<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1997
REGISTRATION NO. 333-36691
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
ISSUER OF SENIOR NOTES REGISTERED HEREBY
------------------------
ARMCO INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
OHIO 3312 31-0200500
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
ONE OXFORD CENTRE
301 GRANT STREET
PITTSBURGH, PA 15219-1415
(412) 255-9800
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
GARY R. HILDRETH
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
ARMCO INC.
ONE OXFORD CENTRE
301 GRANT STREET
PITTSBURGH, PA 15219-1415
(412) 255-9800
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES OF COMMUNICATIONS TO:
JONATHAN C. STAPLETON, ESQ.
ARNOLD & PORTER
399 PARK AVENUE
NEW YORK, NEW YORK 10022
(212) 715-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
PROSPECTUS
OFFER TO EXCHANGE
ALL OUTSTANDING
9% SENIOR NOTES DUE 2007
FOR
9% SENIOR NOTES DUE 2007
THAT HAVE BEEN
REGISTERED UNDER THE
SECURITIES ACT OF
1933, AS AMENDED
OF
ARMCO INC.
-------------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON NOVEMBER 17, 1997 UNLESS EXTENDED
---------------------
Armco Inc., an Ohio corporation (the "Company"), hereby offers (the
"Exchange Offer"), upon the terms and subject to the conditions set forth in
this Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange its outstanding 9% Senior Notes due 2007 (the "Old
Notes"), of which an aggregate of $150,000,000 in principal amount is
outstanding as of the date hereof, for an equal principal amount of newly issued
9% Senior Notes due 2007 (the "New Notes"). The form and terms of the New Notes
will be the same as the form and terms of the Old Notes except that (i) the New
Notes will be registered under the Securities Act of 1933, as amended (the
"Securities Act"), and hence will not bear legends restricting the transfer
thereof and (ii) the holders of the New Notes will not be entitled to certain
rights of holders of the Old Notes under the Registration Agreement (as defined
herein), which rights will terminate upon the consummation of the Exchange
Offer. The New Notes will evidence the same debt as the Old Notes and will be
issued pursuant to, and entitled to the benefits of, the same Indenture that
governs the Old Notes (the "Indenture"). The New Notes and the Old Notes are
sometimes referred to herein collectively as the "Senior Notes."
Interest on the Senior Notes is payable semiannually on March 15 and
September 15 in each year, commencing March 15, 1998. The Senior Notes are
redeemable at the option of Armco, in whole or in part, on or after September
15, 2002 at the redemption prices set forth herein, plus accrued and unpaid
interest, if any, to the date of redemption. In addition, prior to September 15,
2000, the Company, at its option, may redeem up to 33 1/3% of the aggregate
principal amount of the Senior Notes originally issued with the net cash
proceeds of one or more Equity Offerings (as defined) at the redemption prices
set forth herein, plus accrued and unpaid interest, if any, to the date of
redemption; PROVIDED that at least 66 2/3% of the aggregate principal amount of
the Senior Notes originally issued remain outstanding after any such redemption.
See "Description of Senior Notes."
(CONTINUED ON NEXT PAGE)
------------------------
FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED BY
ELIGIBLE HOLDERS IN EVALUATING THE EXCHANGE OFFER,
SEE "RISK FACTORS" BEGINNING ON PAGE 15.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS OCTOBER 17, 1997
<PAGE>
The Senior Notes are senior unsecured debt obligations of Armco ranking
equally with all other existing and future senior unsecured debt of Armco and
effectively junior to secured indebtedness of Armco, to the extent of the assets
securing the indebtedness, and to indebtedness of subsidiaries of Armco, to the
extent of the assets of such subsidiaries. At June 30, 1997, after giving pro
forma effect to the offering and sale of the Old Notes (the "Offering") and the
application of the net proceeds thereof, Armco would have had total consolidated
debt obligations of $389.3 million, of which $57.5 million of indebtedness would
have been secured by assets of Armco. In addition, borrowings under two
revolving credit facilities with total commitments of $170.0 million are secured
by certain inventory and receivables. At June 30, 1997, no borrowings were
outstanding under these facilities; $64.3 million of one facility was committed
to letters of credit. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
Upon a Change of Control (as defined), each holder of the Senior Notes will
have the right to require the Company to repurchase such holder's Senior Notes
at a price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of repurchase. Upon the occurrence of a
Change of Control prior to September 15, 2002, the Company, at its option, may
redeem all, but not less than all, of the outstanding Senior Notes at a
redemption price equal to 100% of the principal amount thereof, plus the
applicable Make-Whole Premium (as defined). In addition, the Company will be
obligated to offer to repurchase the Senior Notes at 100% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
repurchase in the event of certain asset sales. See "Description of Senior
Notes."
Prior to the Exchange Offer, there has been no public market for the Senior
Notes. The Company does not intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. There can be no assurance that an active market for the New Notes will
develop. To the extent that a market for the New Notes does develop, the market
value of the New Notes will depend on market conditions (such as yields on
alternative investments), general economic conditions, the Company's financial
condition and other conditions. Such conditions might cause the New Notes, to
the extent that they are actively traded, to trade at a significant discount
from face value. See "Risk Factors -- Lack of Public Market."
The New Notes will be available initially only in book-entry form. The
Company expects that the New Notes issued pursuant to the Exchange Offer will be
issued in the form of one or more fully registered global notes that will be
deposited with, or on behalf of, the Depository Trust Company ("DTC") and
registered in its name or in the name of Cede & Co., as its nominee. Beneficial
interests in the global note representing the New Notes will be shown on, and
transfers thereof will be effected only through, records maintained by the DTC
and its participants. After the initial issuance of such global note, New Notes
in certificated form will be issued in exchange for the global note only in
accordance with the terms and conditions set forth in the Indenture. See
"Description of Senior Notes -- Book Entry Delivery and Form."
The Company will accept for exchange any and all Old Notes that are properly
tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on
November 17, 1997 (if and as extended, the "Expiration Date"). Tenders of Old
Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. Old Notes may be
tendered only in integral multiples of $1,000. In the event the Company
terminates the Exchange Offer and does not accept for exchange any Old Notes,
the Company will promptly return all previously tendered Old Notes to the
holders thereof.
Based on a previous interpretation by the staff of the Securities and
Exchange Commission (the "Commission") set forth in no-action letters to third
parties, the Company believes that the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold, and otherwise
transferred by a holder thereof (other than (i) a broker-dealer who purchases
such New Notes
2
<PAGE>
directly from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a person that is an "affiliate" of
the Company 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 holder is acquiring the New Notes in its
ordinary course of business and is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of the New
Notes. Holders of Old Notes wishing to accept the Exchange Offer must represent
to the Company that such conditions have been met.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter," within the meaning of the Securities Act, in connection with
resale of New Notes received in exchange for Old Notes where such Old 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 Date, it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
The Company believes that, except for $12.0 million principal amount of Old
Notes held by two affiliates of the Company, none of the registered holders of
the Old Notes is an affiliate (as such term is defined in Rule 405 under the
Securities Act) of the Company. The Company has not entered into any arrangement
or understanding with any person to distribute the New Notes to be received in
the Exchange Offer, and to the best of the Company's information and belief,
each person participating in the Exchange Offer is acquiring the New Notes in
the ordinary course of business and has no arrangement or understanding with any
person to participate in the distribution of the New Notes to be received in the
Exchange Offer.
The Company will not receive any proceeds from the Exchange Offer. The
Company has agreed to bear the expenses of the Exchange Offer. No underwriter is
being used in connection with the Exchange Offer.
3
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act with respect to the
New Notes offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus omits certain information, exhibits and undertakings
contained in the Registration Statement. For further information with respect to
the Company and the New Notes offered hereby, reference is made to the
Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof. The Registration
Statement (and the exhibits and schedules thereto), as well as the periodic
reports and other information filed by the Company and the Guarantor with the
Commission, may be inspected and copied at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, New York, New York 10007 and Suite 1400, Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661-2511. Copies of such
materials may be obtained from the Public Reference Section of the Commission,
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
its public reference facilities in New York, New York and Chicago, Illinois at
the prescribed rates. The Commission maintains a site on the World Wide Web
("WWW") that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The Commission's WWW site is http://www.sec.gov. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or document filed as an exhibit to the Registration Statement, each
such statement being qualified in all respects by such reference.
During such times as the Company is not subject to the reporting and
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Company has agreed that for so long as any of the
Senior Notes remain outstanding to furnish to the holders of the Senior Notes
all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such forms. In addition, the Company has agreed to make
available to any prospective purchaser of the Senior Notes or beneficial owner
of the Senior Notes in connection with any sale thereof the information required
by Rule 144A(d)(4) under the Securities Act, until such time as the Company has
either exchanged the Old Notes for New Notes or until such time as the holders
thereof have disposed of such Old Notes pursuant to an effective registration
statement filed by the Company. From and after the time the Company files a
registration statement with the Commission with respect to the New Notes, the
Company will file such quarterly and annual information with the Commission.
No person is authorized in connection with any offering made hereby to give
any information or to make any representation other than as contained in this
Prospectus or the accompanying Letter of Transmittal, and, if given or made,
such information or representation must not be relied upon as having been
authorized by the Company. Neither this Prospectus nor the accompanying Letter
of Transmittal nor both together constitutes an offer to sell or a solicitation
of an offer to buy any security other than the New Notes offered hereby, nor
does it constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby to any person in any jurisdiction in which it is
unlawful to make such offer or solicitation to such person. Neither the delivery
of this Prospectus or the accompanying Letter of Transmittal or both together,
nor any sale made hereunder shall under any circumstances imply that the
information contained herein is correct as of any date subsequent to the date
hereof.
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
(INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS OR
INCORPORATED HEREIN BY REFERENCE. UNLESS OTHERWISE INDICATED, INDUSTRY DATA
CONTAINED IN THIS PROSPECTUS HAVE BEEN DERIVED FROM PUBLICLY AVAILABLE SOURCES,
INCLUDING INDUSTRY TRADE JOURNALS AND FILINGS WITH THE COMMISSION, WHICH THE
COMPANY HAS NOT INDEPENDENTLY VERIFIED BUT BELIEVES TO BE RELIABLE.
INFORMATION CONTAINED OR INCORPORATED IN THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT ARE NOT HISTORICAL FACTS AND THAT INVOLVE RISKS
AND UNCERTAINTIES, SUCH AS THE STATEMENTS UNDER "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,"
"BUSINESS--ENVIRONMENTAL MATTERS" AND "BUSINESS--LEGAL MATTERS" REGARDING THE
COMPANY'S PROFITABILITY, FINANCIAL POSITION, LIQUIDITY AND CAPITAL REQUIREMENTS,
AS WELL AS THE ANTICIPATED PRODUCT MIX, COSTS, TONNAGE CAPABILITIES AND
PERFORMANCE CHARACTERISTICS. ACTUAL RESULTS, EVENTS AND PERFORMANCE COULD DIFFER
MATERIALLY FROM THOSE CONTEMPLATED BY THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF THESE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION, THE
FACTORS DISCUSSED HEREIN UNDER "RISK FACTORS" OR IN THE COMPANY'S FILINGS WITH
THE COMMISSION.
THE COMPANY
Armco Inc. ("Armco" or the "Company") is the largest domestic producer of
stainless sheet and strip and electrical steel, based on tons shipped. The
Company operates in two business segments: Specialty Flat-Rolled Steels and
Fabricated Products, which contributed 82% and 18%, respectively, of total sales
for the twelve months ended June 30, 1997. The Company's Specialty Flat-Rolled
Steels segment produces and finishes flat-rolled stainless, electrical and
galvanized carbon steel at five manufacturing locations in Pennsylvania and
Ohio. For the twelve months ended June 30, 1997, the Specialty Flat-Rolled
Steels segment had shipments of 1,167,000 tons. The Company's major customers in
this segment include automotive exhaust systems producers, manufacturers of
industrial and electrical equipment, other manufacturers, service centers and
converters. The Company's Fabricated Products segment consists of three
businesses: Douglas Dynamics, L.L.C., the largest North American manufacturer of
snowplows for four-wheel drive vehicles; Sawhill Tubular Division, a
manufacturer of a wide range of steel pipe and tubular products for use in
construction, industrial and plumbing markets; and Greens Port Industrial Park,
located in Houston, Texas. Total sales and EBITDA (as defined) for Armco were
$1,774.4 million and $132.2 million, respectively, for the twelve months ended
June 30, 1997.
Historically, consumption of stainless sheet and strip has grown at a faster
rate than the steel market as a whole. For example, between 1987 and 1996,
consumption of stainless sheet and strip in the United States had a compound
annual growth rate of 5.6% as compared to a rate of 2.8% for the total steel
market. Among the characteristics that make stainless a material of choice are
its resistance to corrosion, ability to withstand temperature extremes, high
strength-to-weight ratio, natural attractiveness and ease of maintenance. An
additional contributor to increased stainless steel usage is the requirement of
the 1990 amendments to the Clean Air Act that long-life materials such as
corrosion-resistant stainless steel be used in a number of applications,
including automotive exhaust systems where Armco has the leading U.S. market
position. From 1990 to 1996, stainless steel usage in automotive exhaust systems
grew from 25 pounds per vehicle to 52 pounds per vehicle. In addition to
increased usage per vehicle, automotive stainless demand has been driven by
strong North American production of 15.3 million, 14.9 million and 15.1 million
light vehicles in 1994, 1995 and 1996, respectively, as compared to an annual
average of 12.5 million vehicles from 1990 to 1993.
Electrical steels are iron-silicon alloys that, through special production
techniques, possess unique magnetic properties that make them desirable for the
generation, transmission and distribution of electricity. Armco believes it is
the largest domestic supplier and the only producer of a full product line of
electrical steels in the U.S.
5
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Armco's strategic objective is to enhance its position as a leading domestic
producer of specialty flat-rolled steels by focusing on its existing strong
market positions, especially in the automotive chrome and electrical steel
markets. Armco intends to strengthen its position in these markets by continuing
to focus on its core specialty steels business, by utilizing its recently
upgraded and improved facilities to produce higher quality products and by
providing improved customer service.
The Company has taken significant steps in recent years to become a focused
specialty steel company by streamlining its operations, investing in the
expansion and upgrade of its specialty flat-rolled steel facilities and
divesting or otherwise rationalizing certain unprofitable or non-strategic
operations. From 1993 through 1996, the Company sold or disposed of 13
operations and investments, generating cash proceeds of over $400 million.
Since 1993, the Company has invested approximately $235 million in two major
programs to upgrade its facilities and thereby increase productivity, lower
operating costs, increase yields and improve customer service. The first of
these programs included the installation at the Company's Mansfield, Ohio
facility of a state-of-the-art continuous thin-slab caster designed to produce
different grades of steel with rapid switchover from one grade to another. The
new casting process helps to ensure consistently high quality products because
it eliminates intermediate production steps and reduces the amount of rolling
required to achieve the desired thickness. The thin-slab caster, certain hot
mill upgrades and other modifications at the Mansfield plant were made over a
15-month period, at a total cost of approximately $140 million.
The second of these programs, which commenced in late 1994, consisted of $95
million of extensive capital improvements over a two-year period to upgrade and
expand the Company's stainless and electrical steel finishing facilities. This
strategic facilities upgrade was initiated to reduce existing production
constraints and increase specialty flat-rolled steel finishing capacity by
approximately 180,000 tons per year, particularly in chrome stainless steel,
electrical steels and specialty sheet and strip products. These upgrades were
completed during 1996. Armco now plans to focus on improving productivity and
quality at its specialty steel operations and anticipates further cost
reductions as these improvements are made.
In addition, the Company intends to continue to pursue research and
development activities. The Company's new equipment and more advanced technology
are helping customers to lower their total costs, by providing them with the
specific material selection and part design needed to match their manufacturing
processes. Furthermore, Armco has reorganized its research and technology
functions to facilitate more direct interaction with customers in the
development of new products and processes.
Armco's executive offices are located at One Oxford Centre, 301 Grant
Street, Pittsburgh, Pennsylvania 15219 (telephone (412) 255-9800).
6
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THE EXCHANGE
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The Exchange Offer........................... The Company is offering to exchange $1,000
principal amount of New Notes for each $1,000
principal amount of Old Notes that are
properly tendered and accepted. The Company
will issue the New Notes on or promptly after
the Expiration Date. There are $150,000,000
aggregate principal amount of Old Notes
outstanding. See "The Exchange Offer."
Based on an interpretation of the staff of
the Commission set forth in no-action letters
issued to third parties, the Company believes
that New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may
be offered for resale, resold and otherwise
transferred by any holder thereof (other than
(i) a broker-dealer who purchases such New
Notes directly from the Company to resell
pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii)
any such holder which is an "affiliate" of
the Company 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 such New Notes are acquired in the
ordinary course of such holder's business and
that such holder has no arrangement or
understanding with any person to participate
in the distribution of such New Notes. In the
event that the Company's belief is
inaccurate, holders of New Notes who transfer
New Notes in violation of the prospectus
delivery provisions of the Securities Act and
without an exemption from registration
thereunder may incur liability thereunder.
The Company does not assume or indemnify
holders against such liability. The Exchange
Offer is not being made to, nor will the
Company accept surrenders for exchange from,
holders of Old Notes (i) in any jurisdiction
in which the Exchange Offer or the acceptance
thereof would not be in compliance with the
securities or blue sky laws of such
jurisdiction or (ii) if any holder is engaged
or intends to engage in a distribution of New
Notes. Each broker-dealer that receives New
Notes for its own account in exchange for Old
Notes, where such Old 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 meeting the requirements
of the Securities Act in connection with any
resale of such New Notes. See "Plan of
Distribution."
Expiration Date.............................. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on November 17, 1997,
unless extended, in which case the term
"Expiration Date"
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7
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<S> <C>
shall mean the latest date and time to which
the Exchange Offer is extended. The Company
will accept for exchange any and all Old
Notes which are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The New
Notes issued pursuant to the Exchange Offer
will be delivered on or promptly after the
Expiration Date.
Conditions to the Exchange Offer............. The Company may terminate the Exchange Offer
if it determines that its ability to proceed
with the Exchange Offer could be materially
impaired due to any legal or governmental
action, any new law, statute, rule or
regulation, any interpretation by the staff
of the Commission of any existing law,
statute, rule or regulation or the failure to
obtain any necessary approvals of
governmental agencies or holders of the Old
Notes. The Company does not expect any of the
foregoing conditions to occur, although there
can be no assurances any such conditions will
not occur.
Procedures for Tendering Notes............... Each holder of Old Notes wishing to accept
the Exchange Offer must complete, sign and
date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
such Old Notes and any other required
documentation to The Fifth Third Bank, as
Exchange Agent, at the address set forth
herein. By executing the Letter of
Transmittal, each holder will represent to
the Company that, among other things, the New
Notes acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of
business of the person receiving such New
Notes, whether or not such person has an
arrangement or understanding with any person
to participate in the distribution of such
New Notes and that neither the holder nor any
such other person is an "affiliate," as
defined in Rule 405 under the Securities Act,
of the Company.
Special Procedures for Beneficial Owners..... Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender such Old
Notes in the Exchange Offer should contact
such registered holder promptly and instruct
such registered holder to tender on such
beneficial owner's behalf. If such beneficial
owner wishes to tender on such owner's own
behalf, such owner must, prior to completing
and executing the Letter of Transmittal and
delivering his Old Notes, either make
appropriate arrangements to register
ownership of the Old Notes in such owner's
name or obtain a properly completed bond
power from the registered holder.
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8
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<S> <C>
The transfer of registered ownership may take
considerable time and may not be able to be
completed prior to the Expiration Date.
Guaranteed Delivery Procedures............... Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes or the Letter of Transmittal
to The Fifth Third Bank, as Exchange Agent,
prior to the Expiration Date, must tender
their Old Notes according to the guaranteed
delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights............................ Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time,
on the Expiration Date.
Certain Federal Income Tax Considerations.... For a discussion of certain federal income
tax considerations relating to the exchange
of the New Notes for the Old Notes, see
"Certain United States Federal Income Tax
Considerations."
Exchange Agent............................... The Fifth Third Bank is the Exchange Agent.
Its telephone number is (513) 744-8741. The
address of the Exchange Agent is set forth in
"The Exchange Offer -- Exchange Agent." The
Fifth Third Bank also serves as trustee under
the Indenture.
Conditions to the Exchange Offer............. The Exchange Offer is not conditioned on any
minimum principal amount of Old Notes being
tendered for exchange. The Exchange Offer is
subject to certain other customary
conditions, each of which may be waived by
the Company. See "The Exchange Offer --
Certain Conditions to the Exchange Offer."
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9
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SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all material
respects, except for certain transfer restrictions relating to the Old Notes.
Whenever defined terms of the Indenture not otherwise defined herein are
referred to, such defined terms are incorporated herein by reference. In the
event that an exchange offer is not consummated (or, under certain
circumstances, a resale shelf registration statement is not declared effective)
on or prior to March 11, 1998, the annual interest rate borne by the Senior
Notes will be increased by 0.5%. Upon consummation of an exchange offer or the
effectiveness of a resale shelf registration statement, the interest rate on the
Senior Notes will revert to the rate set forth on the cover page of this
Prospectus. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from September 15, 1997. Accordingly, registered holders of New Notes
on the relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid on the Old Notes or, if no interest
has been paid, from September 15, 1997. Old Notes accepted for exchange will
cease to accrue interest from and after the date of consummation of the Exchange
Offer. Holders whose Old Notes are accepted for exchange will not receive any
payment in respect of interest on such Old Notes otherwise payable on any
interest payment date the record date for which occurs on or after consummation
of the Exchange Offer.
