Exhibit 99.1
RISK FACTORS CONTAINED IN WHX CORPORATION (THE "COMPANY", "WE" OR "OUR")
REGISTRATION STATEMENT ON FORM S-1 FILED ON OCTOBER 18, 2007
ITEM 1A. RISK FACTORS
RISKS RELATING TO OUR FINANCIAL CONDITION AND RECENTLY COMPLETED
REORGANIZATION
WE HAVE A HISTORY OF LOSSES AND SUBSTANTIAL INDEBTEDNESS AND CASH FLOW
OBLIGATIONS. WE CANNOT ASSURE YOU THAT WE WILL ACHIEVE PROFITABILITY IN 2007.
We have incurred significant losses and negative cash flows from
operations in recent years, and our prospects must be considered in light of the
risks, expenses, and difficulties frequently encountered in operating a company
that has just emerged from protection under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code").
For the years ended December 31, 2006, 2005 and 2004, we incurred net
operating losses of $18.2 million, $34.7 million and $140.4 million,
respectively, and had negative cash flows from operations of $18.8 million, $5.0
million and $39.6 million, respectively. For the six months ended June 30, 2007
and 2006, we incurred net operating losses of $4.5 million and $8.6 million,
respectively and had negative cash flows from operations of $16.4 million and
$12.1 million, respectively. As of June 30, 2007 and December 31, 2006,
respectively, we had accumulated deficits of $417.9 million and $412.1 million
and working capital deficits of $125.0 million and $1.6 million. As of June 30,
2007, the majority of H&H's debt was classified as short-term since its maturity
date was scheduled to occur within twelve months (June 30, 2008), whereas as of
December 31, 2006, such debt was classified as long-term since its maturity date
exceeded one year. We intend to seek to refinance our H&H debt, but there can be
no assurance that such financing will be available or available on commercially
reasonable terms acceptable to us. If we cannot refinance our H&H debt, there
can be no assurance that H&H will be able to continue to operate its business or
to provide WHX with additional capital to fund our operations. Bairnco's bank
debt was refinanced in July 2007, with a new scheduled maturity of 2012.
Additionally, H&H has not been in compliance with certain of its bank covenants
and has obtained a number of waivers from its lenders related to such covenants.
As of June 30, 2007, WHX and its unrestricted subsidiaries had cash of
approximately $0.1 million and current liabilities of approximately $8.7
million, including $5.1 million of mandatorily redeemable preferred shares
payable to a related party. WHX is a holding company and we have as our sole
source of cash flow, distributions from our operating subsidiaries, H&H and
Bairnco, or other discrete transactions. H&H's credit facilities effectively do
not permit it to transfer any cash or other assets to WHX (with the exception of
(i) an unsecured loan for required payments to the defined- benefit pension plan
sponsored by WHX (the "WHX Pension Plan"), (ii) an unsecured loan for other uses
in the aggregate principal amount not to exceed $3.5 million under certain
conditions, (iii) the loan, distribution or other advance of up to approximately
$7.4 million, subject to certain limitations, to the extent loaned by Steel,
L.P. ("Steel Partners") to H&H, of which approximately $2.3 million has already
been distributed, and (iv) up to $13.1 million to be used by WHX solely to make
a contribution to the WHX Pension Plan). H&H's credit facilities are
collateralized by substantially all of H&H's assets. Similarly, Bairnco's bank
credit facilities and term loan do not permit it to make any distribution, pay
any dividend or transfer any cash or other assets to WHX other than common stock
of Bairnco. WHX's ongoing operating cash flow requirements consist of funding
the minimum requirements of the WHX Pension Plan and paying other administrative
costs.
H&H's availability under its credit facilities as of December 31, 2006 was
$19.1 million, and as of June 30, 2007, was approximately $10.1 million.
