AK Steel Holding (AKS)

Long Term Performance Plan

The fundamental purposes of any long-term performance plan are to align the interests of management more closely with those of a company’s stockholders, to assist a company in recruiting, retaining and motivating a highly talented group of managers 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 that support long-term strategies. In 2005 the Committee reviewed the Company’s existing Long Term Performance Plan (“LTPP”) with its independent executive compensation consultant to evaluate the extent to which the LTPP was achieving those purposes. At that time, the metric being used to establish goals for the LTPP was relative EBITDA-per-ton performance. Following discussions with its independent consultant, the Committee concluded that there were several reasons why using a relative EBITDA-per-ton performance metric for the LTPP was no longer appropriate. First, most of the integrated steel companies that the Company previously had used as peers no longer exist due to bankruptcies and the consolidation in the steel industry. Second, 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 has a significant part of its business in Eastern Europe now, Ispat Inland and ISG are now a part of Mittal Steel and it is unlikely that their EBITDA numbers will be released separately, all are much larger than the Company, and none of them have both carbon and stainless steels). Third, the Company remains at a competitive disadvantage in calculating EBITDA-per-ton due to the fact that, unlike its competitors, it continues to provide significant post-retirement pension and health care benefits to all of its retirees.

For those reasons, the Committee concluded that it would enhance the probability of achieving the purposes underlying the LTPP if the LTPP were modified to change the relative EBITDA-per-ton performance metric. Accordingly, the Committee recommended to the Board, and the Board approved, a proposal to modify the Company’s LTPP to replace the relative EBITDA-per-ton performance metric with an absolute cumulative EBITDA performance metric. More specifically, the Committee modified the LTPP to: (1) change the basic metric from EBITDA-per-ton to cumulative EBITDA, (2) 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 (3) 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. The Committee believed that changing to a cumulative EBITDA as the performance metric for the LTPP would establish an additional and strong incentive for management to achieve the Company’s objective of sustainable profitability. In turn, that would more closely align the interests of management with the interests of the Company’s stockholders. This proposed modification to the LTPP was submitted to and approved by the Company’s stockholders at the annual meeting held on May 17, 2005.

Pursuant to the new LTPP, the Committee establishes 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 is

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made. There is a linear progression of the payout for achievement of a cumulative EBITDA between the threshold, target and maximum payout goals. All payouts, if any are earned, are paid in cash. The Committee also established transitional one- and two-year goals to be used in 2005 and 2006, the first and second year of the new LTPP. The transitional goal was not met for 2005 and no payout under the LTPP was made for that transitional one-year performance period.