without limiting the foregoing, the Transferor hereby ratifies and
confirms all Transfers which have heretofore been made pursuant to the Original
Purchase and Servicing Agreement.
Such property described in the preceding sentence, together with (A) a
pro-rata portion of monies from time to time on deposit in, and Eligible
Investments and other securities, instruments and other investments purchased
from funds on deposit in, the Collection Accounts and the Concentration
Account, and (B) all the monies from time to time on deposit in, and
investments and other securities, instruments and other investments purchased
from funds on deposit in the Agent's Account and the Cash Collateral Account,
shall constitute the assets transferred to the Purchasers (collectively, the
"Transferred Assets").
------------------
27
<PAGE>
The foregoing Transfer does not constitute and is not intended to
result in an assumption by any Purchaser Party of any obligation or liability
of the Servicer, the Originator, Armco, the Transferor, AFC or any other Person
in connection with the Receivables or under the Receivables Purchase Agreement
or under any agreement or instrument relating thereto, including any contract
or other obligation to any Obligor.
(b) The Transferor agrees to record and file from time to time, at
its own expense, financing statements and other documents (and amendments
thereto, assignments thereof and continuation statements, when applicable) with
respect to the Transferred Assets now existing and hereafter created meeting
the requirements of applicable law in such manner and in such jurisdictions as
are necessary to grant a first priority transfer or perfected lien in, and
maintain perfection of, the transfer of the Transferred Assets to the
Purchasers, and to deliver a file-stamped copy of such a financing statement or
other document or other evidence of such filing to the Agent on or prior to the
Closing Date. The Agent shall be under no obligation whatsoever to file such
financing statements, documents, amendments, assignments or continuation
statements, or to make any other filing under the UCC in connection with such
Transfer.
(c) The Originator and the Transferor each further agrees, at its own
expense, on or prior to the Closing Date to indicate in its computer records
that the Receivables have been sold, in the case of the Originator, to the
Transferor in accordance with the Receivables Purchase Agreement and that the
Purchased Interest has been sold, in the case of the Transferor, to the
Purchasers in accordance with this Agreement. The Originator agrees, at its own
expense, on or prior to the Closing Date to indicate in its computer records
that the Armco Receivables have been acquired by ARC in connection with the ARC
Merger.
(d) It is understood and agreed that (i)(A) any Purchased Interest
acquired under the Original Purchase and Servicing Agreement, (B) any Letter of
Credit issued pursuant to the Original Purchase and Servicing Agreement, and
(c) any Swing Line Advances outstanding under the Original Purchase and
Servicing Agreement shall, in each case, remain outstanding under this
Agreement, shall be deemed to have been acquired under, or issued pursuant to,
this Agreement and shall be deemed to be Purchased Interests, Letters of Credit
and Swingline Advances for all purposes of this Agreement, (ii) nothing herein
shall be deemed to have terminated such Purchased Interests, Letters of Credit
or Swing Line Advances or any of the rights or obligations in connection
therewith, and (iii) all references to the Original Purchase and Sale Agreement
in any other agreement or document shall be deemed to be a reference to this
Agreement. A list of all such outstanding Letters of Credit as of the
Restatement Effective Date is attached hereto as Schedule V. In addition,
----------
Letter of Credit No. S900710PGH (formerly No. A-307205), issued by PNC Bank,
National Association, a copy of which is attached hereto as Schedule VI, as
-----------
amended from time to time, shall for all purposes be deemed to be a Letter of
Credit hereunder.
28
<PAGE>
SECTION 2.02 Acceptance by Purchasers. (a) The Purchasers hereby
------------------------
accept all right, title and interest in and to the Transferred Assets, now
existing and hereafter created and transferred to the Purchasers pursuant to
Section 2.01(a) and the Purchasers declare that they shall hold such right,
- ---------------
title and interest subject to the terms of this Agreement.
(b) The Agent shall have no power to create, assume or incur
indebtedness or other liabilities in the name of the Purchasers other than as
contemplated in this Agreement or any other Transaction Document.
SECTION 2.03 Agent's Books and Records. On the Closing Date, on each
-------------------------
date and at any time a Purchase is made hereunder and on each date and at any
time any Collections are distributed to the Purchasers in reduction of the
Aggregate Cash Investment, a duly authorized officer or employee of the Agent
shall make appropriate notations in its books and records of the amount of such
Purchase and the amount of such repayment, as applicable. Each of the Servicer
and the Transferor hereby authorizes each duly authorized officer and employee
of the Agent to make such notations on the books and records as aforesaid and
every such notation made in accordance with the foregoing authority shall be
prima facie evidence of the accuracy of the information so recorded and shall be
binding on the Transferor and the Servicer absent manifest error.
