As filed with the Securities and Exchange Commission on August 10, 2004
REGISTRATION NO. 333-116128
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 1
to
FORM F-4* AND S-4*
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
ISPAT INLAND ULC
And the Guarantors listed on the following page
(Exact name of registrant as specified in its charter)
----------------------
NOVA SCOTIA 6719 NOT APPLICABLE
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification Number)
4000, ROUTE DES ACIERES
CONTRECOEUR, QUEBEC
CANADA JOL 1CO
(450) 587-8600
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
----------------------
MARC R. JESKE
ISPAT INLAND INC.
3210 WATLING STREET
EAST CHICAGO, INDIANA 46312
(219) 399-1200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------------
WITH A COPY TO:
PHILIP J. NIEHOFF MARC M. ROSSELL
MAYER, BROWN, ROWE & MAW LLP SHEARMAN & STERLING LLP
190 SOUTH LASALLE STREET 599 LEXINGTON AVENUE
CHICAGO, ILLINOIS 60603 NEW YORK, NEW YORK 10022
(312) 782-0600 (212) 848-4000
----------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this registration statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] ______________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ________________
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED PRICE PER UNIT(1) PRICE(1) FEE(3)
- ----------------------------------------------------------------------------------------------------------------
Senior Secured Floating Rate Notes due 2010.. $150,000,000 100% $ 150,000,000 $ 19,005
9-3/4% Senior Secured Notes due 2014......... $650,000,000 100% $ 650,000,000 82,355
Guarantees................................... N/A N/A N/A (2)
- ----------------------------------------------------------------------------------------------------------------
Total........................................ $ 101,360
================================================================================================================
(1) Estimated solely for the purposes of calculating the registration fee.
(2) No separate consideration is received for the guarantees, and therefore,
no additional fee is required.
(3) This amount was previously paid.
EACH REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL SUCH REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
TABLE OF ADDITIONAL REGISTRANTS
STATE OR OTHER PRIMARY
JURISDICTION OF STANDARD INDUSTRIAL
INCORPORATION OR CLASSIFICATION I.R.S. EMPLOYER
NAME OF ADDITIONAL REGISTRANT FORMATION CODE NUMBER IDENTIFICATION NO.
- ---------------------------------- ------------------- ------------------- ------------------
Ispat International N.V.(1) The Netherlands 3312 Not Applicable
Ispat Inland Inc. (2) Delaware 3312 36-1262880
Burnham Trucking Company, Inc. (2) Delaware 4212 39-1328680
Incoal Company(2) Delaware 8611 36-2744563
Ispat Inland Mining Company(2) Delaware 1011 36-2814042
Ispat Inland Service Corp. (2) Delaware 3312 36-3260991
Ispat Inland, L.P. (2) Delaware 6719 52-2119872
3019693 Nova Scotia U.L.C. (3) Nova Scotia, Canada 6719 Not Applicable
Ispat Inland Finance, LLC(2) Delaware 6719 Not Applicable
(1) Address and telephone number of principal executive offices is 15th Floor,
Hofplein 20, 3032 AC Rotterdam, The Netherlands, 311 0217 8800
(2) Address and telephone number of principal executive offices is 3210
Watling Street, East Chicago, Indiana 46312, (219) 399-1200
(3) Address and telephone number of principal executive offices is 4000, Route
des Acieres, Contrecoeur, Quebec, Canada JOL 1CO, (450) 587-8600.
* This registration statement comprises a filing on Form F-4 with respect to the
securities of the non-U.S. registrants and a filing on Form S-4 with respect to
the securities of the U.S. registrants.
The information in this prospectus is not complete and may be changed. These
securities may not be sold until the registration statement filed with the SEC
is effective. This prospectus is not an offer to sell nor is it an offer to buy
these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion, Dated August 10, 2004
$800,000,000
OFFER TO EXCHANGE
$150,000,000 SENIOR SECURED FLOATING RATE NOTES DUE 2010
AND
$650,000,000 9 -3/4% SENIOR SECURED NOTES DUE 2014,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
FOR ANY AND ALL OUTSTANDING
SENIOR SECURED FLOATING RATES NOTES DUE 2010
AND
9-3/4% SENIOR SECURED NOTES DUE 2014,
WHICH HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OF
ISPAT INLAND ULC
GUARANTEED BY THE GUARANTORS NAMED HEREIN
- The exchange offer expires at 5:00 p.m., New York City time, on
_________ __, 2004, unless extended.
- All outstanding old notes that are validly tendered and not validly
withdrawn prior to the expiration of the exchange offer will be
exchanged.
- We will not receive any proceeds from the exchange offer.
- The terms of the new notes to be issued are substantially identical
to your old notes, except that the new notes will not have transfer
restrictions, and you will not have registration rights.
- The new notes will be guaranteed on an senior unsecured basis by
Ispat Inland Inc. and certain of its existing and future domestic
restricted subsidiaries, Ispat International N.V. and certain
limited purpose finance companies.
- The guarantee of one of the finance companies will be secured by a
pledge of $800 million of Ispat Inland's first mortgage bonds which
have payment terms similar to the terms of the notes. Ispat Inland's
guarantees of the notes will be secured by a second priority
security interest in Ispat Inland's inventory.
- The exchange offer is subject only to the conditions that the
exchange offer will not violate any applicable law or any
interpretation of applicable law by the staff of the Securities and
Exchange Commission.
- There is no established trading market for the new notes, and we do
not intend to apply for listing of the new notes on any securities
exchange.
- All broker-dealers must comply with the registration and prospectus
delivery requirements of the Securities Act of 1933. See "Plan of
Distribution."
FOR A DISCUSSION OF FACTORS THAT YOU SHOULD CONSIDER BEFORE YOU PARTICIPATE IN
THE EXCHANGE OFFER, SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 2004.
TABLE OF CONTENTS
Summary...................................................................................... 1
Risk Factors................................................................................. 11
Use Of Proceeds.............................................................................. 27
Ratio Of Earnings To Fixed Charges........................................................... 27
Selected Historical Financial Data........................................................... 28
Management's Discussion And Analysis Of Results Of Operations And Financial Condition........ 30
Industry Overview............................................................................ 46
Business..................................................................................... 49
Management................................................................................... 59
Controlling Shareholder Of Ispat International And Related Party Transactions................ 63
Description Of Other Indebtedness Of Ispat Inland Inc........................................ 66
The Exchange Offer........................................................................... 70
Description Of Notes......................................................................... 78
Description Of The First Mortgage Bonds...................................................... 135
Description Of Intercreditor Arrangements.................................................... 139
Registration Rights.......................................................................... 141
Material Income Tax Considerations........................................................... 144
Plan Of Distribution......................................................................... 149
Legal Matters................................................................................ 149
Independent Public Accountants............................................................... 149
Where You Can Find More Information.......................................................... 149
Incorporation By Reference................................................................... 150
This document incorporates important business and financial information
about Ispat International N.V., Ispat Inland Inc. and the co-registrants from
other documents that are not included in or delivered with this document. You
may obtain these documents at the SEC's website, www.sec.gov. We are not
incorporating the contents of the website of the SEC or any other person into
this document. We are only providing information about how you can obtain
certain documents which are incorporated into this document by reference at this
website.
This information is also available to you without charge upon your written
or oral request as described below:
Ispat Inland Inc.
3210 Watling Street
East Chicago, Indiana 46312
(219) 399-1200
Attn: Marc R. Jeske
General Counsel
IF YOU WOULD LIKE TO REQUEST ANY COPIES OF ANY DOCUMENTS, PLEASE DO SO NO LATER
THAN , 2004 IN ORDER TO ENSURE TIMELY DELIVERY PRIOR TO EXPIRATION OF THE
EXCHANGE OFFER.
-i-
For additional information about where to obtain copies of documents, see "Where
You Can Find More Information" beginning on page 145.
-ii-
Unless otherwise indicated in this prospectus or unless the context
otherwise requires, the terms "we," "us," "our," the "Company," and "Ispat
Inland" refer to Ispat Inland Inc. and its subsidiaries. Unless otherwise
indicated in this prospectus or unless the context otherwise requires, "Ispat
International" or "Parent" refers to Ispat International N.V. and its
subsidiaries (except with respect to the guarantee of the notes, in which case
it refers only to Ispat International N.V.). "Issuer" refers to Ispat Inland
ULC. "Finco Guarantors" refers to each of Ispat Inland, L.P., 3019693 Nova
Scotia U.L.C. and Ispat Inland Finance, LLC. Unless otherwise indicated in this
prospectus, references to tons are to net tons, equal to 2,000 pounds.
PRESENTATION OF FINANCIAL INFORMATION
We report our historical financial statements contained in, or
incorporated by reference into, this prospectus in U.S. dollars and prepare them
in accordance with United States generally accepted accounting principles, or
GAAP.
In this prospectus, all references to "$" refer to U.S. dollars.
-iii-
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere and incorporated
by reference in this prospectus. This summary may not contain all of the
information that is important to you, and it is qualified in its entirety by the
more detailed information and historical consolidated financial statements,
including the notes to those financial statements, that are included and
incorporated by reference in this prospectus. You should carefully read the
entire prospectus, particularly the information set forth under the heading
"Risk factors" in this prospectus and the information incorporated by reference
herein, before making an investment decision.
ISPAT INLAND INC.
Ispat Inland Inc. is the fourth largest integrated producer of steel in
the United States, with shipments of 5.3 million tons in 2003. We were
established in 1893 and today we produce and sell a wide range of steels,
largely carbon and high-strength low-alloy steel grades, in flat-rolled and bar
forms. Our steelmaking facilities are located at our 1,900-acre Indiana Harbor
Works located in East Chicago, Indiana, which encompasses raw steel production,
casting, rolling and finishing facilities. We had revenue of $2.2 billion and a
net loss of $52.6 million for the year ended December 31, 2003 and revenue of
$665.6 million and net income of $41.7 million for the three months ended March
31, 2004.
Our Flat Products division, which generated 89% of our 2003 revenue,
manages our iron ore operations, conducts our ironmaking operations and produces
the major portion of our raw steel. This division also manufactures and sells
steel sheet, strip and certain related semi-finished products to the automotive,
steel service center, appliance, office furniture and electrical motor markets.
We are one of the top producers in the United States of automotive sheet, the
highest value-added flat-rolled carbon steel product and the largest supplier of
steel to the appliance market. Over 80% of our flat-rolled steel revenues are of
value-added cold-rolled or coated steels. Essentially all of our steel products
are made to fill specific orders due to the unique chemistry, surface quality,
and width and gauge requirements of our customers.
Our Bar division, which generated 11% of our 2003 revenue, manufactures
and sells special bar quality, or SBQ, steel and related semi-finished products
to the automotive industry directly, as well as through forgers and cold
finishers, and also sells to heavy equipment manufacturers and steel service
centers. SBQ steel is used by our customers in the automotive, agricultural and
transportation industries, among others, to manufacture safety-critical products
such as axles and bearings.
We are involved in two non-consolidated value-added steel finishing joint
ventures with Nippon Steel Corporation that operate state-of-the-art
steel-finishing facilities near New Carlisle, Indiana. I/N Tek L.P., owned 60%
by one of our wholly-owned subsidiaries, operates a 1.7 million ton annual
capacity cold-rolling mill. I/N Kote L.P., owned 50% by another of our
wholly-owned subsidiaries, operates two galvanizing lines with combined annual
capacity of more than 1.0 million tons. We are also a participant in an iron ore
production joint venture and one of our subsidiaries is engaged in the mining
and pelletizing of iron ore.
We are a Delaware corporation and an indirect wholly-owned subsidiary of
Ispat International N.V. Our principal offices are located at 3210 Watling
Street, East Chicago, Indiana 46312. Our telephone number at that address is
(219) 399-1200.
1
ISPAT INTERNATIONAL N.V.
Ispat International has guaranteed the notes. Ispat International is one
of the largest steel companies in the world, with 2003 shipments of 15.2 million
tons. In addition to Ispat Inland, Ispat International has major operating
subsidiaries in Canada, Mexico, Trinidad, Germany, France and Luxembourg. Ispat
International is the largest producer of direct reduced iron in the world. We
believe that Ispat International is one of the most innovative operators in the
steel industry. Ispat International, which is domiciled in the Netherlands with
its principal offices in Rotterdam and a corporate office in London, is a
publicly-traded company with listings on the New York and Amsterdam (Euronext)
stock exchanges, and announced revenue of $5.4 billion in the year ended
December 31, 2003 and revenue of $1.8 billion in the three months ended March
31, 2004.
Ispat International's principal executive offices are located at 15th
Floor, Hofplein 20, 3032 AC Rotterdam, The Netherlands. Its telephone number at
that address is 311 0217 8800.
The following chart represents a simplified structure of Ispat
International and its principal operating subsidiaries, as well as the issuer of
the notes.
[ISPAT INTERNATIONAL FLOW CHART]
ISPAT INLAND ULC
Ispat Inland ULC is the issuer of the notes. The Issuer is a recently
formed unlimited liability company formed under the laws of Nova Scotia, Canada
and is an indirect wholly-owned subsidiary of Ispat International N.V. The
Issuer is a limited purpose finance company with no material assets or
liabilities and depends on payments on Ispat Inland Inc.'s first mortgage bonds
to make payments on the notes. The Issuer was formed solely for the purpose of
issuing the notes. The Issuer's principal offices are located 4000, Route des
Acieres, Contrecoeur, Quebec, Canada JOL 1CO. Its telephone number at that
address is (450) 587-8600.
2
THE EXCHANGE OFFER
Old Notes................... Senior Secured Floating Rate Notes due 2010
9 -3/4% Senior Secured Notes due 2014
The old notes were issued in a transaction
exempt from registration under the
Securities Act and are subject to transfer
restrictions.
New Notes................... Senior Secured Floating Rate Notes due 2010
9 -3/4% Senior Secured Notes due 2014
The issuance of the new notes been
registered under the Securities Act of 1933.
The form and terms of the new notes are
identical in all material respects to those
of the old notes, except that the transfer
restrictions and registration rights
provisions relating to the old notes do not
apply to the new notes.
The Exchange Offer.......... We are offering to issue up to:
- $150 million of new Senior
Secured Floating Rate Notes in
exchange for the same principal
amount of old Senior Secured
Floating Rate Notes, and
- $650 million of new 9 -3/4%
Senior Secured Notes due 2014 in
exchange for the same principal
amount of old 9 -3/4% Senior
Secured Notes,
to satisfy our obligations under the
registration rights agreement that we
entered into when the old notes were issued
in transactions in reliance upon the
exemptions from registration provided by
Rule 144A under the Securities Act.
Tenders, Expiration Date.... The exchange offer will expire at 5:00 p.m.,
New York City time, on _____ __, 2004,
unless extended in our sole and absolute
discretion. By tendering your old notes, you
represent that:
- you are not an "affiliate," as
defined in Rule 405 under the
Securities Act;
- any new notes you receive in the
exchange offer are being
acquired by you in the ordinary
course of your business;
- at the time of commencement of
the exchange offer, neither you
nor, to your knowledge, anyone
receiving new notes from you,
has any arrangement or
understanding with any person to
participate in the distribution,
as defined in the Securities
Act, of the new notes in
violation of the Securities Act;
- if you are not a participating
broker-dealer, you are not
engaged in, and do not intend to
engage in, the distribution of
the new notes, as defined in the
Securities Act; and
- if you are a broker-dealer, you
will receive the new notes for
your own account in exchange for
old notes that were acquired by
you as a result of your
market-making or other trading
activities and that you will
deliver a prospectus in
connection with any resale of
the new notes you receive. For
further
3
information regarding resales of
the new notes by participating
broker-dealers, see the
discussion under the caption
"Plan of Distribution."
Withdrawal; Non-Acceptance.. You may withdraw any old notes tendered in
the exchange offer at any time prior to 5:00
p.m., New York City time, on _______ __,
2004. If we decide for any reason not to
accept any old notes tendered for exchange,
the old notes will be returned to the
registered holder at our expense promptly
after the expiration or termination of the
exchange offer. In the case of old notes
tendered by book-entry transfer into the
exchange agent's account at The Depository
Trust Company, which we sometimes refer to
in this prospectus as DTC, any withdrawn or
unaccepted old notes will be credited to the
tendering holder's account at DTC. For
further information regarding the withdrawal
of tendered old notes, see "The Exchange
Offer -- Terms of the Exchange Offer; Period
for Tendering Old Notes" and "The Exchange
Offer -- Withdrawal Rights."
Conditions to the We are not required to accept for exchange
Exchange Offer.............. or to issue new notes in exchange for any
old notes and we may terminate or amend the
exchange offer if any of the following
events occur prior to our acceptance of the
old notes:
- the exchange offer violates any
applicable law or applicable
interpretation of the staff of
the SEC;
- an action or proceeding shall
have been instituted or
threatened in any court or by
any governmental agency that
might materially impair our or
any subsidiary guarantor's
ability to proceed with the
exchange offer;
- we do not receive all
governmental approvals that we
believe are necessary to
consummate the exchange offer;
or
- there has been proposed,
adopted, or enacted any law,
statute, rule or regulation
that, in our reasonable
judgment, would materially
impair our ability to consummate
the exchange offer.
We may waive any of the above conditions in
our reasonable discretion. All conditions to
the exchange offer must be satisfied or
waived prior to the expiration of the
exchange offer. See the discussion below
under the caption "The Exchange Offer --
Conditions to the Exchange Offer" for more
information regarding the conditions to the
exchange offer.
4
Procedures for Tendering
Old Notes................... Unless you comply with the procedures
described below under the caption "The
Exchange Offer -- Guaranteed Delivery
Procedures," you must do one of the
following on or prior to the expiration or
termination of the exchange offer to
participate in the exchange offer:
- tender your old notes by sending
them, in proper form for
transfer, a properly completed
and duly executed letter of
transmittal, with any required
signature guarantees, and all
other documents required by the
letter of transmittal, to
LaSalle Bank National
Association, as exchange agent,
at the address listed below
under the caption "The Exchange
Offer -- Exchange Agent;" or
- tender your old notes by using
the book-entry transfer
procedures described below and
transmitting a properly
completed and duly executed
letter of transmittal, with any
required signature guarantees,
or an agent's message instead of
the letter of transmittal, to
the exchange agent. In order for
a book-entry transfer to
constitute a valid tender of
your old notes in the exchange
offer, LaSalle Bank National
Association, as exchange agent,
must receive a confirmation of
book-entry transfer of your old
notes into the exchange agent's
account at DTC prior to the
expiration or termination of the
exchange offer. For more
information regarding the use of
book-entry transfer procedures,
including a description of the
required agent's message, see
the discussion below under the
caption "The Exchange Offer --
Book-Entry Transfers."
Guaranteed Delivery
Procedures.................. If you are a registered holder of old notes
and wish to tender your old notes in the
exchange offer, but
- the old notes are not
immediately available;
- time will not permit your old
notes or other required
documents to reach the exchange
agent before the expiration or
termination of the exchange
offer; or
- the procedure for book-entry
transfer cannot be completed
prior to the expiration or
termination of the exchange
offer;
then you may tender old notes by following
the procedures described below under the
caption "The Exchange Offer -- Guaranteed
Delivery Procedures."
Special Procedures for
Beneficial Owners........... If you are a beneficial owner whose old
notes are registered in the name of a
broker, dealer, commercial bank, trust
company or other nominee and you wish to
tender your old notes in the exchange offer,
you should promptly contact the person in
whose name the old notes are registered and
instruct that person to tender on your
behalf. If you wish to tender in the
exchange offer on your behalf, prior to
completing and executing the letter of
transmittal and delivering your old notes,
you must either make appropriate
arrangements to register ownership of the
old notes in your name, or obtain a properly
completed bond power from the person in
whose name the old notes are registered.
5
Material United States
Federal Income Tax
Considerations.............. The exchange of the old notes for new notes
in the exchange offer will not be a taxable
transaction for United States federal income
tax purposes. See the discussion below under
the caption "Material Income Tax
Considerations" for more information
regarding the United States federal income
tax consequences of the exchange offer to
you. You should consult your own tax advisor
as to the tax consequences of the exchange
to you.
Certain Canadian Federal
Income Tax Considerations... The exchange of the old notes should not
constitute a taxable event for purposes of
the Income Tax Act (Canada). See the
discussion below under the caption "Material
Income Tax Considerations" for more
information regarding the Canadian federal
income tax consequences of the exchange
offer to you. You should consult your own
tax advisor as to the tax consequences of
the exchange to you.
Use of Proceeds............. We will not receive any cash proceeds from
the exchange offer.
Exchange Agent.............. LaSalle Bank National Association is serving
as the exchange agent in connection with the
exchange offer. You can find the address and
telephone number of the exchange agent below
under the caption "The Exchange Offer --
Exchange Agent."
Resales..................... Based on interpretations by the staff of the
SEC, as set forth in no-action letters
issued to third parties, we believe that the
new notes issued in the exchange offer may
be offered for resale, resold or otherwise
transferred by you without compliance with
the registration and prospectus delivery
requirements of the Securities Act as long
as:
- you are acquiring the new notes
in the ordinary course of your
business;
- you are not participating, do
not intend to participate and
have no arrangement or
understanding with any person to
participate, in a distribution
of the new notes; and
- you are not an affiliate of
ours.
If you are an affiliate of ours or are
engaged in or intend to engage in or have
any arrangement or understanding with any
person to participate in the distribution of
the new notes:
- you cannot rely on the
applicable interpretations of
the staff of the SEC; and
- you must comply with the
registration requirements of the
Securities Act in connection
with any resale transaction.
Each broker or dealer that receives new
notes for its own account in exchange for
old notes that were acquired as a result of
market-making or other trading activities
must acknowledge that it will comply with
the registration and prospectus delivery
requirements of the Securities Act in
connection with any offer, resale, or other
transfer of the new notes issued in the
exchange offer, including information with
respect to any selling holder required by
the Securities Act in connection with any
resale of the new notes.
6
Furthermore, any broker-dealer that acquired
any of its old notes directly from us:
- may not rely on the applicable
interpretation of the staff of
the SEC's position contained in
Exxon Capital Holdings Corp.,
SEC no-action letter (April 13,
1988), Morgan, Stanley & Co.
Inc., SEC no-action letter (June
5, 1991) and Shearman &
Sterling, SEC no-action letter
(July 2, 1983); and
- must also be named as a selling
noteholder in connection with
the registration and prospectus
delivery requirements of the
Securities Act relating to any
resale transaction.
Broker-Dealers.............. Each broker-dealer that receives new notes
for its own account pursuant to the exchange
offer must acknowledge that it will deliver
a prospectus in connection with any resale
of new notes. The letter of transmittal
states that by so acknowledging and
delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. This prospectus, as it may
be amended or supplemented from time to
time, may be used by a broker-dealer in
connection with resales of new notes
received in exchange for old notes which
were received by such broker-dealer as a
result of market-making activities or other
trading activities. See "Plan of
Distribution" for more information.
Registration Rights......... When we issued the old notes in March 2004,
we entered into a registration rights
agreement with the initial purchasers of the
old notes. Under the terms of the
registration rights agreement, we agreed to
use our reasonable best efforts to file with
the SEC and cause to become effective, a
registration statement relating to an offer
to exchange the old notes for the new notes.
A copy of the registration rights agreement
is filed as an exhibit to the registration
statement of which this prospectus is a
part.
CONSEQUENCES OF NOT EXCHANGING OLD NOTES
If you do not exchange your old notes in the exchange offer, you will
continue to be subject to the restrictions on transfer described in the legend
on the certificate for your old notes. In general, you may offer or sell your
old notes only:
- - if they are registered under the Securities Act and applicable state
securities laws;
- - if they are offered or sold under an exemption from registration under the
Securities Act and applicable state securities laws; or
- - if they are offered or sold in a transaction not subject to the Securities
Act and applicable state securities laws.
We do not intend to register the old notes under the Securities Act. For
more information regarding the consequences of not tendering your old notes see
"The Exchange Offer -- Consequences of Exchanging or Failing to Exchange Old
Notes."
7
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the new notes and the old notes are identical in all material
respects, except for certain transfer restrictions and registration rights
relating to the old notes.
The new notes will bear interest from the most recent date to which
interest has been paid on the old notes or, if no interest has been paid on the
old notes, from March 25, 2004. Accordingly, registered holders of new notes on
the relevant record date for the first interest payment date following the
consummation of the exchange offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from March 25, 2004. Old notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the exchange offer. Holders
of old notes whose old notes are accepted for exchange will not receive any
payment in respect of interest on such old notes otherwise payable on any
interest payment date which occurs on or after consummation of the exchange
offer.
THE NEW NOTES
The following summary is not intended to be complete. For a more detailed
description of the notes, see "Description of the notes."
Issuer...................... Ispat Inland ULC
Notes Offered............... $150,000,000 aggregate principal amount of
Senior Secured Floating Rate Notes due 2010.
$650,000,000 aggregate principal amount of 9
3/4% Senior Secured Notes due 2014.
Guarantees; Collateral...... The notes will be guaranteed by the Company,
certain of its existing and future domestic
restricted subsidiaries, Parent and the
Finco Guarantors.
A Finco Guarantor has pledged $800.0 million
aggregate principal amount of the Company's
First Mortgage Bonds to secure its guarantee
of the notes. These First Mortgage Bonds are
one of a series of first mortgage bonds
issued by the Company that are equally and
ratably secured by certain assets of the
Company, principally consisting of a first
mortgage on real property and fixtures at
its Indiana Harbor Works (except for certain
leased facilities). See "Description of the
first mortgage bonds -- First Mortgage Bonds
Collateral." Additionally, the Company's
guarantee of the notes will be secured by a
second priority security interest in certain
of the Company's inventory, which is
currently pledged on a first priority basis
to secure the Company's obligations under
its existing inventory revolving credit
facility.
Interest.................... The floating rate notes will accrue interest
from the date of their issuance at a rate
per annum equal to LIBOR (as defined) plus
6.75%. Interest on the floating rate notes
will be reset quarterly. Interest on the
floating rate notes will be payable
quarterly in arrears on each January 1,
April 1, July 1 and October 1, commencing on
October 1, 2004.
The fixed rate notes will accrue interest
from the date of their issuance at the rate
of 9 3/4% per year. Interest on the fixed
rate notes will be payable semi-annually in
arrears on each April 1 and October 1,
commencing on October 1, 2004.
Maturity Date............... The floating rate notes will mature on April
1, 2010.
The fixed rate notes will mature on April 1,
2014.
8
Optional Redemption......... Floating rate notes:
The floating rate notes may be redeemed, in
whole or part, at any time on or after April
1, 2006, at a redemption price equal to 100%
of their principal amount plus a premium
declining ratably to par, plus accrued and
unpaid interest.
Fixed rate notes:
The fixed rate notes may be redeemed, in
whole or part, at any time on or after April
1, 2009, at a redemption price equal to 100%
of the principal amount plus a premium
declining ratably to par, plus accrued and
unpaid interest.
In addition, prior to April 1, 2007, up to
35% of the aggregate principal amount of
fixed rate notes issued may be redeemed with
the proceeds of qualified equity offerings
at a redemption price equal to 109.75% of
their principal amount, plus accrued and
unpaid interest.
Change of Control........... If certain changes of control occur, the
Issuer will be required to offer to purchase
the notes at a purchase price equal to 101%
of their principal amount, plus accrued and
unpaid interest.
Ranking..................... As of March 31, 2004:
- the Company had approximately
$1.02 billion of senior
indebtedness, including $879
million of outstanding first
mortgage bonds, exclusive of
$160 million of non-interest
bearing first mortgage bonds
which are pledged to the Pension
Benefit Guarantee Corporation
("PBGC") as security for the
Company's obligations under the
PBGC Agreement, and $136 million
of senior unsecured indebtedness
(including a $15 million
short-term note payable);
- the Company had approximately
$216 million of subordinated
indebtedness;
- the Company had $118 million of
unused borrowing availability
under its existing inventory
revolving credit facility, which
is secured on a first priority
basis by the inventory
collateral, which is pledged on
a second priority basis to
secure the Company's obligations
under its guarantee of the
notes.
- a securitization subsidiary of
the Company, which is not a
Guarantor, had $168 million of
indebtedness (exclusive of $14
million of letters of credit),
leaving approximately $3 million
of unused borrowing
availability, which is secured
by receivables and certain
related assets;
- Parent had approximately $1.59
billion of unsubordinated
indebtedness, consisting
exclusively of guarantees of
indebtedness of its
subsidiaries; and
- subsidiaries of Parent (other
than subsidiaries which are the
Issuer, the Guarantors and their
subsidiaries) had approximately
$1.12 billion of indebtedness
which would have effectively
ranked senior to the notes.
9
Certain Covenants........... The indenture governing the notes contains
covenants that limits the ability of the
Company and its restricted subsidiaries to,
among other things:
- incur additional indebtedness;
- pay dividends or make other
distributions or repurchase or
redeem stock;
- make investments;
- sell assets;
- incur liens;
- enter into agreements
restricting the ability of their
subsidiaries to pay dividends;
- enter into transactions with
affiliates;
- engage in certain businesses;
and
- consolidate, merge or sell all
or substantially all of our
assets.
The indenture also limits the ability of the
issuer and the Finco Guarantors to, among
other things, engage in business activities
and incur other liabilities.
The indenture contains very limited
covenants that are applicable to Parent.
These covenants are subject to important
exceptions and qualifications, which are
described under the heading "Description of
the notes" in this prospectus.
Suspension of Covenants..... At any time when the notes are rated
investment grade by Moody's and S&P, many of
the foregoing restrictions will not apply to
the Company and its restricted subsidiaries.
Risk Factors................ See "Risk factors" beginning on page 11 for
discussion of risk factors you should
carefully consider before deciding to
participate in the exchange offer.
10
RISK FACTORS
You should consider carefully the information set forth in this section
along with all the other information provided to you in this prospectus in
deciding whether to invest in the notes.
Risk Factors for Ispat International are set forth in its Annual Report on
Form 20-F/A for the year ended December 31, 2003, which is incorporated by
reference into this prospectus.
RISKS RELATING TO THE EXCHANGE OFFER AND HOLDING THE NEW NOTES
Holders who fail to exchange their old notes will continue to be subject to
restrictions on transfer.
Holders who fail to exchange their old notes will continue to be subject
to restrictions on transfer. If you do not exchange your old notes for new notes
in the exchange offer, you will continue to be subject to the restrictions on
transfer of your old notes described in the legend on the certificates for your
old notes. The restrictions on transfer of your old notes arise because we
issued the old notes under exemptions from, or in transactions not subject to,
the registration requirements of the Securities Act and applicable state
securities laws. In general, you may only offer or sell the old notes if they
are registered under the Securities Act and applicable state securities laws, or
are offered and sold under an exemption from these requirements. We do not plan
to register the old notes under the Securities Act. For further information
regarding the consequences of tendering your old notes in the exchange offer,
see the discussions below under the captions "The Exchange Offer -- Consequences
of Exchanging or Failing to Exchange Old Notes" and "Material Income Tax
Considerations."
You must comply with the exchange offer procedures in order to receive new,
freely tradable notes.
Delivery of new notes in exchange for old notes tendered and accepted for
exchange pursuant to the exchange offer will be made only after timely receipt
by the exchange agent of the following:
- - certificates for old notes or a book-entry confirmation of a book-entry
transfer of old notes into the exchange agent's account at DTC, New York,
New York as a depository, including an agent's message, as defined in this
prospectus, if the tendering holder does not deliver a letter of
transmittal;
- - a completed and signed letter of transmittal, or facsimile copy, with any
required signature guarantees, or, in the case of a book-entry transfer,
an agent's message in place of the letter of transmittal; and
- - any other documents required by the letter of transmittal.
Therefore, holders of old notes who would like to tender old notes in
exchange for new notes should be sure to allow enough time for the old notes to
be delivered on time. We are not required to notify you of defects or
irregularities in tenders of old notes for exchange. Old notes that are not
tendered or that are tendered but we do not accept for exchange will, following
consummation of the exchange offer, continue to be subject to the existing
transfer restrictions under the Securities Act and will no longer have the
registration and other rights under the exchange agreement. See "The Exchange
Offer -- Procedures for Tendering Old Notes" and "The Exchange Offer --
Consequences of Exchanging or Failing to Exchange Old Notes."
Some holders who exchange their old notes may be deemed to be underwriters and
these holders will be required to comply with the registration and prospectus
delivery requirements in connection with any resale transaction.
If you exchange your old notes in the exchange offer for the purpose of
participating in a distribution of the new notes, you may be deemed to have
received restricted securities. If you are deemed to have received restricted
securities, you will be required to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
11
There is no established trading market for the new notes and you may find it
difficult to sell your notes.
There is no existing trading market for the new notes. We do not intend to
apply for listing or quotation of the new notes on any exchange. Therefore, we
do not know the extent to which investor interest will lead to the development
of a trading market or how liquid that market might be, nor can we make any
assurances regarding the ability of new note holders to sell their new notes,
the amount of new notes to be outstanding following the exchange offer or the
price at which the new notes might be sold. As a result, the market price of the
new notes could be adversely affected. Historically, the market for
non-investment grade debt, such as the new notes, has been subject to
disruptions that have caused substantial volatility in the prices of securities.
Any disruptions may make it more difficult for holders to sell their new notes
and may have an adverse effect on the price at which the new notes might be
sold.
There may not be sufficient collateral to pay all or any of the notes; the
inventory collateral will be subject to liens ranking prior to the liens
securing the notes.
The value of the collateral securing the notes may be insufficient to
secure their payment. The notes will be secured by First Mortgage Bonds that are
secured by a mortgage on the real property comprising our Indiana Harbor Works,
a 1,900-acre facility located in East Chicago, Indiana (except for certain
leased facilities, including a continuous anneal line, and two continuous
casters). The ranking of the lien securing the First Mortgage Bonds which are
pledged to secure the notes on the Indiana Harbor Works is equal with $243.6
million of First Mortgage Bonds (as of March 31, 2004). Of this total, $160
million non-interest bearing First Mortgage Bonds are pledged to the PBGC until
certain tests are met. As of March 31, 2004, the property, plant and equipment
of the Indiana Harbor Works securing the First Mortgage Bonds had a net book
value of approximately $1.6 billion. However, the net book value may not be
indicative of the value that could be realized in connection with a sale upon
foreclosure.
Additionally, the lien on the Company's inventory securing the Company's
guarantee of the notes is junior to the lien securing the Company's existing
inventory revolving credit facility. Furthermore, following the issuance of the
notes, the indenture will permit the Company to grant liens ranking senior to
the liens securing the notes to secure indebtedness in a principal amount based
on the book value of the Company's inventory and receivables. See "Description
of the notes -- Limitation on Liens." In connection with the old note offering,
the trustee for the notes entered into an intercreditor agreement with the
lender under the Company's existing inventory revolving credit facility. This
intercreditor agreement provides that the lien on the inventory collateral
granted to the trustee for the benefit of the holders of notes is junior to the
lien granted to the lender under the inventory revolving credit facility and
that any proceeds of any enforcement action in respect of the inventory
collateral will first be applied to repay all obligations outstanding under the
revolving inventory facility prior to being distributed to the trustee for the
notes. There can be no assurance that any proceeds of the inventory collateral
will remain following the repayment of obligations under the inventory revolving
facility. In such intercreditor agreement, the trustee agrees to enter into a
similar intercreditor agreement with respect to successor credit facilities with
a first priority lien position on the Company's inventory. See "Description of
intercreditor arrangement -- GECC Intercreditor Arrangements."
The actual value of the collateral at any time will depend upon market and
other economic conditions. By its nature, much of the collateral will consist of
illiquid assets that may have to be sold at a substantial discount in an
insolvency situation and may have no readily ascertainable market value. In the
event of a foreclosure, liquidation, bankruptcy or similar proceeding, the
proceeds from any sale or liquidation of this collateral may not be sufficient
to pay our obligations under the notes and the other indebtedness secured by
First Mortgage Bonds and there can be no assurance that there will be any
proceeds remaining from a foreclosure on the inventory collateral following
repayment of the indebtedness secured by first priority liens on such inventory
collateral. In the event that the proceeds from any sale or liquidation of the
collateral received by the trustee are insufficient to pay our obligations under
the notes, the holders of the notes (to the extent not repaid from the proceeds
of the sale of the collateral) would only have an unsecured claim against our
remaining assets, substantially all of which, other than our interest in our
joint ventures, are pledged as security to lenders under various borrowing
arrangements.
12
In the event of a bankruptcy of the pledgor of the First Mortgage Bonds or the
Company, the ability of the trustee for the notes or the trustee for the First
Mortgage Bonds to realize upon the collateral will be subject to certain
bankruptcy law limitations.
The ability of holders of the notes to realize upon the collateral
securing the notes and the ability of the trustee for the First Mortgage Bonds
to realize on the collateral securing the First Mortgage Bonds will be subject
to certain bankruptcy law limitations in the event of a bankruptcy of the entity
pledging the First Mortgage Bonds or the Company. Under applicable federal
bankruptcy laws, secured creditors are prohibited from repossessing their
security from a debtor in a bankruptcy case, or from disposing of security
repossessed from such a debtor, without bankruptcy court approval. Moreover,
applicable federal bankruptcy laws generally permit the debtor to continue to
retain collateral even though the debtor is in default under the applicable debt
instruments, provided generally that the secured creditor is given "adequate
protection." The meaning of the term "adequate protection" may vary according to
the circumstances, but is intended in general to protect the value of the
secured creditor's interest in the collateral at the commencement of the
bankruptcy case and may include cash payments or the granting of additional
security, if and at such times as the court in its discretion determines, for
any diminution in the value of the collateral as a result of the stay of
repossession or disposition of the collateral by the debtor during the pendency
of the bankruptcy case. In view of the lack of a precise definition of the term
"adequate protection" and the broad discretionary powers of a bankruptcy court,
we cannot predict whether payments under the notes would be made following
commencement of and during a bankruptcy case, whether or when the trustees under
the indentures for the notes or the First Mortgage Bonds could foreclose upon or
sell the collateral or whether or to what extent holders of notes would be
compensated for any delay in payment or loss of value of the collateral through
the requirement of "adequate protection." Furthermore, under the terms of the
intercreditor agreement with the lender under the Company's existing inventory
revolving credit facility, the trustee for the notes has waived the right
to raise certain claims in any bankruptcy proceeding, including claims relating
to "adequate protection" in order to facilitate the ability of GECC to direct
the disposition of the inventory collateral. See "Description of intercreditor
arrangements -- GECC Intercreditor Arrangements."
A downgrade in our credit rating could adversely affect the trading price of the
notes.
The trading prices for the notes will be directly affected by our credit
rating. Credit rating agencies continually revise their ratings for companies
that they follow, including us. Any ratings downgrade could adversely affect the
trading price of the notes or the trading market for the notes to the extent a
trading market for the notes develops. The condition of the financial and credit
markets and prevailing interest rates have fluctuated in the past and are likely
to fluctuate in the future. Fluctuations in interest rates may give rise to
arbitrage opportunities based upon changes in the relative value of the notes.
Any trading by arbitrageurs could, in turn, affect the trading prices of the
notes.
You may not be able to recover in civil proceedings against Ispat International
for U.S. securities laws violations.
Ispat International is incorporated under the laws of The Netherlands with
its corporate seat in Rotterdam, The Netherlands. Most of the members of its
Board of Managing Directors and its executive officers are residents of
jurisdictions outside the United States. Certain of Ispat International's
assets, its operating subsidiaries' assets (other than our assets) and the
assets of most of the members of its Board of Managing Directors and its
executive officers are located outside the United States. Though Ispat
International has consented to service of process in the United States, it may
be difficult for investors to effect service of process in the United States
upon members of its Board of Managing Directors and its executive officers, or
to enforce outside the United States judgments obtained against Ispat
International or such persons in U.S. courts, including actions predicated upon
the civil liability provisions of U.S. securities laws. We have been informed by
our Dutch counsel, De Brauw Blackstone Westbroek N.V., that in such counsel's
opinion, under Dutch law, a judgment rendered by a court in the United States
will not be recognized and enforced by the Dutch courts. However, if a person
has obtained a final and conclusive judgment for the payment of money rendered
by a court in the United States (the "foreign court") which is enforceable in
the United States (the "foreign judgment") and files his claim with the
competent Dutch court, the Dutch court will generally give binding effect to the
foreign judgment insofar as it finds that the jurisdiction of the foreign court
has been based on grounds which are internationally acceptable and that proper
legal procedures have been observed and unless the foreign judgment contravenes
Dutch public policy.
13
Dutch insolvency laws may adversely affect a recovery by the holders of the
notes under the Parent guarantee.
Ispat International, a guarantor of the notes, is a Dutch company. If
Ispat International had to pay the holders of the notes under the guarantee,
because Dutch insolvency laws differ significantly from insolvency proceedings
in the United States, such laws may make it more difficult for holders of the
notes to effect a restructuring of Ispat International or to recover the amount
they would have recovered in a liquidation or bankruptcy proceeding in the
United States. There are two primary insolvency regimes under Dutch law. The
first, moratorium of payment (surseance van betaling), is intended to facilitate
the reorganization of a debtor's debts and enable the debtor to continue as a
going concern. The second, bankruptcy (faillissement), is primarily designed to
liquidate and distribute the assets of a debtor to its creditors.
Upon commencement of moratorium of payment proceedings, the court will
grant a provisional moratorium. A definitive moratorium will generally be
granted upon the approval of a qualified majority of the unsecured creditors,
which would include the holders of the notes as beneficiaries of the unsecured
guarantee. In both cases, creditors will be precluded from attempting to recover
their claims from the assets of the debtor. This moratorium is subject to
exceptions, the most important of which excludes secured and preferential
creditors (such as tax and social security authorities) from the protection of
the moratorium. Unlike Chapter 11 proceedings under U.S. bankruptcy law, during
which both secured and unsecured creditors are generally barred from seeking to
recover on their claims, during Dutch moratorium of payment proceedings, secured
creditors may proceed against the assets that secure their claims to satisfy
their claims. A recovery under Dutch law, therefore, could involve a sale of the
assets of the debtor in a manner that does not reflect the going concern value
of the debtor. Consequently, Dutch insolvency laws could preclude or inhibit the
ability of the holders of the notes to effect a restructuring of Ispat
International and could reduce their recovery in a Dutch insolvency proceeding.
As of March 31, 2004, Ispat International's subsidiaries had $2.0 billion of
secured debt.
In connection with Dutch bankruptcy proceedings, the assets of a debtor
are generally liquidated and the proceeds distributed to the debtor's creditors
on the basis of the relative claims of those creditors, and certain parties
(such as secured creditors) will have special rights that may adversely affect
the interests of holders of the notes. The claim of a creditor may be limited
depending on the date the claim becomes due and payable in accordance with its
terms. Each of these claims will have to be resubmitted to the receiver of Ispat
International to be verified by the receiver. "Verification" under Dutch law
means the determination of the value of the claim. Whether and to what extent it
will be admitted in the bankruptcy proceedings may be based on a net present
value analysis. Creditors that wish to dispute the valuation of their claims
will need to commence a court proceeding. These verification procedures could
cause holders of the notes to recover less than the principal amount of their
notes or less than they could recover in a U.S. liquidation. Such verification
procedures could also cause payments to the holders of the notes to be delayed
compared with holders of undisputed claims.
Canadian insolvency laws may adversely affect a recovery by holders of the
notes.
The Issuer and 3019693 Nova Scotia U.L.C., a guarantor of the notes, are
unlimited liability companies incorporated under the laws of the Province of
Nova Scotia, Canada. The ability of the holders of the notes to realize upon the
assets of the Issuer and 3019693 Nova Scotia U.L.C. may be subject to certain
bankruptcy and insolvency law limitations in the event of the bankruptcy or
insolvency of either of these entities.
Canadian insolvency legislation of general application is federal. It
consists of the Bankruptcy and Insolvency Act (Canada) (the "BIA"), the Winding
up and Restructuring Act (Canada) (the "WURA") and the Companies' Creditors
Arrangement Act (Canada) (the "CCAA"). Under the BIA and the WURA, the assets of
an insolvent company may be liquidated subject to the rights of secured
creditors and the proceeds distributed to ordinary creditors who have proved
claims against the debtor company. Alternatively, each of the BIA, the CCAA and
the WURA permits an insolvent company to obtain a stay of proceedings and
restructure its obligations to creditors subject to court supervision and the
provisions of those statutes. Under the BIA and the CCAA, a restructuring of the
obligations of the debtor company must be approved by a majority in number
representing two-thirds in value of each class of creditors affected by the
restructuring. Under the WURA, the requirement for approval is a majority in
number representing three-quarters in value of each class of creditors affected
by the restructuring.
14
If it applies, the CCAA is often the statute of choice. Under the CCAA, an
insolvent company applies to the court for an order obtaining a temporary stay
of proceedings against it by creditors and other persons dealing with the
corporation of up to 30 days, which can be extended by the court in order to
permit the debtor company to present a restructuring plan to its creditors, seek
approval and implement such plan. The CCAA requires that a court officer be
appointed to monitor the affairs of the debtor company while it is under court
supervision and to report to the court on the state of the debtor company's
business and financial affairs, including any material adverse change therein
while the debtor company is under court protection. Subject to orders of the
court either increasing the powers of the monitor or appointing an interim
receiver, the debtor company and its management remain in possession and control
of the assets of the debtor company while it is under court protection. Secured
creditors would be prevented from exercising remedies based on defaults under
their security without court approval.
Parent is a holding company with no material assets other than its ownership
interest in its subsidiaries. Parent's guarantee of the notes will be
structurally subordinated to all liabilities of its subsidiaries that are not
Obligors on the notes.
Ispat International will guarantee the notes. In addition to guaranteeing
the notes, Ispat International has guaranteed the debt and liabilities of some
of its other subsidiaries. As of March 31, 2004, Ispat International's total
consolidated debt (including Ispat Inland's debt) was $2.3 billion, almost all
of which was secured by liens of production plant and current assets of
operating subsidiaries. Of this debt, approximately $1.6 billion was guaranteed
by Ispat International. In addition, Parent expects that it may enter into
liquidity support agreements that may require it to make capital contributions
or subordinated loans to certain of Parent's subsidiaries. The indenture
governing the notes does not restrict Ispat International or its subsidiaries
(other than the Issuer, the Company and its restricted subsidiaries and the
Finco Guarantors) from incurring additional debt or guaranteeing any debt of
others in the future.
Ispat International is a holding company and does not directly conduct any
business operations. Its business is carried out by several operating
subsidiaries consisting of us and its other subsidiaries. Your rights to receive
payments under the guarantee will be junior to all liabilities of Ispat
International's subsidiaries (other than the issuer and the Guarantors).
The Issuer may be unable to purchase the notes upon a change of control.
Upon the occurrence of "change of control" events, you may require the
Issuer to purchase your notes at 101% of their principal amount, plus accrued
interest. The Issuer's ability to repurchase notes will depend on our ability to
repurchase a like aggregate amount of First Mortgage Bonds that are pledged as
collateral for the notes. We cannot assure you that we will have the financial
resources to purchase the First Mortgage Bonds, particularly if that change of
control event triggers a similar repurchase requirement for, or results in the
acceleration of, other indebtedness. In addition, the agreements governing our
other debt may prohibit us from purchasing the First Mortgage Bonds in the event
of a change in control. Future debt we incur may further limit our ability to
purchase the First Mortgage Bonds upon a change of control. Moreover, the
exercise by the holders of the notes of their repurchase right could cause a
default under that debt, even if the change of control itself does not cause a
default, due to the financial effect on us.
No title insurance policies or surveys will be obtained with respect to the real
property collateral that secures the First Mortgage Bonds.
No customary title insurance policies or surveys will be obtained with
respect to the land and improvements located at Indiana Harbor Works which
secures the First Mortgage Bonds, which, in turn, secure the notes. As a result,
no title insurance proceeds will be available in the event of any loss arising
out of any challenge to our title to such mortgaged property or any liens or
claims against such property that may have priority over the first mortgage, as
amended and supplemented, which secures the First Mortgage Bonds. In addition,
surveys that are provided typically to, among other things, confirm boundary
lines of the mortgaged property and improvements located thereon and reveal the
existence of encroachments or adverse possession claims will not be obtained.
The existence of any such title defects, liens, claims or encroachments against
such mortgaged property could impair the value of such property and reduce the
amount that may be recovered upon foreclosure of the liens thereon.
15
The notes and the subsidiary guarantees may not be enforceable because of
fraudulent conveyance laws.
The guarantees by the Company's subsidiaries may be subject to review
under U.S. federal bankruptcy law or relevant state fraudulent conveyance laws
if a bankruptcy case or lawsuit is commenced by or on behalf of our unpaid
creditors. Generally, under these laws, if in such a case or lawsuit a court
were to find that at the time a subsidiary of the Company issued a guarantee:
- - such subsidiary issued a guarantee with the intent of hindering, delaying
or defrauding current or future creditors; or
- - such subsidiary guarantor received less than reasonably equivalent value
of fair consideration for its guarantee and such subsidiary guarantor:
- was insolvent or was rendered insolvent by reason of the
issuance of its guarantee;
- was engaged, or was about to engage, in a business or
transaction for which such guarantor's remaining assets
constituted unreasonably small capital to carry on its
business; or
- intended to incur, or believed that it would incur,
indebtedness or other obligation beyond the ability to pay
such indebtedness or obligation as it matured (as all of the
foregoing terms are defined in or interpreted under the
relevant fraudulent transfer or conveyance statutes);
then the court could void such subsidiary guarantee or subordinate the amounts
owing under such guarantee to its presently existing or future indebtedness or
take other actions detrimental to you.
The measure of insolvency for purposes of the foregoing considerations
will vary depending upon the law of the jurisdiction that is being applied in
any such proceeding. Generally, a subsidiary would be considered insolvent if,
at the time it incurred indebtedness or issued a guarantee:
- it could not pay its debt or contingent liabilities as they
become due;
- the sum of its debts (including contingent liabilities) is
greater than its assets, at fair valuation; or
- the present fair saleable value of its assets is less than the
amount required to pay the probable liability on its total
existing debts and liabilities (including contingent
liabilities) as they become absolute and matured.
If a guarantee is voided as a fraudulent conveyance or is found to be
unenforceable for any other reason, you will not have a claim against such
subsidiary guarantor.
If there is a foreclosure on the collateral securing the First Mortgage Bonds,
you may be subject to claims and liabilities under environmental laws and
regulations.
Lenders that hold a security interest in real property may be held liable
under environmental laws for the costs of remediating or preventing releases or
threatened releases of hazardous materials at or from the mortgaged property.
While lenders that neither foreclose on nor participate in the management of a
mortgaged property generally have not been subject to liability, lenders that
take possession of a mortgaged property or that participate in the management of
a mortgaged property must carefully and strictly adhere to federal and state
rules to avoid liability. In this regard, the trustee for the notes and the
trustee for the First Mortgage Bonds would need to evaluate the impact of these
potential liabilities before determining to foreclose on the mortgaged
properties securing the First Mortgage Bonds and exercising other available
remedies. In addition, the trustee for the notes may refuse to direct the
trustee under the First Mortgage Bonds to foreclose on the collateral securing
the First Mortgage Bonds and the trustee under the First Mortgage Bonds may
decline to foreclose upon the mortgaged properties or exercise remedies
available to the extent that they do not receive indemnification to their
satisfaction from the holders of the notes. See " -- Risks Relating To Our
Business -- We may have to spend substantial sums to meet environmental
regulations."
16
The holder of the subordinated mortgage on the Indiana Harbor Works could raise
objections to a foreclosure sale by the trustee for the First Mortgage Bonds if
the sale is not made in accordance with the statutory foreclosure procedures.
In 1994, we granted the United Steelworkers of America a subordinated
mortgage on our Indiana Harbor Works as collateral security for the payment of
those post-retirement medical and life insurance benefits to retired employees
which are not funded under our welfare plan and trust (the "Unfunded OPEB
Obligations"). The United Steelworkers of America mortgage is subject and
subordinate in all respects to the First Mortgage, permits the Trustee under the
First Mortgage full latitude to take all actions thereunder without the consent
or notice to the United Steelworkers of America and provides that upon an event
of default under the First Mortgage, the United Steelworkers of America may not
take any enforcement action under its subordinated mortgage except to join in
any such action as is then being asserted by the Trustee under the First
Mortgage. A foreclosure sale by the Trustee for the First Mortgage Bonds would
be governed by the Indiana mortgage foreclosure statute. In the event of such a
sale, the subordinated mortgagee could claim procedural deficiencies in the
foreclosure action and seek to set aside the Sheriff's sale if the sale proceeds
were insufficient to pay off both the First Mortgage Bonds and the Unfunded OPEB
Obligations. The distribution of the proceeds of the foreclosure sale to the
holders of the notes might be delayed pending a judicial resolution of any such
claim.
Additionally, the trustee for the notes has agreed pursuant to an
intercreditor agreement with our existing inventory revolving credit lender and
has taken certain other actions to provide such lender access and certain other
rights with respect to processing the inventory and related assets securing our
obligations to such lender which are maintained at the property constituting the
collateral for the First Mortgage Bonds. The provisions of this intercreditor
agreement could have the effect of delaying any sale of the collateral for the
First Mortgage Bonds by the trustee for the First Mortgage Bonds following a
foreclosure. See "Description of intercreditor arrangements -- GECC
Intercreditor Arrangements."
RISKS RELATING TO OUR BUSINESS
Our significant debt obligations could limit our flexibility in managing our
business, expose us to certain risks and could harm our ability to remain in
compliance with debt covenants and make payments on our debt, including the
notes.
We are highly leveraged. Our future performance could be affected by our
substantial amount of debt. At March 31, 2004, the Company and its subsidiaries
had $1,399 million of indebtedness outstanding. This does not include
obligations of I/N Kote for which we are contingently liable and that are not
recorded on our balance sheet. As of March 31, 2004, these obligations were
$47.7 million. After giving effect to the March 25, 2004 note offering, our pro
forma interest expense for the year ended December 31, 2003 would have been $109
million and for the three months ended March 31, 2004 would have been $29
million. In addition, subject to restrictions in our Ispat Inland Administrative
Service Company ("IIASC") receivables revolving credit facility, inventory
revolving credit facility (the receivables revolving credit facility and the
inventory revolving credit facility are referred to together as the revolving
credit facilities), the indenture relating to the notes and restrictions imposed
by the holders of other debt, we may borrow more money for working capital,
capital expenditures or for other purposes.
Our high level of debt could have important consequences to you, including
the following:
- - We will have to use a large portion of the money earned by us and our
subsidiaries to pay our significant cash interest expense and principal
repayment obligations.
- - Covenants relating to our debt may make it difficult for us to obtain
additional financing for working capital, capital expenditures,
acquisitions, general corporate purposes or other purposes and limit our
ability to sell assets.
- - Financial covenants relating to our debt may limit our flexibility to
adjust to changing market conditions, including increased competition,
make us more vulnerable to economic downturns and could harm our ability
to remain in compliance with debt covenants and make payments on our debt,
including the notes.
17
- - The bankruptcy of our Parent is currently an event of default in our
receivables revolving credit facility, the revolving credit facility at
I/N Kote and the debt at the I/N Tek and I/N Kote joint ventures. If our
Parent were to go bankrupt, it would trigger a default under these
financings, resulting in cross-defaults on the majority of our other
financings, including the loss of our ability to use our revolving credit
facilities.
Servicing our indebtedness requires a significant amount of cash, and our
ability to generate cash depends on many factors beyond our control.
We expect to obtain from our operations the cash necessary to make
payments on our indebtedness, including the First Mortgage Bonds being issued to
a Finco Guarantor as part of this offering, and to fund our working capital,
strategic acquisitions, investments, joint ventures and other general corporate
requirements. Our ability to generate cash from our operations is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control. As a result, we cannot assure you that our
business will generate sufficient cash flow from operations, that we will
realize currently anticipated cost savings, revenue growth and operating
improvements on schedule or at all or that future borrowings will be available
to us under our revolving credit facilities, in each case, in amounts sufficient
to enable us to service our debt and to fund our other liquidity needs. If we
cannot service our debt, we will have to take actions such as reducing or
delaying strategic acquisitions, investments and joint ventures, selling assets,
restructuring or refinancing our debt or seeking additional equity capital. We
cannot assure you that any of these remedies could, if necessary, be effected on
commercially reasonable terms, or at all. In addition, the terms of existing or
future debt instruments that place restrictions on us, including our revolving
credit facilities, the indenture for the notes offered hereby and the indenture
for the First Mortgage Bonds may restrict us from adopting any of these
alternatives. Because of these and other factors beyond our control, we may be
unable to pay the principal, premium, if any, interest or other amounts on the
First Mortgage Bonds, which would prevent the Issuer from making payments on the
notes.
Our business requires substantial capital investments, maintenance expenditures
and contractual commitments that we may be unable to fulfill.
Our operations are capital intensive. Our total capital expenditures were
$111.3 million in 2003, $52.4 million in 2002 and $28.6 million in 2001.
Approximately $89 million of our 2003 capital expenditures went toward the
reline of the No. 7 Blast Furnace. We have spent $1.8 million on capital
expenditures in the three months ended March 31, 2004. We expect to spend in
aggregate $27.0 million on capital expenditures during 2004.
Our business also requires substantial expenditures for routine
maintenance. We spent $69.0 million in the three months ended March 31, 2004,
$244.9 million in 2003, $245.0 million in 2002 and $246.7 million in 2001 on
materials and labor for routine maintenance. Further, our non-capital
expenditures to operate and maintain pollution control equipment were $9 million
in the three months ended March 31, 2004, $31 million in 2003, $33 million in
2002 and $37 million in 2001. These amounts are included in our cost of sales on
our income statements.
As of March 31, 2004, the Company and its subsidiaries had indebtedness,
excluding shareholder advances, of $1,183 million.
In conjunction with the development of a heat recovery coke battery and
associated energy recovery facility, we entered into an agreement to purchase
1.2 million tons of coke annually for approximately 15 years on a take-or-pay
basis at prices determined by certain cost factors. Additionally, under a
separate agreement, we committed to pay tolling charges over approximately 15
years to desulfurize flue gas from the coke battery and to convert the heat
output from the coke battery to electrical power and steam. We advanced $30
million during the construction of the project, which is recorded as a deferred
asset on the balance sheet and will be credited against required cash payments
during the second half of the energy tolling agreement. As of March 31, 2004 and
December 31, 2003, the estimated minimum tolling charges remaining over the life
of this agreement were approximately $191 million and $199 million,
respectively.
In 2002, we entered into a twelve-year agreement with an iron ore supplier
to purchase from it or its subsidiaries all of our pellet requirements beyond
those produced by our Minorca Mine. The pellet price is fixed for the first two
years and then adjusted over the term of the agreement based on various market
index factors.
18
We and an independent unaffiliated producer of raw materials are parties
to a long-term supply agreement under which we were obligated to fund an escrow
account to indemnify it for the continuing availability of certain tax credits
under the U.S. tax code, which credits extend until January 1, 2008.
Contributions to the escrow account were determined by the agreement and the
funds were restricted from our use while in the escrow. We received full
recovery of $39.1 million, the escrowed amount, in April 2001. No further
contributions to the escrow are required at this time as we believe the
likelihood of the specific contingency occurring is remote. If there is any
loss, disallowance or reduction in the allowable tax credits applicable to the
raw materials previously sold to us, we are required to pay the independent
unaffiliated producer the amount by which the cost of raw materials was
decreased as a result of such tax credits, subject to certain adjustments, plus
interest. As of March 31, 2004 and December 31, 2003, respectively, the
cumulative cost reduction due to such tax credits totaled $163.6 million and
$156.5 million, respectively. The current carrying amount of this
indemnification is $0 million.
At March 31, 2004, we have guaranteed $47.7 million of long-term debt
attributable to I/N Kote, one of our joint ventures. Under normal operating
environments, we service the debt at both I/N Tek and I/N Kote through the joint
venture pricing mechanisms. We have the rights to the productive capacity of I/N
Tek, except in certain limited circumstances, and, under a tolling agreement
with I/N Tek, have an obligation to use the facility for the production of cold
rolled steel. Under the tolling agreement, we were charged $36.8 million in the
three months ended March 31, 2004, $136.9 million in 2003, $141.6 million in
2002 and $142.8 million in 2001. I/N Kote is required to buy all of its cold
rolled steel from us. We are required to furnish this cold rolled steel at a
price that results in an annual equity return to the partners of I/N Kote,
depending upon operating levels, of up to 10% after operating and financing
costs. We recorded sales of cold rolled steel to I/N Kote of $84.9 million in
the three months ended March 31, 2004, $343.0 million in 2003, $348.8 million in
2002 and $309.7 million in 2001.
The total amount of our firm commitments to contractors and suppliers
(primarily in connection with additions to property, plant and equipment) was
$7.4 million as of March 31, 2004.
We have various operating leases, the minimum lease payments for which
are: $13.8 million in 2004, $11.9 million in 2005, $3.7 million in 2006, $0.5
million in 2007, $0.1 million in 2008 and $0.1 million thereafter.
Our business may not generate sufficient operating cash flow and our
external financing sources may not be available in an amount sufficient to
enable us to make anticipated capital expenditures, service or refinance our
indebtedness, including these notes, or fund other liquidity needs. If we are
unable to make upgrades, or purchase new plant and equipment, our results of
operations could be materially and adversely affected.