In connection with the closing of the Agreement and Plan of Merger, dated
as of February 23, 2007 (the "Merger Agreement"), pursuant to which BZ
Acquisition Corp. ("BZA") amended its tender offer to acquire all of the
outstanding common shares of Bairnco at a price of $13.50 per share in cash (the
"Offer") and BZA merged with and into Bairnco with Bairnco continuing as the
surviving corporation as a wholly owned subsidiary of WHX (the "Merger" and,
together with the Offer, the "Bairnco Acquisition"), initial financing was
provided by Steel Partners through two credit facilities. Steel Partners
extended to BZA bridge loans in the aggregate principal amount of approximately
$86.5 million pursuant to a Loan and Security Agreement (the "Bridge Loan
Agreement"), between BZA and Bairnco, as borrowers, and Steel Partners, as
lender. In addition, Steel Partners extended to WHX a $15.0 million subordinated
loan, which is unsecured at the WHX level, pursuant to a Subordinated Loan and
Security Agreement, dated as of April 17, 2007 (the "Subordinated Loan
Agreement") between WHX, as borrower, and Steel Partners, as lender. WHX
contributed the $15.0 million proceeds of the subordinated loan to BZA as a
capital contribution.
On July 18, 2007, Bairnco and certain of its subsidiaries entered into (i)
a Credit Agreement (the "First Lien Credit Agreement") with Wells Fargo
Foothill, Inc. ("Wells Fargo"), as arranger and administrative agent thereunder
which provides for a revolving credit facility to the borrowers thereunder in an
aggregate principal amount not to exceed $30,000,000 and a term loan facility of
$28,000,000, (ii) a Credit Agreement (the "Second Lien Credit Agreement") with
Ableco Finance LLC ("Ableco"), as administrative agent thereunder which provides
for a term loan facility to the borrowers thereunder of $48,000,000, and (iii)
an Amended and Restated Credit Agreement (the "Subordinated Debt Credit
Agreement") with Steel Partners as lender providing for a term loan of
$31,814,320, and completed the refinancing of: (A) all existing indebtedness of
Bairnco and its subsidiaries under its senior secured credit facility dated as
of November 9, 2006 with Bank of America, N.A. (the "Bairnco Senior Secured
Credit Facility"), and (B) approximately $56.7 million of the indebtedness under
the Bridge Loan Agreement. The Subordinated Debt Credit Agreement amended and
restated the Bridge Loan Agreement. The scheduled maturity date of the
indebtedness under each of the First Lien Credit Agreement and the Second Lien
Credit Agreement is July 17, 2012, and the scheduled maturity date under the
Subordinated Debt Credit Agreement is January 17, 2013.
In addition to the obligations under the current credit facilities, we
also have significant cash flow obligations, including without limitation the
amounts due to the WHX Pension Plan (as amended by the IRS Waiver and the PBGC
Settlement Agreement entered into on December 28, 2006) (as these terms are
defined below). There can be no assurance that the funds available from
operations and under our credit facilities will be sufficient to fund debt
service costs, working capital demands, WHX Pension Plan contributions and
environmental remediation costs, or that we will be able to obtain replacement
financing at commercially reasonable terms upon the expiration of our H&H credit
facilities in June 2008.
Throughout 2005 and 2006, WHX experienced liquidity issues. On March 7,
2005, WHX filed a voluntary petition (the "Bankruptcy Filing") to reorganize
under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court
for the Southern District of New York (the "Bankruptcy Court"). WHX continued to
operate its business and own and manage its properties as a debtor-in-possession
(the "Debtor") under the jurisdiction of the bankruptcy court until it emerged
from protection under Chapter 11 of the Bankruptcy Code on July 29, 2005.
Since WHX emerged from bankruptcy, due to covenant restrictions in H&H and
Bairnco's respective credit facilities, there have been no dividends from H&H or
Bairnco to WHX and WHX's sources of cash flow have consisted of:
o The issuance of $5.1 million in preferred stock by a newly created
subsidiary in October 2005, which was invested in the equity of a
public company (Cosine Communications Inc.);
o Partial payment of the H&H subordinated debt to WHX of $9.0 million,
which required the approval of the banks participating in the H&H
credit facilities. Subsequent to this transaction in 2006, the
remaining intercompany loan balance of the subordinated debt of
$44.2 million was converted to equity;
o As permitted by a March 29, 2007 amendment and waiver to the H&H
credit facilities, an unsecured loan from H&H for required payments
to the WHX Pension Plan, and an unsecured loan for other uses in the
aggregate principal amount not to exceed $3.5 million under certain
conditions;
o A $15.0 million subordinated loan from Steel Partners pursuant to
the Subordinated Loan Agreement which WHX used to fund a capital
contribution to BZA to finance in part the Bairnco Acquisition;
o As permitted by a July 27, 2007 amendment to the H&H credit
facilities, an unsecured loan, distribution or other advance from
H&H to WHX of up to $7,389,276, subject to certain limitations, to
the extent loaned by Steel Partners to H&H, of which approximately
$2.3 million has already been distributed; and
o As permitted by a September 10, 2007 amendment to the H&H credit
facilities, an unsecured loan from H&H of $13.0 million which was
used by WHX to make a payment to the WHX Pension Plan on September
12, 2007.