SECTION 2.04 Purchases. On the terms and subject to the conditions set
---------
forth in this Agreement (including Article VIII hereof), each of the Purchasers
------------
shall, at the request of the Transferor, fund Purchases from time to time during
the Reinvestment Period, in an amount equal to its Commitment Percentage of the
amount of such requested Purchase. During the period from the Closing Date to
the last day of the Reinvestment Period, each Purchaser's Undivided Fractional
Interest shall be adjusted corresponding to each Purchase funded by such
Purchaser and each payment of Collections with respect thereto which is actually
paid to such Purchaser for application to reduce the Aggregate Cash Investment.
SECTION 2.05 Purchase Limits. Under no circumstances shall any
---------------
Purchaser make any Purchase to the extent that, after giving effect to such
Purchase and the other Purchases to be made by the other Purchasers
concurrently therewith, (a) the Aggregate Participation Amount would exceed the
Aggregate Commitment; (b) the Required Net Pool Balance would exceed the Net
Pool Balance; or (c) with respect to any Purchaser, the sum of (i) the
aggregate amount of outstanding Purchases funded by such Purchaser, plus (ii)
the L/C Participation Amount, multiplied by its Commitment Percentage, plus
(iii) the Swing Line Outstandings multiplied by its Commitment Percentage, in
each case after giving effect to the use of the proceeds of such Purchase,
would exceed its Commitment.
29
<PAGE>
SECTION 2.06 Procedure for Making Purchases.
------------------------------
(a) Notice of Purchase. Each Purchase shall be made on notice from
------------------
the Transferor (substantially in the form of Exhibit A hereto) to the Agent
---------
received by the Agent not later than 10:00 a.m. on the Business Day of such
proposed Purchase (each, a "Purchase Date"); provided, that if any resulting
------------- --------
Asset Tranche is to be an Eurodollar Tranche, then such notice must be received
not later than 9:00 a.m. on the second Business Day next preceding such Purchase
Date. Each such notice of a proposed Purchase shall specify the amount of the
Purchase (which shall be in the amount of $5,000,000 or an integral multiple of
$1,000,000 in excess thereof), the Purchase Date, the amount of each Asset
Tranche resulting from such Purchase (specifying whether it is to be an
Eurodollar Tranche or an Alternate Base Rate Tranche) and the duration of the
initial Yield Period for any Eurodollar Tranche. The Agent shall promptly
provide each Purchaser with instructions based on such notice.
(b) Amount of Purchases. The amount of each Purchase shall be equal
-------------------
to the lesser of (i) the amount proposed by the Transferor, pursuant to
subsection (a) and (ii) the maximum amount permitted under Section 2.05.
------------
(c) Funding of Purchases. On the date of each Purchase, each
--------------------
Purchaser shall, upon satisfaction of the applicable conditions set forth in
Article VIII, make available to the Agent at its office at 201 East Fifth
- ------------
Street, Cincinnati, Ohio 45202, by wire transfer in accordance with instructions
provided by the Agent, the amount of its portion of the Purchase (determined
pursuant to subsection (b)) in same day funds, and after receipt by the Agent of
such funds. the Agent will deposit the same into the account designated therefor
by the Transferor, the Agent to use its best efforts to make such deposit by not
later than 2:00 p.m.
(d) Reinvestments. The provisions of this Section 2.06 shall not be
------------- ------------
applicable to Reinvestments made pursuant to Section 5.07(b).
---------------
(e) Transitional Funding Provisions. Pursuant to the Original
-------------------------------
Purchase and Servicing Agreement, the Purchasers who were parties thereto have
made certain Purchases that remain outstanding as of the Restatement Effective
Date. The amount of such Purchases were funded by such Purchasers based on the
Commitment Percentages (as defined in the Original Purchase and Servicing
Agreement) of such Purchasers under the Original Purchase and Servicing
Agreement. In order to reallocate the Purchased Interest among each of the
Purchasers that are a party hereto, on the Restatement Effective Date each of
the Purchasers who were a party to the Original Purchase and Servicing
Agreement and the Purchasers hereunder shall pay to or receive from the Agent
certain amounts to be specified by the Agent. Following such payments and
receipts, the Undivided Fractional Interest and Aggregate Cash Investment of
each Purchaser which is party to this Agreement shall be reallocated based on
such payments and receipts and the new Commitment Percentages of the
30
<PAGE>
Purchasers who are a party hereto. No Purchaser makes any representation or
warranty in connection with any transfer described in this section 2.06(e),
---------------
except that each such Purchaser represents and warrants that it is the legal and
beneficial owner of the assets being transferred pursuant to this Section
-------
2.06(e). The Agent's obligation to pay such amounts to the Purchasers is
- -------
conditional upon the Agent's receipt of all amounts specified this Section
-------
2.06(e).