Our pension plan is currently underfunded and we expect to make substantial cash
payments to fund this plan, which may increase in the future, reducing the cash
available for our business.
As of December 31, 2003, the aggregate value of our pension plan's assets
was $1,781.4 million, while the aggregate projected benefit obligation was
$2,555.9 million, resulting in an aggregate deficit of $774.5 million.
On July 16, 1998, we entered into an agreement with the Pension Benefit
Guaranty Corporation, or PBGC, to provide certain assurances with respect to our
pension obligations and issued a $160 million standby letter of credit in favor
of the PBGC. We also granted the PBGC a first priority lien in the amount of $75
million on three of our Great Lakes Ore Vessels, our Minorca Pellet Mine and on
our No. 2 BOF Continuous Caster Facilities. Also on July 16, 1998, Ryerson Tull,
our former parent company, guaranteed $50 million of our pension plan
obligations, later issuing a letter of credit to secure this guarantee. In July
2003, we reached a new agreement with the PBGC. Under the new agreement, we
contributed an additional $50 million to our pension plan on July 9, 2003;
agreed to contribute $110 million between January 1, 2004 and June 1, 2005;
agreed to pay 50% of excess cash flows above EBITDA (as defined in our agreement
with the PBGC) of $316.9 million in 2004, $328.5 million in 2005, $334.5 million
in 2006, $356.2 million in 2007 and $370.2 million in 2008 from our operations
to our pension plan; and issued $160 million of non-interest bearing First
Mortgage Bonds pledged to the PBGC as security for our pension plan obligations,
which pledged First Mortgage Bonds rank pari passu with the First Mortgage Bonds
securing the notes. We also agreed not to amend the pension plan to increase
benefits unless the increase is funded with an immediate additional contribution
to the pension plan equal to the increase in the benefit liability resulting
from the amendment. The $160 million letter of credit was also allowed to
expire, and will not be renewed. However, the $75 million first priority lien
referred to above remains in place. On September 15, 2003, Ryerson Tull, in
exchange for
19
the elimination of certain claims for indemnities that we had made against
Ryerson Tull, paid $21.0 million to us, which we, in turn, contributed to our
pension plan. The related letter of credit provided by Ryerson Tull was reduced
to $29.0 million. We agreed to satisfy the amount of the remaining $29.0 million
letter of credit through additional periodic payments to our pension plan during
the period between January 15, 2004 and December 15, 2004.
In addition to our agreement with the PBGC, we also have significant cash
contribution requirements under Title I of the Employee Retirement Income
Security Act of 1974, as amended, or ERISA. Assuming continuing legislative
relief, modestly rising interest rates and reasonable market returns, the total
of these contribution requirements (including the contributions required under
our PBGC and Ryerson Tull agreements) could exceed $500 million over the next
four to five years and could be significantly higher depending on future asset
performance, the levels of interest rates used to determine ERISA minimum
funding requirements, actuarial assumptions and experience, union negotiated
changes and future government regulations. We may elect to make voluntary
contributions above what is required under ERISA and under our agreement with
the PBGC to manage our future pension funding requirements.
We have made cash contributions to our pension plan of approximately
$345.0 million since 1998 through March 31, 2004. According to current
estimates, we expect to contribute $111.5 million in 2004, of which $31.5
million was contributed in the first quarter of 2004.
Our funding requirements may be significantly higher in 2004, 2005 and/or
2006 if temporary funding relief provisions currently before Congress are not
enacted. In January 2004 the Senate passed HR 3108, which included both interest
rate relief and deficit reduction contribution relief for steel companies.
However, the bill needs to be reconciled with the House version in a conference
committee. After the bill comes out of conference, it must be signed by the
President to become law.
The Administration has threatened to veto legislation that includes
deficit reduction contribution relief. Despite being passed by the Senate, there
can be no assurance that HR 3108 will become law.
Our funding obligations depend upon future asset performance, the level of
interest rates used to measure ERISA minimum funding levels, actuarial
assumptions and experience, union negotiated changes and future government
regulation. Any such funding requirements could have an unfavorable impact on
our borrowing arrangements and cash flows.
Future funding for post-retirement employee benefits other than pensions also
may require substantial payments from current cash flow.
We provide post-retirement life insurance and medical benefits to
substantially all of our employees. We paid $63.9 million in post-retirement
benefits in 2003 and recorded an expense of $46.8 million in our financial
statements. Our unfunded post-retirement benefit obligation as of December 31,
2003 was $906.9 million.
Our obligations from such post-retirement benefits could increase
significantly if health care costs increase at a faster pace than those assumed
by management. See "Management's discussion and analysis of financial condition
and results of operations -- Critical Accounting Policies and Estimates" below
for further discussion of these assumptions. An increase of 1% in the health
care cost trend rate would increase the annual net periodic expense by $8.9
million.
The cyclical nature of the steel industry and of our customers' industries could
impact our operating flexibility and adversely affect our financial condition.
The steel industry is highly cyclical and is affected significantly by
general economic conditions and other factors beyond our control, such as
worldwide production capacity and fluctuations in steel imports and tariffs,
which are difficult to predict. Any protracted instability caused by military
conflict or other developments could have an adverse effect on us, and could
significantly affect our business. Steel prices are sensitive to a number of
supply and demand factors. Because of our high fixed costs, our profit margins
are greatly affected by sales
20
volumes. Prices are up significantly from 20-year lows reached in December 2001,
when foreign imports were at their peak and domestic demand was weak.
We are particularly sensitive to trends in cyclical industries such as the
domestic automotive and appliance industries. For the year ended December 31,
2003, sales directly to the automotive and appliance industries accounted for
approximately 29% and 10% of our shipments, respectively. Certain other of our
customers have been adversely affected by the continuing economic downturn that
has resulted, and may in the future result, in reduced sales levels.
Because we and other integrated steel producers generally have high fixed
costs, reduced sales may adversely affect our business, results of operations
and financial condition.
Imports of steel may depress domestic price levels and have an adverse effect on
our results of operations and cash flows.
Due to excess world capacity and widespread dumping and subsidy abuses,
imports of steel products to the U.S. market have reached high levels and, in
some cases, have been sold at prices below their costs. From 1995 to 2003, U.S.
steel industry production capacity utilization levels ranged from a high of
93.3% in 1995 to a low of 79.2% in 2001 and were 82.2% in 2003. Recently, a
number of domestic flat rolled steel facilities that had been closed or idled
have become operational again, contributing to the overcapacity in that market
segment. This excess capacity has resulted in more competitive product pricing
and increased pressure on industry profit margins. Also, the high levels of
fixed costs with respect to operating an integrated steel mill encourage
operators to maintain high levels of output, even during periods of reduced
demand.
Import levels impact our business, particularly our sales of lower
value-added products. Steel imports to the United States accounted for an
estimated 19.3% of the domestic steel market in 2003, down from 25.8% in 2002.
We believe steel imports into the United States involve widespread dumping and
subsidy abuses and the remedies provided by U.S. law to private litigants are
insufficient to correct these problems. Imports of steel involving dumping and
subsidy abuses depress domestic price levels and have an adverse effect upon our
revenue, income and cash flows. Further, when the exchange value of the U.S.
currency strengthens, the costs of imports decline, and imports of steel
increase.
On March 5, 2002, as a result of an investigation under Section 201 of
U.S. trade laws, President Bush imposed tariffs on imports into the United
States of numerous steel products. These remedies included 30% tariff rate
increases for hot-rolled sheet, cold-rolled sheet, coated sheet, and hot-rolled
bar with the rates declining to 24% in year two and 18% in year three. Several
foreign supplying countries challenged the President's action through the
dispute resolution procedures of the World Trade Organization, and on November
11, 2003 the World Trade Organization issued a final adverse ruling on the
Section 201 remedy. The European Union and Japan announced that they would
impose retaliatory tariffs on a wide range of products if the United States did
not repeal the Section 201 tariffs. Following the issuance of a mid-term review
of the Section 201 program, the President ended the Section 201 program on
December 4, 2003, stating that the domestic steel industry's increased
productivity, decreased production costs, and new labor agreements demonstrate
that the industry has made sufficient progress in its restructuring efforts.
On two occasions, in 2000 and 2002, U. S. producers of cold-rolled
flat-rolled steel sheet products petitioned to have antidumping and/or
countervailing duties assessed against imports of cold-rolled sheets from 12
countries and 20 countries, respectively. Both times, the U.S. International
Trade Commission ("USITC") issued negative final injury determinations,
effectively terminating the investigations. Both decisions were appealed by the
petitioning members of the domestic industry ("petitioners") the United States
Court of International Trade ("CIT"). The appeal of the 2000 case was remanded
to the USITC on October 28, 2003. In a remand decision published in May 2004,
the USITC again reached a negative determination on remand. That decision is
currently being reviewed by the CIT, and could either be affirmed or remanded
again later this year. On February 19, 2004, the CIT also affirmed the negative
determination in the 2002 case. That case was recently appealed to the Court of
Appeals for the Federal Circuit and no decision is expected for 9 to 12 months.
Some of the respondents have raised on appeal issues relating to the final
dumping margin determinations of the U.S. Department of Commerce ("Commerce") in
that investigation, although no duties are currently being collected due to the
negative injury determination that is
21
being appealed. Also, in May 2004, Commerce and the USITC are scheduled to
initiate "sunset" reviews of countervailing duty and antidumping orders against
hot-rolled flat-rolled carbon steel products from Brazil, Japan and Russia to
determine whether the orders should be terminated or continued for an additional
five years. Those proceedings will not be completed until mid-2005.
We could experience labor disputes that could disrupt our business.
Approximately 80% of our employees are represented by unions and are
covered by collective bargaining agreements which are subject to periodic
renegotiation. Substantially all of our unionized employees are represented
under an agreement with the United Steel Workers of America that was originally
set to expire July 31, 2004, but was extended to August 15, 2004.
Although we believe that we will successfully negotiate a new collective
bargaining agreement with the United Steelworkers of America when the existing
agreement expires, the negotiations:
- - may not be successful;
- - may result in a significant increase in the cost of labor; or
- - may break down and result in the disruption of our operations
Our current contract contains a "no strike clause" under which the parties
have agreed to enter into a new contract consistent with the pattern of the
industry. If the parties fail to reach agreement on the contract, it will be
submitted to binding arbitration. Despite this, labor negotiations may not
conclude successfully and we may experience work stoppages or labor
disturbances. Any work stoppages or labor disturbances may have an adverse
effect on our operations and financial results.
In addition, many of the contractors working in our plant employ workers
represented by various building trade unions. For example, the contractors who
produce coke and who process slag for us use unionized labor. Disruptions with
these contractors could adversely impact our operations.
We face significant price and other forms of competition from other steel
producers, which could hurt our results of operations.
Generally, the markets in which we conduct business are highly
competitive. Increased competition could cause us to lose market share, increase
expenditures or reduce pricing, any one of which could hurt our results of
operations. We compete primarily on the basis of quality and the ability to meet
customers' product specifications, delivery schedules and price. Some of our
competitors may:
- - benefit from greater capital resources;
- - have more efficient technologies; and
- - have lower raw material and energy costs.
In addition, our competitive position within the global steel industry may
be affected by, among other things:
- - the recent trend toward consolidation among our competitors in the steel
industry;
- - exchange rate fluctuations that may make our products less competitive in
relation to the products of steel companies based in other countries; and
- - economies of scale in purchasing, production and sales, which accrue to
some of our larger competitors.
22
We face competition from companies that have reduced their fixed costs
through bankruptcy. Over 35 U.S. steel companies have sought protection under
Chapter 11 of the United States Bankruptcy Code since the beginning of 1997.
Many of these companies have continued to operate, while reducing prices to
maintain volumes and cash flow, and obtaining concessions from their labor
unions and suppliers. Some companies have even expanded and modernized while in
bankruptcy. Upon emerging from bankruptcy, these companies, or new entities that
purchased their facilities through the bankruptcy process, have been relieved of
many obligations, including environmental, employee and retiree benefit and
other obligations, commonly referred to as legacy costs. As a result, they are
able to operate with lower fixed costs than before entering bankruptcy.
We also face competition from mini-mill producers. Domestic integrated
producers have lost market share in recent years to domestic mini-mill
producers. Mini-mills produce steel by melting scrap in electric furnaces.
Although mini-mills generally produce a narrower range of steel products than
integrated producers, they typically enjoy competitive advantages such as lower
capital expenditures for construction of facilities, lower environmental costs,
lower raw material costs and non-unionized work forces with lower employment
costs and more flexible work rules. An increasing number of mini-mills utilize
thin slab casting technology to produce flat-rolled products. Through the use of
thin slab casting, mini-mill competitors are increasingly able to compete
directly with integrated producers of flat-rolled products. Depending on market
conditions, the additional production generated by flat-rolled mini-mills could
have an adverse effect on our selling prices and shipment levels.
We may encounter increases in the cost of, and supply shortages in, raw
materials and energy, which could adversely affect our business and results of
operations.
We require substantial amounts of raw materials and energy in our
production processes, consisting principally of iron ore, scrap, coke, coal,
electricity and natural gas. Any substantial increases in their costs or
prolonged interruption in the supply of raw materials or energy could adversely
affect our business, financial condition and results of operations and
prospects.
Metallics (iron ore and scrap) represented nearly 24% of our cost of sales
in 2003. Additionally, energy costs (natural gas, coke, electricity and coal)
represented approximately 24% of our cost of sales in 2003. The prices of these
products can be particularly volatile. For example, with respect to natural gas,
we do not have long-term contracts and are therefore subject to market variables
and price swings that could materially affect our gross margins. In the first
quarter of 2004, NYMEX natural gas prices ranged from $5.08/mmBTU to
$7.29/mmBTU. A one dollar change per mmBTU in the price of natural gas can
impact our annual gross profit by approximately $28 million. In addition, first
quarter 2004 prices for scrap have increased approximately 89% and coke prices
have increased approximately 41% from fourth quarter levels. If prices remain at
current levels or increase further, our profitability will continue to be
adversely affected. We have not always been able to pass on increases in the
prices of energy and raw materials to our customers, and may not be successful
in doing so in the future.
Our competitive position depends on our senior management team and the loss of
its members could materially hurt our business.
Our ability to maintain our competitive position and to implement our
business strategy is dependent to a large degree on the services of our senior
management team. The loss of or any diminution of our senior management team or
an inability to attract, retain and maintain additional senior management
personnel could materially hurt our business, financial condition, results of
operations or prospects. We may not be able to retain our existing senior
management personnel or to attract additional qualified senior management
personnel in the future. We do not maintain key man life insurance on any
members of our senior management.
We may have to spend substantial sums to meet environmental regulations.
Our operations are subject to strict environmental laws and regulations.
These laws and regulations govern, generally, air and water pollution, the
management and disposal of hazardous materials and the remediation of
contamination. These requirements, or enforcement of these requirements, may
become even more stringent in the future. We have spent, and can be expected to
spend in the future, substantial amounts to comply with environmental laws and
regulations. Our capital spending for pollution control projects was $0.1
million for each of the three months ended March 31, 2004 and ended March 31,
2003, $6 million in 2002 and $3 million in 2001.
23
Our environmental non-capital expenditures were $9 million for the three months
ended March 31, 2004, $31 million in 2003, $33 million in 2002 and $37 million
in 2001 to operate and maintain air and water pollution control facilities to
comply with current federal, state and local laws and regulations. Failure to
comply with these environmental laws and regulations could result in the
assessment of civil and criminal penalties, the suspension of operations and
lawsuits by private parties. We are a defendant in various administrative and
judicial actions initiated by governmental agencies, including a U.S.
Environmental Protection Agency consent decree entered in 1993. We have spent
approximately $29.5 million to date to comply with the 1993 consent decree. We
are currently conducting an assessment of the extent of environmental
contamination at the Indiana Harbor Works, as required by the 1993 consent
decree. We anticipate that the assessment will cost approximately $2 million to
$4 million per year over the next several years. The cost of subsequent
remediation efforts for the site cannot be reasonably estimated, but we expect
that they will require significant expenditures and may be material to our
business, financial condition and results of operations.
Competition from other materials may negatively affect our results of
operations.
In many applications, steel competes with other materials, such as
aluminum (particularly in the auto industry), cement, composites, glass, plastic
and wood. Additional substitutes for steel products could adversely affect
future market prices and demand for steel products.
Equipment downtime or shutdowns could adversely affect our results of
operations.
Our manufacturing processes are dependent upon critical steelmaking
equipment, such as furnaces, continuous casters, rolling mills, and electrical
equipment (such as transformers). This equipment may incur downtime as a result
of unanticipated failures or other events, such as fires or blast furnace
breakouts. We have experienced, and may in the future experience, plant
shutdowns or periods of reduced production as a result of such equipment
failures or other events. While we currently carry property and business
interruption insurance, we may not continue to do so. Even if we have insurance,
in the event of a loss, coverage may not be sufficient or our insurance carriers
may not be able to pay amounts owed us. In addition, when the carrying amount of
a long-lived asset is not recoverable, we may take an impairment charge. In late
2001, we idled the 2A Bloomer and 21" Bar Mill due to deteriorating large bar
market conditions and recorded an impairment charge of $23 million on December
31, 2002.
In the fourth quarter of 2002, we evaluated our investment in the Empire
Mine. We identified conditions indicating that a permanent loss in the value of
the investment had occurred. As a result, an impairment charge of $39 million
for the Empire Mine investment and related fluxing equipment was recorded at
December 31, 2002.
We are owned by Ispat International and its controlling shareholder has other
steel interests.
Our parent, Ispat International, is indirectly controlled by Mr. Lakshmi
N. Mittal and members of his immediate family (collectively referred to in this
prospectus as the "controlling shareholder"). In addition to his shareholding in
Ispat International, the controlling shareholder also owns and controls Ispat
Indo, a mini-mill in Indonesia and LNM Holdings N.V. LNM Holdings N.V. in turn
owns and controls several steel companies, including Ispat Karmet in Kazakhstan,
Ispat Sidex in Romania, Ispat Annaba in Algeria, Ispat Nova Hut in the Czech
Republic and Ispat Polska Stal in Poland. In addition, LNM Holdings N.V. also
has a significant minority interest in Iscor, South Africa. Further, in October
2003, LNM Holdings N.V. entered into a binding share purchase agreement for the
acquisition of a majority shareholding in S.C. Siderurgica S.A., a long steel
products manufacturing plant in Romania.
None of these steel companies currently competes with Ispat Inland.
However, no assurance can be given that these companies or any other steel
companies that the controlling shareholder may acquire in the future will not
compete with us in certain markets or products.
As a privately-held company, we are subject to less stringent corporate
governance requirements than a public company, which provides less protection to
our investors.
24
While we will be subject to certain requirements of the Sarbanes-Oxley Act
of 2002 when our exchange offer registration statement becomes effective, we
will not be subject to many of its provisions, including rules requiring us to
have independent directors or an audit committee composed of independent
directors. We will not be subject to the same corporate governance standards as
a public company and our security holders will not have the protections provided
by having independent directors or audit committee members. Our parent company
is a foreign private issuer and is not subject to the same corporate governance
requirements as a U.S. company.
The loss of one or more key customers could adversely affect our operating
results.
A substantial portion of our sales are made to a small group of key
customers, the loss of any one of which would have a substantial impact on our
revenues. For the year ended December 31, 2003, our top five customers,
including those of our joint ventures, accounted for approximately 44% of our
revenues. Approximately two-thirds of our shipments for the same period were to
the steel service center and transportation (including automotive) markets. The
loss of one or more major customers or decreased sales to the steel service
center and transportation (including automotive) markets could adversely affect
our operating results.
Product liability claims could adversely affect our results of operations.
We could be held liable for claims for damages related to the products we
sell or for other matters. It is possible that the incidental and consequential
damages related to our products could be significant. We sell products to major
manufacturers such as automobile and appliance producers. If steel were to be
provided to a manufacturer inconsistent with the specifications for their order,
significant disruptions to that customer's production lines could result. In
addition, some of the products that we sell are used in safety-critical
applications such as automobile axles. While we currently carry general
liability insurance, including product liability coverage, we may not continue
to do so. Even if we have insurance, in the event of a loss, coverage may not be
sufficient and our insurance may be unable to pay amounts owed us.
We may be unable to fully utilize our deferred tax asset.
In order to fully recognize the $431.2 million deferred tax asset recorded
as of December 31, 2003, we will need to generate taxable income of
approximately $1.2 billion during the next 20 years to utilize our temporary
differences and net operating loss carryforwards before they expire. Our ability
to generate taxable income is subject to general economic, financial,
competitive, legislative, regulatory and other factors which are beyond our
control. Consequently, we cannot assure you that we will generate sufficient
taxable income to realize our deferred tax asset. If we generate lower taxable
income than the amount we have assumed in determining the deferred tax asset,
then a valuation reserve will be required, with a corresponding charge against
income.
25
FORWARD-LOOKING STATEMENTS
This prospectus, the documents incorporated by reference and our other
filings with the SEC, contain "forward-looking" information within the meaning
of the federal securities laws. This forward-looking information includes
statements concerning possible or assumed future results of operations,
financing plans, competitive position, potential growth and future expenditures,
including, in particular, the statements about our plans, strategies and
prospects under the headings "Prospectus summary," "Management's discussion and
analysis of financial condition and results of operations" and "Business"
included or incorporated by reference in this prospectus. Forward-looking
statements include statements that are not historical facts and can be
identified by the use of terminology such as "believe," "expect," "anticipate,"
"intend," "plan," "estimate" or similar expressions. Undue reliance should not
be placed on any forward-looking statements, which speak only as of their dates.
Actual results could differ materially from those expressed in, or implied by,
the forward-looking statements as a result of the uncertainties and risks
described below or elsewhere in this prospectus or in the documents incorporated
by reference in this prospectus. Forward-looking statements are subject to risks
and uncertainties, including, among others:
- - the highly competitive nature of the global steel industry;
- - our level of indebtedness;
- - changes in levels of steel imports into the United States;
- - the substantial capital investment and similar expenditures required in
our business;
- - the cyclical nature of our business and changes in market supply and
demand for our products;
- - increases in the cost of iron ore, coke, steel scrap, other raw materials,
energy and freight;
- - our ability to fund our pension and post-retirement employee benefits;
- - our ability to negotiate collective bargaining agreements and labor
relations generally;
- - conflicts of interest with our controlling shareholder;
- - competition from substitute products, such as aluminum, cement and
composites; general economic conditions may be less favorable than
expected;
- - legislative or regulatory changes, including changes in environmental
regulation, may adversely affect the businesses in which we are engaged;
- - environmental risks and liability under federal, state and local
environmental laws and regulations; and
- - changes in the capital markets.
The issuers do not undertake any obligation to revise or update any
forward-looking statements that have been made to reflect events or
circumstances after the date of those statements or to reflect the occurrence of
anticipated or unanticipated events.
26
USE OF PROCEEDS
This exchange offer is intended to satisfy certain of our obligations
under the registration rights agreement. We will not receive any cash proceeds
from the issuance of the exchange notes. In consideration for issuing the
exchange notes contemplated in this prospectus, we will receive outstanding
notes in like principal amount, the form and terms of which are the same as the
form and terms of the exchange notes, except as otherwise described in this
prospectus.
We used the net proceeds from the sale of the notes to repay certain of
our existing indebtedness, including revolving credit, which released funds
available for general corporate purposes. Specifically, we completely repaid the
outstanding balance of $330.8 million on the Tranche B loans (due July 16, 2005)
and $330.8 million on the Tranche C loans (due July 16, 2006) under our credit
agreement, completely repaid the outstanding balance ($90 million at December
31, 2003) under our inventory revolving credit facility (due April 30, 2007) and
used the remainder of the net proceeds ($20.3 million at December 31, 2003) to
partially repay our receivables revolving credit facility (due November 5,
2005). The approximately $175 million inventory revolving credit facility and
the approximately $185 million receivables revolving credit facility will each
remain in place, subject to collateral availability.
Borrowings under our credit agreement were used to fund a portion of the
acquisition price paid when Ispat International acquired us. The average
interest rate of borrowings under the credit agreement was 5.1% in 2003.
Borrowings under our receivables and inventory revolving credit facilities are
used for general corporate purposes. Interest rates for borrowings under the
receivables revolving credit facility averaged approximately 2% in 2003. The
average interest on borrowings under the inventory revolving credit facility was
approximately 4% in 2003.
RATIO OF EARNINGS TO FIXED CHARGES
We have calculated the ratio of earnings to fixed charges by dividing
earnings by fixed charges. For purposes of determining the ratio of earnings to
fixed charges, earnings consist of pretax income reported, fixed charges,
amortization of capitalized interest, and net income (cash) distributed from I/N
Tek L.P., I/N Kote L.P. and PCI Associates and exclude our share of I/N Tek, I/N
Kote and PCI net income. Fixed charges consist of interest expensed and
capitalized, amortized premiums, discounts and capitalized expenses related to
indebtedness, and an estimate of the interest within rental expense.
PRO
FORMA
PRO FORMA THREE THREE
FISCAL YEAR MONTHS MONTHS
FISCAL YEAR ENDED ENDED ENDED ENDED
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER MARCH 31, MARCH
31, 1999 31, 2000 31, 2001 31, 2002 31, 2003 31, 2003 2004 31, 2004
- -------- -------- -------- -------- -------- ----------- --------- --------
1.53 - * - * - * - * - * 3.70 2.64
*For the years ended December 31, 2000, 2001, 2002 and 2003, our earnings
were insufficient to cover our fixed charges by $72.7 million, $203.7 million,
$25.2 million and $73.6 million. For the pro forma year ended December 31, 2003,
our earnings were insufficient to cover our fixed charges by $112 million.
27
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
The following table sets forth our selected historical consolidated
financial and other data as of and for the periods indicated and should be read
in conjunction with "Management's discussion and analysis of financial condition
and results of operations", and our audited consolidated financial statements
included in our Annual Report on Form 10-K for the year ended December 31, 2003
and our unaudited consolidated financial statements included in our Quarterly
Report on Form 10-Q for the three-month period ended March 31, 2004, both of
which are incorporated into this prospectus by reference. The balance sheet and
income statement data set forth below as and for the years ended December 31,
1999, 2000, 2001, 2002 and 2003 have been derived from our audited financial
statements and as of and for the quarters ended March 31, 2003 and 2004 have
been derived from our unaudited financial statements.
Selected financial data for Ispat International is set forth in its Report
on Form 6-K dated May 6, 2004 and its Annual Report on Form 20-F/A for the year
ended December 31, 2003, which are incorporated into this prospectus by
reference.
Three Months
Year Ended December 31, Ended March 31,
-------------------------------------------------------------------- ------------------
(IN MILLIONS, EXCEPT TONNAGE DATA) 1999 2000 2001 2002 2003 2003 2004
- ------------------------------------- --------- --------- ----------- ---------- ---------- -------- --------
STATEMENT OF INCOME DATA:
Sales................................ $ 2,477.9 $ 2,383.6 $ 2,084.1 $ 2,303.4 $ 2,222.9 $ 553.9 $ 665.6
Cost of goods sold
(excluding depreciation).......... 2,186.9 2,181.8 2,064.1 2,082.1 2,103.1 478.4 549.2
Workforce reduction.................. -- 4.1(1) 18.2(2) (0.6)(2) -- -- 4.0(10)
Legal settlement..................... -- 15.5(3) (7.5)(4) -- -- -- --
Asset impairment charge.............. -- -- -- 62.0(5) -- -- --
Selling, general and administrative
expenses.......................... 42.8 40.4 32.6 27.8 27.0 6.7 6.7
Depreciation......................... 106.3 106.0 104.3 99.1 97.0 24.4 25.1
--------- --------- ----------- ---------- ---------- -------- --------
Operating profit (loss).............. 141.9 35.8 (127.6) 33.0 (4.2) 44.4 80.6
Other (income) expense, net.......... 0.7 (3.3) (24.5) (30.4) (8.6) 1.8 (4.9)
Interest expense on debt............. 86.2 97.2 94.4 77.0 70.9 17.8 20.6
--------- --------- ----------- ---------- ---------- -------- --------
Profit (loss) before income taxes.... 55.0 (58.1) (197.5) (13.6) (66.5) 24.8 64.9
Cost (benefit) for income taxes...... 19.0 (25.2) (71.5) (6.5) (15.5) 8.4 23.2
--------- --------- ----------- ---------- ---------- -------- --------
Net income (loss) before
cumulative change in
accounting principle.............. 36.0 (32.9) (126.0) (7.1) (51.0) 16.4 41.7
Cumulative effect of change
in accounting..................... -- -- -- -- (1.6) (1.6) --
--------- --------- ----------- ---------- ---------- -------- --------
Net income (loss).................... $ 36.0 $ (32.9) $ (126.0) $ (7.1) $ (52.6) $ 14.8 $ 41.7
========= ========= =========== ========== ========== ======== ========
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 13.1 $ 24.0 $ 24.2 $ 10.0 $ 13.4 $ 16.8 $ 28.2
Property, plant and equipment, net... 1,906.5 1,882.1 1,805.4 1,733.9 1,751.3 1,723.0 1,728.0
Total assets......................... 3,063.4 3,122.2 3,037.3 3,163.8 3,136.0 3,136.1 3,214.4
Secured debt(6)...................... 876.7 963.2 971.5 980.8 985.2 963.8 1,046.5
Total debt excluding
shareholder advances(7)(8)........ 1,006.7 1,092.6 1,100.1 1,093.1 1,121.5 1,076.9 1,182.9
Total debt(9)........................ 1,006.7 1,092.6 1,254.3 1,248.9 1,337.3 1,232.7 1,398.7
Stockholders' equity (deficit)....... 448.3 367.3 22.3 (238.2) (387.3) (225.3) (345.6)
OTHER DATA:
Tons shipped (000)................... 5,799 5,599 5,353 5,654 5,300 1,268 1,433
Operating cash flow.................. 94.3 28.5 (137.7) 21.3 22.3 23.7 (43.7)
Capital expenditures................. 55.1 83.0 28.6 52.4 111.3 9.7 1.8
28
(1) In 2000, we recorded charges of $4.1 million for severance and termination
benefit cost related to a workforce reduction of salaried non-represented
employees.
(2) In 2001, we recorded charges of $18.2 million for severance and
termination benefit cost related to workforce reductions of approximately
250 salaried non-represented employees. In 2002, $0.6 million of the 2001
workforce reduction provision was reversed due to changes from previous
estimates.
(3) In 2000, we recorded a charge of $15.5 million for the settlement of a
lawsuit related to the sale of polymer coated steel by us to a culvert
fabricator for use in federal and state highway construction projects in
Louisiana. See Note 11 to the Consolidated Financial Statements.
(4) In 2001, we settled a number of disputes with Ryerson Tull, Inc. that had
arisen under the May 27, 1998 Merger Agreement. The settled disputes
included our claim against Ryerson Tull, Inc. for indemnification in
connection with the resolution of the federal lawsuit and investigation
related to the sale of polymer coated steel by us to a culvert fabricator
for use in federal and state highway construction projects in Louisiana.
Ryerson Tull, Inc. paid $7.5 million to us and the parties released
certain claims each had against the other. See Note 11 to the Consolidated
Financial Statements.
(5) Our results for 2002 were negatively impacted by two impairment charges
totaling $62.0 million. As outlined in SFAS No. 144, we recognized the
impairment of our idled 2A Bloomer and 21" Bar Mill facilities due to
deteriorating market conditions and recorded an asset write-off of $23.0
million. In addition, in accordance with APB No. 18, we evaluated our
investment in the Empire Mine. We identified conditions indicating that a
permanent loss in the value of the investment had occurred, and as a
result we recorded a $39.0 million impairment charge for the Empire Mine
investment and related fluxing equipment.
(6) Secured debt includes the First Mortgage Bonds excluding the $160 million
non-interest bearing Series X First Mortgage Bond, the Ispat Inland
Administrative Service Company revolving credit facility and the Inventory
revolving credit facility. See "Description of other indebtedness of Ispat
Inland Inc. -- First Mortgage Bonds -- Series X."
(7) "Shareholder advances" are advances from Ispat International and special
purpose financing subsidiaries.
(8) Total debt excluding shareholder advances includes secured debt, the
Industrial Revenue Bonds and the short-term note payable.
(9) Total debt includes secured debt, the Industrial Revenue Bonds, the
short-term note payable and the shareholder advances.
(10) In the first quarter of 2004, we recorded charges of $4.0 million for
severance and termination benefit costs related to an involuntary
workforce reduction of salaried non-represented employees.
29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements included in our Quarterly Report on Form 10-Q
for the three-month period ended March 31, 2004 and our Annual Report on Form
10-K for the year ended December 31, 2003, which are incorporated into this
prospectus by reference.
Operating and Financial Review and Prospects for Ispat International are
set forth in its Report on Form 6-K dated May 6, 2004 and its Annual Report on
Form 20-F/A for the year ended December 31, 2003, which are incorporated into
this prospectus by reference.
OVERVIEW
We are a U.S. integrated steel producer with two steelmaking divisions
(Flat Products and Bar), two steel finishing joint ventures, I/N Tek (a
cold-rolling mill) and I/N Kote (two galvanizing lines), and interests in iron
ore production facilities. We produce and sell carbon and high-strength
low-alloy steel grades to the automotive, appliance, steel service center,
office furniture and electrical motor markets.
Demand for steel products is highly cyclical in nature while steel
producers historically have been reluctant to reduce supply given their
relatively high level of fixed costs. Recently, the cyclical fluctuations have
become more pronounced. The key drivers for maintaining a competitive position
and good financial performance in this challenging environment are product
differentiation, customer service, focused cost reduction and cash management.
These drivers have been and continue to be the core elements of the company's
operating philosophy.
Our financial statements consolidate our operations and accounts with
those of all of the subsidiaries in which we have a controlling interest. We
also have investments in I/N Tek, I/N Kote and other operations that are
accounted for under the equity method due to our ability to exercise significant
influence over the investees' operating and financial policies and, because the
operations of these companies are integrated with our basic steelmaking
operations, our proportionate share of their income (loss) is reflected in our
cost of products sold in the consolidated statements of operations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The information on and analysis of our operating results and financial
condition are based on amounts contained in our financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
to make judgments in relation to certain estimates and assumptions used in the
application of accounting policies. These judgments and estimates are made on
the basis of available facts and are a normal part of the process of preparing
financial statements. While the use of different assumptions and estimates could
have caused the results to be different from those reported, we believe that the
possibility of material differences between two periods is considerably reduced
by consistent application of such judgments.
The accounting policies that we consider critical, in terms of the
likelihood of a material impact arising from a change in the assumptions or
estimates used in the application of the accounting policy in question, are
outlined below.
Pensions and other post employment benefits
The expenses associated with our pension and other post employment benefit
plans, as well as the carrying amount of the related assets and liabilities in
our balance sheet, are based on several assumptions and factors including the
discount rate, expected return on plan assets, market value of underlying
assets, expected wage increases, future healthcare cost trends and demographic
considerations such as retirement, mortality and turnover. We evaluate these
assumptions and factors and update them to reflect our experience and outlook.
Changes in the assumptions or differences between actual and expected factors
could have a material impact on the associated
30
liabilities, as well as materially increase or decrease the net periodic benefit
costs on a year to year basis as discussed below.
We base our estimate of the annual return on plan assets on the long-term
historical average rate of return on our pension assets, the investment mix of
plan assets between equities, fixed income securities and other investments, and
the prospects for the economy and for market returns in the future. We also
consult with the plan's consultants and actuaries on these assumptions. We have
maintained an expected return on assets of 9.5% for over a decade. This
assumption is viewed in a long-term context and is evaluated annually. The
expected return is supported by the asset allocation of the pension trust and
the historical long-term return on trust assets. Net periodic pension cost is
expected to be $53.1 million for 2004. A 0.5% increase or decrease in the
expected return would have increased or decreased net pension cost by $9.7
million for 2004.
We use a measurement date of November 30th for our pension and
post-retirement benefit obligations. We determine the discount rate applied to
pension and other post employment benefit plan obligations at year end based on
a number of external indices based on high quality corporate bonds. We lowered
the discount rate from 7.1% to 6.25% in 2003 for both our pension and other post
employment benefit plans obligations. A 0.5% decrease in discount rates would
have had the effect of increasing net annual periodic pension expense by $6.8
million and other post employment benefit plans costs by $4.2 million for 2004.
We determine our estimate of the escalation trend in health care rates by
evaluating our historical experience under our medical benefit plans for cost
increases and through consultation with consultants and practitioners in
northwest Indiana where most of our employees and retirees reside and utilize
heath care services. We have been successful in managing our health care costs
and have experienced lower health care cost increases than those seen more
broadly in the economy. For measurement purposes, we have assumed a health care
trend rate of 4.5%. The other post employment benefit plans expense for 2004 is
expected to be $35.6 million. An increase of 1% in the health care cost trend
rate would increase the annual net periodic expense by $8.9 million.
Changes in the assumptions for expected annual return on plan assets and
the discount rate do not impact the funding calculations used to derive minimum
funding requirements for the pension plans.
In 2003, the effects of a reduction in the discount rate from 7.1% to
6.25%, partially offset by the appreciation of the market value of underlying
pension assets, resulted in an incremental after-tax non-cash charge of $80.6
million to other comprehensive income, thereby reducing stockholder's equity.
Deferred tax assets
We record deferred tax assets and liabilities for the differences between
financial statement and tax bases of assets and liabilities. Deferred tax assets
are also recognized for certain tax credits and the estimated future effects of
tax loss carry-forwards. We annually review the deferred tax assets to assess
the probability of realizing those assets based on projected future taxable
income. A valuation allowance is recorded when it appears more likely than not,
based on these projections, that the deferred tax assets will not be realized.
Based on estimates of projected future taxable income, we expect that it is more
likely than not that we will fully realize the deferred tax assets currently
recorded on the balance sheet. Accordingly, no valuation allowance has been
established.
Environmental and legal accruals
We are involved in a number of environmental and legal proceedings. We
have made accruals of probable costs based on a combination of litigation and
settlement strategies on a case-by-case basis. It is possible that results of
operations in any future period could be materially affected by changes in
assumptions or by the effectiveness of these strategies.
Impairment of long lived assets
As outlined in Statement of Financial Accounting Standards (SFAS) No. 144,
an impairment loss must be recognized when the carrying amount of a long-lived
asset is not recoverable and exceeds its fair value. The carrying
31
amount of a long-lived asset is not recoverable if it exceeds the expected sum
of the undiscounted cash flows over its remaining useful life. Additionally,
Accounting Principles Board (APB) No. 18, "The Equity Method of Accounting For
Investment in Common Stock," requires that a loss in value of an equity method
investment that is other than a temporary decline should be recognized in the
same manner as a loss in value of other long-lived assets. Based on these
accounting standards, we recognized the following impairments in 2002:
- - we recognized impairment of our idled 2A Bloomer and 21" Bar Mill,
resulting in an asset write-off of $23.0 million, following our assessment
that these facilities, which we idled in the fourth quarter of 2001, were
unlikely to be restarted; and
- - we also recognized the write-off of the assets associated with the Empire
Mine of $39.0 million in connection with the sale, effective December 31,
2002, of part of our interest in the Empire Partnership (and the sale of
our related fluxing equipment) to a subsidiary of Cleveland-Cliffs Inc.,
thereby reducing our interest in the Empire Mine from 40% to 21%.
Property taxes
Management estimates our liability for property taxes based on the best
information available as of the balance sheet date. However, property taxes are
subject to a variety of factors outside of our control, including tax rates,
legislative actions and assessed values. The actual amount of taxes paid by us
in the future could be significantly different from those estimates.
- - For the quarter ended March 31, 2004, we recorded a favorable adjustment
to the cost of goods sold of $35.0 million due to a change in estimate for
property taxes for the years 2002 and 2003. This adjustment was the result
of a reassessment of real property and the release of the published tax
rate for 2002 for Lake County, Indiana.
Accounting for equity investments
We periodically review all of our investments in affiliates and joint
ventures to determine whether their fair value is less than their respective
cost. If the decline in value is judged to be other than temporary, the cost
basis of the investment is written down to fair value. The amount of any
write-down is included in other operating expenses.
Inventory valuation
Inventories are carried at the lower of cost or market. Cost is
principally determined on a first-in, first-out ("FIFO") method. Costs include
the purchase costs of raw materials, conversion costs, and an allocation of
fixed and variable production overhead. When cost exceeds the estimated net
realizable value of inventory, we record provisions to reduce the carrying value
of inventory from cost to market.
Derivative financial instruments
We are exposed to market risks, primarily on commodity prices and changes
in interest rates. To manage the volatility relating to these exposures, we
enter into various derivative transactions in accordance with our hedging
policies. We have established a control environment that includes policies and
procedures for risk assessment and the approval and monitoring of derivative
financial instrument activities. The financial impacts of these hedging
instruments are offset in part or in whole by corresponding changes in the
underlying exposures being hedged. We do not hold or issue derivative financial
instruments for speculative purposes.
Derivative financial instruments are utilized to manage exposure to
fluctuations in cost of natural gas and specific nonferrous metals used in the
production process. SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," requires companies to recognize all of their derivative
instruments as either assets or liabilities on the balance sheet at fair value.
The fair values of derivative financial instruments reflect the amounts we would
receive on settlement of favorable contracts or be required to pay to terminate
unfavorable contracts at the reporting dates, thereby taking into account the
current unrealized gains or losses on open contracts. The fair value
32
of derivative contracts is determined using pricing models that take into
account market prices and contractual prices of the underlying instruments, as
well as time value, yield curve and volatility factors underlying the positions.
For derivative instruments not designated as hedging instruments, both holding
and unrealized gains or losses are recognized currently in earnings as part of
the cost of the underlying product during the period of change.
Revenue recognition
We recognize revenue when the earnings process is complete and the risks
and rewards of ownership have passed to the customer, which generally occurs
upon shipment of finished product. Provisions for discounts to customers are
recorded based on terms of sale in the same period the related sales are
recorded. We record estimated reductions to revenue for customer programs and
incentive offerings. We record all amounts billed to a customer in a sales
transaction related to shipping and handling as revenues. All costs related to
shipping and handling are included in cost of goods sold.
THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE MONTHS ENDED MARCH 31, 2003
Steel shipments in the first quarter of 2004 of 1,432,708 tons increased
by 164,658 tons, or 13.0%, from the first quarter 2003 shipments of 1,268,050
tons due to stronger demand across most markets and the realization of increased
production resulting from the successful reline of the No. 7 Blast Furnace.
Increases occurred primarily in cold rolled, coated, and bar products.
Sales revenue increased by 20.2% to $665.6 million in the first quarter of
2004 from $553.9 million in the first quarter of 2003. The average selling price
per ton increased by 6.4% to $465 per ton in the first quarter of 2004 from $437
per ton in the comparable 2003 period. The increase in the average selling price
per ton is the result of the implementation of pricing surcharges designed to
offset escalation in the prices and associated freight for certain input
commodities such as coke, scrap and natural gas, base price increases, and a
higher percentage of cold rolled and coated products sold in the first quarter
2004.
In the first quarter of 2004, the cost of goods sold increased to $553.2
million from $478.4 million in the first quarter of 2003. Included in the first
quarter 2004 cost is a credit of $35.0 million due to a change in the accounting
estimate for property taxes for the years 2002 and 2003, due to the reassessment
of property taxes for the year 2002. Indiana's Legislature passed a law in 2001
which changed real property assessment from replacement cost less depreciation
to market value. Additionally, the law required an independent reassessment of
real property for Lake County, where our 1,900 acre Indiana Harbor Works
facility is located. This reassessment was not completed until the end of
February, 2004. The current quarter also included a charge of approximately $4.0
million for severance costs resulting from an 8% salaried workforce reduction.
The full benefit of the force reduction will occur in the second quarter of 2004
and is expected to have an annual benefit of approximately $10.0 million. The
operating cost per ton increased by $6 per ton to $408 per ton in the first
quarter of 2004 from $402 in the first quarter of 2003. Excluding the property
tax and severance cost items noted above, the operating cost per ton increased
by $28. Compared to the first quarter of 2003, input costs dramatically
increased for scrap, coke, coal, alloys, fluxes, and natural gas. On a quarter
to quarter basis, scrap prices increased approximately 89% while coke prices
increased approximately 41%. Labor costs were higher in the first quarter of
2004 as compared to the first quarter of 2003 due to increases in pension
expense resulting from the amortization of losses associated with lower interest
rates and expected market returns and employee profit sharing. We set a new slab
production record for the first quarter of 2004, following the successful reline
of its No. 7 Blast Furnace which was completed in the fourth quarter of 2003.
Consequently, less purchased semi-finished steel was required in the first
quarter of 2004 which resulted in lower operating costs. The higher sales and
operating volume in the first quarter of 2004 also mitigated some of the
previously mentioned cost increases on a per ton basis due to the absorption of
fixed costs.
Selling and general administrative expenses of $6.7 million in the first
quarter of 2004 were unchanged from the first quarter of last year.
Depreciation expense increased by $0.7 million to $25.1 million in the
first quarter of 2004 from $24.4 million due to the 2003 capital expenditures
for the No. 7 Blast Furnace reline.
33
Operating income in the first quarter of 2004 increased by $36.2 million
to $80.6 million from $44.4 million in 2003. Higher sales volume, increases in
selling prices, lower costs due to record slab production and the resulting
reduction in purchased semi-finished requirements, and the property tax
reassessment were partially offset by an unprecedented increase in input costs,
increased pension expense and employee profit sharing, and the severance charge
resulting from the salaried workforce reduction.
Other (income) expense, net of $4.9 million of income in the first quarter
of 2004 increased by $6.7 million from an expense of $1.8 million in the first
quarter of 2003 due to the sale of pollution credits. We sold 2,168 tons of
Nitrous Oxide allowances, which were part of an overall bank of emission
allowances and credits we owned. Generally, these rights arose from actions
taken by us or the state to reduce the emission of air pollutants.
Interest expense of $20.6 million in the current quarter increased 15.7%
from $17.8 million in the year ago quarter due primarily to a higher level of
debt during the quarter.
YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
Steel shipments in 2003 of 5,299,692 tons decreased by 6.3% from 2002
shipments of 5,653,673 tons due to lower production levels resulting from the
reline of the No. 7 Blast Furnace and generally softer market conditions.
Sales decreased by 3.5% to $2,222.9 million in 2003 from $2,303.4 million
in 2002. The reduction in sales volume decreased sales revenue by 6.3% while
higher selling prices increased sales revenue by 2.8%. Average selling prices
per ton increased by 3.0% to $419 per ton in 2003 from $407 per ton in 2002.
This increase was due primarily to an improvement in contract prices which more
than offset a deterioration in spot market prices.
Our results for 2002 were negatively impacted by two impairment charges
totaling $62.0 million. We recognized the impairment of our idled 2A Bloomer and
21" Bar Mill facilities, resulting in an asset write-off of $23.0 million. We
also recognized the write-off of the assets associated with the Empire Mine of
$39.0 million. Effective December 31, 2002, we sold part of our interest in the
Empire Partnership to a subsidiary of Cleveland-Cliffs Inc. thereby reducing our
interest in the Empire Mine from 40% to 21%. We also sold our related fluxing
equipment. Cleveland-Cliffs has indemnified us for all liabilities associated
with the mine. We have the option to sell our remaining interest in the Empire
Partnership to a subsidiary of Cleveland-Cliffs anytime after December 31, 2007
for a purchase price defined in the sales agreement. Separately, we entered into
a 12-year sales agreement to purchase from subsidiaries of Cleveland-Cliffs all
of our pellet requirements beyond those provided by the Minorca Mine.
The cost of goods sold increased to $2,103.1 million in 2003 compared to
$2,082.1 million in 2002.
The operating cost per ton increased 4.6% to $420 per ton in 2003 from
$402 per ton in 2002. Based on management's estimates, the No. 7 Blast Furnace
reline adversely impacted operating cost on a year-over-year basis by
approximately $53.2 million. The lower sales and operating volume in 2003
resulted in higher operating cost per ton reflecting the absorption of fixed
costs. Additionally, higher costs were incurred for increases in natural gas and
scrap prices and pension expenses. The asset impairment charges noted above
negatively impacted operating cost in 2002 by $11 per ton.
Selling, general, and administrative expenses in 2003 of $27.0 million
decreased 2.9% from $27.8 million in the prior period due to lower employment
costs and rental expenses.
Depreciation expense in 2003 decreased 2.1% to $97.0 million from $99.1
million in the prior year, reflecting the retirement of fully depreciated
assets.
Operating income in 2003 decreased by $37.2 million to a loss of $4.2
million, from a profit of $33.0 million in 2002. The lower sales volume and
higher costs noted above more than offset the $62.0 million asset impairment
charge recognized in 2002.
34
Other (income) expense, net of $8.6 million of income in 2003 decreased by
$21.8 million from $30.4 million of income in 2002. In 2003, we purchased $2.9
million of our debt at a discount from face value resulting in a gain on early
extinguishment of debt of $1.0 million. During 2002, we purchased $40.0 million
of our debt at a discount from face value resulting in a gain on early
extinguishment of debt of $30.7 million. The year 2003 also included $10.7
million associated with the $21.0 million settlement agreement with Ryerson
Tull.
On September 15, 2003, we entered into a settlement agreement with Ryerson
Tull under which, among other things, Ryerson Tull paid us $21.0 million to
release Ryerson Tull from various environmental and other indemnification
obligations arising out of the sale by Ryerson Tull of the Company to Ispat. The
$21.0 million received from Ryerson Tull was paid into our Pension Plan and went
to reduce the amount of the Ryerson Tull guaranty/letter of credit. We also
agreed with Ryerson Tull to, among other things, make specified monthly
contributions to our Pension Plan totaling $29.0 million over the twelve-month
period beginning January 2004, thereby eliminating, by the end of such year, the
obligation of Ryerson Tull to provide a continuing guaranty and letter of credit
to the Pension Benefit Guaranty Corporation in connection with our Pension Plan,
which guaranty/letter of credit we had previously committed to take all
necessary action to eliminate. In addition, we committed to reimburse Ryerson
Tull for the cost of the letter of credit to the PBGC, and to share with Ryerson
Tull one-third of any proceeds which we might receive in the future in
connection with a certain environmental insurance policy.
Interest expense of $70.9 million in 2003 decreased by $6.1 million from
$77.0 million in 2002 due to a reduction in interest rates that was partially
offset by an increase in debt.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
Steel shipments in 2002 of 5,653,673 tons increased by 5.6% from 2001
shipments of 5,352,904 tons with increased sales in hot rolled, cold rolled and
coated products, partially offset by a decrease in bar sales due to the idling
in the fourth quarter of 2001 of part of our bar facilities, the 2A Bloomer and
21" Bar Mill.
Sales increased by 10.5% to $2,303.4 million in 2002 from $2,084.1 million
in 2001. The increase in sales volume raised sales revenue by 5.9% while higher
selling prices increased sales revenue by 4.6%. Average selling prices per ton
increased by 4.6% to $407 per ton in 2002 from $389 per ton in 2001. This
increase was due primarily to an improvement in spot market prices and in
certain contract sales, which were negotiated in the second half of 2002. The
majority of our contract business is renegotiated effective the first of each
year.
Our results for 2002 were negatively impacted by two impairment charges
totaling $62.0 million. We recognized the impairment of our idled 2A Bloomer and
21 inch Bar Mill facilities, resulting in an asset write-off of $23.0 million.
We also recognized the write-off of the assets associated with the Empire Mine
of $39.0 million. Effective December 31, 2002, we sold part of our interest in
the Empire Partnership to a subsidiary of Cleveland-Cliffs Inc. thereby reducing
our interest in the Empire Mine from 40% to 21%. We also sold our related
fluxing equipment. Cleveland-Cliffs has indemnified us for all liabilities
associated with the mine. We have the option to sell our remaining interest in
the Empire Partnership to a subsidiary of Cleveland-Cliffs anytime after
December 31, 2007 for a purchase price defined in the sales agreement.
Separately, we entered into a 12-year sales agreement to purchase from
subsidiaries of Cleveland-Cliffs all of our pellet requirements beyond those
provided by the Minorca Mine. Included in the results for 2001 were a charge of
$18.2 million for a salaried workforce restructuring provision and a benefit of
$7.5 million for a legal settlement recovery.
The cost of goods sold remained essentially flat at $2,082.1 million in
2002 compared to $2,064.1 million in 2001.
The operating cost per ton decreased 2.9% to $402 per ton in 2002 from
$413 in 2001. The cost per ton decrease was primarily due to lower natural gas
prices, reduced employment costs, higher shipment levels and ongoing cost saving
efforts. These improvements were partially offset by higher prices for scrap,
coke and purchased semi-finished steel. The asset impairment charges noted above
increased operating cost by $11 per ton in 2002.
35
Selling, general, and administrative expenses in 2002 of $27.8 million
decreased 14.7% from $32.6 million in the prior period due to lower employment
costs, rental expenses, American Iron and Steel Institute dues, and legal fees.
Depreciation expense in 2002 decreased 5.0% to $99.1 million from $104.3
million in the prior year, reflecting the retirement of fully depreciated assets
and reduced capital expenditures.
Our operating income in 2002 increased by $160.6 million to a profit of
$33.0 million, from a loss of $127.6 million in 2001. This was mainly due to an
increase in average selling prices, primarily in the spot market, an increase in
sales volume and improved operating costs.
Other (income), expense, net of $30.4 million in 2002 increased by $5.9
million from $24.5 million of income in 2001. During 2002, we purchased $40.0
million of our debt at a discount from face value. As a result of these early
redemptions, we recognized a gain of $30.7 million in 2002. In 2001, we
purchased $12.9 million of our debt at a discount from face value and recognized
a gain on early extinguishment of debt of $5.0 million. In December 2001, we
sold 1,368 tons of Nitrous Oxide allowances to a utility company for $18.1
million. These allowances were part of an overall bank of emission allowances
and credits (collectively "rights") owned by us. Generally, these rights arose
from actions taken by us or the state to reduce the emission of air pollutants.
As we evaluate our future development plans and contemporaneous environmental
regulation, we may, from time to time, determine that additional rights are
surplus to our operations. If we determine that these rights are surplus, we
will seek to liquidate these assets. No liquidations occurred in 2002.
Interest expense of $77.0 million in 2002 decreased by 18.4% from $94.4
million in 2001 due to a reduction in interest rates.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of cash are operating cash flows, borrowings under our
revolving credit facilities and issuances of debt securities. Our principal uses
of cash are operating requirements (including pension and other post-retirement
obligations), capital expenditures and debt service requirements.
The cash balance at March 31, 2004 was $28.2 million and there was an
additional $120.4 million of availability under the two credit facilities, for
total liquidity of approximately $149 million. During the first quarter, we
generated net cash of $52.5 million from financing activities. On March 25,
2004, we received $794.9 million of gross proceeds ($775.5 million of net
proceeds) from the issuance and sale of $800 million of the old notes. These net
proceeds were used to retire the entire balance outstanding of $661.5 million of
Tranche B and Tranche C Loans under our credit agreement, and repay the entire
balance outstanding of $105 million under our inventory revolving credit
facility, with the remainder of the proceeds used to reduce the amount
outstanding under our receivables revolving credit facility.
As of December 31, 2003, we had cash, cash equivalents and availability
under the revolving credit facilities of $44.4 million, which included $20.5
million of availability under our approximately $175 million inventory revolving
credit facility and $10.9 million of availability under our $185.0 million
receivables revolving credit facility. Additionally, an extra $10.5 million of
borrowing is available for any two consecutive days under our inventory
revolving credit facility to meet temporary cash needs.
Cash generated by operations is our primary source of cash and, as such,
future operations will have a significant impact on our cash balances and
liquidity. The principal factors affecting our cash generated by operations are
average net realized prices, levels of steel shipments and our operating costs
per ton.
For the quarter ended March 31, 2004, net cash outflows from operations
totaled $43.7 million, which included pension contributions of $31.5 million.
Cash inflows from operations in the first quarter, 2003, were $23.7 million,
which included $54.5 million of pension contributions.
36
During the year ended December 31, 2003, net cash inflows from operations
totaled $22.3 million, which is net of pension contributions of $125.5 million.
Cash inflows from operations in 2002 were $21.3 million. Cash outflows from
operations totaled $137.7 million in 2001, which included $108.6 million of
pension contributions.
Changes in working capital, defined as the change in receivables,
inventories and accounts payable, utilized cash of $78.3 million in the first
quarter, 2004, including $63.3 million for increased receivables and $27.3
million for increased inventories. In the first quarter, 2003, changes in
working capital generated $23.6 million of cash, including $49.9 million for
decreased receivables, partially offset by increased inventories of $41.3
million.
Changes in working capital generated cash of $117.5 million in 2003,
including $71.3 million for decreased inventories, and $42.1 million for
decreased receivables. In 2002, changes in working capital utilized $88.1
million of cash, including $63.3 million for increased receivables and $31.4
million for increased inventories (which were increased in anticipation of the
planned reline of the No. 7 Blast Furnace). Changes in working capital generated
$54.5 million in 2001, which included $119.4 million for decreased inventories,
partially offset by $67.7 million in decreased accounts payable.
Cash inflows for investing activities, which consist primarily of capital
expenditures offset by distributions from joint ventures, were $6.0 million in
the first quarter, 2004, and $1.4 million in the first quarter, 2003. Capital
expenditures were $1.8 million and $9.7 million (primarily for the reline of the
No. 7 Blast Furnace), for the first quarter 2004 and 2003, respectively. Net
distributions from joint ventures were $7.7 million and $11.0 million for the
first quarter, 2004 and 2003, respectively.
Cash outflows for investing activities were $91.6 million in 2003, $41.4
million in 2002, and $16.4 million in 2001. Capital expenditures were $111.3
million (primarily for the reline of the No. 7 Blast Furnace), $52.4 million and
$28.6 million for 2003, 2002, and 2001, respectively. We anticipate our capital
expenditures to be $27 million for 2004. Net distributions from joint ventures
were $19.1 million, $10.6 million and $7.7 million for 2003, 2002, and 2001,
respectively. The 2003 net distribution includes a favorable debt payment
adjustment.
Cash from financing activities consist primarily of borrowings and
repayments under our revolving credit facilities, bank overdrafts, borrowings
from our affiliates, repayments of long-term debt and dividends to affiliates.
Cash from financing activities for 2003 totaled $72.7 million, which included
proceeds from revolver borrowings of $15.0 million, loan proceeds of $60.0
million from Ispat International or affiliates, $15.0 million from an
unaffiliated company, and $9.5 million from debt proceeds, offset by dividends
paid of $15.9 million and debt payments of $9.1 million. In 2002, cash generated
was $5.9 million, which included net proceeds from revolving credit facilities
borrowings of $44.0 million, partially offset by debt payments of $19.9 million
and bank overdrafts of $14.3 million. During 2001, cash from financing
activities totaled $154.3 million, which included loan proceeds of $154.2
million from affiliates of Ispat International and net proceeds from revolving
credit facilities borrowings of $29.0 million, partially offset by dividends
paid of $18.6 million and debt payments of $15.0 million.
Ispat Inland Administrative Service Company ("IIASC"), one of our
wholly-owned subsidiaries, has a $185.0 million committed revolving credit
facility with a group of banks, expiring in November 2005. We have agreed to
sell substantially all of our receivables to IIASC to secure this facility.
Provisions of this agreement limit or prohibit us from merging, consolidating,
or selling our assets and require IIASC to meet minimum net worth and leverage
ratio tests. Under terms of the secured revolving credit agreement, based on the
level of our leverage ratio and net worth calculations, beginning early in 2002,
the trustee retained initial control over cash lockbox receipts. On a daily
basis, the trustee will remit the remaining cash to us after first using the
receipts to make any payments prescribed by the secured revolving credit
agreement. This change in practice has no impact on cash available to us under
the facility.
As of December 31, 2003, based on the amount of eligible receivables,
there was $10.5 million of availability under the receivables revolving credit
facility. Drawings under the facility included $150.0 million of loans and $20.2
million of letters of credit issued for the purchase of commodities on the
international market and as security under various insurance and workers
compensation coverages. Availability, drawings and letters of credit total
$180.7 million. Interest rates for borrowings averaged approximately 2% in 2003.
Upon consummation of the March 25, 2004 note offering, we used any remaining
proceeds after repaying our term loans and the inventory revolving credit
facility to reduce the amount outstanding under this facility.
37
On April 30, 2003, we replaced the prior $120.0 million inventory credit
facility of our wholly-owned subsidiary, Ispat Inland Inventory, LLC, with a new
approximately $175 million four-year committed revolving credit facility of
Ispat Inland, secured by all of our inventory, spare parts and mobile equipment
and by the capital stock of IIASC and a note between us and IIASC. Provisions of
this agreement prohibit or limit our ability to incur debt, repay debt, make
investments, sell assets, create liens, engage in transactions with affiliates,
engage in mergers and consolidations and pay dividends and other restricted
payments.
In order for us to draw the final $20.0 million under the inventory
revolving credit facility at any time, and the final $30.0 million for more than
two consecutive business days, we must maintain a fixed charge coverage ratio
(as defined) of 1.2 at the time of the borrowing and then for a period of three
months where availability is maintained above specified levels. As of December
31, 2003, based on the amount of eligible collateral, $90.0 million was
outstanding, leaving $20.5 million of availability under the line, excluding the
final $30.0 million (which includes the $10 million for two consecutive days).
Upon consummation of the March 25, 2004 note offering, we repaid the entire
balance outstanding under the inventory revolving credit facility. Interest
rates for borrowings averaged approximately 4% in 2003.
