Filed Pursuant to Rule 424(b)(1)
Registration No. 333-85152
$535,000,000
ÁñÁ«ÊÓƵ
[LOGO OF ÁñÁ«ÊÓƵ]
Offers to Exchange
10 3/4% Senior Exchange Notes Due August 1, 2008
For its
10 3/4% Senior Notes Due August 1, 2008
(Cusip Nos. 91263 PAA3 and U9118QAA7)
------------
This exchange offer will expire at 5:00 p.m. Eastern (U.S.) time on August
5, 2002, unless extended by us.
We are offering to exchange our 10 3/4% Senior Exchange Notes Due August 1,
2008 (the "Exchange Notes") that have been registered under the Securities Act
of 1933, as amended, in exchange for an equal par value face amount of our
outstanding unregistered 10 3/4% Senior Notes Due August 1, 2008 that were
issued in July and September of 2001 (the "Outstanding Notes").
The terms of the exchange are subject to the conditions described in this
prospectus.
Consider the risk factors beginning on page 10 of this prospectus carefully.
There is no active public trading market for the Outstanding Notes. We do
not intend to apply for listing of the Exchange Notes on any domestic
securities exchange or seek approval for quotation through any automated
quotation system.
ÁñÁ«ÊÓƵ ("ÁñÁ«ÊÓƵ") produces, transports and sells steel
mill products, coke, taconite pellets and coal in the United States and,
through its subsidiary U. S. Steel Kosice, produces and sells steel in Central
Europe.
The Exchange Notes will be issued in denominations of $1,000. We will pay
interest on the Exchange Notes each August 1 and February 1. The first interest
payment will be due on August 1, 2002 with interest payable from the February
1, 2002 payment of interest on the Outstanding Notes. We may redeem up to 35%
of the aggregate principal amount of the Exchange Notes before August 1, 2004
with net proceeds that we raise in public equity offerings at a redemption
price equal to 110.75% of the principal amount of the Exchange Notes being
redeemed plus accrued interest.
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.
Each broker-dealer that receives Exchange Notes for its own account pursuant
to this exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange 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. 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
Exchange Notes received in exchange for Outstanding Notes where such
Outstanding Notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities. The Company has agreed that, for
a period of 180 days after the expiration of this exchange offer (as defined
herein), it will make this Prospectus available to any broker-dealer for use in
connection with any such resale. A broker-dealer may not participate in the
exchange offer with respect to Outstanding Notes acquired other than as a
result of market-making activities or trading activities. See "Plan of
Distribution."
The date of this Prospectus is July 2, 2002.
TABLE OF CONTENTS
WHERE YOU CAN FIND MORE INFORMATION......................................... ii
SUMMARY..................................................................... 1
RISK FACTORS................................................................ 10
USE OF PROCEEDS............................................................. 20
TERMS OF THE EXCHANGE....................................................... 21
DESCRIPTION OF THE NOTES.................................................... 31
MATERIAL TAX CONSIDERATIONS................................................. 70
PLAN OF DISTRIBUTION........................................................ 71
VALIDITY OF EXCHANGE NOTES.................................................. 72
EXPERTS..................................................................... 72
We have not authorized anyone to provide you with information that is
different from the information contained in this prospectus or to which we have
referred you.
i
WHERE YOU CAN FIND MORE INFORMATION
ÁñÁ«ÊÓƵ files annual, quarterly and current reports,
proxy statements and other information with the SEC. You may read and copy any
document we file with the SEC at the SEC's Public Reference Room at 450 Fifth
Street Washington, D.C. 20549. You may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our SEC filings
are also accessible through the Internet at the SEC's website at
http://www.sec.gov and on our website at http://www.ussteel.com.
The SEC allows us to "incorporate by reference" into this prospectus the
information in documents we file with it, which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be a part of this
prospectus, and later information that we file with the SEC will update and
supersede this information. We incorporate by reference the following documents
and any future filings we make with the SEC under Section 13(a), 13(c), 14, or
15(d) of the Securities Exchange Act of 1934 until the termination of the
offering:
(a) ÁñÁ«ÊÓƵ' Annual Report on Form 10-K for the year ended December 31,
2001;
(b) ÁñÁ«ÊÓƵ' Proxy Statement on Schedule 14A dated March 11, 2002;
(c) ÁñÁ«ÊÓƵ' Quarterly Report on Form 10-Q for the quarter ended March 31,
2002, and
(d) ÁñÁ«ÊÓƵ' Current Reports on Form 8-K dated February 8, March 1, April
10, April 26, May 14, May 17, June 4, 2002 and July 1, 2002.
(e) We also incorporate by reference the consolidated/combined financial
statements and supplemental schedule included in Item 8 of the Annual
Report on Form 10-K of Republic Technologies International Holdings, LLC
("Republic") for the year ended December 31, 2001, and
(f) the unaudited consolidated financial statements included in Part I,
Item I of the Quarterly Report on Form 10-Q of Republic for the three month
period ended March 31, 2002.
Any statement contained in a document incorporated by reference to this
prospectus will be deemed to be modified or superseded for purposes of this
prospectus to the extent that a statement contained herein modifies or
supersedes such statement. Any such statement so modified or superseded will
not be deemed to constitute a part of this prospectus except as so modified or
superseded.
The documents incorporated by reference into this prospectus are available
from us upon request. We will provide a copy of any and all of the information
that is incorporated by reference in this prospectus to any person by first-
class mail, without charge, upon written or oral request. Any request for
documents should be made by July 15, 2002 to ensure timely delivery of the
documents prior to the expiration date of the exchange offer.
Requests for documents should be directed to:
ÁñÁ«ÊÓƵ
Shareholder Services
600 Grant Street, Room 611
Pittsburgh, Pennsylvania 15219-2800
(412) 433-4801
(866) 433-4801 (toll free)
(412) 433-4818 (fax)
ii
SUMMARY
The following is a summary of material information regarding United States
Steel and this exchange offer. More detailed information concerning these
matters appears elsewhere in this prospectus and the information in documents
incorporated by reference in this prospectus. Reference is made to "Risk
Factors" for a discussion of certain issues that should be considered in
evaluating an investment in the Notes.
Our Company
We are the largest integrated steel producer in North America. Integrated
steel producers make steel from iron ore, unlike mini-mills that mostly melt
scrap to make steel products. We have a broad product mix with particular focus
on value-added products and serve customers in the automotive, appliance,
distribution and service center, industrial machinery and construction
industries. We currently have annual steel-making capability of 17.8 million
tons through our four integrated steel mills. In addition, we have a
diversified mix of assets that provide us with a varied stream of revenues.
We operate three integrated steel mills and six finishing facilities in
North America and produce, transport and sell a variety of sheet, tin, plate
and tubular products, as well as coke, iron ore and coal. We participate in
several joint ventures engaged in steel processing and finishing. We also
participate in the real estate, resource management, and engineering and
consulting services businesses. We have a significant market presence in each
of our major product areas and have long-term relationships with many of our
major customers. We have annual steel-making capability in the U.S. of 12.8
million tons through Gary Works in Indiana, Mon Valley Works in Pennsylvania,
and Fairfield Works in Alabama. We operate finishing facilities in those three
states and Ohio. We are the largest domestic producer of seamless oil country
tubular goods and one of the two largest producers of tin mill products in
North America. We produce most of the iron ore and coke and a portion of the
coal we use as raw materials in our steel-making process.
In November 2000, we acquired U.S. Steel Kosice, s.r.o. ("ÁñÁ«ÊÓƵK"),
headquartered in Kosice in the Slovak Republic, the largest flat-rolled
producer in Central Europe. ÁñÁ«ÊÓƵK has annual steel-making capability of 5.0
million tons and produces and sells sheet, tin, plate, precision tube and
specialty products, as well as coke. The acquisition of ÁñÁ«ÊÓƵK has enabled us to
establish a low-cost manufacturing base in Europe and better positioned us to
serve our global customers.
Before December 31, 2001 our businesses were owned by USX Corporation. USX
had two outstanding classes of common stock: USX-Marathon Group common stock,
that was intended to reflect the performance of USX's energy business, and USX-
U. S. Steel Group common stock, that was intended to reflect the performance of
USX's steel business. On December 31, 2001, in a series of transactions that we
call the Separation, each share of USX-U. S. Steel Group common stock was
converted into the right to receive one share of our stock and USX changed its
name to Marathon Oil Corporation ("Marathon"). As a consequence of the
Separation, we became a separate publicly owned corporation. The Original Notes
were issued prior to Separation when we were a Delaware limited liability
company named United States Steel LLC.
The net assets of ÁñÁ«ÊÓƵ after Separation were
approximately the same as the net assets attributed to Steel Stock at the time
of the Separation, except for a $900 million value transfer (the "Value
Transfer") in the form of additional net debt and other obligations retained by
Marathon.
In connection with the Separation, we entered into a series of agreements
with Marathon governing our relationship after the Separation and providing the
allocation of tax and certain other liabilities and obligations arising from
periods prior to the Separation. These agreements included a financial matters
agreement under which we assumed obligations relating to industrial development
bonds, leases and guarantee obligations totaling approximately $692 million and
a tax sharing agreement that deals with tax matters and sharing of taxes
arising prior to Separation.
ÁñÁ«ÊÓƵ is a Delaware corporation. Our principal
offices are at 600 Grant Street, Pittsburgh PA 15219-2800 and our telephone
number is (412) 433-1121. References in this prospectus to the "Company,"
"United States Steel," "ÁñÁ«ÊÓƵ," "we," "us" and "our" are to United States Steel
Corporation and its subsidiaries.
1
The Exchange
The following brief summary contains the material terms of this exchange
offer. You should read the full text and more specific details contained
elsewhere in this prospectus. For a more detailed description of the Exchange
Notes, see "Description of the Notes."
Exchange.................... Up to $535 million aggregate principal amount
10 3/4% Senior Exchange Notes Due August 1,
2008 (the "Exchange Notes") that have been
registered under the Securities Act of 1933,
as amended, in exchange for an equal par
value face amount of our outstanding
unregistered 10 3/4% Senior Notes Due August
1, 2008 that were issued in July and
September 2001 (the "Outstanding Notes"). We
will refer to the Outstanding Notes not
exchanged in this exchange offer and the
Exchange Notes issued pursuant to this
exchange offer collectively as the "Notes."
We entered into a registration rights agreement
with the initial purchasers of the Outstanding
Notes in which we agreed to deliver you this
prospectus and we agreed to complete the exchange
offer. You are entitled to exchange in the
exchange offer your Outstanding Notes for
Exchange Notes that have terms identical in all
material respects to the Outstanding Notes except
that:
. the Exchange Notes have been registered under
the Securities Act;
. the Exchange Notes are not entitled to certain
registration rights that are applicable to the
Outstanding Notes under, and will not be
covered by, the registration rights agreement;
and
. the Exchange Notes will not be subject to
certain additional cash interest provisions
described in "Description of the Notes--
Registered Exchange Offer; Registration
Rights."
Expiration; Withdrawal of 5:00 p.m. Eastern (U.S.) time on August 5,
Tenders..................... 2002, unless extended. We do not currently
intend to extend the Expiration Date. A
tender of Outstanding Notes in the exchange
offer may be withdrawn at any time prior to
the Expiration Date. Any Outstanding Notes
not accepted for exchange for any reason will
be returned without expense to the tendering
holder promptly after the expiration or
termination of the exchange offer.
Resales..................... Based on an interpretation by the staff of the
SEC set forth in no-action letters issued to
third parties, we believe that the Exchange Notes
issued pursuant to the exchange offer for
Outstanding Notes may be offered for resale,
resold or otherwise transferred by you, unless
you are an "affiliate" of ÁñÁ«ÊÓƵ within the meaning
of Rule 405 under the Securities Act, without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that you are acquiring the Exchange
Notes in the ordinary course of your business and
that you have not engaged in, do not intend to
engage in and have no arrangement or
understanding with any person to participate in,
a distribution of the Exchange Notes.
2
Each participating broker-dealer that receives
Exchange Notes for its own account pursuant to
the exchange offer in exchange for Outstanding
Notes that were acquired as a result of market-
making or other trading activity must acknowledge
that it will deliver a prospectus in connection
with any resale of Exchange Notes. See "Plan of
Distribution."
Any holder of Outstanding Notes who:
. is an affiliate of ÁñÁ«ÊÓƵ;
. does not acquire Exchange Notes in the
ordinary course of its business; or
. tenders in the Exchange Offer with the
intention of participating, or for the purpose
of participating, in a distribution of
Exchange Notes.
cannot rely on the position of the staff of the
SEC enunciated in Exxon Capital Holdings
Corporation, Morgan Stanley & Co. Incorporated or
similar no-action letters and, in the absence of
an exemption, must comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with the resale of
the Exchange Notes.
Certain Conditions to the
Exchange Offer..............
The exchange offer is subject to customary
conditions, which we may waive. Please read the
section captioned "Terms of the Exchange--Certain
Conditions to the Exchange Offer" of this
prospectus for more information regarding the
conditions to the exchange offer.
Effects on Holders of
Outstanding Notes...........
As a result of the making of, and upon acceptance
for exchange of all validly tendered Outstanding
Notes pursuant to the terms of, the exchange
offer, we will have fulfilled a covenant in the
registration rights agreement at the time of the
issuance of the Outstanding Notes and,
accordingly, there will be no increase in the
interest rate on the Outstanding Notes as
described in the registration rights agreement.
If you are a holder of Outstanding Notes and you
do not tender your Outstanding Notes in the
exchange offer, you will continue to hold the
Outstanding Notes and will be entitled to all the
rights and limitations applicable to the
Outstanding Notes in the indenture relating to
the Notes, except for any rights under the
registration rights agreement that by their terms
terminate upon the consummation of the exchange
offer.
To the extent that Outstanding Notes are tendered
and accepted in this exchange offer, the trading
market for the Outstanding Notes could be
adversely affected.
3
Consequences of Failure to All untendered Outstanding Notes will continue to
Exchange.................... be subject to the restrictions on transfer
provided for in the Outstanding Notes and in the
indenture. In general, the Outstanding Notes may
not be offered or sold unless registered under
the Securities Act, except pursuant to an
exemption from, or in a transaction not subject
to, the Securities Act and applicable state
securities laws. Other than in connection with
the exchange offer, we do not currently
anticipate that we will register the Outstanding
Notes under the Securities Act.
Certain Tax The exchange of Outstanding Notes for Exchange
Considerations.............. Notes in the exchange offer will not be a taxable
event for U.S. federal income tax purposes. See
"Certain Tax Considerations."
Use of Proceeds............. We will not receive any cash proceeds from the
issuance of Exchange Notes pursuant to the
exchange offer.
Exchange Agent.............. The Bank of New York is the exchange agent for
the exchange offer. The address and telephone
number of the exchange agent are set forth in
this prospectus.
Procedure for Exchange
If you would like to receive Exchange Notes for your Outstanding Notes,
complete the letter of transmittal accompanying this prospectus and deliver the
completed letter to the Exchange Agent at the following address:
Bank of New York
Corporate Trust Department
Reorganization Unit
15 Broad Street--16th Floor
New York, N.Y. 10007
Attn: Mr. Bernard Arsenec
Delivery.................... You must also deliver the Outstanding Notes and
any other required documents to the Exchange
Agent at the addresses set forth above. If you
hold Outstanding Notes through The Depository
Trust Company ("DTC") and wish to participate in
the exchange offer, you must comply with the
Automated Tender Offer Program procedures of DTC,
by which you will agree to be bound by the letter
of transmittal. By signing, or agreeing to be
bound by, the letter of transmittal, you will
represent to us that, among other things:
. any Exchange Notes you receive will be
acquired in the ordinary course of your
business;
. you have no arrangement or understanding with
any person or entity to participate in a
distribution of the Exchange Notes;
. if you are a broker-dealer that will receive
Exchange Notes for your own account in
exchange for Outstanding Notes that were
acquired as a result of market-making
activities or other trading activities, that
you will deliver a prospectus, as required by
law, in connection with any resale of those
Exchange Notes; and
4
. you are not an "affiliate," as defined in Rule
405 of the Securities Act, of ÁñÁ«ÊÓƵ.
Special Procedures for
Beneficial Owners...........
If you are a beneficial owner of Outstanding
Notes that are registered in the name of a
broker, dealer, commercial bank, trust company or
other nominee, and you wish to tender the
Outstanding Notes in the exchange offer, you
should contact the registered holder promptly and
instruct the registered holder to tender on your
behalf. If you wish to tender on your own behalf,
you must, prior to completing and executing the
accompanying letter of transmittal and delivering
your Outstanding Notes, either make appropriate
arrangements to register ownership of the
Outstanding Notes in your name or obtain a
properly completed bond power from the registered
holder. The transfer of registered ownership may
take considerable time and may not be able to be
completed before the Expiration Date.
Guaranteed Delivery If you wish to tender your Outstanding Notes and
Procedures.................. your Outstanding Notes are not immediately
available or you cannot deliver your Outstanding
Notes, the accompanying letter of transmittal or
any other documents required by the accompanying
letter of transmittal or comply with the
applicable procedures under DTC's Automated
Tender Offer Program before the Expiration Date,
you must tender your Outstanding Notes according
to the guaranteed delivery procedures set forth
in this prospectus under "Terms of the Exchange--
Guaranteed Delivery Procedures."
Please see "Terms of the Exchange" for detailed instructions on how to
obtain Exchange Notes for your Outstanding Notes.
The Notes
Issuer...................... ÁñÁ«ÊÓƵ.
Maturity.................... August 1, 2008. There is no amortization or
sinking fund to cover the principal of or
interest on the Notes.
Interest Payment Dates...... Interest will be payable in cash on August 1
and February 1 of each year. The first
interest payment on the Exchange Notes will
be August 1, 2002 with interest payable from
the February 1, 2002 payment of interest on
the Outstanding Notes.
Ranking..................... The Notes will rank equally in right of
payment with all of the existing and future
senior unsecured indebtedness of United
States Steel and will rank senior in right of
payment to all of its future subordinated
indebtedness.
5
At March 31, 2002, United States Steel had
capital leases totaling $89 million and $521
million of senior unsecured indebtedness
ranking equal to the Notes, together with
ÁñÁ«ÊÓƵK's $325 million loan with a group of
financial institutions, which is non-recourse
to United States Steel. United States Steel
has no subordinated indebtedness currently
outstanding.
Senior Unsecured Debt The Notes are currently rated Ba3 by Moody's
Ratings..................... Investors Service, Inc. ("Moody's") and BB by
Standard & Poor's Rating Services ("S&P").
As of December 31, 2001, Moody's assigned a
corporate credit rating of Ba3 to United
States Steel with negative implications. On
May 17, 2002, S&P affirmed its BB corporate
credit rating for United States Steel and
removed the negative implications and
replaced it with a stable outlook.
Optional Redemption......... At any time prior to August 1, 2004, we may
redeem up to 35% of the aggregate principal
amount of the Notes with the proceeds of
public offerings of certain of our capital
stock at a redemption price of 110.75% of the
principal amount plus accrued interest.