We do not anticipate that we will have any additional sources of cash flow
other than (i) as described above, (ii) from the refinancing of our debt and
(iii) from the proceeds of this offering. In addition, the proceeds of this
offering are expected to be used to redeem preferred stock and to retire
indebtedness, and accordingly will not be available for general corporate
purposes. If we fail to refinance our debt and have a successful offering, we
will likely face substantial liquidity problems and our ability to operate could
be adversely affected.
2
WE SPONSOR A DEFINED BENEFIT PENSION PLAN WHICH COULD SUBJECT US TO SUBSTANTIAL
CASH FUNDING REQUIREMENTS IN THE FUTURE.
On September 15, 2006, WHX was required to make a minimum contribution to
the WHX Pension Plan for the 2005 plan year in the amount of $15.5 million.
However, we did not make that contribution due to liquidity issues. We applied
to the Internal Revenue Service ("IRS") for a funding waiver for the 2005 plan
year, and on December 20, 2006, the IRS granted a conditional waiver of the
minimum funding requirements for the 2005 plan year (the "IRS Waiver") in
accordance with section 412 (d) of the Internal Revenue Code and section 303 of
the Employee Retirement Income and Security Act of 1974, as amended ("ERISA").
On December 28, 2006, WHX, H&H, and the Pension Benefit Guaranty Corporation
(the "PBGC") entered into a settlement agreement (the "PBGC Settlement
Agreement") in connection with the IRS Waiver and certain other matters. The IRS
Waiver is subject to certain conditions, including a requirement that we meet
the minimum funding requirements for the WHX Pension Plan for the plan years
ending December 31, 2006 through 2010, without applying for a waiver of such
requirements. The PBGC Settlement Agreement and related agreements include the
following: (i) the amortization of the waived amount of $15.5 million (the
"Waiver Amount") over a period of five years, (ii) the PBGC's consent to
increase borrowings under H&H's senior credit facility to $125 million in
connection with the closing of an acquisition (iii) the resolution of any
potential issues under Section 4062(e) of ERISA, in connection with the
cessation of operations at certain facilities owned by WHX, H&H or their
subsidiaries, and (iv) the granting to the PBGC of subordinate liens on the
assets of H&H and its subsidiaries, and specified assets of WHX, to
collateralize WHX's obligation to pay the Waiver Amount to the WHX Pension Plan
and to make certain payments to the WHX Pension Plan in the event of its
termination. Payments made during 2006 and 2007 (through September 12, 2007)
were $13.1 million and $21.6 million, respectively. On September 12, 2007, WHX
made a payment to the WHX Pension Plan of $13.0 million, which exceeded minimum
required contributions under ERISA. As a result of such accelerated
contribution, our future required contributions to the WHX Pension Plan are
expected to decline. Based on estimates from our actuary, expected minimum
funding requirements are $0.0, $4.6 million, $5.0 million, $3.4 million and $1.0
million for 2008, 2009, 2010, 2011 and 2012, respectively. All minimum funding
requirement calculations reflect the Pension Protection Act of 2006, the PBGC
Settlement Agreement and the IRS Waiver.
Our pension benefit costs are developed from actuarial valuations.
Inherent in these valuations are assumptions including discount rates and
expected long-term rates of return on plan assets. Material changes in our
pension costs may occur in the future due to changes in market conditions not
consistent with the assumptions, changes in assumptions, or other changes such
as a plan termination, in which case there may be additional claims related to
payment for unfunded liabilities.