Before the consummation of the old note offering, we had outstanding
$745.2 million principal amount of First Mortgage Bonds including the $661.5
million of bonds securing our term loans. Additionally, we pledged $160 million
of non-interest bearing First Mortgage Bonds to the PBGC. The bonds are issued
under an indenture dated April 1, 1928, as supplemented. A substantial portion
of the real property, plant and fixtures owned by us at our Indiana Harbor Works
is subject to the lien of the First Mortgage. This property is also subject to a
subordinate lien in favor of the United Steelworkers of America to secure
post-retirement health benefits. The indenture does not contain material
financial covenants or restrictions, nor do any of the currently outstanding
series of debt issued under the indenture, other than those securing our term
loans. Upon consummation of the March 25, 2004 note offering, we repaid the
outstanding balance of $330.8 million on the Tranche B loans (due July 16, 2005)
and $330.8 million on the Tranche C loans (due July 16, 2006) under our credit
agreement.
We also have $121.3 million of our Industrial Development Revenue Bonds
outstanding, which are our unsecured obligations. The indentures under which
these bonds were issued do not contain material financial covenants or
restrictions. These, along with the Pollution Control Series backed by First
Mortgage Bonds, are private activity bonds issued by various municipal entities
in the State of Indiana.
We have also received $215.8 million of subordinated advances from Ispat
International and certain of its other subsidiaries, which were amended in
connection with the old note offering to mature 91 days following the final
maturity of the fixed rate notes. Interest on these advances is accrued at fixed
rates, which at December 31, 2003 ranged from 2.9% to 5.6%. Under the terms of
other debt agreements, interest and principal on these advances cannot be paid
until our leverage falls to specified levels and we achieve a specified minimum
level of liquidity.
The following is a summary of our various contractual obligations as of
December 31, 2003:
Contractual Obligations
PAYMENTS DUE BY PERIOD
------------------------------------------------
2005- 2007- BEYOND
(DOLLARS IN MILLIONS) TOTAL 2004 2006 2008 2008
--------- ------ ------- ------- -------
Long-term debt.................. $1,322 $ 7 $ 885 $ 292 $ 138
I/N Kote debt guarantee......... 55
Operating leases................ 30 14 16 1 0
Environmental commitments....... (A)
Purchase commitments(B)......... 3,261 324 659 614 1,665
Pension agreements.............. 139(C) 112 27
Other postretirement benefits... 249(D) 48 98 103
------ ------ ------- ------- -------
$5,056 $ 505 $ 1,685 $ 1,010 $ 1,803
====== ====== ======= ======= =======
38
- --------------------------
(A) On June 10, 1993, the U.S. District Court for the Northern District of
Indiana entered a consent decree that resolved all matters raised by a
lawsuit filed by the EPA in 1990 (the "Consent Decree") against, among
others, the Company. We cannot presently reasonably estimate the costs or
time required to satisfy our obligations under the Consent Decree. In
October 1996, the Indiana Department of Environmental Management, as lead
administrative trustee, notified us and other potentially responsible
parties that the natural resource trustees (which also include the Indiana
Department of Natural Resources, the U.S. Department of the Interior, the
Fish and Wildlife Service and the National Park Service) intended to
perform a natural resource damage assessment on the Grand Calumet River
and Indiana Harbor Canal System. It is not possible to predict the timing
or the total obligation. At March 31, 2004, we have recognized $36.9
million for environmental liabilities.
(B) See Notes 11 and 13 to our Consolidated Financial Statements included in
our Annual Report on Form 10-K for the year ended December 31, 2003, which
is incorporated by reference into this prospectus.
(C) These amounts are required under our agreements with the PBGC and Ryerson
Tull. We have not included any amounts that may be required beyond these
contractual commitments due to the significant difficulty in forecasting
these amounts with any accuracy.
(D) We accrue an annual cost for these benefit obligations under plans
covering our current and future retirees in accordance with generally
accepted accounting principles. These amounts could differ significantly
from the estimates forecasted because of changes in Medicare, or other
regulations and/or health care costs. We believe it is impossible to make
an accurate prediction of cash requirements for these obligations beyond
five years.
Our substantial level of indebtedness increases the possibility that we
may be unable to generate cash sufficient to pay when due the principal of,
interest on or other amounts due in respect of our indebtedness, including the
First Mortgage Bonds securing the notes. In addition, we may incur additional
debt from time to time, subject to the restrictions contained in the documents
governing our indebtedness. If we incur additional debt, the risks associated
with our substantial leverage, including our ability to service our debt would
increase. See "Risk factors -- Risks Relating to Our Business -- Our significant
debt obligations could limit our flexibility in managing our business, expose us
to certain risks and could harm our ability to remain in compliance with debt
covenants and make payments on our debt, including the notes."
We believe that cash generated from operations, the borrowing availability
under our revolving credit facilities and the proceeds from the sale of the
notes will be sufficient to satisfy our cash requirements for at least the next
12 months.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We had $1,383.6 million of long-term debt (including debt due within one
year) outstanding at March 31, 2004. Of this amount, $318.0 million is floating
rate debt with a fair value of $318.0 million. The remaining $1,065.6 million of
fixed rate debt had a fair value of $1,035.4 million. Assuming a hypothetical
10% decrease in interest rates at March 31, 2004, the fair value of this fixed
rate debt would be estimated to be $1,085.5 million. Fair market values are
based upon market prices or current borrowing rates with similar rates and
maturities.
A 10% increase or decrease in the cost of our variable rate debt at March
31, 2004 would result in a change in pretax interest expense of $1.5 million,
based upon borrowings outstanding at March 31, 2004.
We utilize derivative commodity instruments not for trading purposes but
to hedge exposure to fluctuations in the costs of natural gas and certain
nonferrous metal commodities. A hypothetical 10% decrease in commodity prices
for open derivative commodity instruments as of March 31, 2004 would reduce
pre-tax income by $6.0 million.
39
`
ENVIRONMENTAL MATTERS
We are subject to environmental laws and regulations concerning emissions
into the air, discharges into ground water and waterways, and the generation,
handling, labeling, storage, transportation, treatment and disposal of certain
waste material and the remediation of contamination. These include various
federal statutes regulating the discharge or release of materials to the
environment, including the Clean Air Act, Clean Water Act, Resource Conservation
and Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA," also known as "Superfund"), the Safe Drinking Water
Act, and the Toxic Substances Control Act, as well as state and local
requirements. Violations of these laws and regulations can give rise to a
variety of civil, administrative, and, in some cases, criminal sanctions and
could also result in suspension or cessation of operations, substantial
liabilities or require substantial capital expenditures. In addition, under
CERCLA the U.S. Environmental Protection Agency ("EPA") has authority to impose
liability for site remediation on waste generators, past and present site owners
and operators, and transporters, regardless of fault or the legality of the
original activity. Liability under CERCLA is strict and, under certain
circumstances, joint and several.
Our capital spending for pollution control projects totaled $0.1 million
in each of the three months ended March 31, 2004 and 2003, and $4 million in
2003 versus $6 million in 2002. Another $31 million (non-capital) was spent in
2003 to operate and maintain pollution control equipment compared to $33 million
in the previous year. During the five years ended December 31, 2003, we spent
$200 million to construct, operate and maintain environmental control equipment
at our various locations.
Capital spending for pollution control projects previously authorized and
presently under consideration will require expenditures of less than $1 million
in 2004. During the 2005 to 2008 period it is anticipated that we will make
annual capital expenditures of $2 million to $5 million on pollution control
projects. In addition, we will have ongoing annual expenditures (non-capital) of
$30 million to $35 million to operate and maintain air and water pollution
control facilities to comply with current federal, state and local laws and
regulations. Such environmental expenditures are not expected to be material to
our business, financial position or results of operations.
We are a defendant in various environmental and other administrative or
judicial actions initiated by governmental agencies. Some of these actions are
described in more detail under "Legal Proceedings" below. While it is not
possible to predict the outcome of these matters, we do not expect environmental
expenditures, excluding amounts that may be required in connection with an EPA
consent decree that is described below, to materially affect our business,
financial position or results of operations.
We are a party to a 1993 consent decree resolving an EPA law suit under
the Resource Conservation and Recovery Act (the "1993 EPA Consent Decree")
which, among other things, requires the investigation and remediation of the
Indiana Harbor Works site. It is expected that remediation of the site will
require significant expenditures over several years that may be material to our
business, financial position and results of operations. See "Legal Proceedings"
below for a more detailed discussion of the obligations arising under the 1993
EPA Consent Decree, as well as a discussion of potential liability relating to
our status as one of a number of allegedly potentially responsible parties named
in connection with a natural resource damage claim allegedly related to the
operation of the Indiana Harbor Works site.
LEGAL PROCEEDINGS
On June 10, 1993, the U.S. District Court for the Northern District of
Indiana entered the 1993 EPA Consent Decree that resolved all matters raised by
a lawsuit filed by the EPA in 1990 against, among others, the Company. The 1993
EPA Consent Decree assessed a $3.5 million cash fine, requires us to undertake
environmentally beneficial projects costing $7 million at the Indiana Harbor
Works, and requires $19 million plus interest to be spent in remediating
sediment in portions of the Indiana Harbor Ship Canal and Indiana Harbor Turning
Basin. We have paid the fine and substantially completed the environmentally
beneficial projects. Our reserve for the remaining environmental obligations
under the 1993 EPA Consent Decree totaled $28.2 million and $28.1 million as of
March 31, 2004 and December 31, 2003, respectively. The 1993 EPA Consent Decree
also requires remediation of the Indiana Harbor Works site. The 1993 EPA Consent
Decree establishes a three-step process, each of which requires approval by the
EPA, consisting of: assessment of the site (including stabilization measures),
evaluation of remediation alternatives and remediation of the site. We are
presently assessing the nature and the extent of environmental contamination. It
is anticipated that this assessment will cost approximately $2
40
million to $4 million per year over the next several years. Until the first two
steps are completed, the remedial action to be implemented cannot be determined.
Therefore, we cannot reasonably estimate the cost of, or the time required to
satisfy, our obligations under the 1993 EPA Consent Decree, but it is expected
that remediation of the site will require significant expenditures over several
years that may be material to our business, financial position and results of
operations. Insurance coverage with respect to work required under the 1993 EPA
Consent Decree is not significant.
In October 1996, the Indiana Department of Environmental Management, as
lead administrative trustee, notified us and other potentially responsible
parties that the natural resource trustees (which also include the Indiana
Department of Natural Resources, the U.S. Department of the Interior, the Fish
and Wildlife Service and the National Park Service) intended to perform a
natural resource damage assessment on the Grand Calumet River and Indiana Harbor
Ship Canal waterways. The notice stated that the Company has been identified as
a potentially responsible party due to alleged releases of hazardous materials
from our Indiana Harbor Works facility. Such assessment has been substantially
completed. We have been in negotiations with the trustees, and, as a consequence
of such negotiations, have established a reserve of $8.7 million to cover
anticipated liabilities in connection with this matter. Until such time as the
matter is finally resolved, it is not, however, possible to accurately predict,
beyond the currently established reserve, the amount of our potential liability
or whether this potential liability could materially affect our business,
financial position and results of operations.
CERCLA and analogous state laws can impose liability for the entire cost
of cleanup at a site upon current or former site owners or operators or parties
who sent hazardous materials to the site, regardless of fault or the lawfulness
of the activity that caused the contamination. We are a potentially responsible
party at several state and federal Superfund sites. We believe our liability at
these sites is either de minimis or substantially resolved. We could, however,
incur additional costs or liabilities at these sites based on new information,
if additional cleanup is required, private parties sue for personal injury or
property damage, or other responsible parties sue for reimbursement of costs
incurred to clean up the sites. We could also be named a potentially responsible
party at other sites if our hazardous materials or those of our predecessor were
disposed of at a site that later becomes a Superfund site.
We received a Special Notice of Potential Liability from the Indiana
Department of Environmental Management on February 18, 1992 relating to releases
of hazardous substances from the Four County Landfill Site in Fulton County,
Indiana. Along with other potentially responsible parties, we entered into two
agreed orders with Indiana Department of Environmental Management pursuant to
which the potentially responsible parties agreed to perform a remedial
investigation and feasibility study for the site, pay certain past and future
Indiana Department of Environmental Management costs and provide funds for
operation and maintenance necessary for stabilization of the First Operable Unit
of the site. The remedial investigation and feasibility study work is complete.
In a letter dated June 2, 2003, Indiana Department of Environmental Management
advised the potentially responsible parties for the First Operable Unit that all
terms of the Agreed Order for the First Operable Unit had been completed and
that the Order was terminated, subject to the Reservation of Rights. Under the
terms of the potentially responsible parties agreement, the Company had an
approximate 7.2% share ($49,000), which amount has been paid.
In July 2001, Indiana Department of Environmental Management selected the
remedy for the Second Operable Unit at the Four County Landfill. The Company is
a member of a group that negotiated with Indiana Department of Environmental
Management to resolve any liability for the Second Operable Unit. Indiana
Department of Environmental Management has estimated the costs for the Second
Operable Unit to be approximately $1,000,000, with an additional contingent
remedy estimated to cost approximately $2,100,000, to be implemented only if the
selected remedy is deemed to be inadequate. Indiana Department of Environmental
Management has a trust account holding approximately $800,000 for use in the
implementation of the First and the Second Operable Unit remedies. In 2003, the
potentially responsible parties group entered into another agreed order pursuant
to which the potentially responsible parties group agreed to pay $320,000 in
exchange for a release from the cost of the Second Operable Unit. Our share of
that payment was $22,202. The agreed order is final and the payment has been
made.
In July 2001, the EPA filed suit against us and other potentially
responsible parties, seeking recovery of past response costs which it alleged it
has expended at the Four County Landfill Site. On February 6, 2003, a Consent
Decree was issued by the U.S. District Court of Northern Indiana, which resolved
the EPA's cost recovery
41
suit. As a result of that Consent Decree, we have been required to pay
approximately $13,000 in past response costs to the EPA.
On July 2, 2002, we received a notice of violation issued by the EPA
against us, Indiana Harbor Coke Company, L.P. and Cokenergy, Inc., alleging
violations of air quality and permitting regulations for emissions from the Heat
Recovery Coal Carbonization facility which is operated by Indiana Harbor Coke
Company, L.P. An amended notice of violation stating similar allegations was
issued on August 8, 2002. Although we currently believe that our liability with
respect to this matter will be minimal, we could be found liable for violations
and this potential liability could materially affect our business, financial
position and results of operations.
On September 15, 2003, we entered into a settlement agreement with Ryerson
Tull under which, among other things, Ryerson Tull paid us $21.0 million to
release it from various environmental and other indemnification obligations
arising out of the sale by Ryerson Tull of the Company to Ispat in 1998. The
$21.0 million received from Ryerson Tull was paid into our Pension Plan and went
to reduce the amount of the Ryerson Tull guaranty and letter of credit that
Ryerson Tull had provided to the PBGC to guarantee $50.0 million of our Pension
Plan obligations. We agreed to satisfy the amount of the remaining $29.0 million
letter of credit through additional periodic payments to our pension plan during
the period between January 15, 2004 and December 15, 2004. We had previously
committed to take all necessary action to eliminate this guarantee and letter of
credit. Included in the $31.5 million contribution made during the first quarter
of 2004 was $4.0 million which reduced the amount of the Ryerson Tull
guaranty/letter of credit. In addition, we committed to reimburse Ryerson Tull
for the cost of the letter of credit to the PBGC, and to share with Ryerson Tull
one-third of any proceeds which we might receive in the future in connection
with a certain environmental insurance policy.
In addition to the foregoing, we are a party to a number of legal
proceedings arising in the ordinary course of our business. We do not believe
that the adverse determination of any such pending routine litigation, either
individually or in the aggregate, will have a material adverse effect on our
business, financial condition, results of operations, cash flows or prospects.
PENSION PLAN MATTERS
On July 16, 1998, we entered into an agreement with the Pension Benefit
Guaranty Corporation to provide certain assurances with respect to our pension
obligations and issued a $160 million standby letter of credit in favor of the
PBGC. We also granted the PBGC a first priority lien in the amount of $75
million on three of our Great Lakes Ore Vessels, our Minorca Pellet Mine and on
our No. 2 BOF Continuous Caster Facilities. Also on July 16, 1998, Ryerson Tull,
our former parent company, guaranteed $50 million of our pension plan
obligations, later issuing a letter of credit to secure this guarantee. In July
2003, we reached a new agreement with the PBGC. Under the new agreement, we
contributed an additional $50 million to our pension plan on July 9, 2003;
agreed to contribute $110 million between January 1, 2004 and June 1, 2005;
agreed to pay 50% of excess cash flows above EBITDA (as defined in our agreement
with the PBGC) of $316.9 million in 2004, $328.5 million in 2005, $334.5 million
in 2006, $356.2 million in 2007 and $370.2 million in 2008 from our operations
to our pension plan; and issued $160 million of non-interest bearing First
Mortgage Bonds pledged to the PBGC as security for our pension plan obligations,
which pledged First Mortgage Bonds rank pari passu with the First Mortgage Bonds
securing the notes. We also agreed not to amend the pension plan to increase
benefits unless the increase is funded with an immediate additional contribution
to the pension plan equal to the increase in the benefit liability resulting
from the amendment. The $160 million letter of credit was also allowed to
expire, and will not be renewed. However, the $75 million first priority lien
referred to above remains in place. On September 15, 2003, Ryerson Tull, in
exchange for the elimination of certain claims for indemnities that we have made
against Ryerson Tull, paid $21 million to us, which we, in turn, contributed to
our pension plan. The related letter of credit provided by Ryerson Tull was
reduced to $29 million. We agreed to satisfy the amount of the remaining $29
million letter of credit through periodic payments to our pension plan during
the period between January 15, 2004 and December 15, 2004. During the first
quarter of 2004, we contributed $31.5 million to the pension plan from both
agreements.
We have made cash contributions to our pension plan of approximately
$345.0 million since 1998 through March 31, 2004. According to current
estimates, we expect to contribute $111.5 million in 2004, of which $31.5
million was contributed in the first quarter of 2004.
42
Our funding obligations depend upon future asset performance, the level of
interest rates used to measure ERISA minimum funding levels, actuarial
assumptions and experience, union negotiated changes and future government
regulation. Any such funding requirements could have an unfavorable impact on
our borrowing arrangements and cash flows.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") has issued SFAS No. 143,
"Accounting for Asset Retirement Obligations", which is effective for all fiscal
years beginning after June 15, 2002. SFAS No. 143 addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. SFAS No. 143
requires the fair value of liabilities for asset retirement obligations to be
recognized in the period in which the obligations are incurred if a reasonable
estimate of fair value can be made. The associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset. The impact
of adopting SFAS No. 143 on January 1, 2003, the effective date, is an increase
in assets and liabilities of $3.8 million and $6.3 million, respectively. A
charge of $1.6 million (net of tax of $0.9 million) is reflected on the
Consolidated Statement of Operations as of January 1, 2003 as a cumulative
effect of change in accounting principle.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". Among other items, this statement rescinds SFAS No. 4, "Reporting
Gains and Losses from Extinguishment of Debt", and an amendment of that
Statement, SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements". Upon adoption of SFAS No. 145, any gain or loss on
extinguishments of debt that was classified as an extraordinary item in prior
periods presented that does not meet the criteria in APB Opinion No. 30,
"Reporting the Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions," for classification as an extraordinary item shall be
reclassified. We adopted the provisions of SFAS No. 145 as of January 1, 2003
and reclassified $30.0 million and $4.8 million of extraordinary gains for the
years ended December 31, 2002 and 2001, respectively, to the "Other income, net"
line item in accordance with SFAS No. 145.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure: An amendment of FASB
Statement No. 123". This Statement amends SFAS No. 123, "Accounting for
Stock-Based Compensation", to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirement of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. The
disclosure provisions of SFAS No. 148 are applicable for fiscal years ending
after December 15, 2002. As of December 31, 2002, we adopted the disclosure
provision of SFAS No. 148.
In November 2002, the FASB issued Financial Interpretation No. 45 ("FIN
45"), "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires
certain guarantees to be recorded at fair value and requires a guarantor to make
significant new disclosures, even when the likelihood of making any payments
under the guarantee is remote. Generally, FIN 45 applies to certain types of
financial guarantees that contingently require the guarantor to make payments to
the guaranteed party based on changes in an underlying that is related to an
asset, a liability, or an equity security of the guaranteed party; performance
guarantees involving contracts which require the guarantor to make payments to
the guaranteed party based on another entity's failure to perform under an
obligating agreement; indemnification agreements that contingently require the
guarantor to make payments to an indemnified party based on changes in an
underlying that is related to an asset, a liability, or an equity security of
the indemnified party; or indirect guarantees of the indebtedness of others. The
initial recognition and initial measurement provisions of FIN 45 are applicable
on a prospective basis to guarantees issued or modified after December 31, 2002.
Disclosure requirements under FIN 45 are effective for financial statements for
periods ending after December 15, 2002 and are applicable to all guarantees
issued by the guarantor subject to FIN 45's scope, including guarantees issued
prior to FIN 45. We do not expect that FIN 45 will have a material effect on our
financial condition, results of operations or cash flows.
43
In December 2003, the FASB issued Interpretation No. 46 (revised December
2003) ("FIN 46R"), "Consolidation of Variable Interest Entities," with the
objective of exempting certain entities from the requirements of Interpretation
No. 46 (FIN 46). A variable interest entity is a corporation, partnership,
trust, or any other legal structure used for business purposes that either (a)
does not have equity investors with voting rights, or (b) has equity investors
that do not provide sufficient financial resources for the entity to support its
activities. Historically, entities generally were not consolidated unless the
entity was controlled through voting interests. FIN 46 changed that by requiring
a variable interest entity to be consolidated by a company if that company is
subject to a majority of the risk of loss from the variable interest entity's
activities or entitled to receive a majority of the entity's residual returns or
both. A company that consolidates a variable interest entity is called the
"primary beneficiary" of that entity. FIN 46 also required disclosures about
variable interest entities that a company is not required to consolidate but in
which it has a significant variable interest. Special provisions apply to
enterprises that have fully or partially applied FIN 46 prior to issuance of FIN
46R. Otherwise, application of FIN 46R (or FIN 46) is required in financial
statements of public entities commonly referred to as special-purpose entities
for periods ending after December 15, 2003. Application by public entities for
all other types of entities is required in financial statements for periods
ending after March 15, 2004. We have determined that FIN 46 will not have an
impact on our financial condition, results of operations or cash flows.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement No
133 on Derivative Instruments and Hedging Activities". This Statement amends
Statement No. 133 for decisions made (1) as part of the Derivatives
Implementation Group process that effectively required amendments to Statement
No. 133, (2) in connection with other Board projects dealing with financial
instruments, and (3) in connection with implementation issues raised in relation
to the application of the definition of a derivative, in particular, the meaning
of an initial net investment that is smaller than would be required for other
types of contracts that would be expected to have a similar response to changes
in market factors, the meaning of underlying, and the characteristics of a
derivative that contains financing components. The changes in this Statement
improve financial reporting by requiring that contracts with comparable
characteristics be accounted for similarly. This Statement is effective for
contracts entered into or modified after June 30, 2003, with certain exceptions,
and for hedging relationships designated after June 30, 2003. We have determined
that SFAS No. 149 did not have an impact on our financial condition, results of
operations or cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". The
Statement improves the accounting for certain financial instruments that, under
previous guidance, issuers could account for as equity. The new Statement
requires that those instruments be classified as liabilities in statements of
financial position. Most of the guidance in SFAS No. 150 is effective for all
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. We have determined that SFAS No. 150 did not have an impact on our
financial condition, results of operations or cash flows.
In May 2003, the Financial Accounting Standards Board Emerging Issues Task
Force ("EITF") reached a consensus on EITF 01-8 "Determining Whether an
Arrangement Contains a Lease," relating to new requirements on identifying
leases contained in contracts or other arrangements that sell or purchase
products or services. The evaluation of whether an arrangement contains a lease
within the scope of SFAS No. 13 "Accounting for Leases," should be based on the
evaluation of whether an arrangement conveys the right to use property, plant
and equipment. This may result in a difference in the timing of revenue
recognition. The consensus requires sellers to report the revenue from the
leasing component of the arrangement as leasing or rental income rather than
revenue from product sales or services. Purchaser's arrangements which
previously would have been considered service or supply contracts, but are now
considered leases, could affect the timing of their expense recognition and the
classification of assets and liabilities on their balance sheet as well as
require footnote disclosure of lease terms and future minimum lease commitments.
This consensus is effective prospectively for contracts entered into or
significantly modified after July 1, 2003. Based on arrangements in place today,
adoption of EITF 01-8 did not have a material effect on our financial condition,
results of operations or cash flows.
In December 2003, the FASB issued SFAS No. 132 (revised December 2003)
(SFAS No. 132R), "Employers' Disclosures about Pensions and Other Postretirement
Benefits" to revise employers' disclosures about pension plans and other
postretirement benefit plans. It does not change the measurement or recognition
of those plans required by FASB Statements No. 87, "Employers' Accounting for
Pensions", No. 88, "Employers'
44
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits", and No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions". This Statement retains the
disclosure requirements contained in SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits", which it replaces. SFAS No. 132R
retains the disclosures required by SFAS No. 132, which standardized the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable and required additional information on changes in the benefit
obligations and fair values of plan assets. Additional disclosures include
information describing the types of plan assets, investment strategy,
measurement date(s), plan obligations, cash flows, and components of net
periodic benefit cost recognized during interim periods. SFAS No. 132R is
effective for financial statements with fiscal years ending after December 15,
2003. The interim-period disclosures required by this Statement are effective
for interim periods beginning after December 15, 2003. As of December 31, 2003,
we have adopted the disclosure requirements of SFAS No. 132R.
In April 2004, FASB issued FASB Staff Position ("FSP") No. 106-2,
"Accounting and Disclosure Requirements Related to the Medicare Prescription
Drug, Improvement and Modernization Act of 2003". This FSP supersedes FSP No.
106-1, "Accounting and Disclosure Requirements Related to the Medicare
Prescription Drug, Improvement and Modernization Act of 2003" which was issued
by the FASB in January 2004. This FSP provides companies with initial guidance
on recognizing the effects of the prescription drug provisions of the Medicare
Act. As allowed by the FSP, the Company elected to defer recognition until
further guidance is issued by the FASB. FSP 106-2 is effective for the first
interim or annual periods beginning after June 15, 2004.
OUTLOOK FOR 2004
With a continuation of the strong demand for steel, we expect the second
quarter 2004 shipments to be in line with the first quarter. Due to previously
announced price increases, selling prices are expected to be higher in the
second quarter. The price for coke purchases not under long-term contract will
be significantly higher in the second quarter compared to the first quarter.
In 2004, we expect to benefit from stronger demand, improved steel prices
and higher operating levels following the successful reline of the No. 7 Blast
Furnace which was completed early in the fourth quarter of 2003. Improved market
conditions are being driven by a recovery in the U.S. economy as well as
increased global demand for steel, particularly the unprecedented growth in
China.
The increased global demand for steel has resulted in significant upward
price movements for key commodity inputs such as iron ore, scrap, coke and coal.
Our iron ore requirements will be met through production from our wholly-owned
Minorca Mine and a long-term purchase contract. A majority of our coke
requirements also are satisfied under a long-term purchase contract. These price
increases will adversely impact our operating costs, however, our internal
resources and negotiated commitments should enable us to avoid any material
decrease in steel production resulting from shortfalls in raw materials.
Additionally, pension expense for 2004 will be higher due to a further
decrease in interest rates during 2003. We anticipate contributing $111.5
million to our pension fund in 2004, of which $31.5 million was contributed in
the first quarter of 2004.
45
INDUSTRY OVERVIEW
The steel industry in the United States produced a total of 99.7 million
tons of steel and reported shipments of 105.7 million tons in 2003. Imports
accounted for a substantial portion of U.S. consumption of 121.3 million tons.
Domestic production was split almost evenly between the integrated (51%) and the
mini-mill (49%) steelmaking processes.
Steelmakers primarily produce two types of steel products, flat-rolled and
long. Flat-rolled products, such as sheet or plate, are produced from
semi-finished slabs and represent most steel production in the United States.
Long products, such as bars, rods and structural shapes, are rolled from blooms
and/or billets.
STEELMAKING PROCESS
Most sheet production is by integrated steelmakers while plate and long
products production is dominated by mini-mills. Integrated steelmakers produce
steel from iron ore, and are generally able to produce a higher quality, cleaner
steel while mini-mills melt scrap steel then recast it. In general, the
mini-mill process is less capital intensive, and the price of scrap fluctuates
with the price of hot-rolled sheet, providing a natural hedge. Many U.S.
integrated steelmakers still own iron ore and/or coal mines and rail assets.
Steelmaking is a capital intensive industry due to equipment maintenance and
productivity enhancements.
Integrated
In integrated steel production, coal is converted to coke in a coke oven,
then combined in a blast furnace with iron ore and limestone to produce pig
iron, which is subsequently combined with scrap in a "basic oxygen" or other
furnace to produce raw or liquid steel. Once produced, the liquid steel is
metallurgically refined and then transported to a continuous caster for casting
into a slab, which is then further shaped or rolled into its final form. These
processes may, in turn, be followed by various finishing or coating processes.
The recent modernization efforts of integrated steel producers have focused on
cutting costs through eliminating unnecessary production steps, reducing manning
levels through automation, and decreasing waste generated by the process.
In recent years, integrated steel production has declined as a proportion
of total steel production due to the high costs of building, operating and
maintaining integrated steel operations, including lost production time
associated with periodic blast furnace relinings. This reduction in integrated
production capacity has increased the market share of the remaining producers of
the highest value-added products that require the cleanest steel.
Mini-mill
Long products are generally produced through a mini-mill process.
Mini-mills use electric arc furnaces to melt scrap or scrap substitutes, thus
eliminating the use of iron ore and coke. Most mini-mills utilize a continuous
process where billets are fed directly from the caster to the rolling mill,
saving on reheating costs. Mini-mills are generally characterized by more
flexible costs of production due in part to generally lower capital costs. The
quality of steel produced by mini-mills, however, is limited by the quality of
the metallic raw materials used in steelmaking, which is affected by the limited
availability of high quality scrap or ore-based metallics for use in electric
arc furnaces (such as direct reduced iron and hot-briquetted iron). Mini-mills
are heavily dependent on scrap, which in recent years has been characterized by
price volatility that generally tracks the price volatility of finished steel
products.
KEY STEEL PRODUCTS
Hot-rolled sheet
All coiled flat-rolled steel is initially hot-rolled, a process that
consists of passing a cast slab through a multi-stand rolling mill to reduce its
thickness to less than a one-half inch. Hot-rolled steel is a minimally
processed steel coil that is used in the manufacture of various non-surface
critical applications, such as automobile suspension arms, frames, wheels, and
other unexposed parts in auto and truck bodies, agricultural equipment,
construction
46
products, machinery, tubing, pipe and guard rails. Approximately 22.6 million
tons of hot-rolled carbon sheet were shipped in the United States during 2003.
Cold-rolled sheet
Cold-rolled sheet is hot-rolled steel that has been further processed
through a pickle line, which is an acid bath that removes scaling from steel's
surface, and then successively passed through a rolling mill without reheating
until the desired gauge, or thickness, and other physical properties have been
achieved. Cold-rolling reduces gauge and hardens the steel and, when further
processed through an annealing furnace and a temper mill, improves uniformity,
ductility and formability. Cold-rolling can also impart various surface finishes
and textures. Cold-rolled steel is used in exposed steel applications that
demand higher surface quality or finish, such as exposed automobile and
appliance panels. As a result, cold-rolled prices are higher than hot-rolled
prices. Typically, cold-rolled material is coated or painted prior to sale to an
end-user. Approximately 12.6 million tons of cold-rolled carbon sheet were
shipped in the United States during 2003.
Coated sheet
Coated sheet is cold-rolled steel that has been coated with zinc to render
it corrosion-resistant and to improve its paintability. Hot-dipped galvanized,
electro-galvanized and aluminized products are types of coated steels. These are
also the highest value-added sheet products because they require the greatest
degree of processing and tend to have the strictest quality requirements. Coated
steel is used for many applications, often where exposed to the elements, such
as automobile exteriors, major household appliances, roofing and siding, heating
and air conditioning equipment, air ducts and switch boxes, as well as in
certain packaging applications, such as food containers. Approximately 18.9
million tons of coated sheet were shipped in the United States during 2003.
Special bar quality
SBQ steel is the highest quality steel long product, and is typically used
in safety-critical applications by manufacturers of engineered products. SBQ
steel must meet specific applications' needs for strength, toughness, fatigue
life and other engineering parameters. SBQ steel is the only bar product that
typically requires customer qualification, and is generally sold under contract
to long-term customers. End-markets are principally the automotive, heavy truck
and agricultural sectors, and products made with SBQ steel include axles,
crankshafts, transmission gears, bearings and seamless tubes. Approximately 8.2
million tons of SBQ steel were shipped in the United States during 2003.
CURRENT ENVIRONMENT
Consolidation
The U.S. flat-rolled steel industry has experienced several mergers in the
last two years, including International Steel Group's acquisitions of Bethlehem
Steel Corporation and The LTV Corporation (formerly the second and third largest
U.S. integrated producers of steel) as well as Acme Steel. ISG recently
purchased the assets of bankrupt Weirton Steel. United States Steel Corporation
acquired National Steel Corporation. Rouge Steel, the fifth largest U.S.
integrated producer, was acquired by OAO Severstal. In addition, Nucor
Corporation, the largest U.S. mini-mill steel producer, acquired Trico Steel
Company. These acquisitions were of companies that had filed for bankruptcy
protection. These companies have reduced certain of their costs through
bankruptcy and have been relieved of many obligations, including environmental,
employee and retiree benefit and other obligations. We believe that the presence
of fewer industry participants should lead to more industry stability and
security.
Prices
Steel prices are sensitive to a number of supply and demand factors.
Prices are up significantly from 20-year lows reached in December 2001, when
foreign imports were at their peak and domestic demand was beginning to soften.
Improved market conditions are being driven by increased global demand for
steel, particularly the
47
unprecedented growth in China, and a recovery in the U.S. economy. Industry-wide
price increases ranging from $20 to $30 per ton were announced effective January
5, 2004. An initial industry-wide surcharge, to cover rising commodity input
prices, of $30 per ton on all products was announced effective February 1, 2004.
In addition, effective with April shipments, price increases of $50 per ton for
hot rolled products and $60 per ton for cold rolled and coated products were
announced. Subsequently, some steel companies have increased the surcharge to as
high as $100 per ton.
Imports
Competition from foreign producers is typically affected by the relative
strength of foreign economies and fluctuations in currency values, with steel
imports tending to increase when the value of the dollar is strong in relation
to foreign currencies. Economic conditions impact steel trade flows, with
imports coming into economies that experience relative strength.
On March 5, 2002, as a result of an investigation under Section 201 of
U.S. trade laws, President Bush imposed tariffs on imports into the United
States of numerous steel products. These remedies included 30% tariff rate
increases for hot-rolled sheet, cold-rolled sheet, coated sheet, and hot-rolled
bar with the rates declining to 24% in year two and 18% in year three. Several
foreign supplying countries challenged the President's action through the
dispute resolution procedures of the World Trade Organization, and on November
11, 2003 the World Trade Organization issued a final adverse ruling on the
Section 201 remedy. The European Union and Japan announced that they would
impose retaliatory tariffs on a wide range of products if the United States did
not repeal the Section 201 tariffs. Following the issuance of a mid-term review
of the Section 201 program, the President ended the Section 201 program on
December 4, 2003, stating that the domestic steel industry's increased
productivity, decreased production costs, and new labor agreements demonstrate
that the industry has made sufficient progress in its restructuring efforts.
On two occasions, in 2000 and 2002, U. S. producers of cold-rolled
flat-rolled steel sheet products petitioned to have antidumping and/or
countervailing duties assessed against imports of cold-rolled sheets from 12
countries and 20 countries, respectively. Both times, the U.S. International
Trade Commission ("USITC") issued negative final injury determinations,
effectively terminating the investigations. Both decisions were appealed by the
petitioning members of the domestic industry ("petitioners") the United States
Court of International Trade ("CIT"). The appeal of the 2000 case was remanded
to the USITC on October 28, 2003. In a remand decision published in May 2004,
the USITC again reached a negative determination on remand. That decision is
currently being reviewed by the CIT, and could either be affirmed or remanded
again later this year. On February 19, 2004, the CIT also affirmed the negative
determination in the 2002 case. That case was recently appealed to the Court of
Appeals for the Federal Circuit and no decision is expected for 9 to 12 months.
Some of the respondents have raised on appeal issues relating to the final
dumping margin determinations of the U.S. Department of Commerce ("Commerce") in
that investigation, although no duties are currently being collected due to the
negative injury determination that is being appealed. Also, in May 2004,
Commerce and the USITC are scheduled to initiate "sunset" reviews of
countervailing duty and antidumping orders against hot-rolled flat-rolled carbon
steel products from Brazil, Japan and Russia to determine whether the orders
should be terminated or continued for an additional five years. Those
proceedings will not be completed until mid-2005.
48
BUSINESS
BUSINESS OVERVIEW
The business overview for Ispat International is set forth in its Annual
Report on Form 20-F/A for the year ended December 31, 2003, which is
incorporated into this prospectus by reference.
Ispat Inland Inc. is the fourth largest integrated producer of steel in
the United States, with shipments of 5.3 million tons in 2003. We were
established in 1893 and today we produce and sell a wide range of steels,
largely carbon and high-strength low-alloy steel grades, in flat-rolled and bar
forms. Our steelmaking facilities are located at our 1,900-acre Indiana Harbor
Works located in East Chicago, Indiana, which encompasses raw steel production,
casting, rolling and finishing facilities. We had revenue of $2.2 billion and a
net loss of $52.6 million for the year ended December 31, 2003 and revenue of
$665.6 million and net income of $41.7 million for the three months ended March
31, 2004.
Our Flat Products division, which generated 89% of our 2003 revenue,
manages our iron ore operations, conducts our ironmaking operations and produces
the major portion of our raw steel. This division also manufactures and sells
steel sheet, strip and certain related semi-finished products to the automotive,
steel service center, appliance, office furniture and electrical motor markets.
We are one of the top producers in the United States of automotive sheet, the
highest value-added flat-rolled carbon steel product and the largest supplier of
steel to the appliance market. Over 80% of our flat-rolled steel revenues are of
value-added cold-rolled or coated steels. Essentially all of our steel products
are made to fill specific orders due to the unique chemistry, surface quality,
and width and gauge requirements of our customers.
Our Bar division, which generated 11% of our 2003 revenue, manufactures
and sells special bar quality, or SBQ, steel and related semi-finished products
to the automotive industry directly, as well as through forgers and cold
finishers, and also sells to heavy equipment manufacturers and steel service
centers. SBQ steel is used by our customers in the automotive, agricultural and
transportation industries, among others, to manufacture safety-critical products
such as axles and bearings.
We are involved in two non-consolidated value-added steel finishing joint
ventures with Nippon Steel Corporation that operate state-of-the-art
steel-finishing facilities near New Carlisle, Indiana. I/N Tek, owned 60% by one
of our wholly-owned subsidiaries, operates a 1.7 million ton annual capacity
cold-rolling mill. I/N Kote, owned 50% by another of our wholly-owned
subsidiaries, operates two galvanizing lines with combined annual capacity of
more than 1.0 million tons. We are also a participant in an iron ore production
joint venture and one of our subsidiaries is engaged in the mining and
pelletizing of iron ore.
COMPETITIVE STRENGTHS
We believe that the following factors have contributed to our success.
- - High Value-Added Product Offering. Over 80% of our flat-rolled revenue in
2003 was coated or cold-rolled and our bar shipments are of SBQ steel, the
highest grade of long products. We manufacture a majority of our products to
precise customer specifications for a wide range of customer uses. Our
products are made to strict parameters of steel cleanliness, dimensions and
machineability. Our flat-rolled steels are sold to the automotive and
appliance markets, which we believe represent the most demanding end-markets
for carbon steels. Our SBQ products are sold to manufacturers of axles,
bearings and other safety-critical products. The high value-added nature of
our products allows us to achieve higher, more stable prices for our
products than if we were a commodity producer and enables us to maintain
strong relationships with the leaders in our end- markets.
- - Favorable Raw Material Input Positions. We believe that we have secured a
substantial percentage of our raw material requirements at attractive
prices. Approximately 94% of our iron ore requirements are sourced from our
wholly-owned Minorca Mine and a long-term purchase contract. We have reduced
our coke requirements by approximately 25% since 1993 through a joint
venture partnership that has constructed a pulverized coal injection
facility on land located at our Indiana Harbor Works. Approximately 65% of
our coke requirements
49
are satisfied under a long-term purchase contract with a supplier that
constructed a heat recovery coke battery on land leased from us at our
Indiana Harbor Works and we have contracted for substantially all the
remainder of our 2004 needs. We receive approximately 40% of our electricity
under long-term contracts from facilities that convert waste coke and blast
furnace gases into electricity and purchase the balance from a strong
industrial based power grid. Ispat International's global purchasing power
provides us with access to coke, slabs and billets. We believe that our raw
material position strengthens our reputation with our customers as a
reliable supplier of steel products.
- - Strong Customer Franchise. We have developed long-term customer
relationships based on the quality of our steel, our ability to meet
exacting customer specifications and our high level of customer service. We
participate in research and development of new products with a captive
research and development center of approximately 100 professionals. We
actively engage with our customers and tailor-make products to meet their
requirements. Approximately 60% of our sales, including the sales of our
joint ventures, are under contracts, some of which are multi-year, with our
customers, evidencing our strong customer commitment and providing us with
increased financial and operational stability. We believe that our customer
relationships provide us with a stable revenue base as well as cost savings
resulting from longer production runs and improved pre-production planning.
- - Low Cost Supplier. We believe that our raw material resources significantly
enhance our competitive cost position. We have increased the number of tons
produced per employee by 40% to 835 since 1997, the year before our
acquisition, which compares favorably to our principal competitors. During
the same time period, we reduced our headcount by 2,468, or 28%, of our
workforce. We have modern world-class facilities. Our No. 7 Blast Furnace,
which we relined in 2003, is the largest in the western hemisphere,
providing us a significant productivity advantage. We are the only U.S.
steel producer with 100% walking beam furnace hot rolling operations that,
in conjunction with our steelmaking facilities, enable us to provide high
quality products with less defects, thereby further enhancing our low cost
position. Through our joint venture interests in I/N Tek and I/N Kote, we
have access to state of the art cold rolling and coating facilities.
Together with Ispat International, we own interests in vessel time charters
and shipping assets that give us cost savings opportunities in
transportation.
- - Modest Ongoing Capital Expenditure Requirements. From 1975 to 1992, we and
our joint venture partners invested in excess of $2.5 billion to install new
state of the art facilities and to upgrade and modernize our existing
facilities. Since that time, the only capital project requiring significant
expenditures was the relining of the No. 7 Blast Furnace, which we completed
in the fourth quarter of 2003. This reline is expected to extend the life of
the furnace for another 20 years, as well as increase our capacity and
efficiency. We expect to reap the benefits from these investments over the
next several years without the need for further significant investment in
facilities. We expect to spend approximately $27 million in capital
maintenance and upgrades in 2004.
- - Benefits from Ispat International's Ownership. Our parent company is one of
the largest steel companies in the world. We benefit from Ispat
International's global purchasing power, marketing and production knowledge.
We also are part of Ispat International's knowledge integration program in
which Ispat International's operating companies share best practices and
technological advancements with one another and benchmark results to ensure
that productivity gains are shared throughout Ispat International. Ispat
International is 80.8%-owned by Lakshmi N. Mittal and members of his
immediate family. The LNM Group (which comprises Ispat International and two
other entities controlled by Mr. Mittal, namely LNM Holdings N.V. and P.T.
Ispat Indo) is the second largest global steel producer based on 2003 steel
shipments of approximately 28 million tons and sales of $10 billion, and has
among the broadest geographic portfolios of steel production facilities of
any steel company in the world.
- - Relationship with Nippon Steel Corporation. We have a long-standing
relationship with Nippon Steel, the third largest steel producer in the
world. Our joint venture operations with Nippon Steel facilitate the
development of strategic business relationships with the leading Japanese
automotive companies. Automobile production by Japanese companies in the
United States has increased by 79% since 1993. We cooperatively engage in
product design and application for these customers in the United States. We
regularly work with Nippon Steel on research and development, efficiency
maximization, and technical assistance projects. In 2003, we expanded
50
our cooperation and entered into an alliance for the production of high
tensile steel. Additionally, in 2002, we extended the terms of each of the
I/N Tek and I/N Kote partnerships through the end of 2021.
- - Experienced and Focused Management Team. Our directors, who are not also
part of our senior management team, have over 195 years of experience in the
steel industry, including over 60 years with us. Our senior management team
has approximately 190 years of experience in the steel industry, including
over 125 years with us. Our Chairman, Mr. Mittal, was named Steel Maker of
the Year in 1996 by New Steel, a leading industry publication. In 1998, Mr.
Mittal was also awarded the 8th honorary Willy Korf Steel Vision Award, the
highest recognition for worldwide achievement in the steel industry, by
American Metal Market and World Steel Dynamics. In addition, we are able to
draw on the large talent pool of the LNM Group to exchange knowledge and
practices.
BUSINESS STRATEGY
Our strategy is to build on our position as a leading U.S. producer of
technically-advanced value-added carbon flat-rolled steels and of
safety-critical SBQ products by taking advantage of our competitive strengths.
Key elements of our strategy include:
- - Focus on More Difficult-to-Produce, Higher Grades of Steel. It is our
strategy to continue to develop advanced technologies through our internal
research center and relationships with Nippon Steel and the LNM Group. Our
research and development professionals actively work with our clients to
produce high value-added products. Our focus on higher-grade products
creates substantial barriers to entry to our end markets, allows us to
compete based on quality and provides for premium pricing for our products.
- - Aggressively Reduce Costs in Our Production Facilities. It is our goal to
continue to improve our position as a low cost supplier by further
increasing labor productivity, reducing the labor force by attrition through
a flexible labor contract and carefully managing healthcare costs.
Additionally, we will continue to improve profitability by using advanced
technologies and processes and continuing to implement best practices
through Ispat International's knowledge integration program.
- - Maximize Utilization of Downstream Processing Facilities. It is our
objective to maximize the utilization of our coating, cold rolling and hot
rolling facilities. We installed a third walking beam furnace at our hot
strip mill that increased its annual capacity by 1 million tons to a total
of 6 million tons. More recently, we successfully relined our No. 7 Blast
Furnace, increasing its productivity and efficiency, and intend to install a
fourth stove that will result in an additional 15% increase in its capacity.
If needed, we will supplement our internal semi-finished steel production
with third party supplied slabs and billets to feed our hot rolling
facilities.
- - Continue to Provide Our Customers with Superior Service. It is our goal to
continue to create and strengthen long-term relationships by providing
high-quality service to all our customers through certainty of supply,
strict quality assurance controls, just-in-time delivery, superior customer
service and continuous product upgrades.
- - Reduce Existing Indebtedness Through Cash Flow Generation. It is our goal to
use the cash flow that our business generates to reduce existing debt and
improve our liquidity and overall financial flexibility.
51
STEEL PRODUCTION AND MILL SHIPMENTS
The following table shows our production of raw steel for the past three
years and our percentage share of total domestic raw steel production according
to statistics from the American Iron and Steel Institute.
RAW STEEL PRODUCTION
-----------------------------
% OF
U.S. STEEL
(000 TONS) INDUSTRY
---------- ----------
2003..................... 4,997 5.0%
2002..................... 5,691 5.6
2001..................... 5,430 5.5
Our annual raw steelmaking capacity is 6.0 million tons. The basic oxygen
process accounted for 93% of our raw steel production for 2003 and 92% for 2002.
The remainder of our production was produced through the electric arc furnace
process.
We shipped 5.3 million tons of steel products in 2003, 5.7 million tons in
2002 and 5.4 million tons in 2001. In 2003 and 2002, sheet, strip and certain
related semi-finished products accounted for 90% and 88%, respectively, of the
total tonnage of steel products shipped from our Indiana Harbor Works. Bar and
certain related semi-finished products accounted for 10% of our total tonnage in
2003 and 12% in 2002.
Some value-added steel processing operations for which we do not have
facilities are performed by outside processors, including joint ventures, prior
to shipment of certain products to our customers. In each of 2003 and 2002,
approximately 44% and 45%, respectively, of the products we produced were
processed further through value-added services such as electrogalvanizing,
painting and slitting.
Approximately 78% of the finished steel shipped to customers during 2003
was transported by truck, 20% was transported by rail and 2% was shipped via
barge or other modes of transportation. Our wholly-owned truck transport
subsidiary was responsible for shipment of approximately 27% of the total
tonnage of products transported by truck in 2003.
JOINT VENTURES
In July 1987, one of our wholly-owned subsidiaries formed a partnership,
I/N Tek, with an indirect wholly-owned subsidiary of Nippon Steel to construct,
own, finance and operate a state-of-the-art cold-rolling facility with an annual
capacity of 1.7 million tons, of which approximately 40% is cold-rolled
substrate for I/N Kote (described below). The I/N Tek facility is located near
New Carlisle, Indiana. Through one of our subsidiaries, we own a 60% interest in
the I/N Tek partnership and, with certain limited exceptions, are the sole
supplier of hot band to be processed by the I/N Tek facility and generally have
exclusive rights to the production capacity of the facility.
In September 1989, another of our wholly-owned subsidiaries formed a
second partnership, I/N Kote, with an indirect wholly-owned subsidiary of Nippon
Steel to construct, own, finance and operate two sheet steel galvanizing lines
adjacent to the I/N Tek facility. Our subsidiary owns a 50% interest in I/N
Kote. The I/N Kote facility consists of a hot-dip galvanizing line and an
electrogalvanizing line with a combined annual capacity of more than 1 million
tons. We have guaranteed $54.5 million of I/N Kote's term financing and I/N Kote
has contracted to acquire its cold-rolled steel substrate from us, which we
supply from the I/N Tek facility and our Indiana Harbor Works.
I/N Tek and I/N Kote were built at a total cost exceeding $1.1 billion. In
the fourth quarter of 2002, the terms of each of the I/N Tek and I/N Kote
partnerships were extended through December 31, 2021.
52
CUSTOMERS
In both 2003 and 2002, approximately 93% of the shipments of our Flat
Products division and 85% of the shipments of our Bar division were to customers
in 20 mid-American states. Approximately 72% and 74%, respectively, of the
shipments of the Flat Products division and 73% and 75%, respectively, of the
shipments of the Bar division were to customers in a five-state area comprised
of Illinois, Indiana, Ohio, Michigan and Wisconsin in 2003 and 2002. Both
divisions compete in these geographical areas, principally on the basis of
price, service and quality, with the nation's largest producers of raw steel as
well as with foreign producers and with many smaller domestic mills.
The table below shows our shipments of steel mill products from our
Indiana Harbor Works in 2001, 2002 and 2003 by market classification. As shown
in the table, a substantial portion of shipments by the Flat Products division
was to steel service centers and transportation-related markets.
PERCENTAGE OF TOTAL
STEEL SHIPMENTS
BY VOLUME
---------------------------------
2001 2002 2003
---- ---- ----
Steel service centers ..................... 33% 35% 37%
Automotive ................................ 32 33 29
Steel converters/processors ............... 13 11 13
Appliance ................................. 10 9 10
Industrial, electrical and farm machinery.. 7 7 7
Construction and contractors' products .... 1 1 1
Other ..................................... 4 4 3
--- --- ---
100% 100% 100%
=== === ===
COMPETITION
The steel market is highly competitive. Major integrated producers,
including us, face competition from a variety of sources. Many steel products
compete with alternative materials such as plastics, aluminum, ceramics, glass
and concrete. Domestic steel producers have also been adversely impacted by
imports from foreign steel producers. Imports of steel products accounted for
19.3% of the domestic market in 2003, down from 25.8% in 2002. Unfairly traded
imports aggravate market conditions, in particular with respect to foreign
government subsidies that are used to offset operating losses by foreign
producers. On March 5, 2002, as a result of an investigation under Section 201
of U.S. trade laws, President Bush imposed tariffs on imports into the United
States of numerous steel products. These remedies included 30% tariff rate
increases for hot-rolled sheet, cold-rolled sheet, coated sheet, and hot-rolled
bar with the rates declining to 24% in year two and 18% in year three. Several
foreign supplying countries challenged the President's action through the
dispute resolution procedures of the World Trade Organization, and on November
11, 2003 the World Trade Organization issued a final adverse ruling on the
Section 201 remedy. The European Union and Japan announced that they would
impose retaliatory tariffs on a wide range of products if the United States did
not repeal the Section 201 tariffs. Following the issuance of a mid-term review
of the Section 201 program, the President ended the Section 201 program on
December 4, 2003, stating that the domestic steel industry's increased
productivity, decreased production costs and new labor agreements demonstrate
that the industry has made sufficient progress in its restructuring efforts.
On two occasions, in 2000 and 2002, U. S. producers of cold-rolled
flat-rolled steel sheet products petitioned to have antidumping and/or
countervailing duties assessed against imports of cold-rolled sheets from 12
countries and 20 countries, respectively. Both times, the U.S. International
Trade Commission ("USITC") issued negative final injury determinations,
effectively terminating the investigations. Both decisions were appealed by the
petitioning members of the domestic industry ("petitioners") the United States
Court of International Trade ("CIT"). The appeal of the 2000 case was remanded
to the USITC on October 28, 2003. In a remand decision published in May 2004,
the USITC again reached a negative determination on remand. That decision is
currently being reviewed by the CIT, and could either be affirmed or remanded
again later this year. On February 19, 2004, the CIT also
53
affirmed the negative determination in the 2002 case. That case was recently
appealed to the Court of Appeals for the Federal Circuit and no decision is
expected for 9 to 12 months. Some of the respondents have raised on appeal
issues relating to the final dumping margin determinations of the U.S.
Department of Commerce ("Commerce") in that investigation, although no duties
are currently being collected due to the negative injury determination that is
being appealed. Also, in May 2004, Commerce and the USITC are scheduled to
initiate "sunset" reviews of countervailing duty and antidumping orders against
hot-rolled flat-rolled carbon steel products from Brazil, Japan and Russia to
determine whether the orders should be terminated or continued for an additional
five years. Those proceedings will not be completed until mid-2005.
We face competition from companies that have reduced their fixed costs
through bankruptcy. Over 35 U.S. steel companies have sought protection under
Chapter 11 of the United States Bankruptcy Code since the beginning of 1997.
Many of these companies have continued to operate, while reducing prices to
maintain volumes and cash flow, and obtaining concessions from their labor
unions and suppliers. Some companies have even expanded and modernized while in
bankruptcy. Upon emerging from bankruptcy, these companies, or new entities that
purchased their facilities through the bankruptcy process, have been relieved of
certain obligations, including environmental, employee and retiree benefit and
other obligations, commonly referred to as legacy costs. As a result, they may
become more cost competitive.
Mini-mills provide significant competition in various product lines.
Mini-mills are relatively efficient, low-cost producers that manufacture steel
principally from scrap in electric furnaces and they typically enjoy competitive
advantages such as lower capital expenditures for construction of facilities,
lower environmental costs, lower raw material costs and non-unionized work
forces with lower employment costs and more flexible work rules. An increasing
number of mini-mills utilize thin slab casting technology to produce flat-rolled
products. Thin-slab casting technologies have allowed mini-mills to enter
certain sheet markets traditionally supplied by integrated producers and compete
directly with integrated producers of flat products. However, because their raw
metals are scrap-based, mini-mills are not able to produce the cleanest steels
required for many of the higher value-added products in which we compete. For
example, automotive exposed sheet, which commands the highest price of widely
used carbon steel flat-rolled products, is supplied exclusively by integrated
producers.
SALES AND MARKETING
Substantially all of the steel mill products produced by our Flat Products
division are marketed through its own selling organization, with offices located
in Chicago, Illinois; Southfield, Michigan; and Nashville, Tennessee.
Substantially all of the steel mill products produced by our Bar division are
marketed through its sales office in East Chicago, Indiana.
PRODUCT CLASSES
The following table sets forth the percentage of our consolidated net
sales, for the three years indicated, contributed by each class of our products.
2001 2002 2003
---- ---- ----
Sheet and Strip.. 83% 87% 89%
Bar ............. 17 13 11
--- --- ---
100% 100% 100%
=== === ===
I/N Kote accounted for 15% of our consolidated net sales during both 2003 and
2002. A large portion of our value added shipments are through I/N Kote. Sales
to Ryerson Tull, Inc., a steel service center, constituted approximately 10% of
consolidated net sales during 2003 and 9% during 2002.
PRODUCTION FACILITIES
Our steel manufacturing facilities are located on 1,900 acres at our
Indiana Harbor Works in East Chicago, Indiana. The following table sets forth a
general description of our principal production units currently in operation,
excluding our joint ventures.
54
FACILITY DESCRIPTION PRODUCTION CAPACITY(1) PRODUCTION IN 2003
-------- ----------- ---------------------- ------------------
Blast furnace 3 Blast furnaces 5.7 million tons of hot metal 4.2 million tons
Basic oxygen furnace 2 BOFs with 4 vessels with ladle metallurgy 5.9 million tons of liquid steel 4.7 million tons
(BOF) stations and one RH vacuum degasser
Slab and bloom caster 3 continuous slab and bloom casters 5.6 million tons 4.6 million tons
80" Hot strip mill 5 roughing stands, 6 finishing stands, 3 6.0 million tons 5.1 million tons
walking beam slab reheat furnaces
Cold rolling mill 2 continuous pickle lines 3.1 million tons 2.4 million tons
56" and 80" tandem mills 3.7 million tons 2.4 million tons
Continuous annealing facilities 457,000 tons 304,000 tons
Batch annealing facility 1.7 million tons 1.6 million tons
3 temper rolling mills 2.9 million tons 2.1 million tons
5 finishing lines 2.1 million tons 1.7 million tons
Coating lines 3 coating lines 928,000 tons 750,000 tons
Electric arc furnace One 120 ton AC electric arc furnace 610,000 tons of 372,000 tons
(60 MVA) with ladle metallurgy station liquid steel
Billet caster Four-strand continuous caster 800,000 tons 359,000 tons
12" Bar mill Rod and Stelmor coil mill with rounds, 700,000 tons 522,000 tons
hexagons and square products
- ----------------------
(1) "Production capacity" means the annual production of plant and equipment
based on existing technical parameters as estimated by management.
RAW MATERIALS AND ENERGY REQUIREMENTS
Metallic units (iron ore and scrap) represent approximately 24% of our
cost of sales. Additionally, gas, coke, electricity and coal represent 24% of
our cost of sales.
Iron ore
We primarily obtain iron ore pellets from our Minorca and partially-owned
Empire mines.
Our wholly-owned Minorca Mine currently is producing at capacity. We also
receive pellets from our 21%-owned Empire Mine. Effective December 31, 2002, we
sold 19% of our interest in the Empire Partnership to a subsidiary of
Cleveland-Cliffs, and have the option to sell our remaining 21% interest in the
Empire Partnership to a subsidiary of Cleveland-Cliffs at any time after
December 31, 2007 for a purchase price defined in the sales agreement. We have a
12-year agreement to purchase all of our iron ore requirements beyond those
produced by Minorca from subsidiaries of Cleveland-Cliffs. The price of the
pellets is fixed for the first two years and then adjusted over the term of the
agreement based on various market index factors.
The following table shows (1) the iron ore pellets available to us as of
December 31, 2003 from properties of our subsidiary and through interests in raw
materials ventures; (2) 2002 and 2003 iron ore pellet production or
55
purchases from such sources; and (3) the percentage of our iron ore requirements
represented by production or purchases from such sources in 2002 and 2003.
IRON ORE TONNAGES
IN THOUSANDS
(GROSS TONS OF PELLETS)
----------------------------------------------------------------------
AVAILABLE AS OF PRODUCTION % OF REQUIREMENT(1)
--------------- ---------- -------------------
DECEMBER 31, 2003(2) 2003 2002 2003 2002
-------------------- ---- ---- ---- ----
Ispat Inland Mining Company..............
Minorca (100% owned)-Virginia, MN........ 40,044 2,766 2,778 50% 45%
Iron Ore Venture.........................
Empire (21% owned)-Palmer, MI ........... 5,985 975 2,500 18 41
Empire Contract Purchases ............... -- 1,442 700 26 11
------ ----- ----- -- --
Total Iron Ore ....................... 46,029 5,183 5,978 94% 97%
====== ===== ===== == ==
- ---------------------
(1) Requirements in excess of production are purchased or taken from
stockpile.
(2) Net interest in proven reserves.
Coal, coke and limestone
Coal, together with coke, all of which are purchased from independent
sources, accounted for approximately 71% of the energy we consumed at the
Indiana Harbor Works in both 2003 and 2002.
All of our coal requirements are satisfied from independent sources. In
connection with the commencement of operations of the heat recovery coke battery
in 1998 and the associated energy facility discussed below (which are not our
assets), we idled our coal-fired generating station, thereby eliminating our
steam coal requirements.
