-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ws8/Sj0eO9zvK3hEOo424qJ9kHBL3cS8NWRrTMMEslrG4Toj7hd0aZkvbKlP/SbG hFzftNLsB9LDSj2qPQw6sw== 0000950128-03-001245.txt : 20031114 0000950128-03-001245.hdr.sgml : 20031114 20031114165514 ACCESSION NUMBER: 0000950128-03-001245 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEIRTON STEEL CORP CENTRAL INDEX KEY: 0000849979 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 061075442 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10244 FILM NUMBER: 031005577 BUSINESS ADDRESS: STREET 1: 400 THREE SPRINGS DR CITY: WEIRTON STATE: WV ZIP: 26062 BUSINESS PHONE: 3047972000 MAIL ADDRESS: STREET 1: 400 THREE SPRINGS DR CITY: WEIRTON STATE: WV ZIP: 26062 10-Q 1 j0408601e10vq.txt WEIRTON STEEL CORP. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2003. 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 NUMBER 1-10244 WEIRTON STEEL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 06-1075442 (State or other jurisdiction of (IRS employer Identification #) incorporation or organization)
400 THREE SPRINGS DRIVE, WEIRTON, WEST VIRGINIA 26062-4989 (Address of principal executive offices) (Zip Code) (304) 797-2000 Registrant's telephone number, including area code: Indicate by checkmark 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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] The number of shares of Common Stock ($.01 par value) of the registrant outstanding as of October 31, 2003 was 42,077,309. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS ITEM
PAGE ---- PART I -- FINANCIAL INFORMATION 1. Financial Statements........................................ 3 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 13 3. Quantitative and Qualitative Disclosures About Market Risk........................................................ 24 4. Controls and Procedures..................................... 24 PART II -- OTHER INFORMATION 1. Legal Proceedings........................................... 25 2. Changes in Securities and Use of Proceeds................... 25 3. Defaults Upon Senior Securities............................. 25 4. Submission of Matters to a Vote of Security Holders......... 25 5. Other Information........................................... 25 6. Exhibits and Reports on Form 8-K............................ 25 SIGNATURE......................................................... 27
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS WEIRTON STEEL CORPORATION UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- -------------------- 2003 2002 2003 2002 -------- -------- --------- -------- NET SALES......................................... $271,189 $273,838 $ 774,139 $760,844 OPERATING COSTS: Cost of sales................................... 280,936 261,998 810,803 773,141 Selling, general and administrative expenses.... 4,309 6,980 16,253 19,568 Depreciation.................................... 15,599 15,933 45,610 48,987 Pension curtailment............................. -- -- 38,803 -- -------- -------- --------- -------- Total operating costs........................ 300,844 284,911 911,469 841,696 -------- -------- --------- -------- LOSS FROM OPERATIONS.............................. (29,655) (11,073) (137,330) (80,852) Reorganization items............................ (5,388) -- (8,037) -- Income (loss) from unconsolidated subsidiaries................................. 505 1,104 (141) 2,219 Interest expense (excluding contractual interest expense for the three and nine months ended September 30, 2003 of $1,047 and $1,542, respectively)................................ (4,444) (4,617) (16,441) (27,309) Other income (loss), net........................ 1,812 1,875 (992) 9,167 -------- -------- --------- -------- LOSS BEFORE INCOME TAXES & EXTRAORDINARY ITEM..... (37,170) (12,711) (162,941) (96,775) Income tax benefit.............................. -- -- -- (3,475) -------- -------- --------- -------- LOSS BEFORE EXTRAORDINARY ITEM.................... (37,170) (12,711) (162,941) (93,300) Extraordinary gain on early extinguishment of debt......................................... -- -- 6,777 153 -------- -------- --------- -------- NET LOSS.......................................... (37,170) (12,711) (156,164) (93,147) Other Comprehensive Loss: Additional minimum pension liability............ -- -- (15,345) -- -------- -------- --------- -------- Comprehensive Loss................................ $(37,170) $(12,711) $(171,509) $(93,147) ======== ======== ========= ======== PER SHARE DATA: Weighted average number of common shares (in thousands): Basic........................................... 42,077 41,938 42,077 41,936 Diluted......................................... 42,077 41,938 42,077 41,936 BASIC EARNINGS PER SHARE: Loss before extraordinary item.................. $ (0.88) $ (0.30) $ (3.87) $ (2.22) Extraordinary gain on early extinguishment of debt......................................... -- -- 0.16 -- -------- -------- --------- -------- Net loss per share.............................. $ (0.88) $ (0.30) $ (3.71) $ (2.22) ======== ======== ========= ======== DILUTED EARNINGS PER SHARE: Loss before extraordinary item.................. $ (0.88) $ (0.30) $ (3.87) $ (2.22) Extraordinary gain on early extinguishment of debt......................................... -- -- 0.16 -- -------- -------- --------- -------- Net loss per share.............................. $ (0.88) $ (0.30) $ (3.71) $ (2.22) ======== ======== ========= ========
The accompanying notes are an integral part of these statements. 3 WEIRTON STEEL CORPORATION UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31, 2003 2002 ------------- ------------ ASSETS: Current assets: Cash and equivalents, including restricted cash of $359 and $197, respectively................................. $ 373 $ 219 Receivables, less allowances of $7,495 and $6,487, respectively........................................... 109,206 97,347 Inventories............................................... 169,551 165,454 Other current assets...................................... 9,025 4,089 ----------- ----------- Total current assets................................... 288,155 267,109 Property, plant and equipment, net.......................... 332,509 376,758 Intangible pension asset.................................... -- 40,388 Other assets and deferred charges........................... 7,697 11,860 ----------- ----------- Total Assets........................................... $ 628,361 $ 696,115 =========== =========== LIABILITIES: Current liabilities: Debtor-in-possession facility............................. $ 132,922 $ -- Senior credit facility.................................... -- 115,121 Notes and bonds payable................................... 1,898 8,484 Accounts payable.......................................... 37,637 80,689 Accrued pension obligation................................ -- 78,200 Post retirement benefit other than pensions............... -- 32,000 Accrued employee costs and benefits....................... 23,557 42,534 Accrued taxes other than income........................... 3,646 14,768 Other current liabilities................................. 5,632 2,035 ----------- ----------- Total current liabilities.............................. 205,292 373,831 Notes and bonds payable..................................... 53,907 286,522 Accrued pension obligation.................................. -- 329,842 Post retirement benefit other than pensions................. -- 324,278 Other long term liabilities................................. 2,419 46,529 Liabilities subject to compromise........................... 1,251,484 -- Redeemable Stock, Net....................................... 19,496 67,895 STOCKHOLDERS' DEFICIT: Common stock, $0.01 par value; 50,000,000 shares authorized; 44,048,492 and 43,848,529 shares issued, respectively..... 441 438 Additional paid-in-capital.................................. 458,036 457,973 Accumulated deficit......................................... (1,190,190) (1,034,026) Accumulated other comprehensive loss........................ (162,000) (146,655) Other stockholders' deficit................................. (10,524) (10,512) ----------- ----------- Total Stockholders' Deficit............................ (904,237) (732,782) ----------- ----------- Total Liabilities, Redeemable Stock, Net, and Stockholders' Deficit................................. $ 628,361 $ 696,115 =========== ===========
The accompanying notes are an integral part of these statements. 4 WEIRTON STEEL CORPORATION UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, -------------------- 2003 2002 --------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss.................................................. $(156,164) $(93,147) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation........................................... 45,610 48,987 (Income) loss from unconsolidated subsidiaries......... 141 (2,219) Amortization of deferred financing costs............... 3,895 2,571 Pension curtailment.................................... 38,803 -- Gain on early extinguishment of debt................... (6,777) (153) Cash provided (used) by working capital items: Receivables.......................................... (11,859) 8,403 Inventories.......................................... (4,097) (19,752) Other assets......................................... (2,092) 3,372 Accounts payable..................................... 36,267 16,397 Accrued employee costs and benefits.................. 404 (4,662) Other current liabilities............................ 407 14,400 Accrued pension obligation............................. 26,516 25,055 Other postretirement benefits.......................... (4,913) (7,180) Other.................................................. (4,735) (3,347) --------- -------- NET CASH USED BY OPERATING ACTIVITIES BEFORE REORGANIZATION ITEMS..................................................... (38,594) (11,275) Reorganization items accrued................................ 3,700 -- --------- -------- NET CASH USED BY OPERATING ACTIVITIES....................... (34,894) (11,275) CASH FLOWS FROM INVESTING ACTIVITIES: Capital spending.......................................... (4,465) (6,066) Distribution from unconsolidated subsidiary............... 836 -- --------- -------- NET CASH USED BY INVESTING ACTIVITIES....................... (3,629) (6,066) CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings on debtor-in-possession revolving loan facility............................................... 132,922 -- Net (repayments) borrowings on senior credit facility..... (115,121) 3,627 Proceeds from vendor financing............................ -- 16,055 Issuance of long-term debt................................ 3,000 Proceeds from debtor-in-possession term loan.............. 25,000 -- Repayment of debt obligations............................. (1,424) (209) Deferred financing costs.................................. (2,700) (10,584) --------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES................... 38,677 11,889 --------- -------- NET CHANGE IN CASH AND EQUIVALENTS.......................... 154 (5,452) Cash and equivalents at beginning of period................. 219 5,671 --------- -------- Cash and equivalents at end of period....................... $ 373 $ 219 ========= ======== SUPPLEMENTAL CASH FLOW INFORMATION Interest paid, net of capitalized interest................ $ 14,858 $ 14,944 Income taxes paid, net.................................... 55 (3,457)
The accompanying notes are an integral part of these statements. 5 NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, OR IN MILLIONS OF DOLLARS WHERE INDICATED) NOTE 1 BASIS OF PRESENTATION The Consolidated Condensed Financial Statements presented herein are unaudited. The Consolidated Condensed Balance Sheet as of December 31, 2002 has been derived from the audited balance sheet included in the Company's 2002 Annual Report on Form 10-K. Unless context otherwise requires, the terms "Weirton Steel," "Weirton," the "Company," "we," "us" and "our" refer to Weirton Steel Corporation and its consolidated subsidiaries. Entities of which the Company owns a controlling interest are consolidated; entities of which the Company owns a less than controlling interest are not consolidated and are reflected in the consolidated condensed financial statements using the equity method of accounting. All material intercompany accounts and transactions with consolidated subsidiaries have been eliminated in consolidation. Certain information and footnote disclosures normally prepared in accordance with accounting principles generally accepted in the United States have been either condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Although the Company believes that all adjustments necessary for a fair presentation have been made, interim periods are not necessarily indicative of the financial results of operations for a full year. As such, these financial statements should be read in conjunction with the audited financial statements and notes thereto included or incorporated by reference in the Company's 2002 Annual Report on Form 10-K. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain reclassifications have been made to prior year amounts to conform with current year presentation. At September 30, 2003, the Company had two stock-based employee compensation plans. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees." No stock-based employee compensation cost is reflected in the Company's net loss, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on the Company's net loss and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation.
FOR THE THREE MONTHS FOR THE NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------- -------------------- 2003 2002 2003 2002 --------- --------- --------- -------- Net loss: As reported..................... $(37,170) $(12,711) $(156,164) $(93,147) Fair value of stock-based employee compensation........ (232) (237) (696) (711) Pro forma....................... (37,402) (12,948) (156,860) (93,858) Basic loss per share: As reported..................... $ (0.88) $ (0.30) $ (3.71) $ (2.22) Pro forma....................... (0.89) (0.31) (3.73) (2.24) Diluted loss per share: As reported..................... $ (0.88) $ (0.30) $ (3.71) $ (2.22) Pro forma....................... (0.89) (0.31) (3.73) (2.24)
6 NOTE 2 BANKRUPTCY REORGANIZATION On May 19, 2003, Weirton Steel Corporation filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Northern District of West Virginia (the "Court"). Weirton continues to manage its business as a debtor-in-possession. As a debtor-in-possession, management is authorized to operate the business, but may not engage in transactions outside the ordinary course of business without Court approval. In connection with the filing of the Chapter 11 petition, Weirton has obtained Court orders that authorize us to pay certain pre-petition liabilities (such as employee wages and benefits and certain of the Company's senior secured indebtedness) and take certain actions intended to preserve the going concern value of the business and enhance the prospects of reorganization. These financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets, and payment of liabilities in the ordinary course of business. As a result of the Chapter 11 filing, there is no assurance that the carrying amounts of assets will be realized or that liabilities will be settled for amounts recorded. On October 7, 2003, Weirton filed a plan of reorganization to emerge from bankruptcy as a stand alone company and on November 13, 2003, the Company filed a modified plan of reorganization. The plan, which calls for the Company to emerge from bankruptcy by December 31, 2003, is subject to numerous conditions and uncertainties, including, among other things, approval of its terms by the Court and creditors, achieving new labor contracts with the Company's unions, and obtaining requisite financing. On November 13, 2003, the Emergency Steel Loan Guarantee Board announced that it has approved with certain conditions a guarantee to Fleet Capital Corporation with respect to a loan of $145 million to Weirton Steel Corporation. There can be no assurance that Weirton will be able to implement the reorganization plan as filed, or any other reorganization plan. Reorganization could change the amounts reported in the financial statements and cause a material change in the carrying amount of assets and liabilities. These financial statements have been prepared in accordance with the AICPA's Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). SOP 90-7 requires segregating pre-petition liabilities that are subject to compromise, identifying all transactions and events that are directly associated with the reorganization of the Company and discontinuing interest accruals on any unsecured or undersecured debt. Under the Bankruptcy Code and related rules, the Company is required to file certain information and reports with the Court. During the quarter ended September 30, 2003, the Company filed with the Court its required Monthly Operating Reports in a form prescribed by the United States Trustee for the Northern District of West Virginia. Monthly Operating Reports are unaudited and prepared in a format prescribed by applicable bankruptcy rules. Those rules are not necessarily in accordance with Generally Accepted Accounting Principles or with requirements under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Under bankruptcy law, actions by creditors to collect pre-petition indebtedness owed by Weirton at the filing date are stayed, and other pre-petition contractual obligations may not be enforced against Weirton. In addition, Weirton has the right, subject to Court approval and other conditions, to assume or reject any pre-petition executory contracts and unexpired leases. Parties affected by these rejections may file claims with the Court. The amounts of claims filed by creditors could be significantly different from their recorded amounts. Due to material uncertainties, it is not possible to predict the length of time Weirton will operate under Chapter 11 protection, the outcome of the proceedings in general, whether Weirton will continue to operate under its current organizational structure, the effect of the proceedings on Weirton's business or the amount or nature of any recovery by creditors and equity holders of Weirton. Except for fully secured debt, a vendor-financing obligation under a capital lease, accrued wages and related payroll taxes and withholdings, all recorded pre-petition liabilities of the Company have been classified as liabilities subject to compromise. The Court authorized payments of certain pre-petition wages, employee benefits and other obligations. Net changes in pension, other postretirement benefits and certain other accrued liabilities since May 19, 2003, are included in liabilities subject to compromise. The Preferred Series C and Preferred Series D stock are also considered liabilities subject to compromise. See Note 8 for further 7 discussion. As of September 30, 2003, payments of approximately $3.7 million have been made on liabilities subject to compromise. Liabilities subject to compromise at September 30, 2003 were as follows:
SEPTEMBER 30, 2003 ------------- (IN MILLIONS) Postemployment benefits other than pension.................. $ 348.6 Pension..................................................... 448.3 Under secured or unsecured debt............................. 256.0 Accounts payable............................................ 80.0 Accrued employment costs.................................... 19.4 Other accrued liabilities................................... 42.4 Accrued taxes and interest.................................. 8.4 Preferred Series C and D stock.............................. 48.4 -------- Total....................................................... $1,251.5 ========
Net costs resulting from reorganization of the business have been reported separately in the unaudited consolidated condensed statement of operations as reorganization items. For the third quarter of 2003, the following have been incurred:
(IN MILLIONS) Reorganization fees......................................... $5.4 ====
8 NOTE 3 LIQUIDITY AND FINANCING ARRANGEMENTS
SEPTEMBER 30, DECEMBER 31, 2003 2002 ------------- ------------ Secured Debt: Obligation under revolving DIP Facility........... $ 132,922 $ -- ========= ======== Obligation under Senior Credit Facility........... $ -- $115,121 ========= ======== Obligation under term DIP Facility................ $ 25,000 $ -- Vendor financing obligations (capital lease)...... 27,960 29,024 6 1/4% Term Loan due 8/14/14...................... 2,845 2,923 --------- -------- Total.......................................... 55,805 31,947 --------- -------- Under Secured or Unsecured Debt: 10% Senior Secured Notes due 4/1/08............... 171,751 177,662 9% Secured Series 2002 Pollution Control Bonds due 4/1/12......................................... 44,001 45,162 Vendor financing obligations...................... 577 566 11 3/8% Senior Notes due 7/1/04................... 12,658 12,658 10 3/4% Senior Notes due 6/1/05................... 16,336 16,336 8 5/8% Pollution Control Bonds due 11/1/14........ 10,720 10,720 Less: Unamortized debt discount................ (34) (45) --------- -------- Total unsecured debt................................ 256,009 263,059 --------- -------- Total............................................... 311,814 295,006 Less: Current portion............................... (1,898) (8,484)(1) Less: debt subject to compromise.................... (256,009) -- --------- -------- Long-term debt................................. $ 53,907 $286,522 ========= ========