THE NEW NOTES
<TABLE>
<S> <C>
Securities Offered........................... $150,000,000 of 9% Senior Notes.
Maturity Date................................ September 15, 2007.
Interest Payment Dates....................... March 15 and September 15 of each year,
commencing March 15, 1998.
Redemption at Option of Company.............. The Senior Notes will be redeemable at the
option of Armco, in whole or in part, at any
time on or after September 15, 2002 at the
redemption prices set forth herein, plus
accrued and unpaid interest thereon, if any,
to the date of redemption. In addition, up to
33 1/3% of the aggregate principal amount of
the Senior Notes originally issued will be
redeemable at the option of Armco, at any
time prior to September 15, 2000, with the
net cash proceeds of one or more Equity
Offerings at the redemption prices set forth
herein, plus accrued and unpaid interest, if
any, to the date of redemption; PROVIDED that
at least 66 2/3% of the aggregate principal
amount of the Senior Notes originally issued
remain outstanding after any such redemption.
Furthermore, upon the occurrence of a Change
of Control prior to September 15, 2002, the
Senior Notes will be redeemable at the option
of Armco in whole, but not in part, at a
redemption price equal to 100% of the
principal amount thereof plus the applicable
Make-Whole Premium (as defined). See
"Description of Senior Notes -- Optional
Redemption."
</TABLE>
10
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<TABLE>
<S> <C>
Change of Control............................ Upon a Change of Control (as defined), the
Company will be obligated to offer to
repurchase all outstanding Senior Notes at a
price equal to 101% of their principal
amount, plus accrued and unpaid interest
thereon, if any, to the date of repurchase.
There can be no assurance that, in the event
of a Change of Control, the Company will
have, or be able to obtain, sufficient funds
to repurchase the Senior Notes or that the
Company will be permitted to do so under the
Credit Facilities (as defined) or any other
indebtedness outstanding at such time. See
"Description of Senior Notes -- Change of
Control."
Ranking...................................... The Senior Notes will be senior unsecured
obligations of the Company. Accordingly, the
Senior Notes will be senior to any
subordinated indebtedness of the Company and
will be effectively junior to secured
indebtedness of the Company, to the extent of
the assets securing such indebtedness, and to
indebtedness of subsidiaries of the Company,
to the extent of the assets of such
subsidiaries. At June 30, 1997, after giving
pro forma effect to the Offering and the
application of the net proceeds thereof,
Armco would have had total consolidated debt
of $389.3 million, of which $57.5 million of
indebtedness would have been secured by
assets of Armco. In addition, borrowings
under two revolving credit facilities with
total commitments of $170.0 million (the
"Credit Facilities") are secured by certain
inventory and receivables. At June 30, 1997,
no borrowings were outstanding under these
facilities; $64.3 million of one facility was
committed to letters of credit. See
"Capitalization" and "Management's Discussion
and Analysis of Financial Condition and
Results of Operations -- Liquidity and
Capital Resources."
Restrictive Covenants........................ The Indenture contains certain covenants
which restrict (among other things) the
ability of Armco and certain of its
subsidiaries to enter into certain
transactions with Affiliates, pay dividends
or make other Restricted Payments, Incur
Indebtedness, issue preferred stock of
subsidiaries, enter into Sale and Leaseback
Transactions, enter into certain Asset Sales,
incur Liens, impose restrictions on
distributions from Restricted Subsidiaries,
consummate mergers or sell, transfer or
convey all or substantially all of the
Company's assets.
Use of Proceeds.............................. The Company will not receive any proceeds
from the Exchange Offer. The net proceeds
from the sale
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
of the Old Notes were used to redeem
outstanding indebtedness of the Company with
an aggregate principal amount of $120
million, and for general corporate purposes.
Registration Rights Agreement................ Holders of New Notes (other than as set forth
below) will not be entitled to any
registration rights with respect to the New
Notes. Pursuant to the Registration
Agreement, the Company has agreed, for the
benefit of the holders of Old Notes, to file
a registration statement under the Securities
Act with respect to an exchange offer for the
Old Notes. The Registration Statement of
which this Prospectus is a part constitutes
the exchange offer registration statement
referred to in the Registration Agreement.
Under certain circumstances described in the
Registration Agreement, certain holders of
Senior Notes may require the Company to file,
and use reasonable best efforts to cause to
become effective, a shelf registration
statement under the Securities Act that would
cover resales of Senior Notes by such
holders. See "Registration Rights Agreement."
</TABLE>
RISK FACTORS
Holders of the Old Notes should consider carefully all of the information
set forth in this Prospectus and, in particular, the information set forth under
"Risk Factors" before making a decision to tender their Old Notes for exchange
pursuant to the Exchange Offer.
12
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following table summarizes certain consolidated financial data, which
should be read in connection with the Company's consolidated financial
statements and the related notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1996 and the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997 (the "Consolidated
Financial Statements") incorporated by reference herein and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
consolidated financial data presented below for the years ended December 31,
1996, 1995 and 1994 have been derived from the Company's audited financial
statements. The consolidated financial data presented below as of and for the
six months ended June 30, 1997 and 1996 are derived from the Company's unaudited
consolidated financial statements. The unaudited consolidated financial
statements include all adjustments (consisting of only normal recurring
adjustments) which the Company considers necessary for a fair presentation of
the Company's financial position and results of operations for these periods.
Operating results for the six months ended June 30, 1997 are not necessarily
indicative of the results that may be expected for future periods.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
INCOME STATEMENT DATA
Net sales.............................................................. $ 931.6 $ 881.2 $ 1,724.0 $ 1,559.9 $ 1,437.6
Special charges (a).................................................... -- -- (8.8) -- (35.0)
Operating profit....................................................... 47.2 27.3 74.7 69.0 39.2
Interest expense, net.................................................. (12.3) (12.7) (26.2) (21.1) (23.3)
Income from continuing operations...................................... 29.6 2.9 26.0 23.5 65.8
Income from discontinued operations.................................... 1.3 -- 6.5 6.3 11.9
Net income............................................................. 30.9 2.9 32.5 29.8 77.7
OTHER DATA
Depreciation and amortization.......................................... $ 30.8 $ 29.3 $ 58.7 $ 52.8 $ 48.8
Non-cash postretirement benefit expense (b)............................ (3.3) 2.5 7.8 13.0 11.9
Cash employee benefits for shutdown operations......................... 21.4 17.6 32.9 38.3 45.9
Capital expenditures................................................... 15.1 27.0 59.8 159.5 96.4
Preferred stock dividends declared..................................... 8.9 8.9 17.9 17.9 17.8
EBITDA (c)............................................................. 56.6 41.5 117.1 96.5 89.0
Ratio of EBITDA to interest expense, net............................... 4.6x 3.3x 4.5x 4.6x 3.8x
Ratio of net debt to EBITDA (d)........................................ N/A N/A 1.7x 2.6x 1.9x
Ratio of earnings to fixed charges (e)................................. 2.6x 1.2x 1.7x 1.5x 1.6x
SPECIALTY FLAT-ROLLED STEELS (IN THOUSANDS OF TONS)
Total shipments........................................................ 638 611 1,140 939 815
Total production....................................................... 752 743 1,439 1,153 947
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
-------------------- -------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents.............................................. $ 175.2 $ 181.0 $ 168.9 $ 136.8 $ 202.8
Working capital........................................................ 266.4 237.8 213.6 194.8 258.6
Total assets........................................................... 1,907.7 1,916.3 1,867.8 1,896.6 1,934.9
Total debt............................................................. 364.3 392.8 371.5 387.4 374.3
Long-term employee benefit obligations................................. 1,203.7 1,216.5 1,200.2 1,165.9 1,221.9
Preferred stock........................................................ 185.9 185.9 185.9 185.9 185.9
Total shareholders' deficit............................................ (190.3) (233.0) (212.0) (230.4) (218.5)
</TABLE>
13
<PAGE>
- ------------------------
(a) In 1996, the Company recognized a special charge of $5.9 million to record a
change in the estimated loss on the sale of its nonresidential construction
business and a $2.9 million special charge primarily for the writedown of
inventory and severance costs related to its decision to discontinue a line
of light truck equipment manufactured by the Company's snowplow and ice
control equipment business. In 1994, the Company recorded a special charge
of $20.0 million for expenses associated with the temporary idling and
restructuring of its steelmaking facilities in Mansfield and Dover, Ohio and
a charge of $15.0 million related to a decision by Eastern Stainless
Corporation to sell substantially all of its assets to Avesta Sheffield
Holding Company, a stainless steel plate manufacturer, for cash and the
assumption of certain liabilities.
(b) For the six months ended June 30, 1997, the postretirement benefit expense
was less than cash payments.
(c) "EBITDA" represents, for any relevant period, operating profit before
special charges, depreciation and amortization and non-cash postretirement
benefit expense (to the extent non-cash postretirement benefit expense
exceeds cash payments) and after deducting cash employee benefits for
shutdown operations. The Company believes that EBITDA, as presented,
provides useful information regarding the Company's ability to service its
debt, but should not be considered in isolation or as a substitute for
consolidated income statement data prepared in accordance with generally
accepted accounting principles, and may differ from "Consolidated EBITDA" as
described in "Description of Senior Notes."
(d) "Net debt" is defined as total debt obligations less cash and cash
equivalents.
(e) For purpose of calculating the ratio of earnings to fixed charges, pretax
income (loss) from continuing operations plus fixed charges have been
divided by fixed charges. Fixed charges consist of interest and the portion
of rent deemed representative of the interest factor.
14
<PAGE>
RISK FACTORS
HOLDERS OF THE OLD NOTES SHOULD CONSIDER CAREFULLY ALL OF THE INFORMATION
SET FORTH IN THE PROSPECTUS AND, IN PARTICULAR, SHOULD EVALUATE THE FOLLOWING
RISKS BEFORE TENDERING THEIR OLD NOTES IN THE EXCHANGE OFFER, ALTHOUGH THE RISK
FACTORS SET FORTH BELOW (OTHER THAN "-- CONSEQUENCES OF FAILURE TO EXCHANGE OLD
NOTES") ARE GENERALLY APPLICABLE TO THE OLD NOTES AS WELL AS THE NEW NOTES.
HIGHLY LEVERAGED FINANCIAL POSITION
The Company is substantially leveraged. As of June 30, 1997, after giving
effect to the Offering, the anticipated redemption of $100.0 million principal
amount of the Company's 11 3/8% Senior Notes Due 1999 (the "11 3/8% Senior
Notes") and $20.0 million principal amount of the 9.20% Debentures Due 2000 (the
"9.20% Debentures") from the proceeds thereof, and the payment on July 15, 1997
of $5.0 million of current maturities on the 9.20% Debentures (together, the
"Repayment Adjustments"), the Company would have had total consolidated debt of
$389.3 million and a shareholders' deficit of $193.3 million, resulting in a
total capitalization of $196.0 million.
In addition, under a receivables facility, the Company sells substantially
all of its trade receivables to a wholly-owned subsidiary. In January 1996, this
subsidiary entered into a five-year revolving credit agreement with a group of
banks providing up to $120.0 million for revolving credit loans and letters of
credit secured by the subsidiary's receivables. At June 30, 1997, no borrowings
were outstanding under this credit facility. However, $64.3 million of the
facility was committed to letters of credit. The Company also has a $50.0
million revolving credit facility that matures on December 31, 1998, secured by
certain of its inventories. At June 30, 1997, no borrowings were outstanding
under this facility.
At June 30, 1997, after giving effect to the Repayment Adjustments, Armco
had approximately $207.3 million of debt that becomes due by the year 2000,
including $14.8 million, $22.4 million, $22.5 million and $147.6 million in
1997, 1998, 1999 and 2000, respectively. In addition, the Company has
substantial financial obligations related to its employee postretirement plans
for medical and life insurance and pensions. See "-- Substantial Employee
Postretirement Benefit Obligations."
The Company's high leverage may have adverse consequences, including the
following: (i) the ability of the Company to obtain additional financing for
working capital, capital expenditures and debt service requirements or other
purposes may be impaired; (ii) the Company may be more highly leveraged than
companies with which it competes, which may place it at a competitive
disadvantage; (iii) the Company's flexibility in responding to changing business
and economic conditions could be restricted; and (iv) the Company may be more
vulnerable in the event of a downturn or disruption in its business or in the
economy generally. While Armco expects to be able to repay the balance of its
indebtedness through cash generated from operations and the proceeds of asset
sales, it may be necessary to obtain new credit arrangements and other sources
of financing in order to meet its future debt service and working capital
requirements and to fund its projected capital projects. Although to date the
Company has been able to obtain financing on satisfactory terms, there can be no
assurance that this will continue to be the case. These and other factors could
have an adverse effect on the marketability, price and future value of the
Senior Notes and the Company's ability to pay the interest thereon and the
principal amount thereof.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act and applicable state
securities laws. The Company does not currently anticipate that it will register
Old Notes under the
15
<PAGE>
Securities Act. See "Registration Rights Agreement." Based on interpretations by
the staff of the Commission, as set forth in no-action letters issued to third
parties, the Company believes that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by holders thereof (other than (i) a broker-dealer who purchases
such New Notes directly from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act or (ii) any such holder which
is an "affiliate" of the Company 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 such New Notes are acquired in
the ordinary course of such holders' business and such holders, other than
broker-dealers, have no arrangement or understanding with any person to
participate in the distribution of such New Notes. However, the Commission has
not considered the Exchange Offer in the context of a no-action letter and there
can be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other circumstances.
Each Holder, other than a broker-dealer, must acknowledge that it is not engaged
in, and does not intend to engage in, a distribution of such New Notes and has
no arrangement or understanding to participate in a distribution of New Notes.
If any Holder is an affiliate of the Company or is engaged in or intends to
engage in or has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such Holder (i) may not rely on the applicable interpretations of the staff of
the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes pursuant to the Exchange Offer must acknowledge that such
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities and that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired 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 Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution." In addition, to comply with the securities
laws of certain jurisdictions, if applicable, the New Notes may not be offered
or sold unless they have been registered or qualified for sale in such
jurisdictions or any exemption from registration or qualification is available
and is complied with. The Company has agreed, pursuant to the Registration
Rights Agreement, subject to certain limitations specified therein, to register
or qualify the New Notes for offer or sale under the securities laws of such
jurisdictions as any holder reasonably requests in writing. Unless a holder so
requests, the Company does not currently intend to register or qualify the sale
of the New Notes in any such jurisdictions. See "The Exchange Offer."
RELIANCE ON THE AUTOMOTIVE INDUSTRY
The Company's sales directly to the automotive market accounted for
approximately 31%, 33% and 36% of its net sales in 1994, 1995, and 1996,
respectively. In the first six months of 1997, the percentage of Armco's sales
directly to the automotive market declined slightly from the 1996 level. In
addition, a substantial amount of the Company's sales to steel distribution
centers and converters consists of products that are resold (in original or
modified form) to the automotive industry. The North American automotive
industry has historically experienced significant fluctuations in demand, based
on such factors as general economic conditions, interest rates and consumer
confidence, and significant fluctuations in production due to strikes,
lock-outs, work stoppages or other production interruptions in the automotive
industry. Any material deterioration in the sale of automobiles could have a
material adverse impact on the Company's results of operations.
16
<PAGE>
In recent years automotive industry demand for stainless sheet and strip
steel has been high, with total industry shipments of such material increasing
from approximately 223,000 tons in 1992 to approximately 402,000 tons in 1996.
However, there can be no assurance that shipments of stainless sheet and strip
to automotive manufacturers will remain high or continue to grow. Although North
American automotive industry light vehicle production increased from
approximately 12.5 million units in 1992 to 15.1 million units in 1996, there
can be no assurance that such production levels will be maintained.
COMPETITION AND OTHER FACTORS
The Company faces intense competition from domestic and foreign steel
producers, foreign producers of components and other products and manufacturers
of competing products other than steel, including aluminum, plastics, composites
and ceramics. Competition is based primarily on price, with factors such as
reliability of supply, service and quality also being important in certain
segments.
In addition to existing competition, two steel companies have recently
entered, or announced plans to enter, the specialty steel market. In 1995, Nucor
Corporation, a mini-mill steel company, entered the automotive chrome stainless
steel business with the addition of an argon-oxygen decarburization (AOD) vessel
at its Crawfordsville, Indiana melt shop. In late 1996, AK Steel Corporation
("AK Steel"), an integrated steel company, announced plans to build a steel
finishing facility in Rockport, Indiana that will include equipment capable of
processing specialty steel. When completed, this facility will provide AK Steel
with substantial stainless steel processing and finishing capacity. Increases in
the production capacity and efficiency of these and other domestic producers,
together with possible new entrants into the specialty steel market, are
expected to result in intensified competition that could exert downward pressure
on pricing and market share.
The Company's competitors in the domestic galvanized steel market include
many of the large integrated and mini-mill flat rolled producers. Since 1989,
significant flat-rolled mini-mill capacity has been constructed and these
mini-mills now compete with integrated domestic steel producers in most
flat-rolled steel markets. Mini-mills generally rely on less capital-intensive
hot metal sources, have smaller, non-unionized workforces resulting in lower
employment costs per ton shipped and are relatively free of many of the
employee, environmental and other obligations that have traditionally burdened
non-mini-mill steel producers. There is significant flat-rolled and galvanized
capacity under construction or announced with various planned commissioning
dates in the next several years. Given the increased competition that is
expected as the new capacity comes on line, the Company may experience downward
pressure on pricing in its galvanized product line.
Competition is also presented, to a lesser degree, by foreign producers.
Some of these foreign producers have lower labor costs and are subsidized by
their governments. Their decisions with regard to production and sales may be
influenced more by political and social considerations than prevailing market
forces. Many foreign steel producers continue to ship into the United States
market despite decreasing profit margins or losses. Depending on a number of
market factors, including the strength of the dollar, import levels, and the
effectiveness of U.S. trade laws, pricing of the Company's products could be
adversely affected.
The steel industry, including the specialty steel sector, historically has
been cyclical in nature, reflecting the cyclicality of many of the principal
markets it serves, including the automotive, appliance and construction
industries, and changes in total industry demand. Since 1993, steel prices have
fluctuated, with average prices in 1996 lower than average 1995 prices. Although
demand has been strong since 1993, there can be no assurance that demand will
continue at current levels or that increased production capacity or efficiency
of competitors, or increased foreign and domestic competition will not adversely
affect pricing and margins. The industry is also vulnerable to price increases
in raw materials or energy, which represent a major component of per ton
production costs. See "Business -- Raw Materials and Energy Sources."
17
<PAGE>
Most of the Company's domestic production and maintenance employees are
represented by unions, although some operations are not unionized. There can be
no assurance as to the results of negotiations of future collective bargaining
agreements, whether future collective bargaining agreements will be negotiated
without production interruptions or the possible effects of future collective
bargaining agreements, or the negotiation thereof, on the Company's financial
condition and results of operations. Furthermore, labor disputes and resulting
work stoppages or slowdowns occasionally occur in the steel industry. There can
be no assurance that work stoppages or slowdowns will not occur in the Company's
future in connection with labor negotiations or otherwise.
SUBSTANTIAL EMPLOYEE POSTRETIREMENT BENEFIT OBLIGATIONS
The Company has substantial financial obligations related to its employee
postretirement plans for medical and life insurance and pensions. Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106") requires accrual of
retiree medical and life insurance benefits during the employee's service rather
than recognition of costs as claims are paid. In accordance with SFAS 106, a
liability has been established for the present value of the estimated future
unfunded medical and life insurance benefit obligations. As of December 31,
1996, the Company had accumulated postretirement health care and life insurance
benefit obligations estimated at $783.2 million, and had accrued a balance sheet
liability of $1,050.2 million for these postretirement obligations. The cash
payments for actual postretirement health and life insurance claims were $55.2
million in 1996 and $31.3 million for the six months ended June 30, 1997.
In accordance with Statement of Financial Accounting Standards No. 87,
"Employer's Accounting for Pensions," the Company has recognized an accrued
pension liability of $193.7 million at December 31, 1996. The funded status of
the Company's pension plans at December 31, 1996 shows plan assets of $2,007.5
million exceeding projected benefit obligations by $7.2 million.
The amount of the Company's postretirement benefit obligations could be
materially increased due to adverse developments in health care costs or in the
financial markets. In addition, the amount of the obligations could increase due
to plant shutdowns, layoffs or other similar events.
FUTURE USE OF NET OPERATING LOSS CARRYFORWARDS
At December 31, 1996, the Company had net operating loss carryforwards
("NOLs") for federal income tax purposes of approximately $1,120.5 million,
representing a portion of the net deferred tax asset recorded on the Company's
balance sheet of $328.5 million. These NOLs expire in varying amounts in the
period 1998-2011. To utilize such NOLs, the Company must generate taxable income
equal in amount to the NOLs prior to expiration. The Company operates in a
highly cyclical industry and, consequently, has had a history of generating and
then utilizing NOLs. During the years 1987-1989, Armco utilized approximately
$350.0 million of NOLs. While Armco has incurred tax losses for the past seven
fiscal years, Armco's management believes that it is more likely than not that
Armco will generate sufficient taxable income to realize a portion of the tax
benefit associated with future deductible temporary differences and NOLs prior
to their expiration. This belief is based upon, among other factors, changes in
operations that have occurred during the last five years, as well as
consideration of available tax planning strategies. Specifically, cost savings
associated with new capital investments are being realized and are expected to
continue to improve operating results. However, there is no certainty that the
deferred tax asset reflected on the Company's consolidated balance sheets will
actually be fully utilized. See Note 3 to the Consolidated Financial Statements
of the Company for the year ended December 31, 1996, which are incorporated by
reference herein.