Our other coal requirements are for the PCI Associates joint venture, in
which one of our subsidiaries holds a 50% interest and Primary Energy Steel LLC,
a private operator of energy properties, owns the other 50%. The PCI facility
pulverizes coal for injection into our blast furnaces. During 2003 and 2002, the
PCI facility's coal needs were satisfied under short-term contracts.
Sun Coal and Coke Company ("Sun") and Primary Energy Steel LLC operate a
heat recovery coke battery and an associated energy recovery and flue-gas
desulphurization facility, located on land leased from us at our Indiana Harbor
Works. The facility produces coke, electricity and steam for use by us.
Approximately $350 million was invested in the project, which commenced
operations in the first quarter of 1998. We have committed to take, for
approximately 15 years, 1.2 million tons of coke annually on a take-or-pay basis
at prices determined by certain cost factors, as well as electricity and steam
produced by the facility, through a tolling arrangement. We satisfied 61% of our
2003 total coke needs and 65% of our 2002 total coke needs under this
arrangement. We advanced $30 million during construction of the project, which
is recorded as a deferred asset on our balance sheet and will be credited
against required cash payments during the second half of the energy tolling
arrangement. The remainder of our coke needs are supplied under short-term
contracts through third party purchases.
We sold all of our limestone and dolomite properties in 1990. We entered
into a long-term contract with the buyer of the properties to purchase, subject
to certain exceptions and at prices which approximate those on the open market,
the full amount of our annual limestone needs through 2002. In 2003, we renewed
this contract at a fixed price through 2007. We anticipate that after the
expiration of this arrangement we will be able to secure our limestone needs
from this or other sources.
56
Transportation of raw materials
Approximately 36% and 32% of the iron ore pellets and 97% of the limestone
we have received at our Indiana Harbor Works were transported by two of our
three formerly owned ore carriers in 2003 and 2002, respectively (the third
carrier remains in reserve status). Our three formerly owned ore carriers were
sold to a third party during 1998. These ore carriers are managed by the new
owner, but their shipping services are retained by us under a time-charter.
Arrangements have been made for the transportation on the Great Lakes of the
remainder of our iron ore pellet requirements.
Approximately 50% and 49% of our coke requirements were received by
conveyor belt from the heat recovery coke battery discussed above in 2003 and in
2002, respectively. Of the remainder, in 2003, approximately 16.5% was received
in our hopper cars, 8.5% in independent carrier-owned hopper cars, 73% in
independent carrier-owned barges and 2% by truck. All of our coal requirements
were received in independent carrier-owned hopper cars.
Natural gas and electricity
Natural gas and fuel oil supplied approximately 22% of the energy
requirements of the Indiana Harbor Works in 2003 and 2002, and are used
extensively by us at other facilities that we own or in which we have an
interest. Utilization of the PCI Associates pulverized coal injection facility
has reduced natural gas and fuel oil consumption at the Indiana Harbor Works. We
do not have long-term contracts for natural gas. Prices for natural gas have
been volatile in the recent past. We spent approximately $122 million for our
natural gas requirements in the year ended December 31, 2003.
We lease land to Primary Energy Steel LLC upon which is built a
90-megawatt turbine generating facility that began operation in 1998. Pursuant
to a 15-year-toll-charge contract, the facility converts coke plant flue gas
into electricity and plant steam for our use. In 2003 and 2002, this facility
produced 24% and 21%, respectively, of the purchased electricity requirements at
the Indiana Harbor Works.
We also lease land to Primary Energy Steel LLC for a 75-megawatt steam
turbine generating facility that began operation in 1996. Pursuant to a
15-year-toll-charge contract, the facility generates electricity for us
utilizing steam produced by burning waste blast furnace gas. In 2003 and 2002,
this facility produced 17% and 19%, respectively, of the purchased electricity
requirements at the Indiana Harbor Works.
We both purchase and generate electricity to satisfy electrical energy
requirements at the Indiana Harbor Works. In 2003 and 2002, respectively, we
produced approximately 1% and 2% of our electrical energy requirements at the
Indiana Harbor Works. The purchase of electricity at the Indiana Harbor Works is
subject to curtailment under rules of the local utility when necessary to
maintain appropriate service for various classes of its customers.
CAPITAL EXPENDITURES
In recent years, we and our subsidiaries have made substantial capital
expenditures, principally at the Indiana Harbor Works, to improve quality and
reduce costs, and for pollution control. Additions by us and our subsidiaries to
property, plant and equipment, together with retirements and adjustments, for
the three months ended March 31, 2004 and for three years ended December 31,
2003, are set forth below. Net capital additions during such period aggregated
$147.7 million.
RETIREMENTS OR NET CAPITAL
(IN MILLIONS) ADDITIONS SALES ADJUSTMENTS ADDITIONS
------------- --------- ----- ----------- ---------
Three months ended March 31, 2004.... $ 1.8 $ -- $ -- $ 1.8
2003 ................................ 116.2(1) 1.2 -- 115.0
2002 ................................ 52.4 49.0(2) -- 3.4
2001 ................................ 28.6 1.2 0.1 27.5
57
(1) 2003 includes $88.7 million related to the No. 7 Blast Furnace reline and
$4.9 million related to the asset retirement obligation.
(2) 2002 includes the impairment charge of $44.3 million (gross asset value)
related to the 2A Bloomer and 21" Bar Mill assets and the impairment
charge of $4.7 million (gross asset value) related to the flux equipment
at the Empire Mine.
The amount budgeted for our 2004 capital expenditures and those of our
subsidiaries is approximately $27.0 million. It is anticipated that capital
expenditures will be funded from cash generated by operations and borrowings
under financing arrangements. See "Management's discussion and analysis of
financial condition and results of operations -- Environmental Regulation" above
for a discussion of capital expenditures for pollution control purposes included
in the foregoing amount.
EMPLOYEES
The monthly average number of our active employees and those of our
subsidiaries was 6,424 and 6,786 in 2003 and 2002, respectively. At year-end
2003 and 2002, respectively, approximately 4,624 and 5,037 employees were
represented by the United Steelworkers of America, of whom approximately 19 and
26 were on furlough or indefinite layoff at year-end 2003 and 2002,
respectively. Total employment costs increased from $547 million in 2002 to $561
million in 2003, primarily due to higher employee benefit costs.
The labor agreement between us and the United Steelworkers of America was
effective August 1, 1999. This agreement covers wages and benefits through July
31, 2004. Among other things, this agreement provided wage increases of $0.50
per hour in 2000 and 2001 and $1.00 per hour in 2003. The agreement also
contains provisions that the United Steelworkers will cooperate with us to
continuously improve the productivity of our operations. At the expiration of
the agreement, both parties have agreed to negotiate a successor agreement
without resorting to strikes or lockouts. The successor agreement will be
patterned on the agreements established at the time by the other domestic
integrated steel producers. Any disputes concerning adoption of the pattern will
be resolved through an arbitration process. In consideration of the foregoing,
we committed to invest in primary steelmaking facilities at the Indiana Harbor
Works. One additional holiday was provided and retirement benefits were
increased for active employees and certain current retirees. Certain retiree
healthcare obligations are secured through certain trust and subordinated
mortgage arrangements.
OTHER PROPERTIES
We and one of our subsidiaries lease approximately 20% of the space in the
30 West Monroe Building (formerly the Inland Steel Building) located at 30 West
Monroe Street, Chicago, Illinois. Our lease agreement expires December 31, 2006.
One of our subsidiaries holds in fee a parcel of seven acres of land in
Oakbrook Terrace, Illinois, which is for sale. We also hold in fee approximately
300 acres of land adjacent to the I/N Tek and I/N Kote sites, which is available
for future development. Approximately 1,060 acres of rural land, which are held
in fee at various locations in the north-central United States by various raw
materials ventures, are also for sale.
58
MANAGEMENT
The table below describes our executive officers and directors as of May
24, 2004.
A list of Ispat International's executive officers and directors as of
December 31, 2003 is set forth in its Annual Report on Form 20-F/A for the year
ended December 31, 2003, which is incorporated into this prospectus by
reference.
NAME AGE POSITION
- ---------------------------------------------- ------- ---------------------------------------------------
Lakshmi N. Mittal............................. 53 Chairman of the Board of Directors of Ispat Inland
Inc.; Chairman of the Board and Chief Executive
Officer of Ispat International N.V.
Ashok L. Aranha............................... 58 Director of Ispat Inland Inc. and Director of
Materials of Ispat International N.V.
Richard Leblanc............................... 60 Director of Ispat Inland Inc.; President and Chief
Executive Officer of Ispat Sidbec
Robert B. McKersie............................ 74 Director of Ispat Inland Inc.
Malay Mukherjee............................... 56 Director of Ispat Inland Inc.; Director, President
and Chief Operating Officer of Ispat International
N.V.
Jean-Pierre Picard............................ 63 Director of Ispat Inland Inc.; Director, Marketing,
Flat Products of Ispat International N.V.
Peter D. Southwick............................ 51 Director of Ispat Inland Inc.; Director, Quality
Assurance and Application Development of Ispat
International N.V.
Louis L. Schorsch............................. 54 Director and the President and Chief Executive
Officer of Ispat Inland Inc.
Michael G. Rippey............................. 46 Director and Executive Vice-President, Commercial and
Chief Financial Officer of Ispat Inland Inc.
Muni Krishna T. Reddy......................... 58 Director of Ispat International N.V. and Director and
member of audit committee of Ispat Inland Inc.
Leonard H. Chuderewicz........................ 55 Director and Executive Vice President, Manufacturing
of Ispat Inland Inc.
Gregory Ludkovsky............................. 54 Vice President, Technology and Chief Technology
Officer of Ispat Inland Inc.; Chief Technology
Officer of Ispat International N.V.
John L. Brett................................. 39 Vice President, Finance of Ispat Inland Inc.
Madhu G. Ranade............................... 50 Vice President, Manufacturing of Ispat Inland Inc.
Thomas A. McCue............................... 54 Treasurer of Ispat Inland Inc.
Marc R. Jeske................................. 51 General Counsel and Secretary of Ispat Inland Inc.
The table below describes Ispat Inland ULC's executive officers and
directors as of May 24, 2004.
59
NAME AGE POSITION
- ---------------------------------------------- ------- ------------------------------------------------------------
Lakshmi N. Mittal............................. 53 President of Ispat Inland ULC and Chairman of the
Board and Chief Executive Officer of Ispat International N.V.
Bhikam C. Agarwal............................. 52 Vice President of Ispat Inland ULC and Chief
Financial Officer of Ispat International N.V.
Richard Leblanc............................... 60 Secretary and Director of Ispat Inland ULC
John L. Brett................................. 39 Director of Ispat Inland ULC
Thomas A. McCue............................... 54 Director of Ispat Inland ULC
Benoit Alain.................................. 40 Director of Ispat Inland ULC; Vice-President, Finance
and Chief Financial Officer of Ispat Sidbec Inc.
Denis Fraser.................................. 48 Director of Ispat Inland ULC; Executive
Vice-President and Chief Operating Officer of Ispat
Sidbec Inc.
MR. MITTAL is the Chairman of the Board of Directors of Ispat Inland, Chairman
of the Board and Chief Executive Officer of Ispat International and President of
Ispat Inland ULC. He has approximately 32 years of experience in steel and
related industries. He is the founder of Ispat International and has been
responsible for the strategic direction and development of its business. Mr.
Mittal is also the Chairman of LNM Holdings N.V. and its main steel making
subsidiaries. He is also a non-executive director of Iscor Limited and ICICI
Bank Limited, and a member of the Executive Committee of the International Iron
and Steel Institute. He is also trustee of a number of charitable trusts. Mr.
Mittal was named Steel Maker of the Year in 1996 by New Steel, a leading
industry publication. In 1998, Mr. Mittal was also awarded the 8th honorary
Willy Korf Steel Vision Award, the highest recognition for worldwide achievement
in the steel industry. The award was presented by American Metal Market and
World Steel Dynamics.
MR. ARANHA is a Director of Ispat Inland and the Director of Materials of Ispat
International. He joined Ispat International in 1991 and was responsible for the
development and implementation of its purchasing strategy and the implementation
of most global purchases for Ispat International. He has over 34 years of
experience in material and procurement management. Mr. Aranha was the head of
materials at Ispat Hamburger Stahlwerke GmbH prior to this position. He holds a
master's degree in business administration from LRI, Jamshedpur, India.
MR. LEBLANC is a Director of Ispat Inland, the President and Chief Executive
Officer of Ispat Sidbec and the Secretary and a Director of Ispat Inland ULC. He
has approximately 35 years of experience in the steel industry. Mr. Leblanc
spent 18 years in various senior management positions at Stelco Inc. before
joining Ispat Sidbec in 1987 as Vice-President, Production. He became President
and Chief Executive Officer in 1996. Mr. Leblanc is a Director of the American
Iron and Steel Institute ("AISI") and the Canadian Steel Producers Association.
DR. MCKERSIE has been a Director of Ispat Inland since 1994. He is a professor
emeritus at the Sloan School of Management at Massachusetts Institute of
Technology. Dr. McKersie was also Deputy Dean at the Sloan School of Management
from 1991 to 1994. Prior to joining MIT in 1980, he served as Dean of the New
York State School of Industrial and Labor Relations at Cornell University, and
prior to that was on the faculty of the Graduate School of Business at the
University of Chicago.
MR. MUKHERJEE is a Director of Ispat Inland and a Director and the President and
Chief Operating Officer of Ispat International. He has over 31 years of
experience in a range of technical, commercial and managerial roles in the steel
industry. Mr. Mukherjee has held various senior management positions within
Ispat International, including Managing Director of Ispat Mexicana S.A. de C.V.,
and President and CEO of Ispat Europe SA, Luxembourg, as well as Managing
Director of Ispat Karmet JSC, a Group affiliate.
MR. PICARD, is a Director of Ispat Inland and the Director, Marketing, Flat
Products of Ispat International, where he is responsible for flat products
marketing strategy and for Ispat e-Commerce marketing initiatives. He joined
Ispat Sidbec in 1980 as Vice-President of Marketing and Sales. Mr. Picard was
previously Senior Vice-President of
60
British Steel, Canada where he worked for 13 years. Mr. Picard has been active
in many steel industry-related associations.
DR. SOUTHWICK is a Director of Ispat Inland and has been Director, Quality
Assurance and Application Development of Ispat International since September
2003. Previously, Dr. Southwick was President and CEO at Ispat Inland Inc. Dr.
Southwick originally joined the former Inland Steel in 1980 after earning
bachelor's and doctor's degrees in metallurgy from the University of Cambridge,
England, in 1975 and 1978. Prior to occupying the post of President and CEO of
Ispat Inland, he held various positions including Head of Quality and Vice
President, Operations -- Flat Products. He has published numerous technical
papers and has served as Vice Chairman, AISI. He is a member of the Iron and
Steel Society, the American Society for Quality and the Institute of Materials.
MR. SCHORSCH is a Director and the President and Chief Executive Officer of
Ispat Inland Inc. He joined Ispat Inland in October of 2003. Prior to joining,
he worked for The LNM Group on maximization of the group's export performance.
He was a principal with McKinsey & Company, a management consulting firm, for 15
years. As co-leader of the firm's metals practice, he worked with senior steel
management around the world. After leaving McKinsey in 2000, he was President
and CEO of Global Steel Exchange, an e-commerce steel venture. Mr. Schorsch is
co-author of a book, "Steel: Upheaval in a Basic Industry," and has written
numerous articles on the industry. He holds a bachelor's degree from Georgetown
University and a doctorate in economics from American University, both in
Washington, D.C.
MR. RIPPEY is a Director and the Executive Vice President -- Commercial and
Chief Financial Officer of Ispat Inland Inc. He joined the Company's finance
organization in 1984 and advanced through positions of increasing responsibility
before being named Chief Financial Officer in 1998. He is also responsible for
the Company's purchasing activities. Mr. Rippey has a bachelor's degree from
Indiana University; a master's degree in banking and finance from Loyola
University, Chicago; and a master's degree in business administration from the
University of Chicago.
MR. REDDY is a Director of Ispat International N.V. and was elected Director of
Ispat Inland Inc. in May 2004. Mr. Reddy has over 33 years of experience in
financial services and he is presently the Chairman of State Bank of Mauritius
Ltd (SBM Group). He holds the following directorships: Chairman of the Board of
SBM Nedbank International Ltd.; Director on the Boards of Air Mauritius Ltd;
British American (Holdings) Ltd; Nassau; British American Insurance Company of
the Bahamas Ltd; British American International Corporation Ltd; British
American (UK) Ltd; Fidelity Bank & Trust International Ltd; Global Financial
Services Group plc, Malta; India Growth Fund Inc, New York; Intercommercial Bank
Ltd, Trinidad; Intercommercial Trust & Merchant Bank Ltd; Ispat International
N.V.; Mauritius Telecom Ltd; Overseas Telecommunication Services Ltd and South
East Asia Regional Fund Ltd. Mr. Reddy has taken over as Chairman of SBM Group
in October 2003 having been the Chief Executive Office of SBM Group for more
than 16 years. Prior to taking over as Chief Executive Officer of SBM Group in
1987, Mr. Reddy worked in Singapore and India. Mr. Reddy was conferred in 1993
with the title "Grand Officer of the Order of the Star and Key of the Indian
Ocean" (GOSK), by the Government of the Republic of Mauritius for distinguished
services in banking.
MR. CHUDEREWICZ is Executive Vice President -- Manufacturing of Ispat Inland
Inc. and Director of Ispat Inland Inc. He joined Ispat Inland in February of
this year. Prior to this, he was a career employee of United States Steel
Corporation, with 32 years of service in a variety of management positions.
Among his positions at U.S. Steel were general manager of their Gary Indiana
Works, president of USS/Kobe Steel Company, a bar products joint venture,
president of USS-Posco Industries, a cold rolling/coating joint venture, and
president of the Double Eagle Steel Coating Company. Mr. Chuderewicz holds a
bachelor's degree in electrical engineering from the University of Pittsburgh,
and an MBA from Duquesne University, Pittsburgh.
DR. LUDKOVSKY is Vice President -- Technology and Chief Technology Officer of
Ispat Inland Inc., as well as Chief Technology Officer of Ispat International
NV. As Chief Technology Officer of Ispat International, he leads the process of
global technology transfer as well as daily internet based exchange, in addition
to administering global Knowledge Integration Program within the group of Ispat
companies. Dr. Ludkovsky joined Inland in 1979 and held various management
positions. He emigrated from the Union of Soviet Socialist Republic where he
received his education in physical chemistry and solid-state physics at Moscow
State University of Steel and Alloys. Dr. Ludkovsky holds 15 patents and has
written scores of technical papers and presentations.
61
MR. BRETT is Vice President -- Finance of Ispat Inland Inc. and is a Director of
Ispat Inland ULC. He joined our company in 1988. Mr. Brett has held positions in
product profitability, economic evaluation, asset management, and financial
analysis, in addition to various positions in cost and operations accounting. He
was promoted to manager of financial analysis in 1995 and to Controller of Ispat
Inland shortly after Ispat International acquired us in 1998. Mr. Brett earned a
bachelor's degree in economics from DePauw University, and a master's degree in
business administration from the University of Chicago.
MR. RANADE has been Vice President -- Manufacturing of Ispat Inland Inc. since
October 2003. Mr. Ranade has worked in various positions in Research, Ironmaking
& Steelmaking operations since joining the company in 1977. He earned his
bachelor's degree in metallurgical engineering from the Indian Institute of
Technology in Bombay and a master's degree in materials science and engineering
from the University of California at Berkeley.
MR. MCCUE is Treasurer of Ispat Inland Inc. and a Director of Ispat Inland ULC.
He joined us in 1975. After progressing through a series of increasingly
responsible accounting and finance functions, including Treasurer of a special
purpose subsidiary of our company used for financing, Credit Manager and
Director of Treasury Operations, he was named to his current position in 1998.
Mr. McCue earned a bachelor's degree in Economics from Coe College and a
master's degree in business administration from Washington University. He is a
certified public accountant.
MR. JESKE is General Counsel and Secretary of Ispat Inland Inc. He has over 23
years of corporate legal experience, and joined Inland Steel Industries, the
previous parent company of Ispat Inland, in 1987. Mr. Jeske has assumed
increasing responsibility in the areas of finance law, contracts, litigation,
joint ventures, and acquisitions, before assuming the position of General
Counsel in 1999. He obtained a bachelor's degree from the University of
Illinois, and has a juris doctor degree and a master's degree in business
administration from Northwestern University.
MR. AGARWAL is the Chief Financial Officer of Ispat International and is the
Vice President of Ispat Inland ULC. He has over 28 years of experience in steel
and related industries. He has held various senior executive positions within
Ispat International since its first acquisition in 1989. He has been responsible
for the financial strategy of Ispat International and has been chief coordinator
of its prior activities in the capital markets, two of which received "deal of
the year" awards from International Financing Review, a leading global financial
publication. Mr. Agarwal has also led the finance and accounting functions of
Ispat International across all the operating subsidiaries.
MR. FRASER is a Director of Ispat Inland ULC and Executive Vice-President and
Chief Operating Officer of Ispat Sidbec Inc. Mr. Fraser joined Ispat Sidbec in
February 1999 as Commercial Director, Wire Rod, and was until April 2002,
General Manager of the Wire Rod business unit. Mr. Fraser holds a Bachelor's
degree in Mechanical Engineering from the Ecole Polytechnique and an MBA in
Finance and Accountancy from McGill University. In his 19-year career with a
major oil company prior to joining Ispat Sidbec, he held several key positions
in operations, sales and marketing.
MR. ALAIN is a Director of Ispat Inland ULC and has been Vice-President, Finance
and Chief Financial Officer of Ispat Sidbec since March 2002. Mr. Alain's holds
a Bachelor's degree in Business (Accounting) from the Universite du Quebec,
Montreal, Canada. Prior to joining Ispat, Mr. Alain was Chief Financial Officer
of Dataradio Inc., Montreal, Canada from 2000 and was Vice-President and
Treasurer of Alliance Forest Products Inc., Montreal, Canada from 1994 to 2000.
He is a Chartered Accountant.
62
CONTROLLING SHAREHOLDER OF ISPAT INTERNATIONAL AND RELATED PARTY
TRANSACTIONS
We are a wholly-owned subsidiary of Ispat International. At December 31,
2003, Ispat International had 49,587,492 Class A shares and 72,150,000 Class B
shares issued and outstanding. On March 16, 2004 and May 21, 2004, Ispat
International repurchased 3,300,000 and 2,000,000, respectively, Class A shares
on the New York Stock Exchange. At May 27, 2004, Ispat International had
44,350,818 Class A shares issued and outstanding.
The preference and relative rights of the Class A shares and Class B
shares are substantially identical except for disparity in voting power and
conversion rights. Holders of Class A shares are entitled to one vote per share
and holders of Class B shares are entitled to ten votes per share on all matters
submitted to a vote of shareholders. Each Class B share is convertible, at the
option of the holder, into one Class A share.
The following table sets forth information as of December 31, 2003 with
respect to the beneficial ownership of Ispat International's Class A common
shares and Class B common shares by each person who is known to be the
beneficial owner of more than 5% of either class of shares:
TOTAL COMMON SHARES
-------------------
CLASS A CLASS B PERCENTAGE
COMMON SHARES COMMON SHARES OF TOTAL
-------------------- ------------------------- ----------- ------------
PERCENTAGE PERCENTAGE COMMON
NUMBER OF CLASS NUMBER OF CLASS NUMBER SHARES
-------- ----------- ---------- ------------- ----------- ------------
Controlling Shareholder 26,149,500 52.7 72,150,000 100 98,299,500 80.8
Steelhead LLC(1) 6,976,800 14.1 -- -- 6,976,800 5.7
Other Public Shareholders 16,461,192 33.2 -- -- 16,461,192 13.5
---------- ----- ---------- --- ----------- -----
Total(2) 49,587,492 100.0 72,150,000 100 121,737,492 100.0
========== ===== ========== === =========== =====
- --------
(1) From SEC filing of February 5, 2004.
(2) Excludes 5,262,508 Class A shares held as treasury stock.
As of May 27, 2004, the controlling shareholder owned all of the Class B
common shares and 26,149,500 Class A common shares, representing 59.0% of the
Class A common shares, with an aggregate of 97.6% of the voting rights. The
controlling shareholder indirectly has the right to make binding nominations for
the appointment of all members of the Board of Directors and to determine the
outcome of any action requiring shareholder approval. In addition, the
controlling shareholder will have the ability, by virtue of his indirect
ownership of Class B common shares, to prevent or cause a change in control of
the company and its subsidiaries. The controlling shareholder also directly or
indirectly controls the following among others:
- - Ispat Karmet, an integrated flat-rolled steel producer in Kazakhstan;
- - P.T. Ispat Indo, a wire rod producer in Indonesia;
- - Ispat Annaba, an integrated sheet flat-rolled producer in Algeria;
- - Ispat Sidex, an integrated flat-rolled and long products steel producer in
Romania;
- - Ispat Nova Hut, an integrated flat-rolled and long products steel producer
in the Czech Republic; and
- - Ispat Polska Stal, an integrated producer of steel in Poland.
The controlling shareholder also has a substantial minority interest
in Iscor Limited, a publicly-traded South African steel producer.
63
Further, in October 2003 LNM Holdings N.V. entered into a binding share
purchase agreement for the acquisition of a majority shareholding in S.C.
Siderurgica S.A., a long steel products manufacturing plant in Romania.
Although these related companies currently do not directly compete with
either Ispat International or us in their primary markets, we cannot assure you
that they will not compete with Ispat International or us in the future.
Ispat International and our company have each engaged in commercial and
financial transactions with related parties from time to time. If either Ispat
International or our company enters into any commercial transactions with
related parties, each intends to do so on terms that are no less favorable to it
than those it could have obtained from unrelated third parties. Nonetheless, if
either Ispat International or our company should enter into such transactions,
such transactions with related parties create the potential for, or could result
in, conflicting interests.
COMMERCIAL TRANSACTIONS
We engage in commercial and financial transactions with Ispat
International and other related parties from time to time. If we enter into any
commercial transactions with related parties, we intend to do so on terms that
are no less favorable to us than those we could have obtained from unrelated
third parties. Nonetheless, if we should enter into related party transactions,
these transactions create the potential for, or could result in, conflicting
interests.
We regularly enter into transactions with the other subsidiaries of Ispat
International, including the following:
- - Purchase of slabs from Ispat Mexicana S.A. de C.V.;
- - Sale of billets to Ispat Sidbec Inc.;
- - Purchase of direct-reduced iron from Caribbean Ispat Limited;
- - Purchase of billets from Ispat Germany; and
- - See "Description of other indebtedness of Ispat Inland Inc. -- Related
Party Indebtedness" below.
We also purchase coke from Ispat Polska Stal, a subsidiary of LNM Holdings N.V.
These transactions are entered into on market terms and negotiated on an
arm's-length basis, and are on terms that we believe are no less favorable than
transactions with unrelated third parties. We expect to continue entering into
similar transactions in the future.
We purchased $16.7 million and $18.0 million of inventory from
subsidiaries of Ispat International during the three months ended March 31, 2004
and 2003, respectively, and purchased $57.1 million, $141.0 million and $49.2
million of inventory for the years ended December 31, 2003, 2002 and 2001,
respectively.
We sold $1.6 million and $2.0 million of inventory to subsidiaries of
Ispat International for the three months ended March 31, 2004 and 2003,
respectively, and sold $6.1 million, $7.9 million and $5.7 million of inventory
for the years ended December 31, 2003, 2002 and 2001, respectively.
OVERHEAD AND ADMINISTRATIVE CHARGES
We were charged $2.5 million and $3.3 million for the three months ended
March 31, 2004 and 2003, respectively, and $5.4 million, $2.1 million and $2.7
million by Ispat International for the years ended December 31, 2003, 2002 and
2001, respectively, for management, financial and legal services provided to us.
We were also charged $0 and $0.2 million by Ispat North America Holding Inc. for
corporate expense allocations for the three months ended
64
March 31, 2004 and 2003 and $0.7 million, $1.4 million and $1.1 million for the
years ended December 31, 2003, 2002 and 2001. We charged Ispat International
$0.6 million and $0.2 million for operating and technical services for the three
months ended March 31, 2004 and 2003, respectively, and $2.3 million, $1.6
million and $1.0 million for the years ended December 31, 2003, 2002 and 2001,
respectively.
I/N TEK AND I/N KOTE
I/N Tek is a joint venture that owns and operates a cold-rolling facility
and is 60% owned by one of our wholly-owned subsidiaries. Under a tolling
arrangement between us and I/N Tek, we were charged $36.8 million and $34.6
million for the three months ended March 31, 2004 and 2003, respectively, and
$136.9 million, $141.6 million and $142.8 million for the years ended December
31, 2003, 2002 and 2001, respectively, for such tolling services.
I/N Kote is a joint venture that owns and operates an electrogalvanizing
line and hot-dip galvanizing line. I/N Kote is 50% owned by one of our
wholly-owned subsidiaries. We recorded sales of cold-rolled steel to I/N Kote of
$84.9 million and $93.6 million for the three months ended March 31, 2004 and
2003, respectively, and $343.0 million, $348.8 million and $309.7 million for
the years ended December 31, 2003, 2002 and 2001, respectively. I/N Kote had
$95.5 million outstanding under its long-term financing arrangements as of March
31, 2004. We guarantee one-half of I/N Kote's outstanding debt reflective of our
ownership interest in this joint venture.
See Note 13 to our audited consolidated financial statements for the year
ended December 31, 2003 for a more detailed discussion about transactions with
these joint ventures.
PREFERRED STOCK
On March 31, 2004 and December 31, 2003 we had 100 shares authorized,
issued and outstanding of Series A 8% Cumulative Preferred Stock, $.01 par value
("Preferred Stock"), which is owned by a Finco Guarantor, Ispat Inland Finance,
LLC. The Preferred Stock has liquidation preference over the Common Stock.
65
DESCRIPTION OF OTHER INDEBTEDNESS OF ISPAT INLAND INC.
ISPAT INLAND ADMINISTRATIVE SERVICE COMPANY REVOLVING CREDIT FACILITY
Ispat Inland Administrative Service Company ("IIASC"), one of our
wholly-owned subsidiaries, has a $185 million committed revolving credit
facility with a group of banks, expiring in November 2005. We have agreed to
sell substantially all of our receivables to IIASC to secure this facility.
Provisions of this agreement limit or prohibit us from merging, consolidating,
or selling our assets and require IIASC to meet minimum net worth and leverage
ratio tests. Under terms of the secured revolving credit agreement, based on the
level of our leverage ratio and net worth calculations, beginning early in 2002,
the trustee retained initial control over cash lockbox receipts. On a daily
basis, the trustee will remit the remaining cash to us after first using the
receipts to make any payments prescribed by the secured revolving credit
agreement. This change in practice has no impact on cash available to us under
the facility.
As of March 31, 2004, based on the amount of eligible receivables, there
was $2.8 million of availability under the receivables revolving credit
facility. Drawings under the facility included $168.0 million of loans and $14.2
million of letters of credit issued for the purchase of commodities on the
international market and as security under various insurance and workers
compensation coverages. Interest rates for borrowings averaged approximately 2%
in 2003. In connection with the old note offering, the trustee for the notes
entered into an intercreditor agreement with the lenders under this facility.
See "Description of intercreditor arrangements -- Existing Receivables
Intercreditor Agreement." Upon consummation of old note offering, we used
proceeds remaining after we repaid the inventory revolving credit facility to
pay down the balance owed under this facility.
INVENTORY REVOLVING CREDIT FACILITY
On April 30, 2003, we replaced a prior $120 million inventory facility of
our wholly-owned subsidiary, Ispat Inland Inventory, LLC, with a new
approximately $175 million four year committed revolving credit facility of
Ispat Inland, secured by all of our inventory, spare parts and mobile equipment
and by the capital stock of IIASC and a note between us and IIASC. The notes
will be secured by a second priority lien on the inventory securing this
inventory facility but not on the spare parts and mobile equipment of Ispat
Inland or the capital stock or note of IIASC. The trustee for the notes entered
into an intercreditor agreement with the lender under this facility. See
"Description of intercreditor arrangements -- GECC Intercreditor Arrangements."
Provisions of this agreement prohibit or limit our ability to incur debt, repay
debt, make investments, sell assets, create liens, engage in transactions with
affiliates, engage in mergers and consolidations and pay dividends and other
restricted payments.
In order for us to draw the final $20 million under the inventory
revolving credit facility at any time, and the final $30 million for more than
two consecutive business days, we must maintain a fixed charge coverage ratio
(as defined) of 1.2 at the time of the borrowing and then for a period of three
months where availability is maintained above specified levels. As of March
31,2004, there were no drawings under the line and, based on the amount of
eligible collateral, there was $117.6 million of availability under the line.
Additionally, an extra $10 million of borrowing was available for any two
consecutive days to meet temporary needs. Upon consummation of the old note
offering, we repaid the entire balance outstanding ($90.0 million on December
31, 2003) under the inventory revolving credit facility. Interest rates for
borrowings averaged approximately 4% in 2003.
FIRST MORTGAGE BONDS
As of March 31, 2004, there was $1,038.5 million aggregate principal
amount of securities issued under the First Mortgage Bonds Indenture dated April
1, 1928, as supplemented by supplemental indentures. Each series of First
Mortgage Bonds (other than the First Mortgage Bonds pledged as collateral for
the notes) is limited to the principal amount outstanding. A substantial portion
of the real property, plant and fixtures owned by us at our Indiana Harbor Works
is subject to the lien of the First Mortgage. This property is also subject to a
subordinate lien in favor of the United Steelworkers of America to secure
post-retirement health benefits. The indenture does not contain material
financial covenants or restrictions, nor do any of the currently outstanding
series of debt issued under that indenture. Following is a brief description of
each of the outstanding series of First Mortgage Bonds
66
Series R
The Series R First Mortgage Bonds were issued in an initial aggregate
principal amount of $125.0 million, and as of March 31, 2004, $27.9 million were
outstanding. The bonds bear interest at 7.9% per year and are due on January 15,
2007. We are required by the terms of the bonds to make payments to a sinking
fund, which is used to repurchase bonds in the market or at par. The last
remaining sinking fund payment of $3.6 million is due in January 2006.
Pollution Control Series 1977
The Pollution Control Series 1977 Bonds were issued in an initial
aggregate principal amount of $26.5 million, and as of March 31, 2004, $18.5
million were outstanding. The bonds bear interest at 5.75% per year and are due
on February 1, 2007. We are required by the terms of the bonds to make annual
payments of $1.5 million to a sinking fund which is used to repurchase the bonds
in the market or at par.
Pollution Control Series 1993
The Pollution Control Series 1993 Bonds were issued in an initial
aggregate principal amount of $40.0 million, and as of March 31, 2004, $23.1
million were outstanding. The bonds bear interest at 6.8% per year, are
non-amortizing and are due on June 1, 2013.
Pollution Control Series 1995
The Pollution Control Series 1995 Bonds were issued in an initial
aggregate principal amount of $17.0 million, and as of March 31, 2004, $11.3
million were outstanding. The bonds bear interest at 6.85% per year, are
non-amortizing and are due on December 1, 2012.
Series X
Series X First Mortgage Bonds were issued in July 2003 in the amount of
$160 million, refinancing the Series V Bonds that matured and were retired on
July 9, 2003. The Series X Bonds are non-interest bearing and are pledged to the
PBGC to provide financial assurance with respect to our pension obligations. The
requirement to maintain the PBGC's security interest in these bonds will be
eliminated, and the bonds will be available to retire unpaid or reissue, once
three events have occurred: (1) we have contributed another $110 million into
our pension plan, (2) our plan's underfunded position on June 30 of any two
consecutive years is at least $320 million less than its underfunded position on
June 30, 2003 and (3) the Moody's and S&P ratings on our First Mortgage Bonds
are at least B2/B.
INDUSTRIAL DEVELOPMENT REVENUE BONDS
The Industrial Development Revenue Bonds are our unsecured obligations.
The indentures under which these bonds were issued do not contain material
financial covenants or restrictions. These, along with the Pollution Control
Series backed by First Mortgage Bonds, are private activity bonds issued by
various municipal entities in the State of Indiana.
Pollution Control Project No. 11
The Pollution Control Project 11 Bonds were issued in an initial aggregate
principal amount of $20.0 million, and as of March 31, 2004, $20.0 million were
outstanding. The bonds bear interest at 7.125% per year, are non-amortizing and
are due on June 1, 2007.
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Pollution Control Project No. 13
The Pollution Control Project 13 Bonds were issued in an initial aggregate
principal amount of $38.0 million, and as of March 31, 2004, $38.0 million were
outstanding. The bonds bear interest at 7.25% per year, are non-amortizing and
are due on November 1, 2011.
Exempt Facilities Project No. 14
The Exempt Facilities Project No. 14 Bonds were issued in an initial
aggregate principal amount of $5.1 million, and as of March 31, 2004, $5.1
million were outstanding. The bonds bear interest at 6.7% per year, are
non-amortizing and are due on November 1, 2012.
Exempt Facilities Project No. 15
The Exempt Facilities Project No. 15 Bonds were issued in an initial
aggregate principal amount of $52.0 million, and as of March 31, 2004, $52.0
million were outstanding. The bonds bear interest at 5.75% per year, are
non-amortizing and are due on October 1, 2011.
Exempt Facilities Project No. 16
The Exempt Facilities Project No. 16 Bonds were issued in an initial
aggregate principal amount of $7.7 million, and as of March 31, 2004, $7.7
million were outstanding. The bonds bear interest at 7% per year, are
non-amortizing and are due on January 1, 2014.
RELATED PARTY INDEBTEDNESS
Our long-term debt due to related companies of $1,010.7 million as of
March 31, 2004 was comprised of:
- - $794.9 million of First Mortgage Bonds issued under this transaction and
payable to Ispat Inland Finance, LLC, a wholly-owned indirect subsidiary
of Ispat Inland, L.P.; and
- - $215.8 million, excluding interest accrued of $20.4 million of advances
from Ispat International and its other subsidiaries.
The advances from Ispat International and its other subsidiaries were
amended in connection with the old note offering to provide that such advances
will mature on the 91st day following the final maturity of the fixed rate
notes. Interest on each advance is charged at a fixed rate. Rates in effect at
March 31, 2004 range from 2.9% to 5.6%. These notes contain no covenants and may
be prepaid without penalty. Interest expense related to these advances were $2.7
and $2.1 for the three months ended March 31, 2004 and 2003, respectively, and
$8.9 million, $8.1 million and $5.4 million for the years ended December 31,
2003, 2002 and 2001, respectively. Under the terms of other debt agreements, we
are restricted from paying interest or principal on these advances until certain
financial tests have been met. We have not made any such payments since the
advances were first made in 2001. These notes are subordinate to the debt under
the notes issued under this transaction and the inventory revolving credit
facility.
Our note receivable from a related company of $24.2 million at March 31,
2004 and $5.6 million, $6.1 million and $2.9 million as of December 31, 2003,
2002 and 2001, respectively, is due from Ispat Inland, L.P. on April 2, 2014.
Interest income on this receivable was $0.01 million for each of the three
months ended March 31, 2004 and 2003, and $0.5 million, $0.4 million and $0.3
million for the years ended December 31, 2003, 2002 and 2001, respectively.
After giving effect to the old note offering, the note receivable from Ispat
Inland, L.P. of $5.6 million was increased to approximately $28.6 million.
Our payable to related companies of $9.5 million, $5.4 million and $7.8
million at March 31, 2004, December 31, 2003 and 2002, respectively, consists of
trade and other intercompany expenses. Our receivable from related companies of
$2.9 million, $4.9 million and $8.0 million at March 31, 2004, December 31, 2003
and 2002, respectively, consists of trade and other intercompany receivables.
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I/N KOTE GUARANTEE
I/N Kote had $95.5 million outstanding under its long-term financing
arrangements as of March 31, 2004. This debt was incurred to construct the
facility and amortizes until its final maturity in January 2007. We guarantee
50% of I/N Kote's outstanding debt ($47.7 million, plus accrued and unpaid
interest) reflective of our ownership interest in this joint venture. We have no
obligation to guarantee other debt of I/N Kote, should any be incurred. The
terms of the guarantee require us to maintain a minimum tangible net worth (as
defined). We were in compliance with this test as of March 31, 2004.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Subject to terms and conditions detailed in this prospectus, we will
accept for exchange old notes that are properly tendered on or prior to the
expiration date and not withdrawn as permitted below. When we refer to the term
expiration date, we mean 5:00 p.m., New York City time, _________, 2004. We may,
however, in our sole discretion, extend the period of time that the exchange
offer is open. The term expiration date means the latest time and date to which
the exchange offer is extended.
As of the date of this prospectus, $800.0 million principal amount of old
notes are outstanding. We are sending this prospectus, together with the letter
of transmittal, to all holders of old notes of whom we are aware. We expressly
reserve the right, at any time, to extend the period of time that the exchange
offer is open, and delay acceptance for exchange of any old notes, by giving
oral or written notice of an extension to the holders of old notes as described
below. During any extension, all old notes previously tendered will remain
subject to the exchange offer and may be accepted for exchange by us. Any old
notes not accepted for exchange for any reason will be returned without expense
to the tendering holder as promptly as practicable after the expiration or
termination of the exchange offer.
The new notes will evidence the same continuing indebtedness as the old
notes and the exchange will take place without novation.
Old notes tendered in the exchange offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof.
We expressly reserve the right to amend or terminate the exchange offer,
and not to accept for exchange any old notes, upon the occurrence of any of the
conditions of the exchange offer specified under " -- Conditions to the Exchange
Offer." We will give oral or written notice of any extension, amendment,
non-acceptance or termination to the holders of the old notes as promptly as
practicable. In the case of any extension, we will issue a notice by means of a
press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
PROCEDURES FOR TENDERING OLD NOTES
Your tender to us of old notes as set forth below and our acceptance of
the old notes will constitute a binding agreement between us and you upon the
terms and subject to the conditions detailed in this prospectus and in the
accompanying letter of transmittal. Except as set forth below, to tender old
notes for exchange in the exchange offer, you must transmit a properly completed
and duly executed letter of transmittal, including all other documents required
by the letter of transmittal or, in the case of a book-entry transfer, an
agent's message in place of the letter of transmittal, to LaSalle Bank National
Association, as exchange agent, at the address set forth below under " --
Exchange Agent" on or prior to the expiration date. In addition, either:
- - certificates for old notes must be received by the exchange agent along
with the letter of transmittal, or
- - a timely confirmation of a book-entry transfer, which we refer to in this
prospectus as a "book-entry confirmation," of old notes, if this procedure
is available, into the exchange agent's account at DTC pursuant to the
procedure for book-entry transfer (described below) must be received by
the exchange agent, prior to the expiration date, with the letter of
transmittal or an agent's message in place of the letter of transmittal,
or the holder must comply with the guaranteed delivery procedures
described below.
The term "agent's message" means a message, transmitted by DTC to and
received by the exchange agent and forming a part of a book-entry confirmation,
which states that DTC has received an express acknowledgment from the tendering
participant stating that the participant has received and agrees to be bound by
the letter of transmittal and that we may enforce the letter of transmittal
against such participant.
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The method of delivery of old notes, letters of transmittal and all other
required documents is at your election and risk. If delivery is by mail, it is
recommended that you use registered mail, properly insured, with return receipt
requested. In all cases, you should allow sufficient time to assure timely
delivery. No letter of transmittal or old notes should be sent to us.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed unless the old notes surrendered for exchange are tendered:
- - by a holder of the old notes who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the
letter of transmittal, or
- - for the account of an eligible institution, as defined below.
In the event that signatures on a letter of transmittal or a notice of
withdrawal are required to be guaranteed, these guarantees must be by a firm
which is a member of the Securities Transfer Agent Medallion Program, the Stock
Exchanges Medallion Program or the New York Stock Exchange Medallion Program. We
refer to those entities as eligible institutions. If old notes are registered in
the name of a person other than the signer of the letter of transmittal, the old
notes surrendered for exchange must be endorsed by, or be accompanied by a
written instrument or instruments of transfer or exchange, in satisfactory form
as we or the exchange agent determine in our sole discretion, duly executed by
the registered holders with the signature thereon guaranteed by an eligible
institution.
We or the exchange agent, in our sole discretion, will make a final and
binding determination on all questions as to the validity, form, eligibility,
including time of receipt, and acceptance of old notes tendered for exchange. We
reserve the absolute right to reject any and all tenders of any particular old
note not properly tendered or to not accept any particular old note which
acceptance might, in our judgment or our counsel's, be unlawful. We also reserve
the absolute right to waive any defects or irregularities or conditions of the
exchange offer as to any particular old note either before or after the
expiration date, including the right to waive the ineligibility of any holder
who seeks to tender old notes in the exchange offer. If we exercise the
foregoing right to waive a condition of the exchange offer for one security
holder, we will waive such condition for all security holders. Our or the
exchange agent's interpretation of the terms and conditions of the exchange
offer as to any particular old note either before or after the expiration date,
including the letter of transmittal and its instructions, will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of old notes for exchange must be cured within a
reasonable period of time, as we determine. We are not, nor is the exchange
agent or any other person, under any duty to notify you of any defect or
irregularity with respect to your tender of old notes for exchange, and no one
will be liable for failing to provide notification. With respect to each
security holder, all conditions to the exchange offer must be satisfied or
waived prior to the expiration of the exchange offer before we will issue new
notes to such security holder.
If the letter of transmittal is signed by a person or persons other than
the registered holder or holders of old notes, these old notes must be endorsed
or accompanied by powers of attorney signed exactly as the name(s) of the
registered holder(s) that appear on the old notes.
If the letter of transmittal or any old notes or powers of attorneys are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, these persons should so indicate when signing. Unless waived by us or
the exchange agent, proper evidence satisfactory to us of their authority to so
act must be submitted with the letter of transmittal.
By tendering old notes, you represent to us that, among other things:
- - the new notes acquired pursuant to the exchange offer are being obtained
in the ordinary course of business of the person receiving these new
notes, whether or not that person is the holder; and
- - neither the holder nor the other person has any arrangement or
understanding with any person, to participate in the distribution of the
new notes.
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In the case of a holder that is not a broker-dealer, that holder, by
tendering, will also represent to us that the holder is not engaged in or does
not intend to engage in a distribution of new notes.
If you are our "affiliate," as defined under Rule 405 under the Securities
Act, and engage in or intend to engage in or have an arrangement or
understanding with any person to participate in a distribution of new notes to
be acquired pursuant to the exchange offer, you or that other person:
- - could not rely on the applicable interpretations of the staff of the SEC;
and
- - must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction.
Each broker-dealer that receives new notes for its own account in exchange
for old notes, where the old notes were acquired by the broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of these new
notes. See "Plan of Distribution." The letter of transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the exchange
offer, we will promptly accept after the expiration date all old notes properly
tendered and will promptly issue the new notes after the expiration of the
exchange offer. The conditions to the exchange offer must be satisfied or waived
prior to the expiration of the exchange offer. See " -- Conditions to the
Exchange Offer." For purposes of the exchange offer, we will be deemed to have
accepted properly tendered old notes for exchange if and when we give oral,
confirmed in writing, or written notice to the exchange agent. The holder of
each old note accepted for exchange will receive a new note in the amount equal
to the surrendered old note. Accordingly, registered holders of new notes on the
record date for the first interest payment date following the consummation of
the exchange offer will receive interest accruing from the most recent date that
interest has been paid on the old notes. Holders of new notes will not receive
any payment of accrued interest on old notes otherwise payable on any interest
payment date, if the record date occurs on or after the consummation of the
exchange offer.
In all cases, issuance of new notes for old notes that are accepted for
exchange will only be made after timely receipt by the exchange agent of:
- - certificates for old notes or a timely book-entry confirmation of these
old notes into the exchange agent's account at DTC,
- - a properly completed and duly executed letter of transmittal or an agent's
message in its place, and
- - all other required documents.
If any tendered old notes are not accepted for any reason set forth in the
terms and conditions of the exchange offer or if old notes are submitted for a
greater principal amount than the holder desires to exchange, the unaccepted or
non-exchanged old notes will be returned without expense to the tendering
holder, or, in the case of old notes tendered by book-entry transfer into the
exchange agent's account at DTC pursuant to the book-entry procedures, described
below the non-exchanged old notes will be credited to an account maintained with
DTC as promptly as practicable after the expiration or termination of the
exchange offer.
BOOK-ENTRY TRANSFERS
For purposes of the exchange offer, the exchange agent will request that
an account be established for the old notes at DTC within two business days
after the date of this prospectus, unless the exchange agent already has
established an account with DTC suitable for the exchange offer. Any financial
institution that is a participant in DTC may make book-entry delivery of old
notes by causing DTC to transfer the old notes into the exchange agent's
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account at DTC in accordance with DTC's procedures for transfer. Although
delivery of old notes may be effected through book-entry transfer at DTC, the
letter of transmittal or facsimile copy of the letter or an agent's message in
place of the letter of transmittal, with any required signature guarantees and
any other required documents, must, in any case, be transmitted to and received
by the exchange agent at the address set forth under " -- Exchange Agent" on or
prior to the expiration date, otherwise, the guaranteed delivery procedures
described below must be followed.
GUARANTEED DELIVERY PROCEDURES
If you desire to tender your old notes and your old notes are not
immediately available, or time will not permit your old notes or other required
documents to reach the exchange agent before the expiration date, a tender may
be effected if:
- - prior to the expiration date, the exchange agent received from an eligible
institution a notice of guaranteed delivery, substantially in the form we
provide, by telegram, telex, facsimile transmission, mail or hand
delivery, setting forth your name and address, the amount of old notes
tendered, stating that the tender is being made and guaranteeing that
within three New York Stock Exchange trading days after the date of
execution of the notice of guaranteed delivery, the certificates for all
physically tendered old notes, in proper form for transfer, or a
book-entry confirmation, as the case may be, together with a properly
completed and duly executed appropriate letter of transmittal or facsimile
of the letter or agent's message in place of the letter, with any required
signature guarantees and any other documents required by the letter of
transmittal will be deposited by an eligible institution with the exchange
agent, and
- - the certificates for all physically tendered old notes, in proper form for
transfer, or a book-entry confirmation, as the case may be, together with
a properly completed and duly executed appropriate letter of transmittal
or facsimile of the letter or agent's message in place of the letter, with
any required signature guarantees and all other documents required by the
letter of transmittal, are received by the exchange agent within three New
York Stock Exchange trading days after the date of execution of the notice
of guaranteed delivery.
WITHDRAWAL RIGHTS
You may withdraw your tender of old notes at any time prior to the
expiration date. To be effective, a written notice of withdrawal must be
received by the exchange agent at the address set forth under " -- Exchange
Agent." This notice must specify:
- - the name of the person that tendered the old notes to be withdrawn,
- - the old notes to be withdrawn, including the principal amount of the old
notes, and
- - where certificates for old notes have been transmitted, the name in which
the old notes are registered, if different from that of the withdrawing
holder.
If certificates for old notes have been delivered or otherwise identified
to the exchange agent, then, prior to the release of the certificates, the
withdrawing holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an eligible institution, unless the holder is an eligible
institution. If old notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn old
notes and otherwise comply with the procedures of DTC.
We or the exchange agent will make a final and binding determination on
all questions regarding the validity, form and eligibility, including time of
receipt, of notices. Any old notes withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the exchange offer. Any old notes
tendered for exchange but not exchanged for any reason will be returned to the
holder without cost to the holder, or, in the case of old notes tendered by
book-entry transfer into the exchange agent's account at DTC pursuant to the
book-entry transfer procedures described above, the old notes will be credited
to an account maintained with DTC for the old notes,
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promptly after withdrawal, rejection of tender or termination of the exchange
offer. Properly withdrawn old notes may be retendered by following one of the
procedures described under " -- Procedures for Tendering Old Notes" above at any
time on or prior to the expiration date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the exchange offer, we are not
required to accept for exchange, or to issue new notes in exchange for any old
notes and may terminate or amend the exchange offer, if any of the following
events occur prior to acceptance of the old notes:
- - the exchange offer violates any applicable law or applicable
interpretation of the staff of the SEC;
- - an action or proceeding shall have been instituted or threatened in any
court or by any governmental agency that might materially impair our or
any subsidiary guarantor's ability to proceed with the exchange offer;
- - we shall not have received all governmental approvals that we deem
necessary to consummate the exchange offer; or
- - there has been proposed, adopted, or enacted any law, statute, rule or
regulation that, in our reasonable judgment, would materially impair our
ability to consummate the exchange offer.
Conditions to the exchange offer must be satisfied or waived prior to the
expiration date of the exchange offer.
The conditions stated above are for our sole benefit and may be asserted
by us regardless of the circumstances giving rise to any condition or may be
waived by us in whole or in part at any time in our reasonable discretion. Our
failure at any time to exercise any of the foregoing rights will not be deemed a
waiver of any right and each right will be deemed an ongoing right that we may
assert at any time.
In addition, we will not accept for exchange any old notes tendered, and
we will not issue any new notes if at the time of exchange any stop order is
threatened or in effect with respect to the registration statement, of which
this prospectus constitutes a part, or the qualification of the indenture under
the Trust Indenture Act.
EXCHANGE AGENT
We have appointed LaSalle Bank National Association as the exchange agent
for the exchange offer. You should direct all executed letters of transmittal to
the exchange agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this prospectus or of the letter
of transmittal and requests for notices of guaranteed delivery should be
directed to the exchange agent addressed as follows:
By overnight courier, registered/certified mail and by hand:
LaSalle Bank National Association
Corporate Trust Services Division
135 S. LaSalle Street, Suite 1960
Chicago, Illinois 60603
Attention: Corporate Trust
Facsimile transmission:
Telecopier No.: (312) 904-2236
Attention: Wayne Evans
Fax cover sheets should include a call back telephone number
and request a call back, upon receipt.
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DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF SUCH LETTER OF TRANSMITTAL VIA FACSIMILE OTHER
THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF
TRANSMITTAL.
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FEES AND EXPENSES
The principal solicitation is being made by mail by LaSalle Bank National
Association, as exchange agent. We will pay the exchange agent customary fees
for its services, reimburse the exchange agent for its reasonable out-of-pocket
expenses incurred in connection with the provision of these services and pay
other registration expenses, including fees and expenses of the trustee under
the indenture relating to the new notes, filing fees, blue sky fees and printing
and distribution expenses. We estimate these expenses to be approximately
$250,000 in the aggregate. We will not make any payment to brokers, dealers or
others soliciting acceptances of the exchange offer.
Additional solicitation may be made by telephone, facsimile or in person
by our and our affiliates' officers and regular employees and by persons so
engaged by the exchange agent.
ACCOUNTING TREATMENT
We will record the new notes at the same carrying value as the old notes,
as reflected in our accounting records on the date of the exchange. Accordingly,
we will not recognize any gain or loss for accounting purposes. The expenses of
the exchange offer will be amortized over the term of the new notes.
TRANSFER TAXES
You will not be obligated to pay any transfer taxes in connection with the
tender of old notes in the exchange offer unless you instruct us to register new
notes in the name of, or request that old notes not tendered or not accepted in
the exchange offer be returned to, a person other than the registered tendering
holder. In those cases, you will be responsible for the payment of any
applicable transfer tax.
CONSEQUENCES OF EXCHANGING OR FAILING TO EXCHANGE OLD NOTES
If you do not exchange your old notes for new notes in the exchange offer,
your old notes will continue to be subject to the provisions of the indenture
regarding transfer and exchange of the old notes and the restrictions on
transfer of the old notes described in the legend on your certificates. These
transfer restrictions are required because the old notes were issued under an
exemption from, or in transactions not subject to, the registration requirements
of the Securities Act and applicable state securities laws. In general, the old
notes may not be offered or sold unless registered under the Securities Act,
except under an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. We do not plan to register
the old notes under the Securities Act.
Under existing interpretations of the Securities Act by the SEC's staff
contained in several no-action letters to third parties, and subject to the
immediately following sentence, we believe that the new notes would generally be
freely transferable by holders after the exchange offer without further
registration under the Securities Act, subject to representations required to be
made by each holder of new notes, as set forth below. However, any purchaser of
new notes who is one of our "affiliates," as defined in Rule 405 under the
Securities Act, or who intends to participate in the exchange offer for the
purpose of distributing the new notes:
- - will not be able to rely on the interpretation of the SEC's staff;
- - will not be able to tender its old notes in the exchange offer; and
- - must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or transfer of the new
notes unless the sale or transfer is made pursuant to an exemption from
the requirements. See "Plan of Distribution."
We do not intend to seek our own interpretation regarding the exchange
offer and we cannot assure you that the SEC's staff would make a similar
determination with respect to the new notes as it has in other interpretations
to other parties, although we have no reason to believe otherwise.
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Each broker-dealer that receives new notes for its own account in exchange
for old notes, where the old notes were acquired by it as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus that meets the requirements of the Securities Act in
connection with any resale of the new notes. The letter of transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.See "Plan of Distribution."
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DESCRIPTION OF THE NOTES
The following description is only a summary of the material provisions of
the Indenture and the Collateral Documents. We urge you to read the Indenture
and the Collateral Documents because these documents, and not this description,
define your rights as holders of Notes. You may request copies of these
agreements at the Company's address set forth under the heading "Where You Can
Find More Information." Certain terms used in this description are defined under
the subheading " -- Certain Definitions." In this description, the term "Notes"
refers, collectively, to the Fixed Rate Notes and the Floating Rate Notes and
the term "series of Notes" refers to all Fixed Rate Notes, as a single series,
and all outstanding Floating Rate Notes, as a single series. Except as otherwise
provided, the Notes will be treated as a single class of securities under the
Indenture, including with respect to matters requiring the approval of holders
of Notes. Additionally, the following terms refer to the entities indicated
below:
TERM ENTITY
- ------------------------------------------------ -------------------------------------------------------
"Issuer"..................................... Ispat Inland ULC
"Finco Guarantors"........................... Prior to a Permitted Finco Collapse Transaction, each of
Ispat Inland, L.P., 3019693 Nova Scotia U.L.C. and Ispat
Inland Finance, LLC
"Company".................................... Ispat Inland Inc.
"Company Guarantors"......................... Each existing domestic Restricted Subsidiary of the
Company that is an operating company (other than any
Securitization Subsidiary) and certain of the Company's
future Restricted Subsidiaries. On the Issue Date, the
Company Guarantors were Burnham Trucking Company,
Inc., Incoal Company, Ispat Inland Mining Company and
Ispat Inland Service Corp.
"Parent"..................................... Ispat International NV
"Guarantors"................................. Parent, the Company, the Company Guarantors and the Finco
Guarantors
GENERAL
The Issuer issued the Fixed Rate Notes and the Floating Rate Notes under
an indenture (the "Indenture"), dated as of the Issue Date, among itself, the
Guarantors and LaSalle Bank National Association, as Trustee. The terms of the
Notes include those stated in the Indenture and those made part of the Indenture
by reference to the Trust Indenture Act of 1939, as amended.
The Issuer issued an aggregate principal amount of Notes equal to $800.0
million on the Issue Date. The Issuer is permitted to issue up to an aggregate
principal amount of up to $100.0 million of additional Notes consisting of
additional Floating Rate Notes and/or Fixed Rate Notes (collectively "Additional
Notes") following the Issue Date; provided that the Company issues a like
aggregate principal amount of additional First Mortgage Bonds securing all of
the Notes in a transaction that complies with the covenant described under " --
Certain Covenants -- Limitation on Indebtedness" (including the limitation on
the aggregate principal amount of Bonds that is permitted to be outstanding at
any time under the Mortgage pursuant to clause (c) of such covenant). Any
Additional Notes will be treated as part of the same series of Notes as the
Floating Rate Notes and Fixed Rate Notes, as applicable, issued on the Issue
Date for all purposes under the Indenture and all references to the Notes or the
Notes of a particular series shall include any Additional Notes of such series,
respectively.
Ispat Inland, L.P. issued a Finco Subordinated Note to the Company in
exchange for approximately $23.0 million of proceeds and used such proceeds to
reimburse the Issuer for fees and expenses of the offering of the Notes and/or
loan such proceeds to the Issuer. The Issuer loaned the net proceeds of the
Notes together with the net proceeds from such contribution/loan to Ispat
Inland, L.P. in exchange for a mirror note (the "Finco Mirror Note") of Ispat
Inland,
78
L.P. having substantially similar payment terms as the Notes. Ispat Inland, L.P.
used the proceeds from the issuance of the Finco Mirror Note to make a
contribution and/or loan to its direct Subsidiary, 3019693 Nova Scotia U.L.C.,
which in turn contributed such proceeds to its direct Subsidiary, Ispat Inland
Finance, LLC. Ispat Inland Finance, LLC used the proceeds of this capital
contribution to purchase $800.0 million of First Mortgage Bonds (at a price
equivalent to the price of the Notes) from the Company having substantially
similar payment terms as the Notes. See "Description of First Mortgage Bonds."
The First Mortgage Bonds were pledged as collateral for the Note Guarantee of
Ispat Inland Finance, LLC as described below under " -- Collateral."
PRINCIPAL, MATURITY AND INTEREST
Fixed Rate Notes. The Issuer issued an aggregate principal amount of
$650.0 million of Fixed Rate Notes on the Issue Date. The Fixed Rate Notes were
issued in denominations of $1,000 and integral multiples of $1,000. The Fixed
Rate Notes will mature on April 1, 2014. Interest on the Fixed Rate Notes will
accrue at the rate of 9 3/4% per annum and will be payable semiannually in
arrears on April 1 and October 1, commencing on October 1, 2004, to the holders
of record on the immediately preceding March 15 and September 15.
