AK Steel Holding (AKS)

Long-Term Performance Plan

Through 2004, the Company’s LTPP has been designed to increase management’s focus on the Company’s performance relative to a peer group of its principal competitors over a multi-year period. For 2004, the peer group consisted of United States Steel Corporation, Nucor Corporation, Ispat Inland, Inc. and International Steel Group, Inc. Payouts under the LTPP were earned based upon the Company’s one- and three-year performance compared to the above-stated peer group, using as the financial metric the companies’ earnings before interest expense, provision for income taxes, depreciation and amortization (referred to as “EBITDA”) per ton shipped, excluding special and unusual items. Using that metric, in 2004 the Company ranked fourth out of five companies in its peer group in the three-year performance ranking and ranked fourth out of its peer group of five companies in the one-year ranking period. A ranking of fourth or fifth results in no payment of an award for that ranking category. Because the Company’s ranking was fourth in both the one- and three-year ranking categories, no award was earned under the LTPP for 2004.

The fundamental purposes of any long-term performance plan are to associate the interests of management more closely with those of a company’s shareholders, to assist a company in recruiting, retaining and motivating a highly talented group of individuals who will successfully manage the company in a way which benefits all of its stakeholders, to link a portion of management’s compensation to the performance of the company, and to increase the focus of management on the company’s long-term performance by establishing performance goals

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that support long-term strategies. In 2005 the Committee reviewed the Company’s existing LTPP with its independent executive compensation consultant to evaluate the extent to which the LTPP was achieving its purposes. Based upon that review, the Compensation Committee concluded that it would enhance the probability of achieving those purposes if the existing LTPP were modified to replace the current relative EBITDA per ton performance metric with an absolute cumulative EBITDA performance metric. The principal problems with the relative EBITDA per ton performance metric for the LTPP are that (i) most of the integrated steel companies the Company has used as peers in the past no longer exist due to bankruptcies and the consolidation in the steel industry, (ii) the integrated steel companies that remain are no longer adequately comparable to the Company to use as a peer group for LTPP purposes (e.g., U.S. Steel Corporation now has a significant part of its business in Eastern Europe, Ispat Inland, Inc. and International Steel Group, Inc. are now a part of Mittal Steel Corporation and it is unlikely that their EBITDA numbers will be released separately, all are much larger than the Company, none of them have both carbon and stainless steels, etc.), and (iii) the Company remains at a competitive disadvantage in calculating EBITDA per ton due to the fact that, unlike its competitors, it continues to have—and honor—significant post-retirement pension and health care obligations to all of its retirees.

More specifically, the Committee determined to modify the existing LTPP to (i) change the basic metric from EBITDA per ton to cumulative EBITDA, (ii) eliminate the relative nature of the metric (i.e. the comparison to a peer group) and have it be based instead solely on the performance of the Company, and (iii) go to a single award for a three-year performance period rather than divide the award between a one-year and a three-year performance period. Under the proposed new LTPP, the Committee would establish cumulative EBITDA threshold, target and maximum payout goals at the start of each three-year performance period. The threshold must be met before any payout would be made. There would be a linear progression of the payout for achievement of a cumulative EBITDA between the threshold, target and maximum payout goals. Additionally, all payouts, if any are earned, would be in cash. Because (1) the payout under the proposed new LTPP would be predicated solely on a three-year performance period (as opposed to a one-year and a three-year period under the existing LTPP), and (2) there is no longer an adequate peer group due to consolidation in the industry to properly and fairly apply the performance metric of the existing LTPP, the Committee established transitional one and two-year goals to be used in the first and second year of the new LTPP. Thereafter, payouts would only be made based upon three-year performance periods.

Changing to a cumulative EBITDA as the performance metric for the LTPP establishes an additional and strong incentive for management to achieve the Company’s objective of sustainable profitability. This closely aligns the interests of management with respect to achieving the LTPP payouts with the interests of the Company’s shareholders. On March 17, 2005, the Committee therefore recommended to the Board, and the Board approved, subject to approval at the Company’s 2005 annual meeting of shareholders, modifications to the Company’s LTPP to replace the existing relative EBITDA per ton performance metric with an absolute cumulative EBITDA performance metric. See Approval of the Amendment and Restatement of the Company’s Long-Term Performance Plan beginning at page 31.