18
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POTENTIAL ENVIRONMENTAL EXPENDITURES
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, certain analogous state laws, and the federal Resource
Conservation and Recovery Act, past disposal of wastes, whether on-site or at
other locations (including former Company facilities), may result in the
imposition of clean-up obligations by federal or state regulatory authorities,
even when the wastes were disposed of in accordance with applicable laws and
requirements in existence at the time of the disposal. The federal government
has asserted that joint and several liability applies in hazardous waste
litigation and courts have held that, absent proof that damages are allocable or
subject to allocation, joint and several liability will be applied. The Company
has been named as a defendant, or identified as a potentially responsible party,
in various proceedings wherein the federal government seeks reimbursement for,
or to compel clean-up of, hazardous waste sites. The Company has been required
to perform or fund such clean-up or participate in cleanup with others at a
number of sites at which its facilities disposed of wastes in the past and may,
from time to time, be required to remediate or join with others in the
remediation of other locations as these sites are identified by federal or state
authorities. In addition, environmental exit costs with respect to the Company's
ongoing businesses (which costs it is the Company's policy not to accrue until a
decision is made to dispose of a property), may be incurred if the Company makes
a decision to dispose of additional properties. These costs include remediation
and closure costs such as for clean-up of soil contamination, closure of waste
treatment facilities and monitoring commitments. The Company has retained
certain environmental liabilities relating to businesses and properties sold by
the Company. While the Company believes that the ultimate liability for the
environmental remediation matters identified to date, including the clean-up,
closure and monitoring of waste sites and formerly owned facilities and
businesses, will not materially affect its consolidated financial condition or
liquidity, the identification of additional sites, increases in remediation
costs with respect to identified sites, the failure of other potentially
responsible parties to contribute their share of remediation costs, decisions to
dispose of additional properties and other changed circumstances may result in
increased costs to the Company, which could have a material effect on its
financial condition, liquidity and results of operations.
The Company has spent substantial amounts in recent years to control air and
water pollution pursuant to applicable environmental requirements. The Company
also has spent and will continue to spend substantial amounts for proper waste
disposal and for the investigation and cleanup of properties that require
remediation as a result of past waste disposal. Statutory and regulatory
requirements in this area are continuing to evolve and, accordingly, it is not
possible to predict with certainty the type and magnitude of expenditures that
will be required in the future. However, the Company has estimated aggregate
expenditures of approximately $20.0 million for capital projects for pollution
control during the five-year period 1997-2001, of which approximately $7.5
million is related to control of air pollution as required by amendments to the
federal Clean Air Act, corresponding state laws, and implementing regulations.
In addition to the direct impact on the Company, the Clean Air Act amendments
are expected to increase the operating costs of electrical utilities which rely
on fossil fuels and this, in turn, could result in increased costs for utility
services of which certain operations of the Company are significant consumers.
See "Business--Environmental Matters."
LACK OF PUBLIC MARKET
The New Notes are being offered to the Holders of the Old Notes. The Old
Notes were sold by the Company on September 12, 1997 to a limited number of
institutional investors and are eligible for trading in the Private Offerings,
Resale and Trading through Automated Linkages (PORTAL) Market. To the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for the remaining untendered Old Notes could be adversely affected. There
is no existing trading market for the New Notes, and there can be no assurance
regarding the future development of a market for the New Notes, or the ability
of Holders of the New Notes to sell their New Notes or the price at which such
Holders may be able to sell their New Notes. If such a market were to develop,
the New Notes could trade
19
<PAGE>
at prices that may be higher or lower than their principal amount or purchase
price, depending on many factors, including prevailing interest rates, the
Company's operating results and the market for similar securities. Therefore,
there can be no assurance as to the liquidity of any trading market for the New
Notes or that an active public market for the New Notes will develop. The
Company does not intend to apply for listing or quotation of the New Notes on
any securities exchange or stock market.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the New Notes will not
be subject to similar disruptions. Any such disruptions may have an adverse
effect on Holders of the New Notes.
SENIOR NOTES REPURCHASE UPON CHANGE OF CONTROL
Under the terms of the Indenture pursuant to which the Senior Notes have
been issued, upon the occurrence of a Change of Control (as defined), the
Company is required to offer to repurchase all of the outstanding Senior Notes,
and to repurchase all Senior Notes tendered in response to such offer, at 101%
of the principal amount thereof, plus accrued and unpaid interest thereon. The
provisions of the Indenture relating to a Change of Control in and of themselves
may not afford holders of the Senior Notes protection in the event of a highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction involving the Company that may adversely affect holders of the
Senior Notes, if such transaction is not the type of transaction included within
the definition of a Change of Control. A transaction involving the Company's
management or its affiliates, or a transaction involving a recapitalization,
will result in a Change of Control if such transaction otherwise constitutes a
change in control within the meaning of such definition. Furthermore, there can
be no assurance that the Company will have adequate resources to repurchase or
refinance all indebtedness owing under the Senior Notes in the event a Change of
Control offer is required to be made. If the Company does not have sufficient
financial resources to effect a Change of Control offer, it would be required to
seek additional financing from outside sources to enable it to repurchase the
Senior Notes. There can be no assurance that such financing would be available
to the Company on satisfactory terms. Any failure of the Company to pay the
purchase price with respect to such Change of Control offer when due will give
the Trustee (as defined) and the holders of the Senior Notes the rights
described under "Description of Senior Notes--Events of Default." See
"Description of Senior Notes--Change of Control."
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. On
September 12, 1997, the Company issued $150,000,000 principal amount of Old
Notes. The Old Notes were sold by the Company to Salomon Brothers Inc and Chase
Securities Inc. (the "Initial Purchasers") and were in turn sold by the Initial
Purchasers to a limited number of qualified institutional buyers pursuant to
Rule 144A under the Securities Act and exemptions from applicable state
securities laws, and the Offering was not subject to the registration
requirements of the Securities Act and applicable state securities laws. The net
proceeds from the sale of the Old Notes sold in the Offering were used to redeem
an aggregate of $100 million principal amount of the Company's 11 3/8% Senior
Notes at a redemption price of 102% and $20 million principal amount of its
9.20% Debentures at par, and for general corporate purposes.
20
<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of Armco at
June 30, 1997, and as adjusted to give effect to the Offering, the application
of the estimated net proceeds therefrom as described in "Use of Proceeds" and
the payment on July 15, 1997 of $5.0 million of current maturities on the 9.20%
Debentures. This table should be read in conjunction with the Company's
Consolidated Financial Statements and notes thereto included in the Company's
Quarterly Report on Form 10-Q incorporated by reference herein.
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------
<S> <C> <C>
HISTORICAL AS ADJUSTED
----------- -----------
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
CASH AND CASH EQUIVALENTS................................................................ $ 175.2 $ 193.2
----------- -----------
----------- -----------
CURRENT MATURITIES OF LONG-TERM DEBT..................................................... $ 27.3 $ 22.3
LONG-TERM DEBT (less current maturities)
Credit Facilities (a).................................................................. -- --
Variable rate notes due 2001........................................................... 26.8 26.8
5% Note Due 2000....................................................................... 12.8 12.8
11 3/8% Senior Notes Due 1999.......................................................... 100.0 --
9.20% Debentures Due 2000.............................................................. 20.0 --
9 3/8% Senior Notes Due 2000........................................................... 125.0 125.0
9% Senior Notes Due 2007............................................................... -- 150.0
Sinking fund debentures................................................................ 28.5 28.5
8 1/8% pollution control revenue bonds due 2005........................................ 12.1 12.1
Variable rate economic development revenue bonds due 2020.............................. 8.5 8.5
Other long-term debt................................................................... 3.3 3.3
----------- -----------
Total long-term debt............................................................... 337.0 367.0
SHAREHOLDERS' DEFICIT
Class A Preferred Stock................................................................ 137.6 137.6
Class B Preferred Stock................................................................ 48.3 48.3
Common stock, par value $.01 per share (b)............................................. 1.1 1.1
Additional paid-in capital............................................................. 967.4 967.4
Accumulated deficit (c)................................................................ (1,341.9) (1,344.9)
Other.................................................................................. (2.8) (2.8)
----------- -----------
Total shareholders' deficit........................................................ (190.3) (193.3)
----------- -----------
Total capitalization............................................................... $ 174.0 $ 196.0
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(a) As of June 30, 1997, no amounts were borrowed under the Credit Facilities,
which have a total commitment of $170.0 million; however, $64.3 million of
one facility was committed to letters of credit. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
(b) Common Stock outstanding does not include 25,933,495 shares issuable upon
the conversion of outstanding shares of cumulative preferred stock or the
exercise of outstanding stock options.
(c) The redemption of the Company's indebtedness as described in "Use of
Proceeds" is expected to result in an extraordinary loss of approximately
$3.0 million.
21
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The following table summarizes certain selected consolidated financial data,
which should be read in connection with the Company's Consolidated Financial
Statements and the notes thereto and with "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The selected consolidated
financial data as of and for the years ended December 31, 1996, 1995, 1994, 1993
and 1992 have been derived from the Company's audited financial statements. The
selected consolidated financial data presented below as of and for the six
months ended June 30, 1997 and 1996 are derived from the Company's unaudited
consolidated financial statements. The unaudited financial statements include
all adjustments (consisting of only normal recurring adjustments) which the
Company considers necessary for a fair presentation of the Company's financial
position and results of operations for these periods. Operating results for the
six months ended June 30, 1997 are not necessarily indicative of the results
that may be expected for future periods.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993
--------- --------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales................................................... $ 931.6 $ 881.2 $ 1,724.0 $ 1,559.9 $ 1,437.6 $ 1,664.0
--------- --------- --------- --------- --------- ---------
Gross profit................................................ 98.0 75.6 174.3 167.2 170.6 144.5
Selling and administrative expenses......................... (50.8) (48.3) (90.8) (98.2) (96.4) (125.0)
Special charges (b)......................................... -- -- (8.8) -- (35.0) (165.5)
--------- --------- --------- --------- --------- ---------
Operating profit............................................ 47.2 27.3 74.7 69.0 39.2 (146.0)
Interest expense, net....................................... (12.3) (12.7) (26.2) (21.1) (23.3) (37.7)
Gain on sale of investments in joint ventures and related
stock..................................................... -- -- -- 27.2 62.6 --
Equity in losses of ASC, L.P. (c)........................... -- -- -- -- -- (27.9)
Sundry other, net........................................... (4.0) (11.1) (21.1) (49.6) (41.4) (43.2)
Credit (provision) for income taxes......................... (1.3) (0.6) (1.4) (2.0) 28.7 7.3
--------- --------- --------- --------- --------- ---------
Income (loss) from continuing operations.................... 29.6 2.9 26.0 23.5 65.8 (247.5)
Discontinued operations..................................... 1.3 -- 6.5 6.3 11.9 (79.5)
Extraordinary losses........................................ -- -- -- -- -- (7.3)
Cumulative effect of changes in accounting for
postretirement and postemployment benefits and income
taxes..................................................... -- -- -- -- -- (307.5)
--------- --------- --------- --------- --------- ---------
Net income (loss)........................................... $ 30.9 $ 2.9 $ 32.5 $ 29.8 $ 77.7 $ (641.8)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
OTHER DATA
Depreciation and amortization............................... $ 30.8 $ 29.3 $ 58.7 $ 52.8 $ 48.8 $ 53.2
Non-cash postretirement benefit expense (d)................. (3.3) 2.5 7.8 13.0 11.9 29.3
Cash employee benefits for shutdown operations.............. 21.4 17.6 32.9 38.3 45.9 44.3
Capital expenditures........................................ 15.1 27.0 59.8 159.5 96.4 53.9
Preferred stock dividends declared.......................... 8.9 8.9 17.9 17.9 17.8 17.8
EBITDA (e).................................................. 56.6 41.5 117.1 96.5 89.0 57.7
Ratio of EBITDA to interest expense, net.................... 4.6x 3.3x 4.5x 4.6x 3.8x 1.5x
Ratio of net debt to EBITDA (f)............................. N/A N/A 1.7x 2.6x 1.9x 3.5x
Ratio of earnings to fixed charges (g)...................... 2.6x 1.2x 1.7x 1.5x 1.6x --
SPECIALTY FLAT-ROLLED STEELS (IN THOUSANDS OF TONS)
Total shipments............................................. 638 611 1,140 939 815 1,065
Total production............................................ 752 743 1,439 1,153 947 1,490
<CAPTION>
<S> <C>
1992(A)
---------
<S> <C>
INCOME STATEMENT DATA
Net sales................................................... $ 1,673.2
---------
Gross profit................................................ 163.4
Selling and administrative expenses......................... (135.6)
Special charges (b)......................................... (185.1)
---------
Operating profit............................................ (157.3)
Interest expense, net....................................... (35.0)
Gain on sale of investments in joint ventures and related
stock..................................................... --
Equity in losses of ASC, L.P. (c)........................... (234.1)
Sundry other, net........................................... (9.8)
Credit (provision) for income taxes......................... 34.0
---------
Income (loss) from continuing operations.................... (402.2)
Discontinued operations..................................... (19.3)
Extraordinary losses........................................ (8.4)
Cumulative effect of changes in accounting for
postretirement and postemployment benefits and income
taxes..................................................... --
---------
Net income (loss)........................................... $ (429.9)
---------
---------
OTHER DATA
Depreciation and amortization............................... $ 46.7
Non-cash postretirement benefit expense (d)................. --
Cash employee benefits for shutdown operations.............. 27.0
Capital expenditures........................................ 59.4
Preferred stock dividends declared.......................... 10.3
EBITDA (e).................................................. 47.5
Ratio of EBITDA to interest expense, net.................... 1.4x
Ratio of net debt to EBITDA (f)............................. 5.3x
Ratio of earnings to fixed charges (g)...................... --
SPECIALTY FLAT-ROLLED STEELS (IN THOUSANDS OF TONS)
Total shipments............................................. 839
Total production............................................ 1,087
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30, AS OF DECEMBER 31,
-------------------- ------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993
--------- --------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents.................................... $ 175.2 $ 181.0 $ 168.9 $ 136.8 $ 202.8 $ 183.5
Working capital.............................................. 266.4 237.8 213.6 194.8 258.6 272.4
Total assets................................................. 1,907.7 1,916.3 1,867.8 1,896.6 1,934.9 1,904.7
Total debt................................................... 364.3 392.8 371.5 387.4 374.3 388.0
Long-term employee benefit obligations (h)................... 1,203.7 1,216.5 1,200.2 1,165.9 1,221.9 1,249.9
Preferred stock.............................................. 185.9 185.9 185.9 185.9 185.9 185.9
Total shareholders' equity (deficit)......................... (190.3) (233.0) (212.0) (230.4) (218.5) (313.1)
<CAPTION>
<S> <C>
1992(A)
-----------
<S> <C>
BALANCE SHEET DATA
Cash and cash equivalents.................................... $ 171.3
Working capital.............................................. 436.3
Total assets................................................. 1,869.9
Total debt................................................... 421.7
Long-term employee benefit obligations (h)................... 541.6
Preferred stock.............................................. 185.9
Total shareholders' equity (deficit)......................... 342.3
</TABLE>
- ------------------------
(a) In April 1992, Armco acquired Cyclops Industries, Inc. ("Cyclops"), a
producer of flat-rolled carbon and stainless steel products, tubular steel
products, high performance alloy products and products and related services
for non-residential construction. The transaction was accounted for as a
"purchase" whereby Armco recorded the acquisition at its cost at the
acquisition date, and the reported income of Armco includes the operations
of Cyclops commencing April 25, 1992.
(b) In 1996, Armco recognized a special charge of $5.9 million to record a
change in the estimated loss on the sale of its nonresidential construction
business and a $2.9 million special charge primarily for the writedown of
inventory and severance costs related to its decision to discontinue a line
of light truck equipment manufactured by Armco's snowplow and ice control
equipment business. In 1994, Armco recorded a special charge of $20.0
million for expenses associated with the temporary idling and restructuring
of its steelmaking facilities in Mansfield and Dover, Ohio and a charge of
$15.0 million related to a decision by Eastern Stainless Corporation to sell
substantially all of its assets to Avesta Sheffield Holding Company, a
stainless steel plate manufacturer, for cash and the assumption of certain
liabilities. In 1993, as part of its strategy to focus on the production of
specialty flat-rolled steel, Armco sold its Brazilian operations and decided
to exit a number of domestic businesses, recording special charges totaling
$165.5 million. In 1992, Armco recorded special charges, totaling $185.1
million, associated with a series of restructuring actions undertaken to
reduce costs, improve profitability and strengthen Armco's competitive
position.
(c) Armco Steel Company, L.P. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- Other Investments."
(d) For the six months ended June 30, 1997 the postretirement benefit expense
was less than cash payments.
(e) "EBITDA" represents, for any relevant period, operating profit before
special charges, depreciation and amortization and non-cash postretirement
benefit expense (to the extent non-cash postretirement benefit expense
exceeds cash payments) and after deducting cash employee benefits for
shutdown operations. The Company believes that EBITDA, as presented,
provides useful information regarding the Company's ability to service its
debt, but should not be considered in isolation or as a substitute for
consolidated income statement data prepared in accordance with generally
accepted accounting principles, and may differ from "Consolidated EBITDA" as
described in "Description of Senior Notes."
(f) "Net debt" is defined as total debt obligations less cash and cash
equivalents.
(g) For purposes of calculating the ratio of earnings to fixed charges, pretax
income (loss) from continuing operations plus fixed charges have been
divided by fixed charges. Fixed charges consist of interest and the portion
of rent deemed representative of the interest factor. For the years ended
December 31, 1993 and 1992, earnings as defined were insufficient to cover
fixed charges by $264.4 million and $461.2 million, respectively.
(h) In 1993, Armco adopted SFAS No. 106, EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis is based on, and should be read in
conjunction with, the Company's Consolidated Financial Statements incorporated
herein by reference.
OPERATING RESULTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CUSTOMER SALES
Specialty Flat-Rolled Steels..................................... $ 777.9 $ 748.2 $ 1,421.2 $ 1,277.0 $ 1,114.4
Fabricated Products.............................................. 153.7 133.0 302.8 282.9 323.2
--------- --------- --------- --------- ---------
Total........................................................ $ 931.6 $ 881.2 $ 1,724.0 $ 1,559.9 $ 1,437.6
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
OPERATING PROFIT (a)
Specialty Flat-Rolled Steels..................................... $ 44.7 $ 32.2 $ 72.9 $ 76.0 $ 40.5
Fabricated Products.............................................. 14.5 7.9 22.8 22.0 30.9
Corporate General................................................ (12.0) (12.8) (21.0) (29.0) (32.2)
--------- --------- --------- --------- ---------
Total........................................................ $ 47.2 $ 27.3 $ 74.7 $ 69.0 $ 39.2
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(a) In 1996, operating profit for the Fabricated Products segment includes
special charges totaling $8.8 million. In 1994, operating profit for the
Specialty Flat-Rolled Steels segment includes special charges totaling $35.0
million.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net sales in the six months ended June 30, 1997 were higher by $50.4 million
than in the six months ended June 30, 1996, primarily due to increased volume of
specialty semi-finished products and higher sales of galvanized steel products
in the Specialty Flat-Rolled Steels segment, as well as sales growth in
snowplows and tubular products in the Fabricated Products Segment.
Operating profit in the six-month period ended June 30, 1997 included $2.2
million for income generated by Greens Port Industrial Park ("Greens Port"),
which Armco began consolidating in the Fabricated Products business segment on
January 1, 1997. Prior to 1997, Greens Port was held for sale and its results
were reported in "sundry other, net."
Operating profit in the six months ended June 30, 1997 and 1996 included
income of $2.0 million and $4.2 million, respectively, related to partial
settlement of business interruption insurance claims. Excluding the results of
Greens Port and the insurance credits, operating profit increased by $19.9
million in the first six months of 1997 over the same period in 1996, primarily
due to a substantial improvement in the Specialty Flat-Rolled Steels business
segment, higher sales of snowplows and favorable experience in pension and
retiree medical benefit expenses.
Net income for the six months ended June 30, 1997 included $1.3 million for
a tax refund related to a company in the divested Aerospace and Strategic
Materials business segment. Armco's net income also improved as a result of
lower expenses related to long-term benefit obligations for employees of Armco
facilities that have been divested. The reduction of $13.7 million was primarily
due to favorable investment returns on pension plan assets and lower pension and
retiree medical benefit costs.
24
<PAGE>
1996 COMPARED TO 1995
Net sales in 1996 were 11% higher than in 1995, primarily due to higher
shipments of automotive exhaust stainless, electrical and carbon steels in the
Specialty Flat-Rolled Steels segment. Higher sales were also achieved by Douglas
Dynamics L.L.C. ("Douglas Dynamics"), Armco's snowplow manufacturer. See "--
Business Segment Results -- Fabricated Products."