- --------------- (1) Included in the current portion of long-term debt at December 31, 2002, was approximately $6.8 million in contingent interest payments. The contingent payments were based on excess cash flow as defined in the indentures governing the debt securities issued in connection with the 2002 exchange offers. An extraordinary gain on early extinguishment of debt of $6.8 million was recorded in the second quarter of 2003 for contingent interest payments that were not required to be made. Pending any changes in the terms of the underlying debt, extraordinary gains will be recognized in the future for any future contingent interest payments that are not required to be made. The extraordinary gain from contingent interest would also be a reduction in the related debt that is recorded in Liabilities Subject to Compromise. DIP Facility -- Senior Credit Facility At September 30, 2003, the Company had outstanding $132.9 million under its debtor-in-possession financing facility (the "DIP Facility"), which is presented net of $4.4 million of all available cash from lockboxes. Additionally, the Company utilized $0.5 million under its debtor-in-possession letter of credit sub-facility at September 30, 2003. At December 31, 2002, the Company had outstanding $115.1 million under its 2002 amended and restated revolving senior financing credit facility with a syndicate of lenders (the "Senior Credit Facility"), which is presented net of $5.8 million of all available cash from lockboxes. At December 31, 2002, the Company also utilized an additional $0.5 million under its letter of credit sub-facility. After consideration of amounts outstanding under its letter of credit sub-facility, the Company had $26.2 million available for additional borrowing under the DIP Facility at September 30, 2003 and $23.0 million available 9 for additional borrowing under the Senior Credit Facility at December 31, 2002. The Senior Credit Facility was terminated in connection with our bankruptcy case and, as permitted by the Court, outstanding obligations under that facility were satisfied. The DIP Facility has been structured to provide the Company with up to $225.0 million in financing during the course of its bankruptcy case. The DIP Facility consists of a term loan of $25.0 million and a revolving loan facility of up to $200.0 million. The borrowing base for the revolving loan facility is determined by the Company's levels of accounts receivable and inventory in a manner substantially similar to the Senior Credit Facility. The DIP Facility also includes a letter of credit sub-facility of up to $5.0 million. The DIP Facility revolving loan lenders consist of Fleet Capital Corporation, Foothill Capital Corporation, The CIT Group/Business Credit, Inc., GMAC Commercial Finance LLC and Transamerica Business Capital Corporation, all of whom were lenders to Weirton under the Senior Credit Facility, and the DIP Facility term loan lender is Manchester Securities Corporation. Fleet Capital Corporation acts as Agent for the DIP Facility lenders. The DIP Facility is collateralized by a senior lien on our inventories, accounts receivable, property, plant and equipment and substantially all of our other tangible and intangible assets. Priority in the plant, property and equipment collateral goes first to the term loan lender and in all other collateral to the revolving loan lenders. Proceeds from permitted sales of the respective types of collateral must be used to pay down the related loan. In the case of revolving loans, amounts repaid may become available for reborrowing. The DIP Facility has a term extending through the earliest to occur of (i) November 20, 2004, (ii) the occurrence of a Default or Event of Default (as defined in the DIP Facility), or (iii) confirmation of a final bankruptcy reorganization plan, unless the facility is terminated earlier as provided by its terms. In the absence of default, the Company is required to pay interest on outstanding amounts under the revolving portion of the DIP Facility of either (1) the prime rate announced from time to time by Fleet Bank, plus 2.25% or (2) LIBOR, plus 3.75%, at its option. The non-default interest rate applicable to the term portion is 14.5% per annum. Default rates of interest on revolving loans and the term loan under the DIP Facility are increased by 2.0% and 3.0% per annum, respectively, over the non-default rates. To maintain the DIP Facility, the Company is required to pay, from time to time, certain non-refundable fees, including a facility fee, unused line fee, administrative fee and monitoring fee. In addition, a deferred fee will be payable to the revolving lenders upon the earliest to occur of (i) confirmation of a plan of reorganization, (ii) sale of substantially all our assets or (iii) repayment in full of our obligations under the DIP Facility. Optional prepayment of the term loan under the DIP Facility also requires a prepayment fee, the size of which varies depending on the time of payment. The DIP Facility contains certain representations and warranties about Weirton and its business, affirmative and negative covenants requiring or restricting Weirton's ability to engage in specified transactions and activities, and Events of Default, many of which have been derived from similar provisions in our former Senior Credit Facility and others that we believe are customary for a facility of this type. As under the prior Senior Credit Facility, amounts available for revolving borrowings depend on Weirton's borrowing base of eligible receivables and inventory and are subject to certain limitations and reserves. Under the DIP Facility, we are required to maintain minimum initial availability of $10.0 million. This "availability block" increases over time to a $20.0 million level by July 31, 2004. The required increase in availability may be offset by asset sale proceeds, which increases effective borrowing capacity. The DIP Facility also contains certain performance covenants focused on meeting financial objectives and complying with budgetary limitations, and the failure to observe these covenants could result in one or more Events of Default. Among other things, these covenants require Weirton to attain increasing amounts of cumulative EBITDAR (earnings before interest expense, income taxes, depreciation and Restructuring Expenses, as defined in the DIP Facility) for specified periods during the term of the DIP Facility and minimum monthly EBITDAR during the last five months of the term. In addition, Weirton may not permit Restructuring Expenses to exceed monthly budgeted amounts by more than 10% overall and by more than 15% on a categorical basis. The Company is not permitted to allow consolidated accounts payable at the end of any month to be less than 50% of the projected budgeted amount for that date. The DIP Facility Events of Default encompass a wide range of occurrences, including, among other things: failure to pay obligations in a timely manner; breaches of representations, warranties and covenants 10 (subject, in some cases, to cure periods); business disruptions and other factors producing a Material Adverse Effect (as defined in the DIP Facility) on Weirton's business, assets, financial condition or income (other than as contemplated in our budget); material uninsured losses to collateral; changes in control and executive management; defaults on other indebtedness in excess of $0.5 million in the aggregate; and a number of events potentially affecting our bankruptcy case adversely, including our failure to file a plan of reorganization within 270 days of the petition filing date, the filing of reorganization plans unacceptable to any DIP Facility lender, the conversion of our case into a Chapter 7 (liquidation) proceeding, the filing of certain bankruptcy pleadings, the granting of authority to Weirton to incur certain impermissible liens or impermissible debt, the appointment of a bankruptcy trustee with enlarged powers, or the issuance of an order lifting the automatic stay in bankruptcy to allow persons to proceed against any of Weirton's material property. The DIP Facility replaced the Senior Credit Facility, of which approximately $154.6 million was outstanding on the petition filing date. Subsequently, the DIP term loan facility of $25.0 million was drawn down to repay a portion of the outstanding amounts under the revolving credit portion of the DIP Facility. The description of the DIP Facility provided in this report is qualified by the full text of that document filed as Exhibit 10.1 to the Company's March 31, 2003 Form 10-Q. NOTE 4 PENSIONS During February 2003, the Company's unionized employees ratified new labor agreements, which, among other things, provided for a freeze of further benefit accruals under the Company's defined benefit pension plan as of April 30, 2003. The Company applied the same freeze to its non-unionized workforce. In accordance with SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," the Company recognized a pension curtailment charge of $38.8 million. The curtailment charge reflects the full recognition of the unrecognized prior service cost and transition obligation, since all benefit accrual associated with expected future years of service has been eliminated. Because the pension plan freeze constituted a significant event, the Company re-measured its pension plan assets and liabilities as of February 28, 2003. The accounting rules provide that if, at any plan measurement date, the fair value of plan assets is less than the plan's accumulated benefit obligation ("ABO"), the sponsor must establish a liability at least equal to the amount by which the ABO exceeds the fair value of plan assets. The liability must be offset by the recognition of an intangible asset and/or a charge against stockholders' deficit. Even though the freeze operates to moderate the Company's long term funding burden with respect to the plan, because the Company was required to recognize all prior service cost and transition obligation with the pension curtailment, the difference between the ABO and plan assets at February 28, 2003 was taken as a direct charge of $15.3 million to stockholders' deficit. During 2002, the Company applied to the Internal Revenue Service (the "IRS") for waivers regarding its pension plan funding obligations for 2002 and 2003. In April 2003, the IRS granted the Company contingent funding waivers for the 2002 plan year and the first quarterly 2003 plan year contributions. The effect of the waivers would have been to allow Weirton to stretch out its required funding for the plan over a five-year period. The waivers were granted contingent upon the Company providing "adequate security" for its rescheduled obligations within 90 days of issuance. The DIP Facility and Court orders applicable to the Company in connection with its bankruptcy case prevented the Company from providing security to the PBGC. As a result of the Company's inability to satisfy the security requirements of the pension funding waivers granted by the IRS in April 2003, an aggregate of $47.6 million in pension obligations retroactively became due. As with all pension liabilities, the $47.6 million is classified as liabilities subject to compromise. On October 21, 2003, the Pension Benefit Guaranty Corporation ("PBGC") filed a complaint in the federal district court to terminate, as of that date, the Company's qualified defined benefit pension plan and assume responsibility for pension benefits affecting approximately 9,200 plan participants, including active, retired and former employees of the Company. According to the PBGC, the Weirton Steel Corporation Retirement Plan is 39% funded, with approximately $530 million in assets to cover approximately $1.35 billion in benefit liabilities. Calculation of benefit liabilities relative to assets and levels of insured benefits provided 11 through the PBGC, which are limited by the year of plan termination, the type of benefit involved and personal circumstances of participants, remain to be determined. On November 7, 2003, the Company consented to the termination of its pension plan and is negotiating with the PBGC, regarding the resolution of the related liabilities. The Company's proposed plan of reorganization does not include provision for a replacement defined benefit pension plan. NOTE 5 INVENTORIES Inventories consisted of the following:
SEPTEMBER 30, DECEMBER 31, 2003 2002 ------------- ------------ Raw materials....................................... $ 50,892 $ 44,117 Work-in-process..................................... 35,478 46,906 Finished goods...................................... 83,181 74,431 -------- -------- $169,551 $165,454 ======== ========
NOTE 6 EARNINGS PER SHARE For the three months ended September 30, 2003, basic and diluted loss per share was $0.88. Basic and diluted loss per share for the three months ended September 30, 2002 was $0.30. For the three months ended September 30, 2003 and 2002, Series A Preferred securities totaling 1,463,720 and 1,488,147, respectively, were excluded from both the basic and diluted earnings per share calculations due to their anti-dilutive effect. For the nine months ended September 30, 2003, basic and diluted loss per share was $3.71. Basic and diluted loss per share for the nine months ended September 30, 2002 was $2.22. For the nine months ended September 30, 2003 and 2002, Series A Preferred securities totaling 1,463,726 and 1,491,856, respectively, were excluded from both the basic and diluted earnings per share calculations due to their anti-dilutive effect. For the three months ended September 30, 2003 and 2002, there were an additional 1,599,612 and 1,900,136 options, respectively, outstanding for which the exercise price was greater than the average market price, that were excluded from both the basic and diluted earnings per share calculations due to their anti-dilutive effect. For the nine months ended September 30, 2003 and 2002, there were an additional 1,596,166 and 1,851,270 options, respectively, outstanding for which the exercise price was greater than the average market price, that were excluded from both the basic and diluted earnings per share calculations due to their anti-dilutive effect. NOTE 7 CLAIMS AND ALLOWANCES The Company's policy is to fully reserve for claims that have been or may be incurred on all products that have been shipped. The reserve is calculated based on claims that have been submitted but not settled. The calculation also considers anticipated claims based on historical performance. The reserve for claims and allowances is netted against accounts receivable for financial reporting purposes. The following is a rollforward of the Company's claims and allowances activity for the first nine months of 2003: Beginning Balance at December 31, 2002:..................... $ 4,521 Additions to Reserve...................................... 12,465 Settled Claims............................................ (11,474) -------- Ending Balance at September 30, 2003:....................... $ 5,512 ========
12 NOTE 8 FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY In May 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." The provisions of SFAS No. 150 were effective as of the first interim period beginning after June 15, 2003. A mandatorily redeemable financial instrument must be classified as a liability unless the redemption is required to occur only upon the liquidation or termination of the reporting entity. A financial instrument issued in the form of shares is mandatorily redeemable if it embodies an unconditional obligation requiring the issuer to redeem the instrument by transferring its assets at a specified or determinable date (or dates) or upon an event certain to occur. In 2002, the Company authorized 2,196,000 and issued 1,934,874 shares of Series C Convertible Redeemable Preferred Stock $0.10 par value per share. The Series C Preferred Stock is mandatorily redeemable by April 1, 2013, at $25 per share or $48.4 million. In the first quarter of 2003, the Company authorized 500,000 and on May 16, 2003 issued to its 1989 ESOP 380,000 shares of Series D Exchangeable Redeemable Preferred Stock, $0.10 par value per share. The Series D Preferred, is redeemable at the Company's option at $20 per share prior to February 28, 2005 and at $40 per share thereafter. The Series D Preferred Stock is mandatorily redeemable on March 1, 2015, at $40 per share or $15.2 million. The Preferred Series D has a liquidation value of $100 per share and, by its terms, can not be redeemed prior to the Senior Secured Debt. In accordance with SFAS No 150, both the Preferred Series C and Preferred Series D stocks have been reclassified from redeemable preferred stock to liabilities subject to compromise during the third quarter of 2003. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with and is qualified in its entirety by the unaudited consolidated condensed financial statements of the Company and notes thereto. The unaudited consolidated condensed financial statements of Weirton Steel Corporation include the accounts of its wholly and majority owned subsidiaries. Unless context otherwise requires, the terms "Weirton," "the Company," "we," "us" and "our" refer to Weirton Steel Corporation and its consolidated subsidiaries. INDUSTRY OVERVIEW Since the beginning of the steel import crisis in 1998, domestic companies and unions have sought action from the federal government to deal with the record surge of foreign imports, especially those that violated U.S. trade laws. Among these efforts, in January 2002, a steel industry executive group made recommendations for governmental steps believed necessary to deal with the continuing industry crisis and to encourage industry consolidation and capacity rationalization. These included trade measures, such as tariffs, and legislative and regulatory relief from the industry's legacy issues, specifically its surging liabilities for accrued, unfunded pensions and retiree healthcare benefits. In March 2002, the Bush Administration initiated a three-year, stepped tariff program providing substantial trade relief. However, subsequent to the imposition of the tariffs, a large number of tariff exclusion applications were filed. The tariff program is in the midst of a mid-term review, and a decision is expected from President Bush to extend, terminate or modify the program by the end of this year. Furthermore, no legislative changes have been implemented to address the industry's legacy issues. As a result, the domestic steel industry has been left to deal with consolidation prospects and legacy liabilities primarily through a largely unpredictable bankruptcy process. The Pension Benefit Guaranty Corporation ("PBGC"), a federal corporation that insures pension benefits, generally has moved to terminate the underfunded plans of bankrupt companies relieving them of future accruals for pension service. The domestic steel industry continues to restructure through consolidations. Steelmaking assets of bankrupt producers are being acquired free of legacy liabilities, with the result that the acquiror can operate at a substantially lower cost than other producers with on-going legacy costs. In February 2002, a new entity, 13 International Steel Group ("ISG"), purchased substantially all the integrated production facilities of bankrupt LTV Steel Corp. in a Chapter 7 liquidation auction. ISG subsequently restarted a portion of those facilities, in addition to purchasing and restarting the idled assets of another bankrupt company, Acme Steel. In addition to operating without the burden of predecessor legacy costs, ISG forged an innovative agreement with the United Steelworkers of America (the "USWA") that represented a significant departure from the traditional USWA contract. The structure of this type of agreement could leave steel companies with traditional contract language at a significant competitive disadvantage. On May 7, 2003, ISG acquired substantially all the assets of Bethlehem Steel Corporation ("Bethlehem"), the second largest integrated steelmaker, which had filed for Chapter 11 bankruptcy protection in October 2001. Similar to these other integrated steelmakers, on May 19, 2003, Weirton Steel Corporation filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code. On May 20, 2003, United States Steel Corporation ("US Steel") completed the acquisition of substantially all the integrated steel making assets of National Steel Corporation ("National"), which had filed for Chapter 11 bankruptcy protection in March 2002. Similar to the ISG situation, the acquired National assets are operating with no predecessor legacy liabilities. Furthermore, US Steel may achieve greater synergies not only from the acquired assets, but also from the application of a broad USWA labor agreement it had reached in connection with the National acquisition of its other facilities. Nucor Corporation is the largest domestic steel producers in the United States. With the acquisition of the National and Bethlehem assets, US Steel and ISG, respectively, have become the second-largest and third-largest domestic steel producers. In tin mill products, where Weirton is a major competitor with the second-largest market share of approximately 26%, US Steel's acquisition of National's tin mill facilities (following its acquisition of the former LTV Steel tin operations in 2001) will result in US Steel having an estimated tin market share of approximately 41%. On June 18, 2003, a federal bankruptcy court approved Wheeling-Pittsburgh Corporation's ("WPC") plan to emerge from Chapter 11 bankruptcy protection. Previously, the Emergency Steel Loan Guarantee Board ("ESLGB") approved WPC's application for a $250 million federal steel loan guarantee covering part of its financing to emerge from bankruptcy and fund its strategic plan. Subsequently, WPC reached agreement with the USWA on a new labor contract consistent with recent industry trends, and an agreement with the PBGC and others aimed at rescinding the termination of WPC's existing defined benefit pension plan. As a result, after over two and a half years of operating under Chapter 11, WPC implemented a stand alone reorganization plan. BANKRUPTCY REORGANIZATION On May 19, 2003, Weirton Steel Corporation filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code (see Note 2 in the accompanying financial statements). Although the petition was "voluntary," the underlying causes leading to the filing stemmed from circumstances which many others in the steel industry, which have also sought bankruptcy protection, face. Despite having achieved nearly $115 million in net cost reductions across a broad front from labor and employment concessions, outside debt restructuring and production efficiencies since the beginning of 2001, we have been unable to overcome the injury caused by record levels of unfairly traded steel imports and a slowing economy that have severely reduced prices, shipments and production. Moreover, significantly higher energy prices and other cost disadvantages that we face in the current environment compounded our problems. The resulting sustained operating losses and negative cash flow heavily damaged our financial condition to the point that we believed we would be unable to recover outside of the bankruptcy process. Furthermore, the pattern of consolidation of capacity by and into larger entities in the steel industry has frustrated our announced strategic objectives to grow our business through targeted acquisitions. At the same time, these developments have presented us with the prospect of competing against reorganized capacity that will be operating, to a great extent, free of the heavy legacy costs that we have been carrying and have been unable to reduce without bankruptcy intervention. The Company continues to manage its business as a "debtor-in-possession". As a debtor-in-possession, management is authorized to operate the business, but may not engage in transactions outside the ordinary course of business without Court approval. In connection with the filing of the Chapter 11 