Change of Control Offer..... Upon a change of control (as defined under
"Description of Notes"), we will be required
to make an offer to purchase the Notes. The
purchase price will equal 101% of the
principal amount of the Notes plus accrued
interest.
Certain Covenants........... The indenture governing the Notes contains
covenants that limit the ability of United States
Steel and all or some of its subsidiaries to:
. issue or sell capital stock of subsidiaries;
. engage in transactions with affiliates;
. create liens on their assets to secure
indebtedness;
. transfer or sell assets;
. restrict dividend or other payments to United
States Steel from its subsidiaries; and
. incur debt
. consolidate, merge or transfer all or
substantially all of United States Steel's
assets and the assets of its subsidiaries.
These covenants are subject to a number of
important exceptions and qualifications, which
are described in the "Description of the Notes"
section of this prospectus.
Investment Grade Fall-Away
Covenants................... Following the first day that:
. the Notes shall have an investment grade
rating from both Standard & Poor's and
Moody's; and
6
. no default has occurred and is continuing
under the Indenture,
United States Steel will no longer be subject to
certain of the covenants referred to above unless
and until one of Standard & Poor's and Moody's
either withdraws its rating or downgrades the
rating of the Notes below investment grade.
Amendments and Waivers......
Except for specified amendments, the indenture
may be amended with the consent of the holders of
a majority of the principal amount of the Notes
then outstanding.
Guarantee................... The Guarantee of the Original Notes by USX
Corporation by its terms expired upon the
Separation and USX Corporation, now named
Marathon Oil Corporation, has no liability with
respect to the Notes.
Co-Obligor.................. On January 2, 2002, United States Steel Financing
Corp., which was co-obligor of the Original
Notes, was merged into United States Steel
Corporation.
Absence of a Public Market
for the Exchange Notes......
The Exchange Notes generally will be freely
transferable but will also be new securities for
which there will not initially be a market. It is
not certain whether a market for the Exchange
Notes will develop or whether any such market
would provide a significant degree of liquidity.
We do not intend to apply for a listing of the
Exchange Notes on any domestic securities
exchange or seek approval for quotation through
any automated quotation system.
7
Summary Consolidated Financial Information
Prior to December 31, 2001, the businesses of United States Steel comprised
an operating unit of Marathon. Marathon had two outstanding classes of common
stock: USX-Marathon Group common stock, which was intended to reflect the
performance of Marathon's energy business, and USX-U. S. Steel Group common
stock ("Steel Stock"), which was intended to reflect the performance of
Marathon's steel business. On December 31, 2001, United States Steel was
capitalized through the issuance of 89.2 million shares of common stock to
holders of Steel Stock in exchange for all outstanding shares of Steel Stock on
a one-for-one basis (the "Separation").
The following table sets forth summary financial data for United States
Steel. Consolidated balance sheet data as of December 31, 2001 and March 31,
2002 and statement of operations data for the first quarter ended March 31,
2002 reflect United States Steel as a separate, stand-alone entity. All other
balance sheet and statement of operations data in the table below represent a
carve-out presentation of the businesses comprising United States Steel, and
are not intended to be a complete presentation of the financial position or
results of operations for United States Steel on a stand-alone basis. This
information should be read in conjunction with the more detailed information
and consolidated financial statements included in our Annual Report on Form
10-K for the year ended December 31, 2001, our Quarterly Report on Form 10-Q
for the quarter ended March 31, 2002, our Current Report on Form 8-K dated June
4, 2002, and the additional reports and documents incorporated by reference in
this prospectus.
First Quarter Ended
March 31, Year Ended December 31,
------------------- -----------------------------------------
2002 2001 2001 2000 1999 1998 1997
--------- --------- ------- ------- ------- ------- -------
(Dollars in millions except per share data)
Statement of Operations
Data:
Revenues and other
income(1)............. $ 1,434 $ 1,564 $ 6,375 $ 6,132 $ 5,470 $ 6,477 $ 7,156
Income (loss) from
operations............ (61) (101) (405) 104 150 579 773
Income (loss) before
extraordinary
losses................ (83) 9 (218) (21) 51 364 452
Net income (loss)...... (83) 9 (218) (21) 44 364 452
Per Common Share Data--
Basic and Diluted:
Income (loss) before
extraordinary
losses(2) ............ $ (0.93) $ (0.10) $ (2.45) $ (0.24) $ 0.57 $ 4.08 $ 5.07
Net income (loss)(2)... (0.93) (0.10) (2.45) (0.24) 0.49 4.08 5.07
Dividends paid(3)...... 0.05 0.25 .55 1.00 1.00 1.00 1.00
Adjusted Statement of
Operations Data(4):
Income (loss) before
extraordinary loss.... $ (83) $ 9 $ (218) $ (21) $ 51
Add back: Excess over
cost amortization..... -- -- -- 1 1
--------- --------- ------- ------- -------
Adjusted income (loss)
before extraordinary
loss.................. $ (83) $ 9 $ (218) $ (20) $ 52
Net income (loss)...... $ (83) $ 9 $ (218) $ (21) $ 44
Add back: Excess over
cost amortization..... -- -- -- 1 1
--------- --------- ------- ------- -------
Adjusted net income
(loss)................ $ (83) $ 9 $ (218) $ (20) $ 45
Adjusted Per Common
Share Data--Basic and
Diluted (4):
Income (loss) before
extraordinary loss.... $ (0.93) $ (0.10) $(2.45) $(0.24) $ 0.57
Add back: Excess over
cost amortization..... -- -- -- 0.01 0.02
--------- --------- ------- ------- -------
Adjusted income (loss)
before extraordinary
loss.................. $ (0.93) $ (0.10) $(2.45) $(0.23) $ 0.59
Net income (loss)...... $ (0.93) $ (0.10) $(2.45) $(0.24) $ 0.49
Add back: Excess over
cost amortization..... -- -- -- 0.01 0.02
--------- --------- ------- ------- -------
Adjusted net income
(loss)................ $ (0.93) $ (0.10) $(2.45) $(0.23) $ 0.51
Balance Sheet Data--as
of Period End
Total assets.......... $ 8,271 $ 8,626 $ 8,337 $ 8,711 $ 7,525 $ 6,749 $ 6,694
Capitalization:
Notes payable....... $ -- $ 164 $ -- $ 70 $ -- $ 13 $ 13
Long-term debt,
including amount
due within
one year(5)........ 1,465 2,072 1,466 2,375 915 476 510
Preferred stock of
subsidiary......... -- 66 -- 66 66 66 66
Trust preferred
securities......... -- 183 -- 183 183 182 182
Equity.............. 2,439 1,901 2,506 1,919 2,056 2,093 1,782
--------- --------- ------- ------- ------- ------- -------
Total
capitalization... $ 3,904 $ 4,386 $ 3,972 $ 4,613 $ 3,220 $ 2,830 $ 2,553
========= ========= ======= ======= ======= ======= =======
8
- --------------------
(1) Consists of revenues, dividend and investee income (loss), net gains on
disposal of assets, gain on investee stock offering and other income
(loss).
(2) Earnings per share for for the first quarter ended March 31, 2002 is based
on the weighted average outstanding common shares during the quarter.
Earnings per share for all other periods presented is based on the
outstanding common shares at December 31, 2001 as a result of the
Separation and the initial capitalization of United States Steel on that
date.
(3) Dividends paid per share for all periods presented, except for the first
quarter ended March 31, 2002, represents amounts paid on USX-U. S. Steel
Group common stock.
(4) Statement of Financial Accounting Standards No. 142 (SFAS No. 142),
Goodwill and Other Intangible Assets, addresses the accounting for goodwill
and other intangible assets after an acquisition. The most significant
changes made by SFAS No. 142 are 1) goodwill and intangible assets with
indefinite lives will no longer be amortized; 2) goodwill and intangible
assets with indefinite lives must be tested for impairment at least
annually; and 3) the amortization period for the intangible assets with
finite lives will no longer be limited to forty years. Paragraph 61 of SFAS
No. 142, requires disclosure of what reported income before extraordinary
items and net income would have been in all periods presented exclusive of
amortization expense (including any related tax effects) recognized in
those periods related to goodwill, intangible assets that are no longer
being amortized, any deferred credit to an excess over cost, equity method
goodwill, and changes in amortization periods for intangible assets that
will continue to be amortized (including any related tax effects).
Similarly adjusted per share amounts are also required to be disclosed for
all periods presented. U.S. Steel initially applied this Statement on
January 1, 2002, and there was no financial statement implication related
to the adoption of this standard.
(5) The increase in equity and the decrease in long-term debt, preferred stock
of subsidiary and trust preferred securities from December 31, 2000 to 2001
and from March 31, 2001 to 2002 were primarily due to transactions related
to the Separation, including the $900 million value transfer. The increase
in long-term debt from December 31, 1999 to 2000 was primarily due to cash
used in operating activities of $627 million (including $500 million in
elective funding to a voluntary employee benefit trust) and the $325
million of debt included in the acquisition of ÁñÁ«ÊÓƵK.
Ratio of Earnings to Fixed Charges
(Unaudited)
First Quarter Ended
March 31, Year Ended December 31,
------------------- ------------------------
2002 2001 2001 2000 1999 1998 1997
--------- --------- ---- ---- ---- ---- ----
Ratio of earnings to fixed
charges....................... (a) (b) (c) 1.13 2.33 5.89 5.39
- --------------------
(a) Earnings did not cover fixed charges by $96 million.
(b) Earnings did not cover fixed charges by $133 million.
(c) Earnings did not cover fixed charges by $586 million.
9
RISK FACTORS
You should carefully consider the following risk factors and the other
information contained elsewhere or incorporated by reference in this prospectus
before making an investment decision.
Risks Related to Our Business
Overcapacity in the steel industry may negatively affect our production levels
and shipments.
There is an excess of global steel-making capacity over global consumption
of steel products. This has caused shipment and production levels for our
domestic operations to vary from year to year and quarter to quarter, affecting
our results of operations and cash flows. Over the past five years, our
domestic steel shipments have varied from a high of 11.6 million net tons in
1997 to a low of 9.8 million net tons in 2001. Production levels as a
percentage of capacity have ranged from a high of 96.5% in 1997 to a low of
78.9% in 2001. Many factors influence these results, including demand in the
domestic market, international currency conversion rates and domestic and
international government actions.
Our business is cyclical. Future economic downturns, a stagnant economy or
currency fluctuations may adversely affect our business, results of operations
and financial condition.
Demand for most of our products is cyclical in nature and sensitive to
general economic conditions. Our business supports cyclical industries such as
the automotive, appliance, construction and energy industries. As a result,
future downturns in the U.S. or European economy or any of these industries
could adversely affect our results of operations and cash flows.
Because we and other integrated steel producers generally have high fixed
costs, reduced volumes result in operating inefficiencies, such as those
experienced in 2001. Over the past five years, our net income has varied from a
high of $452 million in 1997 to a loss of $218 million in 2001 as our domestic
steel shipments have varied from a high of 11.6 million net tons in 1997 to a
low of 9.8 million net tons in 2001. Future economic downturns, a stagnant
economy or currency fluctuations may adversely affect our business, results of
operations and financial condition.
We have a substantial amount of indebtedness and other obligations, which could
limit our operating flexibility and otherwise adversely affect our financial
condition.
As of March 31, 2002, we were liable for indebtedness of approximately $1.5
billion. This does not include obligations of Marathon for which we are
contingently liable and that are not recorded on our balance sheet. As of March
31, 2002, such obligations of Marathon were approximately $344 million. We may
incur other obligations for working capital, refinancing of a portion of the
$1.5 billion referred to above or for other purposes. This substantial amount
of indebtedness and related covenants could limit our operating flexibility and
could otherwise adversely affect our financial condition.
Our high degree of leverage could have important consequences to you,
including the following:
. our ability to satisfy our obligations with respect to the Notes, and
any other debt securities or preferred stock may be impaired in the
future;
. it may become difficult for us to obtain additional financing for
working capital, capital expenditures, debt service requirements,
acquisitions or general corporate or other purposes in the future;
. a substantial portion of our cash flow from operations must be dedicated
to the payment of principal and interest on our indebtedness, thereby
reducing the funds available to us for other purposes;
. some of our borrowings are and are expected to be at variable rates of
interest (including borrowings under our inventory credit facility),
which will expose us to the risk of increased interest rates;
. the sale prices, costs of selling receivables and amounts available
under our accounts receivable program fluctuate due to factors that
include the amount of eligible receivables available, the costs of the
commercial paper funding and our long-term debt ratings; and
10
. our substantial leverage may limit our flexibility to adjust to changing
economic or market conditions, reduce our ability to withstand
competitive pressures and make us more vulnerable to a downturn in
general economic conditions.
Indebtedness we may incur in the future may exacerbate the consequences
described above and could have other important consequences.
Our business requires substantial debt service, capital investment, operating
lease and maintenance expenditures that we may be unable to fulfill.
With approximately $1.5 billion of debt outstanding as of March 31, 2002, we
have substantial debt service requirements. Based on this outstanding debt, our
combined principal and interest payments will average approximately $150
million annually over the next five years. At March 31, 2002, ÁñÁ«ÊÓƵ had
approximately $140 million of variable rate debt outstanding, therefore, a 1%
annualized increase in interest rates would increase annual debt service
requirements by approximately $1.4 million. We are also required to make
payments of $37.5 million to VSZ, a.s. in each of 2002 and 2003 in connection
with our acquisition of ÁñÁ«ÊÓƵK. Our operations are capital intensive. For the
five-year period ended December 31, 2001, total capital expenditures were $1.4
billion, and we plan capital expenditures of about $260 million in 2002 not
including: (1) the 2002 payment to VSZ and (2) approximately $30 million of
equipment that we plan to lease under operating leases in accordance with our
historical practices. As of December 31, 2001, we were obligated to make
aggregate lease payments of $325 million under operating leases over the next
five years. Our business also requires substantial expenditures for routine
maintenance.
We have contingent obligations consisting of indemnity obligations under
active surety bonds totaling approximately $255 million, guarantees of
approximately $32 million of indebtedness for unconsolidated entities and
commitments under take or pay arrangements of approximately $101 million. As
the general partner of the Clairton 1314B Partnership, L.P., we are obligated
to fund cash shortfalls incurred by that partnership but may withdraw as the
general partner if we are required to fund in excess of $150 million in
operating cash shortfalls. As of March 31, 2002, we are also contingently
liable for approximately $344 million of Marathon's debt and other obligations.
Some of our operating lease agreements include contingent rental charges
that are not determinable to any degree of certainty. These charges are
primarily based on utilization of the power generation facility at our Gary
Works location and operating expenses incurred related to our headquarters'
office space. Recorded liabilities related to deferred income taxes, employee
benefits and other liabilities that may have an impact on liquidity and cash
flow in future periods are also not currently determinable.
Our business may not generate sufficient operating cash flow or external
financing sources may not be available in an amount sufficient to enable us to
service or refinance our indebtedness or to fund other liquidity needs.
We have incurred operating and cash losses and will have fewer sources of cash,
including cash from Marathon tax settlements.
For the first quarter ended March 31, 2002, we had a loss from operations of
$61 million and net cash used in operating activities was $181 million
excluding the sale of $200 million of accounts receivables under our accounts
receivable program.
For the year ended December 31, 2001, we had a loss from operations of $405
million and net cash used in operating activities was $150 million excluding
the income tax settlements received from Marathon. We may not realize positive
operating income or cash flows from operations in the foreseeable future.
Historically, we funded our negative operating cash flow through an increase
in USX debt attributable to the U.S. Steel Group. Before the Separation, the
USX tax allocation policy required the U. S. Steel Group and the Marathon Group
to pay the other for tax benefits resulting from tax attributes that could not
be utilized by the group to which those tax attributes were attributable on a
stand-alone basis but which could be used on a
11
consolidated, combined or unitary basis. The net amount of cash settlements
made by Marathon to ÁñÁ«ÊÓƵ for prior years, subject to adjustment, was $819
million, $91 million and $(2) million in 2001, 2000 and 1999, respectively.
These payments allowed ÁñÁ«ÊÓƵ to realize the cash value of its tax benefits on a
current basis. If we generate losses or other tax attributes we can generally
realize the cash value from them only if and when we generate enough taxable
income in future years to use those tax losses or other tax attributes on a
stand-alone basis. This delay in realizing tax benefits may adversely affect
our cash flow.
Because we are no longer owned by USX, we are not able to rely on USX for
financial support or benefit from a relationship with USX to obtain credit. Our
lower credit ratings have resulted in higher borrowing costs and make obtaining
necessary capital more difficult.
The tight surety bond market may adversely impact our liquidity.
We use surety bonds to provide financial assurance for certain transactions
and business activities. The total amount of active surety bonds currently
being used for financial assurance purposes is approximately $255 million.
Recent events have caused major changes in the surety bond market including
significant increases in surety bond premiums. These factors, together with our
non-investment grade credit rating, have caused us to replace some surety bonds
with other forms of financial assurance, and may require us to provide some
form of collateral to the surety bond providers in order to keep bonds in
place. The other forms of financial assurance or collateral could include
financial instruments supported by either our receivables purchase agreement or
inventory facility. The use of these types of financial instruments for
financial assurance and collateral will have a negative impact on liquidity.
During the second quarter of 2002, we expect approximately $100 million of
liquidity sources to be used to provide financial assurance.
Imports of steel may depress domestic price levels and have an adverse effect
on our results of operations and cash flows.
Imports of steel into the United States constituted 24%, 27% and 26% of the
domestic steel market demand for 2001, 2000 and 1999, respectively. We believe
that steel imports into the United States involve widespread dumping and
subsidy abuses, and that the remedies provided by United States 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. Over the past five
years, the average transaction prices for our domestic steel products have
decreased from a high of $479 per net ton in 1997 to a low of $427 per net ton
in 2001.
The trade remedies announced by President Bush, under Section 201 of the
Trade Act of 1974, on March 5, 2002 are intended to provide protection against
imports from certain countries, but there are products and countries not
covered and imports of these exempt products or of products from these
countries may still have an adverse effect upon our revenues and income. The
People's Republic of China has filed a challenge to President Bush's action
with the World Trade Organization and other nations have indicated that they
also intend to do so or to take other actions responding to the Section 201
remedies. On March 29, 2002, U. S. Steel joined other major producers of oil
country tubular goods in filing unfair international trade cases against 14
countries. Imports of these products have increased more than 390 percent
during the past two years. Thirteen countries remained subject to the
proceedings following the withdrawal of the anti-dumping petition against
Colombia. On May 10, 2002, the International Trade Commission made a negative
preliminary injury determination. This action causes the investigations at both
the International Trade Commission and the Department of Commerce to be
terminated.
These trade remedies may also prompt foreign governments to impose tariffs
or other trade restrictions on steel products. Another possible effect of these
remedies is that steel that might otherwise be imported into the United States
may be sold into markets served by ÁñÁ«ÊÓƵK. On December 20, 2001, the European
Commission commenced an anti-dumping investigation concerning the import of
hot-rolled coils and hot-rolled pickled and oiled coils from Slovakia and five
other countries. In mid-February, ÁñÁ«ÊÓƵK submitted a response to the anti-dumping
questionnaire and an injury submission. The legislature of the European Union
provides that the
12
investigation should be concluded within one year from the date of initiation,
but provisional measures may be imposed earlier. Such actions or additional
imports might have an adverse effect on ÁñÁ«ÊÓƵK's revenue, income and cash flows.