- -------
SECTION 2.07 Defaulting Purchasers. (a) On any date on which a payment
---------------------
from any Purchaser Party is due hereunder, whether with respect to a Purchase, a
funding of such Purchaser's participation in a Letter of Credit or a Swing Line
Advance or otherwise, the Agent may (but in no event shall be required to)
assume that such payment has been made available to the Agent on the date of
such payment in accordance herewith, and the Agent may (but in no event shall be
required to), in reliance on such assumption, make payment of a corresponding
amount to the applicable Person. If and to the extent any such amounts shall not
have been made available to the Agent by any Purchaser Party (a "Non-paying
----------
Party"), the Transferor irrevocably and unconditionally agrees to repay to the
- -----
Agent, forthwith upon demand, the amount of such payment together with interest
thereon, for each day from the date such payment is made by the Agent until the
date such amount is repaid to the Agent, at a rate equal to the Alternate Base
Rate.
(b) Notwithstanding the repayment obligations of the Transferor
pursuant to Section 2.07(a), the Non-paying Party shall not be relieved of its
---------------
obligation to make payments with respect to any Purchase, Swing Line Advance,
Letter of Credit draw or other amount due from such Non-paying Party hereunder,
and such Non-paying Party irrevocably and unconditionally agrees promptly to
repay to the Agent or the Transferor, as the case may be, forthwith upon demand,
the amount of such payment together with interest thereon, for each day from the
date such payment is made by the Agent or the Transferor, as the case may be,
until the date such amount is repaid to the Agent or the Transferor, as the case
may be, at a rate equal to the Federal Funds Rate.
(c) Notwithstanding anything in the foregoing, in Section 2.04 or
------------
2.06 or elsewhere in this Agreement to the contrary, the Agent shall have no
- ----
commitment whatsoever to fund any Purchase which would cause the Agent's portion
of the Aggregate Participation Amount to exceed its Commitment and no Purchaser
shall have any obligation to make available to the Agent any funds with respect
to any Purchase which would cause such Purchaser's portion of the Aggregate
Participation Amount to exceed the Commitment of such Purchaser.
SECTION 2.08 Purchases in Connection with Letters of Credit. Whenever
----------------------------------------------
the L/C Issuing Bank issues a Letter of Credit pursuant to Article III hereof,
the Purchasers shall, automatically and without further action of any kind upon
the effective date of issuance of such Letter of Credit, be deemed to have
irrevocably agreed either to fund a Purchase hereunder, or to fund its
participation in such Letter of
31
<PAGE>
Credit as provided in Section 3.08, if such Letter of Credit is subsequently
------------
drawn. All such Purchases shall be made ratably by the Purchasers according to
their Commitment Percentages, shall accrue Yield as provided in Section 5.03(b)
---------------
hereof and may be converted, continued, reduced or repaid according to the other
provisions of this Agreement. If any Letter of Credit expires or is surrendered
without being drawn (in whole or in part) then, in such event, the foregoing
commitment to fund Purchases shall expire with respect to such Letter of Credit,
the L/C Participation Amount shall automatically decrease by the amount of the
Letter of Credit which is no longer outstanding, and the Aggregate Participation
Amount shall decrease accordingly.
ARTICLE III
LETTERS OF CREDIT
SECTION 3.01 Issuance of Letters of Credit. The Transferor may from
-----------------------------
time to time request the issuance of Letters of Credit by the L/C Issuing Bank.
Subject to the terms and conditions hereof, and in reliance on the
representations and warranties and covenants set forth in this Agreement and on
the agreement of the other Purchasers set forth in this Article III, the L/C
-----------
Issuing Bank will issue such Letters of Credit.
SECTION 3.02 Limits on Obligation to Issue. The L/C Issuing Bank shall
-----------------------------
have no obligation to issue any Letter of Credit on any day if:
(a) after giving effect to the issuance of the requested Letter of
Credit, (i) the Aggregate Participation Amount would exceed the Aggregate
Commitment, (ii) the Required Net Pool balance would be greater than the Net
Pool Balance, or (iii) any Early Amortization Event or Potential Early
Amortization Event would exist;
(b) such Letter of Credit has an expiration date (i) more than three
(3) years after the date of issuance (subject to renewal for successive
additional years unless earlier terminated by 60 days prior written notice from
the L/C Issuing Bank) or (ii) later than the then scheduled Amortization Date;
or
(c) after giving effect to the issuance of the requested Letter of
Credit and to any purchase of Receivables by the Transferor under the
Receivables Purchase Agreement and any increase in or payments on the
Subordinated Note on such day, the aggregate outstanding principal amount of the
Subordinated Note would be less than the aggregate face amount of all
outstanding Letters of Credit, including all Letters of Credit to be issued on
such day.