petition and in the 14 course of our proceeding, we have obtained several Court orders that authorized us to pay certain pre-petition liabilities, which has allowed our business to continue without significant interruption. On October 7, 2003, Weirton filed a plan of reorganization to emerge from bankruptcy as a stand-alone company by December 31, 2003. On November 13, 2003, the Company filed a modified plan of reorganization. The modified plan is subject to approval by the Court and creditors, new labor contracts with the Company's unions, and obtaining requisite financing. The Company's DIP Facility expires on November 19, 2004, and we are required to achieve confirmation of a satisfactory plan of reorganization by that date. The plan calls for the Company to continue to operate its ironmaking, steelmaking and finishing operations. The Company expects to operate with a substantially lower cost structure by addressing legacy costs and manpower issues as well as raw material costs. Emergence financing guaranteed under the ESLG program, conditionally approved on November 13, 2003, is central to the plan's success. The loan proceeds will be used to fund the costs to emerge from bankruptcy and upgrade mill equipment. The plan of reorganization also states that the Company could be sold to a strategic or financial investor. RECENT DEVELOPMENTS The Company is required to comply with certain financial covenants under its debtor-in-possession financing facility (DIP Facility). One of those covenants requires Weirton to attain increasing amounts of cumulative EBITDAR (earnings before interest expense, income taxes, depreciation and Restructuring Expenses, as defined in the DIP Facility) for specified periods during the term of the DIP Facility and minimum monthly EBITDAR during the last five months of the term. To comply with this covenant the Company has expanded its cost saving plan from the $120 million set as a goal in the first quarter 2003 to approximately $146 million on an annualized basis. On October 21, 2003, the Court approved a further management workforce reduction plan aimed at reducing up to 175 of its 475 exempt positions and designed to save the Company up to $11 million annually. The Company also proposed to reduce up to 800 union represented positions, but the Company is seeking to fix the actual number of affected positions through ongoing collective bargaining with its principal union, the Independent Steelworkers Union. Savings under the expanded plan include active employees wage and benefit reductions, more favorable vendor agreements, spending reductions, operational improvements and reduced legacy costs. While the Company's current year projections anticipate compliance with applicable EBITDAR covenants, those projections depend upon achieving savings from our revised plan, which will require new collective bargaining agreements with our unions and concessions from our vendors. Beginning in January 2004, the Company is required to attain significantly higher EBITDAR under the existing covenant. Because savings from our plan would phase in over time, the Company believes that, even if the agreements and concessions are obtained, our improved results would not comply with the current EBITDAR covenant in January 2004. Failure to comply with that covenant, unless it were modified or waived, would give rise to an Event of Default under the DIP Facility. See Note 3 to the consolidated condensed financial statements relating to the DIP Facility. The Company's plan of reorganization calls for it to emerge from bankruptcy by December 31, 2003 with financing facilities to replace the DIP Facility. As discussed below, the Company has accepted a commitment for those facilities whose definitive terms remain to be negotiated. The Company anticipates that the facilities will contain respective financial covenants whose terms would govern in place of the EBITDAR under the DIP Facility. On August 1, 2003, the Company announced the appointment of D. Leonard Wise as chief executive officer and Mark E. Kaplan as president and chief financial officer, and those appointments were confirmed by the Court on August 4, 2003. On October 21, 2003, the PBGC filed a complaint to terminate the Company's qualified defined benefit pension plan, effective on that date, and assume responsibility for the pension benefits of approximately 9,200 plan participants, including active, retired and former employees of the Company. On November 7, 2003, the Company consented to the termination of its pension plan and is negotiating with PBGC regarding the resolution of the related liabilities. Effective December 2002, the PBGC had terminated a defined benefit pension plan maintained by National covering the pre-1984 pension benefits of Company employees. Both plans are underfunded on a PBGC termination basis and PBGC insurance benefits limitations are likely to affect a significant number of participants. 15 Notwithstanding cost reduction and liquidity improvement steps, the weakness in domestic markets for Weirton's products, in particular its commodity sheet products during the third quarter 2003, resulted in depressed product prices, shipments and order levels. The weak domestic steel market, in addition to higher raw material and energy costs, adversely affected Weirton's operating results and financial position. However during the third quarter of 2003, positive signs that the manufacturing economy is slowly recovering appear to be favorably influencing the sheet product pricing outlook for the near term. The Company's sheet product pricing improved by $20 per ton during the third quarter of 2003. The price increase announcements from major producers are expected to provide an additional $10-$15 per ton increase in the fourth quarter of 2003. On November 13, 2003, the ESLGB approved with certain conditions a guarantee to Fleet Capital Corporation with respect to a loan of $145 million to Weirton Steel Corporation. The ESLGB will guarantee repayments of 88% of the principal of the loan. The Company applied to the ESLGB for a guaranty relating to its proposed secured emergence financing in connection with its reorganization. The ESLG program expires on December 31, 2003, unless it is extended, which would require an act of Congress. To receive the benefit of the guaranty, absent any modifications to the current program, the Company would have to emerge from bankruptcy by December 31, 2003. The Company is in discussions with the State of West Virginia and other third parties to determine if they would agree to guarantee or fund a portion of the loan not covered by the ESLGB guaranties. On November 14, 2003, Weirton accepted a commitment from Fleet Capital Corporation and Fleet Securities Inc. to provide and arrange through a syndicate of lenders a secured revolving loan facility of up to $200 million and a secured, guaranteed term loan facility of $145 million. The two facilities, each with a term of five years, would serve as the Company's principal financing sources to effect its reorganization plan, emerge from bankruptcy and provide for its fixed and working capital needs. The commitment contemplates: (i) a revolving facility substantially similar in terms and structure to the DIP Facility and its predecessor Senior Credit Facility under which borrowing capacity is determined principally, and is secured primarily, by the Company's inventory and accounts receivable; and (ii) a term loan facility, a portion substantially guaranteed by the ESLGB, which is secured primarily by the Company's real estate, operating and other fixed assets. The term facility provides for escrowing funds dedicated for specified capital projects, amortization of amounts of principal over the term, and possible extension after an initial maturity date. The commitment for the two loan facilities is subject to numerous terms and conditions, including, without limitation, negotiating and entering into satisfactory definitive loan documentation, the ESLGB and State of West Virginia issuing the necessary guarantees, obtaining required approvals and confirmation of a satisfactory plan of reorganization, placing the non-guaranteed portion of the term loan, achieving necessary minimum levels of cost savings, and completing usual and customary matters necessary to close and fund these types of loans. As noted, under current law, the latest date for issuance of guarantees by the ESLGB is December 31, 2003. While the Company believes obtaining the commitment for the facilities represents a substantial step supporting achievement of its plan of reorganization, no assurance can be given that the facilities can be definitively structured on the contemplated terms or that the numerous conditions to their completion and funding can be satisfied or waived in the available time. LIQUIDITY AND CAPITAL RESOURCES Total liquidity from cash and financing facilities amounted to $26.2 million at September 30, 2003, as compared to $29.0 million at December 31, 2002. These calculations are based on our DIP Facility and the then effective Senior Credit Facility. Our liquidity has improved primarily as a result of greater borrowing capacity under the DIP Facility and suspension of certain payments, but has worsened as a result of poor operating results. Under bankruptcy law, actions by creditors to collect pre-petition indebtedness owed by the Company are stayed while the Company continues to collect pre-petition accounts receivable and operate as a going-concern. As of September 30, 2003, the Company had cash and equivalents of $0.4 million compared to $0.2 million as of December 31, 2002. 16 The Company's statements of cash flows for the nine months ended September 30 are summarized below:
2003 2002 ---------- ---------- (DOLLARS IN THOUSANDS) Net cash used by operating activities................... $(34,894) $(11,275) Net cash used by investing activities................... (3,629) (6,066) Net cash provided by financing activities............... 38,677 11,889 -------- -------- Increase (decrease) in cash............................. $ 154 $ (5,452) ======== ========
Net cash used by operating activities was $34.9 million and $11.3 million during the nine months ended September 30, 2003 and 2002, respectively. Although adverse market conditions continue to prevail in the domestic steel industry, we partially offset the difficult market conditions through the various cost control measures we undertook during 2001, 2002 and 2003 to enhance our operating cash flow by reducing overall operating costs and net working capital investment. Net cash used by investing activities primarily included $4.5 million and $6.1 million of capital expenditures for the nine months ended September 30, 2003 and 2002, respectively. The $38.7 million in net cash provided by financing activities during the first nine months of 2003 primarily consisted of $132.9 million in borrowings under our DIP Facility and $25.0 million under our DIP Term Loan, which was offset by $115.1 million in net repayments of the Senior Credit Facility. The $11.9 million in net cash provided by financing activities during the first nine months of 2002 consisted of $16.1 million in cash received under vendor financing arrangements implemented in 2001 and net borrowings of $3.6 million under the Senior Credit Facility, which was partially offset by deferred financing fees of $10.6 million. At September 30, 2003, the Company had outstanding borrowing of $132.9 million under its DIP Facility, which is presented net of $4.4 million in all available cash from lockboxes. Additionally, the Company utilized $0.5 million under its debtor-in-possession letter of credit sub-facility at September 30, 2003. At December 31, 2002, the Company had borrowed $115.1 million, under the Senior Credit Facility, which is presented net of $5.8 million in available cash from lockboxes. At December 31, 2002, the Company also utilized an additional $0.5 million under its letter of credit sub-facility. After consideration of amounts outstanding under its letter of credit sub-facility, the Company had $26.2 million available for additional borrowing under the DIP Facility at September 30, 2003 and $29.0 million available for additional borrowing under the Senior Credit Facility at December 31, 2002. The DIP Facility replaced the Senior Credit Facility, of which approximately $154.6 million was outstanding on the petition filing date. As required by the DIP Facility, the DIP term loan facility of $25.0 million was drawn down to repay a portion of the initial revolving borrowings under the DIP Facility. The DIP Facility is our exclusive source of outside financing during our bankruptcy case. Depending upon anticipated pricing improvements during the fourth quarter, and the Company's ability to implement its expanded cost savings plan and build satisfactory trade credit, and assuming that we remain in compliance with our covenants, we estimate that the DIP Facility should provide sufficient liquidity for our planned operations for the duration of our current fiscal year. See Note 3 to the Unaudited Consolidated Condensed Financial Statements and "Recent Developments" in this report for additional information concerning the terms of the DIP Facility. However, we can give no assurance that we will be able to effectively implement our expanded cost savings plan, or that if the implementation of the expanded cost savings plan will result in the savings contemplated by the plan, that we will succeed in building satisfactory trade credit, that the DIP Facility will be sufficient to meet our financing needs for the remainder of the year or that we will be able to obtain any additional financing. Our modified reorganization plan filed on November 13, 2003, under which the Company seeks to emerge from bankruptcy by year end, also contemplates financing to repay the DIP Facility and fund future operations. See "Recent Developments." 17 THREE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2002 In the third quarter of 2003, the Company recognized a net loss of $37.2 million or $0.88 per diluted share. Additionally, during the third quarter of 2003, the Company had $5.4 million in bankruptcy reorganization expenses. The third quarter 2003 charges were partially offset by the sale of excess nitrogen oxide (NOX) allowances for $1.8 million. This compares with a net loss of $12.7 million, or $0.30 per diluted share for the third quarter of 2002. Net sales in the third quarter of 2003 were $271.2 million, a decrease of $2.6 million, or 1%, from the third quarter of 2002. Total shipments in the third quarter of 2003 were 626 thousand tons, an increase of 47 thousand tons, or 8%, from the third quarter of 2002 shipments of 579 thousand tons. Tin mill product net sales for the third quarter of 2003 were $130.6 million, an increase of $15.9 million from the third quarter of 2002. Shipments of tin mill product in the third quarter of 2003 were 222 thousand tons, compared to 194 thousand tons in the third quarter of 2002. The increase in tin mill product revenue is due to an increase in our market share in higher value-added tin products. Sheet product net sales for the third quarter of 2003 were $140.6 million, a decrease of $18.5 million from the third quarter of 2002. Shipments of sheet product in the third quarter of 2003 were 404 thousand tons compared to 385 thousand tons in the third quarter of 2002. The decrease in sheet product revenue resulted from a decrease in product selling price. Cost of sales for the third quarter of 2003 were $280.9 million, or $449 per ton, compared to $262 million, or $453 per ton, for the third quarter of 2002. The decrease in cost of sales per ton was primarily attributable to the Company's savings initiatives, partially offset by an increase in the Company's raw material and energy costs in addition to higher pension costs. Selling, general and administrative expenses for the third quarter of 2003 were $4.3 million, a decrease of $2.7 million from the third quarter of 2002. As part of its operating cost savings plan, the Company has continued to reduced its management workforce, resulting in lower selling, general and administrative expenses. The Company uses production variable depreciation to calculate depreciation expense. During the third quarter of 2003, the Company had a scheduled hot mill furnace outage, which reduced the production of hot bands, resulting in a decrease in the amount of depreciation expense, taken on a unit of production basis, by $0.3 million compared to the third quarter of 2002. In addition, we had assets that became fully depreciated in 2002 and we have reduced our spending on capital additions. The Company incurred reorganization costs of $5.4 million during the third quarter of 2003 related to its on-going Chapter 11 reorganization. The costs consisted primarily of professional fees. The Company's income from unconsolidated subsidiaries of $0.5 million during the third quarter of 2003 was mainly attributable to WeBCo, which sells excess and secondary sheet products. Interest expense decreased $0.2 million in the third quarter of 2003 when compared to the same period in 2002. The decrease is a result of the exchange offers that were completed in the third quarter of 2002 and after filing for Chapter 11 protection during the second quarter of 2003, the Company no longer accrues for interest expense on unsecured and under-secured debt. If the Company continued to accrue contractual interest on unsecured and under-secured debt, interest expense would have increased by $1.0 million. Third quarter 2003 other income was unchanged compared to the same period in 2002. During the third quarter of 2003, the Company sold excess nitrogen oxide (NOX) allowances for $1.8 million. During the third quarter of 2002, the Company received a $1.9 million legal settlement from one of its suppliers. The Company recorded no income tax benefit in the third quarter of either 2003 or 2002. Continuing losses and the Company's voluntary bankruptcy petition have raised doubts about the Company's ability to continue to realize additional deferred tax assets in the future, such as operating loss carryforwards, prior to 18 their expiration. Therefore, deferred tax assets generated in the third quarter of 2003 and in the third quarter of 2002 were offset by valuation allowances. NINE MONTHS ENDED SEPTEMBER 30, 2003 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2002 In the first nine months of 2003, the Company recognized a net loss of $156.2 million, or $3.71 per diluted share, which included an extraordinary gain related to the early extinguishment of debt of $6.8 million, or $0.16 per diluted share. Additionally, the first nine months of 2003 included a $2.1 million charge related to the write-off of deferred financing fees, a $4.1 million charge due to the write-down of certain fixed assets, $8.0 million of bankruptcy reorganization expenses and a pension curtailment charge of $38.8 million related to a freeze of further benefit accruals under the Company's defined benefit pension plan. The first nine months of 2003 charges were partially offset by an extraordinary gain on early extinguishment of debt of $6.8 million, the sale of excess nitrogen oxide (NOX) allowances for $3.1 million, the reduction in interest expense related to the debt exchange offers completed in 2002 and the May 19, 2003 Chapter 11 bankruptcy filing. This compares with a net loss of $93.1 million, or $2.22 per diluted share, for the first nine months of 2002, which included an extraordinary gain on the early extinguishment of debt of $0.2 million, the sale of excess nitrogen oxide (NOX) allowances for $4.4 million, the sale of stock received upon the demutualization of an insurer for $3.2 million, a tax refund of $3.5 million, and a legal settlement of $1.9 million. The Company also incurred an Other Comprehensive Loss of $15.3 million in the first nine months of 2003 as a result of the pension plan's accumulated benefit obligation exceeding plan assets Net sales in the first nine months of 2003 were $774.1 million, a increase of $13.3 million, or 2%, from the first nine months of 2002. Total shipments in the first nine months of 2003 were 1,702 thousand tons, a decrease of 22 thousand tons, or 1%, from the first nine months of 2002 shipments of 1,724 thousand tons. Tin mill product net sales for the first nine months of 2003 were $384.0 million, an increase of $33.1 million from the first nine months of 2002. Shipments of tin mill product in the first nine months of 2003 were 649 thousand tons, compared to 588 thousand tons in the first nine months of 2002. The increase in tin mill product revenue is due to an increase in our market share in higher value-added tin products. Sheet product net sales for the first nine months of 2003 were $390.1 million, a decrease of $19.8 million from the first nine months of 2002. Shipments of sheet product in the first nine months of 2003 were 1.05 million tons, compared to 1.11 million tons in the first nine months of 2002. The decrease in sheet product revenue resulted from a decrease in volume, partially offset by an increase in sheet product selling prices. Cost of sales for the first nine months of 2003 were $810.8 million, or $476 per ton, compared to $773.1 million, or $448 per ton, for the first nine months of 2002. The increase in cost of sales per ton was primarily attributable to an increase in the Company's raw material and energy costs in addition to higher pension costs, partially offset by the Company's savings initiatives. Selling, general and administrative expenses for the first nine months of 2003 were $16.3 million, a decrease of $3.3 million from the first nine months of 2002. As part of its operating cost savings plan, the Company continued to reduce its management workforce, resulting in lower selling, general and administrative expenses. The Company uses production variable depreciation to calculate depreciation expense. During the first nine months of 2003, the Company had a scheduled hot mill furnace outage, which reduced the production of hot bands, resulting in a decrease in the amount of depreciation expense, taken on a unit of production basis, by $3.3 million compared to the first nine months of 2002. In addition, we had assets that became fully depreciated in 2002 and we have reduced our spending on capital additions. During February 2003, the Company's unionized employees ratified new labor agreements which, among other things, provided for a freeze of further benefit accruals under the Company's defined benefit pension plan as of May 2003. The Company applied the same freeze to its non-unionized workforce. In accordance with SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension 19 Plans and for Termination Benefits," the Company recognized a pension curtailment charge of $38.8 million. The curtailment charge reflects the full recognition of the unrecognized prior service cost and transition obligation, because all benefit accrual associated with expected future years of service has been eliminated. As noted elsewhere, the Company was notified in October 2003 by the PBGC that it would seek to terminate the pension plan in question. Because the pension plan freeze constituted a significant event, the Company re-measured its pension plan assets and liabilities as of February 28, 2003. The accounting rules provide that if, at any plan measurement date, the fair value of plan assets is less than the plan's accumulated benefit obligation ("ABO"), the sponsor must establish a liability at least equal to the amount by which the ABO exceeds the fair value of plan assets. The liability must be offset by the recognition of an intangible asset and/or a charge against stockholders' deficit. Because the Company was required to recognize all prior service cost and transition obligation with the pension curtailment, the difference between the ABO and plan assets at February 28, 2003 is a direct charge to stockholders' deficit and is shown as a component of other comprehensive income in the statement of operations and comprehensive loss. The Company incurred reorganization costs of $8.0 million during the first nine months of 2003, consisting primarily of professional fees related to its on-going Chapter 11 reorganization. The Company's loss from unconsolidated subsidiaries of $0.1 million during the first nine months of 2003 was mainly attributable to WeBCo, which sells excess and secondary sheet products. Interest expense decreased $10.9 million in the first nine months of 2003, compared to the same period in 2002. The decrease is a result of the exchange offers that were completed in the third quarter of 2002 and, after filing for Chapter 11 protection during the third quarter of 2003, the Company no longer accrues for interest expense on unsecured and under-secured debt. If the Company continued to accrue contractual interest on unsecured and under-secured debt, interest expense would have increased by $1.5 million. During the first nine months of 2003 other income decreased $10.2 million, compared to the same period in 2002. During the first nine months of 2003, the Company recognized a $4.1 million charge due to the write-down of certain fixed assets. During the first nine months of 2002, the Company sold excess nitrogen oxide (NOX) allowances for $4.4 million, received approximately $3.2 million from the sale of stock received as a result of demutualization of an insurer and the received a $1.9 million legal settlement from one of its suppliers. The Company recorded no income tax benefit in the first nine months of 2003. Continuing losses and the Company's voluntary bankruptcy petition have raised doubts about the Company's ability to continue to realize additional deferred tax assets in the future, such as operating loss carryforwards, prior to their expiration. During the first nine months of 2002, the Company received an income tax refund of $3.5 million as a result of the Job Creation and Worker Assistance Act of 2002. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company believes that the accounting principles chosen are appropriate under the circumstances, and that the estimates, judgments and assumptions involved in its financial reporting are reasonable. Actual results could differ from those estimates. Management believes that the following are the more significant judgments and estimates used in the preparation of the financial statements. Reserves and Valuation Allowances: The Company evaluates its significant reserves and valuation allowances and makes revisions to the estimates as required. The ultimate cost or loss to the Company 20 changes as additional information becomes available. The Company uses the following policies to establish its reserves: - Accounts Receivable -- Management analyzes accounts receivable balances on an ongoing basis, including historical bad debt and customer claims information, customer creditworthiness and current economic trends, to evaluate the adequacy of the allowances for accounts receivable. The Company records appropriate provision for loss whenever reasonable doubt exists as to the collectibility of customer accounts receivable. - Deferred Tax Assets -- On a quarterly basis, the Company considers the likelihood of its ability to realize the future benefit of its deferred tax assets given the uncertainty of the domestic steel market. The Company utilizes information regarding historical and projected financial performance and other factors relating to the generation of taxable income as a basis for its estimates. During 2001, the Company determined that a valuation allowance was necessary for all of its net deferred tax assets. The Company will continue to evaluate the need for a valuation allowance on a quarterly basis. - Environmental Matters -- Environmental matters are evaluated on an individual occurrence basis. The Company works closely with its environmental consultants and government agencies to estimate the cost of environmental matters. Estimates are adjusted as information becomes available to support such changes. Pensions and Other Postemployment Benefits: Pension and other postemployment benefit ("OPEB") expenses are based on, among other things, assumptions of the discount rate, estimated return on plan assets, wage and salary increases, the mortality of participants, and the current level and escalation of health care costs in the future. Historically, on an annual basis, management has determined the assumptions to be used to compute pension and OPEB expense and pension contributions based on discussions with the Company's actuaries and other advisors. Changes in the factors discussed above and differences between actual and assumed changes in the present value of liabilities or assets and whether the Company continues to provide the type of benefit in question could cause annual expense or contributions to increase or decrease materially from year to year. Asset Impairments: Based on its recent operating losses, the Company has made estimates of the undiscounted future cash flow over the remaining useful lives of its operating assets to determine if the assets are impaired. As of December 31, 2002, the Company determined that no impairment existed. Estimates of future cash flows in volatile market conditions are inherently subjective and these estimates of future expected cash flows may change by a material amount in the future. Inventory: Inventories are stated at the lower of cost or market, cost being determined by the first-in, first-out method. The Company records an appropriate provision for net realizable value which is based on, among other things, estimated future selling prices. The financial statements presented in this report have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets, and payment of liabilities in the ordinary course of business. As a result of the Chapter 11 filing, there is no assurance that the carrying amounts of assets will be realized or that liabilities will be settled for amounts recorded. Implementing a plan of reorganization could change the amounts reported in the financial statements and cause a material change in the carrying amount of assets and liabilities. The financial statements have be prepared in accordance with the AICPA's Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). SOP 90-7 requires segregating pre-petition liabilities that are subject to compromise and identifying all transactions and events that are directly associated with the reorganization of the Company. Also in accordance with SOP 90-7, interest will no longer be accrued on any unsecured or undersecured debt. RECENT ACCOUNTING PRONOUNCEMENTS In May 2003, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 150, "Accounting for Certain Financial Instruments with Characteris- 21 tics of both Liabilities and Equity." The Statement requires the Company to classify a financial instrument within its scope as a liability (or an asset in some circumstances). These include certain financial instruments that a) are mandatorily redeemable, b) embody an obligation to repurchase the Company's equity shares or c) embody an obligation that the Company must or may settle by issuing a variable number of its equity shares. The provisions of SFAS No. 150 were effective as of the first interim period beginning after June 15, 2003. For further discussion refer to Note 8 to the consolidated condensed financial statements. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities," ("FIN 46"). FIN 46 requires the primary beneficiary to consolidate certain variable interest entities ("VIEs"). The primary beneficiary is generally defined as one having the majority of the risks and rewards arising from the VIE. For VIEs in which a significant (but not majority) variable interest is held, certain disclosures are required. The consolidation requirements of FIN 46 apply immediately to VIEs created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period ending after December 15, 2003. The adoption of FIN 46 is not applicable to the financial position or results of operations of the Company. In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure; Amendment of FASB Statement No. 123." SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS 123 to provide more frequent and more prominent disclosure. The Company has adopted both the annual and interim disclosure provisions of SFAS 148, and these disclosures are properly included in the notes to these consolidated condensed financial statements. The Company is not changing to the fair value based method of accounting for stock-based employee compensation. Therefore, the transition provisions are not applicable. In November 2002, FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 elaborates on the disclosures and clarifies the accounting related to a guarantor's obligation in issuing a guarantee. The interim disclosures required by FIN 45 are included in Note 7 to the consolidated condensed financial statements. The adoption of FIN 45 is not expected to have a material effect on the financial position or results of operations of the Company. ACCESS TO INFORMATION The Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, as well as proxy and information statements to our stockholders and certain other filings are made available, free of charge, on our Web site at www.weirton.com, as soon as reasonably practicable after such reports have been filed with or furnished to the Securities and Exchange Commission (the "SEC"). FORWARD LOOKING STATEMENTS Certain statements in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Weirton from time to time makes forward-looking statements in reports filed with SEC. These forward-looking statements may extend to matters such as statements concerning its projected levels of sales, shipments and income, cash flows, pricing trends, anticipated cost-reductions, product mix, anticipated capital expenditures and other future plans and strategies. As permitted by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Weirton is identifying in this report important factors that could cause Weirton's actual results to differ 22 materially from those projected in these forward-looking statements. These factors include, but are not necessarily limited to: Bankruptcy factors: - our ability to continue as a going concern; - our ability to meet the conditions of the ESLGB guarantee; - our ability to operate pursuant to the terms of the DIP Facility and to satisfy the covenants under the DIP Facility; - our ability to obtain Court approval with respect to motions in the Chapter 11 proceeding from time to time; - our ability to negotiate, prosecute, confirm and consummate a plan of reorganization with respect to our Chapter 11 case; - risks associated with third parties seeking and obtaining court approval to terminate or shorten the exclusivity period that we have in order to propose and confirm a plan of reorganization, for the appointment of a Chapter 11 trustee or to convert our case to a Chapter 7 case; - our ability to obtain and maintain normal terms with vendors and service providers; - our ability to maintain contracts that are critical to our operations; - our ability to maintain the services of managers and other key employees; - our ability to maintain commercial position with strategic customers; - the potential adverse impact of the Chapter 11 case on our liquidity or results of operations; and - our ability to develop, fund and execute our revised business plan. General factors: - Weirton's highly leveraged capital structure and its ability to obtain new capital at reasonable costs and terms; - employment matters, including costs and uncertainties associated with Weirton's collective bargaining agreements, and employee post-employment and retirement obligations; - the high capital requirements associated with integrated steel facilities; - availability, prices and terms associated with raw materials, supplies, utilities and other services and items required by Weirton's operations; - the sensitivity of Weirton's results to relatively small changes in the prices it obtains for its products; - intense competition due to excess global steel capacity, low-cost domestic steel producers, imports (especially unfairly-traded imports) and substitute materials; - whether Weirton will continue to operate under its current organizational structure; - the effects of the currently ongoing major steel industry consolidation effort and how they will relate to Weirton; - changes in customer spending patterns, supplier choices and demand for steel products; - the effect of planned and unplanned outages on Weirton's operations; - the potential impact of strikes or work stoppages at facilities of Weirton's customers and suppliers; - the consolidation of many of Weirton's customers and suppliers; 23 - the significant costs associated with environmental controls and remediation expenditures and the uncertainty of future environmental control requirements; - the effect of possible future closure or exit of businesses; and - the effect of existing and possible future lawsuits filed against Weirton. The forward-looking statements included in this document are based on information available to Weirton as of the date of this report. Weirton does not undertake to update any forward-looking statements that may be made from time to time by Weirton or its representatives. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our operations consume large amounts of natural gas and blast furnace coke. Global demand for coke is high. China, the largest exporter of coke, is producing less and consuming more coke, resulting in a 3.0 million ton reduction in exports for 2003. Domestic coke has a 3.0 million ton deficit (demand is greater than supply) for 2003, caused by recent blast furnace start-ups and coke plant closures. Domestic coke prices rose over $20 per ton from 2002 to 2003. At normal consumption levels, a $1.00 per ton change in our coke costs would result in an estimated $0.3 million change in our quarterly operating costs. In 2003 domestic natural gas prices have increased significantly from 2002. At normal consumption levels, a $1.00 per mcf change in domestic natural gas prices would result in an estimated $4.1 million change in our normal operating costs for the quarter. A hypothetical 10% change in the Company's natural gas prices would result in a change in the Company's pretax loss of approximately $2.6 million. The Company has entered into a number forward purchase contracts for natural gas for delivery between November 2003 and October 2004. For those contracts, a $1.00 per mcf change in price could require the Company to provide approximately $8.0 million of collateral, based upon the provisions of the agreements with our suppliers. For the quarters ended September 30, 2003 and 2002, the average price of natural gas consumed by the Company was $6.24 per mcf and $3.65 per mcf, respectively, for a total cost of $25.6 million and $15.3 million, respectively. ITEM 4. CONTROLS AND PROCEDURES An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures was performed, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures are effective. Weirton's system of controls and procedures has been designed to provide reasonable assurance as to the reliability of the disclosures included in this report. In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objective, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. We believe that our disclosure controls and procedures provide such reasonable assurance. No changes were made to our internal control over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 24 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On May 19, 2003, Weirton filed a voluntary petition with the Court under Chapter 11 of the Bankruptcy Code (Chapter 11 Case No. 03-1802) in the United States Bankruptcy Court for the Northern District of West Virginia. Weirton remains in possession of its assets and properties, and continues to operate its business and manage its properties as a debtor-in-possession, as permitted by Sections 1107(a) and 1108 of the Bankruptcy Code. We are following normal bankruptcy procedures with the Court. Weirton, in the ordinary course of its business, is the subject of various pending or threatened legal actions involving governmental agencies or private interests. Prosecution of certain of these actions is subject to automatic stay by Weirton's Chapter 11 filing. Weirton believes that any ultimate liability arising from these actions should not have a material adverse effect on its consolidated financial position at September 30, 2003 or the date of this report. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On May 16, 2003, the Company issued and contributed 380,000 shares of Series D Preferred Stock, par value $0.10 per share, to its 1989 ESOP as required under amendments to collective bargaining agreements reached with unions earlier in the year. No cash proceeds were received in the transaction. The Company believes the issuance was exempt from registration requirements of the Securities Act of 1933 by reason of the operation of Section 4 (2) of that Act. ITEM 3. DEFAULTS UPON SENIOR SECURITIES On May 19, 2003, Weirton filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code. This event constituted an Event of Default under the then existing Senior Credit Facility and under the terms of our other indebtedness reflected in Note 3 of the consolidated condensed financial statements, either independently or by reason of cross-default provisions. In accordance with the order of the Court, the Senior Credit Facility was re-financed with the proceeds of the DIP Facility. The entitlements and claims of creditors under such other indebtedness are subject to the resolution of the bankruptcy process. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable ITEM 5. OTHER INFORMATION Not applicable ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 3.1 -- Certificate of the Designation, Powers, Preferences and Rights of the Exchangeable Redeemable Preferred Stock Series D Exhibit 10.1 -- Employment Agreement between D. Leonard Wise and the Company dated August 7, 2003. Exhibit 10.2 -- Employment Agreement between Mark E. Kaplan and the Company dated August 7, 2003. Exhibit 10.3 -- Summary of the Key Employee Retention Program approved by the Court on August 25, 2003. Exhibit 31.1 -- Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 25 Exhibit 31.2 -- Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Exhibit 32.1 -- Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K Weirton filed the following Current Reports on Form 8-K with the Securities and Exchange Commission since the end of its second quarter: 1. August 15, 2003 -- Item 9, Monthly Operating Report for the period July 1, 2003 to July 31, 2003, as filed with the Bankruptcy Court. 2. September 15, 2003 -- Item 9, Monthly Operating Report for the period August 1, 2003 to August 31, 2003, as filed with the Bankruptcy Court. 3. October 16, 2003 -- Item 9, Monthly Operating Report for the period September 1, 2003 to September 30, 2003, as filed with the Bankruptcy Court. 4. October 21, 2003 -- Item 5, Pension Benefit Guaranty Corporation's notification of the termination of Weirton Steel Corporation Retirement Plan. 5. October 22, 2003 -- Item 9, Amendment 1 to the Monthly Operating Report for the period September 1, 2003 to September 30, 2003, as filed with the Bankruptcy Court. 26 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WEIRTON STEEL CORPORATION Registrant /s/ MARK E. KAPLAN -------------------------------------- Mark E. Kaplan President and Chief Financial Officer November 14, 2003 27 EX-3.1 3 j0408601exv3w1.txt EXHIBIT 3.1 Exhibit 3.1 WEIRTON STEEL CORPORATION CERTIFICATE OF THE DESIGNATION, POWERS, PREFERENCES AND RIGHTS OF THE EXCHANGEABLE REDEEMABLE PREFERRED STOCK SERIES D PAR VALUE $.10 PER SHARE Pursuant to Section 151 of the General Corporation Law of the State of Delaware WEIRTON STEEL CORPORATION, a Delaware corporation (the "Corporation"), having its registered office c/o The Corporation Trust Company, 1209 Orange Street, in the City of Wilmington, in the County of New Castle, HEREBY CERTIFIES to the Secretary of State of the State of Delaware that the following resolution was duly adopted by the Board of Directors of the Corporation, pursuant to authority conferred upon the Board of Directors by the provisions of the Restated Certificate of Incorporation of the Corporation: RESOLVED, that the Board of Directors hereby authorizes the issuance of a series of preferred stock, par value of $.10 per share, of the Corporation and hereby fixes the designation, powers, preferences and rights, and qualifications, limitations and restrictions thereof, in addition to those set forth in the said Restated Certificate of Incorporation, as follows (capitalized terms, unless otherwise defined herein, shall have the meanings ascribed to them in Section 12 hereof): 1. Designation. The designation of said series of preferred stock shall be "Exchangeable Redeemable Preferred Stock, Series D" (the "Series D Preferred Stock"). The Series D Preferred Stock shall not be perpetual, but shall be redeemed in accordance with the provisions hereof. The authorized number of shares constituting such Series D Preferred Stock shall be 500,000 shares. The par value of the Series D Preferred Stock shall be $.10 per share. 2. Dividends. Shares of Series D Preferred Stock shall not be entitled to receive dividends. 