Many of our international competitors are larger and have higher credit
ratings.
Based on International Iron and Steel Institute statistics, we rank as the
largest domestic integrated steel producer but, in 2000, were only the
fourteenth largest steel producer in the world. Many of our larger competitors
have investment grade credit ratings, and, because of their larger size and
superior credit ratings, we may be at a disadvantage in competing with them.
Terms of our indebtedness contain covenants that may also limit our ability to
participate in consolidations.
Competition from mini-mill producers has contributed to lost market share and
could have an adverse effect on our selling prices and shipment levels.
Domestic integrated producers, such as ÁñÁ«ÊÓƵ, 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 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,
especially hot-rolled and plate 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. Mini-mills entered the flat-
rolled product market around 1990. Although we cannot determine how much
competition from mini-mills has affected our market share, based on statistics
supplied by the American Iron and Steel Institute, we believe our domestic
flat-rolled market share has dropped from 19.4% in 1990 to 13.3% in 2001.
Competition from other materials may negatively affect our results of
operations.
In many applications, steel competes with other materials, such as aluminum,
cement, composites, glass, plastic and wood. Additional substitutes for steel
products could adversely affect future market prices and demand for steel
products.
High energy costs adversely impact our results of operations.
Our operations consume large amounts of energy and we consume significant
amounts of natural gas. Domestic natural gas prices increased from an average
of $2.27 per million BTU in 1999 to an average of $4.96 per million BTU in
2001. At normal annual consumption levels, a $1.00 per million BTU change in
domestic natural gas prices would result in an estimated $50 million change in
our annual domestic pretax operating costs.
Environmental compliance and remediation could result in substantially
increased capital requirements and operating costs.
Our domestic businesses are subject to numerous federal, state and local
laws and regulations relating to the protection of the environment. These laws
are constantly evolving and becoming increasingly stringent. The ultimate
impact of complying with existing laws and regulations is not always clearly
known or determinable because regulations under some of these laws have not yet
been promulgated or are undergoing revision. These environmental laws and
regulations, particularly the Clean Air Act, could result in substantially
increased capital, operating and compliance costs. We are also involved in a
number of environmental remediation projects at both former and present
operating locations and are involved in a number of other remedial actions
under federal and state law. Our worldwide environmental expenditures were $231
million in 2001, $230
13
million in 2000 and $253 million in 1999. For more information see
"Management's Discussion and Analysis of Environmental Matters, Litigation and
Contingencies" in our Annual Report on Form 10-K for the year ended December
31, 2001, our Report on Form 8K dated July 1, 2002 and subsequent filings.
We believe all of our domestic steel competitors are subject to similar
environmental laws and regulations. The specific impact on each competitor may
vary, however, depending upon a number of factors, including the age and
location of operating facilities, production processes (such as a mini-mill
versus an integrated producer) and the specific products and services it
provides. To the extent that competitors, particularly foreign steel producers
and manufacturers of competitive products, are not required to undertake
equivalent costs, our competitive position could be adversely impacted.
ÁñÁ«ÊÓƵK is subject to the laws of the Slovak Republic. The environmental laws
of the Slovak Republic generally follow the requirements of the European Union,
which are comparable to domestic standards.
Our retiree employee health care and retiree life insurance costs are higher
than those of many of our competitors.
We maintain defined benefit retiree health care and life insurance plans
covering substantially all domestic employees upon their retirement. Health
care benefits are provided through comprehensive hospital, surgical and major
medical benefit provisions or through health maintenance organizations, both
subject to various cost-sharing features. Life insurance benefits are provided
to nonunion retiree beneficiaries primarily based on employees' annual base
salary at retirement. For domestic union retirees, benefits are provided for
the most part based on fixed amounts negotiated in labor contracts with the
appropriate unions. As of December 31, 2001, United States Steel reported an
unfunded obligation for these benefit obligations in the amount of $1.8 billion
and recorded $129 million in related costs during the year. Mini-mills, foreign
competitors and many producers of products that compete with steel provide
lesser benefits to their employees and retirees and this difference in costs
could adversely impact our competitive position.
Bankruptcies of domestic competitors have lowered their operating costs.
Since 1998, more than 30 domestic steel companies have sought protection
under Chapter 11 of the United States Bankruptcy Code, including National Steel
Corporation. Many of these companies have continued to operate. Some have
reduced prices to maintain volumes and cash flow and obtained concessions from
their labor unions and suppliers. In some cases, they have even expanded and
modernized while in bankruptcy. Upon emergence from bankruptcy, these
companies, or new entities that purchase their facilities through the
bankruptcy process, may be relieved of certain environmental, retiree and other
obligations. As a result, they are able to operate with lower costs. On April
12, 2002 International Steel Group Inc. acquired the principal steelmaking and
steel finishing assets of LTV and announced that it intended to resume
operation of integrated flat rolled steel plants in Cleveland, OH and East
Chicago, IN and a finishing plant in Hennepin, IL.
Many lawsuits have been filed against us involving asbestos-related injuries
which could have a material adverse effect on our financial position.
We are a defendant in a large number of cases in which approximately 18,000
claimants allege injury resulting from exposure to asbestos. Nearly all of
these cases involve multiple defendants. These claims fall into three major
groups: (1) claims made under certain federal and general maritime law by
employees of the Great Lakes Fleet or Intercoastal Fleet, former operations of
ÁñÁ«ÊÓƵ; (2) claims made by persons who performed work at ÁñÁ«ÊÓƵ facilities; and (3)
claims made by industrial workers allegedly exposed to an electrical cable
product formerly manufactured by ÁñÁ«ÊÓƵ. To date all actions resolved have been
either dismissed or resolved for immaterial amounts. In 2001, we disposed of
claims from approximately 11,300 claimants with aggregate total payments of
less than $200,000 and approximately 10,000 new claims were filed. The factual
issues with respect to each claimant vary considerably due to the nature and
duration of the alleged exposure of each individual claimant to United States
Steel products or premises, the exposure of each individual claimant to
products or premises of other defendants, the nature and seriousness of the
alleged injuries asserted by each claimant and the
14
other possible causes of any such injuries (such as the use of tobacco products
or exposure to other substances). In addition, because most claimants assert
their claims against multiple defendants, fail to allege specific damage
amounts in their complaints, fail to allocate the alleged liability among the
various defendants, and frequently amend their complaints including any
allegations of amounts sought, it is not possible to reasonably estimate the
amount claimed by any given claimant or the claimants as a whole in pending
cases. In the cases where the claimants have asserted specific dollar damages
against United States Steel, the amounts claimed are not material either
individually or in the aggregate. It is also not possible to predict with
certainty the outcome of these matters; however, based upon present knowledge,
management believes that it is unlikely that the resolution of the pending
actions will in the aggregate have a material adverse effect on our financial
condition. Among the factors that management considered in reaching this
conclusion are: (1) that ÁñÁ«ÊÓƵ has been subject to a total of approximately
32,000 asbestos claims over the last twelve years that have been
administratively dismissed due to the failure of the claimants to present any
medical evidence supporting their claims, (2) that over the last several years
the total number of pending claims has remained steady, (3) that it has been
many years since ÁñÁ«ÊÓƵ employed maritime workers or manufactured electrical cable
and (4) ÁñÁ«ÊÓƵ's history of trial outcomes, settlements and dismissals. For more
information see our Current Report on Form 8-K dated July 1, 2002. This
statement of belief is a forward-looking statement. Predictions as to the
outcome of pending litigation are subject to substantial uncertainties with
respect to (among other things) factual and judicial determinations, and actual
results could differ materially from those expressed in this forward-looking
statement.
Our international operations expose us to uncertainties and risks from abroad,
which could negatively affect our results of operations.
ÁñÁ«ÊÓƵK, located in the Slovak Republic, constitutes 28% of our total raw steel
capability and accounted for 17% of revenue for 2001. ÁñÁ«ÊÓƵK exports about 80% of
its products, with the majority of its sales being to other European countries.
ÁñÁ«ÊÓƵK is affected by the worldwide overcapacity in the steel industry and the
cyclical nature of demand for steel products and that demand's sensitivity to
worldwide general economic conditions. In particular, ÁñÁ«ÊÓƵK is subject to
economic conditions and political factors in Europe, which if changed could
negatively affect its results of operations and cash flow. Political factors
include, but are not limited to, taxation, nationalization, inflation, currency
fluctuations, increased regulation and protectionist measures. ÁñÁ«ÊÓƵK is also
subject to foreign currency exchange risks because its revenues are primarily
in euro-denominated currencies and its costs are primarily in Slovak Korunas
and United States dollars.
The terms of our indebtedness and our accounts receivable program contain
restrictive covenants, cross default, cross-acceleration and other provisions
that may limit our operating flexibility.
The Notes impose significant restrictions on us such as the following:
. Limits on additional borrowings, including limits on the amount of
borrowings secured by inventories or accounts receivable;
. Limits on sale/leasebacks;
. Limits on the use of funds from asset sales and sale of the stock of
subsidiaries; and
. Restrictions on our ability to invest in joint ventures or make certain
acquisitions.
We also have a revolving credit agreement secured by inventory that imposes
additional restrictions on us including the following:
. Effective September 30, 2002, we must meet an interest coverage ratio of
at least 2 to 1, and effective March 31, 2003, that ratio must be at
least 2.5 to 1;
. We must meet leverage ratios (total debt to operating cash flow) of no
more than 6 to 1 beginning on September 30, 2002 through December 30,
2002, 5.5 to 1 through March 30, 2003, 5 to 1 through June 29, 2003, 4.5
to 1 through September 29, 2003, 4 to 1 through March 30, 2004 and 3.75
to 1 thereafter;
. Limitations on capital expenditures; and
. Restrictions on investments.
15
The accounts receivable program terminates on the occurence and failure to
cure certain events, including, among others:
. certain defaults with respect to the inventory facility and other debt
obligations;
. failure to maintain certain ratios related to the collectability of
receivables; and
. failure of the commercial paper conduits to extend their committments
that currently expire on November 27, 2002.
If these covenants are breached or if we fail to make payments under our
material debt obligations or our receivables purchase agreement, creditors
would be able to terminate their commitments to make further loans, declare
their outstanding obligations immediately due and payable and foreclose on any
collateral, and it may also cause a default under the Notes. Additional
indebtedness that ÁñÁ«ÊÓƵ may incur in the future may also contain similar
covenants, as well as other restrictive provisions. Cross-default and cross-
acceleration clauses in our revolving credit facility, the Notes, the accounts
receivable program and any future additional indebtedness could have an adverse
effect upon our financial position and liquidity. Such defaults include
provisions applicable to failure to make payments when due, failure to comply
with the covenants described above and failure to pay judgments entered against
ÁñÁ«ÊÓƵ (which may include any judgments resulting from the environmental and
asbestos litigation matters described in this prospectus and the documents
incorporated by reference).
The sale prices, costs of selling receivables and amounts available under
our accounts receivable program fluctuate due to factors that include the
amount of eligible receivables available, costs of commercial paper funding and
our long-term debt ratings. The amount available under our secured inventory
facility fluctuates based on our eligible inventory levels.
We are currently in compliance with all terms of our outstanding
indebtedness. Under the terms of the Notes, additional debt of approximately
$1.5 billion could have been incurred as of March 31, 2002. Of this amount,
$200 million would be subordinate to the Notes and the remainder would rank
equal to the Notes.
"Change in control" clauses require us to immediately purchase or repay debt.
Upon the occurrence of "change in control" events specified in our existing
Notes, inventory facility and various other loan documents, the holders of our
indebtedness may require us to immediately purchase or repay that debt on less
than favorable terms. We may not have the financial resources to make these
purchases and repayments, and a failure to purchase or repay such indebtedness
would trigger cross-acceleration clauses under the Notes and other
indebtedness.
Our operations are subject to business interruptions and casualty losses that
may adversely affect our cash flows.
Steel-making, product marketing and raw material operations are subject to
unplanned events such as explosions, fires, inclement weather, accidents and
transportation interruptions. To the extent these events are not covered by
insurance, our cash flows may be adversely impacted by such events.
Our business, financial condition and results of operations could be adversely
impacted by strikes or work stoppages by our unionized employees.
Subtantially all hourly employees of our domestic steel, coke and taconite
pellet facilities are covered by a collective bargaining agreement with the
United Steelworkers of America that expires in August 2004 and includes a no-
strike provision. Other hourly employees (for example, those engaged in coal
mining and transportation activities) are represented by the United Mine
Workers of America, United Steelworkers of America and other unions. The
majority of ÁñÁ«ÊÓƵK employees are represented by a union and are covered by a
collective bargaining agreement that expires in February 2004, and is subject
to annual wage negotiations. Any potential strikes or work stoppages and the
resulting adverse impact on our relationships with our customers could have a
material adverse effect on our business, financial condition or results of
operations. In addition, mini-mill producers and certain foreign competitors
and producers of comparable products do not have unionized work forces. This
may place us at a competitive disadvantage.
16
Risks Related to Proposed Consolidation
On December 4, 2001, we announced our support for significant consolidation
in the domestic integrated steel industry, contingent upon several factors,
including: a strong remedy under Section 201 of the Trade Act of 1974 ("Section
201"), creation of a government-sponsored program that would provide relief
from the industry's retiree legacy cost burden, and a progressive new labor
agreement that would provide for meaningful reductions in operating costs. We
have been engaged in discussions with other domestic integrated steel
companies, elected officials governmental agencies and representatives of the
United Steelworkers of America.
On January 17, 2002, we entered into an option agreement with NKK
Corporation of Japan. The agreement grants us an option to purchase, either
directly or through a subsidiary, all of NKK's National Steel Corporation
common stock and to restructure a $100 million loan previously made to National
Steel by an NKK subsidiary. The option expired unexercised on June 15, 2002.
On March 5, 2002, President Bush imposed tariffs of 8 to 30% on most steel
imports, but did not express support for a government-sponsored program to
provide relief from the industry's retiree legacy costs. No legislation had
been enacted and two proposals to amend pending legislation to address retiree
legacy costs failed to obtain sufficient votes. Although we will continue to
explore attractive acquisitions, joint ventures and other growth opportunities
in the U.S. and Central Europe, the extent of any significant consolidation in
the domestic or European steel industries remains unclear.
Consolidations may not occur or may be delayed and the anticipated cost savings
from consolidation may not materialize.
We will not participate in steel industry consolidation unless it is in the
best interest of our customers, shareholders, creditors, employees and other
constituencies. The conditions precedent to any consolidation are beyond our
control, and may not be satisfied.
The benefits of any consolidation in large measure flow from anticipated
cost savings. We may not be able to achieve all of these savings or may not
achieve them as quickly as we expect. In addition, any rationalization of steel
facilities may result in environmental, post-employment, and other shut-down
costs.
Acquired companies and assets may increase our indebtedness and other
obligations and require significant expenditures.
Possible future acquisitions could result in the incurrence of additional
debt and related interest expense, underfunded pension and other post-
retirement obligations, contingent liabilities and amortization expenses
related to intangible assets, all of which could have a material adverse effect
on our financial condition, operating results and cash flow.
Many of the available domestic acquisition targets may require significant
capital and operating expenditures to return them to profitability. Financially
distressed steel companies typically do not maintain their assets adequately.
Such assets may need significant repairs and improvements. We may also have to
buy sizable amounts of raw materials, spare parts and other materials for these
facilities before they can resume profitable operation.
Many potential acquisition candidates are financially distressed steel
companies that may not have maintained appropriate environmental programs.
Their environmental problems may, therefore, require significant expenditures.
We may have difficulty or may not be able to obtain financing necessary to
pursue consolidations.
We may not be able to obtain financing for acquisitions of other companies
or their assets on favorable terms or at all.
17
Customers may purchase less from a consolidated company than they did from the
individual producers and may insist on price concessions.
Customers may not buy as much steel from us after consolidation as they
previously bought from the separate companies in order to diversify their
suppliers. They may also insist upon significant price concessions.
International acquisitions may expose us to additional risks.
If we acquire companies or facilities outside the United States, we may be
exposed to increased risks including the following:
. economic and political conditions in the countries where the facilities
are located and where the products made at those facilities are
marketed;
. currency fluctuations;
. uncertain sources of raw materials;
. economic disruptions in less developed economies where many potential
acquisition candidates have facilities or market products;
. expenditures necessary to bring such facilities to profitable operation;
. foreign tax risks; and
. expenditures required to comply with potential new environmental
requirements.
Risks Related To The Separation
Prior to December 31, 2001, our businesses were owned by USX Corporation,
now named Marathon Oil Corporation.
ÁñÁ«ÊÓƵ is subject to certain continuing contingent liabilities of Marathon that
could adversely affect our cash flow and our ability to incur additional
indebtedness and could cause a default under our borrowing facilities.
ÁñÁ«ÊÓƵ is contingently liable for debt and other obligations of Marathon in the
amount of $344 million as of March 31, 2002. Marathon is not limited by
agreement with ÁñÁ«ÊÓƵ as to the amount of indebtedness that it may incur. In the
event of the bankruptcy of Marathon, these obligations for which ÁñÁ«ÊÓƵ is
contingently liable, as well as obligations relating to industrial development
and environmental improvement bonds and notes that were assumed by ÁñÁ«ÊÓƵ from
Marathon, may be declared immediately due and payable. If that occurs ÁñÁ«ÊÓƵ may
not be able to satisfy such obligations. In addition, if Marathon loses its
investment grade ratings, certain of these obligations will be considered
indebtedness under the Indenture and for covenant calculations under our
revolving credit facility. This occurrence could prevent ÁñÁ«ÊÓƵ from incurring
additional indebtedness under the Indenture or may cause a default under our
revolving credit facility.
Under the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder, ÁñÁ«ÊÓƵ and each subsidiary of ÁñÁ«ÊÓƵ that was a
member of the Marathon consolidated group during any taxable period or portion
thereof ending on or before the effective time of the Separation is jointly and
severally liable for the federal income tax liability of the entire Marathon
consolidated group for that taxable period. Other provisions of federal law
establish similar liability for other matters, including laws governing tax
qualified pension plans as well as other contingent liabilities.
The Separation may be challenged by creditors as a fraudulent transfer or
conveyance that could permit unpaid creditors of Marathon to seek recovery from
us.
If a court in a suit by an unpaid creditor or representative of creditors of
Marathon, such as a trustee in bankruptcy, or Marathon, as debtor-in-
possession, in a reorganization case under the United States Bankruptcy Code,
were to find that:
. the Separation and the related transactions were undertaken for the
purpose of hindering, delaying or defrauding creditors, or
18
. Marathon received less than reasonably equivalent value or fair
consideration in connection with the Separation and the transactions
related thereto and (1) Marathon was insolvent at the effective time of
the Separation and after giving effect thereto, (2) or Marathon as of
the effective time of the Separation and after giving effect thereto,
intended or believed that it would be unable to pay its debts as they
became due, or (3) the capital of Marathon, at the effective time of the
Separation and after giving effect thereto, was inadequate to conduct
its business,
then the court could determine that the Separation and the related transactions
violated applicable provisions of the United States Bankruptcy Code and/or
applicable state fraudulent transfer or conveyance laws. Such a determination
would permit the bankruptcy trustee or debtor-in-possession or unpaid creditors
to rescind the Separation and permit unpaid creditors of Marathon to seek
recovery from us.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction that is being applied.