Operating profit increased 8% in 1996 due to a significant reduction in
losses at Armco's Mansfield and Dover, Ohio facilities in the Specialty
Flat-Rolled Steels segment, an increase in profits from Douglas Dynamics and
lower employee benefit costs. These improvements were offset, in part, by lower
profits in the remainder of the Specialty Flat-Rolled Steels segment, due to
higher imports and weak pricing in certain chrome nickel products plus higher
sales of less profitable carbon steel. The decrease in Mansfield and Dover
operating losses reflects improved operating practices and higher levels of
production compared with 1995, which was a ramp-up period following a year-long
idling of these facilities. Employee benefit expenses were lower in 1996
primarily as a result of increased funding of the pension plans during 1995 and
1996 and lower interest rates on Armco's liability for retiree health care and
life insurance benefits.
Included in the 1996 operating profit were special charges totaling $8.8
million for a loss on the sale of Armco's nonresidential construction business
and a decision to exit a line of light truck equipment manufactured by Douglas
Dynamics. Operating profit also included nonrecurring income totaling $8.6
million from claim settlements, including the partial settlement of a business
interruption insurance claim.
In 1995, Armco sold all of the shares of AK Steel Holding Corporation it had
received in the initial public offering and recapitalization of Armco Steel
Company, L.P., recognizing a gain of $27.2 million.
Included in income from continuing operations from 1996 were the
above-mentioned special charges and claim settlements and a $6.3 million gain,
which results from the recognition of gains previously deferred in connection
with asset sales at an industrial park owned by Armco. Armco elected to defer
gains resulting from individual asset sales at this site because of uncertainty
concerning realization of the carrying value of the remaining property. The
gains were recognized following receipt, in March 1996, of an independent
appraiser's report indicating that the remaining land, buildings and dock
facilities in the park had a market value in excess of Armco's historical cost
carrying value.
Income from discontinued operations in 1996 consisted of a $6.5 million
increase in the gain on the sale of Armco's Aerospace and Strategic Materials
business segment related to a federal income tax settlement. In 1995, Armco
recognized, in income from discontinued operations, equity income of $6.3
million from National-Oilwell, a joint venture divested in January 1996.
1995 COMPARED TO 1994
Net sales increased in 1995 over 1994 because of strong markets and higher
prices for stainless and electric steels, and the addition of sales from Armco's
modernized facilities in Mansfield and Dover which resumed operations in April
1995. The Mansfield and Dover plants, idled in March of 1994, recorded sales
which were $52.1 million higher in 1995 than in 1994. However, Armco's net sales
in 1994 included $52.8 million from Eastern Stainless Corporation, which has
since been divested. Excluding the results of Mansfield, Dover and Eastern
Stainless, 1995 net sales were 9% higher than 1994 sales. Increased sales for
the year in the Specialty Flat-Rolled Steels segment and by Sawhill Tubular
Division ("Sawhill Tubular") were partially offset by a decline in sales at
Douglas Dynamics.
During 1994, special charges totaling $35.0 million were recorded for
expenses associated with idling the Mansfield and Dover facilities and for
employee benefit and other charges related to the sale of assets by Eastern
Stainless.
25
<PAGE>
The 1995 results of the Butler, Pennsylvania and Coshocton and Zanesville,
Ohio plants in the Specialty Flat-Rolled Steels segment exceeded 1994 operating
profit by 22%. In addition, results improved at Sawhill Tubular. However,
excluding special charges, operating profit in 1995 was down $5.2 million from
1994, as higher losses generated by the ramp-up of the Mansfield facility and
lower profits from Douglas Dynamics more than offset the improvements.
Income from continuing operations in 1994 reflected the completion of an
initial public offering and recapitalization of Armco Steel Company, L.P., for
which Armco recognized a pretax gain of $36.5 million, and a $30.0 million tax
benefit. Also in 1994, Armco sold 90% of its investment in North American
Stainless for $73.0 million in cash, recognizing a $26.1 million gain.
BUSINESS SEGMENT RESULTS
SPECIALTY FLAT-ROLLED STEELS
Armco's Specialty Flat-Rolled Steels businesses produce and finish
flat-rolled stainless, electrical and carbon steels at plants in Butler,
Pennsylvania and Coshocton, Dover, Mansfield and Zanesville, Ohio. The segment
also includes the results of international trading companies that buy and sell
steel and manufactured steel products. Through September 30, 1994, the segment
included stainless steel plate products, which were produced by Eastern
Stainless Corporation, Armco's former 84%-owned subsidiary in Baltimore,
Maryland. Armco stopped consolidating its results on that date following a
decision by Eastern Stainless to sell substantially all of its assets to a third
party.
Customer sales and shipments by major product line and annual production
were:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------------------------- -------------------------------
1997 1996 1996 1995
---------------------- ---------------------- -------------------- ---------
SALES TONS SALES TONS SALES TONS SALES
--------- ----- --------- ----- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS, TONS IN THOUSANDS)
Specialty flat-rolled (a)....................... $ 568.4 389 $ 584.2 386 $ 1,108.0 739 $ 1,013.3
Specialty semi-finished......................... 105.2 87 70.9 50 133.9 97 130.5
Stainless plate................................. -- -- -- -- -- -- --
Galvanized and other carbon..................... 86.6 162 75.6 175 144.2 304 94.1
Other........................................... 17.7 -- 17.5 -- 35.1 -- 39.1
--------- --- --------- --- --------- --------- ---------
Total........................................... $ 777.9 638 $ 748.2 611 $ 1,421.2 1,140 $ 1,277.0
--------- --- --------- --- --------- --------- ---------
--------- --- --------- --- --------- --------- ---------
Raw steel production............................ 752 743 1,439
<CAPTION>
1994
----------------------
TONS SALES TONS
--------- --------- -----
<S> <C> <C> <C>
Specialty flat-rolled (a)....................... 647 $ 875.3 604
Specialty semi-finished......................... 78 80.2 64
Stainless plate................................. -- 52.8 22
Galvanized and other carbon..................... 214 62.1 125
Other........................................... -- 44.0 --
--------- --------- ---
Total........................................... 939 $ 1,114.4 815
--------- --------- ---
--------- --------- ---
Raw steel production............................ 1,153 947
</TABLE>
- ------------------------
(a) The specialty flat-rolled product line consists of automotive exhaust
stainless, specialty strip and sheet, and electrical steels.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Customer sales for the segment were 4% higher in the six months ended June
30, 1997 than in the same period in 1996, primarily as a result of increased
volume of specialty semi-finished products and higher sales of galvanized steel
products. The segment's average sales per ton decreased from 1996 to 1997 due to
the effects of high levels of imports of stainless and electrical steels,
partially offset by a shift in carbon steel product mix to higher-priced
galvanized products from lower-priced hot bands. Specialty strip and sheet and
semi-finished products were affected most by weakening prices.
Shipments of specialty flat-rolled products, which include automotive
exhaust stainless, electrical steel and specialty strip and sheet, were
approximately the same in the respective six-month periods ended June 30, 1997
and 1996. However, 1997 average sales per ton declined 3% from the first six
months of 1996, reflecting the elimination of raw material surcharges on
stainless steel and increased import competition on certain grades of chrome
nickel stainless and cold rolled non-oriented electrical steels.
26
<PAGE>
Specialty semi-finished shipments increased substantially in 1997 over 1996,
primarily as a result of increased sales of chrome nickel hot bands. However, a
15% reduction in average sales per ton for the first six months of 1997 compared
to 1996 reflected worldwide market softness and import competition.
Carbon steel shipments in the second quarter of 1997 increased as a result
of strong demand for galvanized steel, partially offset by the elimination of
carbon hot band shipments and the increased use of Armco's melt capacity for
specialty products. In the first half of 1996, Armco began exiting the lower-
priced hot band market, shifting to higher-priced galvanized steel products and
thus increasing average sales per ton by 24% from the first six months of 1996
to the first six months of 1997.
Second quarter operating profit increased in 1997 as a result of higher
sales and lower costs. The lower costs were primarily due to more stable
operating conditions and favorable experience in pension and retiree medical
benefit costs. Costs in 1996 were adversely affected by several planned outages
necessary to complete equipment upgrades. These outages disrupted operations and
resulted in the increased use of outside processors. Specialty Flat-Rolled
Steels' operating profit included gains of $2.0 and $4.2 million in the first
six months of 1997 and 1996, respectively, from the partial settlement of a
business interruption insurance claim.
1996 COMPARED TO 1995
Customer sales in 1996 exceeded 1995 levels primarily due to higher sales of
automotive exhaust stainless, electrical and galvanized steels. A 21% increase
in shipped tons was made possible by progressively higher operating levels at
Mansfield in the second half of 1996. The higher operating levels were achieved
despite several planned outages necessary to complete equipment upgrades.
Average sales per ton in 1996 was lower than in the prior year, primarily
due to higher import penetration in a number of product lines, increased sales
of lower-priced carbon products and the elimination of raw material price
surcharges on certain stainless steels. Armco and other specialty steel
producers add raw material surcharges to the price of their products to
compensate for higher costs incurred when the price of key raw materials such as
nickel, chromium or molybdenum rises above certain levels. In 1996, raw material
prices fell below these levels.
Automotive exhaust stainless shipments reached record levels in 1996, as the
Mansfield plant shipped significantly more of this product line than in the
prior year. Strong production of North American light vehicles and increased use
of stainless in exhaust systems stimulated demand in 1996.
Shipments of electrical steel products increased as a result of generally
healthy market conditions and some easing of capacity constraints. Driven by
housing starts, demand remained strong for grain oriented electrical steel used
in utility distribution transformers. However, shipments of non-oriented
electrical steel used in motors and generators suffered under pressure from
imports, which increased substantially in the second half of 1996.
Specialty strip and sheet shipments declined slightly in the year-to-year
comparison due to softer market conditions and increased import penetration.
Average sales per ton were lower in 1996 compared to 1995 as a result of the
elimination of raw material surcharges and base price erosion, resulting from an
increased level of imports.
Specialty semi-finished shipments increased in 1996, primarily due to export
sales. A reduction in average sales per ton reflected worldwide market softness
and the elimination of raw material surcharges. Sales of specialty semi-finished
products have also been adversely affected by import competition.
Armco's carbon steel shipments increased in 1996 compared to 1995. In the
first half of 1996, Armco exited the lower-priced carbon hot band market,
shifting the carbon steel product mix to more galvanized steel, thereby
increasing average sales per ton in the year-to-year comparison.
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During 1996, operating profit for this segment was lower than in 1995 due to
price erosion on specialty strip and sheet and specialty semi-finished products
and several planned equipment outages, including outages necessary to upgrade
Armco's finishing facilities as part of the strategic facilities plan. The
outages and the subsequent process of restarting and returning these facilities
to full capability contributed to higher costs and lower yields. To meet demand
during this period, Armco used outside processors to finish some of its
stainless steels, resulting in increased costs.
Specialty Flat-Rolled Steels' 1996 operating profit included $8.6 million of
income from various claims settlements, including the partial settlement of a
business interruption insurance claim for a 1995 unplanned outage. The outage
resulted in the use of alternative and more costly product routings, and lost
sales.
Operating profit in 1996 also included a $39.5 million loss from the
Mansfield and Dover facilities, compared to a loss of $104.2 million in 1995
while Mansfield was ramping up. The 1996 loss was due, in part, to a number of
planned and unplanned equipment outages and to higher than expected operating
costs.
1995 COMPARED TO 1994
The Mansfield and Dover plants were idled from March 1994 through the first
quarter of 1995, although Dover began limited operations early in the first
quarter of 1995. By mid-year, the Dover plant was fully operational. With the
completion of its new thin-slab caster and modernized hot strip mill, Mansfield
restarted in April 1995. The restart was hampered by process control system
difficulties and the failure of the refractory lining and a skid in the new
walking beam furnace. The furnace problems necessitated an unscheduled 17-day
outage.
Customer sales in 1995 increased 15% over 1994 sales, as demand for most
products remained strong throughout the year. Pricing also remained strong as a
result of raw material surcharges on products containing nickel, chromium and
molybdenum, January 1995 price increases for electrical steel and industry-wide
price increases for chrome nickel products.
Armco's shipments of automotive exhaust stainless increased in 1995,
principally as a result of continued strength in North American light vehicle
production and increased use of stainless steel in exhaust systems.
Shipments of electrical steel remained at a high level, sustained by strong
demand for both grain oriented and non-oriented electrical steels. Armco's
orders for non-oriented electrical steel were further increased in 1995 by a
54-day strike at a major domestic competitor; however, Armco's ability to ship
this product was limited by capacity constraints.
The increase in Armco's shipments of specialty strip and sheet was primarily
attributable to broad-based increases in the automotive, consumer and industrial
markets, especially in the first half of 1995, as well as the strike mentioned
above. In the second half, demand slowed due to normal seasonal factors as well
as liquidation of customer inventories.
Specialty semi-finished shipments, which consist of hot bands and slabs,
grew 22% in 1995 on strong demand from North American customers.
Customer sales for the segment were also affected by the idling and restart
of the Mansfield and Dover plants and by the divestment of Eastern Stainless.
Sales by Mansfield and Dover increased by $52.1 million in 1995. Eastern
Stainless sales of $52.8 million were recognized in 1994, before Armco stopped
consolidating the results of this business as a result of the divestment.
During 1994, Armco recognized a $20.0 million special charge related to its
decision to idle and restructure the Mansfield and Dover plants, while
installing a new thin-slab continuous caster. The special
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charge consisted of $11.2 million for employee benefits, primarily group
insurance and supplemental unemployment benefits, and $8.8 million to write down
inventories and fixed assets.
In 1994, Eastern Stainless decided to sell substantially all of its assets
for cash and the assumption of certain liabilities, and Armco recognized a $15.0
million special charge related to that decision. On March 14, 1995, the
transaction was completed. Net liabilities not assumed by the buyer or satisfied
by the sale proceeds were assumed by Armco. On the date of sale, the net
liabilities assumed by Armco, including amounts recorded at the establishment of
a $15.0 million special charge, totaled $53.0 million.
Specialty Flat-Rolled Steels' operating profit in 1995 was almost double
that of 1994. Included in the 1995 operating results was a $104.2 million
operating loss from the Mansfield and Dover plants, primarily as a result of the
start-up problems described above. The 1994 Specialty Flat-Rolled Steels
operating profit included losses of $86.0 million from the Mansfield and Dover
facilities, primarily as a result of the idling. The remaining operations in
this segment realized a 22% increase in operating profit from 1994 to 1995.
OUTLOOK
The strategic facilities upgrades were completed during 1996, and Armco
believes that it will be able to operate its plants without major scheduled
disruptions in the foreseeable future. Armco is focusing on improving
productivity and quality at its specialty flat-rolled steels operations and
anticipates further cost reductions as these improvements are made.
Third quarter 1997 shipments of automotive chrome stainless are expected to
decline from second quarter levels due to normal vehicle model changeovers.
While light vehicle production remained strong in the first half of the year,
recent automotive sales figures trailed those of a year ago, raising concerns
about weakening demand.
Armco expects electrical products, in general, to be under pressure due to
softening demand and continued high levels of imports. Demand for specialty
strip and sheet and semi-finished products has increased, but pricing remains
low due to pressure from imports.
FABRICATED PRODUCTS
The Fabricated Products business segment includes the results of Sawhill
Tubular, a manufacturer of steel pipe and tubing; Douglas Dynamics, a
manufacturer of snowplows and ice control products; and Greens Port Industrial
Park, located in Houston, Texas.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Customer sales increased $20.7 million for the first six months of 1997,
primarily due to higher sales at Douglas Dynamics and Sawhill Tubular, and the
consolidation of Greens Port. Higher customer sales at Douglas Dynamics
reflected a significant improvement in snowplow shipments primarily due to an
expanded sales network and the introduction of new products. Higher sales at
Sawhill Tubular were a result of volume increases along most major product
lines. Greens Port recorded sales of $3.5 million in the first six months of
1997 from loading dock fees and rental of land and buildings. During 1996,
Greens Port revenues were not included in the segment.
Douglas Dynamics' and Sawhill Tubular's operating profit were substantially
higher in 1997 than 1996. Douglas Dynamics' results improved due to
manufacturing efficiencies achieved during the year and reduced operating
expenses following the decision in 1996 to exit certain unprofitable product
lines. The increase in Sawhill Tubular's profits was also driven by lower costs.
This segment's operating profit in the first six months of 1997 included $2.2
million from Greens Port.
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1996 COMPARED TO 1995
1996 customer sales in this segment were 7% above 1995 levels, largely due
to higher sales at Douglas Dynamics. Snowplow shipments in 1996 were the second
highest achieved in Douglas Dynamics' history, due to near record snowfalls and
strong light truck sales. Although Sawhill Tubular's shipment volumes increased
in the year-to-year comparison, this was offset by lower prices caused by
increased domestic competitive pressures and a high level of imports.
In 1996, Armco recorded a special charge of $5.9 million for the estimated
loss on the sale of its nonresidential construction business. In 1996, Armco
negotiated an agreement to sell the business and the sale was effective January
1, 1997. The charge primarily relates to the writedown of assets and recognition
of additional employee benefit liabilities.
Also in 1996, Armco recorded a $2.9 million special charge primarily for the
writedown of inventories and severance costs related to the decision to
discontinue a line of light truck equipment manufactured by Douglas Dynamics.
Excluding this special charge, Douglas Dynamics' operating profit was
substantially higher in 1996 than in 1995. Increased sales and cost reductions
related to the elimination of production outsourcing were partially offset by
higher fixed manufacturing, administrative and selling costs, primarily related
to the introduction of new products.
Sawhill Tubular recorded a decrease in operating profits primarily as a
result of higher costs for steel hot bands compared to product selling prices.
1995 COMPARED TO 1994
Customer sales decreased by 12% in 1995 compared to 1994, primarily as a
result of eliminating the sales of Bowman Metal Deck, a manufacturer of steel
roof and floor decking, which was sold in December 1994, and lower sales by
Douglas Dynamics. The severe winter weather in early 1994 led to the best sales
year in Douglas Dynamics' history; however, the mild winter preceding the 1995
selling season resulted in lower annual snowplow sales. Sawhill Tubular sales
were 3% higher than 1994.
Lower operating profit in 1995 resulted from the reduced sales at Douglas
Dynamics, which was partially offset by Sawhill Tubular's return to
profitability. Douglas Dynamics cut operating costs by reducing manpower to
match lower order backlog, decreasing the amount of production previously
performed by outside parties and periodically ceasing production to control
inventory levels. However, these actions could not fully offset the effects of
the lower sales volume of snowplows and other equipment sales, and higher
expenses related to new product development. Sawhill Tubular's return to
profitability was driven by increased sales, complemented by operational
improvements and cost reduction programs, which not only led to improved
results, but also brought about reductions in inventories.
OUTLOOK
Douglas Dynamics' sales are expected to be somewhat lower in the second half
of 1997 than in the same period in 1996. However, savings from manufacturing
efficiencies and cost reduction programs are expected to result in improved
operating profit. Sawhill Tubular's 1997 sales and profitability are expected to
exceed those of 1996 due to lower costs and higher volume in certain product
lines.
DISCONTINUED OPERATIONS
AEROSPACE AND STRATEGIC MATERIALS
Oregon Metallurgical Corporation ("Oremet"), formerly 80% owned by Armco,
was part of the Aerospace and Strategic Materials business segment that Armco
sold in 1985. Prior to the sale, Armco filed a suit on behalf of Oremet in the
U.S. Claims Court, claiming refunds and interest on federal and state taxes.
Pursuant to the sales agreement, Armco retained the benefit of its share of any
proceeds of this
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action, net of taxes imposed on Oremet and the buyer. In 1988, as a result of a
favorable settlement with the Internal Revenue Service ("IRS"), Armco recorded a
$15.2 million net of tax adjustment to the gain on the sale of this business
segment. In 1996, Armco and Oremet reached agreement with the IRS that the 1988
refund of taxes and interest should not itself have been taxable to Oremet,
further increasing the net proceeds, resulting in Armco recording an additional
$6.5 million gain on the sale. In the first half of 1997, Armco recognized a
$1.3 million gain for a state tax refund.
NATIONAL-OILWELL
National-Oilwell, which sells oil field tubular pipe, and produces and sells
drilling and production equipment and process pumps used in the world's oil and
gas services industry, was a joint venture equally owned by subsidiaries of
Armco and USX Corporation.
Armco and USX reached a definitive agreement, dated September 22, 1995, to
sell their respective partnership interests in National-Oilwell to an entity
formed by Duff & Phelps/Inverness, First Reserve Funds and National-Oilwell
management. The sale was completed on January 16, 1996. For its 50% interest,
Armco received $77.0 million in cash, and receivables with a face value of $13.0
million. The receivables were recorded at a discounted value of $10.6 million.
After recording $2.1 million for recognition of deferred foreign translation
losses and miscellaneous expenses, no gain or loss was recognized on the
transaction.
ARMCO FINANCIAL SERVICES GROUP (AFSG)
AFSG consists of insurance companies that have stopped writing new business
and are being liquidated. These companies have not written any new business for
retention except for an immaterial amount of guaranteed renewable accident and
health business since 1986. The number of policyholders of this business has
decreased from approximately 4,000 at December 31, 1986 to 1,007 at December 31,
1995 and 870 at December 31, 1996.