3. Rank; Liquidation Preference. (a) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the Series D Preferred Stock shall be entitled to receive out of the assets of the Corporation available for distribution to stockholders, an amount equal to One Hundred Dollars ($100) per share (appropriately adjusted to reflect stock splits, stock dividends, combinations of shares and the like with respect the Series D Preferred Stock) before any distribution may be made to the holders of shares of Junior Stock. (b) The amount distributed upon any liquidation, dissolution or winding up of the Corporation on each share of Series D Preferred Stock shall equal the amount distributed on each other share thereof. If in any such distribution the funds of the Corporation shall be A-1 insufficient to pay the holders of the outstanding shares of the Series D Preferred Stock and of Parity Stock the full amounts to which they shall be entitled, such holders shall share ratably in any distribution of assets in accordance with the sums which would be payable on such distribution if all sums payable thereon were paid in full. (c) The holders of the shares of Series D Preferred Stock shall not be entitled to receive any amounts with respect to any liquidation, dissolution or winding up of the Corporation other than the amounts provided for in this Section 3. Neither a merger nor consolidation of the Corporation into or with another corporation or other entity, nor a merger or consolidation of any other corporation or other entity into or with the Corporation, nor a sale, transfer, mortgage, pledge or lease of all or any part of the assets of the Corporation shall be deemed to be a liquidation, dissolution or winding up of the Corporation for the purposes of this Section 3. 4. Mandatory Redemption. (a) On March 1, 2015, the Corporation shall redeem, in the manner provided in Section 7 hereof, all shares of Series D Preferred Stock not previously redeemed at a per share redemption price equal to the sum of (i) the greater of (A) the Floor Amount or (B) the aggregate Market Value, at the time of such redemption, of 14.284 shares of Common Stock (determined subsequent to the deemed issuance of such shares of Common Stock), plus (ii) the aggregate Market Value of any Contingent Shares issuable thereon in accordance with Section 11 hereof (determined subsequent to the deemed issuance of such shares) (the "Mandatory Redemption Price"), which amount shall be payable in cash out of funds legally available therefor, shares of Common Stock, or one or more junior subordinated unsecured promissory notes of the Corporation (each, a "Junior Subordinated Redemption Note"), or any combination thereof. (b) If the Corporation elects to redeem all or part of the outstanding shares of Series D Preferred Stock by issuing to the holder thereof a Junior Subordinated Redemption Note, the Corporation may pay the Mandatory Redemption Price for such shares of Series D Preferred Stock by issuing to each holder of such shares a Junior Subordinated Redemption Note in the principal amount equal to the aggregate Mandatory Redemption Price for such shares. Each Junior Subordinated Redemption Note so issued shall have a term of five (5) years, shall be payable in equal annual installments over such five (5) year period commencing on March 15, 2015, and shall bear interest at an annual rate equal to the weighted average of the noncurrent interest-bearing indebtedness of the Corporation during such period, which interest shall be payable semi-annually in arrears on each June 15, September 15, December 15 and March 15 during the term of the Junior Subordinated Redemption Note, beginning on June 15, 2015. (c) If the Corporation elects to redeem all or part of the outstanding shares of Series D Preferred Stock in shares of Common Stock, the Company may pay the Mandatory Redemption Price for any such shares of Series D Preferred Stock by issuing to each holder of such shares of Series D Preferred Stock to be redeemed a number of shares of Common Stock equal to the quotient obtained by dividing (i) the amount of cash to which such holder would have been entitled had the Corporation elected to pay all (or, in the case of a partial redemption of shares of Series D Preferred Stock in shares of Common Stock, the corresponding percentage, A-2 as the case may be) of the Mandatory Redemption Price in cash by (ii) the Market Value of a share of Common Stock. (d) At its option, the Corporation may, in lieu of issuing fractional shares of Common Stock in payment of the Mandatory Redemption Price, either (i) pay cash for the current Market Value of any fractional share, which shall be determined by multiplying the Market Value of a share of Common Stock hereof by such fraction and rounding the product thereof to the nearest whole cent, with one-half cent to be rounded upward, or (ii) add such amount to the principal amount of any Junior Subordinated Redemption Note issued to the applicable holder of shares of Series D Preferred Stock being redeemed, as applicable. (e) Any redemption pursuant to this Section 4 shall be accomplished in the manner and with the effect as set forth in Section 7. 5. Optional Redemption. (a) The Corporation may redeem, at its option expressed by resolution of its Board of Directors, at any time, including in connection with a Permitted Acquisition as defined in the Notes Indenture, in the manner provided in Section 7 hereof, the Series D Preferred Stock, in whole or in part, at a per share redemption price per share equal to the sum of (i) the greater of (A) the Floor Amount or (B) the aggregate Market Value at the time of such redemption of 14.284 shares of Common Stock (determined subsequent to the deemed issuance of such shares of Common Stock), plus (ii) the aggregate Market Value of any Contingent Shares issuable thereon pursuant to Section 11 hereof (determined subsequent to the deemed issuance of such shares) (the "Optional Redemption Price"), provided, however, that no such redemption shall occur pursuant to this Section 5 prior to the maturity of the Senior Secured Notes or any repurchase or redemption of the Senior Secured Notes to the extent required pursuant to Section 3.16 of that certain Indenture, dated as of June 18, 2002, governing the Senior Secured Notes, as the same may be amended or modified from time to time (the "Notes Indenture") or otherwise, or to the extent that any such redemption shall in any way violate or conflict with any other provision of the Notes Indenture. (b) If the Corporation elects to redeem all or part of the outstanding shares of Series D Preferred Stock in shares of Common Stock, the Corporation may pay the Optional Redemption Price for any such shares of Series D Preferred Stock by issuing to each holder of such shares of Series D Preferred Stock to be redeemed a number of shares of Common Stock equal to the quotient obtained by dividing (i) the amount of cash to which such holder would have been entitled had the Corporation elected to pay all (or, in the case of a partial redemption of shares of Series D Preferred Stock in shares of Common Stock, the corresponding percentage, as the case may be) of the Optional Redemption Price in cash by (ii) the Market Value of a share of Common Stock. (c) At its option, the Corporation may, in lieu of issuing fractional shares of Common Stock in payment of the Optional Redemption Price, pay cash for the current Market Value of any fractional share, which shall be determined by multiplying the Market Value of a share of Common Stock hereof by such fraction and rounding the product thereof to the nearest whole cent, with one-half cent to be rounded upward. A-3 (d) In the case of the optional redemption by the Company of less than all the outstanding shares of Series D Preferred Stock, the Corporation shall, with respect to each holder of shares of Series D Preferred Stock, redeem from such holder the number of shares equal to the product of the number of shares held by such holder and a fraction, the numerator of which is the total number of shares of Series D Preferred Stock to be redeemed and the denominator of which is the total number of shares of Series D Preferred Stock then outstanding. (e) Any redemption pursuant to this Section 5 shall be accomplished in the manner and with the effect as set forth in Section 7. 6. Extraordinary Redemption. (a) Upon the consummation of a Significant Transaction, the Corporation shall redeem, in the manner provided in Section 7 hereof, all shares of Series D Preferred Stock not previously redeemed at a per share redemption price equal to the sum of (i) the greater of (A) the Floor Amount or (B) the aggregate Market Value, at the time of such redemption, of 14.284 shares of Common Stock (determined subsequent to the deemed issuance of such shares of Common Stock), plus (ii) the aggregate Market Value of any Contingent Shares issuable thereon pursuant to Section 11 hereof (determined subsequent to the deemed issuance of such shares) (the "Extraordinary Redemption Price"), which amount shall be payable in cash out of funds legally available therefor, shares of Common Stock, or one or more Junior Subordinated Redemption Notes, or any combination thereof, provided, however, that no such redemption shall be required pursuant to this Section 6 prior to the maturity of the Senior Secured Notes or any repurchase or redemption of the Senior Secured Notes to the extent required pursuant to Section 3.16 of the Notes Indenture or otherwise, or to the extent that any such redemption shall in any way violate or conflict with any other provision of the Notes Indenture. (b) If the Corporation elects to redeem all or part of the outstanding shares of Series D Preferred Stock by issuing to the holder thereof a Junior Subordinated Redemption Note, the Corporation may pay the Extraordinary Redemption Price for such shares of Series D Preferred Stock by issuing to each holder of such shares a Junior Subordinated Redemption Note in the principal amount equal to the aggregate Extraordinary Redemption Price for such shares. Each Junior Subordinated Redemption Note so issued shall have a term of five (5) years, shall be payable in equal annual installments over such five (5) year period commencing on the effective date of the Significant Transaction, and shall bear interest at an annual rate equal to the weighted average of the noncurrent interest-bearing indebtedness of the Corporation at the effective date of the Significant Transaction, which interest shall be payable annually. (c) If the Corporation elects to redeem all or part of the outstanding shares of Series D Preferred Stock in shares of Common Stock, the Company may pay the Extraordinary Redemption Price for any such shares of Series D Preferred Stock by issuing to each holder of such shares of Series D Preferred Stock to be redeemed a number of shares of Common Stock equal to the quotient obtained by dividing (i) the amount of cash to which such holder would have been entitled had the Corporation elected to pay all (or, in the case of a partial redemption of shares of Series D Preferred Stock in shares of Common Stock, the corresponding percentage, A-4 as the case may be) of the Extraordinary Redemption Price in cash by (ii) the Market Value of a share of Common Stock. (d) At its option, the Corporation may, in lieu of issuing fractional shares of Common Stock in payment of the Extraordinary Redemption Price, either (i) pay cash for the current Market Value of any fractional share, which shall be determined by multiplying the Market Value of a share of Common Stock hereof by such fraction and rounding the product thereof to the nearest whole cent, with one-half cent to be rounded upward, or (ii) add such amount to the principal amount of any Junior Subordinated Redemption Note issued to the applicable holder of shares of Series D Preferred Stock being redeemed. (e) Any redemption pursuant to this Section 6 shall be accomplished in the manner and with the effect as set forth in Section 7. 7. Redemption Procedure. (a) Notice of every redemption of Series D Preferred Stock (each, a "Redemption Notice") shall be given by mailing the same (first class mail, postage pre-paid) to every holder of record whose shares are to be redeemed, not less than thirty (30) nor more than sixty (60) days prior to the applicable Redemption Date, at its, his or her respective address as the same shall appear on the books of the Corporation, but no defect in such mailed notice or in the mailing thereof or the failure by any holder to receive any notice of redemption shall affect the validity of the proceedings for the redemption of any share so to be redeemed. The notice shall state: (i) the number of shares of Series D Preferred Stock of such holder to be redeemed; (ii) the Mandatory Redemption Price, Optional Redemption Price or Extraordinary Redemption Price, as applicable; (iii) with respect to an Optional Redemption, whether such shares shall be redeemed for cash or shares of Common Stock, or a combination thereof (indicating the amount of cash or number of shares of Common Stock to be delivered with respect to each share of Series D Preferred Stock redeemed); (iv) with respect to a Mandatory Redemption or Extraordinary Redemption, with respect to each share of Series D Preferred Stock redeemed, the amount of cash, number of shares of Common Stock and/or the face amount of any Junior Subordinated Redemption Note to be delivered to such holder; (v) if applicable, the aggregate Market Value of any Contingent Shares payable in connection with such redemption. (vi) the Redemption Date; A-5 (vii) the name and address of the Paying Agent or other place at which the specified shares are to be delivered for redemption on the Redemption Date; and (viii) that the shares specified will be redeemed by the Corporation at the applicable Redemption Date upon the surrender for cancellation, at the place designated in the notice, of the certificates representing the shares so to be redeemed (or, in the event such shares are represented by certificates that are lost, stolen, destroyed or mutilated, delivery of an affidavit to that effect and an indemnification agreement, each in form and substance reasonably acceptable to the Corporation, from the holder of such shares), which certificates must be properly endorsed for transfer or accompanied by proper instruments of assignment and transfer in blank and bearing all necessary transfer tax stamps. (b) Each holder of shares of Series D Preferred Stock to be redeemed shall deliver the certificate or certificates representing such shares as directed in the Redemption Notice. (c) No later than the first business day following the Redemption Date, the Corporation shall deposit with the Paying Agent cash, Junior Subordinated Redemption Notes, shares of Common Stock or a combination thereof, as applicable, sufficient to pay the Mandatory Redemption Price, Extraordinary Redemption Price or Optional Redemption Price, as applicable, with respect to all shares of Series D Preferred Stock to be redeemed. As soon as practicable after the Redemption Date, the Corporation shall deliver or cause to be delivered to each holder entitled to receive Junior Subordinated Redemption Notes or shares of Common Stock pursuant any such redemption, if any, through the applicable Paying Agent, a certificate for the full number of shares of Common Stock, or a Junior Subordinated Redemption Note in the principal amount, issuable to such holder, as the case may be. (d) If a Redemption Notice shall have been duly given as hereinbefore provided pursuant to paragraph (a) above, and if cash or shares of Common Stock (or in the case of any required payment of Contingent Shares, shares of Series D Preferred Stock) necessary for such redemption shall have been set aside by the Corporation as provided in this Section, so as to be, and continue to be, available therefor, then, notwithstanding that any certificate for shares so called for redemption shall not have been surrendered for cancellation, all shares of the Series D Preferred Stock so called for redemption shall no longer be deemed to be outstanding on and after such Redemption Date, and all rights with respect to such shares shall forthwith on such Redemption Date cease and terminate, except only the right of the holders thereof to receive the amount payable on redemption thereof, without interest. (e) Any funds or other consideration so set aside or deposited, as the case may be, and unclaimed at the end of one year from the applicable Redemption Date shall be released or repaid to the Corporation, after which the holders of the shares so called for redemption shall look only to the Corporation for payment thereof, without interest, subject to the applicable law of escheat. A-6 (f) Shares of Series D Preferred Stock that have been issued and reacquired by the Corporation shall revert to the status of authorized and unissued shares of Preferred Stock without serial designation. (g) If fewer than all the shares of Series D Preferred Stock evidenced by any certificate submitted to the Corporation for redemption pursuant to this Section 7 are to be redeemed, the Corporation will issue new certificate(s) for the remainder of the shares of Series D Preferred Stock that were evidenced by the old certificate(s) and not so redeemed. 8. Voting Rights. Except as required under Delaware law, the holders of shares of Series D Preferred Stock shall not be entitled to vote upon any matter relating to the business or affairs of the Corporation, except that without the affirmative approval of the holders of at least a majority of the outstanding shares of Series D Preferred Stock, given either by their vote at an annual meeting or a special meeting called for such purpose or in writing without a meeting, (a) the Corporation shall not effect any amendment, alteration or repeal (by any means, including any merger or consolidation) of any of the provisions hereof or of the Restated Certificate of Incorporation of the Corporation or of any amendment thereto (including, without limitation, any certificate of designation or similar instrument filed in connection with any class or series of capital stock of the Corporation) which would alter or change the powers, preferences or special rights of the shares of Series D Preferred Stock so as to affect them adversely, or (b) authorize or enter into a Significant Transaction. The creation, authorization or issuance of any other class or series of capital stock of the Corporation having rights junior to or on parity with those of the Series D Preferred Stock, or the creation, authorization or issuance in connection with an Acquisition of any other class or series of capital stock of the Corporation having rights senior to those of the Series D Preferred Stock, or the increase or decrease in the amount of authorized capital stock of any such class or series or of the Series D Preferred Stock, or any increase or decrease in the par value of any such class or series or of the Series D Preferred Stock, will not require the consent of the holders of the Series D Preferred Stock and will not be deemed to affect adversely, or alter or change the powers, preferences or special rights of, the shares of Series D Preferred Stock. 9. Exchange at the Option of the Corporation. (a) The Corporation may, at any time and from time to time, elect to exchange, in whole or in part, the issued and outstanding shares of Series D Preferred Stock for shares of Common Stock, in the manner described in this Section 9 and in Section 10 hereof. (b) Each issued and outstanding share of Series D Preferred Stock shall be exchangeable at the option of the Corporation pursuant to this Section 9 into that number of shares of Common Stock as is equal to the sum of (i) the greater of (A) that number of shares of Common Stock having an aggregate Market Value equal to the Floor Amount or (B) 14.284 shares of Common Stock (determined subsequent to the deemed issuance of such shares of Common Stock), plus (ii) that number of shares of Common Stock having an aggregate Market Value equal to the Market Value of any Contingent Shares issuable thereof pursuant to Section 11 hereof (the "Exchange Price"). A-7 (c) At its option, the Corporation may, in lieu of issuing fractional shares of Common Stock in payment of the Exchange Price, pay cash for the current Market Value of any fractional share, which shall be determined by multiplying the Market Value of a share of Common Stock by such fraction and rounding the product thereof to the nearest whole cent, with one-half cent to be rounded upward. 10. Mechanics of Exchange. (a) Notice of any exchange at the option of the Corporation of Series D Preferred Stock pursuant to Section 9 hereof (each, a "Conversion Notice") shall be given by mailing the same to every holder of record whose shares are to be exchanged, not less than ten (10) days prior to the date set for such exchange (the "Exchange Date"), at his or her respective address as the same shall appear on the books of the Corporation, but no defect in such mailed notice or in the mailing thereof or the failure by any holder to receive any such notice shall affect the validity of the proceedings for the exchange of any share so to be exchanged. The notice shall state that the shares specified will be exchanged by the Corporation into such number of shares of Common Stock as shall be determined in accordance with Section 9 hereof and set forth in such notice, shall specify the Exchange Date and shall designate the place to which the certificates representing the shares so to be exchanged (or, in the event such shares are represented by certificates that are lost, stolen, destroyed or mutilated, delivery of an affidavit to that effect and an indemnification agreement, each in form and substance reasonably acceptable to the Corporation, from the holder of such shares) are to be submitted for exchange. (b) Each holder of shares of Series D Preferred Stock to be exchanged shall deliver the certificate or certificates representing such shares as directed in the Exchange Notice. (c) The Corporation shall, as soon as practicable after the submission of any properly endorsed certificate or certificates representing shares of Series D Preferred Stock called for exchange which are submitted pursuant to the preceding paragraph, issue and deliver to the holder thereof a certificate or certificates for the number of shares of Common Stock to which such holder is entitled as aforesaid. If fewer than all the shares of Series D Preferred Stock evidenced by any certificate submitted to the Corporation for exchange pursuant to this Section 10 are to be exchanged, the Corporation will issue new certificate(s) for the remainder of the shares of Series D Preferred Stock that were evidenced by the old certificate(s) and not so exchanged. 