Generally, an entity is considered insolvent if either:
. the sum of its liabilities, including contingent liabilities, is greater
than its assets, at a 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.
The Separation may become taxable under section 355(e) of the Internal Revenue
Code if 50% or more of ÁñÁ«ÊÓƵ's shares or Marathon Oil Corporation's shares are
acquired as part of a plan which would materially affect our financial
condition.
The Separation may become taxable to Marathon pursuant to section 355(e) of
the Internal Revenue Code if 50% or more of either Marathon's shares or our
shares are acquired, directly or indirectly, as part of a plan or series of
related transactions that include the Separation. If section 355(e) applies,
Marathon would be required to pay a corporate tax based on the excess of the
fair market value of the shares distributed over Marathon's tax basis for such
shares. The amount of this tax would be materially greater if the Separation
were deemed to be a distribution of Marathon's shares. If an acquisition occurs
that results in the Separation being taxable under section 355(e), a Tax
Sharing Agreement between ÁñÁ«ÊÓƵ and Marathon provides that the resulting
corporate tax liability will be borne by the entity, either ÁñÁ«ÊÓƵ or Marathon,
that is deemed to have been acquired.
We may be responsible for a corporate tax if the Separation fails to qualify as
a tax-free transaction, which would have an adverse affect on our financial
condition.
Based on representations made by USX Corporation prior to the Separation,
the Internal Revenue Service issued a private letter ruling that the Separation
was tax-free to Marathon and its shareholders. To the extent a breach of one of
those representations results in a corporate tax being imposed on Marathon, the
breaching party, either ÁñÁ«ÊÓƵ or Marathon, will be responsible for payment of the
corporate tax. If the Separation fails to qualify as a tax-free transaction
through no fault of either ÁñÁ«ÊÓƵ or Marathon, the resulting tax liability, if
any, is likely to be borne by us under the tax sharing agreement.
Risks Related to This Offering
If you fail to exchange your old notes, you may be unable to sell them.
Because we did not register the Outstanding Notes under the Securities Act
or any state securities laws and we do not intend to do so after the exchange
offer, the Outstanding Notes may only be transferred in limited circumstances
under applicable securities laws. If you do not exchange your Outstanding Notes
in the exchange offer, you will lose your right to have your Outstanding Notes
registered under the Securities Act. If you are a holder of Outstanding Notes
after the exchange offer, you may be unable to sell your Outstanding Notes.
19
An active trading market may not develop for the Exchange Notes
There is no active public trading market for the Outstanding Notes. We do
not intend to apply for listing of the Exchange Notes on any domestic
securities exchange or Nasdaq. The liquidity of the trading market in the
Exchange Notes, and the market prices quoted for the Exchange Notes, may be
adversely affected by changes in the overall market for these types of
securities and by changes in our financial performance or prospects or in the
prospects for companies in our industry generally. As a consequence, an active
trading market may not develop for your Notes, you may not be able to sell your
Exchange Notes, or that, even if you can sell your Exchange Notes, you may not
be able to sell them at a price equal to or above the price you paid.
Possible volatility of trading prices for the Notes
Historically, the market for non-investment grade debt securities has been
subject to disruptions that have caused substantial volatility in the prices of
such securities. The market for the Notes could be subject to similar
volatility. The trading price of the Notes also could fluctuate in response to
such factors as variations in ÁñÁ«ÊÓƵ' operating results, developments in the steel
industry and the automotive industry, general economic conditions and changes
in securities analysts' recommendations regarding our securities.
We may be unable to purchase the Notes upon a change of control
Upon the occurrence of "change of control" events specified in "Description
of the Notes," you may require us to purchase your Notes at 101% of their
principal amount, plus accrued interest. In some circumstances, a change of
control could result from events beyond our control. We may not have the
financial resources to purchase your Notes, particularly if that change of
control event triggers a similar repurchase requirement for, or results in the
acceleration of, other indebtedness. Our revolving credit facility provides
that certain change of control events (as defined in the revolving credit
facility) could result in the acceleration of our indebtedness under the
revolving credit facility. Any of our future debt agreements may contain
similar provisions.
USE OF PROCEEDS
We will receive no proceeds from the exchange of the Outstanding Notes in
this exchange offer. In consideration for issuing the Exchange Notes as
contemplated by this prospectus, we will receive in exchange a like principal
amount of Outstanding Notes, the terms of which are substantially identical to
the Exchange Notes. The Outstanding Notes surrendered in exchange for the
Exchange Notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the Exchange Notes will not result in any change in
our capitalization.
The net proceeds from the issuance and sale of the Outstanding Notes were
approximately $520.0 million after deduction of the initial purchasers'
discount and other expenses related to the offerings.
Prior to the Separation, the indebtedness and other obligations reflected on
the combined balance sheet of ÁñÁ«ÊÓƵ generally represented obligations of USX
Corporation that were attributed to ÁñÁ«ÊÓƵ for accounting purposes only and were
not legal obligations of ÁñÁ«ÊÓƵ. Subject to a limited number of exceptions, USX
Corporation was the legal obligor of the obligations reflected on the ÁñÁ«ÊÓƵ
balance sheet and they remained obligations of Marathon Oil Corporation
following the Separation. Accordingly, ÁñÁ«ÊÓƵ incurred new indebtedness to repay
or otherwise discharge a substantial amount of the USX obligations attributed
to ÁñÁ«ÊÓƵ prior to the Separation. The proceeds from the Outstanding Notes were
used to repay a portion of the debt and other obligations attributed to ÁñÁ«ÊÓƵ by
USX under its former tracking stock structure.
20
TERMS OF THE EXCHANGE
We are offering to exchange our 10 3/4% Senior Exchange Notes Due August 1,
2008 (the "Exchange Notes") that have been registered under the Securities Act
of 1933, as amended, in exchange for an equal par value face amount of our
outstanding unregistered 10 3/4% Senior Notes Due August 1, 2008 that were
issued in July and September of 2001 (the "Outstanding Notes").
We will accept up to a maximum face amount of $535 million of validly
tendered Outstanding Notes.
Except for the requirements of applicable U.S. federal and state securities
laws, there are no federal or state regulatory requirements to be complied with
or approvals to be obtained by United States Steel in connection with the
exchange offers which, if not complied with or obtained, would have a material
adverse effect on United States Steel.
Purpose and Effect of the Exchange Offer
We entered into two substantially identical registration rights agreements
(collectively, the "registration rights agreement") with the initial purchasers
of the Outstanding Notes in which we agreed to file a registration statement
relating to an offer to exchange the Outstanding Notes for Exchange Notes. This
exchange offer is in fulfillment of that obligation. We also agreed that if we
commence the exchange offer, we will consummate it no later than 40 days after
the registration statement is declared effective. The Exchange Notes will have
terms identical in all material respects to the Outstanding Notes except that
the Exchange Notes will not contain terms with respect to transfer
restrictions, registration rights and additional cash interest for failure to
observe certain obligations in the registration rights agreement.
If we fail to comply with certain obligations under the registration rights
agreement, we will be required to pay additional cash interest to the holders
of the Outstanding Notes.
Each holder of Outstanding Notes that wishes to exchange those Outstanding
Notes for transferable Exchange Notes in the exchange offer will be required to
make the following representations:
. any Exchange Notes will be acquired in the ordinary course of its
business;
. the holder has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes;
. the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of ÁñÁ«ÊÓƵ;
. if the holder is not a broker-dealer, that it is not engaged in, and
does not intend to engage in, the distribution of the Exchange Notes;
and
. if the holder is a broker-dealer, that it will receive Exchange Notes
for its own account in exchange for Outstanding Notes that were acquired
as a result of market-making activities or other trading activities and
that it will be required to acknowledge that it will deliver a
prospectus in connection with any resale of the Exchange Notes.
Resale of Exchange Notes
Based on interpretations of the SEC staff set forth in no-action letters
issued to unrelated third parties, we believe that Exchange Notes issued under
the exchange offer in exchange for Outstanding Notes may be offered for resale,
resold and otherwise transferred by any Exchange Note holder without compliance
with the registration and prospectus delivery provisions of the Securities Act
if:
. such holder is not an "affiliate" of ours within the meaning of Rule 405
under the Securities Act;
. such Exchange Notes are acquired in the ordinary course of the holder's
business; and
21
. the holder does not intend to participate in the distribution of such
Exchange Notes.
Any holder who tenders in the exchange offer with the intention of
participating in any manner in a distribution of the Exchange Notes or who is
an affiliate of ÁñÁ«ÊÓƵ:
. cannot rely on the position of the staff of the SEC enunciated in "Exxon
Capital Holdings Corporation", Morgan Stanley & Co. Incorporated or
similar interpretive letters; and
. must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction.
This prospectus may be used for an offer to resell, for the resale or for
other retransfer of Exchange Notes only as specifically set forth in this
prospectus. With regard to broker-dealers, only broker-dealers that acquired
the Outstanding Notes as result of market-making activities or other trading
activities may participate in the exchange offer. Each broker-dealer that
receives Exchange Notes for its own account in exchange for Outstanding Notes,
where such Outstanding Notes were acquired by such 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 the Exchange Notes.
Please read the section captioned "Plan of Distribution" for more details
regarding the transfer of Exchange Notes.
General
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal, we will accept for exchange any
Outstanding Notes properly tendered and not withdrawn prior to the Expiration
Date. We will issue $1,000 principal amount of Exchange Notes in exchange for
each $1,000 principal amount of Outstanding Notes surrendered under the
exchange offer. Outstanding Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the Exchange Notes will be identical to the form and
terms of the Outstanding Notes in all material respects except the Exchange
Notes will be registered under the Securities Act, will not bear legends
restricting their transfer and will not provide for any additional cash
interest upon our failure to fulfill our obligations under the registration
rights agreement to file, and cause to be effective, a registration statement.
The Exchange Notes will evidence the same debt as the Outstanding Notes. The
Exchange Notes will be issued under and entitled to the benefits of the same
indenture that authorized the issuance of the Outstanding Notes.
The exchange offer is not conditioned upon any minimum aggregate principal
amount of Outstanding Notes being tendered for exchange.
This prospectus and a letter of transmittal are being sent to all registered
holders of Outstanding Notes. There will be no fixed record date for
determining registered holders of Outstanding Notes entitled to participate in
the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions of
the registration rights agreement, the applicable requirements of the
Securities Act and the Securities Exchange Act of 1934 and the rules and
regulations of the SEC. Outstanding Notes that are not tendered for exchange in
the exchange offer will remain outstanding and continue to accrue interest and
will be entitled to the rights and benefits the holders have under the
indentures relating to the Outstanding Notes, except for any rights under the
registration rights agreement that by their terms terminate upon the
consummation of exchange offer.
We will be deemed to have accepted for exchange properly tendered
Outstanding Notes when we have given oral or written notice of the acceptance
to The Bank of New York, as Exchange Agent. The Exchange Agent will act as
agent for the tendering holders for the purposes of receiving the Exchange
Notes from us and delivering Exchange Notes to the holders. Under the terms of
the registration rights agreement, we reserve the
22
rights to amend or terminate the exchange offer, and not to accept for exchange
any Outstanding Notes not previously accepted for exchange, upon the occurrence
of any of the conditions specified below under the caption "--Certain
Conditions to the Exchange Offer."
Holders who tender Outstanding Notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the letter of transmittal, transfer taxes with respect to the exchange of
Outstanding Notes. We will pay all charges and expenses, other than certain
applicable taxes described below, in connection with the exchange offer. It is
important that you read the section labeled""--Fees and Expenses" below for
more details regarding fees and expenses incurred in the exchange offer.
Expiration Date; Extensions; Amendments
The exchange offer will expire at 5:00 p.m., prevailing Eastern (U.S.) time,
on August 5, 2002 (the "Expiration Date"), subject to the right of United
States Steel to extend such date and time for the exchange offers in its sole
discretion, in which case, the expiration date shall mean the latest date and
time to which the exchange offers are extended.
United States Steel reserves the right, in its sole discretion, to extend
the exchange offer, by giving oral or written notice of such extension to the
Exchange Agent. Any such extension, will be followed as promptly as practicable
by a public announcement thereof which will be made no later than 9:00 a.m.,
prevailing Eastern (U.S.) time, on the next business day after the previously
scheduled expiration date.
We reserve the right, in our sole discretion:
. to delay accepting for exchange any Outstanding Notes;
. to extend the exchange offer or to terminate the exchange offer and to
refuse to accept Outstanding Notes not previously accepted if any of the
conditions set forth below under "--Certain Conditions to the Exchange
Offer" have not been satisfied, by giving oral or written notice of such
delay, extension or termination to the Exchange Agent; or
. under the terms of the registration rights agreement, to amend the terms
of the exchange offer in any manner.
Any delay in acceptance, extension, termination, or amendment will be
followed as promptly as practicable by oral or written notice to the registered
holders of Outstanding Notes. If we amend the exchange offer in a manner that
we determine constitutes a material change, we will promptly disclose the
amendment in a manner reasonably calculated to inform the holders of
Outstanding Notes of the amendment.
Without limiting the manner in which United States Steel may choose to make
a public announcement of any extension, delay in acceptance, termination or
amendment of the exchange offer, United States Steel shall have no obligation
to publish, advertise or otherwise communicate any such public announcement
other than by making a timely release to any appropriate news agency, including
the Dow Jones News Service.
Certain Conditions to the Exchange Offer
Despite any other term of the exchange offer, we will not be required to
accept for exchange, or exchange any Exchange Notes for, any Outstanding Notes,
and we may terminate the exchange offer as provided in this prospectus before
accepting any Outstanding Notes for exchange if in our reasonable judgment:
. the Exchange Notes to be received will not be tradable by the holder
without restriction under the Securities Act, the Securities Exchange
Act of 1934 and without material restrictions under the blue sky or
securities laws of substantially all of the states of the United States;
. the exchange offer, or the making of any exchange by a holder of
Outstanding Notes, would violate applicable law or any applicable
interpretation of the staff of the SEC; or
23
. any action or proceeding has been instituted or threatened in any court
or by or before any governmental agency with respect to the exchange
offer that, in our judgment, would reasonably be expected to impair our
ability to proceed with the exchange offer.
In addition, we will not be obligated to accept for exchange the Outstanding
Notes of any holder that has not made to us:
. the representations described under "--Procedures for Tendering" and
"Plan of Distribution"; and
. such other representations as may be reasonably necessary under
applicable SEC rules, regulations or interpretations to make available
to it an appropriate form for registration of the Exchange Notes under
the Securities Act.
We expressly reserve the right, at any time or at various times, to extend
the period of time during which the exchange offer is open. Consequently, we
may delay acceptance of any Outstanding Notes by giving oral or written notice
of the extension to their holders. During any such extensions, all notes
previously tendered will remain subject to the exchange offer, and we may
accept them for exchange. We will return any Outstanding Notes that we do not
accept for exchange for any reason without expense to their tendering holder as
promptly as practicable after the expiration or termination of the exchange
offer.
We expressly reserve the right to amend or terminate the exchange offer, and
to reject for exchange any Outstanding Notes not previously accepted for
exchange, upon the occurrence of any of the conditions of the exchange offer
specified above. We will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the Outstanding
Notes as promptly as practicable. In the case of any extension, a notice will
be issued no later than 9:00 a.m., Eastern (U.S.) time, on the business day
after the previously scheduled expiration date.
These conditions are for our sole benefit and we may assert them regardless
of the circumstances that may give rise to them or waive them in whole or in
part at any or at various times in our sole discretion. If we fail at any time
to exercise any of the foregoing rights, this failure will not constitute a
waiver of this right. Each right will be deemed an ongoing right that we may
assert at any time or at various times.
In addition, we will not accept for exchange any Outstanding Notes tendered,
and will not issue Exchange Notes in exchange for any Outstanding Notes, if at
the time any stop order will be 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 of 1939.
Effect of Tender
Any tender by a holder of any series of Outstanding Notes that is not
withdrawn prior to the expiration date of the exchange offer will constitute a
binding agreement between that holder and United States Steel upon the terms
and subject to the conditions of the exchange offer and the letter of
transmittal. The acceptance of the exchange offer by a tendering holder of any
series of Outstanding Notes will constitute the agreement by that holder to
deliver good and marketable title to the tendered Outstanding Notes, free and
clear of all liens, charges, claims, encumbrances, interests and restrictions
of any kind.
Procedures for Tendering
If you hold Outstanding Notes and wish to have your Outstanding Notes
exchanged for Exchange Notes, you must validly tender (or cause the valid
tender of) all of your Outstanding Notes using the procedures described in this
prospectus and in the accompanying letter of transmittal.
Only a holder of Outstanding Notes may tender the Outstanding Notes in the
exchange offer. To tender in the exchange offer, a holder must:
. complete, sign and date the accompanying letter of transmittal, or a
facsimile of the letter of transmittal; have the signature on the letter
of transmittal guaranteed if the letter of transmittal so
24
requires; and mail or deliver the letter of transmittal or facsimile to
the Exchange Agent prior to the Expiration Date; or
. comply with DTC's Automated Tender Offer Program ("ATOP") procedures
described below.
In addition, either:
. the Exchange Agent must receive the Outstanding Notes along with the
accompanying letter of transmittal; or
. the Exchange Agent must receive, prior to the Expiration Date, a timely
confirmation of book-entry transfer of the Outstanding Notes into the
Exchange Agent's account at DTC according to the procedures for book-
entry transfer described below or a properly transmitted agent's
message; or
. the holder must comply with the guaranteed delivery procedures described
below.
To be tendered effectively, the Exchange Agent must receive any physical
delivery of a letter of transmittal and other required documents at the
address set forth below under "--Exchange Agent" prior to the Expiration Date.
The tender by a holder that is not withdrawn prior to the Expiration Date
will constitute an agreement between the holder and us in accordance with the
terms and subject to the conditions set forth in this prospectus and in the
accompanying letter of transmittal.
The method of delivery of Outstanding Notes, the letter of transmittal and
all other required documents to the Exchange Agent is at the holder's election
and risk. Rather than mail these items, we recommend that holders use an
overnight or hand delivery service. In all cases, holders should allow
sufficient time to assure delivery to the Exchange Agent before the Expiration
Date. Holders should not send the letter of transmittal or Outstanding Notes
to us. Holders may request their respective brokers, dealers, commercial
banks, trust companies or other nominees to effect the above transactions for
them.
Any beneficial owner whose Outstanding Notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact the registered holder promptly and instruct it
to tender on the owners' behalf. If the beneficial owner wishes to tender on
its own behalf, it must, prior to completing and executing the accompanying
letter of transmittal and delivering its Outstanding Notes either:
. make appropriate arrangements to register ownership of the Outstanding
Notes in such owner's name; or
. obtain a properly completed bond power from the registered holder of
Outstanding Notes.