Interest on the Fixed Rate Notes accrues from the date of original
issuance or, if interest has already been paid, from the date it was most
recently paid. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
Floating Rate Notes. The Issuer issued an aggregate principal amount of
$150.0 million of Floating Rate Notes on the Issue Date. The Floating Rate Notes
were issued in denominations of $1,000 and integral multiples of $1,000. The
Floating Rate Notes will mature on April 1, 2010. The Floating Rate Notes will
bear interest at a rate per annum, reset quarterly, equal to LIBOR plus 6.75%,
as determined by the calculation agent (the "Calculation Agent"), which shall
initially be the Trustee. Interest on the Floating Rate Notes will be payable
quarterly in arrears on January 1, April 1, July 1 and October 1, commencing on
July 1, 2004, to the holders of record on the immediately preceding December 15,
March 15, June 15 and September 15.
Interest on the Floating Rate Notes accrues from the date of original
issuance or, if interest has already been paid, from the date it was most
recently paid.
Set forth below is a summary of certain of the defined terms used in the
Indenture relating to the calculation of interest on the Floating Rate Notes.
"LIBOR," with respect to an Interest Period, will be the rate (expressed
as a percentage per annum) for deposits in United States dollars for three-month
periods beginning on the first day of such Interest Period that appears on
Telerate Page 3750 as of 11:00 a.m., London time, on the Determination Date. If
Telerate Page 3750 does not include such a rate or is unavailable on a
Determination Date, the Calculation Agent will request the principal London
office of each of four major banks in the London interbank market, as selected
by the Calculation Agent, to provide such bank's offered quotation (expressed as
a percentage per annum), as of approximately 11:00 a.m., London time, on such
Determination Date, to prime banks in the London interbank market for deposits
in a Representative Amount in United States dollars for a three-month period
beginning on the first day of such Interest Period. If at least two such offered
quotations are so provided, LIBOR for the Interest Period will be the arithmetic
mean of such quotations. If fewer than two such quotations are so provided, the
Calculation Agent will request each of three major banks in New York City, as
selected by the Calculation Agent, to provide such bank's rate (expressed as a
percentage per annum), as of approximately 11:00 a.m., New York City time, on
such Determination Date, for loans in a Representative Amount in United States
dollars to leading European banks for a three-month period beginning on the
first day of such Interest Period. If at least two such rates are so provided,
LIBOR for the Interest Period will be the arithmetic mean of such rates. If
fewer than two such rates are so provided, then LIBOR for the Interest Period
will be LIBOR in effect with respect to the immediately preceding Interest
Period.
"Interest Period" means the period commencing on and including an interest
payment date and ending on and including the day immediately preceding the next
succeeding interest payment date.
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"Determination Date," with respect to an Interest Period, will be the
second London Banking Day preceding the first day of the Interest Period.
"London Banking Day" is any day in which dealings in United States dollars
are transacted or, with respect to any future date, are expected to be
transacted in the London interbank market.
"Representative Amount" means a principal amount of not less than U.S.
$1,000,000 for a single transaction in the relevant market at the relevant time.
"Telerate Page 3750" means the display designated as "Page 3750" on the
Moneyline Telerate service (or such other page as may replace Page 3750 on that
service).
The amount of interest for each day that the Floating Rate Notes are
outstanding (the "Daily Interest Amount") will be calculated by dividing the
interest rate in effect for such day by 360 and multiplying the result by the
principal amount of the Floating Rate Notes. The amount of interest to be paid
on the Floating Rate Notes for each Interest Period will be calculated by adding
the Daily Interest Amounts for each day in the Interest Period.
All percentages resulting from any of the above calculations will be
rounded, if necessary, to the nearest one hundred-thousandth of a percentage
point, with five one-millionths of a percentage point being rounded upwards
(e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655). All
calculations will be rounded to the nearest cent (with one-half cent being
rounded upwards).
The interest rate on the Floating Rate Notes will in no event be higher
than the maximum rate permitted by New York law as the same may be modified by
United States law of general application.
The Calculation Agent will, upon the request of the holder of any Floating
Rate Note, provide the interest rate then in effect with respect to the Floating
Rate Notes. All calculations made by the Calculation Agent in the absence of
manifest error will be conclusive for all purposes and binding on the Issuer,
the Guarantors and the holders of the Floating Rate Notes.
Additional interest may accrue on the Notes in certain circumstances
pursuant to the Registration Rights Agreement. Whenever, there is a reference in
this description to the payment of interest by the Issuer at any time, such
reference shall include the payment of any additional interest required to be
paid at such time pursuant to the terms of the Registration Rights Agreement.
Additionally, the Issuer will pay interest on overdue principal at 1% per annum
in excess of the above rate and will pay interest on overdue installments of
interest at such higher rate, in each case, to the extent lawful.
RANKING
The Notes
The Notes
- - are senior obligations of the Issuer and will be the only indebtedness
permitted to be incurred by the Issuer (other than, if issued by the
Issuer, the Finco Subordinated Note issued to the Company and other than
Subordinated Obligations owed to a Finco Guarantor);
- - are guaranteed by each of the Guarantors;
- - are secured to the extent set forth under " -- Collateral"; and
- - the old Notes are subject to registration with the SEC pursuant to the
Registration Rights Agreement.
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The Note Guarantees
The Note Guarantees:
- - will be joint and several, senior obligations of the Guarantors;
- - will be the only indebtedness permitted to be incurred by the Finco
Guarantors (other than, if issued by a Finco Guarantor, the Finco
Subordinated Note issued to the Company and other than Subordinated
Obligations owed to the Issuer or another Finco Guarantor) and are secured
to the extent set forth under " -- Collateral";
- - rank senior in right of payment to all existing and future indebtedness of
the Guarantors that is subordinated to the Note Guarantees;
- - rank equally in right of payment with all existing and future senior
unsecured indebtedness of the Guarantors;
- - will be effectively subordinated to creditors and preferred stockholders
of the non-Guarantor Subsidiaries of Parent; and
- - are subject to registration with the SEC pursuant to the registration
rights agreement.
As of March 31, 2004:
- - the Company had approximately $1.02 billion of senior indebtedness,
including $879 million of indebtedness secured by Bonds issued under the
Mortgage (exclusive of $160 million of non-interest bearing Bonds which
are pledged to the PBGC as security for the Company's obligations under
the PBGC Agreement), and $136 million of senior unsecured indebtedness
(including a $15 million short-term note payable);
- - the Company had approximately $216 million of subordinated indebtedness;
- - the Company had $118 million of unused borrowing availability under the
GECC Credit Agreement, which is secured by a first priority security
interest in the Inventory Collateral (which is pledged by the Company on a
second priority basis to the Trustee to secure the Company's obligations
under its Note Guarantee) as well as by a security interest in certain
other assets which are not pledged to the Trustee;
- - a Securitization Subsidiary of the Company, which is not a Guarantor, had
$168 million of indebtedness (exclusive of $14 million of letters of
credit), leaving approximately $3 million of unused borrowing
availability, which is secured by receivables and certain related assets;
- - Parent had approximately $1.59 billion of unsubordinated indebtedness,
consisting exclusively of guarantees of indebtedness of its Subsidiaries;
and
- - Subsidiaries of Parent (other than the Issuer, the Guarantors and their
Subsidiaries) had approximately $1.12 billion of indebtedness which would
have ranked effectively senior to the Notes.
Additionally, all of the operations of Parent are conducted through its
Subsidiaries. Claims of creditors of such Subsidiaries (other than the Issuer
and the Guarantors), including trade creditors and creditors holding
indebtedness or guarantees issued by such Subsidiaries, and claims of preferred
stockholders of such Subsidiaries generally will have priority with respect to
the assets and earnings of such subsidiaries over the claims of Parent's
creditors including the holders of the Notes. Accordingly, Parent's Note
Guarantee will be effectively subordinated to creditors (including trade
creditors) and preferred stockholders, if any, of Parent's Subsidiaries (other
than the Issuer and any other Subsidiary of Parent that is a Guarantor). The
Indenture does not impose any limitation on the incurrence of indebtedness by
Parent or Parent's Subsidiaries (other than the Issuer, the Finco Guarantors,
the Company and the Company's Restricted Subsidiaries).
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COLLATERAL
Pursuant to a pledge agreement (the "Pledge Agreement") by and among the
Issuer, the Finco Guarantors (collectively, the "Pledgors") and the Trustee, the
Notes and the Note Guarantees of the Finco Guarantors are secured by a first
priority security interest in (i) the First Mortgage Bonds (which in turn are
secured to the extent set forth under "Description of the first mortgage bonds
First Mortgage Bonds Collateral") and (ii) all Capital Stock and indebtedness
(including the Finco Mirror Note and any Company Note but excluding the Bonds
outstanding on the Issue Date that are pledged to the PBGC) held by the Issuer
and the Finco Guarantors (collectively, the "Securities Collateral").
Subject to certain terms and conditions set forth in the Indenture and the
Pledge Agreement, the Pledgors are entitled to exercise any voting and other
consensual rights on the Collateral and to collect, invest and dispose of any
income thereon. Upon the occurrence and during the continuance of an Event of
Default, subject to the conditions set forth in the Indenture and the Pledge
Agreement:
(a) all of the rights of the Pledgors to exercise voting or other
consensual rights with respect to all Capital Stock included in the
Collateral shall cease (except that the Pledgors may continue to exercise
any such rights with respect to any Nova Scotia unlimited liability
company provided that no such exercise is adverse to the holders of
Notes), and all such rights (other than any such rights with respect to
Capital Stock of any Nova Scotia unlimited liability company) shall become
vested in the Trustee, which shall have the sole right to exercise such
voting and other consensual rights; and
(b) the Trustee may take possession of and sell the Collateral or any part
thereof in accordance with the terms of the Pledge Agreement.
Additionally, to secure the payment by the Company under its Note
Guarantee, the Company has granted a second priority security interest in
certain inventory (the "Inventory Collateral" and together with the Securities
Collateral, the "Collateral") pursuant to the Inventory Security Agreement (the
"Inventory Security Agreement") between the Company and the Trustee. A first
priority security interest in the Inventory Collateral as well as in certain
additional assets not constituting part of the Collateral has been granted to
the lenders under the GECC Credit Agreement.
In the case of an Event of Default, the Trustee will be permitted, subject
to applicable laws, regulatory requirements and, in the case of the Inventory
Collateral, the GECC Intercreditor Agreement, to exercise remedies and sell the
Collateral under the Collateral Documents at the direction of the holders of a
majority in aggregate principal amount of the Notes then outstanding, or, in the
absence of such direction, in any manner it determines to be reasonable, and the
Trustee will be permitted to demand that the Company immediately repay the
principal of the First Mortgage Bonds. The proceeds received by the Trustee from
any exercise of its remedies under the Collateral Documents will be applied by
the Trustee, first, to pay the reasonable expenses of such foreclosure and fees
and other amounts then payable to the Trustee under the Indenture and the
Collateral Documents, second, pro rata to each holder of a Note in respect of
all unpaid principal on such holder's Note, third, pro rata to each holder of a
Note in respect of all premium, if any, accrued interest and other amounts
payable on the Notes and fourth, to the applicable Pledgor (in the case of the
Securities Collateral) or the Company (in the case of the Inventory Collateral),
or any other person legally entitled thereto.
The Collateral may only be released as described under " -- Release of
Liens on Collateral."
CERTAIN LIMITATIONS ON THE COLLATERAL
There can be no assurance that the proceeds of any sale of Collateral
following an Event of Default with respect to the Notes would be sufficient to
satisfy, or would not be substantially less than, amounts due on the Notes.
The right of the Trustee to take possession and dispose of the Collateral
upon the occurrence of an Event of Default and the right of the trustee for the
First Mortgage Bonds to foreclose on the First Mortgage Bonds Collateral
following an event of default under the Mortgage are likely to be significantly
impaired by applicable bankruptcy
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law if a bankruptcy proceeding were to be commenced by a Pledgor or the Company,
as applicable, prior to the Trustee or the trustee for the First Mortgage Bonds
having taken possession and disposed of the Collateral or the First Mortgage
Bonds Collateral. Under the U.S. Bankruptcy Code, a secured creditor is
prohibited from taking its security from a debtor in a bankruptcy case, or from
disposing of security taken from such debtor, without bankruptcy court approval.
Although the Issuer and the Finco Guarantors will be prohibited, with limited
exceptions, under the terms of the Indenture from incurring additional
Indebtedness and engaging in other activities, because the Finco Guarantors are
part of Parent's controlled group of companies, the Issuer and the Finco
Guarantors may have joint and several liability with other members of Parent's
controlled group of companies, including with respect to ERISA liability and
taxes. Additionally, under the terms of the GECC Intercreditor Agreement, the
Trustee will waive, on behalf of each holder of a Note, the right to raise
certain claims and to make certain objections in any bankruptcy proceeding.
Moreover, the Bankruptcy Code permits the debtor in certain circumstances
to continue to retain and to use collateral owned as of the date of the
bankruptcy filing (and the proceeds, products, rents or profits of such
collateral) even though the debtor is in default under the applicable debt
instruments provided that the secured creditor is given "adequate protection."
The meaning of the term "adequate protection" may vary according to
circumstances. In view of the lack of a precise definition of the term "adequate
protection" and the broad discretionary powers of a bankruptcy court, we cannot
predict how long payments under the Notes could be delayed following
commencement of a bankruptcy case, whether or when the trustee for the First
Mortgage Bonds could repossess or dispose of the First Mortgage Bonds Collateral
or whether or to what extent holders would be compensated for any delay in
payment or loss of value of the First Mortgage Bonds Collateral through the
requirement of "adequate protection."
Furthermore, in the event a bankruptcy court determines the value of the
Collateral or the First Mortgage Bonds Collateral is not sufficient to repay all
amounts due on the Notes or the First Mortgage Bonds, as applicable, and any
other obligations secured by such collateral, the holders of the Notes and such
other obligations would hold secured claims to the extent of the value of the
collateral securing such claims and would hold unsecured claims with respect to
any shortfall. Applicable Federal bankruptcy laws do not permit the payment or
accrual of post-petition interest, costs and attorneys' fees during a debtor's
bankruptcy case unless the claims are oversecured or the debtor is solvent at
the time of reorganization. In addition, if the Company or any Pledgor becomes
the subject of a bankruptcy case, the bankruptcy court, among other things, may
avoid certain pre-petition transfers made by the entity that is the subject of
the bankruptcy filing, including, without limitation, transfers held to be
preferences or fraudulent conveyances.
Additionally, in connection with the old note offering, the Trustee
entered into the GECC Intercreditor Agreement. The GECC Intercreditor Agreement
provides, among other things, that for so long as any obligations are
outstanding under the GECC Credit Agreement, the Trustee may not take any action
to enforce its security interest in the Inventory Collateral and that any
proceeds of any enforcement action in respect of the Inventory Collateral will
first be applied to repay all obligations outstanding under the GECC Credit
Agreement prior to being distributed to the Trustee in respect of the Company's
Note Guarantee. There can be no assurance that the value of the Inventory
Collateral will be sufficient to provide any proceeds to provide payment on the
Notes after payment in full of the obligations under the GECC Credit Agreement.
Additionally, the Trustee has agreed in the GECC Intercreditor Agreement and
through certain instructions provided to the trustee under the Mortgage that the
lender under the GECC Credit Agreement will have access and certain other rights
with respect to processing the Inventory Collateral and the other collateral for
the GECC Credit Agreement which are maintained at the Company's Indiana Harbor
Works facility, which constitutes substantially all of the First Mortgage Bonds
Collateral. The Intercreditor Agreement could have the effect of delaying any
sale of the First Mortgage Bonds Collateral by the trustee for the First
Mortgage Bonds following a foreclosure. See "Description of intercreditor
arrangements -- GECC Intercreditor Arrangements." Additionally, the Indenture
provides that the Trustee will, if requested by the Company, enter into an
intercreditor agreement (each such intercreditor agreement, including the GECC
Intercreditor Agreement, being referred to as an "Inventory Intercreditor
Agreement") on terms not less favorable to the holders of Notes than the terms
of the GECC Intercreditor Agreement with any future lenders under any
indebtedness that is secured by a Permitted Inventory Collateral Lien. By
purchasing a Note and without further action, each Holder of a Note will be
deemed to have consented to the terms of each Intercreditor Agreement, and will
be deemed to have instructed the Trustee to take each action that it is required
to take pursuant to the terms of the Intercreditor Agreements.
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RELEASE OF LIENS ON COLLATERAL
The Liens on the Collateral will be released with respect to the Notes, in
whole, upon (i) payment in full of the principal of, accrued and unpaid interest
and premium, if any, on the Notes and payment in full of all other Obligations
under the Indenture due and payable at or prior to the time such principal,
accrued and unpaid interest and premium, if any, are paid, (ii) satisfaction and
discharge of the Indenture or (iii) a legal defeasance or covenant defeasance as
set forth under the caption " -- Defeasance."
Additionally, immediately following a Permitted Finco Collapse Transaction
(including, following the transfer to the Successor Issuer of all First Mortgage
Bonds and the pledge by the Successor Issuer of such First Mortgage Bonds as
Collateral and the other actions required to be taken in connection with the
Collateral pursuant to " -- Permitted Finco Collapse Transaction") any assets of
the entities which were Finco Guarantors immediately prior to such Permitted
Finco Collapse Transaction will cease to be Collateral and will be released from
the Lien of the Pledge Agreement.
Additionally, the GECC Intercreditor Agreement and the Indenture provides,
and any future Inventory Intercreditor Agreement may provide, that the Trustee
will release its security interest in any part of the Inventory Collateral in
connection with any sale of the Collateral in which the first priority security
interest is also being released from such Inventory Collateral; provided, that
if any such sale of Inventory Collateral is an Asset Disposition, the Company
will apply the Net Available Cash therefrom as required by the covenant
described under " -- Limitation on Sale of Assets and Subsidiary Stock."
ADDITIONAL AMOUNTS
The Issuer and the Guarantors are required to make all payments under or
with respect to the Notes and the Note Guarantees free and clear of and without
withholding or deduction for or on account of any present or future tax, duty,
levy, impost, assessment or other governmental charge (including penalties,
interest and other liabilities related thereto) (hereinafter "Taxes") imposed or
levied by or on behalf of Canada, The Netherlands or any political subdivision
or any authority or agency therein or thereof having power to tax, or by any
other jurisdiction in which the Issuer or any Guarantor is organized or is
otherwise resident or conducts business for tax purposes or any jurisdiction
from or through which payment is made by the Issuer or any Guarantor or its
agents (each a "Relevant Taxing Jurisdiction"), unless the Issuer or any
Guarantor is required to withhold or deduct Taxes by law or by the
interpretation or administration thereof.
If the Issuer or any Guarantor is required to withhold or deduct any
amount for or on account of Taxes imposed by a Relevant Taxing Jurisdiction from
any payment made under or with respect to the Notes or any Note Guarantee, the
Issuer or such Guarantor will be required to pay such additional amounts
("Additional Amounts") as may be necessary so that the net amount received by
holders of the Notes after such withholding or deduction (including any
withholding or deduction attributable to Additional Amounts payable hereunder)
will not be less than the amount such holders would have received if such Taxes
had not been withheld or deducted; provided, however, that the foregoing
obligation to pay Additional Amounts does not apply to any Taxes to the extent
such Taxes would not have been so imposed
(1) but for the existence of any present or former connection between
the relevant holder (or the beneficial owner of such Notes) and the
Relevant Taxing Jurisdiction (other than the mere receipt of such
payment or the mere acquisition, ownership, holding or disposition
of any Note);
(2) but for the failure of the relevant holder (or the beneficial owner
of such Notes) to use its reasonable best efforts, to the extent
such holder (or beneficial owner) is legally entitled to do so, to
comply upon written notice by the Issuer or a Guarantor delivered 60
days prior to any payment date with a request to satisfy any
certification, identification or other reporting requirements, which
shall include any applicable forms or instructions, whether imposed
by statute, treaty, regulation, or administrative practice,
concerning the nationality or residence of such holder or the
connection of such holder with the Relevant Taxing Jurisdiction;
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(3) if the payment could have been made without such deduction or
withholding if the relevant holder had presented the Note for
payment within 60 days after the date on which such payment
became due and payable or the date on which payment thereof is
duly provided for, whichever is later (except to the extent
that the holder would have been entitled to Additional Amounts
had the Note been presented on the last day of such 60-day
period),
(4) with respect to any payment of principal of (or premium, if
any, on) or interest on such Note to any holder who is a
fiduciary or partnership or any person other than the sole
beneficial owner of such payment, to the extent that a
beneficiary with respect to such fiduciary, a member of such a
partnership or the beneficial owner of such payment would not
have been entitled to the Additional Amounts had such
beneficiary, member or beneficial owner been the actual holder
of such Note (but only if there is no material cost or expense
associated with transferring such Notes to such beneficiary,
partner or beneficial owner and no restriction on such
transfer that is outside the control of such beneficiary,
partner or beneficial owner);
(5) with respect to any Canadian Taxes imposed on a payment of, in
lieu of, on account of, or in satisfaction of, interest
(including deemed interest) made by the Issuer or a Guarantor
which is a resident of Canada, where the beneficiary of such
payment does not deal at arm's length with the Issuer or such
Guarantor, as the case may be, for the purposes of the Income
Tax Act (Canada).
The Issuer and the Guarantors will (i) make any required withholding or
deduction and (ii) remit the full amount deducted or withheld to the Relevant
Taxing Jurisdiction in accordance with applicable law. The Issuer and the
Guarantors will make reasonable best efforts to obtain certified copies of tax
receipts evidencing the payment of any Taxes so deducted or withheld from each
Relevant Taxing Jurisdiction imposing such Taxes. The Issuer and the Guarantors
will provide to the Trustee, within a reasonable time after the date the payment
of any Taxes so deducted or withheld are due pursuant to applicable law, either
a certified copy of tax receipts evidencing such payment, or, if such tax
receipts are not reasonably available to the Issuer or such Guarantor, such
other documentation that provides reasonable evidence of such payment by the
Issuer or such Guarantor.
The Issuer and the Guarantors, jointly and severally, will indemnify
and hold harmless each eligible holder of Notes and, upon written request of any
eligible holder of Notes, reimburse such holder for the amount of (i) any Taxes
levied or imposed on and paid by such holder as a result of payments made under
or with respect to the Notes held by such holder or any Note Guarantee; and (ii)
any Taxes levied or imposed with respect to any reimbursement under the
foregoing clause (i) or this clause (ii), so that the net amount received by
such holder after such reimbursement will not be less than the net amount such
holder would have received if the Taxes giving rise to the reimbursement
described in clauses (i) and/or (ii) had not been imposed, provided however,
that the indemnification obligation provided for in this paragraph shall not
extend to Taxes imposed for which the eligible holder of Notes would not have
been eligible to receive payment of Additional Amounts hereunder.
At least 30 days prior to each date on which any payment under or with
respect to the Notes is due and payable (unless such obligation to pay
Additional Amounts arises shortly before or after the 30th day prior to such
date, in which case it shall be promptly thereafter), if the Issuer will be
obligated to pay Additional Amounts with respect to such payment, the Issuer
will deliver to the Trustee an officers' certificate stating the fact that such
Additional Amounts will be payable and the amounts so payable and will set forth
such other information necessary to enable the Trustee to pay such Additional
Amounts to holders of Notes on the payment date. Each such officers' certificate
shall be relied upon until receipt of a further officers' certificate addressing
such matters.
Whenever in the Indenture there is mentioned, in any context:
- - the payment of principal;
- - purchase prices in connection with a redemption of Notes;
- - interest; or
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- - any other amount payable on or with respect to any of the Notes or the Note
Guarantees,
such reference shall be deemed to include payment of Additional Amounts or
indemnification payments as described hereunder to the extent that, in such
context, Additional Amounts or indemnification payments are, were or would be
payable in respect thereof.
The Issuer will pay any present or future stamp, court or documentary
taxes or any other excise or property taxes, charges or similar levies that
arise in any Relevant Taxing Jurisdiction from the execution, delivery,
enforcement or registration of the Notes, the Indenture, the Pledge Agreement or
any other document or instrument in relation thereto, or the receipt of any
payments with respect to the Notes, and the Issuer and the Guarantors, jointly
and severally, will agree to indemnify the holders for any such taxes paid by
such holders.
The obligations described under this heading will survive any
termination, defeasance or discharge of the Indenture and will apply mutatis
mutandis to any successor Person to the Issuer or any Guarantor and to any
jurisdiction in which the Issuer or any Guarantor is organized or is otherwise
resident or conducts business for tax purposes or any jurisdiction from or
through which payment is made by the Issuer or any Guarantors or their
respective agents.
REDEMPTION FOR CHANGES IN WITHHOLDING TAXES
The Issuer will be entitled to redeem the Notes, at its option, at any
time as a whole but not in part, upon not less than 30 nor more than 60 days'
notice, at 100% of the principal amount thereof, plus accrued and unpaid
interest (if any) to the date of redemption (subject to the right of holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), in the event the Issuer has become or would become
obligated to pay, on the next date on which any amount would be payable with
respect to the Notes, any Additional Amounts or indemnification payments as a
result of:
- - a change in or an amendment to the laws (including any regulations
promulgated thereunder) of a Relevant Taxing Jurisdiction, which change or
amendment is announced after the date of this prospectus; or
- - any change in or amendment to any official position regarding the
application or interpretation of such laws or regulations, which change or
amendment is announced after the date of this prospectus,
and, in each case, the Issuer cannot avoid such obligation by taking reasonable
measures available to it.
Before the Issuer publishes or mails notice of redemption of the Notes
as described above, the Issuer will deliver to the Trustee an officers'
certificate to the effect that it cannot avoid its obligation to pay Additional
Amounts by taking reasonable measures available to it and an opinion of
independent legal counsel of recognized standing stating that the Issuer would
be obligated to pay Additional Amounts as a result of a change in tax laws or
regulations or the application or interpretation of such laws or regulations. No
such notice of redemption may be given more than 60 days before or more than 270
days after the Issuer first becomes liable to pay any Additional Amounts or
indemnification payments as a result of a change or amendment described above.
OPTIONAL REDEMPTION
Fixed Rate Notes. Except as set forth below, and except as set forth
above under " -- Redemption for Changes in Withholding Taxes," the Issuer will
not be entitled to redeem the Fixed Rate Notes prior to April 1, 2009.
On and after April 1, 2009, the Issuer will be entitled at its option
to redeem all or a portion of the Fixed Rate Notes upon not less than 30 nor
more than 60 days' notice, at the redemption prices (expressed in percentages of
principal amount on the redemption date), plus accrued and unpaid interest to
the redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on April 1 of the years set forth
below:
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PERIOD REDEMPTION PRICE
------ ----------------
2009....................................... 104.875%
2010....................................... 103.250%
2011....................................... 101.625%
2012 and thereafter........................ 100.000%
In addition, before April 1, 2007, the Issuer may, at its option, on
one or more occasions redeem up to 35% of the aggregate principal amount of the
Fixed Rate Notes (including Additional Notes, if any, that are Fixed Rate Notes)
originally issued at a redemption price (expressed as a percentage of principal
amount) of 109.75%, plus accrued and unpaid interest to the redemption date,
with the net cash proceeds from one or more Equity Offerings to the extent, in
the event such Equity Offering is made by Parent, such proceeds are actually
contributed to the Company; provided that
- - at least 65% of the aggregate principal amount of Fixed Rate Notes
originally issued remains outstanding immediately after the occurrence of
each such redemption (other than Fixed Rate Notes held, directly or
indirectly, by the Issuer or its Affiliates); and
- - each such redemption occurs within 60 days after the date of the related
Equity Offering.
Floating Rate Notes. Except as set forth above under " -- Redemption
for Changes in Withholding Taxes," the Issuer will not be entitled to redeem the
Floating Rate Notes prior to April 1, 2006.
On and after April 1, 2006, the Issuer will be entitled at its option
to redeem all or a portion of the Floating Rate Notes upon not less than 30 nor
more than 60 days' notice, at the redemption prices (expressed in percentages of
principal amount on the redemption date), plus accrued and unpaid interest to
the redemption date (subject to the right of holders of record on the relevant
record date to receive interest due on the relevant interest payment date), if
redeemed during the 12-month period commencing on April 1 of the years set forth
below:
PERIOD REDEMPTION PRICE
------ ----------------
2006...................................................................... 103.000%
2007...................................................................... 102.000%
2008...................................................................... 101.000%
2009 and thereafter....................................................... 100.000%
SELECTION AND NOTICE OF REDEMPTION
If the Issuer is redeeming less than all of the Notes of any series at
any time, the Trustee will select Notes of such series on a pro rata basis, by
lot or by such other method as the Trustee in its sole discretion shall deem to
be fair and appropriate. If a partial redemption is made with the proceeds of an
Equity Offering, the Trustee will select the Fixed Rate Notes only on a pro rata
basis or on as nearly a pro rata basis as is practicable (subject to DTC
procedures).
The Issuer will redeem Notes of $1,000 or less in whole and not in
part. The Issuer will cause notices of redemption to be mailed by first-class
mail at least 30 but not more than 60 days before the redemption date to each
holder of Notes to be redeemed at its registered address.
If any Note is to be redeemed in part only, the notice of redemption
that relates to that Note will state the portion of the principal amount thereof
to be redeemed. The Issuer will issue a new Note in a principal amount equal to
the unredeemed portion of the original Note in the name of the holder thereof
upon cancellation of the original Note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, unless the
Issuer fails to redeem the Notes, interest ceases to accrue on Notes called for
redemption.
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MANDATORY REDEMPTION
The Issuer is not required to make any mandatory redemption or sinking
fund payments with respect to the Notes.
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), the Issuer will be required to offer to purchase such holder's Notes
at a purchase price in cash equal to 101% of the principal amount thereof on the
date of purchase plus accrued and unpaid interest, if any, to the date of
purchase (subject to the right of holders of record on the relevant record date
to receive interest due on the relevant interest payment date):
(1) the Permitted Holders cease to own, or to have the power to direct the
voting of, at least 35% of the total voting power of the Voting Stock of
Parent;
(2) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders, is or
becomes the "beneficial owner" (as defined in Rule 13d-3 and 13d-5 under
the Exchange Act, except that for purposes of this clause (2) such person
shall be deemed to have "beneficial ownership" of all shares that any such
person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of
more than 35% of the total voting power of the Voting Stock of Parent;
provided, however, that the Permitted Holders own or have the right to
direct the voting of a lesser percentage of the total voting power of the
Voting Stock of Parent than such other person or group and do not have the
right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of Parent;
(3) individuals who on the Issue Date constituted the Board of Directors of
Parent (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of Parent
was recommended or approved by a vote of a majority of the directors of
Parent then still in office who were either directors on the Issue Date or
whose election or nomination for election was previously so recommended or
approved by a majority of such directors who, at such time, had been so
recommended or approved) cease for any reason to constitute a majority of
the Board of Directors of Parent then in office;
(4) the adoption of a plan relating to the liquidation or dissolution of
the Issuer (other than as part of a Permitted Finco Collapse Transaction),
the Company or Parent;
(5) the merger or consolidation of Parent with or into another Person or
the merger of another Person with or into Parent, or the sale of all or
substantially all the assets of Parent (determined on a consolidated basis)
to another Person (other than, in all such cases, a Person that is
controlled by the Permitted Holders), other than a transaction following
which (A) in the case of a merger or consolidation transaction, holders of
securities that represented 100% of the Voting Stock of Parent immediately
prior to such transaction (or other securities into which such securities
are converted as part of such merger or consolidation transaction) own
directly or indirectly at least a majority of the voting power of the
Voting Stock of the surviving Person in such merger or consolidation
transaction immediately after such transaction and in substantially the
same proportion as before the transaction and (B) in the case of a sale of
assets transaction, the transferee Person becomes a Subsidiary of the
transferor of such assets;
(6) Parent ceases to own and have the power to direct the voting of,
directly or indirectly, a majority of the total voting power of the Voting
Stock of each of the Issuer and the Finco Guarantors; or
(7) Parent (including any entity controlling Parent) ceases to own and have
the power to direct the voting of, directly or indirectly, a majority of
the total voting power of the Voting Stock of the Company.
Within 30 days following any Change of Control, the Issuer will mail a
notice to each holder with a copy to the Trustee (the "Change of Control Offer")
stating:
88
(1) that a Change of Control has occurred and that the Issuer is making an
offer to purchase each holder's Notes at a purchase price in cash equal to
101% of the principal amount thereof on the date of purchase, plus accrued
and unpaid interest, if any, to the date of purchase (subject to the right
of holders of record on the relevant record date to receive interest on the
relevant interest payment date);
(2) the circumstances and relevant facts regarding such Change of Control
(including information with respect to pro forma historical income, cash
flow and capitalization, in each case after giving effect to such Change of
Control);
(3) the purchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and
(4) the instructions that a holder must follow in order to have its Notes
purchased.
The Issuer will not be required to make a Change of Control Offer
following a Change of Control if a third party makes the Change of Control Offer
in the manner, at the times and otherwise in compliance with the requirements
set forth in the Indenture applicable to a Change of Control Offer made by the
Issuer and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
The Issuer will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes as a result of a Change
of Control. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Issuer will comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue of its compliance with such securities laws or
regulations.
The Change of Control Offer feature of the Notes may in certain
circumstances make more difficult or discourage a sale or takeover of Parent
and, thus, the removal of incumbent management of Parent and the Company. The
Change of Control Offer feature is a result of negotiations between the Issuer,
the Company, Parent and the initial purchasers. Parent has no present intention
to engage in a transaction involving a Change of Control, although it is
possible that Parent could decide to do so in the future. Subject to the
limitations discussed below, Parent could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time of Parent or
the Company or otherwise affect Parent's or the Company's capital structure or
credit ratings. Additionally, the Indenture will not restrict Parent's ability
to incur indebtedness.
The occurrence of certain of the events which would constitute a Change
of Control would constitute a default under the Credit Agreements. Future
indebtedness that the Company or Parent may incur may contain prohibitions on
the occurrence of certain events that would constitute a Change of Control or
require the repurchase of such indebtedness upon a Change of Control. Moreover,
the exercise by the holders of their right to require the Issuer to repurchase
the Notes could cause a default under such indebtedness, even if the Change of
Control itself does not, due to the financial effect of such repurchase on the
Company. Finally, the Issuer's ability to pay cash to the holders of Notes
following the occurrence of a Change of Control will be limited by the Company's
ability to repay the First Mortgage Bonds which will in turn be dependent upon
the Company's then existing financial resources. There can be no assurance that
sufficient funds will be available to the Company when necessary to make any
required repurchases.
The provisions under the Indenture relative to the Issuer's obligation
to make an offer to repurchase the Notes as a result of a Change of Control may
be waived or modified at any time prior to the occurrence of a Change of Control
with the written consent of the holders of a majority in principal amount of the
Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the
following:
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Limitation on Indebtedness
(a) The Company will not, and will not permit any Restricted Subsidiary to,
Incur, directly or indirectly, any Indebtedness; provided that the Company and
the Company Guarantors will be entitled to Incur Indebtedness if, on the date of
such Incurrence and after giving effect thereto on a pro forma basis, no Default
has occurred and is continuing and the Consolidated Coverage Ratio exceeds 2.0
to 1.
(b) Notwithstanding the foregoing paragraph (a), the Company and the Restricted
Subsidiaries will be entitled to Incur any or all of the following Indebtedness:
(1) Indebtedness Incurred pursuant to the Credit Agreements (including any
Guarantees thereof); provided that, after giving effect to any such
Incurrence, the aggregate principal amount of all Indebtedness Incurred
under this clause (1) and then outstanding does not exceed the sum of (x)
65% of the book value of the inventory of the Company and its Restricted
Subsidiaries (other than any inventory constituting Inventory and Related
Assets pledged, sold or otherwise transferred or encumbered in connection
with a Qualified Securitization Transaction); and (y) 85% of the book value
of the accounts receivable of the Company and its Restricted Subsidiaries
(other than any accounts receivable constituting Receivables and Related
Assets pledged, sold or otherwise transferred or encumbered in connection
with a Qualified Securitization Transaction);
(2) Indebtedness owed to and held by the Company or a Wholly-Owned
Subsidiary; provided, that (A) any subsequent issuance or transfer of any
Capital Stock which results in any such Wholly-Owned Subsidiary ceasing to
be a Wholly-Owned Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or a Wholly-Owned Subsidiary) shall
be deemed, in each case, to constitute the Incurrence of such Indebtedness
by the obligor thereon and (B) if the Company is the obligor on such
Indebtedness (other than customary Indebtedness to a Securitization
Subsidiary or Indebtedness to a Company Guarantor), such Indebtedness is
expressly subordinated after a Default to the prior payment in full in cash
of all obligations with respect to the Notes;
(3) Indebtedness Incurred under the First Mortgage Bonds in an aggregate
principal amount of $800.0 million issued as Collateral for the Notes;
(4) Indebtedness outstanding on the Issue Date (but excluding Indebtedness
described in clause (1), (2) or (3) of this covenant);
(5) Indebtedness of a Restricted Subsidiary Incurred and outstanding on or
prior to the date on which such Subsidiary was acquired by the Company
(other than Indebtedness Incurred in connection with, or to provide all or
any portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Subsidiary became a Subsidiary or was acquired by the Company); provided
that on the date of such acquisition and after giving pro forma effect
thereto, the Company would have been able to Incur at least $1.00 of
additional Indebtedness pursuant to paragraph (a) of this covenant;
(6) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant
to paragraph (a) or pursuant to clause (3), (4) or (5) above, this clause
(6) or clause (17) below; provided that to the extent such Refinancing
Indebtedness directly or indirectly Refinances Indebtedness of a Subsidiary
Incurred pursuant to clause (5), such Refinancing Indebtedness shall be
Incurred only by such Subsidiary;
(7) Hedging Obligations Incurred to protect the Company and its Restricted
Subsidiaries from fluctuations in interest rates, commodity prices and
exchange rates and not for speculative purposes;
(8) Indebtedness Incurred by a Securitization Subsidiary in connection with
a Qualified Securitization Transaction; provided that in the event such
Securitization Subsidiary ceases to qualify as a Securitization Subsidiary
or such Indebtedness in any other manner falls outside this clause (8),
such Indebtedness will be deemed, in each case, to be Incurred at such time
by such Securitization Subsidiary other than in reliance on this clause
(8);
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(9) Indebtedness (including Capital Lease Obligations) of the Company or
any Restricted Subsidiary (including any Refinancing Indebtedness with
respect thereto) Incurred to finance the acquisition, construction or
improvement of any fixed or capital assets, including any Indebtedness
assumed in connection with the acquisition of any such assets, in an
aggregate principal amount which, when taken together with all other
Indebtedness of the Company or any Restricted Subsidiary Incurred pursuant
to this clause (9) and then outstanding, does not exceed $50.0 million;
(10) Indebtedness of the Company or any Restricted Subsidiary arising from
customary agreements providing for indemnification, adjustment of purchase
price or similar obligations, in each case, Incurred or assumed in
connection with the disposition of any business, fixed or capital assets or
a Subsidiary;
(11) any Guarantee by the Company or a Company Guarantor of any
Indebtedness of the Company or a Restricted Subsidiary (other than a
Securitization Subsidiary and other than Indebtedness of a Restricted
Subsidiary to which the proviso to clause (6) applies) that was permitted
to be Incurred by the Company or such Restricted Subsidiary under the terms
of this covenant at the time so Incurred;
(12) Indebtedness of the Company or any Restricted Subsidiary arising from
the honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary course of
business, but only to the extent that such Indebtedness is satisfied within
five Business Days of Incurrence;
(13) obligations of the Company or any Restricted Subsidiary in respect of
bid, performance, surety or appeal bonds and completion guarantees provided
in the ordinary course of business of the Company and its Restricted
Subsidiaries;
(14) Indebtedness consisting of Note Guarantees of the Company and the
Company Guarantors;
(15) Subordinated Obligations in an aggregate amount not exceeding $100.0
million at any time outstanding; provided that the Stated Maturity of such
Subordinated Obligations is no earlier than the 91st day following the
Stated Maturity of the Fixed Rate Notes;
(16) Indebtedness of the Company and the Company Guarantors in an aggregate
principal amount not to exceed $50.0 million at any time outstanding; and
(17) Indebtedness of the Company or any Restricted Subsidiary incurred
during any Suspension Period.
(c) Notwithstanding the foregoing, the Company shall not permit the aggregate
principal amount of Bonds outstanding at any one time to exceed $900.0 million
plus, for as long as the PBGC Agreement is in effect, up to $160 million of
Series X Bonds pledged to the PBGC.
(d) For purposes of determining compliance with this covenant, (1) in the event
that an item of Indebtedness meets the criteria of more than one of the types of
Indebtedness described above, the Company, in its sole discretion, will classify
such item of Indebtedness at the time of Incurrence and only be required to
include the amount and type of such Indebtedness in one of the above clauses and
(2) the Company will be entitled to divide and classify an item of Indebtedness
in more than one of the types of Indebtedness described above.
(e) For purposes of determining compliance with any U.S. dollar denominated
restriction on the Incurrence of Indebtedness where the Indebtedness Incurred is
denominated in a different currency, the amount of such Indebtedness will be the
U.S. Dollar Equivalent determined on the date of the Incurrence of such
Indebtedness; provided that if any such Indebtedness denominated in a different
currency is subject to a Currency Agreement with respect to U.S. dollars
covering all principal, premium, if any, and interest payable on such
Indebtedness, the amount of such Indebtedness expressed in U.S. dollars will be
as provided in such Currency Agreement. The principal amount of any Refinancing
Indebtedness Incurred in the same currency as the Indebtedness being Refinanced
will be the U.S. Dollar Equivalent of the Indebtedness being Refinanced, except
to the extent that (1) such U.S. Dollar Equivalent was determined based on a
Currency Agreement, in which case the Refinancing
91
Indebtedness will be determined in accordance with the preceding sentence, and
(2) the principal amount of the Refinancing Indebtedness exceeds the principal
amount of the Indebtedness being Refinanced, in which case the U.S. Dollar
Equivalent of such excess will be determined on the date such Refinancing
Indebtedness is Incurred.
(f) At any time other than during a Suspension Period, the Company will not, and
will not permit any Company Guarantor to, directly or indirectly, incur any
Indebtedness that is or purports to be by its terms (or by the terms of any
agreement governing such Indebtedness) subordinated to any other Indebtedness of
the Company or of such Company Guarantor, as the case may be, unless such
Indebtedness is also by its terms (or by the terms of any agreement governing
such Indebtedness) made expressly subordinate to the First Mortgage Bonds (in
the case of the Company) and the Note Guarantee of the Company or such Company
Guarantor, as the case may be, to the same extent and in the same manner as such
Indebtedness is subordinated to such other Indebtedness of the Company or such
Company Guarantor, as the case may be.
Limitation on Restricted Payments
(a) The Company will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to make a Restricted Payment if at the time the Company
or such Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company would not be permitted to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under " --
Limitation on Indebtedness"; or
(3) the aggregate amount of such Restricted Payment and all other
Restricted Payments since the Issue Date would exceed the sum of (without
duplication):
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from the beginning of the first full
fiscal quarter commencing after the Issue Date to the end of the most
recent fiscal quarter for which financial statements have been made
publicly available on or prior to the date of such Restricted Payment
(or, in case such Consolidated Net Income shall be a deficit, minus
100% of such deficit); plus
(B) 100% of the aggregate Net Cash Proceeds received by the Company
from the issuance or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Issue Date (other than an issuance or sale to
a Subsidiary of the Company and other than an issuance or sale to an
employee stock ownership plan or to a trust established by the Company
or any of its Subsidiaries for the benefit of their employees) and 100%
of any cash capital contribution received by the Company from its
shareholders subsequent to the Issue Date; plus
(C) the amount by which Indebtedness of the Company issued after the
Issue Date is reduced on the Company's balance sheet upon the
conversion or exchange (other than by a Subsidiary of the Company)
subsequent to the Issue Date of any Indebtedness of the Company into
Capital Stock (other than Disqualified Stock) of the Company (less the
amount of any cash, or the fair value of any other property,
distributed by the Company upon such conversion or exchange); plus
(D) an amount equal to the sum of (x) the net reduction in the
Investments (other than Permitted Investments) made by the Company or
any Restricted Subsidiary in any Person after the Issue Date resulting
from repurchases, repayments or redemptions of such Investments by such
Person, proceeds realized on the sale of such Investment and proceeds
representing the return of capital, in each case received by the
Company or any Restricted Subsidiary, (y) the amount of any Guarantee
or similar arrangement that has terminated or expired or by which it
has been reduced to the extent that it was treated as a Restricted
Payment after the Issue Date, net of any amounts paid by the Company or
a Restricted Subsidiary in respect of such Guarantee or similar
arrangement, and (z) to the extent such Person is an Unrestricted
Subsidiary, the portion (proportionate to the Company's equity interest
in such Subsidiary) of the fair market value of the net assets of such
Unrestricted Subsidiary at the time such Unrestricted
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Subsidiary is designated a Restricted Subsidiary; provided, however,
that the amounts set forth in clauses (x), (y) and (z) above shall not
exceed, in the case of any such Person or Unrestricted Subsidiary, the
amount of Investments (excluding Permitted Investments) previously made
and treated as a Restricted Payment by the Company or any Restricted
Subsidiary in such Person or Unrestricted Subsidiary as reduced
pursuant to clause (b)(7) below; minus
(E) an amount equal to the contributions required to be made by the
Company or any Restricted Subsidiary to the Ispat Inland Inc. Pension
Plan following the Issue Date pursuant to Section III.A.4 of the July
9, 2003 amendment to the PBGC Agreement relating to excess EBITDA
contributions to the Ispat Inland Inc. Pension Plan.
(b) The preceding provisions will not prohibit:
(1) any Restricted Payment made out of the Net Cash Proceeds of the
substantially concurrent sale of, or made by exchange for, Capital Stock of
the Company (other than Disqualified Stock and other than Capital Stock
issued or sold to a Subsidiary of the Company or an employee stock
ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees) or a substantially
concurrent cash capital contribution received by the Company from its
shareholders; provided that (A) such Restricted Payment shall be excluded
in the calculation of the amount of Restricted Payments under clause (3) of
paragraph (a) above and (B) the Net Cash Proceeds from such sale or such
cash capital contribution (to the extent so used for such Restricted
Payment) shall be excluded from the calculation of amounts under clause
(3)(B) of paragraph (a) above;
(2) any purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value of Subordinated Obligations of the Company or a
Company Guarantor made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Subordinated Obligations; provided that
(A) the Stated Maturity of the Subordinated Obligations being issued or
exchanged to purchase, redeem, defease, acquire or retire for value such
existing Subordinated Obligations shall be no earlier than the 91st day
following the Stated Maturity of the Fixed Rate Notes and (B) such
purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value shall be excluded in the calculation of the amount of
Restricted Payments under clause (3) of paragraph (a) above;
(3) dividends paid within 60 days after the date of declaration thereof if
at such date of declaration such dividend would have complied with this
covenant; provided that at the time of payment of such dividend, no other
Default shall have occurred and be continuing (or result therefrom);
provided, further, that such dividend shall be included in the calculation
of the amount of Restricted Payments under clause (3) of paragraph (a)
above;
(4) so long as no Default has occurred and is continuing, the repurchase or
other acquisition of shares of Capital Stock of Parent or any of its
Subsidiaries from employees, former employees, directors or former
directors of the Company or any of its Subsidiaries (or permitted
transferees of such employees, former employees, directors or former
directors), pursuant to the terms of the agreements (including employment
agreements) or plans (or amendments thereto) approved by the Board of
Directors of Parent under which such individuals purchase or sell or are
granted the option to purchase or sell, shares of such Capital Stock;
provided that the aggregate amount of such repurchases and other
acquisitions shall not exceed $1,000,000 in any calendar year; provided,
further, that such repurchases and other acquisitions shall be excluded in
the calculation of the amount of Restricted Payments under clause (3) of
paragraph (a) above;
(5) Investments in the Existing Joint Ventures in an aggregate amount not
exceeding $15.0 million per twelve-month period since the Issue Date;
provided that to the extent Investments in the Existing Joint Ventures
actually made in any twelve-month period are less than the amount permitted
to be made (giving effect to all previous carryforwards on a cumulative
basis), the amount of the difference may be carried forward and used in a
subsequent twelve-month period; provided, further, that such Investments
shall be excluded in the calculation of the amount of Restricted Payments
under clause (3) of paragraph (a) above;
93
(6) advances to the Existing Joint Ventures to fund working capital
requirements in the ordinary course of business in an aggregate principal
amount outstanding at any time not to exceed $10.0 million; provided that
such advances shall be excluded in the calculation of the amount of
Restricted Payments under clause (3) of paragraph (a) above;
(7) Restricted Payments not exceeding $25.0 million in the aggregate;
provided that (A) at the time of such Restricted Payments, no Default shall
have occurred and be continuing (or result therefrom) and (B) such
Restricted Payments shall be included in the calculation of the amount of
Restricted Payments under clause (3) of paragraph (a) above; provided,
further, that any such Restricted Payment made after the Issue Date shall
no longer be included in such $25.0 million to the extent (A) in the case
of a Restricted Payment that is an Investment, (i) the Company or any
Restricted Subsidiary (x) has received a return of capital in respect
thereof or (y) if such Investment was a loan or advance, has received cash
in repayment of such loan or advance and (B) in the case of a Restricted
Payment that is a Guarantee or similar arrangement, such Guarantee or
similar arrangement has terminated or expired or, to the extent such
Guarantee or similar arrangement has been reduced, net of any amounts paid
by the Company or a Restricted Subsidiary in respect of such Guarantee or
similar arrangement and (ii) the Company has elected to have the amount
received pursuant to the foregoing clause (i) increase the amount of
Restricted Payments available pursuant to this clause (b)(7) in lieu of
increasing the amount set forth in clause (a)(3)(D) above;
(8) Restricted Payments made during any Suspension Period; provided that
such Restricted Payments shall be included in the calculation of the amount
of Restricted Payments under clause (3) of paragraph (a) above;
(9) any Note Guarantee provided that such Note Guarantees shall be excluded
in the calculation of the amount of Restricted Payments under clause (3) of
paragraph (a) above;
(10) in connection with any Permitted Finco Collapse Transaction, the
Restricted Payment, if any, deemed to be made pursuant to the last
paragraph of " -- Permitted Finco Collapse Transaction"; provided that such
Restricted Payment shall be included in the calculation of the amount of
Restricted Payments under clause (3) of paragraph (a) above; and
(11) Refinancing Indebtedness in respect of the Company's Guarantee of
Indebtedness of I/N Kote outstanding on the Issue Date.
Limitation on Restrictions on Distributions from Restricted Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)
pay dividends or make any other distributions on its Capital Stock to the
Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company,
(b) make any loans or advances to the Company or (c) transfer any of its
property or assets to the Company, except:
(1) with respect to clauses (a), (b) and (c),
(A) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the Issue Date;
(B) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness
Incurred by such Restricted Subsidiary on or prior to the date on which
such Restricted Subsidiary was acquired by the Company (other than
Indebtedness Incurred as consideration in, or to provide all or any
portion of the funds or credit support utilized to consummate, the
transaction or series of related transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary or was acquired by
the Company) and outstanding on such date which encumbrance or
restriction does not relate to any Person other than such Restricted
Subsidiary;
(C) any encumbrance or restriction pursuant to an agreement effecting a
Refinancing of Indebtedness Incurred pursuant to an agreement referred
to in clause (A), (B) or (G) of clause (1) of this covenant or this
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clause (C) or contained in any amendment to an agreement referred to in
clause (A) or (B) of clause (1) of this covenant or this clause (C);
provided that the encumbrances and restrictions with respect to such
Restricted Subsidiary contained in any such refinancing agreement or
amendment are not less favorable in any material respect to the holders
of Notes than encumbrances and restrictions with respect to such
Restricted Subsidiary contained in such predecessor agreements (as
determined by the Company in its reasonable judgment);
(D) any encumbrance or restriction with respect to a Securitization
Subsidiary in connection with a Qualified Securitization Transaction;
provided that such encumbrances and restrictions are customarily
required by the institutional sponsor or arranger of such Qualified
Securitization Transaction in similar types of documents relating to
the purchase of similar receivables, other rights to payment or
inventory in connection with the financing thereof;
(E) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of
all or substantially all the Capital Stock or assets of such Restricted
Subsidiary pending the closing of such sale or disposition;
(F) customary provisions in joint venture agreements relating solely to
the securities, assets and revenues of such joint venture; and
(G) encumbrances or restrictions incurred or entered into during any
Suspension Period; and
(2) with respect to clause (c) only,
(A) any such encumbrance or restriction (i) consisting of customary
nonassignment provisions in leases governing leasehold interests to the
extent such provisions restrict the transfer of the lease or the
property leased thereunder or (ii) that restricts in a customary manner
the subletting, assignment or transfer of any property or asset that is
subject to a lease, license or similar contract;
(B) restrictions contained in security agreements or mortgages securing
Indebtedness of a Restricted Subsidiary to the extent such restrictions
restrict the transfer of the property subject to such security
agreements or mortgages; and
(C) any encumbrance or restriction by virtue of any transfer or
agreement to transfer, option or right with respect to, or Lien on, any
property or assets of any Restricted Subsidiary not otherwise
prohibited by the Indenture.
Limitation on Sales of Assets and Subsidiary Stock
(a) At any time other than during a Suspension Period, the Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, consummate
any Asset Disposition unless:
(1) the Company or such Restricted Subsidiary receives consideration at the
time of such Asset Disposition at least equal to the fair market value
(including as to the value of all non-cash consideration), as determined in
good faith by the Board of Directors of the Company, of the shares and
assets subject to such Asset Disposition;
(2) at least 75% of the consideration thereof received by the Company or
such Restricted Subsidiary is in the form of cash or cash equivalents; and
(3) an amount equal to 100% of the Net Available Cash from such Asset
Disposition is applied by the Company (or such Restricted Subsidiary, as
the case may be)
(A) first, (i) to the extent that such Asset Disposition is of assets
other than Inventory Collateral, to the extent the Company elects or is
required, to repay Indebtedness under any Credit Agreement and (ii) to
the extent such Asset Disposition is of Inventory Collateral, to the
extent the Company elects or is required, to
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repay Indebtedness secured by a Permitted Inventory Collateral Lien on
the Inventory Collateral ranking prior to the Lien securing the
Company's Note Guarantee;
(B) second, to the extent of the balance of such Net Available Cash
after application in accordance with clause (A), to the extent the
Company elects, to acquire Additional Assets within one year (or enter
into a binding commitment therefor within such one-year period and
acquire such Additional Assets within 6 months after such one-year
period) from the later of the date of such Asset Disposition or the
receipt of such Net Available Cash and to the extent the assets
disposed of constituted Inventory Collateral, such Additional Assets
shall be Inventory Collateral;
(C) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B), the Issuer
will make an offer to the holders of the Notes (and (i) except to the
extent such Net Available Cash was from an Asset Disposition of
Inventory Collateral, the Company may make an offer to holders of other
Senior Indebtedness of the Company designated by the Company and (ii)
to the extent such Net Available Cash was from an Asset Disposition of
Inventory Collateral, the Company may make an offer to holders of other
Indebtedness with a Permitted Inventory Collateral Lien ranking prior
to or pari passu with the Lien on the Inventory Collateral securing the
Company's Note Guarantee) to purchase Notes (and, if applicable, such
other Indebtedness of the Company) pursuant to and subject to the
conditions contained in the Indenture; and
(D) fourth, any balance of such Net Available Cash after application in
accordance with clauses (A), (B) and (C) above (or to the extent any
offer made in accordance with clause (C) above is not accepted) may be
used by the Company for its general corporate purposes.
Notwithstanding the foregoing provisions of this covenant, the Issuer will not
be required to apply any Net Available Cash in accordance with clause (C) above
until such time as the aggregate Net Available Cash from all Asset Dispositions
which is not applied in accordance with clauses (A) and (B) exceeds $10.0
million. Pending application of Net Available Cash pursuant to this covenant,
such Net Available Cash may be invested in any manner not prohibited by the
Indenture or applied to temporarily reduce revolving credit indebtedness.
(b) For the purposes of this covenant, the following are deemed to be cash or
cash equivalents:
(1) the assumption of Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company or such Restricted Subsidiary
from all liability on such Indebtedness in connection with such Asset
Disposition; and
(2) securities received by the Company or any Restricted Subsidiary from
the transferee that are promptly converted by the Company or such
Restricted Subsidiary into cash.
(c) In the event of an Asset Disposition that requires or results in the
purchase of Notes (and, if applicable, other Indebtedness of the Company)
pursuant to clause (a)(3)(C) above, the Issuer will purchase Notes tendered
pursuant to an offer by the Company for the Notes (and, if applicable, the
Company will purchase such other Indebtedness of the Company) at a purchase
price of 100% of their principal amount (or, subject to the text below relating
to a lesser price, in the event such other Indebtedness of the Company was
issued with original issue discount, 100% of the accreted value thereof) without
premium, plus accrued but unpaid interest (or, in respect of such other
Indebtedness of the Company, such lesser price, if any, as may be provided for
by the terms of such Indebtedness) in accordance with the procedures (including
prorating in the event of oversubscription) set forth in the Indenture. If the
aggregate purchase price of the securities tendered exceeds the Net Available
Cash allotted to their purchase, the Notes and, if applicable, such other
Indebtedness will be purchased on a pro rata basis but in round denominations,
which in the case of the Notes will be denominations of $1,000 principal amount
or multiples thereof.
(d) The Issuer will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Issuer
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will comply with the applicable securities laws and regulations and will not be
deemed to have breached its obligations under the covenant described above by
virtue of its compliance with such securities laws or regulations.
Limitation on Affiliate Transactions
(a) The Company will not, and will not permit any Restricted Subsidiary to,
enter into or permit to exist any transaction (including the purchase, sale,
lease or exchange of any property, employee compensation arrangements or the
rendering of any service) with, or for the benefit of, any Affiliate of the
Company (an "Affiliate Transaction") unless:
(1) the terms of the Affiliate Transaction are no less favorable to the
Company or such Restricted Subsidiary than those that could be obtained at
the time of the Affiliate Transaction in arm's-length dealings with a
Person who is not an Affiliate;
(2) if such Affiliate Transaction involves an amount in excess of $5.0
million, the terms of the Affiliate Transaction are set forth in writing
and a majority of the Board of Directors of the Company has determined in
good faith that the criteria set forth in clause (1) are satisfied and has
approved the relevant Affiliate Transaction as evidenced by a resolution;
and
(3) if such Affiliate Transaction involves an amount in excess of $25.0
million, the Board of Directors of the Company shall also have received a
written opinion from an Independent Qualified Party to the effect that such
Affiliate Transaction is fair, from a financial standpoint, to the Company
and its Restricted Subsidiaries or is not less favorable to the Company and
its Restricted Subsidiaries than could reasonably be expected to be
obtained at the time in an arm's-length transaction with a Person who was
not an Affiliate.
(b) The provisions of the preceding paragraph (a) will not prohibit:
(1) any Investment (other than a Permitted Investment) or other Restricted
Payment, in each case permitted to be made pursuant to the covenant
described under " -- Limitation on Restricted Payments";
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans approved by the Board
of Directors of Parent or the Company;
(3) loans or advances to employees or directors in the ordinary course of
business of the Company or its Restricted Subsidiaries, but in any event
not to exceed $2.5 million in the aggregate outstanding at any one time;
(4) indemnities made in the ordinary course of business to employees or
directors of the Company, its Subsidiaries, the Issuer and the Finco
Guarantors;
(5) the payment of reasonable fees to directors of the Company and its
Restricted Subsidiaries who are not employees of the Company or its
Restricted Subsidiaries or Parent;
(6) any transaction with a Restricted Subsidiary or joint venture or
similar entity (including, without limitation, the Existing Joint Ventures)
which would constitute an Affiliate Transaction solely because the Company
or a Restricted Subsidiary owns an equity interest in or otherwise controls
such Restricted Subsidiary or joint venture or similar entity (including,
without limitation, the Existing Joint Ventures);
(7) the issuance or sale of any Capital Stock (other than Disqualified
Stock) of the Company;
(8) the purchase and sale of raw materials, steel and steel-related
products and services with Affiliates conducted in the ordinary course of
business of the Company and its Restricted Subsidiaries, the terms of which
are no less favorable to the Company or any Restricted Subsidiary than
those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not an Affiliate;
97
(9) the payment of reasonable management fees to Parent or its Subsidiaries
in an aggregate amount not to exceed $10.0 million in any fiscal year;
(10) sales or other transfers or dispositions of (x) Receivables and
Related Assets and (y) Inventory and Related Assets each in Qualified
Securitization Transactions, acquisitions of Permitted Investments in
connection with a Qualified Securitization Transaction and the entering
into of Standard Securitization Undertakings in connection with a Qualified
Securitization Transaction;
(11) any transaction with the Issuer or, prior to a Permitted Finco
Collapse Transaction, any Finco Guarantor; and
(12) any Affiliate Transaction entered into during any Suspension Period.
Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries
At any time other than during a Suspension Period, the Company
(1) will not, and will not permit any Restricted Subsidiary to, sell,
lease, transfer or otherwise dispose of any Capital Stock of any Restricted
Subsidiary to any Person (other than the Company or a Wholly-Owned
Subsidiary), and
(2) will not permit any Restricted Subsidiary to issue any of its Capital
Stock (other than, if necessary, shares of its Capital Stock constituting
directors' or other legally required qualifying shares) to any Person
(other than to the Company or a Wholly-Owned Subsidiary),
unless:
(A) immediately after giving effect to such issuance, sale or other
disposition, neither the Company nor any of its Subsidiaries owns
any Capital Stock of such Restricted Subsidiary; or
(B) immediately after giving effect to such issuance, sale or other
disposition, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and any Investment in such Person remaining
after giving effect thereto is treated as a new Investment by the
Company and such Investment would be permitted to be made under the
covenant described under " -- Limitation on Restricted Payments" if
made on the date of such issuance, sale or other disposition.
Limitation on Liens
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, Incur or permit to exist any Lien on the First Mortgage
Bonds Collateral (as defined under "Description of the first mortgage bonds --
First Mortgage Bonds Collateral") other than Permitted First Mortgage Bonds
Collateral Liens.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, Incur or permit to exist any Lien on
the Inventory Collateral other than Permitted Inventory Collateral Liens.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, Incur or permit to exist any Lien on the Capital Stock
of any Subsidiary of the Company that directly or indirectly owns any interest
in I/N Kote or I/N Tek, other than Permitted Liens of the types described in
clauses (2) and (4) of the definition of "Permitted Liens"; provided that the
foregoing will not apply to the extent the Company or a Company Guarantor
effectively provides that the applicable Note Guarantees shall be secured
equally and ratably with (or prior to) the obligations so secured for so long as
such obligations are so secured.
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, Incur or permit to exist any Lien (the "Initial Lien")
of any nature whatsoever on any of its properties (including Capital Stock of a
Restricted Subsidiary), whether owned at the Issue Date or thereafter acquired,
other than Permitted
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Liens; provided that the foregoing will not apply to the extent the Company or a
Company Guarantor effectively provides that the applicable Note Guarantees shall
be secured equally and ratably with (or prior to) the obligations so secured for
so long as such obligations are so secured.
Any Lien created for the benefit of the holders of the Notes pursuant
to the provisos in the preceding two paragraphs shall provide by its terms that
such Lien shall be automatically and unconditionally released and discharged
upon the release and discharge of the Initial Lien (or Lien upon the applicable
Capital Stock, as applicable).
Limitation on Sale/Leaseback Transactions
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any Sale/Leaseback Transaction with respect to any property unless:
(1) the Company or such Restricted Subsidiary would be entitled to (A)
Incur Indebtedness in an amount equal to the Attributable Debt with respect
to such Sale/Leaseback Transaction pursuant to the covenant described under
" -- Limitation on Indebtedness" and (B) create a Lien on such property
securing such Attributable Debt pursuant to the covenant described under "
-- Limitation on Liens";
(2) the net proceeds received by the Company or any Restricted Subsidiary
in connection with such Sale/Leaseback Transaction are at least equal to
the fair market value (as determined by the Board of Directors of the
Company) of such property; and
(3) the Company applies the proceeds of such transaction in compliance with
the covenant described under " -- Limitation on Sale of Assets and
Subsidiary Stock."
Merger and Consolidation
The Company will not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, directly or
indirectly, all or substantially all its assets to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor Company")
shall be a Person organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia and the
Successor Company (if not the Company) shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
Mortgage, the First Mortgage Bonds, the Company's Note Guarantee and the
Indenture;
(2) immediately after giving pro forma effect to such transaction (and
treating any Indebtedness which becomes an obligation of the Successor
Company or any Subsidiary as a result of such transaction as having been
Incurred by such Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing;
(3) at any time other than during a Suspension Period, immediately after
giving pro forma effect to such transaction, the Successor Company would be
able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a)
of the covenant described under " -- Limitation on Indebtedness";
(4) at any time other than during a Suspension Period, immediately after
giving pro forma effect to such transaction, the Successor Company shall
have Consolidated Net Worth in an amount that is not less than the
Consolidated Net Worth of the Company immediately prior to such
transaction;
(5) the Company shall have delivered to the Trustee an officers'
certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture and the Mortgage and that all necessary actions
have been taken to preserve the priority and perfection of the Lien of the
Mortgage on the First Mortgage Bonds Collateral; and
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(6) the Company shall have delivered to the Trustee an Opinion of Counsel
to the effect that the holders will not recognize income, gain or loss for
Federal income tax purposes as a result of such transaction and will be
subject to Federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such transaction had not
occurred;
provided that clauses (3) and (4) will not be applicable to (A) a Restricted
Subsidiary consolidating with, merging into or transferring all or part of its
properties and assets to the Company or (B) the Company merging with an
Affiliate of the Company solely for the purpose and with the sole effect of
reincorporating the Company in another jurisdiction.
The Successor Company will be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Note Guarantee, and the predecessor Company, except in the
case of a lease, shall be released from the obligations under its Note Guarantee
and the Indenture.
The Company will not permit any Company Guarantor to consolidate with
or merge with or into, or convey, transfer or lease, in one transaction or a
series of transactions, all or substantially all of its assets to any Person
unless:
(1) except in the case of a Company Guarantor that has been disposed of in
its entirety to another Person (other than to the Company or another
Company Guarantor), whether through a merger, consolidation or sale of
Capital Stock or assets, if in connection therewith, at any time other than
during a Suspension Period, the Company provides an officer's certificate
to the Trustee to the effect that the Company will comply with its
obligations under the covenant described under " -- Limitation on Sales of
Assets and Subsidiary Stock" in respect of such disposition, the resulting,
surviving or transferee Person (if not such Subsidiary) shall be a Person
organized and existing under the laws of the jurisdiction under which such
Subsidiary was organized or under the laws of the United States of America,
or any State thereof or the District of Columbia, and such Person shall
expressly assume, by supplemental indenture, in a form satisfactory to the
Trustee, all the obligations of such Subsidiary under its Note Guarantee
and the Indenture;
(2) immediately after giving effect to such transaction or transactions on
a pro forma basis (and treating any Indebtedness which becomes an
obligation of the resulting, surviving or transferee Person as a result of
such transaction as having been Incurred by such Person at the time of such
transaction), no Default shall have occurred and be continuing; and
(3) the Company delivers to the Trustee an officers' certificate and an
Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture, if any, comply with the
Indenture.
Future Company Guarantors
The Indenture provides that (i) if the Company forms or acquires a
domestic Restricted Subsidiary which, or (ii) if any domestic Restricted
Subsidiary of the Company on the Issue Date at any time following the Issue
Date, in each case, (x) Incurs Indebtedness other than Indebtedness owed to or a
Guarantee in favor of the Company or a Guarantor or (y) owns net assets (other
than intercompany receivables owing from the Company to a Restricted Subsidiary)
with a fair market value in excess of $5.0 million (as determined by the Board
of Directors of the Company) (in each case, other than a Securitization
Subsidiary), the Company will cause such Subsidiary to execute a supplemental
indenture pursuant to which such Subsidiary shall guarantee the Notes pursuant
to a Note Guarantee.
Limitation on Amendment of Mortgage
The Indenture provides that the Company will not permit any amendment
to be made to the Mortgage, which requires the consent of holders of the Bonds,
unless the holders of a majority in aggregate principal amount of the Notes
outstanding have consented thereto.
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Limitation on Business Activities
At any time except during a Suspension Period, the Company will not,
and will not permit any Restricted Subsidiary to, enter into any line of
business other than the businesses engaged in by the Company and its
Subsidiaries on the Issue Date as described in this prospectus and businesses
that are reasonably related thereto or reasonable extensions thereof.
COVENANTS OF THE ISSUER AND THE FINCO GUARANTORS PRIOR TO A PERMITTED FINCO
COLLAPSE TRANSACTION
Prior to the consummation of a Permitted Finco Collapse Transaction,
neither the Issuer nor any Finco Guarantor will engage in any business or
activities other than performing its obligations under the Indenture, the Pledge
Agreement, the Purchase Agreement, the Registration Rights Agreement (and any
customary future purchase agreement or registration rights agreement in
connection with any offering of Additional Notes), the Finco Mirror Note, the
Notes and the Note Guarantees, as applicable, and activities reasonably
incidental thereto.
Without limitation of the foregoing restrictions, prior to the
consummation of a Permitted Finco Collapse Transaction:
(a) neither the Issuer nor any Finco Guarantor will, directly or
indirectly, Incur or suffer to exist any Indebtedness or other liability
other than pursuant to (i) the Finco Subordinated Note; (ii) the Notes
issued on the Issue Date (and Additional Notes to the extent that the
Company has issued a like principal amount of First Mortgage Bonds to the
Issuer or a Finco Guarantor which have been pledged to the Trustee for the
benefit of the holders of Notes), the Indenture, the Pledge Agreement, the
Note Guarantees, the Purchase Agreement and the Registration Rights
Agreement (and any customary future purchase agreement or registration
rights agreement relating to an offering of Additional Notes); (iii)
Indebtedness among the Issuer and the Finco Guarantors consisting of
Subordinated Obligations; (iv) Ispat Inland Finance, LLC's obligations (x)
pursuant to any Inventory Intercreditor Agreement and (y) as pledgor of
Bonds to the PBGC pursuant to the PBGC Pledge Agreement as in effect on the
Issue Date and as amended to the extent no such amendment is adverse to the
holders of Notes (it being understood that an amendment to the maturity of
the Bonds and any increase in the interest rate applicable to the Bonds or
other amendment which does not increase in any material respect the
potential liability of Ispat Inland Finance, LLC thereunder shall not be
deemed to be adverse to the holders); (v) liabilities for taxes as a result
of the operation of the Issuer and the Finco Guarantors in accordance with
the Indenture which are not yet due or which are being contested in good
faith by appropriate proceeding and for which adequate reserves are being
maintained; (vi) administrative expenses, including legal, SEC reporting
and accounting expenses; and (vii) other liabilities incidental to the
performance of their obligations under the Indenture, the Notes, the Note
Guarantees and the Pledge Agreement and the other transactions contemplated
hereby;
(b) the Issuer and the Finco Guarantors will not sell or otherwise dispose
of any of the Collateral other than pursuant to " -- Permitted Finco
Collapse Transaction," including any shares of Capital Stock constituting a
portion of the Collateral, or merge into or consolidate with any Person;
(c) the Issuer and the Finco Guarantors will not create or otherwise cause
or permit to exist or become effective any consensual encumbrance or
restriction (other than pursuant to the Indenture and the Pledge Agreement)
on the ability of Ispat Inland, L.P. to make payments on the Finco Mirror
Note in accordance with its terms or the ability of the Issuer or any Finco
Guarantor to (i) make distributions on or repurchase its Capital Stock,
(ii) make loans or advances to the Issuer, any Finco Guarantor or the
Company or (iii) transfer any of its property or assets to the Issuer, a
Finco Guarantor or the Company (other than restrictions on transfer of the
Bonds of Ispat Inland Finance, LLC that are pledged to the PBGC under the
PBGC Pledge Agreement);
(d) Ispat Inland, L.P. shall maintain funds legally available to make
payments on the Finco Mirror Note, and each of the other Finco Guarantors
will maintain funds legally available in order to cause an amount of cash
to be received by Ispat Inland, L.P. sufficient for Ispat Inland, L.P. to
make payments on the Finco Mirror Note, in each case, on each date on which
any payment is required to be made with respect to any Note;
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(e) Ispat Inland, L.P. will make payments on the Finco Mirror Note in
accordance with its terms on each date on which any payment is required to
be made and each of the other Finco Guarantors shall cause an amount of
cash to be distributed to Ispat Inland, L.P. sufficient to provide funds
for Ispat Inland, L.P. to make payments on the Finco Mirror Note on each
date on which any payment is required to be made with respect to any Note;
(f) the Issuer and the Finco Guarantors will not take or knowingly or
negligently omit to take any action which action or omission would have the
result of materially and adversely impairing the security interest with
respect to the Collateral other than as expressly contemplated by the
Indenture and the Pledge Agreement; and
(g) the Issuer and the Finco Guarantors will not, directly or indirectly,
redeem, repurchase or pay any dividend or any other distribution on any of
Ispat Inland, L.P.'s Capital Stock or make any Investment in any Person
other than (i) Investments in the Issuer or a Finco Guarantor, (ii)
Investments consisting of loans of Excess Finco Proceeds to the Company in
exchange for a like aggregate principal amount of Company Notes, (iii)
Investments in the First Mortgage Bonds which are outstanding on the Issue
Date and additional First Mortgage Bonds which are pledged as Collateral
for the Notes, (iv) Investments in the Capital Stock of the Company, (v)
Investments by Ispat Inland Finance, LLC in Bonds held by it on the Issue
Date that are pledged to the PBGC pursuant to the PBGC Pledge Agreement,
(vi) Investments in Temporary Cash Investments and (vii) Investments (which
are not made out of cash or Temporary Cash Investments) by the Finco
Guarantors in the Capital Stock of any direct or indirect parent company of
the Company (which Investments may involve transfers of Capital Stock among
the Finco Guarantors).
PERMITTED FINCO COLLAPSE TRANSACTION
Notwithstanding the foregoing restrictions on the Issuer and the Finco
Guarantors, the Issuer and the Finco Guarantors will be permitted to undertake a
Permitted Finco Collapse Transaction at any time when no Default has occurred
and is continuing. For purposes of the Indenture, a "Permitted Finco Collapse
Transaction" will be defined as a transaction in which, unless otherwise
specified below, each of the following events occur:
(a) Ispat Inland, L.P. transfers (including through a series of transfers
among Finco Guarantors) or causes to be transferred to the Issuer (x) any
First Mortgage Bonds held by any Finco Guarantor and (y) any Indebtedness
owed by the Issuer to any Finco Guarantor and the Finco Mirror Note is
retired (and in connection therewith the rate of interest payable by the
Company on the First Mortgage Bonds will be reduced by 0.50%);
(b) Ispat Inland, L.P. transfers all of the Capital Stock of the Issuer to
a newly formed limited liability company (the "Successor Issuer") organized
and existing under the laws of the United States of America, any State
thereof or the District of Columbia which has no material assets or
liabilities and all of the Capital Stock of which is owned by Ispat Inland
Holdings, Inc. or any successor entity which owns directly a majority of
the Voting Stock of the Company (the "Company Parent");
(c) any Finco Guarantor may, if it so elects, transfer (including through a
series of transfers among Finco Guarantors) or cause to be transferred to
the Issuer, the Successor Issuer or the Company Parent (i) any Capital
Stock of the Company that is owned by any Finco Guarantor and/or (ii) the
Bonds that are pledged by Ispat Inland Finance, LLC to the PBGC pursuant to
the PBGC Pledge Agreement (and Ispat Inland Finance, LLC's obligations
pursuant to the PBGC Pledge Agreement), in each case, in exchange for
Capital Stock of the Company Parent;
(d) the Issuer liquidates into the Successor Issuer;
(e) the Company Parent shall execute and deliver to the Trustee a
supplement to the Pledge Agreement, in form satisfactory to the Trustee,
pursuant to which the Capital Stock of the Successor Issuer shall be
pledged to the Trustee as Collateral for the Successor Issuer's obligations
under the Notes and the Indenture;
(f) the Successor Issuer shall expressly assume by supplemental indenture
executed and delivered to the Trustee, in form satisfactory to the Trustee,
all obligations of the Issuer under the Indenture;
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(g) the Successor Issuer shall execute and deliver to the Trustee, in form
satisfactory to the Trustee, a supplement to the Pledge Agreement pursuant
to which it shall expressly assume all obligations of the Issuer under the
Pledge Agreement and pledge to the Trustee the First Mortgage Notes and any
Indebtedness of the Company held by it as Collateral for its obligations
under the Notes and the Indenture;
(h) all filings and other actions necessary to preserve the perfection and
priority of the Lien of the Trustee on the Collateral shall be made and
taken;
(i) the Company shall deliver to the Trustee an officers' certificate and
an Opinion of Counsel, each stating that such transfer and such
supplemental indenture and supplements to the Pledge Agreement comply with
the Indenture and the Pledge Agreement and that all necessary actions have
been taken to preserve the priority and perfection of the Lien of the
Trustee on the Collateral; and
(j) the Company shall deliver to the Trustee an Opinion of Counsel to the
effect that the holders will not recognize income, gain or loss for Federal
income tax purposes as a result of such transaction and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such transaction had not occurred.
Upon compliance with each of the foregoing requirements, (i) the
Successor Issuer shall be the successor to the Issuer and shall succeed to, and
be substituted for, and may exercise every right and power of, the Issuer under
the Indenture, the Notes and the Pledge Agreement and the predecessor Issuer
shall be released from its obligations under the Indenture, the Notes and the
Pledge Agreement and (ii) all remaining property or assets of any Finco
Guarantor constituting a portion of the Collateral shall be released from the
Lien of the Pledge Agreement and each Finco Guarantor shall be released from the
Indenture, the Pledge Agreement and its Note Guarantee and all references to a
"Finco Guarantor" in the Indenture and the Pledge Agreement shall no longer be
deemed to refer to such entities.
For purposes of the covenant described under " -- Certain Covenants --
Limitation on Indebtedness," any Indebtedness of the Company or any Restricted
Subsidiaries that, immediately following such Permitted Finco Collapse
Transaction, is held by entities that were Finco Guarantors immediately prior to
such Permitted Finco Collapse Transaction shall be deemed to be an Incurrence of
Indebtedness by the Company or the applicable Restricted Subsidiary on such
date.
For purposes of the covenant described under " -- Certain Covenants --
Restricted Payments," the amount of cash and Temporary Cash Investments that,
immediately following such Permitted Finco Collapse Transaction, is held by
entities that were Finco Guarantors immediately prior to such Permitted Finco
Collapse Transaction shall be deemed to be a Restricted Payment by the Company
on the date of such Permitted Finco Collapse Transaction.
COVENANTS OF THE ISSUER FOLLOWING A PERMITTED FINCO COLLAPSE TRANSACTION
Following the consummation of a Permitted Finco Collapse Transaction,
the Issuer will not engage in any business or activities other than performing
its obligations under the Indenture, the Pledge Agreement, the Purchase
Agreement, the Registration Rights Agreement (and any customary future purchase
agreement or registration rights agreement in connection with any offering of
Additional Notes), and the Notes, and activities reasonably incidental thereto.
Without limitation of the foregoing restrictions, following the
consummation of a Permitted Finco Collapse Transaction:
(a) the Issuer will not, directly or indirectly, Incur or suffer to exist
any Indebtedness or other liability other than (i) pursuant to the Finco
Subordinated Note; (ii) the Notes issued on the Issue Date (and Additional
Notes to the extent that the Company has issued a like principal amount of
First Mortgage Bonds to the Issuer which have been pledged to the Trustee
for the benefit of the holders of Notes), the Indenture, the Pledge
Agreement, the Purchase Agreement and the Registration Rights Agreement
(and any customary future purchase agreement or registration rights
agreement relating to an offering of Additional Notes); (iii) liabilities
for taxes as a result of
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the operation of the Issuer in accordance with the Indenture which are not
yet due or which are being contested in good faith by appropriate
proceeding and for which adequate reserves are being maintained; (iv)
administrative expenses, including legal, SEC reporting and accounting
expenses; (v) if the Bonds and the related obligations of Ispat Inland
Finance, LLC under the PBGC Pledge Agreement were transferred to the Issuer
in the Permitted Finco Collapse Transaction, the Issuer may have
liabilities with respect to a pledge of such Bonds to the PBGC to the
extent Ispat Inland Finance, LLC would have been permitted to have such
liabilities prior to a Permitted Finco Collapse Transaction; (vi) other
liabilities incidental to the performance of the Issuer's obligations under
the Indenture, the Notes and the Pledge Agreement and the other
transactions contemplated hereby; and (vii) liabilities under any Inventory
Intercreditor Agreement;
(b) the Issuer will not sell or otherwise dispose of any of the Collateral
or merge into or consolidate with any Person;
(c) the Issuer will not create or otherwise cause or permit to exist or
become effective any consensual encumbrance or restriction (other than
pursuant to the Indenture and the Pledge Agreement) on the ability of the
Issuer to (i) make loans or advances to the Company or (ii) transfer any of
its property or assets (other than restrictions with respect to any Bonds
pledged to the PBGC) to the Company;
(d) the Issuer will not take or knowingly or negligently omit to take, any
action which action or omission would have the result of materially and
adversely impairing the security interest with respect to the Collateral
other than as expressly contemplated by the Indenture and the Pledge
Agreement; and
(e) the Issuer will not redeem, repurchase or pay any dividend or any other
distribution on any of its Capital Stock or make any Investment in any
Person other than (i) Investments consisting of loans of Excess Finco
Proceeds to the Company in exchange for a like aggregate principal amount
of Company Notes, (ii) Investments in the First Mortgage Bonds which are
outstanding on the Issue Date and additional First Mortgage Bonds which are
pledged as Collateral for the Notes, (iii) Investments in the Capital Stock
of the Company, (iv) Investments in Temporary Cash Investments and (v)
Investments in Bonds and Capital Stock of the Company transferred to it in
a Permitted Finco Collapse Transaction.
COVENANTS OF PARENT
Limitation on Steelmaking Business
At any time other than during a Suspension Period, Parent will not and
will not permit any of its Subsidiaries (other than the Company and its
Subsidiaries) to, acquire any U.S. Steelmaking Business, unless upon the
consummation of such acquisition (if such acquisition is otherwise in compliance
with the requirements set forth in the Indenture), the U.S. Steelmaking Business
is owned by the Company or any of its Restricted Subsidiaries.
Limitation on Merger or Consolidation of Parent
Parent will not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, directly or
indirectly, all or substantially all its assets to, any Person, unless:
(1) the resulting, surviving or transferee Person (the "Successor Parent")
shall be a Person organized and existing under the laws of any member
nation of the European Union (as constituted on the Issue Date) or Canada
or the laws of any political subdivision thereof or the laws of the United
States of America, any State thereof or the District of Columbia and the
Successor Parent (if not Parent) shall expressly assume, by a supplemental
indenture, executed and delivered to the Trustee, in form satisfactory to
the Trustee, all the obligations of Parent under its Note Guarantee and the
Indenture;
(2) immediately after giving pro forma effect to such transaction, no
Default shall have occurred and be continuing;
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(3) Parent shall have delivered to the Trustee an officers' certificate and
an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the
Indenture;
(4) Parent shall have delivered to the Trustee an Opinion of Counsel to the
effect that the holders will not recognize income, gain or loss for U.S.
Federal income tax purposes as a result of such transaction and will be
subject to U.S. Federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such transaction had
not occurred; and
(5) Parent shall have delivered an Opinion of Counsel in the jurisdiction
of organization of Parent (if other than the United States) to the effect
that the holders of the Notes (other than holders that are resident in such
jurisdiction or that have a permanent establishment in such jurisdiction to
which the Notes are attributable) will not recognize income, gain or loss
for income tax purposes of such jurisdiction as a result of such
transaction and will be subject to income tax in such jurisdiction on the
same amounts, in the same manner and at the same times as would have been
the case if such transaction had not occurred.
The Successor Parent will be the successor to Parent and shall succeed
to, and be substituted for, and may exercise every right and power of, Parent
under Parent's Note Guarantee and the Indenture, and the predecessor Parent,
except in the case of a lease, shall be released from its Note Guarantee and its
other obligations under the Indenture.
SEC REPORTS
Notwithstanding that the Issuer and the Guarantors may not be subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the
Issuer and the Guarantors will file with the SEC and provide the Trustee and
holders of Notes with such annual reports and such information, documents and
other reports as are specified in Sections 13 and 15(d) of the Exchange Act and
applicable to a U.S. corporation subject to such Sections, such information,
documents and other reports to be so filed and provided at the times specified
for the filings of such information, documents and reports under such Sections
(which shall include (i) consolidated financial statements of Ispat Inland, L.P.
and its subsidiaries, including the Issuer, prior to a Permitted Finco Collapse
Transaction and (ii) financial statements of the Issuer following a Permitted
Finco Collapse Transaction); provided, that in lieu of any annual report
required of U.S. corporations, Parent may file and provide such annual report
required of foreign private issuers subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act.
DEFAULTS
Each of the following is an Event of Default:
(1) a default in the payment of interest or Additional Amounts on the Notes
when due, continued for 30 days;
(2) a default in the payment of principal of any Note when due at its
Stated Maturity, upon optional redemption, upon required purchase, upon
declaration of acceleration or otherwise;
(3) (i) the failure by the Company or any Company Guarantor to comply with
its obligations under " -- Certain Covenants -- Merger and Consolidation"
or " -- Certain Covenants -- Limitation on Amendment of Mortgage" above;
(ii) the failure of the Issuer or any Finco Guarantor to comply with its
obligations under clause (b) of " -- Covenants of the Issuer and the Finco
Guarantors Prior to a Permitted Finco Collapse Transaction" or clause (b)
of " -- Covenants of the Issuer Following a Permitted Finco Collapse
Transaction"; (iii) the failure by the Issuer or any Finco Guarantor to
comply with any of its obligations under clauses (c) through (f) of " --
Covenants of the Issuer and the Finco Guarantors Prior to a Permitted Finco
Collapse Transaction," which failure continues for 30 days or the failure
by the Issuer to comply with its obligations under clauses (c) or (d) of "
-- Covenants
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of the Issuer Following a Permitted Finco Collapse Transaction" which
failure continues for 30 days; or (iv) the failure by Parent to comply with
its obligations under " -- Covenants of Parent";
(4) (i) the failure by the Company or any Company Guarantor, as the case
may be, to comply for 30 days after notice with any of its obligations in
the covenants described above under " -- Change of Control" (other than a
failure to purchase Notes which shall be governed by clause (2) above) or
under " -- Certain Covenants" under " -- Limitation on Indebtedness," " --
Limitation on Restricted Payments," " -- Limitation on Sales of Assets and
Subsidiary Stock" (other than a failure to purchase Notes which shall be
governed by clause (2) above), and " -- Limitation on Liens" or (ii) the
failure of the Issuer or any Finco Guarantor, as the case may be, to comply
for 30 days after notice with any of its obligations under clauses (a) or
(g) of " -- Covenants of the Issuer and the Finco Guarantors Prior to a
Permitted Finco Collapse Transaction" or the failure by the Issuer to
comply for 30 days after notice with any of its obligations in clause (a)
or (e) of " -- Covenants of the Issuer Following a Permitted Finco Collapse
Transaction";
(5) the failure by the Issuer or any Guarantor to comply for 60 days after
notice with its other agreements contained in the Indenture, the Mortgage
or the Pledge Agreement;
(6) Indebtedness of Parent, the Company, any Company Guarantor or any
Significant Subsidiary is not paid within any applicable grace period after
final maturity or is accelerated by the holders thereof because of a
default and the total amount of such Indebtedness unpaid or accelerated
exceeds $10.0 million, or in the case of Parent, $25.0 million (the
"cross-acceleration provision");
(7) certain events of bankruptcy, insolvency or reorganization of the
Issuer, any Guarantor or any Significant Subsidiary (the "bankruptcy
provisions"); or
(8) any judgment or decree for the payment of money in excess of $10.0
million, or in the case of Parent, $25.0 million is entered against Parent,
the Company, any Company Guarantor or any Significant Subsidiary, remains
outstanding for a period of 60 consecutive days following such judgment and
is not discharged, waived or stayed within 10 days after notice (the
"judgment default provision");
(9) any Note Guarantee ceases to be in full force and effect (other than in
accordance with the terms of such Note Guarantee and the Indenture) or any
Guarantor denies or disaffirms its obligations under its Note Guarantee;
(10) with respect to any Collateral, (A) any material Lien under the
Collateral Documents, at any time, ceases to be in full force and effect
for any reason other than in accordance with the terms of the Collateral
Documents and the Indenture and other than the satisfaction in full of all
obligations under the Indenture and discharge of the Indenture, (B) any
security interest created thereunder or under the Indenture is declared
invalid or unenforceable, (C) the Company or any Pledgor asserts, in any
pleading in any court of competent jurisdiction, that any such security
interest is invalid or unenforceable or (D) any Person commences a
foreclosure proceeding in respect of any material part of the Collateral;
(11) with respect to any material amount of First Mortgage Bonds
Collateral, (A) the security interest under the Mortgage, at any time,
ceases to be in full force and effect for any reason other than in
accordance with its terms, (B) any security interest created thereunder is
declared invalid or unenforceable, (C) the Company asserts, in any pleading
in any court of competent jurisdiction, that any such security interest is
invalid or unenforceable or (D) any Person commences a foreclosure
proceeding in respect thereof; or
(12) The Parent Subordination Agreement shall cease to be in full force and
effect or the Company or any holder of Existing Shareholder Advances shall
assert the invalidity of any provision of the Parent Subordination
Agreement.
However, a default under clauses (4), (5) and (8) will not constitute an Event
of Default until the Trustee or the holders of 25% in principal amount of the
outstanding Notes notify the Issuer of the default and the Issuer does not cure
such default within the time specified after receipt of such notice.
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If an Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the outstanding Notes may declare
the principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Issuer, any Finco Guarantor,
Parent or the Company occurs and is continuing, the principal of and interest on
all the Notes will ipso facto become and be immediately due and payable without
any declaration or other act on the part of the Trustee or any holders of the
Notes. If an Event of Default exists solely by reason of an acceleration of
Indebtedness under clause (6), and such acceleration is rescinded by the holders
of such Indebtedness prior to the time the Notes have been accelerated, such
Event of Default shall cease to exist. Under certain circumstances, the holders
of a majority in principal amount of the outstanding Notes may rescind any such
acceleration with respect to the Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of
the Trustee, in case an Event of Default occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of a Note
may pursue any remedy with respect to the Indenture or the Notes unless:
(1) such holder has previously given the Trustee notice that an Event of
Default is continuing;
(2) holders of at least 25% in principal amount of the outstanding Notes
have requested the Trustee to pursue the remedy;
(3) such holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense;
(4) the Trustee has not complied with such request within 60 days after the
receipt thereof and the offer of security or indemnity; and
(5) holders of a majority in principal amount of the outstanding Notes have
not given the Trustee a direction inconsistent with such request within
such 60-day period.
Subject to certain restrictions, the holders of a majority in principal
amount of the outstanding Notes are given the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights of
any other holder of a Note or that would involve the Trustee in personal
liability.
If a Default occurs, is continuing and is known to the Trustee, the
Trustee must mail to each holder of the Notes notice of the Default within 90
days after it occurs. Except in the case of a Default in the payment of
principal of or interest on any Note, the Trustee may withhold notice if and so
long as a committee of its trust officers determines that withholding notice is
not opposed to the interest of the holders of the Notes. In addition, the Issuer
is required to deliver to the Trustee, within 120 days after the end of each
fiscal year, a certificate indicating whether the signers thereof know of any
Default that occurred during the previous year. The Issuer is required to
deliver to the Trustee, within 30 days after the occurrence thereof, written
notice of any event which would constitute certain Defaults, their status and
what action the Issuer is taking or proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture, the Collateral Documents,
the Parent Subordination Agreement, the Finco Mirror Note, the Finco
Subordinated Note, any Company Note, the Intercreditor Agreements and the Notes
may be amended with the consent of the holders of a majority in principal amount
of the Notes then outstanding (including consents obtained in connection with a
tender offer or exchange for the Notes) and any past default or compliance with
any provisions may also be waived with the consent of the holders of a majority
in principal amount of the Notes then outstanding; provided that if any such
amendment or waiver directly and
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disproportionately affects one series of Notes, such amendment or waiver shall
require the consent of the holders of a majority in principal amount of such
series of Notes and if any such amendment only affects one series of Notes the
holders of the other series of Notes shall not be required to consent thereto.
However, without the consent of each holder of an outstanding Note affected
thereby, an amendment may not, among other things:
(1) reduce the amount of Notes whose holders must consent to an amendment;
(2) reduce the rate of or extend the time for payment of interest on any
Note;
(3) reduce the principal of or extend the Stated Maturity of any Note;
(4) reduce the amount payable upon the redemption of any Note or change the
time at which any Note may be redeemed as described under " -- Optional
Redemption" or " -- Redemption for Changes in Withholding Taxes";
(5) make any Note payable in money other than that stated in the Note;
(6) impair the right of any holder of the Notes to receive payment of
principal of and interest on such holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or with
respect to such holder's Notes;
(7) make any change in the amendment provisions which require each holder's
consent or in the waiver provisions;
(8) make any change in the ranking or priority of any Note or any Note
Guarantee that would adversely affect the holders of Notes or release any
Guarantor from its Note Guarantee except as provided in the Indenture;
(9) except as specifically permitted by the Indenture or the Collateral
Documents, make any change in the provisions in the Indenture or the
Collateral Documents dealing with the application of proceeds from
Collateral that would materially and adversely affect the holders of Notes
or release any Pledgor from the Pledge Agreement or release the Company
from the Inventory Security Agreement except as provided in the Indenture
or the Collateral Documents;
(10) make any change in the provisions of the Indenture described under "
-- Additional Amounts" that adversely affects the rights of any Noteholder
or amend the terms of the Notes or the Indenture in a way that would result
in the loss of an exemption from any of the Taxes described thereunder; or
(11) make any change to the provisions described under " -- Change of
Control" after a Change of Control has occurred or any change to the
provisions of " -- Limitation on Sales of Assets and Subsidiary Stock"
after the Issuer has become obligated to offer to purchase Notes.
Notwithstanding the preceding, without the consent of any holder of the
Notes, the Issuer, the Guarantors and the Trustee may amend the Indenture,
Intercreditor Agreements, the Notes, the Collateral Documents, the Parent
Subordination Agreement, the Finco Subordinated Note, any Company Note or the
Finco Mirror Note:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to provide for the assumption by a successor corporation of the
obligations of Parent, the Issuer, the Company or any Company Guarantor
under the Indenture;
(3) to provide for uncertificated Notes in addition to or in place of
certificated Notes (provided that the uncertificated Notes are issued in
registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of
the Code);
(4) to add additional Note Guarantees or Collateral with respect to the
Notes;
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(5) to add to the covenants of the Issuer or any Guarantor for the benefit
of the holders of the Notes or to surrender any right or power conferred
upon the Issuer or any Guarantor;
(6) to make any change that does not adversely affect the rights of any
holder of the Notes;
(7) to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the Trust Indenture Act;
(8) to enter into any Inventory Intercreditor Agreement and subordinate the
Lien of the Trustee under the Inventory Security Agreement to the Lien of
any Person that holds a Lien on the Inventory Collateral permitted by
clause (1) of the definition "Permitted Inventory Collateral Liens" on
terms not less favorable to the holders of the Notes than the terms of the
GECC Intercreditor Agreement and, in connection therewith, to amend the
Inventory Security Agreement to provide such parties rights on terms no
less favorable to the holders of Notes than the rights provided in the
Inventory Security Agreement to the agent and lenders under the GECC Credit
Agreement thereunder; or
(9) to enter into an intercreditor agreement (each such intercreditor
agreement being referred to, together with the Existing Receivables
Intercreditor Agreement, as a "Receivables Intercreditor Agreement") with
any party that has a security interest in Receivables and Related Assets
which is a Permitted Lien on terms no less favorable to the holders of
Notes than the terms of the Existing Receivables Intercreditor Agreement
and, in connection therewith, to amend the Inventory Security Agreement to
provide such parties rights on terms no less favorable to the holders of
Notes than the rights provided to the counterparties of the Company in the
Existing Receivables Intercreditor Agreement.
The provisions under the Indenture relative to the Issuer's obligation
to make an offer to repurchase the Notes as a result of a Change of Control,
prior to the occurrence of a Change of Control, or Asset Disposition, prior to
the Issuer becoming obligated to make an offer to purchase Notes, may be waived
or modified with the written consent of the holders of a majority in principal
amount of the Notes.
The consent of the holders of the Notes is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Issuer
will be required to mail to holders of the Notes a notice briefly describing
such amendment. However, the failure to give such notice to all holders of the
Notes, or any defect therein, will not impair or affect the validity of the
amendment.
TRANSFER
The Notes will be issued in registered form and will be transferable
only upon the surrender of the Notes being transferred for registration of
transfer. The Issuer may require payment of a sum sufficient to cover any tax,
assessment or other governmental charge payable in connection with certain
transfers and exchanges.
SATISFACTION AND DISCHARGE
The Indenture and the Collateral Documents will be discharged and will
cease to be of further effect (except as to rights of registration of transfer
or exchange of Notes, which shall survive until all Notes have been canceled) as
to all outstanding Notes when the Issuer has paid all sums payable by it under
the Indenture and either
(1) all the Notes that have been authenticated and delivered (except lost,
stolen or destroyed Notes which have been replaced or paid and Notes for
whose payment money has been deposited in trust or segregated and held in
trust by the Issuer and thereafter repaid to the Issuer or discharged from
this trust) have been delivered to the Trustee for cancellation, or
(2) (a) all Notes not delivered to the Trustee for cancellation otherwise
have become due and payable or have been called for redemption pursuant to
the provisions described under " -- Optional Redemption," and the Issuer
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has irrevocably deposited or caused to be deposited with the Trustee trust
funds in trust in an amount of money sufficient to pay and discharge the
entire Indebtedness (including all principal and accrued interest) on the
Notes not theretofore delivered to the Trustee for cancellation, and
(b) the Issuer has delivered irrevocable instructions to the Trustee to
apply the deposited money toward the payment of the Notes at maturity or on
the date of redemption, as the case may be.
DEFEASANCE
At any time when no Floating Rate Notes are outstanding, the Issuer may
terminate all its and the Guarantors' obligations under the Notes, the Note
Guarantees, the Collateral Documents and the Indenture ("legal defeasance"),
except for certain obligations, including those respecting the defeasance trust
and obligations to register the transfer or exchange of the Notes, to replace
mutilated, destroyed, lost or stolen Notes and to maintain a registrar and
paying agent in respect of the Notes.
In addition at any time when no Floating Rate Notes are outstanding,
the Issuer may terminate its obligations ("covenant defeasance") under " --
Change of Control" and under the covenants described under " -- Certain
Covenants" (other than the covenant described under " -- Merger and
Consolidation"), the operation of the cross-acceleration provision, the
bankruptcy provisions (other than with respect to Parent, the Company and the
Issuer) and the judgment default provision described under " -- Defaults" above
and the limitations contained in the first paragraph and clauses (3) and (4) of
the second paragraph under " -- Certain Covenants -- Merger and Consolidation"
above (the "defeased provisions").
The Issuer may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Issuer exercises its
legal defeasance option, payment of the Notes and any Note Guarantee may not be
accelerated because of an Event of Default with respect to any defeased
provision. If the Issuer exercises its legal defeasance option, the Guarantors
will be released from all of their obligations with respect to the Note
Guarantees and the Pledge Agreement and the Collateral shall be released from
the Lien of the Pledge Agreement.
In order to exercise either of the defeasance options, the Issuer must
irrevocably deposit in trust (the "defeasance trust") with the Trustee money or
U.S. Government Obligations for the payment of principal and interest on the
Notes to redemption or maturity, as the case may be, and must comply with
certain other conditions, including delivery to the Trustee of (1) an opinion of
counsel to the effect that holders of the Notes will not recognize income, gain
or loss for Federal income tax purposes as a result of such deposit and
defeasance and will be subject to Federal income tax on the same amounts and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such opinion of counsel must be based on a ruling of the Internal Revenue
Service or other change in applicable Federal income tax law) and (2) an opinion
of counsel in the jurisdiction of organization of the Issuer (if other than the
United States) to the effect that holders of the Notes will not recognize
income, gain or loss for income tax purposes of such jurisdiction as a result of
such deposit and defeasance and will be subject to income tax of such
jurisdiction on the same amounts and in the same manner and at the same times as
would have been the case if such deposit and defeasance had not occurred.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Issuer, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; provided, however, if it acquires any conflicting interest
it must either eliminate such conflict within 90 days, apply to the SEC for
permission to continue or resign.
The holders of a majority in principal amount of the outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. If an Event of Default occurs (and is not cured), the
Trustee will be required, in the exercise of its power, to use the degree of
care of a prudent man in the conduct of his own affairs. Subject to such
provisions, the
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Trustee will be under no obligation to exercise any of their rights or powers
under the Indenture or the Collateral Documents at the request of any holder of
Notes, unless such holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense and then
only to the extent required by the terms of the Indenture or the Collateral
Documents.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the
Issuer or any Guarantor, in its capacity as such, will have any liability for
any obligations of the Issuer or any Guarantor under the Notes, the Note
Guarantees, the Intercreditor Agreements, the Collateral Documents, the Finco
Mirror Note or the Indenture or for any claim based on, in respect of, or by
reason of such obligations or their creation. Each holder of the Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver and release
may not be effective to waive liabilities under the U.S. federal securities
laws, and it is the view of the SEC that such a waiver is against public policy.
ENFORCEABILITY OF JUDGMENTS
Since most of Parent's operating assets and the operating assets of
Parent's Subsidiaries are situated outside the United States, any judgment
obtained in the United States against Parent, including judgments with respect
to the payment of principal, interest, additional amounts, redemption price and
any purchase price with respect to the Notes, may not be collectible within the
United States.
We have been informed by our Dutch counsel, De Brauw Blackstone
Westbroek N.V., that in such counsel's opinion, under Dutch law, a judgment
rendered by a court in the United States will not be recognized and enforced by
the Dutch courts. However, if a person has obtained a final and conclusive
judgment for the payment of money rendered by a court in the United States (the
"foreign court") which is enforceable in the United States (the "foreign
judgment") and files its claim with the competent Dutch court, the Dutch court
will generally give binding effect to the foreign judgment insofar as it finds
that the jurisdiction of the foreign court has been based on grounds which are
internationally acceptable and that proper legal procedures have been observed
and unless the foreign judgment contravenes Dutch public policy.
We have also been informed by our Nova Scotia counsel, Stewart McKelvey
Stirling Scales, that in such counsel's opinion, the laws of the Province of
Nova Scotia (the "Province") and the federal laws of Canada applicable therein
permit an action to be brought in a court of competent jurisdiction in the
Province on a final and conclusive judgment in personam of a United States
federal court or a court of the State of New York sitting in the Borough of
Manhattan in The City of New York (the "New York Court"), respecting the
enforcement of the Notes, the Pledge Agreement or the Indenture, that is not
impeachable as void or voidable under the laws of the State of New York and that
is for a sum certain in money if:
(a) that judgment was not obtained by fraud or in a manner contrary to
"natural justice" and the enforcement of that judgment would not be
contrary to "public policy" as such terms are applied by the courts of the
Province;
(b) the New York Court did not act either without jurisdiction under the
conflict of laws rules of the laws of the Province; or without authority,
under the laws in force in New York, to adjudicate concerning the cause of
action or subject matter that resulted in the judgment or concerning the
person of that judgment debtor;
(c) the defendant was duly served with the process of the New York Court or
appeared to defend such process;
(d) the judgment is not contrary to the final and conclusive judgment of
another jurisdiction;
(e) the enforcement of that judgment does not constitute, directly or
indirectly, the enforcement of foreign revenue or penal laws;
(f) the enforcement of the judgment would not be contrary to any order made
by the Attorney-General of Canada under the Foreign Extraterritorial
Measures Act (Canada) or the Competition Tribunal under the
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Competition Act (Canada) in respect of certain judgments, laws, and
directives having effects on competition in Canada; and
(g) the action to enforce that judgment is taken within six years of the
date of the judgment of the New York Court as stipulated in the Limitations
of Actions Act (Nova Scotia)
To the extent the Issuer's or any Finco Guarantor's assets are located
outside the United States, interest, Additional Amounts, redemption price and
any purchase price with respect to the Notes, may not be collectible within the
United States.
CONSENT TO JURISDICTION AND SERVICE
The Issuer and each Guarantor have appointed CT Corporation System, 111
Eighth Avenue, 13th Floor, New York, New York 10011 as its agent for actions
relating to the Notes, the Indenture and the Collateral Documents or brought
under U.S. Federal or state securities laws brought in any Federal or state
court located in the Borough of Manhattan in The City of New York and will
submit to such jurisdiction.
GOVERNING LAW
The Indenture, the Notes, the Note Guarantees, the Finco Mirror Note,
the Parent Subordination Agreement and the Collateral Documents will be governed
by, and construed in accordance with, the laws of the State of New York.
CERTAIN DEFINITIONS
"Additional Assets" means:
(1) any property, plant, equipment or other assets used in a Related
Business;
(2) the Capital Stock of a Person that becomes a Restricted Subsidiary as a
result of the acquisition of such Capital Stock by the Company or another
Restricted Subsidiary; or
(3) Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary;
provided that any such Restricted Subsidiary described in clause (2) or (3)
above is primarily engaged in a Related Business.
"Affiliate" of any specified Person means:
(1) any other Person, directly or indirectly, controlling or controlled by;
or
(2) under direct or indirect common control with such specified Person.
For the purposes of this definition, "control" when used with respect to any
Person means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing. For purposes of the covenants described
under " -- Certain Covenants -- Limitation on Restricted Payments," " -- Certain
Covenants -- Limitation on Affiliate Transactions" and " -- Certain Covenants --
Limitation on Sales of Assets and Subsidiary Stock" only, "Affiliate" shall also
mean any beneficial owner of Capital Stock representing 10% or more of the total
voting power of the Voting Stock (on a fully diluted basis) of the Company or of
rights or warrants to purchase such Capital Stock (whether or not currently
exercisable) and any Person who would be an Affiliate of any such beneficial
owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other
disposition (or series of related sales, leases, transfers or dispositions) by
the Company or any Restricted Subsidiary, including any disposition by means of
a
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merger, consolidation or similar transaction (each referred to for the purposes
of this definition as a "disposition"), of:
(1) any shares of Capital Stock of a Restricted Subsidiary (other than
directors' qualifying shares or shares required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary);
(2) all or substantially all the assets of any division or line of business
of the Company or any Restricted Subsidiary; or
(3) any other assets of the Company or any Restricted Subsidiary outside of
the ordinary course of business of the Company or such Restricted
Subsidiary
(other than, in the case of clauses (1), (2) and (3) above,
(A) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Wholly-Owned Subsidiary (other than
to a Securitization Subsidiary and other than a transfer of Inventory
Collateral outside the ordinary course of business unless the transferee
makes adequate provision to preserve the validity and priority of the Lien
of the Trustee on such Inventory Collateral);
(B) for purposes of the covenant described under " -- Certain Covenants --
Limitation on Sales of Assets and Subsidiary Stock" only, (x) a disposition
that constitutes a Restricted Payment permitted by the covenant described
under " -- Certain Covenants -- Limitation on Restricted Payments" or a
Permitted Investment and (y) a disposition of all or substantially all the
assets of the Company in accordance with the covenant described under " --
Certain Covenants -- Merger and Consolidation";
(C) a disposition of assets with a fair market value of less than $2.0
million;
(D) the sale, transfer or other disposition of (i) Receivables and Related
Assets or (ii) Inventory and Related Assets (provided that if any such
Inventory and Related Assets constitute Inventory Collateral, the Lien of
the Trustee is not released in such transaction) pursuant to a Qualified
Securitization Transaction;
(E) grants of Liens permitted by " -- Certain Covenants -- Limitation on
Liens"; and
(F) sales of (i) obsolete and not practically useable or (ii) worn-out
equipment).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means,
as at the time of determination, the present value (discounted at the interest
rate borne by the Fixed Rate Notes, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended); provided that if such Sale/Leaseback
Transaction results in a Capital Lease Obligation, the amount of Indebtedness
represented thereby will be determined in accordance with the definition of
"Capital Lease Obligation."
"Average Life" means, as of the date of determination, with respect to
any Indebtedness, the quotient obtained by dividing:
(1) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment
of or redemption or similar payment with respect to such Indebtedness
multiplied by the amount of such payment by
(2) the sum of all such payments.
"Board of Directors" in respect of a Person means the Board of
Directors of such Person or any committee thereof duly authorized to act on
behalf of such Board.
"Bonds" means the First Mortgage Bonds and other bonds issued under the
Mortgage.
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"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligation" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty. For purposes of the covenant described under " -- Certain Covenants --
Limitation on Liens," a Capital Lease Obligation will be deemed to be secured by
a Lien on the property being leased.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Documents" means the Pledge Agreement, the Inventory
Security Agreement and each other deed of trust, pledge agreement, collateral
assignment, security agreement, fiduciary transfer or other instrument
evidencing or creating any security interests in favor of the Trustee for the
benefit of holders of the Notes.
"Commodity Hedging Agreement" means agreements or arrangements relating
to the future price of any commodity.
"Company Note" means loans by the Issuer or a Finco Guarantor to the
Company out of Excess Finco Proceeds.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (x) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters for which financial statements have been made
publicly available on or prior to the date of such determination to (y)
Consolidated Interest Expense for such four fiscal quarters; provided that:
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding or
if the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio is an Incurrence of Indebtedness, or both, EBITDA and
Consolidated Interest Expense for such period shall be calculated after
giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period;
(2) if the Company or any Restricted Subsidiary has repaid, repurchased,
defeased or otherwise discharged any Indebtedness since the beginning of
such period or if any Indebtedness is to be repaid, repurchased, defeased
or otherwise discharged (in each case other than Indebtedness Incurred
under any Revolving Credit Facility unless such Indebtedness has been
permanently repaid and has not been replaced) on the date of the
transaction giving rise to the need to calculate the Consolidated Coverage
Ratio, EBITDA and Consolidated Interest Expense for such period shall be
calculated on a pro forma basis as if such discharge had occurred on the
first day of such period and as if the Company or such Restricted
Subsidiary has not earned the interest income actually earned during such
period in respect of cash or Temporary Cash Investments used to repay,
repurchase, defease or otherwise discharge such Indebtedness;
(3) if since the beginning of such period the Company or any Restricted
Subsidiary shall have made any Asset Disposition, EBITDA for such period
shall be reduced by an amount equal to EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Disposition
for such period, or increased by an amount equal to EBITDA (if negative),
directly attributable thereto for such period and Consolidated Interest
Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of
the Company or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
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Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Company and
its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale);
(4) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any person which becomes a Restricted Subsidiary)
or an acquisition or improvement of assets, including any acquisition of
assets occurring in connection with a transaction requiring a calculation
to be made hereunder, which constitutes all or substantially all of an
operating unit of a business, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto
(including the Incurrence or retirement of any Indebtedness) as if such
Investment or acquisition occurred on the first day of such period; and
(5) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or
any Restricted Subsidiary since the beginning of such period) shall have
made any Asset Disposition, any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (3) or (4) above if
made by the Company or a Restricted Subsidiary during such period, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto as if such Asset Disposition, Investment or
acquisition occurred on the first day of such period.
For purposes of this definition, whenever pro forma effect is to be given to a
transaction, the amount of income, earnings or cost savings relating thereto and
the amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting officer of the Company.
If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest on such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term in excess
of 12 months).
"Consolidated Interest Expense" means, for any period, the total
interest expense of the Company and its consolidated Restricted Subsidiaries,
plus, to the extent not included in such total interest expense, and to the
extent incurred by the Company or its Restricted Subsidiaries (or in the case of
clause (11), the Issuer and the Finco Guarantors), without duplication:
(1) interest expense attributable to capital leases and the interest
expense attributable to leases constituting part of a Sale/Leaseback
Transaction;
(2) amortization of debt discount, premium and debt issuance cost;
(3) capitalized interest;
(4) non-cash interest expense (other than interest accruing on loans or
advances from Affiliates outstanding on the Issue Date);
(5) commissions, discounts and other fees and charges owed with respect to
letters of credit and bankers' acceptance financing;
(6) net payments pursuant to Hedging Obligations under Interest Rate
Agreements;
(7) Preferred Stock dividends in respect of all Preferred Stock held by
Persons other than the Company or a Wholly-Owned Subsidiary (other than
dividends payable solely in Capital Stock (other than Disqualified Stock)
of the issuer of such Preferred Stock);
(8) interest incurred in connection with Investments in discontinued
operations;
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(9) interest accruing on any Indebtedness of any other Person to the extent
such Indebtedness is Guaranteed by (or secured by the assets of) the
Company or any Restricted Subsidiary;
(10) the cash contributions to any employee stock ownership plan or similar
trust to the extent such contributions are used by such plan or trust to
pay interest or fees to any Person (other than the Company) in connection
with Indebtedness Incurred by such plan or trust; and
(11) (x) the amount of payments of interest, premium and Additional Amounts
of the Issuer with respect to the Notes and (y) all other consolidated
expenses of the Issuer and the Finco Guarantors (excluding any expenses
paid to the Company or a Restricted Subsidiary);
provided that there shall be excluded from Consolidated Interest Expense (i)
interest expense and premium of the Company and its Restricted Subsidiaries that
is paid to the Issuer or, prior to a Permitted Finco Collapse Transaction, any
Finco Guarantor, (ii) dividends on the Company's Capital Stock paid to the
Issuer or, prior to a Permitted Finco Collapse Transaction, a Finco Guarantor
and (iii) debt issuance cost in connection with the Notes.
"Consolidated Net Income" means, for any period, the consolidated net
income of the Company and its consolidated Subsidiaries; provided that there
shall be excluded from such Consolidated Net Income, without duplication:
(1) any net income of any Person (other than the Company) if such Person is
not a Restricted Subsidiary, except that:
(A) subject to the exclusion contained in clause (3) below, the
Company's equity in the net income of any such Person for such period
shall be included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Person during such period
to the Company or a Restricted Subsidiary as a dividend or other
distribution (subject, in the case of a dividend or other distribution
paid to a Restricted Subsidiary, to the limitations contained in clause
(2) below); and
(B) the Company's equity in a net loss of any such Person for such
period shall be included in determining such Consolidated Net Income;
(2) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that:
(A) subject to the exclusion contained in clause (3) below, the
Company's equity in the net income of any such Restricted Subsidiary
for such period shall be included in such Consolidated Net Income up to
the aggregate amount of cash actually distributed by such Restricted
Subsidiary during such period to the Company or another Restricted
Subsidiary as a dividend or other distribution (subject, in the case of
a dividend or other distribution paid to another Restricted Subsidiary,
to the limitation contained in this clause); and
(B) the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such
Consolidated Net Income;
(3) any gain or loss realized upon the sale or other disposition of any
assets of the Company, its consolidated Subsidiaries or any other Person
(including pursuant to any sale-and-leaseback arrangement) which is not
sold or otherwise disposed of in the ordinary course of business and any
gain or loss realized upon the sale or other disposition of any Capital
Stock of any Person;
(4) extraordinary gains or losses;
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(5) all other non-cash charges of the Company and its consolidated
Restricted Subsidiaries (excluding any such non-cash charge to the extent
that it represents an accrual of or reserve for cash expenditures in any
future period);
(6) the cumulative effect of a change in accounting principles;
(7) interest expense payable by the Company and its Restricted Subsidiaries
to the Issuer or, prior to a Permitted Finco Collapse Transaction, any
Finco Guarantor;
(8) interest income payable to the Company and its Restricted Subsidiaries
by the Issuer or, prior to a Permitted Finco Collapse Transaction, any
Finco Guarantor; and
(9) amortization of debt discount, premium and debt issuance cost in
connection with the sale of the Notes;
provided, further, that Consolidated Net Income will be reduced by the sum of
(i) the amount of payments of interest, premium and Additional Amounts made by
the Issuer with respect to the Notes and (ii) all other consolidated expenses of
the Issuer and the Finco Guarantors (excluding any expenses paid to the Company
or a Restricted Subsidiary and amortization of any debt discount, premium and
debt issuance cost in connection with the sale of the Notes).
Notwithstanding the foregoing, for the purposes of the covenant
described under " -- Certain Covenants -- Limitation on Restricted Payments"
only, there shall be excluded from Consolidated Net Income any repurchases,
repayments or redemptions of Investments, proceeds realized on the sale of
Investments or return of capital to the Company or a Restricted Subsidiary to
the extent such repurchases, repayments, redemptions, proceeds or returns
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company for which financial statements have been made
publicly available on or prior to the taking of any action for the purpose of
which the determination is being made, as the sum of:
(1) the par or stated value of all outstanding Capital Stock of the Company
plus
(2) paid-in capital or capital surplus relating to such Capital Stock plus
(3) any retained earnings or earned surplus
less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Stock.
"Credit Agreements" mean (x) the GECC Credit Agreement, and (y) any
other loan or credit agreement secured by Receivables and Related Assets or
Inventory and Related Assets among the Company and/or any Restricted Subsidiary
and one or more financial Institutions, each as amended, extended, renewed,
restated, supplemented or otherwise modified (in whole or in part, and without
limitation as to amount, terms, conditions, covenants and other provisions) from
time to time, and any agreement (and related document) governing Indebtedness
incurred to Refinance, in whole or in part, the borrowings and commitments then
outstanding or permitted to be outstanding under such Credit Agreement or a
successor Credit Agreement, whether by the same or any other lender or group of
lenders.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
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"Disqualified Stock" means, with respect to any Person, any Capital
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable at the option of the holder) or upon
the happening of any event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise;
(2) is convertible or exchangeable at the option of the holder for
Indebtedness or Disqualified Stock; or
(3) is mandatorily redeemable or must be purchased upon the occurrence of
certain events or otherwise, in whole or in part;
in each case on or prior to the 91st day following the Stated Maturity of the
Fixed Rate Notes; provided, however, that any Capital Stock that would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require such Person to purchase or redeem such Capital Stock upon
the occurrence of an "asset sale" or "change of control" occurring prior to the
91st day following the Stated Maturity of the Fixed Rate Notes shall not
constitute Disqualified Stock if:
(1) the "asset sale" or "change of control" provisions applicable to such
Capital Stock are not more favorable to the holders of such Capital Stock
than the terms applicable to the Notes and described under " -- Certain
Covenants -- Limitation on Sales of Assets and Subsidiary Stock" and " --
Change of Control"; and
(2) any such requirement only becomes operative after compliance with such
terms applicable to the Notes, including the purchase of any Notes tendered
pursuant thereto.
The amount of any Disqualified Stock that does not have a fixed
redemption, repayment or repurchase price will be calculated in accordance with
the terms of such Disqualified Stock as if such Disqualified Stock were
redeemed, repaid or repurchased on any date on which the amount of such
Disqualified Stock is to be determined pursuant to the Indenture; provided that
if such Disqualified Stock could not be required to be redeemed, repaid or
repurchased at the time of such determination, the redemption, repayment or
repurchase price will be the book value of such Disqualified Stock as reflected
in the most recent financial statements of such Person.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
the following to the extent deducted in calculating such Consolidated Net
Income:
(1) all income tax expense of the Company and its consolidated Restricted
Subsidiaries;
(2) Consolidated Interest Expense; and
(3) depreciation and amortization expense of the Company and its
consolidated Restricted Subsidiaries (excluding amortization expense
attributable to a prepaid operating activity item that was paid in cash in
a prior period),
in each case for such period. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and non-cash charges of, a Restricted Subsidiary shall be added to Consolidated
Net Income to compute EBITDA only to the extent (and in the same proportion)
that the net income of such Restricted Subsidiary was included in calculating
Consolidated Net Income and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Restricted
Subsidiary without prior approval (that has not been obtained), pursuant to the
terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to such
Restricted Subsidiary or its stockholders.
Except as described under " -- Certain Covenants -- Limitation on
Indebtedness," whenever it is necessary to determine whether the Company has
complied with any covenant in the Indenture or a Default has occurred and an
amount is expressed in a currency other than U.S. Dollars, such amount will be
treated as the U.S. Dollar Equivalent determined as of the date such amount is
initially determined in such currency.
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"Empire" means Empire Iron Mining Partnership, a partnership in which
the Company owns a 21% interest.
"Empire Agreement" means the Restated Empire Iron Mining Partnership
Agreement dated as of December 1, 1978, as amended to the Issue Date.
"Equity Offering" means an offering (whether public or private) of
common stock of Parent or the Company.
"Excess Finco Proceeds" means, at any time of determination, for any
period, (i) all cash payments received during such period by the Issuer or any
Finco Guarantor in respect of the First Mortgage Bonds and any Capital Stock of
the Company held by the Issuer or any Finco Guarantor less (ii) the sum of (w)
all amounts paid on the Notes during such period, (x) all taxes paid or accrued
during such period, (y) all administrative costs and other expenses paid during
such period and (z) all Investments made in Company Notes prior to such time
during such period.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the debt securities of the Issuer issued
pursuant to the Indenture in exchange for, and in an aggregate principal amount
equal to, the Notes, in compliance with the terms of the Registration Rights
Agreement.
"Existing Joint Ventures" shall mean I/N Kote, I/N Tek, PCI and Empire;
provided that for purposes of " -- Certain Covenants," any action permitted to
be taken by the Company and its Restricted Subsidiaries with reference to the
Existing Joint Ventures may be taken by the Company or a Restricted Subsidiary
indirectly through an action with respect to an Unrestricted Subsidiary that is
an equity holder in an Existing Joint Venture.
"Existing Receivables Intercreditor Agreement" means the Intercreditor
Agreement, dated as of the Issue Date, by and among JPMorgan Chase Bank, BNY
Midwest Trust Company, General Electric Capital Corporation, the Company, Ispat
Inland Administrative Services Company and the Trustee, as the same may be
amended in accordance with the terms of the Indenture.