11. Contingent Value Adjustment. (a) Subject to any contractual and other restrictions to which the Corporation may be subject, for so long as any shares of Series D Preferred Stock remain issued and outstanding and are not otherwise called for redemption or exchange, in the event that, during any calendar year, the amount of the interest-bearing long-term debt of the Corporation (the "Long-Term Debt") is less than one-third (1/3) of the amount of such indebtedness outstanding as of the Minimum Debt Date (the "Adjustment Threshold"), then as soon as practicable after the end of such calendar year, the Corporation shall issue to each then holder of shares of Series D Preferred Stock additional shares of Series D Preferred Stock or, at its option, shares of Common Stock (in either case, the "Contingent Shares"), in a number equal to the product of (i) the number of shares of Series D Preferred Stock held by such holder as of the last day of such calendar year multiplied by (ii) the number of shares of Series D A-8 Preferred Stock or Common Stock, as the case may be, having a Market Value (determined subsequent to the deemed issuance of such shares) equal to the product of the Floor Amount in effect at the time of such payment multiplied by the Applicable Rate, multiplied by (iii) a fraction, the numerator of which is the number of days during such year in which the Long Term Debt is less than the Adjustment Threshold, and the denominator of which is 365. (b) In lieu of issuing Contingent Shares, the Corporation may at its option (subject to any contractual and other restrictions with respect thereto to which the Corporation may be subject) pay each holder entitled to Contingent Shares pursuant to Section 11(a) above cash in an amount equal to the aggregate Market Value of such Contingent Shares issuable to such holder (determined subsequent to the deemed issuance of such Contingent Shares). (c) At its option, the Corporation may, in lieu of issuing fractional shares pursuant to Section 11(a) above, pay cash for the current Market Value of any fractional share, which shall be determined by multiplying the Market Value of a share of Series D Preferred Stock by such fraction and rounding the product thereof to the nearest whole cent, with one-half cent to be rounded upward. (d) Notwithstanding the foregoing, this provision shall not be enforceable by its terms, and no such issuance of Contingent Shares or cash payment in lieu thereof shall be made in the event that such issuance or payment violates or otherwise conflicts with any contractual or other restrictions with respect thereto to which the Corporation may be subject, including but not limited to any violation or conflict with the rights of the holders of the Series A Preferred Stock, Series C Preferred Stock or any other class or series of capital stock which would result from such issuance or payment absent a vote or other consent by such holders with respect thereto. 12. Definitions. For the purposes of this Certificate of Designations: "Acquisition" means a Permitted Acquisition or any other transaction or series of transactions by the Corporation or any direct or indirect subsidiary thereof, whether effected by merger, consolidation, purchase, lease or other transfer of assets, of the capital stock (or equivalent interest in) or assets of any other Person. "Adjustment Threshold" shall have the meaning given to such term in Section 11(a) hereof. "Applicable Rate" means the weighted average interest rate on noncurrrent interest bearing indebtedness of the Corporation on the Minimum Debt Date. "Affiliate" means, as to any Person, another Person that controls, is controlled by or is under common control with, such Person. "Common Stock" means the Common Stock, par value $.01 per share, of the Corporation. A-9 "Contingent Shares" shall have the meaning given to such term in Section 11(a) hereof. "ESOPs" means the Corporation's 1984 and 1989 Employee Stock Ownership Plans. "Exchange Act" means the Securities Exchange Act of 1934, or any similar Federal statute and the rules and regulations thereunder, all as the same may be in effect at the time. "Exchange Date" shall have the meaning given to such term in Section 10(a) hereof. "Exchange Notice" shall have the meaning given to such term in Section 10(a) hereof. "Extraordinary Redemption Price" shall have the meaning given such term in Section 6(a) hereof. "Floor Amount" means (a) Twenty Dollars ($20) with respect to any redemption or conversion, as the case may be, that occurs on or prior to February 28, 2005 and (b) Forty Dollars ($40) with respect to any redemption or conversion, as the case may be, that occurs on or after March 1, 2005. "Junior Stock" means any class of stock of the Corporation, including but not limited to the Common Stock, which is not Parity Stock or Senior Stock. "Junior Subordinated Redemption Note" shall have the meaning given to such term in Section 4(a) hereof. "Long-Term Debt" shall have the meaning given to such term in Section 11(a) hereof. "Mandatory Redemption Price" shall have the meaning given such term in Section 4(a) hereof. "Market Value" means the fair market value of one share of the Corporation's Common Stock or Series D Preferred Stock, as the case may be, as determined by a nationally recognized independent appraisal firm selected by the Corporation is its sole and absolute discretion. "Minimum Debt Date" means December 31, 2002. "Notes Indenture" shall have the meaning given to such term in Section 6(a) hereof. A-10 "Optional Redemption Price" shall have the meaning given to such term in Section 5(a) hereof. "outstanding" means, as used herein with reference to shares of Series D Preferred Stock, such shares as have been issued but, as of the time of determination thereof, have not yet been repurchased, reacquired, redeemed or exchanged by the Corporation, other than any of such shares held or beneficially owned at such time by the Corporation or any of its Affiliates. "Parity Stock" means the Series A Preferred Stock, the Series C Preferred Stock and any other class or series of preferred stock which the Corporation may, in the future, designate ("Future Preferred Stock"), except such Future Preferred Stock as may be designated and/or issued by the Corporation in connection with an Acquisition. "Paying Agent" means an office or agency designated by the Corporation from time to time at which shares of Series D Preferred Stock may be presented for conversion or for payment upon redemption as provided herein. "Permitted Acquisition" shall have the meaning given such term in Section 1.1 of the Notes Indenture. "Person" means any individual, corporation, partnership, joint venture, association, joint stock company, trust, trustee, estate, limited liability company, unincorporated organization, real estate investment trust, government or any agency or political subdivision thereof, or any other form of entity. "Redemption Date" means the date set forth in Section 4 upon which shares of Series D Preferred Stock are to be redeemed and also means each of the dates fixed by resolution of the Board of Directors of the Corporation pursuant to Section 5 hereof or the effective date of a Significant Transaction to which reference is made in Section 6 hereof, in each case as specified in the notice of redemption. "Redemption Notice" shall have the meaning given to such term in Section 7(a) hereof. "Securities Act" means the Securities Act of 1933, or any similar Federal statute and the rules and regulations thereunder as may be in effect at the time. "Senior Secured Notes" shall mean the Corporation's 10% Senior Secured Notes due 2008. "Senior Stock" means preferred stock issued in connection with a Permitted Acquisition that is designated as ranking senior to the Series D Preferred Stock as to dividends and liquidation. A-11 "Series A Preferred Stock" means the Convertible Voting Preferred Stock, Series A, par value $.10 per share, of the Corporation. "Series C Preferred Stock" means the Corporation's Series C Convertible Redeemable Preferred Stock, par value $.10 per share. "Series D Preferred Stock" shall have the meaning given such term in Section 1 hereof. "Significant Transaction" shall mean (a) any transaction or series of related transactions by which a person or a group within the meaning of Section 13(d) of the Exchange Act and Rule 13d-5 promulgated thereunder, other than the ESOPs or any other employee benefit plan of the Corporation, becomes the "beneficial owner" (within the meaning of Rule 13d-3 under the Exchange Act) of capital stock of the Corporation representing greater than 50% of the voting power of the Corporation's capital stock in connection with the financing of a Permitted Acquisition (or debt or equity incurred in connection with the financing of a Permitted Acquisition which is convertible into or exchangeable for capital stock of the Corporation representing greater than 50% of the voting power of the Corporation's capital stock after giving effect to such conversion or exchange); or (b) a sale of all or substantially all of the assets of the Corporation or a sale, merger or business combination of the Corporation where the Corporation is not the surviving corporation that qualifies as a Permitted Acquisition. A-12 IN WITNESS WHEREOF, the Corporation has caused this Certificate to be duly executed on its behalf by its undersigned Vice President of Finance and Administration and attested to by its Secretary this 19th day of February, 2003. /s/ Mark E. Kaplan ----------------------------------- Name: Mark E. Kaplan Title: Vice President of Finance and Administration ATTEST: /s/ William R. Kiefer - ------------------------------------ Secretary A-13 EX-10.1 4 j0408601exv10w1.txt EMPLOYEE AGREEMENT FOR D. LEONARD WISE Exhibit 10.1 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (the "Agreement") is dated as of August 7, 2003 to be effective as of the date this Agreement is approved by the United States Bankruptcy Court for the Northern District of West Virginia (the "Effective Date") and is entered into by and between WEIRTON STEEL CORPORATION, a Delaware corporation (the "Company"), and D. LEONARD WISE (the "Employee"). WHEREAS, the Company filed for protection under Chapter 11 of the United States Bankruptcy Code ("Chapter 11") on May 19, 2003; WHEREAS, in connection with its Chapter 11 filing, the Company has arranged debtor in possession financing through Fleet Capital Corporation, as agent, including a revolving loan facility and a term facility (collectively, the revolving loan and term facilities are collectively referred to herein as the "DIP"); WHEREAS, effective August 1, 2003, the Company's Chief Executive Officer resigned; WHEREAS, the Company seeks to hire the Employee as its Chief Executive Officer and to secure able management to oversee its restructuring under Chapter 11; WHEREAS, the Company made a number of commitments and representations to the Employee in order to retain his services during the Chapter 11 process; and WHEREAS, the Company and the Employee intend to document the terms and conditions of the Employee's employment in this Agreement. NOW, THEREFORE, the parties hereby agree as follows: 1. Employment. The Company hereby employs Employee and Employee hereby accepts employment from the Company upon the terms and conditions hereinafter set forth. 1 2. Term. This Agreement and the employment of the Employee hereunder shall commence on the Effective Date and shall continue from month to month thereafter until terminated either by the Company or by the Employee as provided in Section 5. 3. Duties. During the Term hereof, the Employee shall serve as Chief Executive Officer and a member of the Board of Directors of the Company ("CEO") and of each of the Company's principal subsidiaries. The Employee shall report to the Board of Directors (the "Board") of the Company, shall be primarily responsible for the general management of the business and affairs of the Company, including the Company's efforts to reorganize under Chapter 11, and shall perform such duties as are consistent with the role of the CEO of the Company and such other duties, not inconsistent therewith, as may be reasonably assigned by the Board. The Employee shall devote his full business time and attention to the performance of his duties hereunder, provided, however, with the consent of the Board, the Employee may (i) devote a reasonable amount of time and effort to charitable, industry and community groups and (ii) serve as a director of other companies which do not compete with the Company. For purposes of this Agreement, no approval of the Board shall be required for investments by the Executive in his personal portfolio except for the acquisition or holding of 3% or more of the capital stock or partnership interests of an entity that competes with the Company. 4. Compensation. The Employee's compensation shall consist of: (a) Base Salary. The Company shall pay Employee a base salary of $40,000 per month commencing on July 15, 2003, the date he commenced employment with the Company, or such greater amount as may from time to time be authorized by the Board. The amount in effect under this subsection 4(a) at a relevant time is hereinafter referred 2 to as "Base Salary". The Base Salary shall be payable in such installments and at such times as conform to the general payroll practices of Company. (b) Chapter 11 Bonuses. The Company shall pay the Employee Chapter 11 Bonuses not to exceed in the aggregate $1,400,000. No Chapter 11 Bonus, or any installment thereof, shall be contingent upon the Employee's being or remaining an employee of the Company on the date such amount is payable; provided, however, if the Employee is terminated from employment with the Company for Cause or resigns without Good Reason (as such initially capitalized terms are defined in Section 5), the Company shall have no obligation to pay any Contingent Bonus after termination for Cause or resignation for Good Reason. The Chapter 11 Bonuses shall consist of: (i) Guaranteed Bonus. The Guaranteed Bonus shall be in the aggregate amount of $300,000 and shall be paid in three cash installments of $100,000 each, the first installment paid on the Effective Date, the second installment on the thirtieth day after the Effective Date and the third installment paid on the sixtieth day after the Effective Date, provided, however, if the Employee resigns from employment with the Company for reasons other than Good Reason or if he is terminated from employment by the Company for Cause prior to the 181st day after the Effective Date, he shall return to the Company an amount determined by multiplying $300,000 by a fraction, the numerator of which is the number of days between the Effective Date and the Date of Termination and the denominator is 181. 3 (ii) First Contingent Bonus. The First Contingent Bonus shall be in the amount of $550,000 in cash and shall be paid within five (5) business days of the earlier of (A) the closing of a transaction in which the Company sells substantially all of the assets of the Company and (B) the effective date of a plan of reorganization in the Company's Chapter 11 case. (iii) Second Contingent Bonus. The Second Contingent Bonus shall be in an amount not to exceed $550,000 and shall be paid if, but only if, the Company either (i) closes a transaction with a gross sales price in excess of the then outstanding balance of the DIP or (ii) receives a going concern valuation rendered by an entity acting on behalf of the proponent of a plan of reorganization in the Company's Chapter 11 case in excess of the amount of the then outstanding DIP. The amount of the Second Contingent Bonus shall be determined by multiplying $550,000 by a fraction, the numerator of which is the amount by which the gross sales proceeds of a transaction or the going concern value, as applicable, exceeds the then outstanding balance of the DIP and the denominator is the difference between $350,000,000 and the then outstanding balance of the DIP. The Second Contingent Bonus, to the extent earned, shall be paid in a single cash payment on the earlier of the closing of the transaction or satisfaction of the DIP. (c) Expense Reimbursement. The Company shall reimburse Employee for his travel and business entertainment expenses as follows: 4 (i) Business Expenses. The Company shall reimburse the Employee for his reasonable business related expenses in accordance with its policy on reimbursements as generally applicable to all employees as in effect from time to time. (ii) Automobile. The Company shall provide to the Employee, or reimburse the Employee for the costs of, use of an automobile in accordance with its policy on use of an automobile generally applicable to all senior employees as effect from time to time. (iii) Apartment and Living Expenses. The Company shall pay the cost of or reimburse the Employee for the use of an apartment in the Pittsburgh area and utilities and other costs associated with the use of such apartment; including the reasonable cost of renting furniture for such apartment and the reasonable cost of furnishing such apartment on a temporary basis, and for living expenses in Pittsburgh and Weirton and for periodic travel from Pittsburgh to Employee's permanent home as of the Effective Date. (d) Other Benefit Programs. The Company shall provide, during the Term hereof, coverage for Employee under any plan qualified within the meaning of Section 401(a) of the Internal Revenue Code, excluding the Weirton Steel Corporation Retirement Plan (the "Retirement Plan"), and each and all welfare plans, as defined in Section 3(1) of the Employee Retirement Income Security Act ("ERISA"), as applicable from time to time to its executive level salaried employees; 5 (e) Supplemental Employee Retirement Plan. Employee shall not be entitled to participate in the Company's Supplemental Employee Retirement Plan or any successor plan thereto; (f) Indemnification. The Employee shall be entitled to be indemnified, and the Company hereby does indemnify the Employee, for all causes of actions that arise or are alleged to arise during the course of his employment with the Company to the fullest extent permitted under the laws of the State of Delaware and the Company's charter. 5. Termination of Employment. (a) Termination Events. This Agreement and the Employee's employment with the Company shall terminate upon the death or disability of the Employee, resignation by the Employee or termination by the Company. Section 6 sets forth the amounts, if any, due the Employee upon termination of the Agreement and termination of his employment. (b) Notification of Discharge for Cause or Resignation. In accordance with the procedures hereinafter set forth, the Company may discharge the Employee from his employment hereunder for Cause or otherwise and the Employee may resign from his employment hereunder for Good Reason or otherwise. Any discharge of the Employee by the Company for Cause or resignation by the Employee for Good Reason shall be communicated by a Notice of Termination to the Employee (in the case of discharge) or the Company (in the case of resignation) given in accordance with this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination 6 of the Employee's employment under the provision so indicated and (iii) if the Date of Termination is to be other than the date of receipt of such notice, specifies the Date of Termination (which date shall in all events be within fifteen (15) days after the giving of such notice). No purported termination of the Employee's employment for Cause shall be effective without a Notice of Termination. The failure by the Employee to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Employee hereunder or preclude the Employee from asserting such fact or circumstances in enforcing the Employee's rights hereunder. (c) Definitions. For purposes of this Paragraph 5 and of Paragraph 6 hereof, the following capitalized terms shall have the meanings set forth below: (i) "Accrued Obligations" shall mean, as of the Date of Termination, the sum of (A) the Employee's Base Salary under Section 4(a) through the Date of Termination not theretofore paid, (B) the amount of any Guaranteed Bonus under Section 4(b) to the extent not then paid and not subject to an obligation to return such amount, (C) the amount of any Contingent Bonus earned but not then paid, and (D) any vacation pay, expense reimbursements and other cash entitlements accrued by the Employee as of the Date of Termination to the extent not theretofore paid. (ii) "Cause" shall mean (A) the willful and continued failure of the Employee to perform substantially his duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Employee by the Board which demand specifically identifies the manner in 7 which the Board believes that the Employee has not substantially performed his duties, or (B) the willful engaging by the Employee in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act on the part of the Employee shall be considered "willful" unless it is done, or omitted to be done, by the Employee in bad faith or without reasonable belief that the Employee's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board, a direction of the Board or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Employee in good faith and in the best interests of the Company. The cessation of employment of the Employee shall not be deemed to be for Cause unless and until there shall have been delivered to the Employee a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose, after reasonable notice is provided to the Employee and the Employee is given an opportunity, together with counsel, to be heard before the Board, finding that, in the good faith opinion of the Board, the Employee is guilty of the conduct described in subparagraph (A) or (B) above, and specifying the particulars thereof in detail. (iii) "Good Reason" shall mean (A) the failure of the Company to pay when due any amount described in Section 4 or (B) the assignment to the Employee of any duties inconsistent in any respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties 8 or responsibilities as contemplated by Section 3 of the Agreement (including removal as a member of the Board, or any other action by the Company which results in demotion in such position, authority, duties or responsibilities or which renders the Employee's position to be of less dignity, responsibility or scope, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee, or (C) requiring the Employee to be based other than at the Company's general offices in Weirton, West Virginia except for reasonable business travel. (iv) "Date of Termination" shall mean (A) in the event of a discharge of the Employee by the Company for Cause or a resignation by the Employee for Good Reason, the date the Employee (in the case of discharge) or the Company (in the case of resignation) receives a Notice of Termination, or any later date specified in such Notice of Termination, as the case may be, (B) in the event of a discharge of the Employee without Cause or a resignation by the Employee without Good Reason, the date the Employee (in the case of discharge) or the Company (in the case of resignation) receives notice of such termination of employment, (C) in the event of the Employee's death, the date of the Employee's death, and (D) in the event of termination of the Employee's employment by reason of Disability, the date the Employee receives written notice of such termination. (v) "Disability" shall mean the Employee's absence from his duties under this Agreement for a period of fifteen (15) business days for a physical or 9 mental illness, injury or condition which, in the reasonable belief of the Board renders it unlikely that the Employee will be able to return to his duties on a substantially full time duties within the next following three months. 