32
<PAGE>
SECTION 3.03 Conditions. In addition to being subject to the
----------
satisfaction of the conditions contained elsewhere herein, the obligation of the
L/C Issuing Bank to issue any Letter of Credit is subject to the satisfaction in
full of the following conditions:
(a) The Originator shall have timely delivered to the L/C Issuing
Bank at such times and in such manner as the L/C Issuing Bank may prescribe a
Letter of Credit application as described below in Section 3.06, and such other
------------
documents and materials as may be required pursuant to the terms thereof, and
the terms of the proposed Letter of Credit (and of any Indebtedness supported by
such Letter of Credit) shall be reasonably satisfactory to the L/C Issuing Bank
as to form and content (and, without limiting the foregoing, if required by the
L/C Issuing Bank, the documents relating to any Indebtedness supported by any
such Letter of Credit shall permit the L/C Issuing Bank or the Agent to
accelerate the maturity of such Indebtedness or to cause a mandatory redemption
or tender of such Indebtedness upon the occurrence and continuance of an Early
Amortization Event or any default or event of default with respect to such
Indebtedness); and
(b) As of the date of issuance, no order, judgment or decree of any
court, arbitrator or Governmental Authority shall purport by its terms to enjoin
or restrain the L/C Issuing Bank from issuing the Letter of Credit and no
Requirement of Law of any Governmental Authority having jurisdiction over the
L/C Issuing Bank shall prohibit or request that such Bank refrain from the
issuance of letters of credit generally or the issuance of that Letter of
Credit.
SECTION 3.04 Letter of Credit Fees. The Transferor shall pay the
---------------------
letter of credit fees and expenses specified in Section 5.02(a).
---------------
SECTION 3.05 Automatic Participations. Immediately upon issuance of
------------------------
each Letter of Credit, and without further action, each Purchaser shall be
deemed to, and hereby agrees that it shall, have absolutely and irrevocably
purchased for such Purchaser's own account and risk from the L/C Issuing Bank an
individual participation interest in such Letter of Credit and drawings
thereunder in an amount equal to such Purchaser's Commitment Percentage of the
maximum amount which is or at any time may become available to be drawn
thereunder and each such Purchaser shall be responsible to reimburse the L/C
Issuing Bank immediately for its Commitment Percentage of any disbursement under
any Letter of Credit which has not been reimbursed by the Transferor in
accordance with Section 3.07.
------------
33
<PAGE>
SECTION 3.06 Procedures for Issuance of Letters of Credit.
--------------------------------------------
(a) Request for Issuance. The Transferor shall give the Agent and the
--------------------
L/C Issuing Bank at least two (2) Business Days' prior written notice of any
requested issuance of a Letter of Credit under this Agreement (except that, in
lieu of such written notice, the Transferor may give facsimile notice of such
request if confirmed promptly by hard copy in writing). Each such notice shall
be in the form of a Letter of Credit application in the form of Exhibit B
---------
hereto, or such other form as shall be acceptable to the L/C Issuing bank in its
sole discretion, shall be irrevocable and shall specify the face amount of the
Letter of Credit requested, the effective date (which shall be a Business Day)
of issuance of such Letter of Credit, the date on which such Letter of Credit is
to be delivered (if different from the effective date), the date on which such
Letter of Credit is to expire, the purpose for which such Letter of Credit is to
be issued, whether such Letter of Credit is a Standby L/C or a Commercial L/C,
the Person for whose benefit the requested Letter of Credit is to be issued and,
if available, a copy of the form of Letter of Credit that such beneficiary has
requested. Prior to the close of business on the Business Day following the
Business Day on which the L/C Issuing Bank makes the determination described in
Section 3.06 (b), the L/C Issuing Bank shall confirm to the Transferor by
- ----------------
written notice (or telephonic notice confirmed promptly in writing) whether the
L/C Issuing Bank will issue the requested Letter of Credit and, if it issues
such Letter of Credit, shall promptly advise the Purchasers of such issuance and
of each Purchaser's ratable portion thereof.