IF WE ARE UNABLE TO ACCESS FUNDS GENERATED BY OUR SUBSIDIARIES WE MAY NOT BE
ABLE TO MEET OUR FINANCIAL OBLIGATIONS.
Because we are a holding company that conducts our operations through our
subsidiaries, we depend on those entities for dividends, distributions and other
payments to generate the funds necessary to meet our financial obligations.
Failure by one of our subsidiaries to generate cash flow and obtain refinancing
of its debt, on terms which would permit dividends, distributions or other
payments to WHX, will likely have a material adverse effect on our business,
financial condition and results of operations. As previously described, due to
covenant restrictions in H&H and Bairnco's respective credit facilities, there
have been no dividends from H&H or Bairnco to WHX, and WHX's sources of cash
have been extremely limited.
RISKS RELATING TO OUR BUSINESS
IN MANY CASES, OUR COMPETITORS ARE LARGER THAN US AND HAVE MANUFACTURING AND
FINANCIAL RESOURCES GREATER THAN WE DO, WHICH MAY HAVE A NEGATIVE IMPACT ON OUR
BUSINESS, OPERATING RESULTS OR FINANCIAL CONDITION.
There are many companies, both domestic and foreign, which manufacture
products of the type we manufacture. Some of these competitors are larger than
we are and have financial resources greater than we do. Some of these
competitors enjoy certain other competitive advantages, including greater name
recognition, greater financial, technical, marketing and other resources, a
larger installed base of customers, and well-established relationships with
current and potential customers. Competition is based on quality, technology,
service, and price and in some industries, new product introduction, each of
which is of equal importance. We may not be able to compete successfully and
competition may have a negative impact on our business, operating results or
financial condition by reducing volume of products sold and/or selling prices,
and accordingly reducing our revenues and profits.
In our served markets, we compete against large private and public
companies. This results in intense competition in a number of markets in which
we operate. In addition, the ongoing move of our customer base in the Arlon
electronics segment to low cost China manufacturing reduces pricing and
increases competition. Significant competition could in turn lead to lower
prices, lower levels of shipments and/or higher costs in some markets that could
have a negative effect on our results of operations.
3
OUR PROFITABILITY MAY BE ADVERSELY AFFECTED BY FLUCTUATIONS IN THE COST OF RAW
MATERIALS.
We are exposed to market risk and price fluctuation related to the
purchase of natural gas, electricity, precious metal, steel products and certain
non-ferrous metals used as raw materials. Our results of operations may be
adversely affected during periods in which either the prices of such commodities
are unusually high or their availability is restricted. In addition, we hold
precious metal positions that are subject to market fluctuations. Precious metal
inventory is included in inventory using the last-in, first-out method of
inventory accounting. We enter into forward or future contracts with major
financial institutions to reduce the economic risk of price fluctuations.
SOME OF OUR RAW MATERIALS ARE AVAILABLE FROM A LIMITED NUMBER OF SUPPLIERS.
THERE CAN BE NO ASSURANCE THAT THE PRODUCTION OF THESE RAW MATERIALS WILL BE
READILY AVAILABLE.
Several raw materials used in Bairnco's products are purchased from
chemical companies that are proprietary in nature. Other raw materials are
purchased from a single approved vendor on a "sole source" basis. Although
alternative sources could be developed in the future if necessary, the
qualification procedure can take several months or longer and could therefore
interrupt the production of our products and services if the primary raw
material source became unexpectedly unavailable.
OUR BUSINESS IS SUBJECT TO GENERAL ECONOMIC CONDITIONS.
We operate in a wide range of manufacturing businesses that serve
customers in the construction, electric, electronic, home appliance OEM,
automotive, refrigeration, utility, telecommunications, medical and energy
related industries. As a result, our results of operations tend not to be
disproportionately affected by any one industry or segment, but tend to be
affected by general economic conditions and other factors worldwide, including
fluctuations in interest rates, customer demand, labor costs and other factors
beyond its control. The demand for our customers' products and, therefore, our
products, is directly affected by such fluctuations.
THE LOSS OF ANY OF OUR MAJOR CUSTOMERS COULD ADVERSELY AFFECT OUR REVENUES AND
FINANCIAL HEALTH.