The transfer of registered ownership may take considerable time and may not
be completed prior to the Expiration Date.
Signatures on a letter of transmittal or a notice of withdrawal described
below must be guaranteed by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the
United States or another "eligible institution" within the meaning of Rule
17Ad-15 under the Exchange Act, unless the Outstanding Notes are tendered:
.by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the
accompanying letter of transmittal; or
.for the account of an eligible institution.
If the accompanying letter of transmittal is signed by a person other than
the registered holder of any Outstanding Notes listed on the Outstanding
Notes, the Outstanding Notes must be endorsed or accompanied
25
by a properly completed bond power. The bond power must be signed by the
registered holder as the registered holder's name appears on the Outstanding
Notes and an eligible institution must guarantee the signature of the bond
power.
If the accompanying letter of transmittal or any Outstanding Notes or bond
powers are signed by trustees, executors, administrators, guardians, attorneys-
in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing. Unless
waived by us, they should also submit evidence satisfactory to us of their
authority to deliver the accompanying letter of transmittal.
The Exchange Agent and DTC have confirmed that any financial institution
that is a participant in DTC's system may use DTC's Automated Tender Offer
Program to tender. Participants in the program may, instead of physically
completing and signing the accompanying letter of transmittal and delivering it
to the Exchange Agent, transmit their acceptance of the exchange offer
electronically. They may do so by causing DTC to transfer the Outstanding Notes
to the Exchange Agent in accordance with its procedures for transfer. DTC will
then send an agent's message to the Exchange Agent. The term "agent's message"
means a message transmitted by DTC, received by the Exchange Agent and forming
part of the book-entry confirmation, to the effect that:
. DTC has received an express acknowledgement from a participant in its
Automated Tender Offer Program that is tendering Outstanding Notes that
are the subject of the book-entry confirmation;
. the participant has received and agrees to be bound by the terms of the
accompanying letter of transmittal (or, in the case of an agent's
message relating to guaranteed delivery, that the participant has
received and agrees to be bound by the applicable notice of guaranteed
delivery); and
. the agreement may be enforced against such participant.
We will determine in our sole discretion all questions as to the validity,
form, eligibility (including time of receipt), acceptance of tendered
Outstanding Notes and withdrawal of tendered Outstanding Notes. Our
determination will be final and binding. We reserve the absolute right to
reject any Outstanding Notes not properly tendered or any Outstanding Notes the
acceptance of which would, in the opinion of our counsel, be unlawful. We also
reserve the right to waive any defects, irregularities or conditions of tender
as to particular Outstanding Notes. Our interpretation of the terms and
conditions of the exchange offer (including the instructions in the
accompanying letter of transmittal) will be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
Outstanding Notes must be cured within such time as we shall determine.
Although we intend to notify holders of defects or irregularities with respect
to tenders of Outstanding Notes, neither we, the Exchange Agent nor any other
person will incur any liability for failure to give such notification. Tenders
of Outstanding Notes will not be deemed made until any defects or
irregularities have been cured or waived. Any Outstanding Notes received by the
Exchange Agent that are not properly tendered and as to which be defects or
irregularities have not been cured or waived will be returned to the Exchange
Agent without cost to the tendering holder, unless otherwise provided in the
letter of transmittal, as soon as practicable following the Expiration Date.
In all cases, we will issue Exchange Notes for Outstanding Notes that we
have accepted for exchange under the exchange offer only after the Exchange
Agent timely receives:
. Outstanding Notes or a timely book-entry confirmation of the Outstanding
Notes into the Exchange Agent's account at DTC; and
. a properly completed and fully executed letter of transmittal and all
other required documents or a properly transmitted agent's message.
By signing the accompanying letter of transmittal, each tendering holder of
Outstanding Notes will represent to us that, among other things:
. any Exchange Notes that the holder receives will be required in the
ordinary course of its business;
26
. the holder has no arrangement or understanding with any person or entity
to participate in the distribution of the Exchange Notes;
. if the holder is not a broker-dealer, that is not engaged in and does
not intend to engage in the distribution of the Exchange Notes;
. if the holder is a broker-dealer that will receive Exchange Notes for
its own account in exchange for Outstanding Notes that were acquired as
a result of market-making activities, that it will deliver a prospectus,
as required by law, in connection with any resale of any Exchange Notes;
and
. the holder is not an "affiliate," as defined in Rule 405 of the
Securities Act, of ÁñÁ«ÊÓƵ.
Book-Entry Transfer
The Exchange Agent will make a request to establish an account with respect
to the Outstanding Notes at DTC for purposes of the exchange offer promptly
after the date of this prospectus; and any financial institution participating
in DTC's system may make book-entry delivery of Outstanding Notes by causing
DTC to transfer the Outstanding Notes into the Exchange Agent's account at DTC
in accordance with DTC's procedures for transfer. Holders of Outstanding Notes
who are unable to deliver confirmation of the book-entry tender of their
Outstanding Notes into the Exchange Agent's account at DTC or all other
documents required by the letter of transmittal to the Exchange Agent on or
prior to the Expiration Date must tender their Outstanding Notes according to
the guaranteed delivery procedures described below.
Guaranteed Delivery Procedures
Holders wishing to tender their Outstanding Notes but whose Outstanding
Notes are not immediately available or who cannot deliver their Outstanding
Notes, the accompanying letter of transmittal or any other required documents
to the Exchange Agent or comply with the applicable procedures under DTC's
Automated Tender Offer Program prior to the Expiration Date may tender if:
. the tender is made through an eligible institution;
. on or prior to the Expiration Date, the Exchange Agent receives from the
eligible institution either a properly completed and duly executed
notice of guaranteed delivery (by facsimile transmission, mail or hand
delivery) or a properly transmitted agent's message and notice of
guaranteed delivery;
. setting forth the name and address of the holder, the registered
number(s) of the Outstanding Notes and the principal amount of
Outstanding Notes tendered;
. stating that the tender is being made thereby; and
. guaranteeing that, within three New York Stock Exchange trading days
after the Expiration Date, the accompanying letter of transmittal,
or confirmation, and any other documents required by the
accompanying letter of transmittal will be deposited by the eligible
institution with the Exchange Agent; and
. the Exchange Agent receives the properly completed and executed letter
of transmittal, or facsimile thereof, as well as all tendered
Outstanding Notes in proper form for transfer of a book-entry
confirmation, and all other documents required by the accompanying
letter of transmittal, within three New York Stock Exchange trading days
after the Expiration Date.
Upon request to the Exchange Agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their Outstanding Notes according to the
guaranteed delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided in this prospectus, holders of Outstanding
Notes may withdraw their tenders at any time prior to the Expiration Date.
27
For a withdraw to be effective:
. the Exchange Agent must receive a written notice (which may be by
telegram, telex, facsimile transmission or letter) of withdrawal at one
of the addresses set forth below under "--Exchange Agent," or
. holders must comply with the appropriate procedures of DTC's Automated
Tender Offer Program system.
Any notice of withdrawal must:
. specify the name of the person who tendered the Outstanding Notes to be
withdrawn;
. identify the Outstanding Notes to be withdrawn (including the principal
amount of the Outstanding Notes);
. where certificates for Outstanding Notes have been transmitted, specify
the name in which the outstanding Notes were registered, if different
from that of the withdrawing holder; and
. include a statement that the holder is withdrawing its election to have
those Outstanding Notes exchanged; and
. be signed by the holder in the same manner as the original signature on
its letter of transmittal (including any required signature guarantee).
If certificates for Outstanding 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 Outstanding Notes have been tendered pursuant to the procedures 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 Outstanding
Notes and otherwise comply with the procedures of such facility. We will
determine all questions as to the validity, form and eligibility (including
time of receipt) of the notices, and our determination will be final and
binding on all parties. We will deem any Outstanding Notes so withdrawn not to
have validly tendered for exchange for purposes of the exchange offer. Any
Outstanding Notes that have been tendered for exchange but that are not
exchanged for any reason will be returned to their holder without cost to the
holder (or, in the case of Outstanding Notes tendered by book-entry transfer
into the Exchange Agent's account at DTC an account maintained with DTC for
Outstanding Notes) as soon as practicable after withdrawal, rejection of tender
or termination of the exchange offer. Properly withdrawn Outstanding Notes may
be retendered by following one of the procedures described under "--Procedures
for Tendering" above at any time on or prior to the Expiration Date.
Transfer Taxes
United States Steel will pay all transfer taxes, if any, applicable to the
transfer and exchange of Outstanding Notes to United States Steel in this
exchange offer. If transfer taxes are imposed for any other reason, the amount
of those transfer taxes, whether imposed on the registered holder or any other
persons, will be payable by the tendering holder. Other reasons transfer taxes
could be imposed include:
. if Exchange Notes in book-entry form are to be registered in the name of
any person other than the person signing the letter of transmittal; or
. if tendered Outstanding Notes are registered in the name of any person
other than the person signing the letter of transmittal.
28
If satisfactory evidence of payment of or exemption from those transfer
taxes is not submitted with the letter of transmittal, the amount of those
transfer taxes will be billed directly to the tendering holder and/or withheld
from any payments due with respect to the Outstanding Notes tendered by such
holder.
Exchange Agent
The Bank of New York has been appointed the Exchange Agent for this exchange
offer. Letters of transmittal, notices of guaranteed delivery and all
correspondence in connection with the exchange offers should be sent or
delivered by each holder of Outstanding Notes, or a beneficial owner's
custodian bank, depositary, broker, trust company or other nominee, to the
Exchange Agent at the addresses and telephone numbers set forth below. United
States Steel will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable, out-of-pocket expenses in
connection therewith.
You should also direct questions and request for assistance, requests for
additional copies of this prospectus or the letter of transmittal and requests
for the notice of guaranteed delivery to the Exchange Agent address as follows:
Bank of New York
Corporate Trust Department
Reorganization Unit
15 Broad Street--16th Floor
New York, N.Y. 10007
Attn: Mr. Bernard Arsenec
By facsimile transmission
(For eligible institutions only):
212-235-2261
Confirm facsimile by telephone only:
212-235-2356
Delivery of the letter of transmittal to an address other than as set forth
above or transmission via facsimile other than as set forth above does not
constitute a valid delivery of the letter of transmittal.
Broker-Dealers
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Outstanding Notes, where such Outstanding Notes were acquired by
such 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 such Exchange Notes. See "Plan of Distribution."
Consequences of Failure to Exchange
Holders of Outstanding Notes who do not exchange their Outstanding Notes for
exchange notes under the exchange offer will remain subject to the restrictions
on transfer of the Outstanding Notes:
. as set forth in the legend printed on the Outstanding Notes as a
consequence of the issuance of the Outstanding Notes under the
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws;
and
. otherwise as set forth in the offering circular distributed in
connection with the private offering of the Outstanding Notes.
In general, you may not offer to sell the Outstanding Notes unless they are
registered under the Securities Act, or if the offer or sale is exempt from
registration under the Securities Act and applicable state securities laws.
Except as required by the registration rights agreement, we do not intend to
register resales of the
29
Outstanding Notes under the Securities Act. Based on interpretations of the SEC
staff, Exchange Notes issued under the exchange offer may be offered for
resale, resold or otherwise transferred by their holders (other than any holder
that is our "affiliate" within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the holders acquired the
Exchange Notes in the ordinary course of the holders' business and the holders
have no arrangement or understanding with respect to the distribution of the
Exchange Notes to be acquired in the exchange offer. Any holder who tenders in
the exchange offer for the purpose of participating in a distribution of the
Exchange Notes:
. cannot rely on the applicable interpretations of the SEC; and
. must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction.
30
DESCRIPTION OF THE NOTES
United States Steel will issue the Exchange Notes (which, together with the
Outstanding Notes not exchanged, are referred to as the "Notes") under an
Indenture (the "Indenture") with The Bank of New York, as trustee (the
"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 (the "Trust Indenture Act"). Any Outstanding Notes that remain outstanding
after the consummation of the exchange offer and the Exchange Notes will be
treated as a single class under the Indenture, including for purposes of
determining whether the required percentage of noteholders have given their
approval or consent to an amendment or waiver or joined in directing the
Trustee to take certain actions on behalf of all noteholders.
Certain terms used in this description are defined under the subheading "--
Certain Definitions". In this description, the word "Company" refers only to
ÁñÁ«ÊÓƵ, and not to any of its subsidiaries.
The following description is only a summary of the material provisions of
the Indenture. We urge you to read the Indenture because it, not this
description, define your rights as holders of these Notes. You may request
copies of these agreements at our address set forth under the heading "Where
You Can Find More Information".
Ranking
These Notes:
. are unsecured senior obligations of the Company; and
. are senior in right of payment to any future Subordinated Obligations of
the Company.
At March 31, 2002, the Company had capital leases totaling $89 million and
$521 million of senior unsecured indebtedness ranking equal to the Notes,
together with ÁñÁ«ÊÓƵK's $325 million loan with a group of financial institutions,
which is non-recourse to the Company. The Company has no subordinated
indebtedness currently outstanding.
Principal, Maturity and Interest
The Company will issue Exchange Notes to be exchanged for Outstanding Notes
up to a maximum aggregate principal amount of $535 million. The Notes will
mature on August 1, 2008. The Notes and any such additional notes will be
treated as a single class for all purposes under the Indenture, including
waivers, amendments, redemptions and offers to purchase. Unless the context
otherwise requires, for all purposes of the Indenture and this "Description of
the Notes," references to the Notes include any such additional notes actually
issued.
The Company will issue the Notes in denominations of $1,000 and any integral
multiple of $1,000.
Interest on the Notes will accrue at the rate of 10.75% per annum. Interest
will be payable semiannually in arrears on August 1 and February 1, commencing
on August 1, 2002. We will make each interest payment to the holders of record
of these Notes on the immediately preceding July 15 and January 15. We 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 to
the extent lawful.
Interest on these Notes will accrue from February 1, 2002. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months. No
interest payment will be made for periods after February 1, 2002 in respect of
any Outstanding Note exchanged for an Exchange Note.
Additional interest may accrue on the Notes in certain circumstances
pursuant to the registration rights agreement.
31
Optional Redemption
Except as set forth below, we will not be able to redeem the Notes at our
option prior to maturity.
Before August 1, 2004, we may at our option on one or more occasions, upon
not less than 30 nor more than 60 days' notice, redeem the Notes in an
aggregate principal amount not to exceed 35% of the aggregate principal amount
of the Notes originally issued at a redemption price (expressed as a percentage
of principal amount) of 110.75%, plus accrued and unpaid interest to the
redemption date, with the net cash proceeds from one or more Public Equity
Offerings; provided that
(1) at least 65% of such aggregate principal amount originally issued of
the Notes remains outstanding immediately after the occurrence of each
such redemption (other than Notes held, directly or indirectly, by the
Company or its Affiliates); and
(2) each such redemption occurs within 60 days after the date of the
related Public Equity Offering.
Selection and Notice of Redemption
If we are redeeming less than all the Notes at any time, the Trustee will
select Notes 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.
We will redeem Notes of $1,000 or less in whole and not in part. We 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. We will issue a new Note in a principal amount equal to the
unredeemed portion of the original Note in the name of the holder upon
cancellation of the original Note. Notes called for redemption become due on
the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
So long as the book-entry system is used for determining beneficial
ownership of the Notes, the notice of redemption for any of the Notes will be
given to Cede & Co., as nominee for The Depository Trust Company ("DTC") and
registered owner of the Notes. Neither failure to receive such notice nor any
defect in any notice so given shall affect the sufficiency of the proceedings
for the redemption of any such Notes.
Mandatory Redemption; Offers to Purchase; Open Market Purchases
We are not required to make any mandatory redemption or sinking fund
payments with respect to the Notes. However, under certain circumstances, we
may be required to offer to purchase Notes as described under the captions "--
Change of Control" and "--Certain Covenants--Limitation on Sales of Assets and
Subsidiary Stock". We may at any time and from time to time purchase Notes in
the open market or otherwise.
Book-Entry, Delivery and Form
The Notes are initially in the form of one or more global notes (the "Global
Notes"). The Global Notes will be deposited with, or on behalf of, DTC and
registered in the name of DTC or its nominee. Except as set forth below, the
Global Notes may be transferred, in whole and not in part, only to DTC or
another nominee of DTC. You may hold your beneficial interests in the Global
Note directly through DTC if you have an account with DTC or indirectly through
organizations which have accounts with DTC.
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and "a clearing agency" registered pursuant to the provisions
of Section 17A of the
32
Exchange Act. DTC holds securities of institutions that have accounts with DTC
("participants") and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic book-
entry changes in accounts of the participants, thereby eliminating the need for
physical movement of securities certificates. DTC's participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Access to DTC's book-entry system is also
available to others such as banks, brokers, dealers and trust companies
(collectively, the "indirect participants") that clear through or maintain a
custodial relationship with a participant, whether directly or indirectly.
DTC is a wholly-owned subsidiary of The Depository Trust & Clearing
Corporation ("DTCC"). DTCC, in turn, is owned by a number of participants of
DTC and Members of the National Securities Clearing Corporation, Government
Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets
Clearing Corporation (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries of DTCC),
as well as by the New York Stock Exchange, Inc., the American Stock Exchange
LLC, and the National Association of Securities Dealers, Inc. The DTC Rules
applicable to its participants are on file with the SEC. More information about
DTC can be found at www.dtcc.com.
The Company expects that pursuant to procedures established by DTC, upon the
deposit of the Global Notes with DTC, DTC will credit, on its book-entry
registration and transfer system, the principal amount of Notes represented by
such Global Notes to the accounts of participants. Ownership of book-entry
interests is limited to participants or indirect participants, including
Euroclear Bank, S.A./N.V. as operator of the Euroclear System ("Euroclear"),
Clearstream Banking, S.A. ("Clearstream"), banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with DTC,
either directly or indirectly. Indirect participants also include persons that
hold through such indirect participants. The book-entry interests will not be
held in definitive form. Ownership of beneficial interests in the Global Notes
will be shown on, and the transfer of those ownership interests will be
effected only through, records maintained by DTC (with respect to participants'
interests), the participants and the indirect participants (with respect to the
owners of beneficial interests in the Global Notes other than participants).
The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
limits and laws may impair the ability to transfer or pledge beneficial
interests in the Global Notes.
So long as DTC, or its nominee, is the registered holder and owner of the
Global Notes, DTC or such nominee, as the case may be, will be considered the
sole legal owner and holder of any related Notes evidenced by the Global Note
for all purposes of such Notes and the Indenture. Except as set forth below, as
an owner of a beneficial interest in the Global Note, you will not be entitled
to have the Notes represented by the Global Note registered in your name, will
not receive or be entitled to receive physical delivery of certificated Notes
and will not be considered to be the owner or holder of any Notes under the
Global Notes. We understand that under existing industry practice, in the event
an owner of a beneficial interest in the Global Note desires to take any action
that DTC, as the holder of the Global Note, is entitled to take, DTC would
authorize the participants to take such action, and the participants would
authorize beneficial owners owning through such participants to take such
action or would otherwise act upon the instructions of beneficial owners owning
through them.