There are various pending matters relating to litigation, arbitration and
regulatory affairs arising out of the runoff operations of AFSG companies,
including matters related to Northwestern National Insurance Company (NNIC), a
runoff company currently involved in, among other matters, litigation with
respect to certain reinsurance programs.
In March 1997, a group of international insurance companies, previously
affiliated with AFSG and sold in 1991, filed an application for voluntary
liquidation in the United Kingdom. NNIC is currently investigating its exposure
with respect to transactions entered into with these companies in the event the
companies are unable to meet their insurance obligations.
Armco believes that its investment in AFSG will not be materially affected
as a result of pending claims, contingent liabilities or matters related to AFSG
identified to date.
LIQUIDITY AND FINANCIAL RESOURCES: Claims are paid by using AFSG's
investment portfolio and the related investment income from such portfolio. The
portfolio had a net market value of $172.3 million at December 31, 1996. AFSG
believes the existing invested assets, related future income and other assets
will provide sufficient funds to meet all future claims payments.
AFSG's loss reserves net of reinsurance recoverables decreased to $102.2
million at December 31, 1996 from $118.7 million at December 31, 1995. AFSG
estimates that 60% of the claims will be paid in the next five years and that
substantially all of the claims will be paid by the year 2017. The ultimate
amount of the claims as well as the timing of the claims payments are estimated
based on an annual review of loss reserves performed by AFSG's independent and
consulting actuaries.
OUTLOOK: Armco management continues to believe, based on current facts and
circumstances and the opinions of outside counsel and advisors, that future
charges, if any, resulting from the runoff of AFSG will
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not be material to Armco's financial condition or liquidity. However, it is
possible that due to fluctuations in Armco's results, future developments could
have a material effect on the results of one or more future interim or annual
periods.
OTHER INVESTMENTS
ARMCO STEEL COMPANY, L.P. (ASC)
On April 7, 1994, ASC, a limited partnership 50% owned by a subsidiary of
Armco, completed an initial public offering and recapitalization. As part of
this transaction, the business and assets of ASC were transferred to AK Steel
Holding Corporation, a newly formed, publicly traded company. In exchange for
its interest in ASC, Armco received 1,023,987 shares of AK Steel common stock,
representing approximately four percent of the outstanding shares. The number of
shares received and other terms of the restructuring and recapitalization were
determined by arm's-length negotiations.
As a result of the transaction, in 1994 Armco recognized a nonrecurring
pretax gain of $36.5 million, primarily as a result of its release from certain
obligations to make future cash payments to the former joint venture and
recognition of deferred pension curtailment gains established at ASC's
formation. In light of this transaction, Armco also concluded that the
realizable amount of its deferred tax asset had increased and so recorded a tax
benefit of $30.0 million.
In 1995, Armco sold all of the AK Steel common stock it had received as a
result of the initial public offering and recapitalization for a total of $27.2
million, recognizing a gain of the same amount.
Under a toll-rolling agreement that is in effect through the year 2002, AK
Steel hot rolls stainless steel for Armco. The Company believes that if this
agreement were not to be extended, it could obtain comparable services from
other suppliers at competitive rates.
NORTH AMERICAN STAINLESS (NAS)
Armco and Acerinox S.A. of Spain each owned a 50% partnership interest in
NAS through their respective subsidiaries, First Stainless, Inc. and Stainless
Steel Invest, Inc. NAS operates a state-of-the-art chrome nickel stainless steel
finishing plant in Carrollton, Kentucky. In 1994, Armco's subsidiary sold 90% of
its 50% equity interest in NAS to its partner for $73.0 million in cash, and
Armco recorded a $26.1 million gain on the sale. Armco decided to sell most of
its investment in NAS because NAS needed cash infusions from its partners to
expand its operations, while Armco chose to use its resources to support its
core business operations. In connection with the transaction, Armco entered into
an annual supply contract with NAS to provide the former joint venture with
semi-finished stainless steel at market prices.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through cash provided by
operations, the issuance of debt and asset sales. Its principal uses of cash
have been operating activities, capital expenditures, debt service and preferred
stock dividends. Cash provided by operations was $34.6 million for the six
months ended June 30, 1997, compared to $9.7 million for the six months ended
June 30, 1996, and $42.6 million for the year ended December 31, 1996 as
compared to $15.5 million for 1995.
At June 30, 1997, Armco had $175.2 million of cash and cash equivalents,
compared to $168.9 million at December 31, 1996. Cash and cash equivalents
increased $6.3 million during the first six months of 1997, primarily due to
$34.6 million of cash generated by operations, partially offset by capital
expenditures of $15.1 million, preferred stock dividends of $8.9 million and
principal payments on debt of $7.4 million.
Trade receivables and payables increased 28% and 20%, respectively, during
the first half of 1997, reflecting the higher midyear sales and operating levels
experienced by the Specialty Flat-Rolled Steels
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segment. Increased trade receivables are also the result of normal preseason
extended-term sales by Douglas Dynamics.
At June 30, 1997, Armco had in place two bank credit facilities, totaling
$170.0 million with total borrowing availability of $91.4 million. Under a
receivables facility, Armco sells substantially all its trade receivables to a
wholly owned subsidiary, Armco Funding Corporation (AFC). In January 1996, AFC
entered into a five-year revolving credit agreement with a group of banks led by
The Chase Manhattan Bank, providing up to $120.0 million for revolving credit
loans and letters of credit secured by AFC's receivables. At June 30, 1997,
there were no outstanding borrowings under this credit facility; however, $64.3
million of the facility was committed to letters of credit.
In January 1996, Armco entered into a three-year revolving credit agreement
with a group of banks led by The Chase Manhattan Bank, providing up to $50.0
million for revolving credit loans secured by Armco's inventories. The credit
agreement subjects Armco to certain restrictions and covenants related to, among
other things, minimum working capital, minimum net income, current ratio and
interest coverage ratio requirements. At June 30, 1997, there were no
outstanding borrowings under this credit facility.
In addition to any amount borrowed under the Credit Facilities, at June 30,
1997, after giving effect to the Offering, the application of net proceeds
therefrom and the payment on July 15, 1997 of $5.0 million of current maturities
on the 9.20% Debentures, Armco had approximately $207.3 million of debt that
becomes due by the year 2000, including $14.8 million, $22.4 million, $22.5
million and $147.6 million in 1997, 1998, 1999 and 2000, respectively.
Armco anticipates that its capital expenditures for the last six months of
1997 will total approximately $40.0 million. Armco expects that its 1997 cash
requirements, including amounts for debt service, preferred stock dividends and
capital expenditures, will be paid out of existing cash balances and cash
generated from operations.
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BUSINESS
Armco was incorporated as an Ohio corporation in 1917 as a successor to a
New Jersey corporation incorporated in 1899 and is the largest domestic producer
of stainless sheet and strip and electrical steel, based on tons shipped. The
Company operates in two primary business segments: Specialty Flat-Rolled Steels
and Fabricated Products, which contributed 82% and 18%, respectively, of total
sales for the twelve months ended June 30, 1997. The Company's Specialty
Flat-Rolled Steels segment produces and finishes flat-rolled stainless,
electrical and galvanized carbon steel at five manufacturing locations in
Pennsylvania and Ohio. For the twelve months ended June 30, 1997, the Specialty
Flat-Rolled Steels segment had shipments of 1,167,000 tons. The Company's major
customers in this segment include automotive exhaust systems producers,
manufacturers of industrial and electrical equipment, other manufacturers,
service centers and converters. The Company's Fabricated Products segment
consists of three businesses: Douglas Dynamics, the largest North American
manufacturer of snowplows for four-wheel drive vehicles; Sawhill Tubular, a
manufacturer of a wide range of steel pipe and tubular products for use in
construction, industrial and plumbing markets; and Greens Port Industrial Park,
located in Houston, Texas. Total sales and EBITDA (as defined) for Armco were
$1,774.4 million and $132.2 million, respectively, for the twelve months ended
June 30, 1997.
Historically, consumption of stainless sheet and strip has grown at a faster
rate than the steel market as a whole. For example, between 1987 and 1996,
consumption of stainless sheet and strip in the United States had a compound
annual growth rate of 5.6% as compared to a rate of 2.8% for the total steel
market. Among the characteristics that make stainless a material of choice are
its resistance to corrosion, ability to withstand temperature extremes, high
strength-to-weight ratio, natural attractiveness and ease of maintenance. An
additional contributor to increased stainless steel usage is the requirement of
the 1990 amendments to the Clean Air Act that long-life materials such as
corrosion-resistant stainless steel materials be used in a number of
applications, including automotive exhaust systems where Armco has the leading
U.S. market position. From 1990 to 1996, stainless steel usage in automotive
exhaust systems grew from 25 pounds per vehicle to 52 pounds per vehicle. In
addition to increased usage per vehicle, automotive stainless demand has been
driven by strong North American production of 15.3 million, 14.9 million and
15.1 million light vehicles in 1994, 1995 and 1996, respectively, as compared to
an annual average of 12.5 million vehicles from 1990 to 1993.
Electrical steels are iron-silicon alloys that, through special production
techniques, possess unique magnetic properties that make them desirable for use
in the generation, transmission and distribution of electricity. Armco believes
it is the largest domestic supplier and the only producer of a full product line
of electrical steels in the U.S.
Armco's strategic objective is to enhance its position as a leading domestic
producer of specialty flat-rolled steels by focusing on its existing strong
market positions, especially in the automotive chrome and electrical steel
markets. Armco intends to strengthen its position in these markets by continuing
to focus on its core specialty steels business, by utilizing its recently
upgraded and improved facilities to produce higher quality products and by
providing improved customer service.
The Company has taken significant steps in recent years to become a focused
specialty steel company by streamlining its operations, investing in the
expansion and upgrade of its Specialty Flat-Rolled Steel facilities and
divesting or otherwise rationalizing certain unprofitable or non-strategic
operations. From 1993 through 1996, the Company sold or disposed of 13
operations and investments, generating cash proceeds of over $400 million.
Since 1993, the Company has invested approximately $235 million in two major
programs to upgrade its facilities and thereby to increase productivity, lower
operating costs, increase yields and improve customer service. The first of
these programs included the installation at the Company's Mansfield, Ohio
facility of a state-of-the-art continuous thin-slab caster designed to produce
different grades of steel with rapid switchover from one grade to another. The
new casting process helps to ensure consistently high
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quality products because it eliminates intermediate production steps and reduces
the amount of rolling required to achieve the desired thickness. The thin-slab
caster, certain hot mill upgrades and other modifications at the Mansfield plant
were made over a 15-month period, at a total cost of approximately $140 million.
The second of these programs, which commenced in late 1994, consisted of $95
million of extensive capital improvements over a two-year period to upgrade and
expand the Company's stainless and electrical steel finishing facilities. This
strategic facilities upgrade was initiated to reduce existing production
constraints and increase specialty flat-rolled steel finishing capacity by
approximately 180,000 tons per year, particularly in chrome stainless steel,
electrical steels and specialty sheet and strip products. These facilities
upgrades were completed during 1996. Armco now plans to focus on improving
productivity and quality at its specialty steel operations and anticipates
further cost reductions as these improvements are made.
In addition, the Company intends to continue to pursue research and
development activities. The Company's new equipment and more advanced technology
are helping customers to lower their total costs, by providing them with the
specific material selection and part design needed to match their manufacturing
processes. Furthermore, Armco has reorganized its research and technology
functions to facilitate more direct interaction with customers in the
development of new products and processes.
SPECIALTY FLAT-ROLLED STEEL
INDUSTRY OVERVIEW
The specialty steel industry is a relatively small but distinct segment of
the overall steel industry that represented approximately 2% of domestic steel
tonnage but accounted for approximately 10% of domestic steel revenues in 1996.
Specialty steels refer to alloy tool steel, electrical steel and stainless
sheet, plate, bar, rod, wire and welded pipe and tube products. These steels
differ from basic carbon steel by their metallurgical composition. Electrical
steels have properties that make them desirable in the generation,
transportation and use of electricity. Stainless steels are made with a high
alloy content, which permits their use in environments that demand exceptional
hardness, toughness and strength, resistance to corrosion and abrasion, ability
to withstand temperature extremes or combinations thereof. Unlike high-volume
carbon steel, specialty steels are generally produced in relatively small
quantities utilizing special processing techniques designed to meet more
exacting specifications and tolerances. Specialty steel products sell at higher
prices and generate higher average profit margins than carbon steel products.
Stainless steel contains elements such as chromium, nickel and molybdenum
that give it the unique qualities of resistance to rust and corrosion, ability
to withstand temperature extremes, high strength, good wear characteristics,
natural attractiveness, and ease of maintenance. Stainless steel is used in the
automotive and aerospace industries, and in the manufacture of food handling,
chemical processing, pollution control, medical and health equipment and other
products where its combination of strength, durability and attractiveness is
desirable. Electrical steels are iron-silicon alloys which, through special
production techniques, possess unique magnetic properties that make them
desirable for use as energy efficient material in such applications as
electrical transformers, motors and generators.
Armco expects that long-term demand for stainless steel will continue to be
positively affected by its increasing use in the manufacture of consumer durable
goods and industrial applications. Per capita stainless steel usage in many
developed countries significantly exceeds per capita usage in the United States
and Armco believes that this is an indication of the growth potential of demand
for stainless steel in the United States. In addition, the 1990 amendments to
the Clean Air Act have resulted in the increasing use of corrosion-resistant
materials in a number of applications for which stainless steel is well suited,
including industrial pollution control devices and motor vehicle exhaust systems
for use in the United States, where Armco now has the leading market share.
Another factor that Armco believes will affect
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demand positively is the increasing issuance of new car bumper-to-bumper
warranties and the use of stainless steel in passenger restraint systems and
other functional components.
PRODUCTS
Armco produces flat-rolled stainless steel and electrical steel strip and
sheet products that are used in a diverse range of consumer durables and
industrial applications. During the last three years, approximately 79% of
Armco's sales of specialty flat-rolled steel has been stainless and electrical
steels, 9% has been specialty semi-finished and 8% has been galvanized carbon
steel. The remaining sales in this segment of Armco's business are primarily
related to the foreign subsidiaries that buy, warehouse, and sell specialty
steel products. Major markets served are automotive, industrial machinery and
electrical equipment, construction and service centers.
In the stainless steel market, Armco is the leading producer of chrome
grades used primarily in the domestic market for automotive exhaust components.
Stainless steel, which formerly was not used in parts of the exhaust system
other than the catalytic converter, is now used in the entire exhaust system,
from manifold to tailpipe, by many auto manufacturers. Armco has developed a
number of specialty grades for this application. Armco is also known for its
"bright anneal" chrome grade finishes utilized for automotive and appliance trim
and other chrome grades used for cutlery, kitchen utensils, scissors and
surgical instruments. Specialty chrome nickel grades produced by Armco are used
in household cookware, restaurant and food processing equipment and medical
equipment. Other Armco stainless products include functional stainless steel
manufactured for automotive, agricultural, heating, air conditioning and various
industrial uses.
Armco is the only United States manufacturer of a complete line of
flat-rolled electrical steel products. It is also the only domestic manufacturer
utilizing laser scribing technology. In this process, the surface of electrical
steel is etched with high-technology lasers that refine the magnetic domains of
the steels, resulting in superior electrical efficiency. Major electrical
products categories are: Regular Grain Oriented ("RGO"), used in the cores of
power and distribution transformers, Cold Rolled Non-Oriented ("CRNO"), used for
electrical motors, generators and lighting ballasts; and TRAN
COR-Registered Trademark-H which is used in power transformers and is the only
high permeability electrical steel made domestically.
Additionally, Armco produces a full range of hot-dipped galvanized products
primarily for use in the heating, ventilation and air conditioning ("HVAC")
market.
OPERATING FACILITIES
Armco's Specialty Flat-Rolled Steels businesses produce and finish
flat-rolled stainless, electrical and galvanized steels at manufacturing
operations located in Butler, Pennsylvania, and Coshocton, Dover, Mansfield and
Zanesville, Ohio. The Butler and Mansfield plants produce both semi-finished and
finished stainless and electrical steels in sheet and hot band form. The
Coshocton facility finishes stainless steel in strip and sheet form and the
Zanesville facility finishes stainless and electrical strip and sheet. In
addition, the Mansfield plant produces commodity grades of carbon steel sheet,
most of which is coated at a galvanizing facility at the Dover plant. The
segment also includes the results of European marketing companies that sell
steel and manufactured steel products.
The Butler facility, which is situated on 1,300 acres with 3.2 million
square feet of buildings, continuously casts 100% of its steel. At Butler,
melting takes place in three 170-ton electric arc furnaces that feed the world's
largest (175-ton) argon-oxygen decarburization unit and a 170-ton vacuum
degassing unit for refining molten metal that, in turn, feed two double strand
continuous casters. Butler operates a hot-strip mill, anneal and pickle units
and two fully-automated tandem and cold-rolling mills. It also has various
intermediate and finishing operations for both stainless and electrical steels.
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The finishing plant in Coshocton, Ohio, located on 650 acres, is housed in a
600,000 square-foot plant and has three Sendzimer cold-rolling mills, four
anneal and pickle lines, three bright anneal lines, two 4-high mills for cold
reduction and other processing equipment, including temper rolling, slitting and
packaging facilities.
The Mansfield, Ohio plant consists of a 1.4 million square-foot facility,
including a melt shop with two electric arc furnaces (170-ton and 120-ton), a
120-ton argon-oxygen decarburization unit, a thin-slab continuous caster, a six
stand hot strip mill, a five stand tandem cold rolling mill and a pickle line.
The Dover, Ohio plant consists of a 600,000 square-foot facility including a
galvanizing line, stack anneal furnaces and a temper mill.
Under a plan to upgrade the facilities at Mansfield to enhance their steel
production capability and improve the operating performance of both the
Mansfield and Dover facilities, Armco installed a thin-slab caster and made
related plant modifications at Mansfield. The new state-of-the-art continuous
thin-slab caster is designed to produce three different types of steels
(stainless, electrical and carbon) with rapid switchover from one type to
another. The installation of the thin-slab caster, certain hot mill upgrades and
other modifications at the Mansfield plant were made over a 15-month period at a
cost totaling approximately $140 million. The casting process used at Mansfield
helps to ensure consistently high quality because it eliminates intermediate
production steps and reduces the amount of rolling required to achieve desired
thickness. The new caster can produce slabs from three to five inches thick, up
to 50 inches wide, and up to 60 feet in length.
Armco's Zanesville, Ohio plant, with 508,000 square feet of buildings on 88
acres, is a finishing facility for some of the steel produced at Butler and
Mansfield and has a Sendzimer cold-rolling mill, anneal and pickle lines, high
temperature box anneal and other decarburization and coating units.
In the fourth quarter of 1994, Armco announced an extensive capital
improvement program under which it spent $95 million over a two-year period to
upgrade and expand its stainless and electrical steel finishing facilities. The
program was initiated to reduce existing products constraints and increase
specialty steel finishing capacity by approximately 180,000 tons per year,
particularly in electrical steels, specialty strip and sheet products and chrome
stainless steel. The strategic facilities upgrades were completed during 1996
and Armco now believes that it is positioned to operate its plants without major
disruption throughout 1997. Armco plans to focus on improving productivity and
quality at its specialty steels operations and anticipates further cost
reductions as these improvements are made.
FABRICATED PRODUCTS SEGMENT
The Fabricated Products segment is described below:
Douglas Dynamics is the largest North American manufacturer of snowplows for
four-wheel drive pick-up trucks and utility vehicles. Douglas Dynamics, which is
headquartered in Milwaukee, Wisconsin, and has manufacturing plants in Rockland,
Maine, Milwaukee, Wisconsin and Johnson City, Tennessee, sells its snowplows and
ice control products under the names Western Products and Fisher Engineering
through independent distributors in the United States and Canada.
Sawhill Tubular manufactures a wide range of steel pipe and tubular products
for use in the construction, industrial and plumbing markets at plants in Sharon
and Wheatland, Pennsylvania and Warren, Ohio.
Greens Port Industrial Park operates a loading dock on the Houston Ship
Channel and leases buildings and land located on its property.
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EMPLOYEES
At June 30, 1997, Armco had approximately 6,000 employees. Most of Armco's
domestic production and maintenance employees are represented by international,
national or independent local unions, although some operations are not
unionized.
Armco has agreements with independent unions at the specialty steel plants
in Butler, Pennsylvania and Zanesville, Ohio. In May 1996, members of the
Zanesville Armco Organization ratified a new four-year labor agreement. In
October 1996, members of the Butler Armco Independent Union ratified a new
five-year labor agreement. The agreements with the Butler Armco Independent
Salaried Union and the Butler Armco Independent Plant Protection Union expire on
September 30, 1997.
Armco has agreements with United Steelworkers of America at Sawhill Tubular
plants. In February, 1996, employees at Sawhill Tubular's Wheatland plant
ratified a new four-year agreement and in June 1996, employees at Sawhill
Tubular's Warren plant ratified a new agreement which will expire September 30,
2000. The agreement at Sawhill Tubular's Sharon plant will expire September 30,
1999. In addition, the agreements with the United Steelworkers of America at the
Mansfield and Dover operations expire August 31, 1999.