(b) Responsibilities of the L/C Issuing Bank; Issuance. The L/C
--------------------------------------------------
Issuing Bank shall determine, as of the close of business on the Business Day
immediately preceding the requested issuance date, the excess of the Aggregate
Commitment over the Aggregate Participation Amount. If, and only if, the face
amount of the requested Letter of Credit is less than or equal to the amount of
such excess, and subject to the conditions set forth in Article VIII hereof, the
------------
L/C Issuing Bank shall issue the requested Letter of Credit. In this connection,
the L/C Issuing Bank may conclusively presume that the applicable conditions set
forth in Section 8.02 have been satisfied unless the L/C Issuing Bank shall have
------------
received written notice to the contrary from the Transferor, the Servicer, the
Agent or a Purchaser.
(c) Form of Letter of Credit. Promptly following the L/C Issuing
------------------------
Bank's receipt of a request for issuance of a Letter of Credit, the L/C Issuing
Bank shall prepare a form of Letter of Credit on the basis of the information
provided in the request for issuance and which is otherwise substantially in the
form of Exhibit C hereto or such other form as the L/C Issuing Bank may approve
---------
in its sole discretion.
SECTION 3.07 Reimbursement Obligations.
-------------------------
(a) Reimbursement. Notwithstanding any provisions elsewhere herein to
-------------
the contrary, (i) the Transferor shall reimburse the L/C Issuing Bank for
drawings
34
<PAGE>
under any Letter of Credit unless and until such reimbursement obligations are
extinguished as provided below, (ii) such reimbursement obligations for drawings
under a Letter of Credit shall bear interest, from the date of the relevant
drawing until the date of the corresponding Purchase described in Section 2.08,
------------
at the Alternate Base Rate until the end of the third Business Day following
such drawing, and thereafter at the Default Rate and (iii) the Transferor's
obligations to reimburse the L/C Issuing Bank for the principal amount of all
drawings under a Letter of Credit shall be extinguished upon the making of any
Purchase described in Section 2.08 or of payment of such amount in full in cash.
------------
The proceeds of all Purchases which are funded pursuant to Section 2.08 shall be
------------
paid by the Purchasers to the Agent and shall be disbursed by the Agent to the
L/C Issuing Bank in payment of the Transferor's reimbursement obligations
hereunder.
(b) Duties of the L/C Issuing Bank. Any action taken or omitted to be
------------------------------
taken by the L/C Issuing Bank under or in connection with any Letter of Credit,
if taken or omitted in the absence of willful misconduct or gross negligence,
shall not put the L/C Issuing Bank under any resulting liability to any other
Purchaser Party or relieve any Purchaser of its obligations in respect of such
Letter of Credit. In determining whether to authorize payment under any Letter
of Credit, the L/C Issuing Bank shall have no obligation relative to the
Purchasers or to the Originator or the Transferor other than to provide notice
as described in Section 3.08 and to confirm that any documents required to have
------------
been delivered under such Letter of Credit appear to comply on their face with
the requirements of such Letter of Credit.
(c) Recourse Obligations. Notwithstanding anything elsewhere to the
--------------------
contrary, (i) except as provided in Section 3.07(a), all of the Transferor's
---------------
payment obligations to the L/C Issuing Bank and Purchasers in respect of Letters
of Credit (including any obligation to reimburse the L/C Issuing Bank and
Purchasers for the outstanding amount of any drawings made thereunder) shall
constitute recourse obligations under this Agreement which are secured as
provided by Article XVIII, and (ii) none of the Transferor's payment obligations
-------------
with respect to the Letters of Credit shall be guaranteed by AK Steel.
SECTION 3.08 Payments under the Letters of Credit. If the L/C Issuing
------------------------------------
Bank receives a request for draw under any Letter of Credit, then, unless the
Transferor shall have made available to the L/C Issuing Bank the amount of such
requested payment, the L/C Issuing Bank shall promptly notify each Purchaser of
the amount of such requested draw. Each Purchaser shall, no later than 4:00 p.m.
on the same Business Day on which the L/C Issuing Bank receives such request for
draw, unconditionally make available to the Agent its ratable portion of such
payment in Dollars and in same day funds. The Agent will promptly pay such
amounts to the L/C Issuing Bank. Each such payment by the Purchasers to or for
the benefit of the L/C Issuing Bank shall constitute a Purchase under Section
-------
2.08 and shall cause a corresponding reduction in the L/C Participation Amount,
- ----
unless the Amortization Date shall have occurred, in which case each such
payment shall constitute the funding of
35
<PAGE>
such Purchaser's participation in such Letter of Credit draw. If and to the
extent that any Purchaser shall not have made its portion of such payment
available to the Agent for the benefit of the L/C Issuing Bank and the L/C
Issuing Bank has made available a corresponding amount to the applicable
beneficiary, such Purchaser and the Transferor each severally agree to repay to
the L/C Issuing Bank forthwith on demand such corresponding amount together with
interest thereon, for each day from the date such amount is made available until
the date such amount is repaid to the L/C Issuing Bank at the Alternate Base
Rate in the case of the Transferor (or, if applicable, the Default Rate) or
Federal Funds Rate in the case of the Purchaser. If such Purchaser shall repay
to the L/C Issuing Bank such corresponding amount, such amount shall constitute
a Purchase in accordance with the terms of this Section 3.08 and Section 2.08.