We will make payments of principal of, premium, if any, and interest on
Notes represented by the Global Note registered in the name of and held by DTC
or its nominee to DTC or its nominee, as the case may be, as the registered
owner and holder of the Global Note.
We expect that DTC or its nominee, upon receipt of any payment of principal
of, premium, if any, or interest on the Global Note will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the Global Note as shown on the records of
DTC or its nominee. We also expect that payments by participants or indirect
participants to owners of beneficial interests in the Global Note held through
such participants or indirect participants will be governed by standing
instructions and customary practices and will be the responsibility of such
participants or indirect participants. We will not have any responsibility or
liability for any aspect of the records relating to, or payments made on
33
account of, beneficial ownership interests in the Global Note for any Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests or for any other aspect of the relationship
between DTC and its participants or indirect participants or the relationship
between such participants or indirect participants and the owners of beneficial
interests in the Global Note owning through such participants.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures in order to facilitate transfers of interests in the Global Note
among participants of DTC and account holders of Euroclear and Clearstream,
they are under no obligation to perform or continue to perform such procedures,
and such procedures may be discontinued at any time. Neither the Trustee nor
the Company will have any responsibility or liability for the performance by
DTC, Euroclear or Clearstream or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Notes
Subject to certain conditions, the Notes represented by the Global Notes are
exchangeable for certificated Notes in definitive form of like tenor in
denominations of $1,000 and integral multiples thereof if
(1) DTC notifies us that it is unwilling or unable to continue as
Depository for the Global Notes or DTC ceases to be a clearing agency
registered under the Exchange Act and, in either case, we are unable
to locate a qualified successor within 90 days;
(2) we in our discretion at any time determine not to have all the Notes
represented by Global Notes; or
(3) a default entitling the holders of the Notes to accelerate the
maturity thereof has occurred and is continuing.
Any Note that is exchangeable as above is exchangeable for certificated
Notes issuable in authorized denominations and registered in such names as DTC
shall direct. Subject to the foregoing, the Global Notes are not exchangeable,
except for Global Notes of the same aggregate denomination to be registered in
the name of DTC or its nominee.
Same-Day Payment
The Indenture requires us to make payments in respect of Notes (including
principal, premium and interest) by wire transfer of immediately available
funds to the U.S. dollar accounts with banks in the U.S. specified by the
holders thereof or, if no such account is specified, by mailing a check to each
such holder's registered address.
Registered Exchange Offer; Registration Rights
We agreed pursuant to Registration Rights Agreements dated July 27, 2001 and
September 11, 2001 (collectively, the "Registration Rights Agreement") that we
would, subject to certain exceptions,
(1) on or before March 31, 2002 (the "Filing Date") file a registration
statement (the "Exchange Offer Registration Statement") with the SEC
with respect to a registered offer (the "Registered Exchange Offer")
to exchange the Outstanding Notes for the Exchange Notes having terms
substantially identical in all material respects to the Outstanding
Notes (except that the Exchange Notes would not contain terms with
respect to transfer restrictions);
(2) use our commercially reasonable efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities
Act within 90 days after the Filing Date;
(3) as soon as practicable after the effectiveness of the Exchange Offer
Registration Statement (the "Effectiveness Date"), offer the Exchange
Notes in exchange for surrender of the Notes; and
34
(4) keep the 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 of the Notes.
For each Outstanding Note tendered to us pursuant to the Registered Exchange
Offer, we will issue to the holder of such Outstanding Note an Exchange Note
having a principal amount equal to that of the surrendered Outstanding Note.
Interest on each Exchange Note will accrue from the last interest payment date
on which interest was paid on the Outstanding Note surrendered in exchange
therefor, or, if no interest has been paid on such Outstanding Note, from the
date of its original issue.
Under existing SEC interpretations, the Exchange Notes will be freely
transferable by holders other than our affiliates after the Registered Exchange
Offer without further registration under the Securities Act if the holder of
the Exchange Notes represents to us in the Registered Exchange Offer that it is
acquiring the Exchange Notes in the ordinary course of its business, that it
has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes and that it is not an affiliate of the
Company, as such terms are interpreted by the SEC; provided, however, that
broker-dealers ("Participating Broker-Dealers") receiving Exchange Notes in the
Registered Exchange Offer will have a prospectus delivery requirement with
respect to resales of such Exchange Notes. The SEC has taken the position that
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, we are required to allow
Participating Broker-Dealers and other persons, if any, with similar prospectus
delivery requirements to use the prospectus contained in the Exchange Offer
Registration Statement in connection with the resale of such Exchange Notes for
180 days following the effective date of such Exchange Offer Registration
Statement (or such shorter period during which Participating Broker-Dealers are
required by law to deliver such prospectus).
A Holder of Outstanding Notes (other than certain specified holders) who
wishes to exchange such Notes for Exchange Notes in the Registered Exchange
Offer will be required to represent that any Exchange Notes to be received by
it will be acquired in the ordinary course of its business and that at the time
of the commencement of the Registered Exchange Offer 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 and that it is not an
"affiliate" of ÁñÁ«ÊÓƵ, as defined in Rule 405 of the Securities Act.
If:
(1) applicable interpretations of the staff of the SEC do not permit us to
effect such a Registered Exchange Offer; or
(2) for any other reason we do not consummate the Registered Exchange
Offer within 130 days of the Filing Date; or
(3) an Initial Purchaser shall notify us following consummation of the
Registered Exchange Offer that Outstanding Notes held by it are not
eligible to be exchanged for Exchange Notes in the Registered Exchange
Offer; or
(4) certain holders are prohibited by law or SEC policy from participating
in the Registered Exchange Offer or may not resell the Exchange Notes
acquired by them in the Registered Exchange Offer to the public
without delivering a prospectus (the date on which any of the
conditions described in clauses (2) through (4) occur being a "Trigger
Date"),
then, we will, subject to certain exceptions,
35
(x) promptly (but in no event later than March 31, 2002 in the case of
clause (1) above, or 90 days after the Trigger Date, in the case of
clause (2), (3) or (4) above) file a shelf registration statement (the
"Shelf Registration Statement") covering resales of the Outstanding
Notes or the Exchange Notes, as the case may be;
(y) (A) in the case of clause (1) above, use our commercially reasonable
efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act on or prior to the 90th calendar day
following the Filing Date and (B) in the case of clause (2), (3) or (4)
above, use our commercially reasonable efforts to cause the Shelf
Registration Statement to be declared effective under the Securities
Act on or prior to the 90th day after the date (the "Shelf Filing
Date") the Shelf Registration Statement is filed with the SEC; and
(z) keep the Shelf Registration Statement effective until the earliest of
(A) the time when the Notes covered by the Shelf Registration Statement
can be sold pursuant to Rule 144 without any limitations under clauses
(c), (e), (f) and (h) of Rule 144, (B) two years from the effective
date of the Shelf Registration Statement and (C) the date on which all
Notes registered thereunder are disposed of in accordance therewith.
We will, if a Shelf Registration Statement is filed, among other things,
provide to each holder for whom 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 such 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 that are applicable to such holder (including
certain indemnification obligations).
We will pay additional cash interest on the applicable Outstanding Notes and
Exchange Notes, subject to certain exceptions,
(1) if we failed to file an Exchange Offer Registration Statement or, if
obligated to file a Shelf Registration Statement pursuant to clause
(y) (A) above, a Shelf Registration Statement with the SEC on or prior
to March 31, 2002;
(2) if the Exchange Offer Registration Statement or, if obligated to file
a Shelf Registration Statement pursuant to clause (y) (A) above, a
Shelf Registration Statement is not declared effective by the SEC on
or prior to the 90th day after the Filing Date;
(3) if the Exchange Offer is not consummated on or before the 40th day
after the Exchange Offer Registration Statement is declared effective;
(4) if obligated to file the Shelf Registration Statement pursuant to
clause (y)(B) above, we failed to file the Shelf Registration
Statement with the SEC on or prior to the 90th day after the Trigger
Date;
(5) if obligated to file a Shelf Registration Statement pursuant to clause
(y)(B) above, the Shelf Registration Statement is not declared
effective by the SEC on or prior to the 90th day after the Shelf
Filing Date; or
(6) after the Exchange Offer Registration Statement or the Shelf
Registration Statement, as the case may be, is declared effective,
such Registration Statement thereafter ceases to be effective or
usable (subject to certain exceptions) (each such event referred to in
the preceding clauses (1) through (6) a "Registration Default");
from and including the date on which any such Registration Default shall occur
to but excluding the date on which all Registration Defaults have been cured.
36
The rate of the additional interest will be 0.25% per annum for the first
90-day period immediately following the occurrence of a Registration Default,
and such rate will increase by an additional 0.25% per annum with respect to
each subsequent 90-day period until all Registration Defaults have been cured,
up to a maximum additional interest rate of 1.0% per annum. We will pay such
additional interest on regular interest payment dates. Such additional interest
will be in addition to any other interest payable from time to time with
respect to the Outstanding Notes and the Exchange Notes.
All references in the Indenture, in any context, to any interest or other
amount payable on or with respect to the Outstanding Notes shall be deemed to
include any additional interest pursuant to the Registration Rights Agreement.
If we effect the Registered Exchange Offer, we will be entitled to close the
Registered Exchange Offer 30 days after the commencement thereof provided that
we have accepted all Outstanding Notes theretofore validly tendered in
accordance with the terms of the Registered Exchange Offer.
Change of Control Offer
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder shall have the right to require that the Company
repurchase 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):
A "Change of Control" shall occur if:
(1) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes
of this clause (1) 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 the Company;
(2) individuals who on December 31, 2001 constituted the Board of
Directors (together with any new directors whose election by such
Board of Directors or whose nomination for election by the
shareholders of the Company was approved by a vote of 66 2/3% of the
directors of the Company then still in office who were either
directors on December 31, 2001 or whose election or nomination for
election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors then in office;
(3) the adoption of a plan relating to the liquidation or dissolution of
the Company; or
(4) the merger or consolidation of the Company with or into another Person
or the merger of another Person with or into the Company, or the sale
of all or substantially all the assets of the Company (determined on a
consolidated basis) to another Person, other than a merger or
consolidation transaction in which holders of securities that
represented 100% of the Voting Stock of the Company 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.
Within 30 days following any Change of Control, we will mail a notice to
each Holder with a copy to the Trustee (the "Change of Control Offer") stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require us to purchase such Holder's Notes at a purchase
price in cash equal to 101% of the principal amount thereof on the
37
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, as determined by us, consistent with the covenant
described hereunder, that a Holder must follow in order to have its
Notes purchased.
We 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 us and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
We 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, we will comply with
the applicable securities laws and regulations and shall not be deemed to have
breached our obligations under the covenant described hereunder by virtue of
our compliance with such securities laws or regulations.
The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a sale or takeover of the
Company and, thus, the removal of incumbent management. The Change of Control
purchase feature was a result of negotiations between the Company and the
initial purchasers of the Outstanding Notes. We have no present intention to
engage in a transaction involving a Change of Control, although it is possible
that we could decide to do so in the future. Subject to the limitations
discussed below, we could, in the future, enter into certain transactions,
including acquisitions, refinancings or other recapitalizations, that would
not constitute a Change of Control under the Indenture, but that could
increase the amount of indebtedness outstanding at such time or otherwise
affect our capital structure or credit ratings. Restrictions on our ability to
Incur additional Indebtedness are contained in the covenants described under
"--Certain Covenants--Limitation on Indebtedness", "--Limitation on Liens" and
"--Limitation on Sale/Leaseback Transactions". Such restrictions can only be
waived with respect to any series of Notes with the consent of the holders of
a majority in principal amount of that series of Notes then outstanding.
Except for the limitations contained in such covenants, however, the Indenture
will not contain any covenants or provisions that may afford holders of the
Notes protection in the event of a highly leveraged transaction.
Certain of our outstanding indebtedness requires us to repay all the
amounts outstanding upon a change in control (as defined therein). In addition
to this, borrowings under our $400 million revolving credit facility are
limited by the amounts of available inventory and other factors. It is
possible, therefore, we would be unable to use our revolving credit facility
to finance the purchase of a significant amount of Notes following a change of
control without the consent of the lenders under that facility. If we are
unable to obtain that consent or obtain other financing to purchase the Notes
it would be a default under the Indenture. Such a default under the Indenture
would also constitute a default under our revolving credit facility and a
termination event under our accounts receivable purchase program.
Future indebtedness that we 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 us 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 us. Finally, our ability to pay cash to the holders of Notes
following the occurrence of a Change of Control may be limited by our then
existing financial resources. There can be no assurance that sufficient funds
will be available when necessary to make any required repurchases.
38
The provisions under the Indenture relative to our obligation to make an
offer to repurchase the Notes as a result of a Change of Control may be waived
or modified with respect to any series of Notes with the written consent of the
holders of a majority in principal amount of that series of Notes.
Certain Covenants
The Indenture contains covenants including, among others, those described
below.
Investment Grade Rating Fall-Away Covenants
Following the first day:
(a) the Notes have an Investment Grade Rating from both of the Rating
Agencies, and
(b) no Default has occurred and is continuing under the Indenture,
the Company and its Restricted Subsidiaries will not be subject to the
provisions of the Indenture summarized under the subheadings below:
. "Limitation on Indebtedness",
. "Limitation on Restricted Payments",
. "Limitation on Restrictions on Distributions from Subsidiaries",
. "Limitation on Sales of Assets and Subsidiary Stock",
. "Limitation on Affiliate Transactions",
. "Limitation on the Sale or Issuance of Capital Stock of Restricted
Subsidiaries", and
. Clause (3) of "Merger and Consolidation"
(collectively, the "Suspended Covenants"). If the Company and its Restricted
Subsidiaries are not subject to the Suspended Covenants for any period of time
as a result of the preceding sentence, and subsequently one or both of the
Rating Agencies withdraws its rating or downgrades the rating assigned to the
Notes below an Investment Grade Rating, then the Company and the Restricted
Subsidiaries will thereafter again be subject to the Suspended Covenants, and
compliance with the Suspended Covenants with respect to Restricted Payments
made after the time of such withdrawal or downgrade will be calculated in
accordance with the terms of the covenant described below under "Limitation on
Restricted Payments" as though such covenant had been in effect since the date
the Notes were originally issued.
Limitation on Indebtedness
(a) The Company will not, and will not permit any Restricted Subsidiary to,
Incur, directly or indirectly, any Indebtedness; provided, however, that the
Company 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 by the Company, any Financing Entity and any
Foreign Restricted Subsidiary pursuant to any Credit Facilities or,
provided, however, that, immediately 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 greater of (A) $750 million less the sum of all principal payments
with respect to such Indebtedness pursuant to paragraph (a)(3)(A) of
the covenant described under "--Limitation on Sales of Assets and
Subsidiary Stock," and (B) the sum of (x) 60% of the book value of the
inventory of the Company and its Restricted Subsidiaries and (y) 85%
of the book value of the accounts receivable of the Company and its
Restricted Subsidiaries, provided further, however, that in no event
shall the aggregate principal amount of all Indebtedness Incurred
under this clause (1) at any time outstanding exceed $1.2 billion;
39
(2) Indebtedness owed to and held by the Company or a Wholly Owned
Subsidiary; provided, however, 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, such Indebtedness is
expressly subordinated to the prior payment in full in cash of all
obligations with respect to the Notes;
(3) the Notes and any Indebtedness of the Company or any Restricted
Subsidiary outstanding on July 27, 2001;
(4) Indebtedness Incurred or outstanding on or before December 31, 2001
(other than Indebtedness described in clause (1) or any other clause
(other than clause (17) of this paragraph (b)), to the extent it does
not exceed (w) the amount of indebtedness that was Attributed to the
U. S. Steel Group on its balance sheet as of March 31, 2001 less (x)
the amount of any Indebtedness described in clause (3) of this
covenant or any Indebtedness described in clause (6) or (7) of this
covenant that is Incurred by the Company pursuant to the Financial
Matters Agreement less (y) $629 million (which is the $900 million
Value Transfer less net refinancing of other obligations as of March
31, 2001) plus (z) $40 million;
(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, however, 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) Industrial Revenue Bond Obligations, so long as the aggregate
principal amount of all Industrial Revenue Bond Obligations (inclusive
of any in respect of which the Company becomes directly or indirectly
liable pursuant to the Financial Matters Agreement) does not exceed
$600 million;
(7) Indebtedness to Marathon Incurred pursuant to the Financial Matters
Agreement in respect of Capital Lease Obligations, in an aggregate
principal amount not to exceed $92 million;
(8) Indebtedness to Marathon Incurred pursuant to the Financial Matters
Agreement in respect of Guarantees of Marathon, in an aggregate
principal amount not to exceed $145 million;
(9) Refinancing Indebtedness in respect of Indebtedness Incurred pursuant
to paragraph (a) or pursuant to clause (3), (4), (5) or (7) or this
clause (9); provided, however, 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 or by the
Company;
(10) Hedging Obligations directly related to Indebtedness permitted to be
Incurred by the Company pursuant to the Indenture or to mitigate
currency or business risk;
(11) obligations in respect of performance, bid and surety bonds and
completion guarantees provided by the Company or any Restricted
Subsidiary in the ordinary course of business;
(12) Indebtedness arising from overdraft conditions honored by a bank or
other financial institution in the ordinary course of business;
provided, however, that such Indebtedness is extinguished within two
Business Days of its Incurrence;
(13) Guarantees by the Company of obligations of any of its joint ventures
in an aggregate amount not to exceed $100 million;
(14) Subordinated Obligations not to exceed $200 million which (x) are
convertible into equity securities of the Company, (y) have a Stated
Maturity after the first anniversary of the Stated Maturity of any
series of Notes then outstanding and (z) have an Average Life that is
greater than the Average Life of any series of Notes then
outstanding;
40
(15) Attributable Debt related to Sale/Leaseback Transactions in an amount
not to exceed $150 million;
(16) Purchase Money Indebtedness and Capital Lease Obligations Incurred to
acquire property in the ordinary course of business in an aggregate
amount not to exceed $75 million in each of the first three years
following July 27, 2001 and $50 million in each of the years
thereafter; and
(17) Indebtedness of the Company and its Restricted Subsidiaries in an
aggregate principal amount which, when taken together with all other
Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the date of such Incurrence (other than Indebtedness
permitted by clauses (1) through (16) above or paragraph (a)) does
not exceed $150 million.
(c) Notwithstanding the foregoing, the Company will not incur any
Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof
are used, directly or indirectly, to Refinance any Subordinated Obligations of
the Company unless such Indebtedness shall be subordinated to the Notes or the
Guarantee to at least the same extent as such Subordinated Obligations.
(d) For purposes of determining compliance with this covenant, if an item of
Indebtedness meets the criteria of more than one of the types of Indebtedness
described above, the Company, in its sole discretion, (1) will classify such
item of Indebtedness at the time of Incurrence and will be entitled to either
include the amount and type of such Indebtedness in only one of the above
clauses or divide and classify such item of Indebtedness in more than one of
the types of Indebtedness described above and (2) will be entitled from time to
time to reclassify all or a portion of such item of Indebtedness classified in
one of the clauses in paragraph (b) above into another clause in paragraph (b)
that it meets the criteria of.