COMPETITION
The Company faces intense competition from domestic and foreign steel
producers, foreign producers of components and other products and manufacturers
of competing products other than steel, including aluminum, plastics, composites
and ceramics. Competition is based primarily on price, with factors such as
reliability of supply, service and quality also being important in certain
segments.
In addition to existing competition, two steel companies have recently
entered, or announced plans to enter, the specialty steel market. In 1995, Nucor
Corporation, a mini-mill steel company, entered the automotive chrome stainless
steel business with the addition of an argon-oxygen decarburization (AOD) vessel
at its Crawfordsville, Indiana melt shop. In late 1996, AK Steel Corporation, an
integrated steel company, announced plans to build a steel finishing facility in
Rockport, Indiana that will include equipment capable of processing specialty
steel. When completed, this facility will provide AK Steel with substantial
stainless steel processing and finishing capacity. Increases in the production
capacity and efficiency of these and other domestic producers, together with
possible new entrants into the specialty steel market, are expected to result in
intensified competition that could exert downward pressure on price and market
share.
The Company's competitors in the domestic galvanized steel market include
many of the large integrated and mini-mill flat rolled producers. Since 1989,
significant flat-rolled mini-mill capacity has been constructed and these
mini-mills now compete with integrated domestic steel producers in most
flat-rolled steel markets. Mini-mills generally rely on less capital-intensive
hot metal sources, have smaller, non-unionized workforces resulting in lower
employment costs per ton shipped and are relatively free of many of the
employee, environmental and other obligations that have traditionally burdened
non-mini-mill steel producers. There is significant flat-rolled and galvanized
capacity under construction or announced with various planned commissioning
dates in the next several years. Given the increased competition that is
expected as the new capacity comes on line, the Company may experience downward
pressure on pricing in its galvanized product line.
Competition is also presented, to a lesser degree, by foreign producers.
Some of these foreign producers have lower labor costs and are subsidized by
their governments. Their decisions with regard to production and sales may be
influenced more by political and social considerations than prevailing market
forces. Many foreign steel producers continue to ship into the United States
market despite decreasing profit margins or losses. Depending on a number of
market factors, including the strength of the dollar,
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import levels, and the effectiveness of U.S. trade laws, pricing of the
Company's products could be adversely affected.
In 1995, led by the Specialty Steel Industry of North America, the
industry's trade organization, a major initiative was begun with European
specialty steel producers to attempt to reach a consensus on a Multilateral
Specialty Steel Agreement ("MSSA") for specialty steel producers only. During
1996, framework terms for the MSSA were agreed to by U.S. specialty steel
producers and specialty steel producers in Europe. However, as a result of new
demands by European specialty steel producers, negotiations have broken off and
there appears to be little likelihood of a final agreement in the foreseeable
future.
RAW MATERIALS AND ENERGY SOURCES
Raw materials represent a major component of production costs in the steel
industry. The principal raw materials used by Armco in the production of steels
are iron and carbon steel scrap, chrome and nickel and their ferroalloys,
stainless steel scrap, silicon, molybdenum and zinc. These materials are
purchased in the open market from various outside sources. Since much of this
purchased raw material is not covered by long-term contracts, availability and
price are subject to world market conditions. Chrome, nickel and certain other
materials in mined alloy form can be acquired only from foreign sources, many of
them located in developing countries that may be subject to unstable political
and economic conditions that might disrupt supplies or affect the price of these
materials. A significant portion of the chrome and nickel requirements, however,
is obtained from stainless steel scrap rather than mined alloys. While certain
raw materials have been in short supply from time to time, Armco currently is
not experiencing and does not anticipate any problems obtaining appropriate
materials in amounts sufficient to meet its production needs. Armco also uses
large amounts of electricity and natural gas in the manufacture of its products.
It is expected that such energy sources will continue to be reasonably available
in the foreseeable future.
LEGAL MATTERS
There are various other claims pending against the Company and its
subsidiaries involving product liability, reinsurance and insurance
arrangements, environmental, antitrust, employee benefits and other matters
arising out of the conduct of the business of Armco. Armco's management believes
that the ultimate liability, if any, resulting from any of these claims will not
materially affect the consolidated financial position or liquidity of Armco and
its subsidiaries.
ENVIRONMENTAL MATTERS
Armco, in common with other United States manufacturers, is subject to
various federal, state and local requirements for environmental controls
relating to its operations. Armco has devoted, and will continue to devote,
significant resources to control air and water pollutants, to dispose of wastes,
and to remediate sites of past waste disposal. Armco estimates capital
expenditures for pollution control in its manufacturing operations will
aggregate about $20.0 million for the years 1997-2001, with the largest
expenditures being made in the Specialty Flat-Rolled Steels segment.
Approximately $7.5 million is related to control of air pollution pursuant to
regulations currently promulgated under the Clean Air Act, as amended, and
corresponding state laws. A substantial portion of capital expenditures is also
attributable to control of water pollution under the Clean Water Act. These
projections, which have been prepared internally and without independent
engineering or other assistance, reflect Armco's current analysis of probable
required capital projects for pollution control. During the period 1991 through
1996, Armco's capital expenditures for pollution control projects aggregated
approximately $35.8 million, including $7.7 million in 1996. Statutory and
regulatory requirements in this area continue to evolve and, accordingly, the
type and magnitude of expenditures may change. For example, costs that cannot
presently be quantified may arise in the future due to implementation of the
recently revised National Ambient Air Quality Standards for particulate matter
and ozone.
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Armco has been named as a defendant, or identified as a potentially
responsible party, in various governmental proceedings regarding cleanup of
certain past waste disposal sites. Armco is also a defendant in various private
lawsuits alleging property damage and personal injury from waste disposal sites
and former Company facilities. Joint and several liability could be imposed on
Armco or other parties for these matters; thus, theoretically, one party could
be held liable for all costs related to a site. While such governmental and
private actions are being contested, the outcome of individual matters cannot be
predicted with assurance. However, based on its experience with such cases and a
review of current claims, Armco expects that in most cases any ultimate
liability will be apportioned between Armco and other financially viable
parties.
From time to time, Armco has been and may be subject to penalties or other
requirements as a result of administrative actions by regulatory agencies and to
claims for indemnification for properties it has previously owned or leased. The
Company has retained certain liabilities relating to the business and properties
sold by the Company. In addition, environmental exit costs may be incurred if
Armco decides to dispose of additional properties. It is Armco's policy not to
accrue such costs until a decision is made to dispose of a property.
Based on current facts and circumstances known to Armco, Armco's experience
with site remediation, an understanding of current environmental laws and
regulations, environmental assessments, the existence of other financially
viable parties, expected remediation methods and the years in which Armco is
expected to make payments toward each remediation (which range from the current
year to 30 years or more in the future), Armco believes that the ultimate
liability for environmental remediation matters identified to date will not
materially affect its consolidated financial condition or liquidity. However, it
is possible that, due to fluctuations in Armco's results future developments
with respect to such matters could have a material effect on the results of
operations of future interim or annual periods.
Furthermore, the identification of additional sites, changes in known
circumstances with respect to identified sites, the failure of other parties to
contribute their share of remediation costs decisions to dispose of additional
properties and other changed circumstances may result in increased costs to
Armco, which could have a material effect on its consolidated financial
condition, liquidity and results of operations in future interim or annual
periods. However, it is not possible to determine whether additional loss, due
to changed circumstances, will occur or to reasonably estimate the amount or
range of any potential additional loss.
Statutes and regulations relating to the protection of the environment have
resulted in higher operating costs and capital investments by the industries in
which Armco operates. Although it cannot predict precisely how changes in
environmental requirements will affect its businesses, Armco does not believe
such requirements would adversely affect its competitive position. See "Risk
Factors--Potential Environmental Expenditures."
RESEARCH AND DEVELOPMENT
Armco conducts a broad range of research and development activities aimed at
improving its existing products and manufacturing processes and developing new
products and processes. Armco's research and development activities are carried
out primarily at a central technology center located in Middletown, Ohio. This
center is engaged in applied materials research related to iron and steel,
nonferrous materials and new materials. In addition, the materials and
metallurgy departments at each operating unit develop and implement improvements
to products and processes that are directly connected with the activities of
such operating unit. Armco spent $13.1 million, $14.0 million, and $12.0
million, respectively, on research in the years 1996, 1995 and 1994.
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THE EXCHANGE OFFER
The Old Notes were sold by the Company on September 12, 1997 to the Initial
Purchasers. In connection with the sale of the Old Notes, the Company and the
Purchasers entered into a registration rights agreement dated as of September 9,
1997 (the "Registration Agreement"), which requires the Company (i) to cause the
Old Notes to be registered under the Securities Act or (ii) to file with the
Commission a registration statement under the Securities Act with respect to the
New Notes of the Company identical in all material respects to the Old Notes,
and to use its best efforts to cause such registration statement to become
effective under the Securities Act. The Company is further obligated, upon the
effectiveness of that registration statement, to offer the holders of the Old
Notes the opportunity to exchange their Old Notes for a like principal amount of
New Notes, which will be issued without a restrictive legend and may be
reoffered and resold by the holder without restrictions or limitations under the
Securities Act. A copy of the Registration Agreement has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
Exchange Offer is being made pursuant to the Registration Agreement to satisfy
the Company's obligations thereunder. The term "Holder" with respect to the
Exchange Offer means any person in whose name Old Notes are registered on the
Company's books or any other person who has obtained a properly completed
assignment from the registered holder.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m. New
York City time, on November 17, 1997, provided, however, that if the Company, in
its sole discretion, has extended the period of time during which the Exchange
Offer is open, the term "Expiration Date" means the latest time and date to
which the Exchange Offer is extended.
As of the date of this Prospectus, $150,000,000 aggregate principal amount
of the Old Notes is outstanding. Except for an aggregate of $12,000,000
principal amount of Old Notes held by two affiliates of the Company, the Company
believes that all outstanding Old Notes are eligible to be exchanged for New
Notes that will then be freely transferrable by the holders thereof. This
Prospectus, together with the Letter of Transmittal, is first being sent on or
about October 17, 1997, to all Holders of Old Notes known to the Company. The
Company's obligation to accept Old Notes for exchange pursuant to the Exchange
Offer is subject to certain customary conditions as set forth under "-- Certain
Conditions to the Exchange Offer" below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by giving oral or
written notice of such extension to the Holders thereof as described below.
During any such extension, all Old Notes previously tendered will remain subject
to the Exchange Offer and may be accepted for exchange by the Company. Any Old
Notes not accepted for exchange for any reason will be returned without expense
to the tendering Holder thereof as promptly as practicable after the expiration
or termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be in denominations of
principal amount of $1,000 or any integral multiple thereof.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "-- Certain Conditions to the Exchange Offer." The Company
will give oral and written notice of any extension, amendment, non-acceptance or
termination to the Holders of the Old Notes as promptly as practicable, such
notice in the case of any extension to be issued by means of a press release or
other public announcement no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
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PROCEDURES FOR TENDERING OLD NOTES
Only a registered holder of Old Notes may tender such Old Notes in the
Exchange Offer. The tender to the Company of Old Notes by a Holder thereof as
set forth below and the acceptance thereof by the Company will constitute a
binding agreement between the tendering Holder and the Company upon the terms
and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal. Except as set forth below, a Holder who
wishes to tender Old Notes for exchange pursuant to the Exchange Offer must
transmit a properly completed and duly executed Letter of Transmittal, including
all other documents required by such Letter of Transmittal, to The Fifth Third
Bank (the "Exchange Agent") at one of the addresses set forth below under
"Exchange Agent" on or prior to the Expiration Date. In addition, either (i)
certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal, (ii) a timely confirmation of a book-entry
transfer ("a Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the Holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDERS. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
Any beneficial owner whose Old 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 such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's behalf, such owner must, prior
to completing and executing the Letter of Transmittal and delivering such
owner's Old Notes, either make appropriate arrangements to register ownership of
the Old Notes in such beneficial owner's name or obtain a properly completed
bond power from the registered holder. The transfer of registered ownership may
take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "-- Withdrawal Rights"), as the case may be, must be guaranteed (see
"-- Guaranteed Delivery Procedures") unless the Old Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered Holder of the Old
Notes who has not completed the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution (as defined below). In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case may
be, are required to be guaranteed, such guaranties must be by a financial
institution (including most banks, savings and loan associations and brokerage
houses) that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Program or the Stock Exchanges
Medallion Program (collectively, "Eligible Institutions"). If Old Notes are
registered in the name of a person other than a signer of the Letter of
Transmittal, the Old Notes surrendered for exchange must be endorsed by or be
accompanied by a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by the Company in its sole discretion, duly
executed by the registered holder exactly as the name or names of the registered
holder or holders appear on the Old Notes with the signature thereon guaranteed
by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Note not properly tendered or not to accept any particular
Old Notes which acceptance might, in the judgment of the Company or its counsel,
be unlawful. The Company also reserves the absolute right to waive any defects
or irregularities or conditions of the Exchange Offer as to any particular
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Old Notes either before or after the Expiration Date (including the right to
waive the ineligibility of any Holder who seeks to tender Old Notes in the
Exchange Offer). The interpretation of the terms and conditions of the Exchange
Offer as to any particular Old Notes either before or after the Expiration Date
(including the Letter of Transmittal and the instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such reasonable period of time as the Company shall determine. None
of the Company, the Exchange Agent or any other person shall be under any duty
to give notification of any defect or irregularity with respect to any tender of
Old Notes for exchange, nor shall any of them incur any liability for failure to
give such notification.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by the
Company, proper evidence satisfactory to the Company of their authority to so
act must be submitted with the Letter of Transmittal.
By tendering, each Holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person receiving such New Notes,
whether or not such person is the Holder, and that neither the Holder nor such
other person has any arrangement or understanding with any person to participate
in the distribution of the New Notes. If any Holder or any such other person is
an "affiliate", as defined under Rule 405 of the Securities Act, of the Company
or is engaged in or intends to engage in, or has an arrangement or understanding
with any person to participate in, a distribution of such New Notes to be
acquired pursuant to the Exchange Offer, such Holder or any such other person
(i) may not rely on the applicable interpretation of the staff of the SEC and
(ii) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each broker-dealer
that receives New Notes for its own account in exchange for Old Notes, where
such Old 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 meeting the requirements of the Securities Act in connection with any
resale of such New Notes. See "Plan of Distribution." The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See "-- Certain Conditions to the Exchange Offer" below. For purposes
of the Exchange Offer, the Company will be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Company has given oral or
written notice thereof to the Exchange Agent.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive as set forth below under "Description of Senior Notes--Book-Entry,
Delivery and Form" a New Note having a principal amount equal to that of the
surrendered Old Note. Accordingly, registered holders of New Notes on the
relevant record date for the first interest payment date following the
consummation of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid on the Old Notes, or, if no interest
has been paid, from September 15, 1997. Old Notes accepted for exchange will
cease to accrue interest from and after the date of consummation of the Exchange
Offer. Holders whose Old Notes are accepted for exchange will not receive any
payment in respect of accrued interest on such Old Notes otherwise payable on
any interest payment date the record date for which occurs on or after
consummation of the Exchange Offer. If the Exchange Offer is not consummated and
a resale shelf registration statement is not declared effective on or prior to
March 11, 1998, the annual interest rate borne by the Senior Notes
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will be increased by 0.5%. Upon consummation of the Exchange Offer or the
effectiveness of the Shelf Registration Statement, the interest rate on the
Senior Notes will revert to the rate set forth on the cover page of this
Prospectus. See "Registration Rights Agreement." Old Notes not tendered or not
accepted for exchange will continue to accrue interest from and after the date
of consummation of the Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount than the
Holder desires to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering Holder thereof (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry procedure described
below, such non-exchanged Old Notes will be credited to an account maintained
with such Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or a facsimile thereof,
with any required signature guarantees and any other required documents, must,
in any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "-- Exchange Agent" or or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) on or prior to 5:00 p.m., New York City
time, on the Expiration Date, the Exchange Agent receives from such Eligible
Institution a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form
provided by the Company (by telegram, telex, facsimile transmission, mail or
hand delivery), setting forth the name and address of the Holder of Old Notes
and the amount of Old Notes tendered, stating that the tender is being made
thereby and guaranteeing that within three New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the Letter
of Transmittal will be deposited by the Eligible Institution within three NYSE
trading days after the date of execution of the Notice of Guaranteed Delivery.
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<PAGE>
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 P.M., New
York City time, on the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the Exchange Agent at one of
the addresses set forth below under "-- Exchange Agent." Any such notice of
withdrawal must specify the name of the person having tendered the Old Notes to
be withdrawn, identify the Old Notes to be withdrawn (including the principal
amount of such Old Notes), and (where certificates for Old Notes have been
transmitted) specify the name in which such Old Notes are registered, if
different from that of the withdrawing Holder. If certificates for Old Notes
have been delivered or otherwise identified to the Exchange Agent, then, prior
to the release of such 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 such Holder is an Eligible Institution in which case such guarantee will
not be required. If Old Notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of such facility. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination will be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
Holder thereof without cost to such Holder (or, in the case of Old Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility for the Old Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "-- Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, and subject to
its obligations pursuant to the Registration Rights Agreement, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such New Notes for exchange, any of the following
events shall occur.
(i) any injunction, order or decree shall have been issued by any court
or any governmental agency that would prohibit, prevent or otherwise
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(ii) the Exchange Offer will violate any applicable law or any
applicable interpretation of the staff of the Commission.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company in whole or in part at any time and from time to time in
its sole discretion. The failure by the Company at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right and such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order is threatened by the Commission or in effect with
respect to the Registration Statement of which this Prospectus is a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended.
The Exchange Offer is not conditioned on any minimum principal amount of Old
Notes being tendered for exchange.
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EXCHANGE AGENT
The Fifth Third Bank has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below. Questions and requests
for assistance, requests for additional copies of this Prospectus or of the
Letter of Transmittal and requests or Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
The Fifth Third Bank, Exchange Agent
By Mail:
Corporate Trust Operations
38 Fountain Square Plaza
Cincinnati, Ohio 45263
Attention: Paul Smith
By Hand or Overnight Courier
Corporate Trust Operations
38 Fountain Square Plaza
Mail Drop 1090 F5-4129
Cincinnati, Ohio 45263
Attention: Paul Smith
By Facsimile:
(513) 744-8909
Confirm by Telephone:
(513) 744-8741
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include registration fees, fees and
expenses of the Exchange Agent and Trustee, accounting and legal fees and
printing costs, among others.
TRANSFER TAXES
Holders who tender their Old Notes for exchanges will not be obligated to
pay any transfer taxes in connection therewith, except that Holders who instruct
the Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registering tendering holder will be responsible for the payment of the
applicable transfer tax thereon.
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<PAGE>
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes as set forth in the legend thereon as
a consequence of the issuance of the Old Notes pursuant to exemptions from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act and applicable state
securities laws. The Company does not currently anticipate that it will register
Old Notes under the Securities Act. See "Registration Rights Agreement". Based
on interpretations by the staff of the Commission, as set forth in no-action
letters issued to third parties, the Company believes that New Notes issued
pursuant to the Exchange Offer in exchange for Old Notes may be offered for
resale, resold or otherwise transferred by holders thereof (other than any such
holder which is an "affiliate" of the Company 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 such New
Notes are acquired in the ordinary course or such holders' business and such
holders, other than broker-dealers, have no arrangement or understanding with
any person to participate in the distribution of such New Notes. However, the
Commission has not considered the Exchange Offer in the context of a no-action
letter and there can be no assurance that the staff of the Commission would make
a similar determination with respect to the Exchange Offer as in such other
circumstances. Each Holder, other than a broker-dealer, must acknowledge that it
is not engaged in, and does not intend to engage in, a distribution of such New
Notes and has no arrangement or understanding to participate in a distribution
of New Notes. If any Holder is an affiliate of the Company or is engaged in or
intends to engage in or has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such Holder (i) may not rely on the applicable interpretations of the staff of
the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes pursuant to the Exchange Offer must acknowledge that such
Old Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities and that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired 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 Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution". In addition, to comply with the securities
laws of certain jurisdictions, if applicable, the New Notes may not be offered
or sold unless they have been registered or qualified for sale in such
jurisdictions or any exemption from registration or qualification is available
and is complied with. The Company has agreed, pursuant to the Registration
Agreement, subject to certain limitations specified therein, to register or
qualify the New Notes for offer or sale under the securities laws of such
jurisdictions as any holder reasonably requests in writing. Unless a holder so
requests, the Company does not currently intend to register or qualify the sale
of the New Notes in any such jurisdictions.
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<PAGE>
DESCRIPTION OF SENIOR NOTES
The Old Notes were issued under an Indenture, dated as of October 1, 1992,
between the Company and The Fifth Third Bank, as trustee (the "Trustee"), as
supplemented by Supplemental Indenture No. 1, dated as of October 1, 1992 and
Supplemental Indenture No. 2, dated as of September 1, 1997 and as further
supplemented from time to time by supplemental indentures or modified from time
to time by resolutions of the Board of Directors of the Company (the "Board of
Directors") as provided in the indenture (such indenture, as so supplemented or
modified, being hereinafter referred to as the "Indenture"). The Old Notes and
the New Notes will be treated as a single class of securities under the
Indenture. The following statements with respect to the Senior Notes are
summaries of certain provisions of the Indenture and do not purport to be
complete and are qualified in their entirety by reference to the provisions of
the Indenture and the Senior Notes. A copy of the Indenture is available from
the Company upon request. Unless otherwise defined herein capitalized terms have
the meanings given them in the Indenture.