------------ ------------
SECTION 3.09 Documentation. Each of the Originator, the Transferor and
-------------
the Purchasers agrees to be bound by the terms of the L/C Issuing Bank's
application and agreement for Letters of Credit and the L/C Issuing Bank's
written regulations and customary practices relating to Letters of Credit,
though such interpretation may be different from such Person's own. In the event
of a conflict between such application or agreement and this Agreement, this
Agreement shall govern. It is understood and agreed that, except in the case of
willful misconduct, bad faith or gross negligence, the L/C Issuing Bank shall
not be liable for any error, negligence and/or mistakes, whether of omission or
commission, in following any of the Transferor's or beneficiary's instructions
or those contained in the Letters of Credit or any modifications, amendments or
supplements thereto.
SECTION 3.10 Determination to Honor Drawing Requests. In determining
---------------------------------------
whether to honor any request for drawing under any Letter of Credit by the
beneficiary thereof, the L/C Issuing Bank shall be responsible only to determine
that the documents and certificates required to be delivered under such Letter
of Credit have been delivered and that they comply on their face with the
requirements of such Letter of Credit.
SECTION 3.11 Nature of Participation and Reimbursement Obligations.
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The obligation of the Purchasers to participate in Letters of Credit pursuant to
Section 2.08, the obligation of the Purchasers pursuant to Section 3.08 to fund
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Purchases or their respective participations, as the case may be, upon a draw
under a Letter of Credit and the obligations of the Transferor to reimburse the
L/C Issuing Bank upon a draw under a Letter of Credit pursuant to this Article
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III shall be absolute, unconditional and irrevocable, and shall be performed
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strictly in accordance with the terms of such Article III under all
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circumstances, including the following circumstances:
(i) any lack of validity or enforceability of this Agreement or any
of the other Transaction Documents;
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(ii) the existence of any claim, setoff, recoupment, defense or
other right which the Transferor, any Purchaser or the Originator may
have at any time against a beneficiary named in a Letter of Credit or
any transferee of any Letter of Credit (or any person for whom any such
transferee may be acting), any Purchaser Party or any other Person,
whether in connection with this Agreement, any Letter of Credit, the
transactions contemplated herein or any unrelated transactions
(including any underlying transactions between the Transferor, the
Originator or any other party and the beneficiary named in any Letter
of Credit);
(iii) any draft, demand certificate or any other document presented
under the Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the performance
or observance of any of the terms of any of the Transaction Documents;
(v) the failure of any Person to comply with the conditions set
forth in this Agreement for the making of a Purchase, it being
acknowledged that such conditions are not required for the making of a
Purchase under this Article III if the Amortization Date has not
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occurred;
(vi) payment by the L/C Issuing Bank under any Letter of Credit
against presentation of a demand, draft or certificate or other
document which does not comply with the terms of such Letter of Credit;
(vii) any adverse change in the business, operations, properties,
assets, condition (financial or otherwise) or prospects of the
Transferor or any Affiliate thereof;
(viii) any breach of this Agreement or any other Transaction Document
by any party thereto;
(ix) the fact that a Servicer Default, Potential Servicer Default,
Early Amortization Event or Potential Early Amortization Event shall
have occurred and be continuing;
(x) with respect to the Purchasers' obligations to fund their
respective participations in any Letter of Credit draw, and the
Transferor's obligation to reimburse such draw, the fact that the
Amortization Date shall have occurred or this Agreement or the
Commitments hereunder shall have been terminated; or
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(xi) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing;
provided that no such funding or reimbursement shall be deemed to be a waiver of
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any rights any of the Purchasers or the Transferor may have against the L/C
Issuing Bank by reason of any act or omission by the L/C Issuing Bank
constituting willful misconduct, bad faith or gross negligence.
SECTION 3.12 Indemnification; Exoneration.
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(a) Indemnification. In addition to amounts payable as elsewhere
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provided in this Article III, the Transferor hereby agrees, subject to Section
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3.12(d), to protect, indemnify, pay and save the L/C Issuing Bank, the Agent and
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each Purchaser harmless from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
attorney's fees) which such Person may incur or be subject to as a consequence,
direct or indirect, of the issuance of any Letter of Credit.