In 2006, H&H's 15 largest customers accounted for approximately 27% of
H&H's consolidated net sales. In 2006, Bairnco's 15 largest customers accounted
for approximately 17% of Bairnco's consolidated net sales. If we were to lose
any of our relationships with these customers, revenues and profitability could
fall significantly.
OUR BUSINESS STRATEGY INCLUDES SELECTIVE ACQUISITIONS AND ACQUISITIONS ENTAIL
NUMEROUS RISKS.
Our business strategy includes, among other things, strategic and
selective acquisitions. This element of our strategy entails several risks,
including the diversion of management's attention from other business concerns,
whether or not we are successful in finding acquisitions, and the need to
finance such acquisitions with additional equity and/or debt.
In addition, once found, acquisitions entail further risks, including:
unanticipated costs and liabilities of the acquired businesses, including
environmental liabilities that could materially adversely affect our results of
operations; difficulties in assimilating acquired businesses; negative effects
on existing business relationships with suppliers and customers and losing key
employees of the acquired businesses.
OUR COMPETITIVE ADVANTAGE COULD BE REDUCED IF OUR INTELLECTUAL PROPERTY OR
RELATED PROPRIETARY MANUFACTURING PROCESSES BECOME KNOWN BY OUR COMPETITORS OR
IF TECHNOLOGICAL CHANGES REDUCE OUR CUSTOMERS' NEED FOR OUR PRODUCTS.
We own a number of trademarks and patents (in the United States and other
jurisdictions) on our products and related proprietary manufacturing processes.
In addition to trademark and patent protection, we rely on trade secrets,
proprietary know-how and technological advances that we seek to protect. If our
intellectual property is not properly protected by us or is independently
discovered by others or otherwise becomes known, our protection against
competitive products could be diminished.
WE COULD INCUR SIGNIFICANT COSTS, INCLUDING REMEDIATION COSTS, AS A RESULT OF
COMPLYING WITH ENVIRONMENTAL LAWS.
Our facilities and operations are subject to extensive environmental laws
and regulations imposed by federal, state, foreign and local authorities
relating to the protection of the environment. We could incur substantial costs,
including cleanup costs, fines or sanctions, and third-party claims for property
damage or personal injury, as a result of violations of or liabilities under
environmental laws. We have incurred, and in the future may continue to incur,
liability under environmental statutes and regulations with respect to the
contamination detected at sites owned or operated by the Company (including
contamination caused by prior owners and operators of such sites, abutters or
4
other persons) and the sites at which we have disposed of hazardous substances.
As of June 30, 2007, we have established a reserve totaling $4.6 million with
respect to certain presently estimated environmental remediation costs. This
reserve may not be adequate to cover the ultimate costs of remediation,
including discovery of additional contaminants or the imposition of additional
cleanup obligations which could result in significant additional costs. In
addition, we expect that future regulations, and changes in the text or
interpretation of existing regulations, may subject us to increasingly stringent
standards. Compliance with such requirements may make it necessary for us to
retrofit existing facilities with additional pollution-control equipment,
undertake new measures in connection with the storage, transportation, treatment
and disposal of by-products and wastes or take other steps, which may be at a
substantial cost to us.
OUR RESULTS OF OPERATIONS MAY BE NEGATIVELY AFFECTED BY VARIATIONS IN INTEREST
RATES.
Our credit facilities are collateralized by accounts receivable,
inventory, and property, plant and equipment. These credit facilities are
variable rate obligations which expose us to interest rate risks.
OUR EARNINGS COULD DECREASE IF THERE IS A DECLINE IN GOVERNMENTAL FUNDING FOR
MILITARY OPERATIONS.
If, as a result of a loss of funding or a significant cut in federal
budgets, spending on military projects were to be reduced significantly, our
earnings and cash flows related to the Arlon EM segment could be negatively
affected.
POTENTIAL SUPPLY CONSTRAINTS AND SIGNIFICANT PRICE FLUCTUATIONS OF ELECTRICITY,
NATURAL GAS AND OTHER PETROLEUM BASED PRODUCTS COULD ADVERSELY AFFECT OUR
BUSINESS.