(e) For purposes of determining compliance with any U.S. dollar 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, however, 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, as appropriate, of the Indebtedness
Refinanced, except to the extent that (i) such U.S. Dollar Equivalent was
determined based on a Currency Agreement, in which case the Refinancing
Indebtedness will be determined in accordance with the preceding sentence, and
(ii) 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.
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 is not entitled 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 July 27, 2001 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
fiscal quarter immediately following the fiscal quarter during
which July 27, 2001 occurs to the end of the most recent fiscal
quarter for which financial results are publicly available 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
41
(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 July 27, 2001 (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 July 27, 2001; plus
(C) the amount by which Indebtedness of the Company (other than
Subordinated Obligations) is reduced on the Company's balance
sheet (or, prior to the Separation, on the balance sheet of the
U.S. Steel Group) upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to July 27, 2001 of any
Indebtedness of the Company convertible or exchangeable for
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 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 (excluding dividends
and distributions), in each case received by the Company or any
Restricted Subsidiary, and (y) 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 Subsidiary is designated a Restricted
Subsidiary; provided, however, that the foregoing sum 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.
(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, however, that (A) such
Restricted Payment shall be excluded in the calculation of the amount
of Restricted Payments 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 made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness which is permitted to be Incurred pursuant to the
covenant described under "--Limitation on Indebtedness"; provided,
however, that such purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value shall be excluded in the
calculation of the amount of Restricted Payments;
(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, however, that at the time of payment of such
dividend, no other Default shall have occurred and be continuing (or
result therefrom); provided further, however, that such dividend shall
be included in the calculation of the amount of Restricted Payments;
(4) so long as no Default has occurred and is continuing, the repurchase
or other acquisition of shares of Capital Stock of the Company 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
42
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 under which
such individuals purchase or sell or are granted the option to purchase
or sell, shares of such Capital Stock; provided, however, that the
aggregate amount of such repurchases and other acquisitions (other than
any acquisition of shares of common stock of the Company that are used
as payment for the exercise price of outstanding options) shall not
exceed $5.0 million in any calendar year; provided further, however,
that such repurchases and other acquisitions shall be excluded in the
calculation of the amount of Restricted Payments;
(5) prior to the Separation Date, dividends, distributions or other
payments to USX Corporation to the extent such amounts, after such
dividend, distribution or other payment, are still attributed to, or
used to reduce Indebtedness attributed to, the U.S. Steel Group in
accordance with the Management and Allocation Policies of USX
Corporation; provided, however, that such dividends, distributions or
other payments shall be excluded in the calculation of the amount of
Restricted Payments;
(6) so long as no Default has occurred and is continuing, the declaration
and payment of one or more dividends on Steel Stock or common stock of
ÁñÁ«ÊÓƵ with respect to the period ending on
December 31, 2003 in an aggregate amount not to exceed $50.0 million;
provided that such dividends shall be excluded in the calculation of
the amount of Restricted Payments; or
(7) so long as no Default has occurred and is continuing, any Restricted
Payment which, together with all other Restricted Payments made
pursuant to this clause (7) on or after July 27, 2001, does not exceed
$30 million; provided, however, that such Restricted Payments shall be
included in the calculation of the amount of Restricted Payments.
(c) For purposes of this covenant, Capital Stock or Indebtedness (including
Subordinated Obligations) of the Company shall be deemed to include Capital
Stock or Indebtedness (including Subordinated Obligations) of any Person that
is Attributed to the U.S. Steel Group (including Steel Stock, but excluding
any Preferred Stock or Subordinated Obligations of other Persons outstanding
as of the Issue Date) and proceeds of the issuance of any such Capital Stock
shall be deemed received by the Company to the extent they are Attributed to
the U.S. Steel Group.
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 clause (a), (b) and (c),
(i) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on July 27, 2001;
(ii) 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;
(iii) any encumbrance or restriction pursuant to an agreement effecting
a Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (i) or (ii) of clause (1) of this covenant
or this clause (iii) or contained in any amendment to an
agreement referred to in clause (i) or (ii) of
43
clause (1) of this covenant or this clause (iii); provided, however,
that the encumbrances and restrictions with respect to such
Restricted Subsidiary contained in any such refinancing agreement or
amendment are no less favorable to the Noteholders than encumbrances
and restrictions with respect to such Restricted Subsidiary
contained in such predecessor agreements; and
(2) with respect to clause (c) only,
(i) any such encumbrance or restriction 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;
(ii) 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
(iii) 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.
Limitation on Sales of Assets and Subsidiary Stock
(a) The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, sell, transfer or otherwise dispose of (collectively, a
"disposition") any Capital Stock of any Person that owns, directly or
indirectly, all or a significant portion of the Tubular Business, unless:
(1) the Company or such Restricted Subsidiary receives consideration at
the time of such 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 Capital
Stock subject to such 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 75% of the Net Available Cash from such disposition
is applied by the Company (or such Restricted Subsidiary, as the case
may be) to make an offer to the holders of the Notes to purchase Notes
pursuant to and subject to the conditions contained in the Indenture
within 30 days from the later of the date of such disposition or the
receipt of such Net Available Cash; provided, however, that the
Company or such Restricted Subsidiary shall permanently retire such
Notes. Pending application of Net Available Cash pursuant to this
paragraph (a), such Net Available Cash shall be invested in Temporary
Cash Investments or applied to temporarily reduce indebtedness under
Credit Facilities.
(b) The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, consummate any other 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 shares and
assets subject to such Asset Disposition;
(2) with respect to Asset Dispositions other than Like-Kind Exchanges or
Excluded Real Property Sales, 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, to the extent the Company elects (or is required by the
terms of any Indebtedness), to prepay, repay, redeem or purchase
Senior Indebtedness of the Company or Indebtedness (other than any
Disqualified Stock) of a Wholly Owned Subsidiary (in each case
other than
44
Indebtedness owed to the Company or an Affiliate of the Company)
within one year from the later of the date of such Asset Disposition
or the receipt of such Net Available Cash;
(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 from
the later of the date of such Asset Disposition or the receipt of
such Net Available Cash; and
(C) third, to the extent of the balance of such Net Available Cash
after application in accordance with clauses (A) and (B), to make
an offer to the holders of the Notes (and to holders of other
Senior Indebtedness of the Company) designated by the Company to
purchase Notes (and such other Senior Indebtedness of the Company)
pursuant to and subject to the conditions contained in the
Indenture;
provided, however, that in connection with any prepayment, repayment or
purchase of Indebtedness pursuant to clause (A) or (C) above, the
Company or such Restricted Subsidiary shall permanently retire such
Indebtedness and shall cause the related loan commitment (if any) to be
permanently reduced in an amount equal to the principal amount so
prepaid, repaid or purchased.
Notwithstanding the foregoing provisions of this paragraph (b), the Company
and the Restricted Subsidiaries will not be required to apply any Net
Available Cash in accordance with this paragraph (b) except to the extent that
the aggregate Net Available Cash from all Asset Dispositions which are not
applied in accordance with this paragraph (b) exceeds $25 million. Pending
application of Net Available Cash pursuant to this paragraph (b), such Net
Available Cash shall be invested in Temporary Cash Investments or applied to
temporarily reduce indebtedness under Credit Facilities.
(c) For the purposes of paragraphs (a) and (b) of this covenant, the
following are deemed to be cash or cash equivalents:
(1) the assumption of Senior Indebtedness of the Company, or Indebtedness
of 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;
(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; and
(3) any reduction of Indebtedness of the Company in connection with such
Asset Disposition.
(d) In the event of an Asset Disposition that requires the purchase of
Notes (and other Senior Indebtedness) pursuant to clause (a)(3) or (b)(3)(C)
above, the Company will purchase Notes tendered pursuant to an offer by the
Company for the Notes (and such other Senior Indebtedness) at a purchase price
of 100% of their principal amount (or, if such other Senior Indebtedness was
issued with significant original issue discount, 100% of the accreted value
thereof), without premium, plus accrued but unpaid interest (or, in respect of
such other Senior Indebtedness, such lesser price, if any, as may be provided
for by the terms of such Senior 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 Company will
select the securities to 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. The Company shall not be required to
make such an offer to purchase Notes (and other Senior Indebtedness) pursuant
to paragraph (b) of this covenant if the Net Available Cash available therefor
is less than $25 million (which lesser amount shall be carried forward for
purposes of determining whether such an offer is required with respect to the
Net Available Cash from any subsequent Asset Disposition).
(e) The Company 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 Company will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this clause by virtue of its compliance
with such securities laws or regulations.
45
Limitation on Affiliate Transactions
(a) The Company will not, and will not permit any Restricted Subsidiary to,
enter into, permit to exist, renew or extend 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 $10
million, the terms of the Affiliate Transaction are set forth in
writing and a majority of the non-employee Directors of the Company
disinterested with respect to such Affiliate Transactions have
determined in good faith that the criteria set forth in clause (1) are
satisfied and have approved the relevant Affiliate Transaction as
evidenced by a Board resolution; and
(3) if such Affiliate Transaction involves an amount in excess of $25
million, the Board of Directors 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 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;
(3) loans or advances to employees in the ordinary course of business in
accordance with the past practices of the Company or its Restricted
Subsidiaries, but in any event not to exceed $5.0 million in the
aggregate outstanding at any one time;
(4) 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;
(5) any transaction with a Restricted Subsidiary or joint venture or
similar entity 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, joint venture or
similar entity;
(6) the issuance or sale of any Capital Stock (other than Disqualified
Stock) of the Company;
(7) any transaction in connection with Separation, as described in the
offering circulars relating to the offerings of the Outstanding Notes;
and
(8) any transaction pursuant to any contract or agreement in effect on
July 27, 2001, in each case as amended, modified or replaced from time
to time so long as the amended, modified or new agreement, taken as a
whole, is no less favorable to the Company and its Restricted
Subsidiaries than that in effect on July 27, 2001.
Limitation on the Sale or Issuance of Capital Stock of Restricted Subsidiaries
The Company
(1) will not, and will not permit any Restricted Subsidiary to, sell,
transfer or otherwise dispose of any Capital Stock of any other
Restricted Subsidiary to any Person (other than the Company or a Wholly
Owned Subsidiary); and
46
(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) the Company complies with the covenant described under "--Limitation
Sale of Assets and Subsidiary Stock" with respect to any such sale,
transfer or other disposition; and
(B) immediately after giving effect to such issuance, sale, transfer or
other disposition, (x) such Restricted Subsidiary remains a Restricted
Subsidiary or (y) 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, transfer 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 (the "Initial Lien")
of any nature whatsoever on any of its properties (including Capital Stock of a
Restricted Subsidiary), whether owned at July 27, 2001 or thereafter acquired,
securing any Indebtedness, other than Permitted Liens, without effectively
providing that the Notes 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
preceding sentence 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.
Limitation on Sale/Leaseback Transactions
The Company will not, and will not permit any Restricted Subsidiary to,
enter into, Guarantee or otherwise become liable with respect to 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 without equally and
ratably securing the Notes 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 value (as determined by the Board of Directors) of such
property; and
(3) the Company applies the proceeds of such transaction to the extent
required by 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
an indenture supplemental thereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all the obligations of
the Company under the Notes and the Indenture;
47
(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) 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) 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
(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, however, 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 Indenture, and the predecessor Company, except in the case of
a lease, shall be released from the obligation to pay the principal of and
interest on the Notes.
Defaults
Each of the following is an Event of Default:
(1) a default in the payment of interest or any 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) the failure by the Company to comply with its obligations under "--
Certain Covenants--Merger and Consolidation" above;
(4) the failure by the Company to comply for 30 days after notice with any
of its other obligations in the covenants described above under "--
Certain Covenants" above;
(5) the failure by the Company to comply for 60 days after notice with its
other agreements contained in the Indenture;
(6) Indebtedness of the Company 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 $50 million
(the "cross acceleration provision");
(7) certain events of bankruptcy, insolvency or reorganization of the
Company or a Significant Subsidiary (the "bankruptcy provisions"); or
48
(8) any judgment or decree for the payment of money in excess of $50
million is entered against the Company or a 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 which would include any such judgments entered in connection
with the various litigation matters described in the documents
incorporated by reference (the "judgment default provision").
However, a default under clauses (4) and (5) will not constitute an Event of
Default until the Trustee or the holders of 25% in principal amount of the
outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified after receipt of such notice.
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 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. 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, we are
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. We are 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 we
are taking or proposes to take in respect thereof.
49
Amendments and Waivers
Subject to certain exceptions, the Indenture may be amended with respect to
any series of Notes with the consent of the holders of a majority in principal
amount of that series of 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 that series of Notes then
outstanding. However, without the consent of each holder of an outstanding Note
affected thereby, an amendment or waiver 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";
(5) make any Note payable in currency 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; or
(8) make any change in the ranking or priority of any Note that would
adversely affect the Noteholders;
Notwithstanding the preceding, without the consent of any holder of the
Notes, the Company and Trustee may amend the Indenture:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to provide for the assumption by a successor corporation of the
obligations of the Company 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 guarantees with respect to the Notes, or to secure the Notes;
(5) to add to the covenants of the Company for the benefit of the holders
of the Notes or to surrender any right or power conferred upon the
Company;
(6) to make any change that does not materially and adversely affect the
rights of any holder of the Notes; or
(7) to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the Trust Indenture Act.
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, we are 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.
50
Transfer
Initially all the Notes are held through DTC. DTC's records reflect only the
identity of the Direct Participants to whose accounts the Notes are credited.
The Participants will remain responsible for keeping account of their holdings
on behalf of their customers. 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. We may require payment of a sum sufficient to cover
any tax, assessment or other governmental charge payable in connection with
certain transfers and exchanges.
Defeasance
At any time, we may terminate all our obligations under any series of Notes
and the relevant 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 we may terminate our obligations 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 with respect to
Significant Subsidiaries and the judgment default provision described under "--
Defaults" above and the limitations contained in clauses (3) and (4) under "--
Certain Covenants--Merger and Consolidation" above ("covenant defeasance").
We may exercise our legal defeasance option notwithstanding our prior
exercise of our covenant defeasance option. If we exercise our legal defeasance
option, payment of the Notes may not be accelerated because of an Event of
Default with respect thereto. If we exercise our covenant defeasance option,
payment of the Notes may not be accelerated because of an Event of Default
specified in clause (4), (6), (7) (with respect only to Significant
Subsidiaries) or (8) under "--Defaults" above or because of the failure of the
Company to comply with clause (3) or (4) of the first paragraph under "--
Certain Covenants--Merger and Consolidation" above.
In order to exercise either of our defeasance options, we 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 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).
Concerning the Trustee
The Bank of New York is the Trustee under the Indenture.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, 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
51
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the Indenture at the request of any 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.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company
or the Guarantor will have any liability for any obligations of the Company or
the Guarantor under the Notes, the Guarantee 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.
Governing Law
The Indenture and the Notes 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 or equipment 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, however, 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 any other Person, directly or
indirectly, controlling or controlled by or 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 Like-Kind
Exchange, an Excluded Real Property Sale or a 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
52
(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.
For purposes of this definition, any transfer of assets of the U. S. Steel
Group to the Marathon Group in accordance with the Management and Allocation
Policies prior to the Separation shall be deemed to be a transfer of assets of
the Company.
Notwithstanding the foregoing, an "Asset Disposition" shall not include:
(A) a disposition by a Restricted Subsidiary to the Company or by the
Company or a Restricted Subsidiary to a Wholly Owned Subsidiary;
(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 if Additional Assets were acquired within one
year prior to such disposition for the purpose of replacing the assets
disposed of; and
(D) a disposition of assets with a fair market value of less than
$10,000,000.
"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 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, however, that if such Sale/Leaseback Transaction results
in a Capital Lease Obligation, the amount of Indebtedness represented thereby
shall be determined in accordance with the definition of "Capital Lease
Obligation".
"Attributed to the U. S. Steel Group" means attributed to the U. S. Steel
Group in accordance with the Management and Accounting Policies.
"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" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means any day except a Saturday, Sunday or any other day on
which commercial banks in New York City are authorized or required by law to
close.
"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--Limitations 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,
53
without limitation, membership interests in limited liability companies and any
Preferred Stock, but excluding any debt securities convertible into such
equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"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 results are publicly
available to (y) Consolidated Interest Expense for such four fiscal quarters;
provided, however, 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 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 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 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.
54
For purposes of this definition, whenever pro forma effect is to be given to an
acquisition of assets, the amount of income or earnings 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. For purposes of this definition, any assets, properties,
Indebtedness or other liabilities or obligations that are Attributed to the U.
S. Steel Group prior to the Separation are deemed to be assets, properties,
Indebtedness, liabilities or obligations 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 (prior to
the Separation, as Attributed to the U. S. Steel Group) plus, to the extent not
included in such total interest expense, and to the extent incurred by the
Company or its Restricted Subsidiaries, 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 and debt issuance cost;
(3) capitalized interest;
(4) non-cash interest expenses;
(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 in respect of
Indebtedness;
(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;
(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; and
(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;
in each case for such period and, prior to Separation, as such amounts are
Attributed to the U.S. Steel Group.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Restricted Subsidiaries determined in accordance
of GAAP (prior to the Separation, as Attributed to U. S. Steel Group);
provided, however, that there shall not be included in such Consolidated Net
Income:
(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 (4) 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 (3) below); and
55
(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 (or loss) of any Person acquired by the Company or a
Subsidiary in a pooling of interests transaction for any period prior
to the date of such acquisition;
(3) 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 (4) below, the
Company's equity in the net income of any such Restricted
Subsidiary for such period shall be included in such Consolidated
Net 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;
(4) any gain (but not 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 (but not loss) realized upon the sale or other disposition
of any Capital Stock of any Person;
(5) extraordinary gains or losses; and
(6) the cumulative effect of a change in accounting principles
in each case for such period and, prior to Separation, as such amounts are
Attributed to the U.S. Steel Group. 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 (or, prior to the
Separation, of the U. S. Steel Group), determined on a consolidated basis in
accordance with GAAP, as of the end of the most recent fiscal quarter of the
Company ending at least 45 days 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 (or, prior to the Separation,
the amount shown as "USX's net investment" instead of the sum of
clauses (1), (2) and (3))
less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Stock.
"Credit Facility" means any senior credit facility to be entered into by and
among one or more of the Company and certain of its Foreign Restricted
Subsidiaries and the lenders referred to therein, together with the related
documents thereto (including the revolving loans thereunder, any guarantees and
security documents), 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
56
borrowings and commitments then outstanding or permitted to be outstanding
under such Credit Facility or a successor Credit Facility, whether by the same
or any other lender or group of lenders.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to
protect such Person against fluctuations in currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Directors" means the persons who are members of the Board of Directors of
the Company.