(b) Assumption of Risk by the Originator. As between the Originator,
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the Transferor, the Purchaser Parties and the L/C Issuing Bank, the Originator
and Transferor assume all risks of the acts and omissions of, or misuse of the
Letters of Credit by, the respective beneficiaries of the Letters of Credit. In
furtherance and not in limitation of the foregoing, subject to the provisions of
the Letter of Credit applications, the Purchaser Parties shall not be
responsible: (i) for the form, validity, sufficiency, accuracy, genuineness or
legal effect of any document submitted by any party in connection with the
application for and issuance of the Letters of Credit, even if it should in fact
prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent
or forged; (ii) for the validity or sufficiency of any instrument transferring
or assigning or purporting to transfer or assign a Letter of Credit or the
rights or benefits thereunder or proceeds thereof, in whole or in part, which
may prove to be invalid or ineffective for any reason; (iii) for failure of the
beneficiary of a Letter of Credit to comply duly with conditions required in
order to draw upon such Letter of Credit; (iv) for errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail,
cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) for
errors in interpretation of technical terms; (vi) for any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any Letter of Credit or of the proceeds thereof; (vii) for the
misapplication by the beneficiary of a Letter of Credit of the proceeds of any
drawing under such Letter of Credit; and (viii) for any consequences arising
from causes beyond the control of the Purchaser Parties including any act or
omission, whether rightful or wrongful, of any present or future de jure or de
facto Governmental Authority. None of the above shall affect, impair or prevent
the vesting of any of the Purchaser Parties' rights or powers under this Section
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3.12.
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(c) Exoneration. In furtherance and extension and not in limitation
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of the specific provisions hereinabove set forth, any action taken or omitted by
the Purchaser Parties under or in connection with the Letters of Credit, if
taken or omitted in good faith, shall not put the Purchaser Parties under any
resulting liability to the Originator or the Transferor or relieve the
Transferor of any of its obligations hereunder to any such Person.
(d) Exceptions to Indemnify. Notwithstanding anything to the contrary
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contained in this Section 3.12, the Transferor shall have no obligation to
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indemnify any Person under this Section in respect of any liability arising
primarily out of the gross negligence, bad faith or willful misconduct of such
Person, as determined by a court of competent jurisdiction, and the Transferor
shall have no obligation to indemnify the L/C Issuing Bank under this Section
for any liability arising out of the wrongful dishonor, as determined by a court
of competent jurisdiction, of a proper demand for payment made under a Letter of
Credit, unless the failure of the L/C Issuing Bank to honor a drawing under any
such Letter of Credit is a result of any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto government or
Governmental Authority.
SECTION 3.13 Cash Collateral for Letters of Credit. If the Transferor
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is required pursuant to the terms of this Agreement or any other Transaction
Document to provide cash collateral in respect of any Letter of Credit, the
Transferor shall deposit in a segregated account, established and maintained
with PNC in the name of the Agent for the benefit of the Purchaser Parties and
the Transferor as their interests may appear, being account no. 4110350595 (the
"Cash Collateral Account") (such account bearing a designation clearly
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indicating that the funds deposited therein are held for the benefit of the
Purchaser Parties and the Transferor, as their interests may appear), an amount
in cash equal to the outstanding face amount of the Letters of Credit (or such
lesser or greater amount as shall be required hereunder or thereunder). Any such
deposit shall be held by the Agent as collateral for the payment and performance
of the Transferor's obligations hereunder. The Agent shall have exclusive
dominion and control, including the exclusive right of withdrawal, over the Cash
Collateral Account.
ARTICLE IV
SWING LINE
SECTION 4.01 Commitment to Lend. Upon the terms and subject to the
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conditions of this Agreement, from time to time prior to the Amortization Date
the Transferor may request that PNC make swing line advances to the Transferor
(each being a "Swing Line Advance") and PNC shall make such Swing Line Advances;
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provided that no Swing Line Advance shall be made if, after giving effect
thereto (a) the aggregate outstanding principal amount of all Swing Line
Advances would exceed
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$10,000,000, (b) the Aggregate Participation Amount would exceed the Maximum
Investment Amount or (c) the Required Net Pool Balance would be greater than the
Net Pool Balance; and provided further that each Swing Line Advance shall have
an original principal amount of at least $500,000 and shall be in an integral
multiple of $500,000.
SECTION 4.02 Swing Line Advance Procedures.