GENERAL
The Senior Notes will mature on September 15, 2007 and will bear interest at
the rate per annum of 9%. Interest on the Senior Notes will accrue from
September 12, 1997 or from the most recent interest payment date to which
interest has been paid, and will be payable semiannually in arrears on March 15
and September 15 of each year, commencing March 15, 1998, to the registered
Holders thereof at the close of business on the March 1 or September 1, as the
case may be, immediately preceding such interest payment date. The Senior Notes
will be limited to an aggregate principal amount of $150,000,000.
The interest rate on the Senior Notes is subject to increase in certain
circumstances if the Company does not file a registration statement relating to
the Registered Exchange Offer on a timely basis, if the registration statement
is not declared effective on a timely basis or if certain other conditions are
not satisfied, all as further described under "Registration Rights Agreement."
Interest on the Senior Notes will be computed on the basis of a 360-day year
of twelve months. Principal and interest on the Senior Notes will be payable at
the office of the Paying Agent, but, at the option of the Company, interest may
be paid by check mailed to the registered Holders at their registered address.
The Senior Notes may be presented for transfer or exchange at such office
without any service charge, but the Company may require a sum sufficient to
cover any tax or other governmental charges payable in connection therewith. The
Company shall not be required to exchange or register the transfer of (i) any
Senior Notes for a period of fifteen days next preceding any selection of Senior
Notes to be redeemed or (ii) any Senior Notes selected, called or being called
for redemption. The Senior Notes will be issued in registered form only, without
coupons, in denominations of $1,000 or any integral multiple thereof.
The Senior Notes will be unsecured obligations of the Company and will rank
on a parity with all other unsecured senior indebtedness of the Company. The
Senior Notes will be senior to any subordinated indebtedness of the Company and
will be effectively junior to secured indebtedness of the Company, to the extent
of the assets securing the indebtedness, and to indebtedness of subsidiaries of
the Company, to the extent of the assets of such subsidiaries. At June 30, 1997,
the Company had total consolidated debt obligations of $389.3 million, of which
$57.5 million of indebtedness was secured by assets of the Company. In addition,
the borrowings under Armco's $170.0 million Credit Facilities are secured by
certain of Armco's inventory and receivables. Approximately $100.0 million of
the Company's 11 3/8% Senior Notes and $20.0 million of its 9.20% Debentures
will be repaid using a portion of the net proceeds of the Senior Notes offered
hereby. The Indenture does not limit the aggregate amount of Debt Securities
that may be issued thereunder. The Indenture provides that Debt Securities may
be issued from time to time in one or more series.
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<PAGE>
OPTIONAL REDEMPTION
On or after September 15, 2002, the Senior Notes may, from time to time, be
redeemed, in whole or in part, at the option of the Company upon not less than
30 nor more than 60 days' prior notice to Holders, at the redemption prices set
forth below (expressed in percentages of the principal amount thereof), plus
accrued and unpaid interest thereon, to the Redemption Date.
<TABLE>
<CAPTION>
REDEMPTION PERIOD PERCENTAGE
- ----------------------------------------------- -----------
<S> <C>
September 15, 2002 to September 14, 2003 104.50%
September 15, 2003 to September 14, 2004 103.00%
September 15, 2004 to September 14, 2005 101.50%
September 15, 2005 and thereafter 100.00%
</TABLE>
At any time prior to September 15, 2000 the Company, at its option, may
redeem up to 33 1/3% of the aggregate principal amount of Senior Notes
originally issued with the net proceeds of one or more Equity Offerings of the
Company at a redemption price equal to 109.00% of the principal amount thereof,
plus accrued and unpaid interest, if any, thereon to the date of redemption
PROVIDED, HOWEVER, that after any such redemption at least 66 2/3% of the
aggregate principal amount of the original issue of the Senior Notes remains
outstanding. Any such redemption must occur on or prior to 120 days after the
receipt of such net proceeds.
In addition, upon the occurrence of a Change of Control prior to September
15, 2002, the Company, at its option, may redeem all, but not less than all, of
the outstanding Senior Notes at a redemption price equal to 100% of the
principal amount thereof plus the applicable Make-Whole Premium. The Company
shall give not less than 30 nor more than 60 days' prior notice to Holders of
such redemption within 30 days following the applicable Change of Control.
If less than all of the Senior Notes are to be redeemed, the selection of
the Senior Notes to be redeemed shall be made as provided in the Indenture.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder shall have the right
to require the Company to repurchase such Holder's Senior Notes, in whole or in
part, in integral multiples of $1,000, pursuant to the Change of Control Offer
described in the next succeeding paragraph at the Repurchase Price in cash equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Change of Control Payment Date.
Within 30 calendar days subsequent to the date of any Change of Control, the
Company shall mail a notice to each Holder and to the Trustee stating: (i) that
a Change of Control has occurred and a Change of Control Offer is being made as
described in this paragraph, and that all Senior Notes that are timely tendered
will be accepted for payment; (ii) the Repurchase Price and the Change of
Control Payment Date, which shall be a date occurring no earlier than 30 days
and no later than 60 days subsequent to the date on which such notice is mailed;
(iii) that any Senior Note (or any portion thereof) accepted for payment
pursuant to the Change of Control Offer (and duly paid on the Change of Control
Payment Date) will cease to accrue interest after the Change of Control Payment
Date; and (iv) any other information regarding the Company and its Subsidiaries
as the Company in good faith believes will enable such Holders to make an
informed decision with respect to the decision to tender their Senior Notes, or
is necessary to enable Holders to tender their Senior Notes (or any portion
thereof) and to have such Senior Notes repurchased pursuant to this covenant.
Notwithstanding the foregoing, if any Senior Note (or any portion thereof)
accepted for payment shall not be so paid pursuant to the provisions of this
covenant, then, from the Change of Control Payment Date until the principal of
(and premium) and interest on such Senior Note is paid, interest shall be paid
on the
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unpaid principal (and premium) and, to the extent permitted by law, on any
accrued but unpaid interest thereon, in each case at the rate prescribed
therefor by such Senior Note.
Neither the Board of Directors nor the Trustee under the Indenture may waive
the Company's obligation to make a Change of Control Offer.
Certain of the instruments governing other outstanding indebtedness of the
Company include provisions requiring payment or repurchase of such indebtedness
at the election of the holders thereof, similar to the Change of Control
repurchase, including the indenture for the $100.0 million 11 3/8% Senior Notes
Due 1999 and the indenture for the $125.0 million 9 3/8% Senior Notes Due 2000,
both of which series rank equally with the Senior Notes, and the Company's
$170.0 million Credit Facilities, the indebtedness under which is secured by
certain of the Company's inventory and receivables. There can be no assurance
that the Company will have adequate resources to repurchase or refinance all
indebtedness owing under the Senior Notes, and the other indebtedness that may
contemporaneously become due, in the event a Change of Control Offer is required
to be made. If the Company does not have sufficient financial resources to
effect a Change of Control Offer, it would be required to seek additional
financing from outside sources to enable it to repurchase the Senior Notes.
There can be no assurance that such financing would be available to the Company
on satisfactory terms. Any failure of the Company to pay the purchase price with
respect to such Change of Control Offer when due constitutes an Event of Default
and will give the Trustee and the holders of the Senior Notes the rights
described under "--Events of Default."
The term "all or substantially all" as used in the definition of "Change of
Control" (see "--Certain Definitions") has not been interpreted under New York
law (which is the governing law of the Indenture) to represent a specific
quantitative test. As a consequence, in the event the holders of the Senior
Notes elected to exercise their rights under the Indenture and the Company
elected to contest such election, there could be no assurance as to how a court
interpreting New York law would interpret the phrase.
The provisions of the Indenture relating to a Change of Control in and of
themselves may not afford Holders of the Senior Notes protection in the event of
a highly leveraged transaction, reorganization, restructuring, merger or similar
transaction involving the Company that may adversely affect Holders of the
Senior Notes, if such transaction is not the type of transaction included within
the definition of a Change of Control. See "--Certain Definitions" for the
definition of "Change of Control." A transaction involving the Company's
management or its affiliates, or a transaction involving a recapitalization of
the Company, will result in a Change of Control if such transaction otherwise
constitutes a change in control within the meaning of such definition.
The Company shall comply, to the extent applicable, with the requirements of
Rule 14e-1 under the Exchange Act and other securities laws or regulations in
connection with the repurchase of the Senior Notes as described above. To the
extent that the provisions of any securities laws or regulations conflict with
the Change of Control provisions of the Indenture, the Company shall comply with
the applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the Indenture by virtue thereof.
The existence of a Holder's right to require the Company to repurchase the
Senior Notes in respect of a Change of Control may deter a third party from
acquiring the Company in a transaction that constitutes a Change of Control.
SINKING FUND
There will be no mandatory sinking fund payments for the Senior Notes.
CERTAIN COVENANTS
The Indenture covenants more particularly described below limit, among other
things, the ability of the Company and its Restricted Subsidiaries to engage in
a highly leveraged transaction, whether such
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transaction is initiated or supported by the Company, its management or
affiliates or an unrelated third party.
TRANSACTIONS WITH AFFILIATES. The Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, conduct any business or enter
into any transaction or series of transactions (including, but not limited to,
the sale, transfer, disposition, purchase, exchange or lease of assets or
Property, the making of any Investment, the giving of any Guarantee, or the
rendering of any service) with or for the benefit of any Affiliate of the
Company (other than the Company), unless (i) such transaction or series of
transactions is on terms no less favorable in the aggregate (including such
factors as quality, delivery, service and acceptance by customers of the Company
or such Subsidiary) to the Company or such Subsidiary than those that could be
obtained in a comparable arm's-length transaction with an entity that is not an
Affiliate of the Company or such Subsidiary, and (ii) with respect to a
transaction or series of transactions outside the ordinary course of business
that has a Fair Market Value equal to or greater than $5,000,000, the terms
thereof are set forth in writing and the Board of Directors (including a
majority of the disinterested directors thereof) approves such transaction or
series of transactions and, in its good faith judgment, believes that such
transaction or series of transactions complies with clause (i) of this
paragraph, as evidenced by a Certified Resolution.
The foregoing limitations do not apply to (i) any transaction with an
officer or director of the Company or any Subsidiary of the Company entered into
in the ordinary course of business consistent with past practice (including
compensation or employee benefit arrangements with any officer or director of
the Company or any Subsidiary of the Company) and the cash-out of supplemental
pension benefits, or (ii) transactions between the Company and its Restricted
Subsidiaries or among such Restricted Subsidiaries.
LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, make any
Restricted Payment if, at the time of and after giving effect to the proposed
Restricted Payment (i) any Default or Event of Default has occurred and is
continuing, or (ii) the Company could not Incur at least $1.00 of additional
Indebtedness pursuant to the first paragraph of "--Limitation on Indebtedness,"
or (iii) the aggregate amount expended or committed for all Restricted Payments
from the date of the closing of the Offer made hereby (the amount so expended or
committed, if other than in cash, to be determined in good faith by the Board of
Directors and evidenced by a Certified Resolution) exceeds the sum of (A) 50% of
the aggregate Consolidated Net Income of the Company and its Restricted
Subsidiaries (or, if Consolidated Net Income shall be a deficit, minus 100% of
such deficit) subsequent to June 30, 1997 and ending on the last day of the
fiscal quarter immediately preceding the date of such Restricted Payment, (B)
100% of the aggregate net proceeds, including cash and the Fair Market Value of
Property other than cash, received by the Company subsequent to the date of the
closing of the Offer made hereby, from capital contributions from its
stockholders or from the issuance or sale (other than to a Subsidiary) of
Qualified Capital Stock of the Company or of any convertible securities or debt
obligations which have been converted into, exchanged for or satisfied by the
issuance of Qualified Capital Stock, and (C) the amount of the net reduction in
Investments made as Restricted Payments in accordance with this sentence in
Unrestricted Subsidiaries resulting from (1) the payment of cash dividends or
the repayment in cash of the principal of loans or the cash return on any
Investment, in each case to the extent received by the Company or any wholly
owned Restricted Subsidiary of the Company from Unrestricted Subsidiaries, (2)
to the extent that any Investment in an Unrestricted Subsidiary that was made
after the date of the closing of the Offering made hereby is sold for cash or
otherwise liquidated or repaid for cash, the after-tax cash return of capital
with respect to such Investment (less the cost of disposition, if any) or (3)
the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries, such
aggregate amount of the net reduction in such Investments not to exceed, in the
case of any Unrestricted Subsidiary, the amount of such Investments made as
Restricted Payments previously made by the Company or any Restricted Subsidiary
in such Unrestricted Subsidiary, which amount was included in the calculation of
the amount of Restricted Payments.
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The foregoing limitations do not prevent the Company or its Restricted
Subsidiaries from (i) paying a dividend on its Capital Stock within 60 days
after declaration thereof if, on the declaration date, the Company could have
paid such dividend in compliance with the Indenture; (ii) repurchasing shares of
its Capital Stock (A) solely in exchange for other shares of its Capital Stock
(other than Redeemable Stock), (B) to eliminate fractional shares or odd lots
for up to an aggregate consideration in any fiscal year of the Company not to
exceed $2,000,000, (C) pursuant to an order of a court of competent
jurisdiction, or (D) in connection with repurchase provisions under employee
stock option and stock purchase agreements or other agreements to compensate
management employees of the Company; (iii) making cash payments in respect of
stock appreciation rights granted to employees of the Company; (iv) the purchase
for value of shares of Capital Stock of the Company (A) held by directors,
officers or employees upon death, disability, retirement, or termination of
employment or (B) to fund capital stock-based, long-term incentive programs, not
to exceed $10,000,000 in the aggregate; (v) Restricted Payments for the
redemption, repurchase or other acquisition of shares of Capital Stock of the
Company in satisfaction of indemnification or other claims arising under any
merger, consolidation, asset purchase or investment or similar acquisition
agreement permitted under the Indenture, pursuant to which such shares of
Capital Stock were issued; (vi) making payments to purchase or redeem
Indebtedness made by exchange for, or out of the proceeds of, the substantially
concurrent (A) sale or issuance of Capital Stock (other than Redeemable Stock)
of the Company, or (B) Incurrence of Indebtedness of the Company that is
contractually subordinated in right of payment to the Senior Notes and has a
Stated Maturity later than the Stated Maturity of the Senior Notes and an
Average Life greater than the remaining Average Life of any of the Senior Notes;
(vii) declaring and paying dividends on the Preferred Stock of the Company
outstanding on the date of the closing of the Offer made hereby; (viii) making
Investments in Affiliates up to an aggregate of $15,000,000; (ix) making an
Investment in an Affiliate as a result of which such Affiliate becomes a
Restricted Subsidiary in compliance with "--Restricted and Unrestricted
Subsidiaries"; (x) making an Investment by contributing or otherwise
transferring to any Person or Persons all or any part of the Non-Core Businesses
enumerated in clauses (i) through (v) of the definition of "Non-Core
Businesses"; and (xi) making other Restricted Payments in an aggregate amount
not to exceed $25,000,000 (after giving effect to the amount of the net
reduction in any Investments made as Restricted Payments in reliance on this
clause (xi) resulting from (1) the payment of cash dividends or the repayment in
cash of the principal of loans or the cash return on any such Investment, in
each case to the extent received by the Company or any wholly owned Restricted
Subsidiary of the Company from Unrestricted Subsidiaries, (2) to the extent that
any such Investment in an Unrestricted Subsidiary is sold for cash or otherwise
liquidated or repaid for cash, the after-tax cash return of capital with respect
to such Investment (less the cost of disposition, if any) or (3) the
redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries).
The payments permitted to be made pursuant to clauses (ii)(A), (iii) (but
only to the extent any such payments are included in determining Consolidated
Net Income), (vi), (ix) and (x) of the preceding paragraph shall be excluded for
purposes of any future calculations pursuant to the first paragraph of this
covenant of the aggregate amount of Restricted Payments outstanding. The
payments permitted to be made pursuant to clauses (i), (ii)(B), (ii)(C),
(ii)(D), (iii) (but only to the extent that any such payments are not included
in determining Consolidated Net Income), (iv), (v), (vii), (viii) and (xi) shall
be included for purposes of any future calculations pursuant to the first
paragraph of this covenant of the aggregate amount of Restricted Payments
outstanding.
LIMITATION ON INDEBTEDNESS. The Company will not, directly or indirectly,
Incur any Indebtedness unless, immediately after the date of the transaction
giving rise to such Indebtedness and after giving effect to the Incurrence of
such Indebtedness and the receipt and application of the proceeds thereof as if
such Indebtedness had been Incurred and the proceeds thereof applied on the
first day of the Determination Period, the Consolidated Interest Coverage Ratio
of the Company at such date exceeds the ratio of 2.0 to 1.0.
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Notwithstanding the foregoing, the Company may Incur the following
Indebtedness (although any Indebtedness so Incurred shall be included, to the
extent outstanding at the Determination Date, in any subsequent determination of
the Consolidated Interest Coverage Ratio): (i) Indebtedness Incurred by the
Company or by Armco Funding Corporation under the Credit Facilities, PROVIDED
that the aggregate principal amount of all Indebtedness Incurred under this
clause (i) at any one time outstanding does not exceed the greater of (A)
$225,000,000 and (B) the sum of (1) 80% of the book value of the accounts
receivable of the Company and its Restricted Subsidiaries and (2) 50% of the
book value of the inventory of the Company and its Restricted Subsidiaries, in
the case of clauses (B)(1) and (B)(2) of this proviso, as of the end of the most
recent fiscal quarter for which financial information in respect thereof is
available immediately prior to the date of such Incurrence, determined in
accordance with GAAP; (ii) Indebtedness evidenced by the Senior Notes; (iii)(A)
Indebtedness of the Company in respect of Capital Lease Obligations or (B)
Capital Expenditure Indebtedness directly Incurred by the Company, PROVIDED that
the aggregate principal amount of all Indebtedness Incurred under clauses
(iii)(A) and (B) of this paragraph and the Indebtedness Incurred under clause
(iv) under "--Limitation on Restricted Subsidiary Indebtedness and Preferred
Stock" does not exceed $100,000,000 at any one time outstanding; (iv)
Indebtedness under Interest Rate Protection Agreements, PROVIDED that the
obligations under such agreements are related to payment obligations on
Indebtedness otherwise permitted by the terms of this covenant; (v) Indebtedness
of the Company to any wholly owned Restricted Subsidiary of the Company (but
only so long as such Indebtedness is held by such wholly owned Restricted
Subsidiary); (vi) Indebtedness outstanding on the date of the closing of the
Offer made hereby; (vii) Permitted Refinancing Indebtedness; (viii) surety
obligations of the Company and its Restricted Subsidiaries entered into in the
ordinary course of business, (ix) Indebtedness of the Company and its Restricted
Subsidiaries Incurred to finance the purchase of insurance in the ordinary
course of business, (x) Indebtedness of the Company and its Restricted
Subsidiaries Incurred from the honoring by a bank or other financial institution
of a check or draft inadvertently drawn against insufficient funds in the
ordinary course of business, provided that such Indebtedness is extinguished
within two business days of notice of any such Incurrence, and (xi) Indebtedness
not otherwise permitted to be Incurred under clauses (i) through (x) of this
paragraph, which, together with any other outstanding Indebtedness Incurred
under this clause (xi) of this paragraph, has an aggregate principal amount not
in excess of $40,000,000 at any one time outstanding.
LIMITATION ON RESTRICTED SUBSIDIARY INDEBTEDNESS AND PREFERRED STOCK. The
Company will not permit any of its Restricted Subsidiaries to Incur, directly or
indirectly, any Indebtedness or Preferred Stock, except: (i) (A) Indebtedness or
Preferred Stock outstanding on the date of the closing of the Offer made hereby
or (B) Indebtedness Incurred under the Credit Facilities to the extent permitted
by clause (i) of the second paragraph under "--Limitation on Indebtedness"; (ii)
Indebtedness or Preferred Stock issued to and held by the Company or a wholly
owned Restricted Subsidiary of the Company (but only so long as such
Indebtedness or Preferred Stock is held or owned by the Company or a wholly
owned Restricted Subsidiary of the Company); (iii)(A) Indebtedness of a
Restricted Subsidiary in respect of Capital Lease Obligations or (B) Capital
Expenditure Indebtedness directly Incurred by a Restricted Subsidiary, PROVIDED
that after giving effect to such Indebtedness the Company could Incur at least
$1.00 of additional Indebtedness pursuant to the first paragraph of "--
Limitation on Indebtedness"; (iv)(A) Indebtedness of a Restricted Subsidiary in
respect of Capital Lease Obligations or (B) Capital Expenditure Indebtedness
directly Incurred by a Restricted Subsidiary, PROVIDED that the aggregate
principal amount of all Indebtedness Incurred under clauses (iv)(A) and (iv)(B)
of this paragraph and the Indebtedness Incurred under clause (iii) of the second
paragraph under "-- Limitation on Indebtedness" does not exceed $100,000,000 at
any one time outstanding; and (v) Indebtedness or Preferred Stock Incurred in
exchange for, or the proceeds of which are used to Refinance, Indebtedness or
Preferred Stock of equal or higher ranking referred to in clauses (i) through
(iv) of this paragraph, so long as (A) the principal amount of such Indebtedness
or the liquidation value of such Preferred Stock so Incurred does not exceed the
principal amount or liquidation value of the Indebtedness or Preferred Stock so
exchanged or Refinanced and (B) the Indebtedness or Preferred Stock so Incurred
has a Stated Maturity or final redemption date later than the Stated Maturity
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or final redemption date (if any) of, and an Average Life that is longer than
that of, the Indebtedness or Preferred Stock being exchanged or Refinanced.