"Existing Shareholder Advances" means the Company's obligations under
the $215.8 million aggregate principal amount of Subordinated Obligations
advanced to the Company by Parent and its other Subsidiaries outstanding on the
Issue Date.
"Finco Subordinated Note" means, collectively, (i) Subordinated
Obligations in the form of the $5.6 million principal amount 8% note due April
2, 2014 issued by a Finco Guarantor to the Company outstanding on the Issue Date
and (ii) Subordinated Obligations in the form of a 9.87% $23.0 million aggregate
principal amount note due April 2, 2014 issued by a Finco Guarantor on the
Issue Date in favor of the Company; provided that the aggregate principal amount
of the Finco Subordinated Note referred to in clause (ii) may be increased by an
amount equal to the aggregate principal amount of any fees and expenses of the
Issuer in connection with any issuance of Additional Notes.
"First Mortgage Bonds" means $800.0 million aggregate principal amount
of Series Y and Series Z First Mortgage Bonds issued by the Company under the
First Mortgage dated April 1, 1928, as amended and supplemented, between the
Company and The Bank of New York and Louis P. Young, as successor trustees, and
including any additional Series Y and Series Z First Mortgage Bonds issued by
the Company under the Mortgage as Collateral for Additional Notes.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of the Issue Date, including those set forth
in:
(1) the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants;
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(2) statements and pronouncements of the Financial Accounting Standards
Board;
(3) such other statements by such other entity as approved by a significant
segment of the accounting profession; and
(4) the rules and regulations of the SEC governing the inclusion of
financial statements (including pro forma financial statements) in periodic
reports required to be filed pursuant to Section 13 of the Exchange Act,
including opinions and pronouncements in staff accounting bulletins and
similar written statements from the accounting staff of the SEC.
"GECC Credit Agreement" means that certain Credit Agreement dated as
April 30, 2003 among the Company, as borrower, the other credit parties and
lenders party thereto and General Electric Capital Corporation, as Agent and
Lender, and GECC Capital Markets Group, Inc., as Lead Arranger.
"GECC Intercreditor Agreement" means the agreement, dated as of the
Issue Date, between the trustee, the Company, certain subsidiaries of the
Company, Ispat Inland Finance, LLC and General Electric Capital Corporation.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness of any Person and
any obligation, direct or indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase
assets, goods, securities or services, to take-or-pay or to maintain
financial statement conditions or otherwise); or
(2) entered into for the purpose of assuring in any other manner the
obligee of such Indebtedness of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such
Person pursuant to any Interest Rate Agreement or Currency Agreement or
Commodity Hedging Agreement.
"Holder" means the Person in whose name a Note is registered on the
Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become
liable for; provided, however, that any Indebtedness or Capital Stock of a
Person existing at the time such Person becomes a Restricted Subsidiary (whether
by merger, consolidation, acquisition or otherwise) shall be deemed to be
Incurred by such Person at the time it becomes a Restricted Subsidiary. The term
"Incurrence" when used as a noun shall have a correlative meaning. Solely for
purposes of determining compliance with " -- Certain Covenants -- Limitation on
Indebtedness," (1) amortization of debt discount or the accretion of principal
with respect to a non-interest bearing or other discount security and (2) the
payment of regularly scheduled interest in the form of additional Indebtedness
of the same instrument or the payment of regularly scheduled dividends on
Capital Stock in the form of additional Capital Stock of the same class and with
the same terms will not be deemed to be the Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(1) the principal in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
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(2) all Capital Lease Obligations of such Person and all Attributable Debt
in respect of Sale/ Leaseback Transactions entered into by such Person;
(3) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);
(4) all obligations of such Person for the reimbursement of any obligor on
any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (1) through (3)
above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following payment on the letter of credit);
(5) the amount of all non-contingent obligations of such Person with
respect to the redemption, repayment or other repurchase of any
Disqualified Stock of such Person or, with respect to any Preferred Stock
of any Subsidiary of such Person, the principal amount of such Preferred
Stock to be determined in accordance with the Indenture (but excluding, in
each case, any accrued dividends);
(6) all obligations of the type referred to in clauses (1) through (5) of
other Persons and all dividends of other Persons for the payment of which,
in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(7) all obligations of the type referred to in clauses (1) through (6) of
other Persons secured by any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person), the amount of
such obligation being deemed to be the lesser of the value of such property
or assets and the amount of the obligation so secured;
(8) to the extent not otherwise included in this definition, net Hedging
Obligations of such Person;
provided, however, that Indebtedness shall not include the obligations of the
general partners, in their capacities as such, of the Existing Joint Ventures in
respect of the Indebtedness of such partnerships existing on the Issue Date and
disclosed in the prospectus.
Notwithstanding the foregoing, in connection with the purchase by the
Company or any Restricted Subsidiary of any business, the term "Indebtedness"
will exclude post-closing payment adjustments to which the seller may become
entitled to the extent such payment is determined by a final closing balance
sheet or such payment depends on the performance of such business after the
closing; provided, however, that, at the time of closing, the amount of any such
payment is not determinable and, to the extent such payment thereafter becomes
fixed and determined, the amount is paid within 30 days thereafter.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date; provided,
however, that the principal amount of any noninterest bearing or other discount
security at any date will be the principal amount thereof that would be shown on
a balance sheet of such Person dated such date prepared in accordance with GAAP.
For purposes of calculating the amount outstanding of Indebtedness of a
Securitization Subsidiary that transfers any interest in accounts receivable or
inventory to another Person, the amount of unrecovered capital, purchase price
or principal investment of such Person (if other than the Company or a
Restricted Subsidiary) in respect thereof excluding any amount representing
yield or interest earned on such capital, purchase price or investment, shall be
deemed to be Indebtedness.
"Independent Qualified Party" means an investment banking firm,
accounting firm or appraisal firm of national standing; provided that such firm
is not an Affiliate of the Company.
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"I/N Kote" shall mean I/N Kote L.P., a Delaware limited partnership in
which a subsidiary of the Company owns a 49% general partnership interest and a
1% limited partnership interest.
"I/N Tek" shall mean I/N Tek L.P., a Delaware limited partnership in
which a subsidiary of the Company owns a 59% general partnership interest and a
1% limited partnership interest.
"Intercreditor Agreements" means the GECC Intercreditor Agreement, the
Existing Receivables Intercreditor Agreement, any future Inventory Intercreditor
Agreement or Receivables Intercreditor Agreement and the USWA Mortgage.
"Interest Rate Agreement" means in respect of a Person any interest
rate swap agreement, interest rate cap agreement or other similar financial
agreement or arrangement.
"Inventory and Related Assets" means any inventory (whether now
existing or arising thereafter) of the Company or any Restricted Subsidiary, and
any assets related thereto, including all collateral securing such inventory and
other assets which are customarily transferred or in respect of which security
interests are customarily granted in connection with asset securitization
transactions involving inventory.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable or advances against supplies on the balance
sheet of the lender) or other extension of credit (including by way of Guarantee
or similar arrangement) or capital contribution to (by means of any transfer of
cash or other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person. Except as
otherwise provided for herein, the amount of an Investment shall be its fair
value at the time the Investment is made and without giving effect to subsequent
changes in value.
For purposes of the definition of "Unrestricted Subsidiary," the
definition of "Restricted Payment" and the covenant described under " -- Certain
Covenants -- Limitation on Restricted Payments":
(1) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net
assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company
shall be deemed to continue to have a permanent "Investment" in an
Unrestricted Subsidiary equal to an amount (if positive) equal to (A) the
Company's "Investment" in such Subsidiary at the time of such redesignation
less (B) the portion (proportionate to the Company's equity interest in
such Subsidiary) of the fair market value of the net assets of such
Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall be
valued at its fair market value at the time of such transfer, in each case
as determined in good faith by the Board of Directors of the Company;
provided that Special Contributions (as defined in the Empire Agreement) shall
not be deemed to be Investments.
"Investment Grade" designates a rating of BBB -- or higher by S&P or
Baa3 or higher by Moody's or the equivalent of such ratings by S&P or Moody's.
In the event that the Issuer shall select any other Rating Agency, the
equivalent of such ratings by such Rating Agency shall be used.
"Ispat Inland Inc. Pension Plan" means the Ispat Inland Inc. Pension
Plan, as restated effective January 1, 1997, including all supplements thereto.
"Issue Date" means March 25, 2004.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
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"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Mortgage" has the meaning given such term by "Description of the first
mortgage bonds."
"Net Available Cash" from an Asset Disposition means cash payments
received therefrom (including any cash payments received by way of deferred
payment of principal pursuant to a note or installment receivable or otherwise
and proceeds from the sale or other disposition of any securities received as
consideration, but only as and when received, but excluding any other
consideration received in the form of assumption by the acquiring Person of
Indebtedness or other obligations relating to such properties or assets or
received in any other noncash form), in each case net of:
(1) all accounting, investment banking, legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all
Federal, state, provincial, foreign and local taxes required to be paid or
be accrued as a liability under GAAP, as a consequence of such Asset
Disposition;
(2) except in the case of Inventory Collateral, all payments made on any
Indebtedness which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon or other
security agreement of any kind with respect to such assets, or which must
by its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law, be repaid out of the proceeds from such
Asset Disposition;
(3) all distributions and other payments required to be made to minority
interest holders in Restricted Subsidiaries as a result of such Asset
Disposition; and
(4) the deduction of appropriate amounts provided by the seller as a
reserve, in accordance with GAAP, against any liabilities associated with
the property or other assets disposed in such Asset Disposition and
retained by the Company or any Restricted Subsidiary after such Asset
Disposition;
provided that the term "Net Available Cash" shall not include the proceeds of
any Asset Disposition consummated during any Suspension Period.
"Net Cash Proceeds," with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Note Guarantee" means a Guarantee by each Guarantor of all Obligations
of the Issuer under the Notes and the Indenture on the terms set forth in the
Indenture.
"Obligations" means with respect to any Indebtedness all obligations
for principal, premium, interest, penalties, fees, indemnifications,
reimbursements and other amounts payable pursuant to the documentation governing
such Indebtedness.
"Parent Subordination Agreement" means the subordination agreement,
dated as of the Issue Date, between the Company, each holder of any of the
Existing Shareholder Advances and the trustee.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PBGC Agreement" means that certain agreement, dated March 14, 2000
(which agreement supplemented an agreement dated July 14, 1998) among the
Company, Parent, Ryerson Tull Inc. and the PBGC, as amended under an agreement
dated July 9, 2003, as amended, extended, renewed, restated, supplemented or
otherwise modified from time to time.
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"PBGC Pledge Agreement" means the pledge agreement, dated as of July 9,
2003 by and between Ispat Inland Finance, LLC and the PBGC.
"PCI" means PCI Associates, a general partnership in which the Company
owns a 50% interest.
"Permitted First Mortgage Bonds Collateral Liens" means Liens on First
Mortgage Bonds Collateral consisting of:
(1) Liens imposed by law, such as carriers', warehousemen's and mechanics'
Liens, in each case for sums not yet due or being contested in good faith
by appropriate proceedings or other Liens arising out of judgments or
awards against such Person with respect to which such Person shall then be
proceeding with an appeal or other proceedings for review;
(2) Liens for taxes, assessments, governmental charges or claims not yet
subject to penalties for non-payment or which are being contested in good
faith by appropriate proceedings;
(3) minor survey exceptions, minor encumbrances, easements or reservations
of, or rights of others for, licenses, rights-of-way, sewers, electric
lines, telegraph and telephone lines and other similar purposes, or zoning
or other restrictions as to the use of real property or Liens incidental to
the conduct of the business of such Person or to the ownership of its
properties which were not Incurred in connection with Indebtedness and
which do not in the aggregate materially adversely affect the value of said
properties or materially impair their use in the operation of the business
of such Person;
(4) Liens (i) created pursuant to the Subordinated Mortgage (the "USWA
Mortgage"), dated as of September 15, 1994, between Inland Steel Company
(as predecessor to the Company) and the United Steelworkers of America as
in effect on the Issue Date and (ii) other Liens securing obligations of up
to $150.0 million of the Company and its Restricted Subsidiaries; provided
that (x) such Liens do not secure Indebtedness for money borrowed and (y)
such Liens are subordinated to the Lien securing the Bonds to at least the
same extent as the USWA Mortgage; and
(5) Liens securing Bonds issued in compliance with " -- Certain Covenants
-- Limitation on Indebtedness."
"Permitted Holders" means (1) Mr. Lakshmi N. Mittal and his spouse or
lineal descendants, (2) any trust, corporation or partnership 100% in interest
of the beneficiaries, stockholders or partners of which consists of any Person
described in clause (1) above or (3) any combination of the foregoing.
"Permitted Inventory Collateral Liens" means:
(1) Liens (which may rank, at the Company's option, prior to, on parity
with or junior to the Lien on the Inventory Collateral securing the
Company's Note Guarantee) on Inventory and Related Assets (i) of a
Securitization Subsidiary Incurred in a Qualified Receivables Transaction
and/or (ii) in a principal amount not to exceed the sum of (x) 65% of the
book value of the inventory of the Company and its Restricted Subsidiaries
(other than any inventory constituting Inventory and Related Assets
pledged, sold or otherwise transferred or encumbered in connection with a
Qualified Securitization Transaction); and (y) 85% of the book value of the
accounts receivable of the Company and its Restricted Subsidiaries (other
than any accounts receivable constituting Receivables and Related Assets
pledged, sold or otherwise transferred or encumbered in connection with a
Qualified Securitization Transaction);
(2) Liens securing the Company's Note Guarantee;
(3) rights, if any, under the "physical property" and "springing lien"
provisions set forth in Article Six, Section 4 and Group 4 of the granting
clauses, respectively, of the Mortgage which are applicable to Bonds issued
under (w) the twenty-fourth supplemental indenture to the Mortgage, dated
January 15, 1977, (x) the twenty-fifth supplemental indenture to the
Mortgage, dated as of February 1, 1977, (y) the thirty-second supplemental
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indenture to the Mortgage, dated as of June 1, 1993 and (z) the
thirty-third supplemental indenture to the Mortgage, dated as of June 1,
1995, and not to any other Indebtedness;
(4) Liens arising out of consignments and similar arrangements in the
ordinary course of business;
(5) Liens imposed by law, such as carriers', warehousemen's and mechanics'
Liens, in each case for sums not yet due or being contested in good faith
by appropriate proceedings or other Liens arising out of judgments or
awards against such Person with respect to which such Person shall then be
proceeding with an appeal or other proceedings for review;
(6) Liens incidental to the conduct of the business of such Person or to
the ownership of its properties which were not Incurred in connection with
Indebtedness and which do not in the aggregate materially adversely affect
the value of such Inventory Collateral or materially impair their use in
the operation of the business of such Person; and
(7) Liens for taxes, assessments, governmental charges or claims not yet
subject to penalties for non-payment or which are being contested in good
faith by appropriate proceedings.
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in:
(1) the Company, a Restricted Subsidiary or a Person that will, upon the
making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a
Related Business;
(2) another Person if as a result of such Investment such other Person is
merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted Subsidiary;
provided that such Person's primary business is a Related Business;
(3) cash and Temporary Cash Investments;
(4) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms; provided that such
trade terms may include such concessionary trade terms as the Company or
any such Restricted Subsidiary deems reasonable under the circumstances;
(5) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of business;
(6) loans or advances to employees or directors in the ordinary course of
business of the Company or its Restricted Subsidiaries, but in any event
not to exceed $2.5 million in the aggregate outstanding at any one time;
(7) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments;
(8) any Person to the extent such Investment represents the non-cash
portion of the consideration received for an Asset Disposition as permitted
pursuant to the covenant described under " -- Certain Covenants --
Limitation on Sales of Assets and Subsidiary Stock";
(9) any Person where such Investment was acquired by the Company or any of
its Restricted Subsidiaries (a) in exchange for any other Investment or
accounts receivable or other rights to payment held by the Company or any
such Restricted Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer of
such other Investment or accounts receivable or other rights to payment or
(b) as
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a result of a foreclosure by the Company or any of its Restricted
Subsidiaries with respect to any secured Investment or other transfer of
title with respect to any secured Investment in default;
(10) any Securitization Subsidiary in connection with a Qualified
Securitization Transaction; provided that such Investment consists only of
(i) Receivables and Related Assets or Inventory and Related Assets or a
promissory note or notes of the Securitization Subsidiary customary in
Qualified Securitization Transactions or (ii) Standard Securitization
Undertakings;
(11) Currency Agreements, Commodity Hedging Agreements and Interest Rate
Agreements entered into in the ordinary course of business and not for
speculative purposes; and
(12) Investments in the Issuer and, prior to a Permitted Finco Collapse
Transaction, any Finco Guarantor.
"Permitted Liens" means, with respect to any Person:
(1) pledges or deposits by such Person under worker's compensation laws,
unemployment insurance laws or similar legislation or to support
obligations to insurance companies in respect of deductibles, co-insurance
claims or self-insured retention (and letter of credit obligations in
respect thereof), or good faith deposits in connection with bids, tenders,
contracts (other than for the payment of Indebtedness), warranty
obligations or leases to which such Person is a party, or deposits to
secure public or statutory obligations of such Person or deposits of cash
or cash equivalents to secure surety or appeal bonds to which such Person
is a party, or deposits as security for contested taxes or import duties or
for the payment of rent, in each case Incurred in the ordinary course of
business;
(2) Liens imposed by law, such as carriers', warehousemen's and mechanics'
Liens, in each case for sums not yet due or being contested in good faith
by appropriate proceedings or other Liens arising out of judgments or
awards against such Person with respect to which such Person shall then be
proceeding with an appeal or other proceedings for review;
(3) Liens arising solely by virtue of any statutory or common law provision
relating to banker's Liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution; provided, however, that (A) such deposit account is
not a dedicated cash collateral account and is not subject to restrictions
against access by the Company in excess of those set forth by regulations
promulgated by the Federal Reserve Board and (B) such deposit account is
not intended by the Company or any Restricted Subsidiary to provide
collateral to the depository institution;
(4) Liens for taxes, assessments, governmental charges or claims not yet
subject to penalties for non-payment or which are being contested in good
faith by appropriate proceedings;
(5) Liens in favor of issuers of surety bonds or letters of credit and
bankers' acceptances issued pursuant to the request of and for the account
of such Person in the ordinary course of its business; provided, however,
that such letters of credit do not constitute Indebtedness;
(6) minor survey exceptions, minor encumbrances, easements or reservations
of, or rights of others for, licenses, rights-of-way, sewers, electric
lines, telegraph and telephone lines and other similar purposes, or zoning
or other restrictions as to the use of real property or Liens incidental to
the conduct of the business of such Person or to the ownership of its
properties which were not Incurred in connection with Indebtedness and
which do not in the aggregate materially adversely affect the value of said
properties or materially impair their use in the operation of the business
of such Person;
(7) Liens securing Indebtedness Incurred to finance the construction,
purchase or lease of, or repairs, improvements or additions to, property,
plant or equipment of such Person; provided that the Lien may not extend to
any other property owned by such Person or any of its Restricted
Subsidiaries at the time the Lien is Incurred (other than assets and
property affixed or appurtenant thereto), and the Indebtedness (other than
any interest thereon) secured by the Lien may not be Incurred more than 180
days after the later of the acquisition,
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completion of construction, repair, improvement, addition or commencement
of full operation of the property subject to the Lien;
(8) Liens on Inventory and Related Assets, mobile equipment, spare parts,
stock of Securitization Subsidiaries, Indebtedness owing from
Securitization Subsidiaries, Receivables and Related Assets (and proceeds
thereof, including, without limitation, cash, investments and pledged
deposit accounts and lockboxes) to secure Indebtedness (i) of a
Securitization Subsidiary Incurred in a Qualified Receivables Transaction
and/or (ii) in a principal amount not to exceed the sum of (x) 65% of the
book value of the inventory of the Company and its Restricted Subsidiaries
(other than any inventory constituting Inventory and Related Assets
pledged, sold or otherwise transferred or encumbered in connection with a
Qualified Securitization Transaction); and (y) 85% of the book value of the
accounts receivable of the Company and its Restricted Subsidiaries (other
than any accounts receivable constituting Receivables and Related Assets
pledged, sold or otherwise transferred or encumbered in connection with a
Qualified Securitization Transaction);
(9) Permitted First Mortgage Bonds Collateral Liens, Liens securing the
Notes and the Note Guarantees and, without duplication, Liens outstanding
on the Issue Date;
(10) Liens on property or shares of Capital Stock of another Person at the
time such other Person becomes a Subsidiary of such Person; provided,
however, that the Liens may not extend to any other property owned by such
Person or any of its Restricted Subsidiaries (other than assets and
property affixed or appurtenant thereto);
(11) Liens on property at the time such Person or any of its Subsidiaries
acquires the property, including any acquisition by means of a merger or
consolidation with or into such Person or a Subsidiary of such Person;
provided, however, that the Liens may not extend to any other property
owned by such Person or any of its Restricted Subsidiaries (other than
assets and property affixed or appurtenant thereto);
(12) Liens securing Indebtedness or other obligations of a Subsidiary of
such Person owing to such Person or a wholly-owned Subsidiary of such
Person;
(13) Liens securing Hedging Obligations entered into to protect against
fluctuations in interest rates in the ordinary course of business;
(14) Liens securing Hedging Obligations related to Currency Agreements or
Commodity Hedging Agreements entered into to protect against fluctuations
in exchange rates and commodity prices in the ordinary course of business;
(15) leases or subleases granted in the ordinary course of business;
(16) any interest or title of a lessor under any lease, whether or not
characterized as an operating lease or a capital lease;
(17) Liens arising out of consignments or similar arrangements for the sale
of goods in the ordinary course of business;
(18) additional Liens on property or assets (other than the First Mortgage
Bonds Collateral) securing obligations of the Company and its Restricted
Subsidiaries not exceeding $15.0 million at any time; and
(19) Liens to secure any Refinancing (or successive Refinancings) as a
whole, or in part, of any Indebtedness secured by any Lien referred to in
the foregoing clause (7), (8), (9) (other than Liens in respect of
Indebtedness that is retired by the Company or any Restricted Subsidiary on
the Issue Date), (10) or (11) or Liens extending, renewing or replacing, in
whole or in part, such Liens; provided that:
(A) such new Lien shall be limited to all or part of the same property
and assets that secured or, under the written agreements pursuant to
which the original Lien arose, could secure the original Lien (plus
improvements and accessions to, such property or proceeds or
distributions thereof);
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(B) the Indebtedness secured by such Lien at such time is not increased
to any amount greater than the sum of (x) the outstanding principal
amount or, if greater, committed amount of the Indebtedness described
under clause (7), (8), (9), (10) or (11) at the time the original Lien
became a Permitted Lien and (y) an amount necessary to pay any fees and
expenses, including premiums, related to such refinancing, refunding,
extension, renewal or replacement.
For purposes of this definition, the term "Indebtedness" shall be deemed to
include interest on such Indebtedness.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"Principal" of a Note means the principal of the Note plus the premium,
if any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Purchase Agreement" means the purchase agreement entered into among
the Issuer, the Guarantors and UBS Securities LLC.
"Qualified Securitization Transaction" means any transaction or series
of transactions that may be entered into by the Company or any Restricted
Subsidiary pursuant to which the Company or any Restricted Subsidiary may sell,
convey or otherwise transfer to (a) a Securitization Subsidiary (in the case of
a transfer by the Company or any Restricted Subsidiary) and (b) any other Person
(in the case of a transfer by a Securitization Subsidiary), or may grant a
security interest in Receivables and Related Assets or Inventory and Related
Assets.
"Rating Agencies" means:
(a) S&P;
(b) Moody's; or
(c) if S&P or Moody's or both shall not make a rating of the Notes publicly
available, a nationally recognized securities rating agency or agencies, as
the case may be, selected by the Issuer, which shall be substituted for S&P
or Moody's or both, as the case may be.
"Receivables and Related Assets" means any accounts receivable and
other rights to payment (whether now existing or arising thereafter) of the
Company or any Restricted Subsidiary, and any assets related thereto, including
all collateral securing such accounts receivable and other rights to payment,
all contracts and contract rights and all Guarantees or other obligations in
respect of such accounts receivable and other rights to payment, proceeds of
such accounts receivable and other rights to payment and other assets which are
customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable and other rights to payment.
"Refinance" means, in respect of any Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that:
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(1) such Refinancing Indebtedness has a Stated Maturity no earlier than the
Stated Maturity of the Indebtedness being Refinanced;
(2) such Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced; and
(3) such Refinancing Indebtedness has an aggregate principal amount (or if
Incurred with original issue discount, an aggregate issue price) that is
equal to or less than the aggregate principal amount (or if Incurred with
original issue discount, the aggregate accreted value) then outstanding or
committed (plus fees and expenses, including any premium and defeasance
costs) under the Indebtedness being Refinanced;
provided further, however, that Refinancing Indebtedness shall not include (A)
Indebtedness of a Restricted Subsidiary that is not a Company Guarantor that
Refinances Indebtedness of the Company or a Company Guarantor or (B)
Indebtedness of the Company or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
"Registration Rights Agreement" means the Registration Rights Agreement
dated the Issue Date, among the Issuer, the Guarantors and UBS Securities LLC.
"Related Business" means any business in which the Company was engaged
on the Issue Date and any business related, ancillary or complementary to any
business in which the Company was engaged on the Issue Date, in each case as
reasonably determined by the Board of Directors of the Company in good faith.
"Restricted Payment" with respect to any Person means:
(1) the declaration or payment of any dividends or any other distributions
of any sort in respect of its Capital Stock (including any payment in
connection with any merger or consolidation involving such Person) or
similar payment to the direct or indirect holders of its Capital Stock
(other than dividends or distributions payable solely in its Capital Stock
(other than Disqualified Stock) and dividends or distributions to a Finco
Guarantor (prior to a Permitted Finco Collapse Transaction), the Issuer,
the Company or a Restricted Subsidiary, and other than pro rata dividends
or other distributions made by a Subsidiary that is not a Wholly-Owned
Subsidiary to minority stockholders (or owners of an equivalent interest in
the case of a Subsidiary that is an entity other than a corporation));
(2) the purchase, redemption or other acquisition or retirement for value
of any Capital Stock of the Company held by any Person or of any Capital
Stock of a Restricted Subsidiary held by any Affiliate of the Company
(other than a Restricted Subsidiary), including the exercise of any option
to exchange any Capital Stock (other than into Capital Stock of the Company
that is not Disqualified Stock);
(3) the purchase, repurchase, redemption, defeasance or other acquisition
or retirement for value, prior to scheduled maturity, scheduled repayment
or scheduled sinking fund payment of any Subordinated Obligations of such
Person (other than the Refinancing of Subordinated Obligations with
Refinancing Indebtedness or the purchase, repurchase or other acquisition
of Subordinated Obligations purchased in anticipation of satisfying a
sinking fund obligation, principal installment or final maturity, in each
case due within one year of the date of such purchase, repurchase or other
acquisition);
(4) the making of any Investment (other than a Permitted Investment) in any
Person; or
(5) the purchase, repurchase, redemption, acquisition or retirement for
value of the Existing Shareholder Advances.
"Restricted Subsidiary" means any Subsidiary of the Company that is not
an Unrestricted Subsidiary.
"Revolving Credit Facility" means any revolving credit, overdraft or
working capital facility or financing arrangement.
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"S&P" means Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, Inc., and its successors.
"Sale/Leaseback Transaction" means an arrangement relating to property
owned by the Company or a Restricted Subsidiary on the Issue Date or thereafter
acquired by the Company or a Restricted Subsidiary whereby the Company or a
Restricted Subsidiary transfers such property to a Person and the Company or a
Restricted Subsidiary leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securitization Subsidiary" means Ispat Inland Administrative Service
Company (so long as it is a Wholly-Owned Subsidiary) and any other Wholly-Owned
Subsidiary (or a wholly-owned Subsidiary of another Person in which the Company
or any Subsidiary of the Company makes an Investment) to which the Company or
any Subsidiary of the Company transfers Receivables and Related Assets or
Inventory and Related Assets and that engages in no activities other than in
connection with financing of accounts receivable or inventory, as the case may
be, and that is designated by the Board of Directors of the Company (as provided
below) as a Securitization Subsidiary and
(1) no portion of the Indebtedness or any other Obligations (contingent or
otherwise) of which
(A) is Guaranteed by the Company or any Restricted Subsidiary
(excluding Guarantees of Obligations (other than the principal of, and
interest on, Indebtedness) pursuant to Standard Securitization
Undertakings),
(B) is recourse to or obligates the Company or any Restricted
Subsidiary (other than such Securitization Subsidiary) in any way other
than pursuant to Standard Securitization Undertakings, and
(C) subjects any property or asset of the Company or any Restricted
Subsidiary (other than such Securitization Subsidiary), directly or
indirectly, contingently or otherwise, to the satisfaction thereof,
other than pursuant to Standard Securitization Undertakings,
(2) with which neither the Company nor any Restricted Subsidiary (other
than such Securitization Subsidiary) has any material contract, agreement,
arrangement or understanding other than on terms no less favorable to the
Company or such Restricted Subsidiary than those that might be obtained at
the time from Persons that are not Affiliates of the Company, other than
fees payable in the ordinary course of business in connection with
servicing accounts receivable of such entity, and
(3) to which neither the Company nor any Restricted Subsidiary (other than
such Securitization Subsidiary) has any obligation to a third party to
maintain or preserve such entity's financial condition or to cause such
entity to achieve certain levels of operating results.
Any designation of a Subsidiary as a Securitization Subsidiary shall be
evidenced to the trustee by filing with the trustee a certified copy of the
resolution of the Board of Directors of the Company giving effect to the
designation and an officers' certificate certifying that the designation
complied with the preceding conditions and was permitted by the Indenture.
"Senior Indebtedness" means with respect to any Person:
(1) Indebtedness of such Person, whether outstanding on the Issue Date or
thereafter Incurred; and
(2) Accrued and unpaid interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to
such Person whether or not post-filing interest is allowed in such
proceeding) in
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respect of (A) Indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or liable
unless, in the case of clauses (1) and (2), in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is provided
that such obligations are subordinate in right of payment to the Notes or the
Note Guarantee of such Person, as the case may be; provided that Senior
Indebtedness shall not include:
(1) any obligation of such Person to any Subsidiary of such Person;
(2) any liability for Federal, state, local or other taxes owed or owing by
such Person;
(3) any accounts payable or other liability to trade creditors arising in
the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities);
(4) any Indebtedness of such Person (and any accrued and unpaid interest in
respect thereof) which is subordinate or junior in any respect to any other
Indebtedness or other obligation of such Person; or
(5) that portion of any Indebtedness which at the time of Incurrence is
Incurred in violation of the Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be
a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Standard Securitization Undertakings" means representations,
warranties, covenants and indemnities entered into by the Company or any
Restricted Subsidiary that are reasonably customary in accounts receivable or
inventory securitization transaction and other limited recourse arrangements
that are customary for such securitizations and do not impair the
characterization of the relevant securitization as a true sale under applicable
law.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subordinated Obligation" means with respect to a Person, any
Indebtedness of such Person (whether outstanding on the Issue Date or thereafter
Incurred) which is subordinate or junior in right of payment to the Notes or a
Note Guarantee of such Person, as the case may be, pursuant to a written
agreement to that effect.
"Subsidiary" means, with respect to any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Voting Stock is at the time owned or controlled,
directly or indirectly, by:
(1) such Person;
(2) such Person and one or more Subsidiaries of such Person; or
(3) one or more Subsidiaries of such Person.
I/N Tek shall not be deemed to be a Subsidiary for purposes of the Indenture.
"Suspension Period" means any period in which the Notes are rated
Investment Grade by both Rating Agencies and no Default or Event of Default has
occurred and is continuing under the Indenture.
"Temporary Cash Investments" means any of the following:
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(1) any investment in direct obligations of, or obligations guaranteed by,
the United States of America or any agency thereof;
(2) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 360 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country
recognized by the United States of America, and which bank or trust company
has capital, surplus and undivided profits aggregating in excess of $50
million (or the foreign currency equivalent thereof) and has outstanding
debt which is rated "A" (or such similar equivalent rating) or higher by at
least one nationally recognized statistical rating organization (as defined
in Rule 436 under the Securities Act) or any money-market fund sponsored by
a registered broker dealer or mutual fund distributor;
(3) repurchase obligations with a term of not more than 60 days for
underlying securities of the types described in clause (1) above entered
into with a bank meeting the qualifications described in clause (2) above;
(4) investments in commercial paper, maturing not more than nine months
after the date of acquisition, issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment
therein is made of "P-1" (or higher) according to Moody's or "A-1" (or
higher) according to S&P; and
(5) investments in securities with maturities of twelve months or less from
the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States of America or by any
political subdivision or taxing authority thereof, and rated at least "A"
by S&P or "A2" by Moody's.
"Unrestricted Subsidiary" means, on the Issue Date, Ispat Inland Empire
Inc., III Kote, Inc., III/PCI, Inc. and III Tek, Inc., and any other:
(1) Subsidiary of the Company that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors of the
Company in the manner provided below; and
(2) Subsidiary of an Unrestricted Subsidiary.
The Board of Directors of the Company may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien (other than Permitted
Liens that do not secure Indebtedness for borrowed money) on any property of,
the Company or any other Subsidiary of the Company that is not a Subsidiary of
the Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if such
Subsidiary has assets greater than $1,000, such designation would be permitted
under the covenant described under " -- Certain Covenants -- Limitation on
Restricted Payments" (and in the case of any designation during a Suspension
Period, the Company could have made such designation if no Suspension Period had
been in effect since the Issue Date).
The Board of Directors of the Company may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that immediately after giving
effect to such designation (A) the Company could Incur $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under " -- Certain
Covenants -- Limitation on Indebtedness" and (B) no Default shall have occurred
and be continuing. Any such designation by such Board of Directors shall be
evidenced to the trustee by promptly filing with the Trustee a copy of the
resolution of such Board of Directors giving effect to such designation and an
officers' certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Dollar Equivalent" means with respect to any monetary amount in a
currency other than U.S. dollars, at any time for determination thereof, the
amount of U.S. dollars obtained by converting such foreign currency involved in
such computation into U.S. dollars at the spot rate for the purchase of U.S.
dollars with the
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applicable foreign currency as published in The Wall Street Journal in the
"Exchange Rates" column under the heading "Currency Trading" on the date two
Business Days prior to such determination.
Except as described under " -- Certain Covenants -- Limitation on
Indebtedness," whenever it is necessary to determine whether the Company has
complied with any covenant in the Indenture or a Default has occurred and an
amount is expressed in a currency other than U.S. dollars, such amount will be
treated as the U.S. Dollar Equivalent determined as of the date such amount is
initially determined in such currency.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"U.S. Steelmaking Business" means any business material to the
operations of the Company in which the Company was engaged on the Issue Date.
"USWA Mortgage" has the meaning set forth in the definition of
Permitted First Mortgage Bonds Collateral Liens.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly-Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares or shares required by
applicable law to be held by a Person other than the Company or a Restricted
Subsidiary) is owned by the Company or one or more Wholly-Owned Subsidiaries.
BOOK-ENTRY, DELIVERY AND FORM OF SECURITIES
Except as set forth in the next paragraph, the new notes to be
exchanged as set forth herein will initially be issued in the form of one Global
New Note (the "Global New Note"). The Global New Note will be deposited on the
expiration date with, or on behalf of, The Depository Trust Company ("DTC") and
registered in the name of Cede & Co., as nominee of DTC (such nominee being
referred to herein as the "Global New Note Holder").
New notes that are issued as described below under " -- Certificated
New Notes" will be issued in the form of registered definitive certificates (the
"Certificated New Notes"). Such Certificated New Notes may, unless the Global
New Note has previously been exchanged for Certificated New Notes, be exchanged
for an interest in the Global New Note representing the principal amount of new
notes being transferred.
DTC is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "DTC's Participants") and to facilitate the clearance and settlement of
transactions in such securities between Participants through electronic
book-entry changes in accounts of its Participants. DTC's Participants include
securities brokers and dealers (including the Initial Purchasers), banks and
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect Participants" or the
"DTC's Indirect Participants") that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly. Persons who are
not Participants may beneficially own securities held by or on behalf of DTC
only through DTC's Participants or DTC's Indirect Participants.
So long as the Global New Note Holder is the registered owner of any
new notes, the Global New Note Holder will be considered the sole holder under
the indenture of any new notes evidenced by the Global New Note. Beneficial
owners of new notes evidenced by the Global New Note will not be considered the
owners or holders thereof under the indenture for any purpose, including with
respect to the giving of any directions, instructions or approvals to the
Trustee thereunder. Neither Ispat Inland ULC nor the Trustee will have any
responsibility or
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liability for any aspect of the records of DTC or for maintaining, supervising
or reviewing any records of DTC relating to the new notes.
Payments in respect of the principal of, premium, if any, and interest
on new notes registered in the name of the Global New Note Holder on the
applicable record date will be payable by the Trustee to or at the direction of
the Global New Note Holder in its capacity as the registered holder under the
indenture. Under the terms of the indenture, Ispat Inland ULC and the Trustee
may treat the persons in whose names new notes, including the Global New Note,
are registered as the owners thereof for the purpose of receiving such payments.
Consequently, neither Ispat Inland ULC nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of new notes. We believe, however, that it is currently the policy of DTC to
immediately credit the accounts of the relevant Participants with such payments,
in amounts proportionate to their respective holdings of beneficial interests in
the relevant security as shown on the records of DTC. Payments by DTC's
Participants and DTC's Indirect Participants to the beneficial owners of new
notes will be governed by standing instructions and customary practice and will
be the responsibility of DTC's Participants or DTC's Indirect Participants.
CERTIFICATED NEW NOTES
Subject to certain conditions, any person having a beneficial interest
in the Global New Note may, upon request to the Trustee, exchange such
beneficial interest for new notes in the form of Certificated New Notes. Upon
any such issuance, the Trustee is required to register such Certificated New
Notes in the name of, and cause the same to be delivered to, such person or
persons (or the nominee of any thereof). In addition, if (i) Ispat Inland ULC
notifies the Trustee in writing that DTC is no longer willing or able to act as
a depositary and Ispat Inland ULC is unable to locate a qualified successor
within 90 days or (ii) Ispat Inland ULC, at its option, notifies the Trustee in
writing that it elects to cause the issuance of new notes in the form of
Certificated New Notes under the indenture, then, upon surrender by the Global
New Note Holder of its Global New Note, new note in such form will be issued to
each person that the Global New Note Holder and DTC identify as being the
beneficial owner of the related new notes.
Neither Ispat Inland ULC nor the Trustee will be liable for any delay
by the Global New Note Holder or DTC in identifying the beneficial owners of new
notes and Ispat Inland ULC and the Trustee may conclusively rely on, and will
protected in relying on, instructions from the Global New Note Holder or DTC for
all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The indenture requires that payments in respect of the new notes
represented by the Global New Note (including principal, premium, if any, and
interest) be made by wire transfer of immediately available funds to the
accounts specified by the Global New Note Holder. With respect to Certificated
New Notes, Ispat Inland ULC will make all payments of principal, premium, if
any, and interest by wire transfer of immediately available funds to the
accounts specified by the holders thereof or, if no such account is specified,
by mailing a check to each such holder's registered address. Secondary trading
in long-term notes and debentures of corporate issuers is generally settled in
clearinghouse or next-day funds. In contrast, new notes represented by the
Global New Note are expected to be eligible to trade in the PORTAL market and to
trade in DTC's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such new notes will, therefore, be required by DTC to
be settled in immediately available funds. We expect that secondary trading in
the Certificated New Notes will also be settled in immediately available funds.
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DESCRIPTION OF THE FIRST MORTGAGE BONDS
The First Mortgage Bonds were issued under the First Mortgage dated April
1, 1928, between the Company and First Trust and Savings Bank and Melvin A.
Traylor, as Trustees (The Bank of New York (the "Corporate Trustee") and Louis
P. Young, successor Trustees), as amended and supplemented by various
supplemental indentures (and as supplemented from time to time following the
date hereof, collectively, the "Mortgage"), including the Thirty-Eighth
Supplemental Indenture dated as of March 25, 2004 with respect to the First
Mortgage Bonds (herein called the "Supplement"). We urge you to read the
Mortgage because it and not this description defines the rights of the Trustee
and the holders of Notes with respect to the First Mortgage Bonds.
PRINCIPAL, MATURITY AND INTEREST
The First Mortgage Bonds were issued to Ispat Inland Finance, LLC in an
original principal amount of $800.0 million consisting of Series Y Bonds in an
aggregate principal amount of $150.0 million and Series Z Bonds in an aggregate
principal amount of $650.0 million. The Company will be permitted to issue an
aggregate principal amount of up to $100.0 million of additional First Mortgage
Bonds consisting of additional Series Y Bonds and/or Series Z Bonds
(collectively "Additional First Mortgage Bonds") securing all of the Notes in a
transaction that complies with the covenant described under "--Description of
the notes--Certain Covenants--Limitation on Indebtedness." Any Additional First
Mortgage Bonds will be treated as part of the same series of First Mortgage
Bonds as the Series Y Bonds and the Series Z Bonds, as applicable, originally
issued on the Issue Date for all purposes under the Mortgage.
The First Mortgage Bonds were issued only in fully registered form in
denominations of $1,000 and integral multiples thereof. For purposes of this
description, the term "corresponding series of First Mortgage Bonds" means, with
respect to the Series Y Bonds, the Floating Rate Notes and, with respect to the
Series Z Bonds, the Fixed Rate Notes.
Series Y Bonds. The Series Y Bonds bear interest in an amount equal to the
sum of (i) the rate of interest then applicable to the Floating Rate Notes in
accordance with the terms of the Indenture (including any Additional Interest
payable on such Floating Rate Notes and including any increase in the applicable
rate of interest on the Floating Rate Notes following any Default whether or not
the Issuer would be obligated to pay such interest on the Floating Rate Notes)
plus (ii) 0.50% per annum; provided that the 0.50% per annum set forth in this
clause (ii) shall cease to accrue from and after the fulfillment of the
condition set forth in clause (a) under "--Description of the notes--Permitted
Finco Collapse Transaction." Interest on the Series Y Bonds is payable quarterly
in arrears on January 1, April 1, July 1 and October 1 of each year, commencing
on July 1, 2004, to the holder of record of the Series Y Bonds on the
immediately preceding December 15, March 15, June 15 and September 15. The
interest rate on the Series Y Bonds will in no event be higher than the maximum
rate permitted by New York law as the same may be modified by United States law
of general application.
In addition to the interest payable above, an amount will be payable on
each interest payment date for the Series Y Bonds equal to the product of (i) a
fraction, the numerator of which is the aggregate principal amount of Series Y
Bonds outstanding on such date and the denominator of which is the aggregate
principal amount of First Mortgage Bonds outstanding on such date, multiplied by
(ii) the aggregate amount of fees, expenses and other charges due under the
terms of the Indenture on such date (including with respect to the Trustee for
the Notes).
Series Z Bonds. The Series Z Bonds bear interest at a rate per annum equal
to the sum of the rate of interest then applicable to the Fixed Rate Notes in
accordance with the terms of the Indenture (including any Additional Interest
payable on such Fixed Rate Notes and including any increase in the applicable
rate of interest on the Fixed Rate Notes following any Default whether or not
the Issuer would be obligated to pay such interest on the Fixed Rate Notes) plus
(ii) 0.50% per annum; provided that the 0.50% per annum set forth in this clause
(ii) shall cease to accrue from and after the fulfillment of the condition set
forth in clause (a) under "--Description of the notes--Permitted Finco Collapse
Transaction." Interest on the Series Z Bonds is payable semi-annually in arrears
on April 1 and October 1 of each year, commencing on October 1, 2004, to the
holder of record of the Series Z Bonds on the immediately preceding March 15 and
September 15.
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In addition to the interest payable above, an amount will be payable upon
each interest payment date for the Series Z Bonds equal to the product of (i) a
fraction, the numerator of which is the aggregate principal amount of Series Z
Bonds outstanding on such date and the denominator of which is the aggregate
principal amount of First Mortgage Bonds outstanding on such date, multiplied by
(ii) the aggregate amount of fees, expenses and other charges due under the
terms of the Indenture on such date (including with respect to the Trustee for
the Notes).
To the extent that the Issuer purchases or repays any Notes of any series
from holders of the Notes on any date, the Company will be required to repay a
like aggregate principal amount of principal of the corresponding series of
First Mortgage Bonds on such Date; provided that entire aggregate principal
amount of Series Y Bonds will be repaid at or prior to the Stated Maturity of
the Floating Rate Notes and the entire aggregate principal amount of the Series
Z Bonds will be repaid at or prior to the Stated Maturity of the Fixed Rate
Notes. To the extent that the Issuer is required to pay any premium or interest
on either series of Notes to be purchased or repaid on any date, the Company
will be required to pay a like amount of premium or interest on the principal of
the corresponding series of First Mortgage Notes to be repaid by it on such
date.
REDEMPTION
The Supplement provides that, except as provided above under "--Principal,
Maturity and Interest," no First Mortgage Bonds may be redeemed, retired or
prepaid for so long as any Notes are outstanding.
FIRST MORTGAGE BONDS COLLATERAL
The Mortgage constitutes a direct first mortgage lien on the interest of
the Company in the properties specifically described in the Mortgage and not
heretofore released from the lien hereof (the "First Mortgage Bonds
Collateral"), subject, however, to questions of survey, the lien of current
taxes and assessments and various restrictions, reservations, covenants,
easements, rights of way and other title defects or objections which do not, in
the opinion of the Company, lessen the value to the Company of such properties
for the purposes for which they are used or intended to be used.
The principal properties of the Company which are now subject to the lien
of the Mortgage consist of the Indiana Harbor Works of the Company (except for
certain leased facilities, including a continuous anneal line and two continuous
casters) and certain miscellaneous parcels of land in East Chicago, Indiana. The
current net book value of the property, plant and fixtures of the Indiana Harbor
Works subject to the lien of the Mortgage is approximately $1.6 billion. Book
value is not necessarily indicative of appraised or market value and no
appraisal has been obtained with respect to the property. The estimated amount
of casualty and business interruption insurance coverage for property subject to
the lien of the Mortgage is approximately $500 million per occurrence. There is
no title insurance in effect with respect to this property.
Various other properties of the Company (including the plants and other
properties of its subsidiaries and of I/N Tek and I/N Kote) are not now subject
to the lien of the Mortgage. The Mortgage prohibits the creation of any lien
(except purchase money obligations and liens upon property existing at the time
of acquisition thereof) on any such unmortgaged property (i) of the Company, or
(ii) of any Subsidiary designated in Group Five of the Granting Clauses of the
Mortgage or a majority or more of the stock of which is owned by the Company and
pledged under or made subject to the lien of the Mortgage and designated by the
Company to be a "subsidiary," unless such property is first subjected to the
prior lien of the Mortgage. No Subsidiary of the Company is presently designated
in Group Five of said Granting Clauses, nor is the stock of any Subsidiary of
the Company pledged under or subject to the lien of the Mortgage. The Mortgage
provides that holders of not less than 76% in aggregate principal amount of the
outstanding Bonds may direct the Trustees with respect to the exercise of
remedies under the Mortgage.
No appraisal of the First Mortgage Bonds Collateral has been prepared by
or on behalf of the Issuer or the Guarantors in connection with this offering.
The value of the First Mortgage Bonds Collateral in the event of a liquidation
will depend upon market and economic conditions, the availability of buyers and
similar factors. By its nature, the First Mortgage Bonds Collateral will be
illiquid and may have no readily ascertainable market value. There also can be
no assurance that the First Mortgage Bonds Collateral will be saleable and, even
if the First Mortgage Bonds Collateral is saleable, the timing of its
liquidation is uncertain.
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CERTAIN COVENANTS OF THE COMPANY
The following covenants are set forth in the Mortgage.
Maintenance of Mortgaged Properties
The Company will (i) maintain its plants, which are subject to the lien of
the Mortgage and deemed by the Board of Directors useful for the conduct of its
business, in good repair and will make all needful and proper renewals and
replacements thereof, and (ii) maintain in proper repair all fixed equipment
subject to the lien of the Mortgage and replace the same when worn out or
abandoned, to the extent deemed by the Board of Directors to be required in the
conduct of its business.
MODIFICATION OF CERTAIN PROVISIONS OF MORTGAGE
The Supplement provides that no amendment requiring the consent of holders
of First Mortgage Bonds may be made to the Mortgage without the consent of the
holders of a majority in aggregate principal amount of the Notes then
outstanding.
MORTGAGE EVENTS OF DEFAULT
The following are events of default under the Mortgage (each, a "Mortgage
Event of Default"): (i) default in the payment of principal on any of the Bonds,
when due; (ii) default, continuing for 90 days, in the payment of any
installment of interest on any of the Bonds, when due; (iii) default, continuing
for 90 days, in the delivery of any Bonds or the payment on any installment
required by any sinking fund; (iv) default, continuing for 90 days, in the
payment of any interest installment, when due, on any bond secured by a direct
prior lien on any real estate on which the Mortgage is a direct charge: (v)
default in the payment of the principal on any bond secured by direct prior lien
on any real estate on which the Mortgage is a direct charge; (vi) default,
continuing for six months after written notice thereof to the Company by the
Corporate Trustee, in any other covenant of or condition required to be
performed by the Company; and (vii) certain events of bankruptcy.
The Trustees are required, within 90 days of the occurrence of a default,
to give to the holders of the Bonds notice of any Mortgage Event of Default
known to them to be subsisting (without regard to any applicable period of
grace); but, except in the case of a default in the payment, when due, of the
principal of or interest on any of the Bonds or of any sinking fund installment,
the Trustees shall be protected in withholding such notice if the Corporate
Trustee determines in good faith that the withholding of such notice is in the
interests of the holders of the Bonds.
If a Mortgage Event of Default shall occur and be continuing, the holders
of a majority in principal amount of the Bonds then outstanding may require the
Trustees, upon their being reasonably indemnified and secured by one or more of
the holders of the Bonds, to take action to protect and enforce their rights and
the rights of the holders of the Bonds, and to exercise any powers of entry or
sale granted under the Mortgage, or to institute judicial proceedings, as the
Trustees, being advised by counsel, shall deem most expedient in the interests
of the holders of the Bonds.
RELEASE AND SUBSTITUTION OF PROPERTY
The Mortgage permits the release from the lien thereof of property which
the Company shall not deem necessary or advantageous to retain in connection
with its business, upon the deposit with the Corporate Trustee of cash equal to
the fair value of such property. The Mortgage also permits releases of certain
other property under specified conditions, which in general require the
substitution therefor of property of equivalent fair value.
CORPORATE TRUSTEE
The Corporate Trustee is a depositary of funds of the Company and
furnishes other banking services to the Company in the normal course of
business. In addition, the banking corporation of which the Corporate Trustee is
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a part participates as a commercial lender from time to time in various lending
arrangements to the Company or its subsidiaries.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
The Mortgage provides that the Bonds (including the First Mortgage Bonds)
are solely obligations of the Company and that holders of the Bonds shall have
no recourse for payment of principal of, interest on, or claims based on the
Bonds against any officer, director or stockholder of the Company, whether past,
present, or future, or of any successor corporation, either directly or
indirectly through the Company or any successor corporation. The Mortgage also
provides that holders of the Bonds expressly release and waive all personal
liability of, and all rights and claims against, every such officer, director or
stockholder as a condition of and as part of the consideration for the issue of
the Bonds. Such waiver and release may not be effective to waive liabilities
under the U.S. federal securities law, and it is the view of the SEC that such a
waiver is against public policy.
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DESCRIPTION OF INTERCREDITOR ARRANGEMENTS
GECC INTERCREDITOR ARRANGEMENTS
In connection with the offering of the old notes, the trustee under the
indenture for the notes entered into an intercreditor agreement (the "GECC
Intercreditor Agreement") with the lender under the Company's existing inventory
revolving credit facility, General Electric Capital Corporation ("GECC"). The
Company has previously granted to GECC a first priority lien in the inventory
collateral that was pledged on a second priority basis as security for the
Company's guarantee of the notes, as well as certain other moveable equipment
and other assets which do not secure the Company's guarantee of the notes. The
GECC Intercreditor Agreement provides that the lien on the inventory collateral
granted to the Trustee for the benefit of the holders of notes is junior to the
lien granted to GECC under the inventory revolving credit facility and that, for
so long as any obligations are owed to GECC in respect of the inventory
revolving credit facility, the trustee for the notes may not take any action to
enforce its security interest in the inventory collateral. Additionally, the
GECC Intercreditor Agreement provides that any proceeds of any enforcement
action in respect of the inventory collateral will first be applied to repay all
obligations outstanding under the revolving inventory facility prior to being
distributed to the trustee. The trustee also agreed to release its lien on the
inventory collateral in connection with any sale upon foreclosure by GECC in
which GECC's lien on the collateral is released and waive the right to raise
certain claims in any bankruptcy proceeding in order to facilitate the ability
of GECC to direct the disposition of the inventory collateral.
Additionally, in connection with the lien granted to GECC in the inventory
collateral and certain other collateral which does not secure the notes, the
Company has agreed with GECC to cause the trustee under the First Mortgage
Bonds, in the case of an event of default under the Mortgage, to permit GECC,
its agents or designees to use any and all property, plant or equipment of the
Company located at the Indiana Harbor Works (other than the continuous caster
equipment previously mortgaged to the PBGC) (the "PPE Collateral") during a
150-day liquidation period following such event of default (subject to extension
by mutual agreement) and, during such liquidation period, to take possession of
and fully process the inventory collateral and certain related assets at such
location in any manner necessary or desirable for GECC to realize the full value
of its collateral in connection with any sale or other disposition thereof. The
terms of the GECC Intercreditor Agreement confirm this PPE access arrangement
and Ispat Inland Finance, LLC (as the registered holder of the First Mortgage
Bonds) and the trustee for the notes (as the pledgee of the First Mortgage
Bonds) have given an irrevocable direction to the trustee under the Mortgage for
the First Mortgage Bonds to facilitate GECC's right of access in the event that
an event of default under the Mortgage occurs. GECC has also confirmed in the
GECC Intercreditor Agreement that it otherwise has no rights to, security
interest in or lien on the PPE Collateral.
EXISTING RECEIVABLES INTERCREDITOR AGREEMENT
In connection with the offering of the old notes, the trustee under the
indenture entered into a receivables intercreditor agreement (the "Existing
Receivables Intercreditor Agreement") by and among JPMorgan Chase Bank, as the
receivables agent (the "Receivables Agent"), BNY Midwest Trust Company, as the
receivables collateral trustee (the "Receivables Collateral Trustee"), Ispat
Inland Administrative Service Company (the "Receivables Buyer"), the Company,
GECC and the trustee for the notes. The Company has previously granted to
JPMorgan Chase Bank and the other banks that are party to the receivable credit
facility a security interest in the receivables. The Company has also entered
into a credit agreement with GECC, which provides GECC with a first priority
lien on the inventory collateral as well as certain assets not securing the
notes.
Pursuant to the Existing Receivables Intercreditor Agreement, GECC, the
Receivables Agent and the trustee for the notes establish certain rights of the
parties with respect to the receivables assets and with respect to the inventory
collateral. GECC, the trustee for the notes, and the Receivables Trustee have
appointed each other as agent for purposes of perfecting by possession their
respective security interests. The Existing Receivables Intercreditor Agreement
provides that if receivables are sold by the Company to the Receivables Buyer
and the goods are thereafter returned, the Receivables Agent will have a prior
lien in the returned inventory to secure any unpaid receivable that was
transferred in a securitization transaction. GECC and the trustee for the notes
have agreed that upon any sale or transfer of a receivable from the Company to
the Receivables Buyer, their respective security interests will terminate in
that receivable. GECC and the trustee for the notes also agree that they do not
have a
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security interest in the accounts receivable except for the junior lien on the
returned goods and the Receivables Agent has agreed that it does not have a
security interest in the inventory collateral.
The Existing Receivables Intercreditor Agreement further provides that any
proceeds from the inventory collateral will be paid first to GECC and second to
the trustee for the notes and any proceeds from the receivables assets will be
paid to the Receivables Agent. The Existing Receivables Intercreditor Agreement
further provides that GECC and the trustee for the notes will provide the
Receivables Agent with access to their respective records with respect to the
receivables and the inventory. The Company and the Receivables Buyer have also
agreed that in the event of a default under the GECC inventory credit facility,
the Company and the Receivables Buyer will terminate all transfers of
receivables from the Company to the Receivables Buyer. The Existing Receivables
Intercreditor Agreement further provides that the Receivables Agent and the
Receivables Collateral Trustee consent to a stand by control agreement in favor
of GECC in the lockbox accounts in which amounts received in respect of
purchased receivables are deposited. Once the Receivables Agent has been paid in
full from the depository account, the control agreement will become effective,
allowing GECC to obtain priority over the proceeds in the deposit account.
USWA SUBORDINATED MORTGAGE ON THE INDIANA HARBOR WORKS
On September 15, 1994, Ispat Inland Inc. granted the United Steelworkers
of America a subordinated mortgage on the Indiana Harbor Works as collateral
security for the payment of those post-retirement medical and life insurance
benefits to retired employees which are not funded under the applicable Company
welfare plan and trust. The USWA subordinated mortgage is subject and
subordinated in all respects to the mortgage securing the First Mortgage Bonds.
To the extent any property is released from the lien of the mortgage of the
First Mortgage Bonds, such property will be automatically released from the lien
of the USWA subordinated mortgage.
The USWA subordinated mortgage permits the trustee under the indenture
governing the First Mortgage Bonds to take all actions thereunder without the
consent or notice to the USWA (including increasing the amount, interest rate
and maturity of bonds issued under the indenture governing the First Mortgage
Bonds) and provides that upon an event of default under the indenture governing
the First Mortgage Bonds, the USWA may not take any enforcement action under the
subordinated mortgage except to join in any such action as is then being
asserted by the trustee under the indenture governing the First Mortgage Bonds.
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REGISTRATION RIGHTS
The Issuer and the Guarantors entered into a registration rights agreement
(the "Registration Rights Agreement") with UBS Securities LLC, for the benefit
of the holders of Notes, pursuant to which the Issuer and the Guarantors agreed
at their cost:
- - file a registration statement (the "Exchange Offer Registration
Statement") with the SEC with respect to a registered exchange offer (the
"Registered Exchange Offer") to exchange without novation the Notes for
new Notes of the Issuer guaranteed by the Guarantors (the "Exchange
Notes") having terms identical in all material respects to the Notes
(except that the Exchange Notes will not contain terms with respect to
transfer restrictions or Additional Interest (as defined)); and
- - use their reasonable best efforts to cause the Exchange Offer Registration
Statement to be declared effective under the Securities Act and to
consummate the Exchange Offer within 180 days after the Issue Date.
The exchange offer made in this prospectus constitutes the Registered
Exchange Offer provided for in the Registration Rights Agreement.
The Issuer is hereby offering the Exchange Notes in exchange for surrender
of the Notes. The Issuer will keep this Registered Exchange Offer open for not
less than 30 days (or longer if required by applicable law) after the date
notice of the Registered Exchange Offer is mailed to the Holders. For each Note
surrendered to the Issuer pursuant to this Registered Exchange Offer, the Holder
of such Note will receive an Exchange Note having a principal amount equal to
that of the surrendered Note. The Exchange Notes will evidence the same
continuing indebtedness as the Notes surrendered. Under existing SEC
interpretations, the Exchange Notes and the related guarantees will be freely
transferable by Holders other than affiliates of the Issuer after this
Registered Exchange Offer without further registration under the Securities Act.
Each Holder that wishes to exchange its Notes for Exchange Notes is
required to represent that, among other things:
- - any Exchange Notes to be received by it will be acquired in the ordinary
course of its business,
- - it has no arrangement or understanding with any person to participate in
the distribution (within the meaning of the Securities Act) of the
Exchange Notes in violation of the provisions of the Securities Act,
- - it is not an "affiliate" of the Issuer or any Guarantor, as defined in
Rule 405 under the Securities Act, or if it is an affiliate, it will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable,
- - if such Holder is not a broker-dealer, it is not engaged in, and does not
intend to engage in, a distribution of Exchange Notes, and
- - if such holder is a broker-dealer (a "Participating Broker-Dealer") that
will receive Exchange Notes for its own account in exchange for Notes
acquired as a result of market-making or other trading activities, it will
deliver a prospectus in connection with any resale of such Exchange Notes.
Under similar SEC interpretations, Participating Broker-Dealers may fulfill
their prospectus delivery requirements with respect to Exchange Notes (other
than a resale of an unsold allotment from the original sale of the Notes) with
the prospectus contained in the Exchange Offer Registration Statement. Under the
Registration Rights Agreement, if requested by a Participating Broker-Dealer,
the Issuer and the Guarantors are required to use their reasonable best efforts
to keep the Exchange Offer Registration Statement continuously effective for a
period of not longer than 180 days after the date on which such statement is
declared effective to satisfy their prospectus delivery requirements.