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(a) Notice of Swing Line Advance. Each Swing Line Advance shall be
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made on notice from the Transferor to the Agent and PNC substantially in the
form of Exhibit D-1 (each, a "Swing Line Notice") received by the Agent not
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later than 10:00 a.m. on the date of such proposed Swing Line Advance. Each such
Swing Line Notice shall specify (i) the desired amount of such Swing Line
Advance, (ii) the desired date of such Swing Line Advance, and (iii) the date
such Swing Line Advance shall be repaid (each a "Swing Line Repayment Date"),
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which date shall be the earlier of (w) seven (7) days (or such shorter period as
may be specified in the applicable Swing Line Notice) from the date of such
advance, (x) the next succeeding Distribution Date following the date of such
Swing Line Advance, (y) the Amortization Date, and (z) the next succeeding date
on which a Purchase is made (excluding a Purchase to repay another outstanding
Swing Line Advance or a draw on a Letter of Credit).
(b) Funding of Swing Line Advance. On the date of each Swing Line
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Advance, PNC shall make available to the Agent at the Agent's office the
principal of such Swing Line Advance in accordance with Section 2.06, and the
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Agent shall disburse such funds in accordance with such Section 2.06.
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SECTION 4.03 Swing Note. The Swing Line Advances shall be evidenced by
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a promissory note (as from time to time supplemented, extended, amended,
modified or replaced from time to time, the "Swing Note"), substantially in the
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form set forth in Exhibit D-2, with appropriate insertions, dated the date
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hereof, payable to the order of PNC in the maximum principal amount of
$10,000,000 (or, if less, in the aggregate unpaid principal amount of all of the
Swing Line Advances) at the corresponding Swing Line Repayment Date, provided
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that the Transferor may prepay all or a portion of any Swing Line Advance on any
date by notice to PNC in the manner provided in Section 4.04. PNC shall record
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in its records, or at its option on the schedule attached to the Swing Note, the
date and amount of each Swing Line Advance made hereunder, each repayment
thereof and the other information provided for thereon. The aggregate unpaid
principal amount so recorded shall be rebuttable presumptive evidence of the
principal amount owing and unpaid on the Swing Note. The failure so to record
any such information or the error in so recording any such information shall
not, however, limit or otherwise affect the actual obligations of the Transferor
hereunder or under the Swing Note to repay the principal amount of all Swing
Line Advances, together with all interest accruing thereon.
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SECTION 4.04 Principal and Interest. The Transferor shall repay
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the principal of each Swing Line Advance, together with accrued interest thereon
for each day at a rate per annum offered by PNC and accepted by the Transferor,
in full on each Swing Line Repayment Date; provided, that at any time when an
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Early Amortization Event shall have occurred and be continuing, interest shall
be payable on each outstanding Swing Line Advance at the Default Rate. The
outstanding principal of any Swing Line Advance shall not be considered reduced
by any allocation, setting aside or distribution of any portion of Collections
unless such Collections shall have been actually delivered to PNC pursuant
hereto. The outstanding principal of any Swing Line Advance shall not be
considered reduced by any distribution of any portion of Collections if at any
time such distribution is rescinded or must otherwise be returned for any
reason. No Swing Line Advance may be paid with the proceeds of another Swing
Line Advance.
SECTION 4.05 Participation Obligations.
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(a) Funding of Participations. If the total principal amount and
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interest on any Swing Line Advance are not repaid in full in cash by the
Transferor on or before the corresponding Swing Line Repayment Date, then each
Purchaser shall be deemed to, and hereby agrees that it shall, have
unconditionally and irrevocably purchased for such Purchaser's own account an
individual participation interest in the unpaid portion of any such Swing Line
Advance in an amount proportionate to such Purchaser's Commitment Percentage,
and each Purchaser shall pay PNC immediately, in immediately available funds,
its Commitment Percentage of any such unpaid Swing Line Advance, together with
accrued interest to the date of such payment.
(b) Nature of Participation and Reimbursement Obligations. The
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obligation of the Purchasers to participate in each Swing Line Advance and to
fund their respective Commitment Percentages of each Swing Line Advance which is
not paid on the applicable Swing Line Repayment Date, shall be absolute,
unconditional and irrevocable in all respects, notwithstanding the occurrence of
the Amortization Date, the termination of this Agreement or any other
circumstance.
(c) Effect of Funding of Participations. The Purchasers' funding
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of their participations in Swing Line Advances which are not paid by the
Transferor when due shall not cure any Early Amortization Event arising from
such non-payment.
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ARTICLE V
FEES, YIELD AND ALLOCATION AND
APPLICATION OF COLLECTIONS
SECTIO