In our production and distribution processes, we consume significant
amounts of electricity, natural gas, fuel and other petroleum-based commodities,
including adhesives and other products. The availability and pricing of these
commodities are subject to market forces that are beyond our control. Our
suppliers contract separately for the purchase of such commodities and our
sources of supply could be interrupted should our suppliers not be able to
obtain these materials due to higher demand or other factors interrupting their
availability. Last year, particularly in the Gulf Coast region affected by
severe hurricanes, supplies of these commodities were occasionally disrupted and
subject to tremendous price fluctuations. Variability in the supply and prices
of these commodities could materially affect our operating results from period
to period and rising costs could erode our profitability.
ADVERSE WEATHER COULD MATERIALLY AFFECT OUR RESULTS.
A significant portion of our business in the Kasco segment involves
on-site delivery, service and repair. In addition, a significant amount of our
business in the Arlon CM segment is to the outdoor sign industry. Inclement
weather affects both our ability to produce and distribute our products and
affects our customers' short-term demand since their work also can be hampered
by weather. Therefore, our results can be negatively affected by inclement
weather. Severe weather such as hurricanes, tropical storms and earthquakes can
damage our facilities, resulting in increased repair costs and business
disruption.
A FAILURE TO MANAGE INDUSTRY CONSOLIDATION COULD NEGATIVELY IMPACT OUR
PROFITABILITY.
The industries within which we operate have experienced recent
consolidations. This trend tends to put more purchasing power in the hands of a
few large customers who can dictate lower prices of our products. Failure to
effectively negotiate pricing agreements and implement on-going cost reduction
projects can have a material negative impact on our profitability.
OUR FUTURE SUCCESS DEPENDS GREATLY UPON ATTRACTING AND RETAINING QUALIFIED
PERSONNEL.
A significant factor in our future profitability is our ability to
attract, develop and retain qualified personnel. Our success in attracting
qualified personnel is affected by changing demographics of the available pool
of workers with the training and skills necessary to fill the available
positions, the impact on the labor supply due to general economic conditions,
and our ability to offer competitive compensation and benefit packages.
LITIGATION COULD AFFECT OUR PROFITABILITY.
The nature of our businesses expose us to various litigation matters
including product liability claims, employment, health and safety matters,
environmental matters, regulatory and administrative proceedings. We contest
these matters vigorously and make insurance claims where appropriate. However,
litigation is inherently costly and unpredictable, making it difficult to
accurately estimate the outcome of any litigation. Although we make accruals as
we believe warranted, the amounts that we accrue could vary significantly from
any amounts we actually pay due to the inherent uncertainties in the estimation
process.
5
OUR INTERNAL CONTROLS OVER FINANCIAL REPORTING MAY NOT BE EFFECTIVE AND OUR
INDEPENDENT AUDITORS MAY NOT BE ABLE TO CERTIFY AS TO THEIR EFFECTIVENESS, WHICH
COULD HAVE A SIGNIFICANT AND ADVERSE EFFECT ON OUR BUSINESS AND REPUTATION.
We will be subject to the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 and the rules and regulations of the Securities and
Exchange Commission (the "SEC") thereunder (which we refer to as Section 404) as
of December 31, 2007. Section 404 requires us to report on the design and
effectiveness of our internal controls over financial reporting. In the past our
management has identified "material weaknesses" in our internal controls over
financial reporting. There can be no assurance that in preparing for our
compliance with Section 404, additional deficiencies or material weaknesses in
our internal controls over financial reporting will not be identified. Any
failure to maintain or implement new or improved controls, or any difficulties
we encounter in their implementation, could result in significant deficiencies
or material weaknesses, and cause us to fail to meet our periodic reporting
obligations or result in material misstatements in our financial statements.
Section 404 also requires an independent registered public accounting firm
to test the internal controls over financial reporting and report on the
effectiveness of such controls. In our annual report on Form 10-K for the fiscal
year ended December 31, 2006, our independent auditor, Grant Thornton LLP
("GT"), an independent registered public accounting firm, was not required to
express an opinion on our internal controls over financial reporting. However,
prior to the Bairnco Acquisition, Bairnco's independent auditor, also GT, issued
a disclaimer of opinion on both management's assessment and the effectiveness of
Bairno's internal controls over financial reporting in their annual report on
Form 10-K for the fiscal year ended December 31, 2006. GT is not required to
issue a report attesting to our internal controls over financial reporting until
the year ended December 31, 2008. There can be no assurance that GT will issue
an unqualified report attesting to our internal controls over financial
reporting at such time.