6. Obligations of the Company Upon Termination. (a) Discharge for Cause, Resignation without Good Reason, Death or Disability. In the event of a discharge of the Employee for Cause or resignation by the Employee without Good Reason, or in the event this Agreement terminates by reason of the death or Disability of the Employee: (i) the Company shall pay all Accrued Obligations to the Employee, or to his heirs or estate in the event of the Employee's death, in a lump sum in cash within thirty (30) days after the Date of Termination; and (ii) the Employee, or his beneficiary, heirs or estate in the event of the Employee's death, shall be entitled to receive all benefits accrued by him as of the Date of Termination under the Company's plans and programs subject to ERISA, and under nonqualified retirement, pension, profit sharing and similar plans of the Company in such manner and at such time as are provided under the terms of such plans and arrangements; and (iii) the Company's obligation to pay any Contingent Bonus not then earned and all other obligations of the Company hereunder shall cease forthwith. (b) Discharge without Cause or Resignation for Good Reason. If the Employee is discharged other than for Cause or the Employee resigns with Good Reason within one year of the happening of an event of Good Reason. 10 (i) the Company shall pay the Employee the aggregate of the following amounts: (A) Within thirty (30) days after the Date of Termination all Accrued Obligations; and (B) Subject to the terms of Section 4(b), the Company shall pay to the Employee in a single cash payment such Contingent Bonus or Contingent Bonuses under the terms of Section 4(b), notwithstanding that the Employee is not an employee of the Company; (ii) the Employee shall be entitled to receive all benefits accrued by him as of the Date of Termination under all qualified and nonqualified retirement, pension, profit sharing and similar plans of the Company in such manner and at such time as are provided under the terms of such plans; and (iii) except as set forth in this subsection (b) or otherwise specifically set forth in the Agreement, all other obligations of the Company hereunder shall cease forthwith. (c) Payment Obligations Absolute. The Company's obligation to make the payments and the arrangements provided for herein shall be absolute and unconditional, and shall not be affected by any circumstances, including, without limitation, any offset, counterclaim, recoupment, defense, or other right which the Company may have against the Employee or any other party. Each and every payment made hereunder by the Company shall be final, and the Company shall not seek to recover all or any part of such payment from the Employee or from whomsoever may be entitled thereto, for any reasons whatsoever. 11 (d) Contractual Rights to Benefits. This Agreement establishes and vests in the Employee a contractual right to the benefits to which he is entitled hereunder. The Employee shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and the obtaining of any such other employment shall in no event effect any reduction of the Company's obligations to make the payments and arrangements required to be made under this Agreement. 7. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed within the continental United States by first class certified mail, return receipt requested, postage prepaid, addressed as follows: (a) to the Board or the Company, to: Weirton Steel Corporation Three Springs Drive Weirton, WV 26062 (b) to the Employee, to: D. Leonard Wise 23860 Sanctuary Lakes Court Bonita Springs, FL 34134 Addresses may be changed by written notice sent to the other party at the last recorded address of that party. 8. Waiver of Breach. A waiver by Company or Employee of a breach of any provision of this Agreement by the other party shall be in writing and shall not operate or be construed as a waiver of any subsequent breach by the other party. 12 9. Arbitration. Any dispute between Employee and Company arising under this Agreement, whether or not a case or controversy, shall be resolved solely by arbitration in Pittsburgh, Pennsylvania in accordance with the rules of the American Arbitration Association, and judgment upon any award may be entered in any court having jurisdiction thereof. 10. Legal Fees and Expenses. Company shall promptly reimburse Employee for the reasonable legal fees and expenses incurred by Employee in connection with enforcing any right of Employee pursuant to and afforded by this Agreement; provided, however, that Company only will reimburse Employee for such legal fees and expenses if, in connection with enforcing any right of Employee pursuant to and afforded by this Agreement, either (i) a judgment has been rendered in favor of the Employee by a duly authorized court of law; (ii) an arbitration award in favor of the Employee has been issued; or (iii) Company and Employee have entered into a settlement agreement providing for the payment to Employee of any or all amounts due hereunder. 11. Entire Agreement; Governing Law. This Agreement contains the entire agreement of the parties, superseding any prior agreement or arrangement between the parties concerning the employment of Employee by Company, whether written or oral, and any such agreements are null and void except that any prior stock option agreements between the Company and the Employee shall continue to be obligations of Company and Employee. This Agreement may be changed only by a writing signed by the party against whom enforcement is sought. This Agreement shall be governed by the laws of the State of Delaware, without regard to its principles of conflicts of laws. 12. Severability. If any provision of this Agreement or the application thereof to any circumstance shall to any extent be held invalid or unenforceable, the remainder of this 13 Agreement shall not be affected thereby and shall be valid and enforceable to the fullest extent permitted by law, but only if and to the extent such enforcement would not materially and adversely frustrate the parties' essential objectives as expressed herein. 13. Survival of Obligations. Except as otherwise specifically set forth in this Agreement or as otherwise prohibited by law, all rights and obligations of Employee, except such obligations as are created by Section 6 hereof, and all obligations of Company under this Agreement, shall cease on, and as of, the Date of Termination. IN WITNESS WHEREOF, the parties have executed this agreement as of the day first hereinabove written. WEIRTON STEEL CORPORATION By /s/ Richard R. Burt -------------------------------------- Richard R. Burt Title: Chairman of the Board of Directors /s/ D. Leonard Wise ----------------------------------------- D. Leonard Wise 14 EX-10.2 5 j0408601exv10w2.txt EMPLOYEE AGREEMENT FOR MARK E. KAPLANE Exhibit 10.2 EMPLOYMENT AGREEMENT This Employment Agreement (the "Agreement") is dated as of August 7, 2003 to be effective as of the date this Agreement is approved by the United States Bankruptcy Court for the Northern District of West Virginia (the "Effective Date") and is entered into by and between WEIRTON STEEL CORPORATION, a Delaware corporation (the "Company"), and MARK E. KAPLAN (the "Employee"). WHEREAS, Employee and Company have previously entered into Employment Agreements; WHEREAS, the Company filed for protection under Chapter 11 of the United States Bankruptcy Code ("Chapter 11") on May 19, 2003; WHEREAS, in connection with its Chapter 11 filing, the Company has arranged debtor in possession financing through Fleet Capital Corporation, as agent, including a revolving loan facility and a term facility and (the revolving loan and term facilities are collectively referred to herein as the "DIP"). WHEREAS, effective August 1, 2003, the Company's Chief Executive Officer resigned; WHEREAS, the Company seeks to secure able management to oversee its restructuring under Chapter 11; WHEREAS, the Company made a number of commitments and representations to the Employee in order to retain his services during the Chapter 11 process; and WHEREAS, the Company and the Employee intend to document the terms and conditions of the Employee's continued employment in this Agreement. NOW, THEREFORE, the parties hereby agree as follows: 1 1. Employment. The Company hereby employs Employee and Employee hereby accepts employment from the Company upon the terms and conditions hereinafter set forth, and all previously executed Employment Agreements between the parties are hereby superseded and of no further force and effect. 2. Term. This Agreement and the employment of the Employee hereunder shall commence on the Effective Date, and, except as this Agreement and the Employee's employment hereunder are earlier terminated as provided in Section 9, shall continue until the third anniversary of the Effective Date. The Term shall automatically be extended for one additional month commencing on the last business day of the first month of the Term and, if initially extended, on the last business day of each succeeding month (each, an "Extension Date") unless one party gives written notice to the other on or before an Extension Date of its intention not to extend the Term. The date upon which the Term hereof, as extended from time to time, shall expire is hereinafter referred to as the "Expiration Date"). 3. Duties. During the Term hereof, the Employee shall serve as President and Chief Financial Officer of the Company ("President and Chief Financial Officer") and of each of the Company's principal subsidiaries. The Employee shall report to the Board of Directors of the Company, shall be primarily responsible for the business, financial and administrative management of the Company and shall perform such duties as are consistent with the role of the President and Chief Financial Officer of the Company and such other duties, not inconsistent therewith, as may be reasonably assigned by the Board of Directors of the Company. The Employee shall devote his full business time and attention to the performance of his duties hereunder, provided, with the consent of the Chief Executive Officer of the Company ("CEO"), the Employee may (i) devote a reasonable amount of time and effort to charitable, industry and 2 community groups and (ii) serve as a director of other companies which do not compete with the Company. For purposes of this Agreement, no approval of the CEO shall be required for investments by the Executive in his personal portfolio except for the acquisition or holding of 2% or more of the capital stock or partnership interests of an entity that competes with the Company. 4. Compensation. (a) Base Salary. The Company shall pay Employee a base salary of $350,000 per year (such rate to be effective as of July 1, 2003) or such greater amount as may from time to time be authorized by the Committee. The amount in effect under this subsection 4(a) at a relevant time is hereinafter referred to as "Base Salary". The Base Salary shall be payable in such installments and at such times as conform to the general payroll practices of Company. (b) Chapter 11 Bonuses. The Company shall pay the Employee Chapter 11 Bonuses not to exceed in the aggregate $1,400,000. No Chapter 11 Bonus, or any installment thereof, shall be contingent upon the Employee's being or remaining an employee of the Company on the date such amount is payable; provided, however, if the Employee is terminated from employment with the Company for Cause or resigns without Good Reason (as such initially capitalized terms are defined in Section 5), the Company shall have no obligation to pay any Contingent Bonus after termination for Cause or resignation for Good Reason. The Chapter 11 Bonuses shall consist of: (i) Guaranteed Bonus. The Guaranteed Bonus shall be in the aggregate amount of $600,000 and shall be paid in three cash installments of $200,000 each, the first installment paid on the Effective Date, the second installment on 3 the thirtieth day after the Effective Date and the third installment paid on the sixtieth day after the Effective Date, provided, however, if the Employee resigns from employment with the Company for reasons other than Good Reason or if he is terminated from employment by the Company for Cause prior to the 181st day after the Effective Date, he shall return to the Company an amount determined by multiplying $600,000 by a fraction, the numerator of which is the number of days between the Effective Date and the Date of Termination and the denominator is 181. (ii) First Contingent Bonus. The First Contingent Bonus shall be in the amount of $500,000 in cash and shall be paid within five (5) business days of the earlier of (A) the closing of a transaction in which the Company sells substantially all of its assets and (B) the effective date of a plan of reorganization in the Company's Chapter 11 case. (iii) Second Contingent Bonus. The Second Contingent Bonus shall be in an amount not to exceed $300,000 and shall be paid if, but only if, the Company either (i) closes a transaction with a gross sales price in excess of the then outstanding balance of the DIP or (ii) receives a going concern valuation rendered by an entity acting on behalf of the proponent of a plan of reorganization in the Company's Chapter 11 case in excess of the amount of the then outstanding DIP. The amount of the Second Contingent Bonus shall be determined by multiplying $550,000 by a fraction, the numerator of which is the amount by which the gross sales proceeds of a transaction or the going concern value, as applicable, exceeds the then outstanding balance of the DIP 4 and the denominator is the difference between 350,000,000 and the then outstanding balance of the DIP. The Second Contingent Bonus, to the extent earned, shall be paid in a single cash payment on the earlier of the closing of the transaction for satisfaction of the DIP. (c) Automobile Expenses. The Company shall reimburse Employee for his business-related automobile expenses in accordance with the Company's policy generally applicable to its Senior Employees. (d) Other Benefit Programs. The Company shall provide, during the Term hereof, coverage for Employee under any plan qualified within the meaning of Section 401(a) of the Internal Revenue Code, including the Weirton Steel Corporation Retirement Plan (the "Retirement Plan"), and each and all welfare plans, as defined in Section 3(1) of the Employee Retirement Income Security Act ("ERISA"), including the Insurance Program, and each other or successor benefit programs whether or not so qualified or covered by ERISA, as applicable from time to time to its executive level salaried employees; (e) Supplemental Employee Retirement Plan. The Employee shall be entitled to continue to participate in the Company's Supplemental Employee Retirement Plan or any successor plan thereto (the "SERP") in accordance with its terms. (f) Perquisites. The Employee shall be eligible for, and shall participate in, such perquisites as are generally available to executive level salaried employees of the Company, including, but not limited to participation in the Weirton Steel Corporation Executive Healthcare Program upon the earlier of his completion of ten years of service 5 (including service rendered prior to the Effective Date) or his termination of employment under Sections 10(b) or (c). (g) Indemnification. The Employee shall be entitled to be indemnified, and the Company hereby does indemnify the Employee, for all causes of actions that arise or are alleged to arise during the course of his employment with the Company to the fullest extent permitted under the laws of the State of Delaware and the Company's charter. (h) Ratification of Prior Written Promises. The Company hereby ratifies each and all prior written promises, including, but not limited to grants of stock options, each in accordance with its written terms. For purposes of this subsection (k), an employment agreement shall not be a prior written promise. 5. Disclosure of Information. Employee recognizes and acknowledges that Company's trade secrets and proprietary processes as they may exist from time to time are valuable, special and unique assets of Company's business, access to and knowledge of which are essential to the performance of Employee's duties hereunder. Employee will not, during or after the term of his employment, in whole or in part, disclose such secrets or processes acquired by virtue of his employment hereunder or his service as a director to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, nor shall Employee make use of any such property for his own purposes or for the benefit of any person, firm, corporation or other entity (except Company) under any circumstances during or after the term of his employment, provided, that after the term of his employment, these restrictions shall not apply to such secrets and processes which are then in the public domain (provided that he was not responsible, directly or indirectly, for such secrets or processes entering the public domain without Company's consent). 6 6. Inventions. Employee hereby sells, transfers and assigns to Company or to any person or entity designated by Company all of the right, title and interest of Employee in and to all inventions, ideas, disclosures and improvements, whether patented or unpatented, and copyrightable material made or conceived by Employee, solely or jointly during the period of his employment hereunder which relate to methods, apparatus, designs, products, processes or devices, sold, leased, used or under consideration or development by Company, or which otherwise relate to or pertain to the business, functions or operations of Company. Employee shall communicate promptly and disclose to Company, in such form as Employee may be required to do so, all information, details and data pertaining to the aforementioned inventions, ideas, disclosures and improvements and to execute and deliver to Company such formal transfers and assignments and such other papers and documents as may be required of Employee to permit Company or any person or entity designated by Company to file and prosecute the patent applications and, as to copyrightable material, to obtain copyright thereof. Any invention relating to the business of Company and disclosed by Employee within one (1) year following the Date of Termination shall be deemed to fall within the provisions of this Section, unless proved by Employee to have been first conceived and made following the Date of Termination. For purposes of Sections 5, 6 or 7 hereof unless the context otherwise requires, the term "Company" shall include divisions, subsidiaries and controlled affiliated entities of the Company, and "businesses" of Company shall include businesses of any of such entities. 7. Nondisparagement. For the period commencing on the Effective Date and continuing for 24 months following the Date of Termination, Employee will not, in any form, disparage Company, its officers or directors or otherwise make comment adverse to Company concerning any aspect of the business or practices, past or present, of Company. 7 8. Injunctive Relief. If there is a breach or threatened breach by Employee of any of the provisions of Sections 5, 6 or 7 of this Agreement, Company shall be entitled to an injunction from a court of competent jurisdiction restraining Employee from such breach. Nothing herein shall be construed as prohibiting Company from pursuing any other remedies against Employee for such breach or threatened breach. 