"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 first anniversary of the Stated Maturity of any
series of Notes then outstanding; 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 first anniversary of the Stated Maturity of any series
of Notes then outstanding 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 "--Certain Covenants--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, however, 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 (but
without giving effect to any gains or losses from Asset Dispositions), minus
noncash net pension credits to the extent included in calculating such
Consolidated Net Income and 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;
(3) depreciation, depletion 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);
57
(4) 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); and
(5) net periodic benefit cost recorded for postretirement benefits other
than pensions, to the extent such cost exceeds (x) payments made by the
Company for such benefits that are not reimbursed by plan assets and
(y) any funding by the Company to the VEBA trust.
in each case for such period and, prior to the Separation, as such amounts are
Attributed to the U. S. Steel Group. 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.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the debt securities of the Company issued pursuant to
the Indenture in exchange for, and in an aggregate principal amount at maturity
equal to, the Notes, in compliance with the terms of the registration rights
agreement.
"Excluded Real Property Sales" means sales of real property by installment
either: (a) in the ordinary course of the business of the Company or a
Restricted Subsidiary or (b) of real property that has not been used by the
Company or a Restricted Subsidiary in the production of steel or steel products
at any time within 90 days prior to the date of sale.
"Financial Matters Agreement" means the financial matters agreement dated
December 31, 2001 between Marathon and the Company entered into in connection
with the Separation.
"Financing Entity" means any Wholly Owned Subsidiary formed for the purpose
of effecting a receivables or inventory financing program so long as such
entity has no obligations that are either Guaranteed by, or recourse to, any
other Restricted Subsidiary.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary of the
Company that is organized in a jurisdiction outside the United States of
America.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of July 27, 2001, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants;
(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.
58
"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 or other obligation 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) but shall not include take-or-pay arrangement or other
agreements to purchase goods or services that are not entered into for
the purpose of purchasing or paying such Indebtedness of such Person;
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. The term "Guarantor" shall mean any Person Guaranteeing any
obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" 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
clause and with the same terms will not be deemed to be the Incurrence of
Indebtedness. For purposes of this definition, the Company (i) shall be deemed
to Incur any Indebtedness of other Persons of the type referred to in clause
(6) of the definition of "Indebtedness" at such time it becomes responsible or
liable, directly or indirectly, for its payment pursuant to the terms of the
Financial Matters Agreement and (ii) shall not be deemed to Incur any
Indebtedness for which it is indemnified by Marathon pursuant to the terms of
the Financial Matters Agreement at the time that such Indebtedness is deemed
to become Indebtedness of the Company as a result of Marathon no longer having
an Investment Grade Rating from both Rating Agencies.
"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;
(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 Purchase Money Indebtedness of such Person;
(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
59
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 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 or pursuant to the terms of the Financial Matters
Agreement;
(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;
and
(8) to the extent not otherwise included in this definition, any financing
of accounts receivable or inventory of such Person; and
(9) to the extent not otherwise included in this definition, Hedging
Obligations of such Person.
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 (or,
in the case of the acquisition of ÁñÁ«ÊÓƵK, when due).
Notwithstanding the foregoing, the term "Indebtedness" will exclude (x) any
indebtedness for which Marathon indemnifies the Company pursuant to the terms
of the Financial Matters Agreement, so long as such indebtedness (i) has not
been Refinanced and (ii) Marathon has an Investment Grade Rating from both of
the Rating Agencies and (y) Industrial Revenue Bond Obligations to the extent
the Company (i) has delivered to the holders of such obligations an irrevocable
notice of redemption or directed delivery of such a notice and (ii) has set
aside cash or U.S. Government Obligations, pursuant to a defeasance mechanism
or otherwise, sufficient to redeem such obligations.
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 in the case of Indebtedness sold at a discount, the amount of
such Indebtedness at any time will be the accreted value thereof at such time.
"Independent Qualified Party" means an investment banking firm, accounting
firm or appraisal firm of national standing; provided, however, that such firm
is not an Affiliate of the Company.
"Industrial Revenue Bond Obligations" means an obligation to a state or
local government unit that secures the payment of bonds issued by a state or
local government unit or any obligation under the Financial Matters Agreement
relating to Industrial Revenue Bond Obligations or any Indebtedness incurred to
Refinance, in whole or in part, such obligations.
"Interest Rate Agreement" means in respect of a Person any interest rate
swap agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect such Person against fluctuations in interest
rates.
60
"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 on the balance sheet of the lender) or other extensions
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. Prior to the
Separation, any Investment made by another Person that is Attributed to the
U.S. Steel Group shall be deemed to be made by the Company.
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.
"Investment Grade Rating" means a rating equal to or higher than Baa3 (or
the equivalent) by Moody's Investors Service, Inc. and BBB- (or the equivalent)
by Standard & Poor's Ratings Services.
"Lenders" has the meaning specified in the Credit Agreement.
"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).
"Like-Kind Exchange" means the disposition of property in exchange for
similar property or for cash proceeds where the proceeds are deposited in a
trust and employed to acquire similar property in a transaction qualifying as a
like-kind exchange pursuant to Section 1031 of the Internal Revenue Code of
1986 (or any successor provision).
"Management and Allocation Policies" means the policies and procedures
adopted by the board of directors of Marathon or otherwise used by Marathon for
the purpose of preparing financial statements of the U.S. Steel Group.
"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 legal, title and recording tax expenses, commissions and other fees
and expenses incurred, and all Federal, state, provincial, foreign and
local taxes required to be accrued as a liability under GAAP, as a
consequence of such Asset Disposition;
(2) 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
61
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.
"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.
"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.
"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, however, 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,
however, 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 made in the ordinary course of business
consistent with past practices of the Company or such Restricted
Subsidiary;
(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 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 (b) as 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; and
62
(10) loans or advances to ÁñÁ«ÊÓƵ/POSCO Industries for repairs of damages and
business interruption caused by the fire that occurred on May 31,
2001 in an amount not to exceed $25 million; provided that to the
extent such amounts are not repaid with the proceeds of insurance on
or before June 30, 2003, such amounts will be included as a
Restricted Payment in the calculation of Restricted Payments; and
(11) so long as no Default has occurred and is continuing, an Unrestricted
Subsidiary the assets of which shall primarily be located outside the
United States of America, which Investment is made on or prior to
December 31, 2003 and does not exceed $50 million; provided that such
Unrestricted Subsidiary shall be treated as a Restricted Subsidiary
as of the first date the Board of Directors would be permitted to
designate it as such under the definition of "Unrestricted
Subsidiary".
"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 good faith
deposits in connection with bids, tenders, contracts (other than for
the payment of Indebtedness) 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 United States government bonds 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 and 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 DTC;
(3) Liens for property taxes not yet subject to penalties for non-payment
or which are being contested in good faith by appropriate proceedings;
(4) Liens in favor of issuers of surety bonds or letters of credit 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;
(5) 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;
(6) 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, however, 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, completion of construction, repair, improvement, addition
or commencement of full operation of the property subject to the Lien;
(7) Liens existing on July 27, 2001;
(8) 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
63
owned by such Person or any of its Restricted Subsidiaries (other than
assets and property affixed or appurtenant thereto);
(9) Liens on the inventory or accounts receivable of the Company or any
Restricted Subsidiary securing Indebtedness permitted under the
provisions described in clause (b)(1) under "--Certain Covenants--
Limitation on Indebtedness";
(10) Liens securing industrial revenue or pollution control bonds issued
pursuant to agreements with the Company, or prior to Separation, by
USX Corporation (now named Marathon Oil Corporation); provided,
however, that such Liens relate solely to the project being financed
and are removed within 90 days following completion of the project
being financed;
(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 so long as such Hedging Obligations
relate to Indebtedness that is, and is permitted to be under the
Indenture, secured by a Lien on the same property securing such
Hedging Obligations;
(14) 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 (6), (8), (9) or (10); provided, however,
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); and
(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 (6), (8), (9) or (10) 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; and
(15) Liens on assets subject to a Sale/Leaseback Transaction securing
Attributable Debt permitted to be Incurred pursuant to the covenant
described under "Certain Covenants--Limitation on Indebtedness."
Notwithstanding the foregoing, "Permitted Liens" will not include any Lien
described in clauses (6), (9) or (10) above to the extent such Lien applies to
any Additional Assets acquired directly or indirectly from Net Available Cash
pursuant to the covenant described under "--Certain Covenants--Limitation on
Sale of Assets and Subsidiary Stock".
"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.
64
"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.
"Prospectus" means the prospectus of the Company relating to the Exchange
Offer and the Notes.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Purchase Money Indebtedness" means Indebtedness Incurred or assumed as the
deferred purchase price of property acquired by such Person (excluding accounts
payable arising in the ordinary course of business but including all
liabilities created or arising under any conditional sale or other title
retention agreement with respect to any such property).
"Rating Agency" means Standard & Poor's Ratings Group, Inc. and Moody's
Investors Service, Inc. or if Standard & Poor's Ratings Group, Inc. or Moody's
Investors Service, Inc. or both shall not make a rating on the Notes publicly
available, a nationally recognized statistical rating agency or agencies, as
the case may be, selected by the Company (as certified by a resolution of the
Board of Directors) which shall be substituted for Standard & Poor's Ratings
Group, Inc. or Moody's Investors Service, Inc. or both, as the case may be.
"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 July 27,
2001 or Incurred in compliance with the Indenture, including Indebtedness that
Refinances Refinancing Indebtedness; provided, however, that:
(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 Subsidiary that Refinances Indebtedness of the Company or (B)
Indebtedness of the Company or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any business in which the Company was engaged on
July 27, 2001 and any business related, ancillary or complementary to any
business of the Company in which the Company was engaged on July 27, 2001.
"Representative" means with respect to a Person any trustee, agent or
representative (if any) for an issue of Senior Indebtedness of such Person.
"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
65
distributions payable solely to 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 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); or
(4) the making of any Investment (other than a Permitted Investment) in
any Person;
provided, however, that prior to the Separation (x) any reduction of
Indebtedness that is Attributed to the U. S. Steel Group shall be deemed not to
be a Restricted Payment, (y) Capital Stock or Subordinated Obligations of the
Company shall be deemed to include Capital Stock or Subordinated Obligations of
any Person that is Attributed to the U. S. Steel Group (including Steel Stock,
but excluding any Preferred Stock or Subordinated Obligations of other Persons
outstanding as of July 27, 2001) and the Company shall be deemed to make any
Restricted Payment made in respect of such Capital Stock or Subordinated
Obligations; provided further, however, that any purchase or other acquisition
for value of common stock of the Company with (x) funds provided by the
participants of the Company's dividend reinvestment plan or (y) cash dividends
permitted to be paid under the covenant "--Limitation on Restricted Payments"
pursuant to the Company's dividend reinvestment plan shall not, in either case,
be a "Restricted Payment."
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property owned
by the Company or a Restricted Subsidiary on July 27, 2001 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.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien.
"Senior Indebtedness" means with respect to any Person:
(1) Indebtedness of such Person (including, prior to the Separation, any
Indebtedness to the extent it is Attributed to the U. S. Steel Group),
whether outstanding on July 27, 2001 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 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 (in each case including, prior to
Separation, any such Indebtedness to the extent it is Attributed to
the U. S. Steel Group)
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
66
Notes or the Guarantee of such Person, as the case may be; provided, however,
that Senior Indebtedness shall not include:
(1) any obligation of such Person to any Subsidiary;
(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.
"Separation" means the separation of the Company from Marathon that occured
on the Separation Date.
"Separation Date" means December 31, 2001.
"Separation Documents" means the Plan of Reorganization, the Financial
Matters Agreement and the Tax Sharing Agreement.
"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.
"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 July 27, 2001 or thereafter Incurred)
which is subordinate or junior in right of payment to the Notes or a Guaranty
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;
provided that, prior to the Separation, any Subsidiary of another Person that
is Attributed to the U. S. Steel Group shall be deemed a Subsidiary of the
Company, and any Voting Stock of that Subsidiary owned by such Person shall be
deemed to be owned by the Company.
"Tax Sharing Agreement" means the tax sharing agreement dated December 31,
2001 between Marathon and the Company its connection with the Separation.
"Temporary Cash Investments" means any of the following:
(1) any investment in direct obligations of the United States of America or
any agency thereof 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 180 days of the date of acquisition
thereof issued by a bank or trust company which is
67
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 $50.0 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 30 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 90 days 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
Investors Service, Inc. or "A-1" (or higher) according to Standard and
Poor's Ratings Services;
(5) investments in securities with maturities of six 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 Standard & Poor's Ratings Services or "A" by Moody's Investors
Service, Inc.;
(6) overnight investments with banks rated "B" or better by Fitch, Inc.;
(7) in the case of a Foreign Restricted Subsidiary, investments of the type
and maturity described in clauses (1) through (6) above of foreign
obligors, which investments or obligors (or the parents of such
obligors) have ratings described in such clauses or equivalent ratings
from comparable foreign rating agencies; and
(8) deposits in Slovak financial institutions that do not at any time
exceed $5 million in the aggregate.
"Tubular Business" means the assets and liabilities of the Company or any
of its Subsidiaries primarily related to its tubular products business.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of the Company that at the time of determination shall
be designated an Unrestricted Subsidiary by the Board of Directors in
the manner provided below; and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors 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 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".
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, 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 the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
68
resolution of the 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 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. Steel Group" means the United States Steel Group of Marathon, as
defined in the Restated Certificate of Incorporation of Marathon as in effect
prior to Separation.
"Value Transfer" means the $900 million value transfer in the form of
additional net debt and other financings, retained by Marathon in connection
with the Separation that, prior to Separation, was atrributed to the U.S. Steel
Group.
"Voting Power" as applied to the stock of any Person means the total voting
power represented by all outstanding Voting Stock of such corporation.
"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) is owned by the
Company or one or more Wholly Owned Subsidiaries.
69
MATERIAL TAX CONSIDERATIONS
In this section, we summarize the material U.S. federal income tax
consequences of the exchange of Exchange Notes for Outstanding Notes pursuant
to the Exchange Offers set forth in this prospectus (the "Exchange") and any
early redemption of the Exchange Notes. This summary is based on (1) the
Internal Revenue Code of 1986 (the "Code"), as amended, (2) income tax
regulations (proposed and final) issued under the Code, and (3) associated
administrative and judicial interpretations, all as they currently exist as of
the date of this prospectus. These income tax laws and regulations, however,
may change at any time, and any change could be retroactive to the date of the
Exchange described herein.
This summary applies to all persons who hold the Outstanding Notes as
capital assets (as defined in section 1221 of the Code). It does not address
the tax consequences to taxpayers who are subject to special rules (such as
dealers in securities or currencies, financial institutions, tax-exempt
organizations, and insurance companies), taxpayers with a functional currency
other than the U.S. dollar, taxpayers who hold Outstanding Notes as position in
a straddle, as part of a synthetic security or hedge, as part of a conversion
transaction or other integrated investment, or as other than a capital asset.
If a partnership holds the Outstanding Notes, the tax treatment of a partner
generally will depend on the status of the partner and the activities of the
partnership. Holders of the Outstanding Notes should consult their own tax
advisors regarding the particular federal, state, local, and foreign tax
consequences to them of the Exchange and the effect of possible changes in
federal and other tax laws that may affect the tax consequences described
herein.
The Exchange will not be treated as a taxable exchange. Accordingly, holders
who exchange their Outstanding Notes for Exchange Notes will not recognize
income, gain, or loss for U.S. federal income tax purposes. The holding period
of an Exchange Note will include the holding period of the Outstanding Note
immediately before the Exchange. The adjusted tax basis of an Exchange Note
immediately after the exchange will be the same as the adjusted tax basis of
the Outstanding Note surrendered in the Exchange.
If any Exchange Notes are redeemed before the August 1, 2008 due date, a
holder of the redeemed Notes will generally recognize gain or loss in an amount
equal to the difference between the amount realized from the redemption of the
Notes (not including any amounts attributable to accrued interest) and the
holder's adjusted tax basis in the Notes. A holder's adjusted tax basis in the
Exchange Notes will be equal to the initial purchase price the holder paid for
the Outstanding Notes exchanged for the Exchange Notes (1) increased by any
amount of market discount recognized by the holder and (2) decreased by any
amount of bond premium previously amortized by the holder or amounts received
as accrued interest treated as return of capital.
Gain or loss recognized by a U.S. holder on the redemption of the Notes will
generally be treated as long term capital gain if the Notes were held for more
than one year before the redemption. The deductibility of capital losses is
subject to limitations. A non-U.S. holder will not be subject to federal income
tax on any gain on the redemption of the Notes unless one of the following
applies:
. The gain is connected with a trade or business that the non-U.S. holder
conducts in the United States.
. The non-U.S. holder is an individual, is present in the U.S. for at
least 183 days during the year in which the Notes are redeemed and
certain other conditions are satisfied.
. The gain represents accrued interest or market discount, in which case
the rules for interest would apply.
The term "U.S. holder" means a person who is (i) a citizen or resident of
the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political
subdivision, (iii) an estate, if United States federal income taxation is
applicable to the income of such estate regardless of its source, or (iv) a
trust if (A) a U.S. court is able to exercise primary supervision over the
trust's administration and (B) one or more United States persons have the
authority to control all of the trust's substantial decisions. The term "non-
U.S. holder" means a holder that is not a U.S. holder.
Based upon current facts and circumstances, any additional payments, such as
the redemption premiums described above would not be material to a holder of
the Exchange Notes.
70
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to this exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange 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 Exchange Notes received in exchange for Outstanding
Notes where such Outstanding Notes were acquired as a result of market-making
activities or other trading activities. We have agreed that, for a period of
180 days after the Expiration Date, we will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale.
We will not receive any proceeds from any sale of Exchange Notes by broker-
dealers. Exchange 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 Exchange 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 Exchange Notes. Any broker-dealer
that resells Exchange 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 Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commission 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.
For a period of 180 days after the Expiration Date we will promptly send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any broker-dealer that requests such documents in the Letter of
Transmittal. We have agreed to pay all expenses incident to the exchange offer
(including the expenses of one counsel for the Holders of the Notes) other than
commissions or concessions of any brokers or dealers and will indemnify the
Holders of the Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
71
VALIDITY OF EXCHANGE NOTES
The validity of the issuance of the Exchange Notes will be passed upon for
ÁñÁ«ÊÓƵ by D. D. Sandman, Esq., Vice Chairman, Chief Legal Officer and
Administrative Officer of ÁñÁ«ÊÓƵ or by R. M. Stanton, Esq., Assistant General
Counsel--Corporate and Assistant Secretary of ÁñÁ«ÊÓƵ. Messrs. Sandman and Stanton,
in their respective capacities as set forth above, are paid salaries by ÁñÁ«ÊÓƵ,
participate in various employee benefit plans offered by ÁñÁ«ÊÓƵ and own common
stock of ÁñÁ«ÊÓƵ.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
ÁñÁ«ÊÓƵ's Current Report on Form 8-K dated June 4, 2002
have been so incorporated in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated/combined financial statements and supplemental schedule
incorporated in this prospectus by reference from Republic Technologies
International Holdings, LLC's Annual Report on Form 10-K for the year ended
December 31, 2001 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report (which report expresses an unqualified
opinion and includes explanatory paragraphs relating to the uncertainties about
the consequences of the bankruptcy proceedings and the ability to continue as a
going concern), which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
72