We also cannot be certain about the timing of completion of our Section
404 evaluation, documentation, testing and any remediation actions or the impact
of these actions on our operations. If our remediation actions are insufficient,
our chief financial officer or chief executive officer may conclude that our
controls are ineffective for purposes of Section 404. As a result, there could
be a negative reaction in the financial markets due to a loss of confidence in
the reliability of our financial statement or our financials statements could
change. We may also be required to incur costs to improve our internal control
system and hire additional personnel. This could negatively impact our results
of operations.
RISK RELATING TO OUR OWNERSHIP STRUCTURE
WARREN G. LICHTENSTEIN, OUR CHAIRMAN, AND CERTAIN OTHER OFFICERS AND DIRECTORS,
THROUGH THEIR AFFILIATION WITH STEEL PARTNERS, HAS THE ABILITY TO EXERT
SIGNIFICANT INFLUENCE OVER OUR OPERATIONS.
Warren G. Lichtenstein, our Chairman, as the sole managing member of the
general partner of Steel Partners, is deemed to own beneficially the shares of
our common stock owned by Steel Partners. Steel Partners beneficially owns
5,029,793 shares of our common stock, representing approximately 50.3% of our
outstanding common stock. Mr. Lichtenstein, as sole managing member and the
general partner of Steel Partners, has sole investment and voting control over
the shares beneficially owned by Steel Partners and thus has the ability to
exert significant influence over our policies and affairs, including the
election of our Board of Directors and the approval of any action requiring a
stockholder vote, such as amendments to our amended and restated certificate of
incorporation and approving mergers or sales of substantially all of our assets,
as well as matters where the interests of Mr. Lichtenstein and Steel Partners
may differ from the interests of our other stockholders in some respects. In
addition, employees of an affiliate of Steel Partners hold positions with WHX,
including Glen M. Kassan as Chief Executive Officer and John J. Quicke as Vice
President, and as directors, and Jack L. Howard and Joshua E. Schechter as
directors. Mr. Quicke also serves as the President and Chief Executive Officer
of Bairnco.
FACTORS AFFECTING THE VALUE OF SECURITIES ISSUED UNDER THE PLAN OF
REORGANIZATION
THERE IS NO ESTABLISHED MARKET FOR OUR COMMON STOCK.
No established market exists for our common stock. Our common stock is
presently quoted on the over-the-counter "Pink Sheets". No assurance can be made
that an active trading market will develop. There can be no assurance as to the
degree of price volatility in any market for our common stock that does develop.
Transfer restrictions contained in our charter to help preserve our net
operating loss carry forwards ("NOLs") will generally prevent any person from
rapidly acquiring amounts of our common stock such that such person would hold
5% or more of our common stock, in each case for up to ten years after July 29,
2005, as specifically provided in our charter. These transfer restrictions could
hinder development of an active market for our common stock.
6
WE DO NOT ANTICIPATE PAYING DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE
FUTURE WHICH MAY LIMIT INVESTOR DEMAND.
We do not anticipate paying any dividends on our common stock in the
foreseeable future. Such lack of dividend prospects may have an adverse impact
on the market demand for our common stock as certain institutional investors may
invest only in dividend-paying equity securities or may operate under other
restrictions that may prohibit or limit their ability to invest in our common
stock.
RISKS RELATED TO THE RIGHTS OFFERING
OUR STOCKHOLDERS THAT DO NOT PARTICIPATE IN THE RIGHTS OFFERING WILL LIKELY
EXPERIENCE DILUTION.
Our stockholders that choose not to exercise their subscription rights in
the rights offering will retain their current number of shares of common stock
of WHX. However, if such stockholders choose not to exercise their subscription
rights, their percentage ownership and voting rights in WHX will experience
dilution if and to the extent that other stockholders exercise their
subscription rights. In that event, the percentage ownership, voting rights and
other rights of all stockholders who do not fully exercise their subscription
rights will be diluted.