9. Termination. Unless earlier terminated in accordance with the following provisions of this Paragraph 9, the Company shall continue to employ the Employee and the Employee shall remain employed by the Company during the entire Term (as extended from time to time) as set forth in Paragraph 1. Paragraph 10 hereof sets forth certain obligations of the Company in the event that the Employee's employment hereunder is terminated. Certain capitalized terms used in this Paragraph 9 and Paragraph 10 hereof are defined in Paragraph 9(c) below. (a) Death or Disability. Except to the extent otherwise expressly stated herein, including without limitation, as provided in Paragraph 10(a) with respect to certain post-Date of Termination payment obligations of the Company, this Agreement shall terminate immediately as of the Date of Termination in the event of the Employee's death or in the event that the Employee becomes Disabled. (b) Notification of Discharge for Cause or Resignation. In accordance with the procedures hereinafter set forth, the Company may discharge the Employee from his employment hereunder for Cause or otherwise and the Employee may resign from his employment hereunder for Good Reason or otherwise. Any discharge of the Employee by the Company for Cause or resignation by the Employee for Good Reason shall be communicated by a Notice of Termination to the Employee (in the case of discharge) or 8 the Company (in the case of resignation) given in accordance with Paragraph 11 of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under the provision so indicated and (iii) if the Date of Termination is to be other than the date of receipt of such notice, specifies the Date of Termination (which date shall in all events be within fifteen (15) days after the giving of such notice). No purported termination of the Employee's employment for Cause shall be effective without a Notice of Termination. The failure by the Employee to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason shall not waive any right of the Employee hereunder or preclude the Employee from asserting such fact or circumstances in enforcing the Employee's rights hereunder. (c) Definitions. For purposes of this Paragraph 9 and of Paragraph 10 hereof, the following capitalized terms shall have the meanings set forth below: (i) "Accrued Obligations" shall mean, as of the Date of Termination, the sum of (A) the Employee's Base Salary under Section 4(a) through the Date of Termination not theretofore paid, (B) the amount of any bonus then due under Sections 4(b) and 4(c), and any incentive compensation, deferred compensation and other cash compensation accrued by or on behalf of the Employee as of the Date of Termination to the extent not theretofore paid, (C) any vacation pay, expense reimbursements and other cash entitlements accrued by the Employee as 9 of the Date of Termination to the extent not theretofore paid, (D) the SERP Funding, and (E) the Health Care Funding. (ii) "Cause" shall mean (A) the willful and continued failure of the Employee to perform substantially his duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Employee by the Board which demand specifically identifies the manner in which the Board believes that the Employee has not substantially performed his duties, or (B) the willful engaging by the Employee in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act on the part of the Employee shall be considered "willful" unless it is done, or omitted to be done, by the Employee in bad faith or without reasonable belief that the Employee's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board, a direction of the CEO or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Employee in good faith and in the best interests of the Company. The cessation of employment of the Employee shall not be deemed to be for Cause unless and until there shall have been delivered to the Employee a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose, after reasonable notice is provided to the Employee and the Employee is given an opportunity, 10 together with counsel, to be heard before the Board, finding that, in the good faith opinion of the Board, the Employee is guilty of the conduct described in subparagraph (A) or (B) above, and specifying the particulars thereof in detail. (iii) "Date of Termination" shall mean (A) in the event of a discharge of the Employee by the Company for Cause or a resignation by the Employee for Good Reason, the date the Employee (in the case of discharge) or the Company (in the case of resignation) receives a Notice of Termination, or any later date specified in such Notice of Termination, as the case may be, (B) in the event of a discharge of the Employee without Cause or a resignation by the Employee without Good Reason, the date the Employee (in the case of discharge) or the Company (in the case of resignation) receives notice of such termination of employment, (C) in the event of the Employee's death, the date of the Employee's death, and (D) in the event of termination of the Employee's employment by reason of Disability, the date the Employee receives written notice of such termination. (iv) "Disability" shall mean upon 30 days prior notice in writing in the event Employee has been so incapacitated that he has been unable to perform the services required of him hereunder for a period of at least 150 of 180 consecutive calendar days and such inability is continuing at the time of the giving of such notice. Company, at its sole cost and expense, shall continue to provide and keep in force during the period of incapacity which remains after the Date of Termination, but not after Employee attains age 65, income replacement, sickness and accident, life insurance and health insurance coverages for Employee and his 11 dependents of the types provided by the group benefit plans of Company for employees of the highest job classification under Company's Program of Insurance Benefits for Salaried Employees (the "Insurance Program"), which coverages shall be at a level commensurate with those provided to employees in the highest job classification. (v) "Good Reason" shall mean any of the following: (A) the assignment to the Employee of any duties inconsistent in any respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3 of this Agreement (including removal as a member of the Board), or any other action by the Company which results in a demotion in such position, authority, duties or responsibilities or which renders such position to be of less dignity, responsibility or scope, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee; or (B) any failure by the Company to pay when due or otherwise comply with any of the provisions of Section 4 of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee, or (C) the Company's requiring the Employee to be based at any office or location other than the Company's headquarters in Weirton, West Virginia or the Company's requiring the Employee to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date. 12 (vi) "SERP Funding" shall mean the difference measured as of the Date of Termination and computed as a single lump sum amount between (a) the aggregate amount required as (1) a contribution to the trust created with respect to Employee under the SERP and (2) a tax equalization payment, in accordance with the terms of the SERP and such trust, to fully fund the Company's obligation and the SERP Benefit of the Employee, each as set forth in subsection 4(g), and (b) the actual amount then funded in the trust created with respect to the Employee under the SERP. 10. Obligations of the Company Upon Termination. (a) Discharge for Cause, Resignation without Good Reason, Death or Disability. In the event of a discharge of the Employee for Cause or resignation by the Employee without Good Reason, or in the event this Agreement terminates by reason of the death or Disability of the Employee: (i) the Company shall pay all Accrued Obligations to the Employee, or to his heirs or estate in the event of the Employee's death, in a lump sum in cash within thirty (30) days after the Date of Termination; and (ii) the Employee, or his beneficiary, heirs or estate in the event of the Employee's death, shall be entitled to receive all benefits accrued by him as of the Date of Termination under the Qualified Plans and all other qualified and nonqualified retirement, pension, profit sharing and similar plans of the Company in such manner and at such time as are provided under the terms of such plans and arrangements; and 13 (iii) all other obligations of the Company hereunder shall cease forthwith, except as specifically set forth in this Agreement. (b) Discharge without Cause or Resignation for Good Reason. If the Employee is discharged other than for Cause or disability or the Employee resigns with Good Reason within one year of the happening of an event of Good Reason: (i) the Company shall pay to the Employee in a lump sum in cash within thirty (30) days after the Date of Termination the aggregate of the following amounts: (A) all Accrued Obligations; and (B) Within five (5) business days of the Date of Termination, an amount, in a single cash payment, equal to the sum of (i) one times the Employee's Base Salary and (ii) the amount of all federal, state, and municipal taxes (including payroll and excise tax) imposed on the amount paid under subsection B(i) and with respect to the amount described in this subsection (B)(ii); it being the intent of this section to cause the Employee to receive, after payment of all taxes, an amount equal to one times his Base Salary; (i) "Good Reason" shall mean (A) the failure of the Company to pay when due any amount described in Section 4 or (B) the assignment to the Employee of any duties inconsistent in any respect with the Employee's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 3 of the Agreement (including removal as a member of the Board, or any other action by the Company which results in demotion in such position, authority, duties or responsibilities or which 14 renders the Employee's position to be of less dignity, responsibility or scope, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Employee, or (C) requiring the Employee to be based other than at the Company's general offices in Weirton, West Virginia except for reasonable business travel. (ii) the Employee shall be entitled to receive all benefits accrued by him as of the Date of Termination under all qualified and nonqualified retirement, pension, profit sharing and similar plans of the Company in such manner and at such time as are provided under the terms of such plans; and (iii) all stock options and other stock interests or stock-based rights awarded to the Employee by the Company on or before the Date of Termination shall become fully vested and nonforfeitable as of the Date of Termination and shall remain exercisable until the earlier of (i) the expiration date of such option, stock interest or stock-based rights as set forth at the time of grant, or (ii) the third anniversary of the Date of Termination; (iv) the Company shall instruct the trustee of the Trust created with respect to the Employee under the SERP to distribute the corpus of such Trust to the Employee, and (v) except as otherwise provided above or in Paragraph 17 hereof, all other obligations of the Company hereunder shall cease forthwith. (c) Payment Obligations Absolute. The Company's obligation to make the payments and the arrangements provided for herein shall be absolute and unconditional, 15 and shall not be affected by any circumstances, including, without limitation, any offset, counterclaim, recoupment, defense, or other right which the Company may have against the Employee or any other party. Each and every payment made hereunder by the Company shall be final, and the Company shall not seek to recover all or any part of such payment from the Employee or from whomsoever may be entitled thereto, for any reasons whatsoever. (d) Contractual Rights to Benefits. This Agreement establishes and vests in the Employee a contractual right to the benefits to which he is entitled hereunder. The Employee shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and the obtaining of any such other employment shall in no event effect any reduction of the Company's obligations to make the payments and arrangements required to be made under this Agreement. 11. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed within the continental United States by first class certified mail, return receipt requested, postage prepaid, addressed as follows: (a) to the Board or the Company, to: Weirton Steel Corporation Three Springs Drive Weirton, WV 26062 (b) to the Employee, to: Mark E. Kaplan 104 Alyson Dr. McMurray, PA 15317 16 Addresses may be changed by written notice sent to the other party at the last recorded address of that party. 12. Waiver of Breach. A waiver by Company or Employee of a breach of any provision of this Agreement by the other party shall be in writing and shall not operate or be construed as a waiver of any subsequent breach by the other party. 13. Arbitration. Any dispute between Employee and Company arising under this Agreement, whether or not a case or controversy, shall be resolved solely by arbitration in Pittsburgh, Pennsylvania in accordance with the rules of the American Arbitration Association, and judgment upon any award may be entered in any court having jurisdiction thereof. 14. Legal Fees and Expenses. Company shall promptly reimburse Employee for the reasonable legal fees and expenses incurred by Employee in connection with enforcing any right of Employee pursuant to and afforded by this Agreement; provided, however, that Company only will reimburse Employee for such legal fees and expenses if, in connection with enforcing any right of Employee pursuant to and afforded by this Agreement, either (i) a judgment has been rendered in favor of the Employee by a duly authorized court of law; (ii) an arbitration award in favor of the Employee has been issued; or (iii) Company and Employee have entered into a settlement agreement providing for the payment to Employee of any or all amounts due hereunder. 15. Entire Agreement; Governing Law. This Agreement contains the entire agreement of the parties, superseding any prior agreement or arrangement between the parties concerning the employment of Employee by Company, whether written or oral, and any such agreements are null and void except that any prior stock option agreements between the Company and the Employee shall continue to be obligations of Company and Employee. This 17 Agreement may be changed only by a writing signed by the party against whom enforcement is sought. This Agreement shall be governed by the laws of the State of Delaware, without regard to its principles of conflicts of laws. 16. Severability. If any provision of this Agreement or the application thereof to any circumstance shall to any extent be held invalid or unenforceable, the remainder of this Agreement shall not be affected thereby and shall be valid and enforceable to the fullest extent permitted by law, but only if and to the extent such enforcement would not materially and adversely frustrate the parties' essential objectives as expressed herein. 17. Survival of Obligations. Except as otherwise specifically set forth in this Agreement or as otherwise prohibited by law, all rights and obligations of Employee, except such obligations as are created by Sections 9 and 10 hereof, and all obligations of Company under this Agreement, shall cease on, and as of, the Date of Termination. IN WITNESS WHEREOF, the parties have executed this agreement as of the day first hereinabove written. WEIRTON STEEL CORPORATION By /s/ Richard R. Burt ------------------------------------- Richard R. Burt Title: Chairman of the Board of Directors /s/ Mark E. Kaplan ---------------------------------------- Mark E. Kaplan 18 EX-10.3 6 j0408601exv10w3.txt EXHIBIT 10.3 Exhibit 10.3 The Company, with the approval of the United States Bankruptcy Court for the Northern District of West Virginia, has adopted a Key Employee Retention Program. The following is submitted as a summary of the program: A. STAY BONUS PLAN 1. The Stay Bonus Plan is designed for the purpose of retaining key management personnel and critical skill employees during the pendency of the Company's chapter 11 case. The Stay Bonus Plan includes nine (9) individuals divided into three (3) tiers. 2. The Stay Bonus Plan is necessary because (i) the value of employees' compensation packages has eroded; (ii) performance-based bonuses have not been paid in any of the past three years; and (iii) as a result of a pre-petition and a post-petition reduction in the salaried workforce and the chapter 11 filing by Weirton, many key employees are subject to employment demands and burdens that persons in comparable positions at companies not subject to bankruptcy proceedings do not face. 3. Under the Stay Bonus Plan, an employee in the Stay Bonus Plan will be eligible for a total stay bonus payment ranging from 45% to 50% of his current base salary ("Stay Bonus Payment"). The Stay Bonus Payment will be earned in four installments (each a "Payment Date") as follows: (i) 25% paid upon Court approval of the Retention Program; (ii) 25% paid on the six (6) month anniversary of the Retention Program; (iii) 25% paid on the twelve (12) month anniversary of approval of Weirton's Petition Date; and (iv) 25% paid upon confirmation of a plan of reorganization relating to Weirton. Notwithstanding the foregoing, the entire unearned and unpaid portion of each covered employee's Stay Bonus Payment shall be earned and payable upon the earlier to occur of (i) the effective date of a confirmed chapter 11 plan in this case ("Plan Effective Date"), or (ii) the closing of a sale of all or substantially all of the Debtor's assets ("Sale Closing Date"). 1 4. The right of each covered employee to receive each installment of the Stay Bonus Payment will be based solely on the employee's continued employment with Weirton as of the date each Stay Bonus Payment installment vests and becomes payable on the applicable Payment Date, Plan Effective Date, or Sale Closing Date, as the case may be. In the event of an employee's death, disability, termination for cause, or voluntary resignation, such employee will forfeit any remaining or unpaid Stay Bonus Payment. Any covered employee who is involuntarily terminated, not for cause, prior to any specified Payment Date and prior to a Plan Effective Date and a Sale Closing Date will receive a pro rata payout of his Stay Bonus Payment for the portion of the stay period during which such employee was employed. Employees who are not employed by Weirton at the time of Court approval of the Retention Plan will be entitled to payments under the Stay Bonus Plan on a pro rata basis at management's sole discretion. 5. Weirton currently anticipates that no more than nine (9) key employees will be eligible for the Stay Bonus Plan. The estimated maximum amount of Stay Bonus Payments for a base of nine (9) key employees is approximately $666,000, or on average, approximately $74,000 per eligible individual. 6. The Stay Bonus Plan will substitute and supercede any pre-petition retention benefits that otherwise would be applicable to any of Weirton's key employees pursuant to contract or otherwise. All employees participating in the Stay Bonus Plan must, by written waiver and release, forfeit any rights or entitlements with respect to retention-type benefits that such employee may have at law or under any prior employment or retention agreements, or Company programs. B. SEVERANCE PLAN 2 7. Prior to the Petition Date, Weirton did not have established a severance program for salaried employees, but instead, severance was contractually provided to several key employees pursuant to employment agreements in existence as of the Petition Date. 8. If Weirton is unable to assure employees that it will make severance payments, employee attrition may increase as a result of the concern that employees could be terminated without any post-employment protection. The estimated cost to be incurred for proposed severance payments is significantly less than the cost of unwanted attrition and is well within the range of costs incurred for similar benefits by comparable chapter 11 debtors. 9. Under the Severance Plan, the nine (9) key employees will be entitled to be paid severance benefits in an amount ranging from 6 to 24 months of base salary, plus the cost of current health benefits for the duration of the severance period.) 10. The Severance Plan provides for severance benefits only to (i) those key employees who are involuntarily terminated without cause by Weirton in connection with a Plan of Reorganization ("Plan") or a sale of all or substantially all of the Debtor's assets ("Sale"), and (ii) those key employees who voluntarily terminate employment with the Debtor because they decline to accept an employment offer from the reorganized debtor in connection with a Plan or a purchaser in connection with a Sale where such employment offer is either at a different location or provides for salary and benefits that are not at least substantially similar to the employee's terms of employment with Weirton. Severance benefits also include the following additional limitations: (a) severance is calculated on base salary only, (b) there is no mitigation of cash benefits, (c) cash severance benefits to be paid as a lump sum, and (d) cost of current health benefits to be paid for period equal to severance period, subject, however, to mitigation. 11. Except as set forth above to the contrary, employees who voluntarily terminate employment with Weirton will not be entitled to severance benefits. Employees who are involuntarily terminated (other than for cause) pursuant to a divestiture of the Company will be 3 entitled to a single lump sum payment if not retained by the new organization on the transition date associated with the divestiture. 12. The maximum cost of the Severance Program will be approximately $1,582,000. C. CEO DISCRETIONARY FUND 13. Weirton will establish a CEO Discretionary Pool of $625,000 for use, in the sole discretion of Weirton's CEO, to retain selected individuals not otherwise covered by the Stay Bonus Plan or for any unforeseen retention needs that may arise during the restructuring period. ----------------------------------------------------- More recently the Company, with the approval of the United States Bankruptcy Court has modified the Key Employee Retention Program. The following summary reflects the modified program: The Modified Retention Program still includes a Stay Bonus Plan, a Severance Plan and a CEO Discretionary Pool. However, under the Modified Retention Program, those components will be altered as follows: (i) the number of participants in the Stay Bonus Plan will be reduced from 9 to 7; (ii) the severance benefits of one individual will be reduced from 24 months of base salary and medical benefits to 12 months of base salary and medical benefits; and (iii) the CEO Discretionary Pool will be increased by $75,000 to a total of $700,000. The table below demonstrates the change in the amounts of potential payments to be made as a result of the above changes to each part of the Retention Program: 4
STAY BONUS SEVERANCE PLAN CEO DISCRETIONARY TOTAL PLAN (MAXIMUM POOL (MAXIMUM) PAYMENTS) APPROVED $666,000 $1,582,000 $625,000 $2,873,000 RETENTION PROGRAM MODIFIED $478,000 $1,345,000 $700,000 $2,523,000 RETENTION PROGRAM COST ($188,000) ($237,000) $75,000 ($350,000) REDUCTION OR INCREASE
5 EX-31.1 7 j0408601exv31w1.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER I, D. Leonard Wise, certify that: 1. I have reviewed this report on Form 10-Q of Weirton Steel Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. [text of this paragraph omitted in accordance with interim compliance procedures promulgated by the Securities and Exchange Commission in Release No. 34-47986]; c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant's internal control over financial reporting 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors: a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 14, 2003 /s/ D. LEONARD WISE -------------------------------------- D. Leonard Wise Chief Executive Officer EX-31.2 8 j0408601exv31w2.txt EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER I, Mark E. Kaplan, certify that: 1. I have reviewed this report on Form 10-Q of Weirton Steel Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. [text of this paragraph omitted in accordance with interim compliance procedures promulgated by the Securities and Exchange Commission in Release No. 34-47986]; c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the registrant's internal control over financial reporting 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors: a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 14, 2003 /s/ MARK E. KAPLAN -------------------------------------- Mark E. Kaplan President and Chief Financial Officer EX-32.1 9 j0408601exv32w1.txt EXHIBIT 32.1 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Weirton Steel Corporation (the "Company") on Form 10-Q for the period ended September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ D. LEONARD WISE -------------------------------------- D. Leonard Wise Chief Executive Officer November 14, 2003 /s/ MARK E. KAPLAN -------------------------------------- Mark E. Kaplan President and Chief Financial Officer November 14, 2003 A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Cmpany and furnished to the Securities Exchange Commission or its staff upon request. This certification accompanies the Report and shall not be treated as having been filed as part of Report. -----END PRIVACY-ENHANCED MESSAGE-----