In the event that:
- - applicable law or interpretations of the staff of the SEC do not permit
the Issuer and the Guarantors to effect this Registered Exchange Offer,
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- - for any other reason this Registered Exchange Offer is not consummated by
September 22, 2004 (i.e., within 180 days of the Issue Date),
- - any Holder is prohibited by law or SEC policy from participating in the
Registered Exchange Offer or does not receive Exchange Notes that may be
sold without restriction (other than due solely to the status of such
Holder as an affiliate of the Issuer or any Guarantor), or
- - the initial purchaser so requests with respect to Notes that have, or that
are reasonably likely to be determined to have, the status of unsold
allotments in an initial distribution,
then the Issuer and the Guarantors will, at their cost, (a) file a registration
statement (the "Shelf Registration Statement") covering resales of the Notes or
the Exchange Notes, as the case may be, from time to time, (b) use their
reasonable best efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act within the time periods specified in the
Registration Rights Agreement and (c) keep the Shelf Registration Statement
effective two years from the Issue Date or such shorter period ending when all
Notes and/or Exchange Notes covered by the Shelf Registration Statement have
been sold in the manner set forth and as contemplated in the Shelf Registration
Statement. The Issuer will, in the event a Shelf Registration Statement is
filed, among other things, provide to each Holder for which such Shelf
Registration Statement was filed copies of the prospectus which is a part of the
Shelf Registration Statement, notify each such Holder when the Shelf
Registration Statement has become effective and take certain other actions as
are required to permit unrestricted resales of the Notes or the Exchange Notes,
as the case may be. A Holder selling Notes or Exchange Notes pursuant to the
Shelf Registration Statement generally would be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such
Holder (including certain indemnification obligations). In addition, each Holder
of the Notes or Exchange Notes to be registered under the Shelf Registration
Statement will be required to deliver information to be used in connection with
the Shelf Registration Statement within the time period set forth in the
Registration Rights Agreement in order to have such Holder's Notes or Exchange
Notes included in the Shelf Registration Statement and to benefit from the
provisions regarding Additional Interest set forth in the following paragraph.
If:
- - on or prior to September 22, 2004 (i.e., the 180th day after the Issue
Date), the Registered Exchange Offer is not consummated, or
- - the Shelf Registration Statement is required to be filed but is not
declared effective within the time period required by the Registration
Rights Agreement or is declared effective but thereafter ceases to be
effective or usable (subject to certain exceptions),
(each such event referred to in either of the clauses above, a "Registration
Default"), additional cash interest ("Additional Interest") will accrue on the
affected Notes and the affected Exchange Notes, as applicable. The rate of
Additional Interest will be 0.25% per annum for the first 90-day period
immediately following the occurrence of a Registration Default, increasing by an
additional 0.25% per annum with respect to each subsequent 90-day period up to a
maximum amount of additional interest of 1.0% per annum, from and including the
date on which any such Registration Default shall occur to, but excluding, the
earlier of (1) the date on which all Registration Defaults have been cured or
(2) with respect to each Note or Exchange Note, the date on which such Note or
Exchange Note otherwise becomes freely transferable by Holders other than
affiliates of the Issuer without further registration under the Securities Act.
Notwithstanding the foregoing, (1) the amount of Additional Interest
payable shall not increase because more than one Registration Default has
occurred and is pending and (2) a Holder of Notes or Exchange Notes who is not
entitled to the benefits of the Shelf Registration Statement (e.g., such Holder
has not elected to include information) shall not be entitled to Additional
Interest with respect to a Registration Default that pertains to the Shelf
Registration Statement. Such interest is payable in addition to any other
interest payable from time to time with respect to the Notes and the Exchange
Notes in cash on each interest payment date to the holders of record for such
interest payment date.
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Under certain circumstances the Issuer and the Guarantors may delay the
filing or the effectiveness of the Exchange Offer Registration Statement or the
Shelf Registration Statement and shall not be required to maintain the
effectiveness thereof or amend or supplement the Exchange Offer Registration
Statement or the Shelf Registration for a period of up to 60 days during any
12-month period. Any delay period will not alter the obligations of the Issuer
to pay Additional Interest with respect to a Registration Default.
This summary of certain provisions of the Registration Rights Agreement
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available upon request to the Issuer at its
address set forth elsewhere in this prospectus.
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MATERIAL INCOME TAX CONSIDERATIONS
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain material United States
federal income tax consequences and, in the case of a Non-United States Holder
(as defined below), certain estate tax consequences, of the acquisition,
ownership and disposition of the new notes by a person who acquired the old
notes in their initial offering at their issue price. Except where noted, the
following discussion addresses only new notes held as capital assets within the
meaning of section 1221 of the Internal Revenue Code of 1986, as amended (the
"Code"), and does not deal with special situations, such as those of
broker-dealers, tax-exempt organizations, individual retirement accounts and
other tax deferred accounts, financial institutions, insurance companies,
partnerships or other pass-through entities or investors in such entities,
persons holding new notes as part of a hedging or conversion transaction, a
straddle or a constructive sale, persons who have ceased to be United States
citizens or to be taxed as resident aliens and United States Holders (as defined
below) whose functional currency is not the U.S. dollar. Furthermore, the
following discussion is based upon the provisions of the Code and regulations,
rulings and judicial decisions thereunder as of the date hereof, and such
authorities may be repealed, revoked or modified (possibly with retroactive
effect) so as to result in U.S. federal income tax consequences different from
those discussed below. In addition, except as otherwise indicated, the following
does not consider the effect of any applicable foreign, state, local or other
U.S. federal tax laws such as estate or gift tax.
As used herein, a "United States Holder" is a beneficial owner of a new
note that is: (i) an individual who is a citizen or resident of the United
States, (ii) a corporation, or any other entity treated as a corporation for
U.S. federal income tax purposes, that was created or organized in or under the
laws of the United States or any political subdivision thereof; (iii) an estate
the income of which is subject to U.S. federal income taxation regardless of its
source, or (iv) a trust if (A) a United States court is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust; or
(B) the trust was in existence on August 20, 1996, and on August 19, 1996 was
treated as a domestic trust and has elected to be treated as a U.S. person.
A Non-United States Holder is a beneficial owner of a new note (other than
a partnership or any other entity treated as a partnership for U.S. federal
income tax purposes) that is not a United States Holder.
For U.S. federal income tax purposes, income earned through a foreign or
domestic partnership or other flow-through entity (or any other entity treated
as a partnership or flow-through entity for U.S. federal income tax purposes) is
attributed to its owners. Accordingly, if such a partnership or other flow
through entity holds new notes, the U.S. federal income tax treatment of a
partner in the partnership or owner of an equity interest in the flow-through
entity will generally depend on the status of the partner or owner and the
activities of the partnership or flow-through entity.
Special rules may apply to certain Non-United States Holders, such as
"controlled foreign corporations," "passive foreign investment companies" and
"foreign personal holding companies." Such entities should consult their own tax
advisors to determine the U.S. federal, state, local and other tax consequences
that may be relevant to them or to their shareholders.
PROSPECTIVE INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH
REGARD TO THE APPLICATION OF THE TAX CONSIDERATIONS DISCUSSED BELOW TO THEIR
PARTICULAR SITUATIONS, AS WELL AS THE APPLICATION OF ANY STATE, LOCAL, FOREIGN
OR OTHER U.S. FEDERAL TAX LAWS, OR SUBSEQUENT REVISIONS THEREOF.
TAX CHARACTERIZATION OF THE ISSUER
The U.S. federal income tax consequences to persons acquiring, owning, or
disposing of new notes depend in part on who is treated as the issuer of the new
notes for U.S. federal income tax purposes. Because Ispat Inland ULC (i) is
organized as a Nova Scotia unlimited liability company, (ii) is wholly-owned by
Ispat Inland, L.P., a Delaware limited partnership that has elected to be
treated as a corporation for U.S. federal income tax purposes, and
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(iii) has not made any election to the contrary, Ispat Inland ULC should be
treated as a "disregarded entity" for U.S. federal income tax purposes. As a
result, for U.S. federal income tax purposes, Ispat Inland ULC's sole owner,
Ispat Inland, L.P. will be treated as issuer of the new notes. If the Internal
Revenue Service were to successfully challenge this treatment, the tax
consequences to persons holding the new notes would be different. Prospective
investors should consult their own tax advisor concerning those potential
different consequences.
The remainder of this discussion assumes that Ispat Inland, L.P., a
corporation for U.S. Federal income tax purposes, will be treated as the issuer
of the new notes for U.S. federal income tax purposes.
UNITED STATES HOLDERS
Exchange Offer
The exchange of an old note for a note in the exchange offer will not be a
taxable exchange for U.S. federal income tax purposes. As a result, a United
States holder will not recognize any gain or loss upon exchanging an old note
for a new note. The holding period of the new note will include the holding
period of the old note exchanged, and the adjusted tax basis of the new note
received will be the same as of the adjusted tax basis immediately before the
exchange of the old note.
Interest
A United States Holder generally will be required to include in its gross
income as ordinary interest income the stated interest on a new note at the time
such interest accrues or is received, in accordance with the United States
Holder's method of accounting for U.S. federal income tax purposes.
Sale, Exchange, Retirement or Other Taxable Disposition of The New Notes
Except as discussed above under the heading "Exchange Offer," a United
States Holder generally will recognize capital gain or loss on the sale,
exchange, redemption, retirement or other taxable disposition of a new note in
an amount equal to the difference between the amount of cash plus the fair
market value of any property received, other than any such amount attributable
to accrued interest (which will be taxable as described above to the extent not
previously included in income), and the United States Holder's adjusted tax
basis in the new note. A United States Holder's adjusted tax basis in a new note
will, in general, be the United States Holder's cost therefor.
Any gain or loss recognized by a United States Holder on the sale,
exchange, redemption, retirement or other disposition of a new note that such
United States Holder has held for more than one year generally will be long-term
capital gain or loss. Long-term capital gains recognized by a non-corporate
United States Holder generally will be subject to tax at a maximum rate of 15%,
which maximum tax rate will increase under current law to 20% for dispositions
occurring during taxable years beginning on or after January 1, 2009. The
deductibility of capital losses is subject to certain limitations.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to the payment
of interest and proceeds received from the sale, exchange, redemption,
retirement or other disposition of the new notes. A United States Holder will be
subject to backup withholding at the applicable statutory rates on these
payments unless the United States Holder (i) is a corporation or comes within
certain other exempt categories, and when required demonstrates such fact or
(ii) provides a taxpayer identification number, complies with certain
certification requirements and otherwise complies with the backup withholding
rules. United States persons required to establish their exempt status generally
must provide certification on Internal Revenue Service Form W-9. Pursuant to
recently enacted legislation, the backup withholding rate is currently 28%,
which rate will increase (without further Congressional action) to 31% for
taxable years beginning on or after January 1, 2011.
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Any amounts withheld under the backup withholding rules from a payment to
a holder of the new notes will be allowed as a refund or a credit against such
holder's U.S. federal income tax liability, provided that the required
information is timely furnished to the Internal Revenue Service.
NON-UNITED STATES HOLDERS
Interest
Subject to the discussion of backup withholding below, the payment to a
Non-United States Holder of interest on a new note generally will not be subject
to U.S. federal income or withholding tax pursuant to the "portfolio interest
exception," provided that (i) the Non-United States Holder does not directly,
indirectly or constructively own 10% or more of the voting power of Ispat
Inland, L.P., (ii) the Non-United States Holder is not a controlled foreign
corporation that is related to Ispat Inland, L.P. through sufficient stock
ownership within the meaning of the Code, (iii) the Non-United States Holder is
not a bank whose receipt of interest on a new note is described in section
881(c)(3) of the Code, and (iv) either (A) the beneficial owner of the new note
certifies to us or our paying agent, under penalties of perjury, that it is not
a United States Holder and provide its name, address and certain other
information on an Internal Revenue Service Form W-8BEN, or a suitable substitute
form, or (B) a securities clearing organization, bank or other financial
institution that holds the new notes on behalf of such Non-United States Holder
in the ordinary course of its trade or business certifies to us or our paying
agent, under penalties of perjury, that such an Internal Revenue Service Form
W-8BEN or W-8IMY, or suitable substitute form, has been received from the
beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the payor with a copy thereof. Alternative
methods may be applicable for satisfying the certification requirement described
in (iv) above. These methods will generally require, in the case of new notes
held by a foreign partnership, that the certificate described in (iv) above be
provided by the partners in addition to the foreign partnership, and that the
partnership provide certain additional information. A look-through rule would
apply in the case of tiered partnerships.
If a Non-United States Holder cannot satisfy the requirements of the
portfolio interest exception described above, payments of interest made to such
Non-United States Holder generally will be subject to a 30% withholding tax (or
lower applicable treaty rate), unless the beneficial owner of the new note
provides us or our paying agent with a properly executed (1) Internal Revenue
Service Form W8-BEN, or successor form, claiming an exemption from or reduction
in the rate of withholding under the benefit of an applicable income tax treaty
or (2) Internal Revenue Service Form W8-ECI, or successor form, stating that
interest paid on the new note is not subject to withholding tax because it is
effectively connected with the beneficial owner's conduct of a trade or business
in the United States. In addition, the Non-United States Holder may under
certain circumstances be required to obtain a U.S. taxpayer identification
number and make certain certifications to us.
If a Non-United States Holder is engaged in a trade or business in the
United States and interest on the new note is effectively connected with the
conduct of such trade or business, such Non-United States Holder will be subject
to U.S. federal income tax on the interest, in the same manner as if it were a
United States Holder, except to the extent that an applicable income tax treaty
otherwise provides. In addition, if such Non-United States Holder is a foreign
corporation, it may be subject to a branch profits tax equal to 30% of its
effectively connected earnings and profits (which may include both any interest
on a new note and any gain on a disposition of a new note), subject to
adjustment, for that taxable year unless it qualifies for a lower rate under an
applicable income tax treaty.
Sale, Exchange, Retirement or Other Taxable Disposition of The New Notes
Subject to the discussion of backup withholding tax discussed below, a
Non-United States Holder generally will not be subject to U.S. federal income or
withholding tax on any gain realized upon the sale, exchange, redemption,
retirement or other disposition of a new note, provided (1) such gain is not
effectively connected with the conduct by such holder of a trade or business in
the United States (and, if required by an applicable income tax treaty as a
condition for subjecting the Non-United States Holder to U.S. taxation on a net
income basis, such payments or gain are not attributable to a permanent
establishment maintained by the Non-United States Holder in the United States)
and (2) in the case of gains derived by an individual, such individual is not
present in the United States for 183 days or more in the taxable year of
disposition and certain other conditions are met.
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If a Non-United States Holder's gain is effectively connected with its
conduct of a U.S. trade or business, such holder generally will be required to
pay U.S. federal income tax on the net gain derived from the sale in the same
manner as if it were a U.S. person. If such a Non-United States Holder is a
corporation, such holder may also, under certain circumstances, be subject to
the branch profits tax at a 30% rate (or lower applicable treaty rate). If a
Non-United States Holder is present in the United States for 183 days or more in
the taxable year of disposition, such holder generally will be subject to U.S.
federal income tax at a rate of 30% (or a reduced rate under an applicable
treaty) on the amount by which capital gains allocable to U.S. sources
(including gains from the sale, exchange, retirement or other disposition of the
new note) exceed capital losses allocable to U.S. sources.
Federal Estate Tax
Subject to any applicable estate tax treaty provisions, if an individual
Non-United States Holder holds new notes at the time of such holder's death,
those new notes will not generally be subject to the U.S. federal estate tax,
unless, at the time of death, (i) such holder owns, directly, indirectly or
constructively, 10% or more of the total voting power of Ispat Inland, L.P. or
(ii) payments with respect to the new notes are effectively connected with the
conduct of a trade or business in the United States.
Information Reporting and Backup Withholding
We must report annually to the Internal Revenue Service and to each
Non-United States Holder any interest that is subject to withholding, or that is
exempt from U.S. withholding tax pursuant to a tax treaty, or interest that is
exempt from U.S. withholding tax under the portfolio interest exception. Copies
of these information returns may also be made available under the provisions of
a specific tax treaty or agreement with the tax authorities of the country in
which the Non-United States Holder resides.
Non-United States Holders will be subject to information reporting
requirements and may be subject to backup withholding. However, information
reporting and backup withholding will not generally apply to payments of
interest made by us or a paying agent to Non-United States Holders if the
certification described above under "Non-United States Holders--Interest" is
received. If the foreign office of a foreign "broker," as defined in the
applicable Treasury regulations, pays the proceeds of a sale, exchange,
redemption, retirement or other disposition of a new note to the seller thereof
outside the United States, backup withholding and additional information
reporting requirements will generally not apply. However, additional information
reporting requirements, but not backup withholding (unless the payor has actual
knowledge that you are a United States person), will generally apply to a
payment of the proceeds of a sale, exchange, redemption, retirement or other
disposition of a new note by a foreign office of a broker that is a United
States person or a "U.S. related person," unless the holder otherwise
establishes an exemption. For this purpose, a "U.S. related person" is (1) a
foreign person that derives 50% or more of its gross income from all sources in
specified periods from activities that are effectively connected with the
conduct of a trade or business in the United States, (2) a "controlled foreign
corporation" (a foreign corporation controlled by certain U.S. shareholders), or
(3) a foreign partnership, if at any time during its tax year, one or more of
its partners are U.S. persons, as defined in the regulations, who in the
aggregate hold more than 50% of the income or capital interest in the
partnership, or if at any time during its taxable year, such foreign partnership
is engaged in a trade or business in the United States. Payment of the proceeds
of a sale, exchange, redemption, retirement or other disposition of a new note
by a U.S. office of any U.S. or foreign broker is generally subject to both
backup withholding and additional information reporting unless the holder
certifies under penalties of perjury that it is a Non-United States Holder or
otherwise establishes an exemption. Pursuant to recently enacted legislation,
the backup withholding rate currently is 28%, which rate will increase (without
further Congressional action) to 31% for taxable years beginning on or after
January 1, 2011.
Any amounts withheld under the backup withholding rules from a payment to
a holder of the new notes will be allowed as a refund or a credit against such
holder's U.S. federal income tax liability, provided that the required
information is timely furnished to the Internal Revenue Service.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS FOR NON-RESIDENTS OF CANADA
In the opinion of Ogilvy Renault, Canadian counsel to the Issuer, the
following summary fairly describes the main Canadian federal income tax
consequences applicable to a holder who acquires the exchange notes
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pursuant to this prospectus and holds such notes as capital property for
purposes of the Income Tax Act (Canada) (the "Tax Act"). Generally, a note will
be considered to be capital property to a holder provided the holder does not
hold the note in the course of carrying on a business and has not acquired the
note in one or more transactions considered to be an adventure in the nature of
trade. This summary is based on the Canada-United States Income Tax Convention
(1980), as amended (the "Convention"), the relevant provisions of the Tax Act
and the regulations thereunder (the "Regulations"), as in force on the date
hereof, and counsel's understanding of the administrative practices of the
Canada Revenue Agency. It assumes that the specific proposals to amend the Tax
Act and the Regulations publicly announced by the Minister of Finance of Canada
prior to the date of this prospectus will be enacted in their present form, but
the Tax Act or the Regulations may not be amended as proposed or at all. This
summary does not address provincial, territorial or foreign income tax
considerations. Changes in the law or administrative practices or future court
decisions may affect your tax treatment.
The following commentary is generally applicable to a holder who, at all
times for purposes of the Tax Act, deals at arm's length with the Issuer and
who, for the purposes of the Convention and the Tax Act, is not and is not
deemed to be a resident of Canada during any taxation year in which it owns the
notes and does not use or hold, and is not deemed to use or hold the notes in
the course of carrying on a business in Canada and to an insurer or an
authorized foreign bank who carries on an insurance business or a bank business
in Canada, who we refer to as a Non-Resident Holder.
INTEREST PAYMENTS
A Non-Resident Holder will not be subject to tax (including withholding
tax) under the Tax Act on interest, principal or premium on the notes.
DISPOSITIONS
Gains realized on the disposition or deemed disposition of a note by a
Non-Resident Holder will not be subject to tax under the Tax Act.
EXCHANGE OF NOTES INTO REGISTERED NOTES
The exchange of a note for a registered note by a Non-Resident Holder
pursuant to a Registered Exchange Offer will not constitute a taxable
transaction for the purposes of the Tax Act.
THE PRECEDING DISCUSSION OF CANADIAN FEDERAL INCOME TAX CONSEQUENCES IS
FOR GENERAL INFORMATION ONLY AND IS NOT LEGAL OR TAX ADVICE. ACCORDINGLY,
PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN TAX ADVISOR AS TO PARTICULAR TAX
CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF ANY
PROPOSED CHANGES IN APPLICABLE LAWS.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account as a result
of market-making activities or other trading activities in connection with the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of such new notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of new notes received in exchange for old notes where such old
notes were acquired as a result of market-making activities or other trading
activities. In addition, until _______, 2004, all dealers effecting transactions
in the new notes may be required to deliver a prospectus.
We will receive no proceeds in connection with the exchange offer. New
notes received by broker-dealers for their own account pursuant to the exchange
offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the new notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer or the
purchasers of any such new notes. Any broker-dealer that resells new notes that
were received by it for its own account pursuant to the exchange offer and any
broker or dealer that participates in a distribution of such new notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of new notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
LEGAL MATTERS
Mayer, Brown, Rowe & Maw LLP will pass upon the validity of the notes for
Ispat Inland. Certain matters of Canadian law will be passed upon for Ispat
Inland by each of Stewart McKelvey Stirling Scales and Ogilvy Renault, a general
partnership. Certain matters of Dutch law will be passed upon for Ispat
International by De Brauw Blackstone Westbroek N.V. Certain matters of New York
law will be passed upon for Ispat International by Shearman & Sterling LLP.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of Ispat Inland Inc. as of December
31, 2003 and 2002 and for the years ended December 31, 2003, 2002 and 2001 have
been audited by Deloitte & Touche LLP, Independent Registered Public Accounting
firm, as stated in their reports appearing therein and incorporated by
reference.
The consolidated financial statements of Ispat International N.V. and its
consolidated subsidiaries as of and for the year ended December 31, 2003, as of
and for the year ended December 31, 2002, except for Ispat Hamburg Group and
Caribbean Ispat Limited, and for the year ended December 31, 2001, except for
Ispat Hamburg Group, Caribbean Ispat Limited and Ispat Unimetal S.A.,
incorporated into this prospectus by reference, have been audited by Deloitte &
Touche Accountants, independent auditors, as stated in their report. The
financial statements of Ispat Hamburg Group and Caribbean Ispat Limited as of
and for the year ended December 31, 2002 and the financial statements of Ispat
Hamburg Group, Caribbean Ispat Limited and Ispat Unimetal S.A. for the year
ended December 31, 2001, consolidated with those of Ispat International N.V. and
not presented separately, have been audited by Ernst & Young, as stated in their
reports.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information with
the SEC. Ispat International files annual reports on Form 20-F, reports of
foreign private issuer on Form 6-K and other information with the SEC. You can
inspect, read and copy these reports, as well as other information, at the
public reference facilities the SEC maintains at Room 1024, 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549.
149
You can also obtain copies of these materials at prescribed rates by
writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can obtain information on the operation of the
public reference facilities by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a web site (http://www.sec.gov) that makes available reports, and
other information regarding issuers that file electronically with it.
INCORPORATION BY REFERENCE
Some of the information that you may want to consider in deciding whether
to invest in the notes is not included in this prospectus, but rather is
incorporated by reference to certain reports that we have filed with the SEC.
This permits us to disclose important information to you by referring you to
those documents rather than including them in this prospectus. The information
incorporated by reference in this prospectus contains important business and
financial information. In addition, information that we file with the SEC after
the date of this prospectus and prior to the completion of this offering will
update and supersede the information contained in this prospectus and
incorporated filings. We incorporate by reference the following documents filed
by Ispat Inland Inc. or Ispat International with the SEC:
- - Our Annual Report on Form 10-K for the fiscal year ended December 31,
2003;
- - Our Quarterly Report on Form 10-Q for the three-month period ended March
31, 2004;
- - Ispat International's Annual Report on Form 20-F for the fiscal year ended
December 31, 2003, as amended by Amendment No. 1 filed March 17, 2004,
Amendment No. 2 filed April 9, 2004 and Amendment No. 3 filed August 9,
2004;
- - Ispat International's Report on Form 6-K, filed May 6, 2004;
- - Ispat International's Report on Form 6-K, filed August 5, 2004;
- - All subsequent documents filed by us under Sections 13(a), 13(c), or 15(d)
of the Exchange Act after the date of this prospectus and prior to the
completion of this offering; and
- - All documents filed or submitted to the SEC by Ispat International under
the Exchange Act of Form 20-F, and on Form 6-K which specifically state
that they are intended to be incorporated by reference, after the date of
this prospectus and prior to the completion of this offering.
Any statement contained in a document incorporated by reference is considered to
be a part of this prospectus, except for any statement that is superseded or
modified by a statement contained herein or in any other subsequently filed
incorporated document. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
prospectus. Statements contained in this prospectus as to the contents of any
contract or other document referred to in this prospectus do not purport to be
complete.
You may request a copy of each document incorporated by reference in this
prospectus at no cost, excluding any exhibits to those documents, unless the
exhibit is specifically incorporated by reference, by writing or calling us at
the following address or telephone number: Ispat Inland Inc., 3210 Watling
Street, East Chicago, Indiana 46312, Attention: Barbara Lupien, phone number
(219) 399-5455.
The information in this prospectus may not contain all of the information
that may be important to you. You should read the entire prospectus, as well as
the documents incorporated by reference in the prospectus, before making an
investment decision.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
ISPAT INTERNATIONAL N.V. INCORPORATED UNDER THE LAW OF THE NETHERLANDS
Netherlands law does not prohibit indemnification of directors, employees and
agents of corporations. The Amended and Restated Articles of Association of
Ispat International N.V. provide that managing directors and proxyholders shall
be indemnified to the fullest extent permitted under the laws of The Netherlands
concerning (a) any and all liabilities imposed on him/her or on it, including
judgments, fines and penalties, (b) any and all expenses, including costs and
attorney's fees, reasonably incurred or paid by him/her or by it, and (c) any
and all amounts paid in settlement by him/her or by it, in connection with any
such claim, action, suit or other proceeding. Under Netherlands law and the
Articles of Association, the legal reasonableness and fairness test means that
such indemnity cannot be relied upon where the liability resulted from the
willful malfeasance, bad faith or gross negligence of the individual. Further,
the Articles of Association provide that such indemnity shall not be relied upon
where such individual did not act in good faith or in the reasonable believe
that his or its action was in the best interest of the company. Ispat
International has obtained directors' and officers' insurance coverage, which,
subject to policy terms and limitation, includes coverage to reimburse Ispat
International for amounts that Ispat International may be required or permitted
by law to pay or indemnify the directors and officers.
REGISTRANTS ORGANIZED UNDER THE LAW OF NOVA SCOTIA, CANADA
Ispat Inland ULC, 3019693 Nova Scotia U.L.C.
(a) Under applicable Nova Scotia law, Ispat Inland ULC is permitted to
indemnify its officers and directors on terms acceptable to its
shareholders subject only to the general common law restrictions based on
public policy and restrictions residing under specific legislation of
relevant jurisdictions. The Articles of Association of Ispat Inland ULC
provide that no director or officer, former director or officer, or person
who acts or acted at Ispat Inland ULC's request, as a director or officer
of Ispat Inland ULC, a body corporate, partnership or other association of
which Ispat Inland ULC is or was a shareholder, partner, member or
creditor, in the absence of any dishonesty on such person's part, shall be
liable for the acts, receipts, neglects or defaults of any other director,
officer or such person, or for joining in any receipt or other act for
conformity, or for any loss, damage or expense of any kind which happens
in the execution of the duties of such person or in relation thereto. The
Articles of Association of Ispat Inland ULC also provide that every
director or officer, former director or officer, or person who acts or
acted at Ispat Inland ULC's request, as a director or officer of Ispat
Inland ULC, a body corporate, partnership or other association of which
Ispat Inland ULC is or was a shareholder, partner, member or creditor, and
the heirs and legal representatives of such person, in the absence of any
dishonesty on the part of such person, shall be indemnified by Ispat
Inland ULC against, and it shall be the duty of the directors out of the
funds of Ispat Inland ULC to pay, all costs, losses and expenses,
including an amount paid to settle an action or claim or satisfy a
judgment, that such director, officer or person may incur or become liable
to pay in respect of any claim made against such person or civil, criminal
or administrative action or proceeding to which such person is made a
party by reason of being or having been a director or officer of Ispat
Inland ULC or such body corporate, partnership or other association,
whether Ispat Inland ULC is a claimant or party to such action or
proceeding or otherwise; and the amount for which such indemnity is proved
shall immediately attach as a lien on the property of Ispat Inland ULC and
have priority as against the shareholders over all other claims.
(b) The Articles of Association of 3019693 Nova Scotia U.L.C. provide that
every director, manager, Secretary, Treasurer, and other officer or
servant of the Registrant shall be indemnified by the Registrant against,
and it shall be the duty of the directors out of the funds of the
Registrant to pay, all costs, losses and expenses which any director,
manager, Secretary, Treasurer or other officer or servant may incur or
become liable to by reason of any contract entered into, or act or thing
done by him as such officer or servant, or in any way in the discharge of
his duties, including traveling expenses, and the amount for which such
indemnity is proved shall immediately attach as a lien on the property of
the Registrant and have priority as
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against the shareholders over all other claims. The Articles of
Association of 3019693 Nova Scotia U.L.C. further provide that no director
or officer of the Registrant, in his capacity as a director or officer,
respectively, shall be liable for acts, receipts, neglects or defaults of
any other director or officer, or for joining in any receipt or other act
for conformity, or for any loss or expense happening to the Registrant
through the insufficiency or deficiency of title to any property acquired
by order of the directors for or on behalf of the Registrant or through
the insufficiency or deficiency of any security in or upon which any of
the moneys of the Registrant shall be invested, or for any loss or damage
arising from the bankruptcy, insolvency or tortious act of any person with
whom any money, securities or effects shall be deposited, or for any loss
occasioned by error of judgment or oversight on his part, or for any other
loss, damage or misfortune whatever which shall happen in the execution of
the duties of his office or in relation thereto, unless the same happen
through his own dishonesty.
REGISTRANTS ORGANIZED UNDER DELAWARE LAW
Ispat Inland Inc., Burnham Trucking Company, Inc., Incoal Company, Ispat Inland
Mining Company, Ispat Inland Service Corp., Ispat Inland, L.P., Ispat Inland
Finance, LLC
(a) Delaware corporations. The Delaware General Corporation Law (Section 145)
gives Delaware corporations broad powers to indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative by reason of the fact that the person is
or was a director, officer, employee or agent of the registrant, or is or
was serving at the request of the registrant as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or
proceeding, so long as such person acted in good faith and in a manner
such person reasonably believed to be in or not opposed to the best
interests of the registrant. For actions or suits by or in the right of
the registrant, no indemnification is permitted in respect of any claim,
issue or matter as to which such person is adjudged to be liable to the
registrant, unless, and only to the extent that, the Delaware Court of
Chancery or the court in which such action or suit was brought determines
upon application that, despite the adjudication of liability but in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnify for such expenses which the Court of Chancery or
such other court deems proper.
Section 145 also authorizes the registrant to buy directors' and officers'
liability insurance and gives a director, officer, employee or agent of
the registrant who has been successful on the merits or otherwise in
defense of any action, suit or proceeding of a type referred to in the
preceding paragraph the right to be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by such
person in connection therewith. Any indemnification (unless ordered by a
court) will be made by the registrant only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because the person has
met the applicable standard of conduct set forth above. Such determination
shall be made (1) by a majority vote of the directors who are not parties
to such action, suit or proceeding, even though less than a quorum, or (2)
if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (3) by the
stockholders. Such indemnification is not exclusive of any other rights to
which those indemnified may be entitled under any by-laws, agreement, vote
of stockholders or otherwise.
(b) Delaware limited partnerships. Section 17-108 of the Delaware Revised
Uniform Limited Partnership Act empowers a Delaware limited partnership to
indemnify and hold harmless any partner or other person from and against
all claims and demands whatsoever, subject to such standards and
restrictions, if any, as are set forth in its partnership agreement.
(c) Delaware limited liability companies. Section 18-108 of the Delaware
Limited Liability Company Act provides that, subject to the standards and
restrictions, if any, as are described in its limited liability company
agreement, a limited liability company may, and shall have the power to,
indemnify and hold
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harmless any member or manager or other person from and against any and
all claims and demands whatsoever.
(d) The By-laws of Ispat Inland Inc. are silent as to indemnification. The
Certificate of Incorporation of Ispat Inland Inc. provides as follows:
(i) that to the fullest extent permitted by the Delaware General
Corporation Law as it now exists and as it may hereafter be amended, no director
of the Company shall be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director.
(ii) that the Company shall indemnify director, officer, employee or
agent against all expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with any action, suit or proceeding resulting from his acting in such capacity
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
(iii) that the Company shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Company to procure a judgment
in its favor by reason of the fact that he is or was a director, officer,
employee or agent of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company and except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Company unless and only to the extent that the
Court of Chancery of the State of Delaware or the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(iv) To the extent that a present or former director or officer of
the Company has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred above, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
(v) Any indemnification set forth above (unless ordered by a court)
shall be made by the Company only as authorized in the specific case upon a
determination that indemnification of the present or former director, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth above. Such determination shall be
made, with respect to a director or officer of the time of such determination,
(a) by a majority vote of the directors who are not parties to such action, suit
or proceeding, even though less than a quorum, or (b) by a committee of such
directors designated by majority vote of such directors, even though less than a
quorum, or (c) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (d) by the stockholders of
the Company.
(vi) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Company as authorized in the Certificate of Incorporation. Such expenses
(including attorneys' fees) incurred by former directors and officers or other
employees and agents may be so paid upon such terms and conditions, if any, as
the Company deems appropriate.
(vii) The indemnification and advancement of expenses provided by,
or granted pursuant to, the other sections of the Certificate of Incorporation
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of
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stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
(viii) The Company may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the Company,
or is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Company would have the power to indemnify him against such liability under the
provisions of Section 145 of the General Corporation Law.
(ix) For purposes of the Certificate of Incorporation, references to
"the Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of the Certificate of Incorporation
with respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had continued.
(x) The indemnification and advancement of expenses provided by, or
granted pursuant to, the Certificate of Incorporation shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(e) The Certificate of Incorporation of Burnham Trucking Company, Inc. is
silent as to indemnification. The By-laws of Burnham Trucking Company
provides that, in addition to, and not exclusive of, all other rights to
which a director or officer may be entitled, the registrant shall
indemnify each of its directors and officers, whether or not then in
office (and their executors, administrators and heirs), against all
reasonable expenses actually and necessarily incurred by him in connection
with the defense of any litigation to which he may have been made a party
because he/she is or was a director or officer of the corporation. A
director or officer shall have no right to reimbursement, however, in
relation to matters as to which they have been adjudged liable to the
corporation for negligence or misconduct in the performance of their
duties. The right to indemnify for expenses shall also apply to the
expenses of suits which are compromised or settled if the court having
jurisdiction of the matter shall approve such settlement.
(f) The Certificate of Incorporation and By-laws of Ispat Inland Mining
Company are silent as to indemnification.
(g) The Certificate of Incorporation of Incoal Company is silent as to
indemnification. The By-laws of Incoal Company provide:
(i) The corporation shall indemnify each director and each officer
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director or officer of
the corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
II-4
(ii) The corporation shall indemnify each director and each officer
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director or officer of the corporation, or is or was serving at the request of
the corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such director or officer shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the corporation unless and only to the extent that the Court of Chancery
of the State of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such director or officer is fairly
and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(iii) To the extent that a person who is or was a director, officer,
employee or agent of the corporation, or of any other corporation, partnership,
joint venture, trust or other enterprise with which he is or was serving in such
capacity at the request of the corporation, has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to above, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(iv) Any indemnification above (unless ordered by a court) shall be
made by the corporation only as authorized in the specific case upon a
determination that indemnification of the director or officer is proper in the
circumstances because he has met the applicable standard of conduct set forth
above. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable but a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(v) Expenses incurred in defending a civil, criminal, administrative
or investigative action, suit or proceeding, or threat thereof, may be paid by
the corporation to a director or officer in advance of the final disposition of
such action, suit or proceeding as authorized by the board of directors in the
specific case upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount unless it shall ultimately be determined that he
shall be indemnified by the corporation.
(vi) The indemnification provided by the By-laws shall not be deemed
exclusive of any other rights to which a director or officer seeking
indemnification may be entitled under any statute, provision in the
corporation's certificate of incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(vii) The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this Article.
(h) The Certificate of Incorporation and By-laws of Ispat Inland Service Corp.
are silent as to indemnification.
(i) The Certificate of Limited Partnership of Ispat Inland, L.P. is silent as
to indemnification. The Agreement of Limited Partnership of Ispat Inland,
L.P. provides that no limited partner shall be obligated to make any
contribution of capital to the partnership nor have any liability for
debts and obligations of the partnership.
II-5
(j) The Certificate of Limited Liability Company of Ispat Inland Finance, LLC
is silent as to indemnification. The Limited Liability Agreement of Ispat
Inland Finance, LLC provides for, indemnification of managers to the full
extent permitted by law provide that no manager shall be indemnified from
any liability for the fraud, intentional misconduct, gross negligence, or
a knowing violation of the law, which was material to the cause of action.
The Limited Liability Agreement of Ispat Inland Finance, LLC further
provides that the member shall have no liability for the obligations of
the registrant except to the extent provided by law, if any.
(k) The Purchase Agreement and the Registration Rights Agreement (the forms of
which are included as Exhibits 1.1 and 4.6 to this registration statement)
provide for the indemnification under certain circumstances of the
registrants, their directors or managers and certain of their officers by
the underwriters.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
A list of the exhibits filed with, or incorporated by reference into, this
registration statement is in the Exhibit Index that immediately precedes such
exhibits and is incorporated herein by reference.
(b) FINANCIAL STATEMENT SCHEDULES.
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted because
they are not required, are inapplicable or the required information has already
been provided elsewhere in this registration statement.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-6
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) To file a post-effective amendment to the registration statement to
include any financial statements required by Item 8.A of Form 20-F
(17 CFR 249.220f) at the start of any delayed offering or throughout
a continuous offering. Financial statements and information
otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided that the registrant includes in the prospectus,
by means of a post-effective amendment, financial statements
required pursuant to this paragraph (a)(4) and other information
necessary to ensure that all other information in the prospectus is
at least as current as the date of those financial statements.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) Each of the undersigned registrants hereby undertake: (i) to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means; and (ii) to
arrange or provide for a facility in the U.S. for the purpose of
responding to such requests. The undertaking in subparagraph (i) includes
information contained in documents filed subsequent to the effective date
of the registration statement through the date of responding to the
request.
(d) Each of the undersigned registrants hereby undertake to supply by means of
a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Ispat Inland ULC, the registrant, has duly caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of London, United Kingdom, on August 10, 2004.
ISPAT INLAND ULC
By: /s/ Lakshmi N. Mittal*
----------------------------------------
LAKSHMI N. MITTAL
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on August 10, 2004.
SIGNATURES TITLE
---------- -----
/s/ Lakshmi N. Mittal* President (principal executive officer)
- ------------------------------------------------------
LAKSHMI N. MITTAL
/s/ Bhikam C. Agarwal* Vice President (principal financial and accounting officer)
- ------------------------------------------------------
BHIKAM C. AGARWAL
/s/ T.A. McCue* Director
- ------------------------------------------------------
THOMAS A. MCCUE
/s/ John L. Brett* Director
- ------------------------------------------------------
JOHN L. BRETT
/s/ R. Leblanc* Director
- ------------------------------------------------------
RICHARD LEBLANC
/s/ Denis Fraser* Director
- ------------------------------------------------------
DENIS FRASER
/s/ Benoit Alain* Director
- ------------------------------------------------------
BENOIT ALAIN
* By: /s/ Marc R. Jeske
- ------------------------------------------------------
Marc R. Jeske
(Attorney in fact)
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Ispat Inland Inc., the registrant, has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of East Chicago, State of Indiana, on August 10, 2004.
ISPAT INLAND INC.
By: /s/ Louis L. Schorsch*
----------------------------------------
LOUIS L. SCHORSCH
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on August 10, 2004.
SIGNATURES TITLE
---------- -----
/s/ Louis L. Schorsch* Chief Executive Officer, President and
- ------------------------------------------------------ Director
LOUIS L. SCHORSCH
/s/ Michael G. Rippey* Chief Financial Officer (principal financial
- ------------------------------------------------------ and accounting officer), Executive Vice
MICHAEL G. RIPPEY President - Commercial and Director
/s/ John L. Brett* Vice President - Finance
- ------------------------------------------------------
JOHN L. BRETT
/s/ Lakshmi N. Mittal* Chairman of the Board of Directors
- ------------------------------------------------------
LAKSHMI N. MITTAL
/s/ Ashok L. Aranha* Director
- ------------------------------------------------------
ASHOK L. ARANHA
/s/ R. Leblanc* Director
- ------------------------------------------------------
RICHARD LEBLANC
/s/ Robert B. McKersie* Director
- ------------------------------------------------------
ROBERT B. MCKERSIE
/s/ Malay Mukherjee* Director
- ------------------------------------------------------
MALAY MUKHERJEE
II-9
SIGNATURES TITLE
---------- -----
/s/ Jean-Pierre Picard* Director
- ------------------------------------------------------
JEAN-PIERRE PICARD
/s/ Peter D. Southwick* Director
- ------------------------------------------------------
PETER D. SOUTHWICK
/s/ Muni Krishna T. Reddy* Director
- ------------------------------------------------------
MUNI KRISHNA T. REDDY
/s/ Leonard H. Chuderewicz* Director and Executive
- ------------------------------------------------------ Vice President, Manufacturing
LEONARD H. CHUDEREWICZ
* By: /s/ Marc R. Jeske
- ------------------------------------------------------
Marc R. Jeske
(Attorney in fact)
II-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Ispat International N.V. the registrant, has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of London, United Kingdom, on August 10, 2004.
ISPAT INTERNATIONAL N.V.
By: /s/ Lakshmi N. Mittal
---------------------------
LAKSHMI N. MITTAL
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on August 10, 2004.
SIGNATURES TITLE
---------- -----
/s/ Lakshmi N. Mittal* Chief Executive Officer and Chairman of the
- ------------------------------------------------------ Board of Director
LAKSHMI N. MITTAL
/s/ Bhikam C. Agarwal* Chief Financial Officer (principal financial
------------------------------------------------------ principal accounting officer)
BHIKAM C. AGARWAL
/s/ Malay Mukherjee* President, Chief Operating Officer and Director
- ------------------------------------------------------
MALAY MUKHERJEE
/s/ Aditya Mittal* Director of Finance and Director
- ------------------------------------------------------
ADITYA MITTAL
Director
- ------------------------------------------------------
AMBASSADOR ANDRES ROZENTAL
/s/ Fernando Ruiz Sahagun* Director
- ------------------------------------------------------
FERNANDO RUIZ SAHAGUN
Director
- ------------------------------------------------------
NARAYANAN VAGHUL
Director
- ------------------------------------------------------
RENE LOPEZ
/s/ Muni Krishna T. Reddy* Director
- ------------------------------------------------------
MUNI KRISHNA T. REDDY
* By: /s/ Marc R. Jeske
- ------------------------------------------------------
Marc R. Jeske
(Attorney in fact)
II-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Burnham Trucking Company, Inc., the registrant, has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of East Chicago, State of Indiana, on August 10,
2004.
BURNHAM TRUCKING COMPANY, INC.
By: /s/ Allen J. Waitkins*
------------------------------------
ALLEN J. WAITKINS
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on August 10, 2004.
SIGNATURES TITLE
---------- -----
/s/ Allen J. Waitkins* President (principal executive officer) and
- ------------------------------------------------------ Director
ALLEN J. WAITKINS
/s/ Yvonne D. Meurkson* Vice President and Treasurer (principal
- ------------------------------------------------------ financial and accounting officer)
YVONNE D. MEURKSON
/s/ Michael G. Rippey* Director
- ------------------------------------------------------
MICHAEL G. RIPPEY
/s/ Louis L. Schorsch* Director
- ------------------------------------------------------
LOUIS L. SCHORSCH
* By: /s/ Marc R. Jeske
- ------------------------------------------------------
Marc R. Jeske
(Attorney in fact)
II-13
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Incoal Company, the registrant, has duly caused this registration statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of East Chicago, State of Indiana, on August 10, 2004.
INCOAL COMPANY
By: /s/ Michael G. Rippey*
---------------------------------
MICHAEL G. RIPPEY
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on August 10, 2004.
SIGNATURES TITLE
---------- -----
/s/ Michael G. Rippey* President (principal executive officer) and
- ------------------------------------------------------ Director
MICHAEL G. RIPPEY
/s/ Daniel J. Cornillie* Vice President (principal financial and
- ------------------------------------------------------ accounting officer) and Director
DANIEL J. CORNILLIE
/s/ T.A. McCue* Treasurer and Director
- ------------------------------------------------------
THOMAS A. MCCUE
* By: /s/ Marc R. Jeske
- ------------------------------------------------------
Marc R. Jeske
(Attorney in fact)
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Ispat Inland Mining Company, the registrant, has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of East Chicago, State of Indiana, on August 10, 2004.
ISPAT INLAND MINING COMPANY
By: /s/ Madhu G. Ranade*
-------------------------------------
MADHU G. RANADE
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on August 10, 2004.
SIGNATURES TITLE
---------- -----
/s/ Madhu G. Ranade* President (principal executive officer),
- ------------------------------------------------------ Chairman and Director
MADHU G. RANADE
/s/ Jonathan H. Holmes* Vice President (principal financial and
- ------------------------------------------------------ accounting officer) and Director
JONATHAN H. HOLMES
/s/ Louis L. Schorsch* Director
- ------------------------------------------------------
LOUIS L. SCHORSCH
* By: /s/ Marc R. Jeske
- ------------------------------------------------------
Marc R. Jeske
(Attorney in fact)
II-15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Ispat Inland Service Corp., the registrant, has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of East Chicago, State of Indiana, on August 10, 2004.
ISPAT INLAND SERVICE CORP.
By: /s/ Michael G. Rippey*
-------------------------------------
MICHAEL G. RIPPEY
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on August 10, 2004.
SIGNATURES TITLE
---------- -----
/s/ Michael G. Rippey* President (principal executive officer) and
- ------------------------------------------------------ Director
MICHAEL G. RIPPEY
/s/ T.A. McCue* Treasurer (principal financial and accounting
- ------------------------------------------------------ officer) and Director
THOMAS A. MCCUE
/s/ Marc R. Jeske Director
- ------------------------------------------------------
MARC R. JESKE
* By: /s/ Marc R. Jeske
- ------------------------------------------------------
Marc R. Jeske
(Attorney in fact)
II-16
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Ispat Inland, L.P., the registrant, has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of East Chicago, State of Indiana, on August 10, 2004.
ISPAT INLAND, L.P.
By: 9064-4816 Quebec Inc., general partner
By: /s/ R. Leblanc*
----------------------------------
RICHARD LEBLANC
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on August 10, 2004.
SIGNATURES TITLE
---------- -----
/s/ R. Leblanc* Chairman of the Board, President and Director
- ------------------------------------------------------ of general partner
RICHARD LEBLANC
/s/ Benoit Alain* Secretary and Director of 9064-4816 Quebec
- ------------------------------------------------------ Inc., general partner
BENOIT ALAIN
* By: /s/ Marc R. Jeske
- ------------------------------------------------------
Marc R. Jeske
(Attorney in fact)
II-17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
3019693 Nova Scotia U.L.C., the registrant, has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Contrecoeur, Quebec, Canada, on August 10, 2004.
3019693 NOVA SCOTIA U.L.C.
By: /s/ R. Leblanc*
------------------------------------
RICHARD LEBLANC
CHAIRMAN OF THE BOARD
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on August 10, 2004.
SIGNATURES TITLE
---------- -----
/s/ R. Leblanc* Chairman of the Board and Director
- ------------------------------------------------------
RICHARD LEBLANC
/s/ Bhikam C. Agarwal* Vice President (principal financial and
- ------------------------------------------------------ accounting officer)
BHIKAM C. AGARWAL
/s/ Benoit Alain* Director
- ------------------------------------------------------
BENOIT ALAIN
* By: /s/ Marc R. Jeske
- ------------------------------------------------------
Marc R. Jeske
(Attorney in fact)
II-18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Ispat Inland Finance, LLC, the registrant, has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of East Chicago, State of Indiana, on August 10, 2004.
ISPAT INLAND FINANCE, LLC
By: /s/ T.A. McCue
-----------------------------------
THOMAS A. MCCUE
MANAGER
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on August 10, 2004.
SIGNATURES TITLE
---------- -----
/s/ T.A. McCue* Manager
- ------------------------------------------------------
THOMAS A. MCCUE
/s/ Michael G. Rippey* Manager
- ------------------------------------------------------
MICHAEL G. RIPPEY
Manager
- ------------------------------------------------------
NARAYANAN VAGHUL
* By: /s/ Marc R. Jeske
- ------------------------------------------------------
Marc R. Jeske
(Attorney in fact)
II-19
SIGNATURE OF AUTHORIZED REPRESENTATIVE IN THE UNITED STATES
Pursuant to the requirements of Section 6(a) of the Securities Act of
1933, as amended, the undersigned has signed this registration statement, solely
in the capacity of the duly authorized representative of Ispat Inland ULC.,
Ispat International N.V. and 3019693 Nova Scotia U.L.C. in the United States, in
the City of East Chicago, State of Indiana, on August 10, 2004.
Ispat Inland Inc.
By: /s/ John L. Brett
----------------------------------------
Name: /s/ John L. Brett
Title: Vice-President Finance and Controller
II-20
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
- ----------- -------
1.1 Purchase Agreement, dated March 18, 2004 by and among Ispat
Inland ULC, the Guarantors (as defined therein) and UBS
Securities LLC.**
2.1 Agreement and Plan of Merger, dated May 27, 1998, among Ispat
International N.V., Inland Merger Sub, Inc., Inland Steel
Industries, Inc. and Inland Steel Company. (Filed as Exhibit
2.1 to Ispat Inland Inc.'s Current Report on Form 8-K filed on
June 9, 1998, and incorporated by reference herein.)
2.2 Amendment to Agreement and Plan of Merger, dated July 16,
1998, between Ispat International N.V., Inland Steel
Industries, Inc., Inland Merger Sub, Inc. and Inland Steel
Company. (Filed as Exhibit 2.2 to Inland Steel Industries,
Inc. Current Report on Form 8-K filed on July 20, 1998, and
incorporated by reference herein.)
3.1 Memorandum and Articles of Association of Ispat Inland ULC.**
3.2 Amended and Restated Articles of Association of Ispat
International N.V. dated December 31, 2001. (English
translation filed as Exhibit 1 to Ispat International's annual
report on Form 20-F for the year ended December 31, 2001, and
incorporated by reference herein.)
3.3 Restated Certificate of Incorporation of Ispat Inland Inc.
(Filed as Exhibit 3.(i) to Ispat Inland Inc.'s Quarterly
Report for the quarter ended September 30, 1998, and
incorporated by reference herein.)
3.4 By-Laws, as amended, of Ispat Inland Inc. (Filed as Exhibit
3.(ii) to Ispat Inland Inc.'s Quarterly Report for the quarter
ended June 30, 1998, and incorporated by reference herein.)
3.5 Corrected Certificate of the Designations, Powers, Preferences
and Relative, Participating or Other Rights, and the
Qualifications, Limitations or Restrictions thereof, of Series
A 8% Preferred Stock of Ispat Inland Inc., filed January 3,
2000. (Filed as Exhibit 3.C to Ispat Inland Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1999, and
incorporated by reference herein.)
3.6 Memorandum and Articles of Association of 3019693 Nova Scotia
U.L.C.**
3.7 Certificate of Incorporation of Burnham Trucking Company,
Inc.**
3.8 By-laws, as amended, of Burnham Trucking Company, Inc.**
3.9 Certificate of Incorporation, as amended, of Ispat Inland
Mining Company.**
3.10 By-laws of Ispat Inland Mining Company.**
3.11 Certificate of Incorporation, as amended, of Incoal Company.**
3.12 By-laws of Incoal Company, f/k/a New Woodview Corporation.**
3.13 Certificate of Incorporation, as amended, of Ispat Inland
Service Corp.**
3.14 By-laws of Ispat Inland Service Corp.**
3.15 Certificate of Limited Partnership of Ispat Inland, L.P.**
3.16 Agreement of Limited Partnership of Ispat Inland, L.P.**
3.17 Certificate of Limited Liability Company of Ispat Inland
Finance, LLC.**
3.18 Limited Liability Company Agreement of Ispat Inland Finance,
LLC.**
4.1 Ispat International N.V. Global Stock Option plan, effective
September 15, 1999. (Filed as exhibit 4.1 to Ispat
International N.V.'s annual report on Form 20-F for the year
ended December 31, 2000, and incorporated by reference
herein.)
4.2 Copy of First Mortgage Indenture, dated April 1, 1928, between
Ispat Inland Inc. (the "Steel Company") and First Trust and
Savings Bank and Melvin A. Traylor, as Trustees, and of
supplemental indentures thereto, to and including the
Thirty-Fifth Supplemental Indenture, incorporated by reference
from the following Exhibits: (i) Exhibits B-1(a), B-1(b),
B-1(c),B-1(d) and B-1(e), filed with Steel Company's
Registration Statement on Form A-2 (No. 2-1855); (ii) Exhibits
D-1(f) and D-1(g), filed with Steel Company's Registration
Statement on Form E-1 (No. 2-2182); (iii) Exhibit B-1(h),
filed with Steel Company's Current Report on Form 8-K dated
January 18, 1937; (iv) Exhibit B-1(i), filed with Steel
Company's Current Report on Form 8-K, dated February 8, 1937;
(v) Exhibits B-1(j) and B-1(k), filed with Steel Company's
Current Report on Form 8-K for the month of April, 1940; (vi)
Exhibit B-2, filed with Steel Company's Registration Statement
on Form A-2 (No. 2-4357); (vii) Exhibit B-1(l), filed with
Steel Company's Current Report on Form 8-K for the month of
January, 1945; (viii) Exhibit 1, filed with Steel Company's
Current Report on Form 8-K for the month of November, 1946;
(ix) Exhibit 1, filed with Steel Company's Current Report on
Form 8-K for the months of July and August, 1948; (x) Exhibits
B
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and C, filed with Steel Company's Current Report on Form 8-K
for the month of March, 1952; (xi) Exhibit A, filed with Steel
Company's Current Report on Form 8-K for the month of July,
1956; (xii) Exhibit A, filed with Steel Company's Current
Report on Form 8-K for the month of July, 1957; (xiii) Exhibit
B, filed with Steel Company's Current Report on Form 8-K for
the month of January, 1959; (xiv) the Exhibit filed with Steel
Company's Current Report on Form 8-K for the month of
December, 1967; (xv) the Exhibit filed with Steel Company's
Current Report on Form 8-K for the month of April, 1969; (xvi)
the Exhibit filed with Steel Company's Current Report on Form
8-K for the month of July, 1970; (xvii) the Exhibit filed with
the amendment on Form 8 to Steel Company's Current Report on
Form 8-K for the month of April, 1974; (xviii) Exhibit B,
filed with Steel Company's Current Report on Form 8-K for the
month of September, 1975; (xix) Exhibit B, filed with Steel
Company's Current Report on Form 8-K for the month of January,
1977; (xx) Exhibit C, filed with Steel Company's Current
Report on Form 8-K for the month of February, 1977; (xxi)
Exhibit B, filed with Steel Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1978; (xxii) Exhibit B,
filed with Steel Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1980; (xxiii) Exhibit 4-D, filed
with Steel Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1980; (xxiv) Exhibit 4-D, filed with
Steel Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1982; (xxv) Exhibit 4-E, filed with Steel
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1983; (xxvi) Exhibit 4(i) filed with the Steel
Company's Registration Statement on Form S-2 (No. 33-43393);
(xxvii) Exhibit 4 filed with Steel Company's Current Report on
Form 8-K dated June 23, 1993; (xxviii) Exhibit 4.C filed with
Steel Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995; (xxix) Exhibit 4.C filed with Steel
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995, and (xxx) Exhibit 4.C filed with Steel
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996.
4.3 Copy of consolidated reprint of First Mortgage Indenture,
dated April 1, 1928, between Ispat Inland Inc. and First Trust
and Savings Bank and Melvin A. Traylor, as Trustees, as
Amended and supplemented by all supplemental indentures
thereto, to and including the Thirteenth Supplemental
Indenture. (Filed as Exhibit 4-E to Form S-1 Registration
Statement No. 2-9443, and incorporated by reference herein.)
4.4 Copy of Thirty-Sixth Supplemental Indenture dated as of July
16, 1998 from Inland Steel Company to First National Bank and
John G. Finely as Trustees to the First Mortgage Indenture
dated April 1, 1928, between Inland Steel Company and First
Trust and Savings Bank and Melvin A. Taylor, as Trustees.
(Filed as Exhibit 4.C to Ispat Inland Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1998, and
incorporated by reference herein.)
4.5 Copy of Thirty-Seventh Supplemental Indenture dated as of July
9, 2003 from Ispat Inland Inc. to The Bank of New York and
Louis P. Young as Trustees to the First Mortgage from Ispat
Inland Inc. to First Trust and Savings Bank and Melvin A.
Traylor, as Trustees, dated April 1, 1928.**
4.6 Copy of Thirty-Eighth Supplemental Indenture dated as of March
25, 2004 from Ispat Inland Inc. to The Bank of New York and
Louis P. Young as Trustees to the First Mortgage from Ispat
Inland Inc. to First Trust and Savings Bank and Melvin A.
Traylor, as Trustees, dated April 1, 1928.**
4.7 Indenture, dated as of March 25, 2004, among Ispat Inland ULC,
the Guarantors (as defined therein) and LaSalle Bank National
Association, as Trustee.**
4.8 Registration Rights Agreement, dated March 25, 2004 by and
among Ispat Inland ULC, the Guarantors (as defined therein)
and UBS Securities LLC.**
5.1 Opinion of Mayer, Brown, Rowe & Maw LLP, dated June 1, 2004.**
5.2 Opinion of De Brauw Blackstone Westbroek N.V., dated June 1,
2004.**
5.3 Opinion of Stewart McKelvey Stirling Scales, dated May 28,
2004.**
5.4 Opinion of Shearman & Sterling LLP, dated May 28, 2004.**
8.1 Opinion of Mayer, Brown, Rowe & Maw LLP regarding tax
matters.**
10.1 Credit Agreement dated July 16, 1998, among Ispat Inland,
L.P., Ispat Inland Inc., Burnham Trucking Company, Inc.,
Incoal Company, the Lenders named therein and Credit Suisse
First Boston. (Filed as part of Exhibit 3.10 to Ispat
International N.V.'s annual report on Form 20-F for the year
ended December 31, 1998, and incorporated by reference
herein.)*
10.2 Amendments dated March 1, 2002, March 30, 2001 and September
30, 1999 to the Credit Agreement dated July 16, 1998, among
Ispat Inland, L.P., Ispat Inland Inc., Burnham Trucking
Company, Inc., Incoal Company, the Lenders named therein and
Credit Suisse First Boston. (Filed
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as Exhibit 2.1 to Ispat International N.V.'s annual report on
Form 20-F for the year ended December 31, 2002, and
incorporated by reference herein.)*
10.3 Amendment dated March 5, 2003 to the Credit Agreement dated
July 16, 1998, among Ispat Inland, L.P., Ispat Inland Inc.,
Burnham Trucking Company, Inc., Incoal Company, the Lenders
named therein and Credit Suisse First Boston. (Filed as
Exhibit 2.3 to Ispat International N.V.'s annual report on
Form 20-F for the year ended December 31, 2003, and
incorporated by reference herein.)*
10.4 Pledge Agreement, dated March 25, 2004, among Ispat Inland
ULC, Ispat Inland, L.P., 3019693 Nova Scotia U.L.C. and Ispat
Finance, LLC and LaSalle Bank National Association, as
Trustee**
12.1 Statement regarding Computation of Ratios**
21.1 List of Subsidiaries of the Registrant**
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Deloitte & Touche Accountants
23.3 Consent of Ernst & Young AG
23.4 Consent of Ogilvy Renault**
23.5 Consent of Ernst & Young Audit
23.6 Consent of Ernst & Young
23.7 Consent of Mayer, Brown, Rowe & Maw LLP (included in the
opinions filed as Exhibit 5.1 and Exhibit 8.1)**
23.8 Consent of De Brauw Blackstone Westbroek N.V. (included in the
opinion filed as Exhibit 5.2)**
23.9 Consent of Stewart McKelvey Stirling Scales (included in the
opinion filed as Exhibit 5.3)**
24.1 Powers of Attorney (included on Signature pages of the
Registration Statement filed June 3, 2004)**
25.1 Form T-1 Statement of Eligibility under the Trust Indenture
Act of 1939 of LaSalle Bank National Association**
99.1 Form of Letter of Transmittal for the Senior Secured Floating
Rate Notes due 2010 and the 9 3/4% Senior Secured Notes due
2014**
99.2 Form of Notice of Guaranteed Delivery**
* Except for such instruments as have been filed herein under
Exhibit 2, the total amount of long-term debt securities of Ispat International
N.V. authorized under any instrument does not exceed 10% of the total assets of
Ispat International N.V. on a consolidated basis. Ispat International N.V.
undertakes to furnish to the Commission all other instruments relating to
long-term debt of Ispat International N.V. and its subsidiaries upon request by
the Commission.
** Filed previously with the Registration Statement filed June 3,
2004.
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