Any Indebtedness or Preferred Stock Incurred pursuant to clauses (i) through
(v) of the preceding paragraph will be included, to the extent outstanding at
the Determination Date, in any subsequent determination of the Consolidated
Interest Coverage Ratio.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS. The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into, assume, Guarantee or otherwise become liable with respect to any
Sale and Leaseback Transaction, except for a Sale and Leaseback Transaction not
exceeding 360 days unless: (i) the Company or such Restricted Subsidiary is
permitted to Incur such Indebtedness under "--Limitation on Indebtedness" or
"--Limitation on Restricted Subsidiary Indebtedness and Preferred Stock,"
respectively; (ii) the Company or such Restricted Subsidiary would be permitted
to Incur a Lien to secure Indebtedness or enter into a Sale and Leaseback
Transaction pursuant to the second paragraph under "--Limitation on Liens" or
Incur a Lien on such Property that is the subject of such Sale and Leaseback
Transaction pursuant to clause (ii) of the first paragraph of "--Limitation on
Liens" without equally and ratably securing the Senior Notes; (iii) the Company
or such Restricted Subsidiary receives consideration at least equal to the Fair
Market Value of the Property transferred; and (iv) if the Sale and Leaseback
Transaction is, directly or indirectly, entered into, or assumed or Guaranteed
by, the Company or such Restricted Subsidiary, or the Company or such Restricted
Subsidiary otherwise becomes liable with respect thereto, more than 360 days
after the Property subject to such Sale and Leaseback Transaction is acquired or
constructed by the Company or such Restricted Subsidiary, the Company applies
the proceeds of such Sale and Leaseback Transaction, net of all reasonable
out-of-pocket expenses Incurred by the Company or such Restricted Subsidiary in
connection therewith, which are customarily Incurred in connection with the Sale
and Leaseback Transactions of such kind, in accordance with the provisions under
"--Limitation on Asset Sales" as if such Sale and Leaseback Transaction were an
Asset Sale.
LIMITATION ON LIENS. The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, Incur any Lien on or with
respect to any Property of the Company or such Restricted Subsidiary, or any
interest therein or any income or profits therefrom, unless the Senior Notes are
secured equally and ratably with (or prior to) any and all other Indebtedness
secured by such Lien, except for: (i) any Lien securing Indebtedness permitted
under clause (i) of the second paragraph under "--Limitation on Indebtedness";
(ii) any Lien (A) in respect of Capital Lease Obligations or Capital Expenditure
Indebtedness permitted to be Incurred by the terms of the first paragraph or
clause (iii) of the second paragraph under "--Limitation on Indebtedness" or
clauses (iii) or (iv) of the first paragraph under "--Limitation on Restricted
Subsidiary Indebtedness and Preferred Stock," (B) existing on any Property of a
Person at the time such Person is merged or consolidated with or into the
Company or any Restricted Subsidiary or becomes a Restricted Subsidiary (and not
Incurred in anticipation of such transaction) or (C) existing on any Property at
the time of the acquisition thereof (and not Incurred in anticipation of such
transaction) whether or not assumed by the Company or any Restricted Subsidiary;
PROVIDED that in any such case such Lien may extend only to the Property so
acquired or constructed and improvements thereon, and, in the case of any such
Lien in respect of Capital Lease Obligations and Capital Expenditure
Indebtedness, the real property on which such Property is located; (iii) any
Lien Incurred to secure the performance of statutory obligations, bids, trade
contracts, leases, surety or appeal bonds, performance or return-of-money bonds
or other obligations of a like nature Incurred in the ordinary course of
business; (iv) any Lien to secure industrial revenue or development or pollution
control bonds; (v) any Lien to secure any Refinancing (or successive
Refinancings), in whole or in part, of any Indebtedness secured by Liens
referred to in clauses (i) through (iv) of this paragraph so long as such Lien
does not extend to any other Property and the Indebtedness so secured is not
increased; (vi) any Lien securing only the Senior Notes; (vii) any Lien in favor
of the Company or a wholly owned Restricted Subsidiary; (viii) any Lien for
taxes or assessments by other governmental charges or levies; (ix) any Lien to
secure obligations under
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worker's compensation, unemployment insurance or other social security
legislation, including Liens with respect to judgments which are not currently
dischargeable; (x) materialmen's, mechanics', worker's, warehousemen's,
landlord's and carriers' Liens or other like Liens created by law (or in a lease
agreement in the case of landlord's Liens) and arising in the ordinary course of
business; (xi) any Lien existing on the date of the closing of the Offer made
hereby; (xii) easements, rights of way, zoning and other similar restrictions or
encumbrances Incurred in the ordinary course of business; and (xiii) attachment,
judgment and other similar Liens arising in connection with court proceedings,
PROVIDED that the execution or other enforcement of such Liens is effectively
stayed and the claims secured thereby are currently being contested in good
faith by appropriate proceedings.
In addition to the foregoing, the Company and its Restricted Subsidiaries
may Incur a Lien to secure Indebtedness or enter into a Sale and Leaseback
Transaction, without equally and ratably securing the Senior Notes, if the sum
of (i) the amount of Indebtedness secured by all Liens entered into after the
date of the closing of the Offer made hereby and (ii) the Attributable Value of
all Sale and Leaseback Transactions or Capital Lease Obligations in respect
thereof entered into after the date of the closing of the Offer made hereby and
otherwise prohibited by this Indenture does not exceed 10% of the Company's
Consolidated Net Tangible Assets.
LIMITATION CONCERNING DISTRIBUTIONS OR TRANSFERS BY RESTRICTED SUBSIDIARIES.
The Company will not, and will not permit any Restricted Subsidiary to, directly
or indirectly, cause to exist or become effective or enter into any encumbrance
or restriction (other than pursuant to law or regulation) on the ability of any
Restricted Subsidiary: (i) to pay dividends or make any other distributions in
respect of its Capital Stock or pay any Indebtedness or other obligation owed to
the Company or any other Restricted Subsidiary of the Company; (ii) to make
loans or advances to the Company or any Restricted Subsidiary of the Company; or
(iii) to transfer any of its Property to the Company or any other Restricted
Subsidiary, except for any encumbrance or restrictions pursuant to any agreement
in effect on the date of the closing of the Offer made hereby or any Refinancing
thereof containing encumbrances or restrictions no greater than in the agreement
so Refinanced.
LIMITATION ON ASSET SALES. The Company will not, and will not permit any
Restricted Subsidiary to, consummate any Asset Sale unless: (i) the Company or
such Restricted Subsidiary, as the case may be, receives consideration at least
equal to the Fair Market Value of the Property disposed of and (ii) at least 75%
of the consideration received by the Company or such Restricted Subsidiary for
such Property (other than Non-Core Businesses enumerated in clauses (i) through
(v) of the definition of "Non-Core Businesses") is in the form of cash, cash
equivalents, readily marketable securities or non-cash consideration that is
immediately converted to cash, or the assumption by the purchaser of such
Property of Senior Indebtedness (PROVIDED such Senior Indebtedness was not
Incurred in connection with or in anticipation of such Asset Sale), PROVIDED
that the Company must, at the Company's option, (A) (1) commit, or cause such
Restricted Subsidiary to commit (such commitments to include amounts anticipated
to be expended pursuant to the Company's capital investment plan (x) as adopted
by the Board of Directors and (y) evidenced by the filing of an officer's
certificate with the Trustee stating that the total amount of the Net Cash
Proceeds of such Asset Sale is less than the aggregate amount contemplated to be
expended pursuant to such capital investment plan within 24 months of the
consummation of such Asset Sale) within 270 days of the consummation of such
Asset Sale, to apply the Net Cash Proceeds of such Asset Sale to reinvest in
Additional Core Assets or, if the applicable Asset Sale was a sale of a Non-Core
Business, in Additional Assets and (2) apply, or cause such Restricted
Subsidiary to apply, pursuant to such commitment (which includes amounts
actually expended under the capital investment plan authorized by the Board of
Directors), such Net Cash Proceeds of such Asset Sale within 24 months of the
consummation of such Asset Sale; PROVIDED THAT if any commitment under this
clause (A) is terminated or rescinded after the 225th day after the consummation
of such Asset Sale, the Company or such Restricted Subsidiary, as the case may
be, shall have 45 days after such termination or rescission to (a) apply such
Net Cash Proceeds pursuant to clause (B) or (C) below, or (b) to commit, or
cause such Restricted Subsidiary to commit, to
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apply the Net Cash Proceeds of such Asset Sale to reinvest in Additional Core
Assets or in Additional Assets, as the case may be and/or (B) offer to apply an
amount equal to such Net Cash Proceeds (or remaining Net Cash Proceeds) to the
repayment of any Senior Indebtedness, or (to the extent of Net Cash Proceeds
received from an Asset Sale by such Restricted Subsidiary) debt of a Restricted
Subsidiary, and repay such Indebtedness of any lender or debt holder who accepts
such offer or, in the case of any Indebtedness under a revolving credit
facility, repay an amount outstanding thereunder equal to such Net Cash Proceeds
and concurrently therewith, effect a permanent reduction in the committed
availability thereunder; and/or (C) offer to apply an amount equal to such Net
Cash Proceeds (or remaining Net Cash Proceeds) to the repayment of the Senior
Notes and repurchase any Senior Notes properly tendered in acceptance of such
prepayment offer (the "Prepayment Offer") on a pro rata basis at a purchase
price at least equal to 100% of their principal amount plus interest accrued to
the date of such repurchase; PROVIDED, HOWEVER, that in the event the Net Cash
Proceeds resulting from any Asset Sale, after giving effect to the purchase of
Additional Core Assets or Additional Assets, as the case may be, and/or the
repayment of Senior Indebtedness, are less than $10,000,000, the application of
an amount equal to such Net Cash Proceeds to a pro rata offer to repurchase the
Senior Notes may be deferred until such time as such Net Cash Proceeds, together
with Net Cash Proceeds from any prior or subsequent Asset Sales not otherwise
applied in accordance with this paragraph, are at least equal to $10,000,000. To
the extent that any portion of the amount of Net Cash Proceeds remains after
compliance with the preceding sentence and PROVIDED that all Holders have been
given the opportunity to tender their Senior Notes for repurchase as provided in
clause (C) above, the Company or such Restricted Subsidiary may use such
remaining amount for general corporate purposes.
Within 280 days from the date of an Asset Sale, the Company shall, if it
chooses (or is obligated) to apply an amount equal to any remaining Net Cash
Proceeds (or any portion thereof) to fund an offer to repurchase the Senior
Notes, send a written Prepayment Offer Notice, by first-class mail, to the
Holders of the Senior Notes, accompanied by such information regarding the
Company and its Subsidiaries as the Company in good faith believes will enable
such Holders to make an informed decision with respect to the Prepayment Offer.
The Prepayment Offer Notice will also state (i) that the Company is offering to
purchase Senior Notes pursuant to the provisions of the Indenture described
herein under "--Limitation on Asset Sales," (ii) that any Senior Note (or any
portion thereof) accepted for payment (and duly paid on the Purchase Date)
pursuant to the Prepayment Offer will cease to accrue interest after the
Purchase Date, (iii) the Expiration Date of the Prepayment Offer, which will be,
subject to any contrary requirements of applicable law, not less than 30 days
nor more than 60 days after the date of such Prepayment Offer, (iv) a Purchase
Date (which shall be the settlement date for the purchase of Senior Notes and
shall be within five business days after the Expiration Date), (v) the aggregate
principal amount of Senior Notes to be purchased and the purchase price thereof
and (vi) a description of the procedure which a Holder must follow and any other
information necessary to tender all or any portion of such Holder's Senior
Notes.
Notwithstanding the foregoing, if any Senior Note (or any portion thereof)
accepted for payment shall not be so paid pursuant to the provisions described
in the preceding paragraph, then, from the Purchase Date until the principal of
(and premium, if any) and interest on such Senior Note is paid, interest shall
be paid on the unpaid principal (and premium, if any) and, to the extent
permitted by law, on any accrued but unpaid interest thereon, in each case, at
the rate prescribed therefor by such Senior Note.
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RESTRICTED AND UNRESTRICTED SUBSIDIARIES. The Company may designate a
Subsidiary (including a newly formed or newly acquired Subsidiary) of the
Company or any of its Restricted Subsidiaries as an Unrestricted Subsidiary if
(i) such Subsidiary has total assets of $1,000 or less, or (ii) such designation
is effective immediately upon such Person becoming a Subsidiary of either the
Company or any of its Restricted Subsidiaries. Unless so designated as an
Unrestricted Subsidiary, any Person that becomes a Subsidiary of the Company or
any of its Restricted Subsidiaries shall be classified as a Restricted
Subsidiary thereof. Except as provided in clause (i) of this paragraph, no
Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary. Subject
to the next succeeding paragraph, an Unrestricted Subsidiary may be redesignated
as a Restricted Subsidiary. The designation of an Unrestricted Subsidiary or the
removal of such designation in compliance with the next succeeding paragraph
shall be made by the Board of Directors pursuant to a Certified Resolution
delivered to the Trustee and shall be effective as of the date specified in the
applicable Certified Resolution, which shall not be prior to the date such
Certified Resolution is delivered to the Trustee.
The Company will not, and will not permit any of its Restricted Subsidiaries
to, take any action or enter into any transaction or series of transactions that
would result in a Person becoming a Restricted Subsidiary (whether through an
acquisition, the redesignation of an Unrestricted Subsidiary or otherwise)
unless, after giving effect to such action, transaction or series of
transactions, (i) on a pro forma basis, the Company could Incur at least $1.00
of additional Indebtedness pursuant to the first paragraph under "--Limitation
on Indebtedness," (ii) such Subsidiary could then Incur, pursuant to clauses
(ii), (iii) or (iv) of the first paragraph under "--Limitation on Restricted
Subsidiary Indebtedness and Preferred Stock," all Indebtedness as to which it is
obligated at such time, (iii) no Default or Event of Default would occur or be
continuing, and (iv) there exist no Liens with respect to the Property of such
Subsidiary other than Liens permitted to be Incurred under "--Limitation on
Liens."
The Company will not, and will not permit any of its Restricted Subsidiaries
to, take any action or enter into any transaction or series of transactions that
would result in any such Restricted Subsidiary ceasing to be a Subsidiary (other
than a merger or consolidation with the Company or another Restricted
Subsidiary) unless, after giving effect to such action, transaction or series of
transactions, either: (i)(A) neither the Company nor any of its Affiliates
(other than a Person that is an Affiliate by virtue of its ownership of Capital
Stock or control of the Company) shall own any Capital Stock of such former
Restricted Subsidiary or any successor in interest to the business thereof, and
(B) there shall not exist any Indebtedness of the former Restricted Subsidiary
or any successor in interest to the business thereof in favor of the Company or
any of its Restricted Subsidiaries; or (ii) the Company and its Restricted
Subsidiaries would be permitted to make a Restricted Payment in the amount of
the aggregate Investment (excluding (A) any Investment to the extent of cash or
the Fair Market Value of Property other than cash received by the Company or its
Restricted Subsidiary, as the case may be, in respect of or as a repayment of
such Investment, and (B) the amount of Indebtedness of the former Restricted
Subsidiary received by the Company or its Restricted Subsidiaries as part of the
consideration for the acquisition of the Capital Stock or assets of such former
Restricted Subsidiary), if any, made in the former Restricted Subsidiary after
the date of the closing of the Offer made hereby.
MERGER, CONSOLIDATION. The Company will not merge or consolidate with any
other corporation (other than a merger of a Restricted Subsidiary into the
Company in which the Company is the continuing corporation) or sell, transfer or
convey its Property or assets as an entirety or substantially as an entirety to
any Person other than a wholly owned Restricted Subsidiary, unless (i) the
entity formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, transfer or conveyance is made shall be a
corporation organized and existing under the laws of the United States of
America or a State or the District of Columbia and such corporation expressly
assumes, by supplemental indenture satisfactory to the Trustee, executed and
delivered to the Trustee by such corporation, the due and punctual payment of
the principal of, premium, if any, and interest on all the Senior Notes,
according to their tenor, and the due and punctual performance and observance of
all of the covenants and
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conditions of the Indenture to be performed by the Company; (ii) immediately
before and after giving effect to such transaction or series of transactions, no
Default or Event of Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction or series of transactions on
a pro forma basis (including, without limitation, any Indebtedness Incurred or
anticipated to be Incurred in connection with such transaction or series of
transactions), the Company (or the surviving entity if the Company is not
continuing) would be able to Incur at least $1.00 of additional Indebtedness
under the first paragraph of "--Limitation on Indebtedness," or, in the case of
a merger or consolidation of the Company into or with a wholly owned Restricted
Subsidiary, the Consolidated Interest Coverage Ratio of the surviving entity
would be no less than the Consolidated Interest Coverage Ratio of the Company
immediately prior to such merger or consolidation; (iv) immediately after giving
effect to such transaction or series of transactions on a pro forma basis
(including, without limitation, any Indebtedness Incurred or anticipated to be
Incurred in connection with such transaction or series of transactions) as if
such transaction had occurred on the first day of the Determination Period, the
Company (or the surviving entity if the Company is not continuing) shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net Worth of
the Company immediately prior to the transaction or series of transactions; and
(v) the Trustee shall have received an Opinion of Counsel as conclusive evidence
that any such consolidation, merger, sale, conveyance or acquisition, and any
such assumption, complies with the provisions of this covenant.
EVENTS OF DEFAULT
The Indenture provides that, if an Event of Default specified therein with
respect to any series of Debt Securities shall have happened and be continuing,
either the Trustee or the Holders of 25% in principal amount of the Outstanding
Debt Securities of such series may declare the principal of all the Debt
Securities of such series to be due and payable (and, in the case of certain
Events of Default involving a bankruptcy event with respect to the Company, such
principal shall become immediately due and payable, without any requirement of
notice or declaration).
Events of Default in respect of any series of Debt Securities as set forth
in the Indenture include: (i) default for 30 days in payment of any interest
installment or any sinking or analogous fund payment; (ii) default in payment of
principal on the Debt Securities of any series when due whether at stated
maturity, when called for redemption, by declaration, or otherwise; (iii)
default for 30 days after notice to the Company by the Trustee or by Holders of
25% in aggregate principal amount of the Outstanding Debt Securities in the
performance of any other covenant in the Indenture with respect to the Debt
Securities of such series; and (iv) certain events of bankruptcy and insolvency.
In addition to the Events of Default that are provided in the Indenture with
respect to all Debt Securities, Supplemental Indenture No. 2 provides that the
following shall be additional Events of Default with respect to the Senior Notes
that will be subject to the procedures and other provisions of such Indenture:
(i) a default by the Company or any of its Significant Restricted Subsidiaries
under any bonds, debentures, mortgages, indentures, agreements or instruments
under which they may be issued, or by which there may be secured or evidenced,
any indebtedness for borrowed money of the Company or any Significant Restricted
Subsidiary, whether such indebtedness now exists or shall be created after the
date of the closing of the Offer made hereby, and such indebtedness shall have
been accelerated (or shall have matured) and such indebtedness remains unpaid,
PROVIDED that the principal amount of such indebtedness with respect to which
any such default and acceleration (or maturity) has occurred and is continuing,
together with the principal amount of all other such indebtedness with respect
to which such a default and acceleration (or maturity) has occurred and is
continuing, aggregates $5,000,000 or more; or (ii) the entry by a court of
competent jurisdiction of one or more judgments or orders against the Company or
any of its Significant Restricted Subsidiaries in an uninsured aggregate amount
in excess of $5,000,000 is not discharged, waived, stayed or satisfied for a
period of 60 consecutive days.
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The Indenture provides that the Trustee will, within 90 days after the
occurrence of a default with respect to the Debt Securities of any series, give
to the Holders of the Debt Securities of such series notice of all uncured and
unwaived defaults known to it; PROVIDED that, except in the case of default in
the payment of principal of, or premium, if any, or interest on any of the Debt
Securities of such series, the Trustee will be protected in withholding such
notice if it in good faith determines that the withholding of such notice is in
the interest of the Holders of the Debt Securities of such series. The term
"default" for the purpose of this provision means the happening of any of the
Events of Default specified above, except that any grace period or notice
requirement is eliminated.
The Indenture contains provisions entitling the Trustee, subject to the duty
of the Trustee during an Event of Default to act with the required standard of
care, to be indemnified by the Holders of the Debt Securities before proceeding
to exercise any right or power under the Indenture at the request of Holders of
the Debt Securities.
The Indenture provides that the Holders of a majority in principal amount of
the outstanding Debt Securities of any series may direct the time, method and
place of conducting proceedings for remedies available to the Trustee or
exercising any trust or power conferred on the Trustee with respect to such
series. In certain cases, the Holders of a majority in principal amount of the
outstanding Debt Securities of any series may, on behalf of the Holders of all
Debt Securities of such series, waive any past default or Event of Default with
respect to the Debt Securities of such series or compliance with certain
provisions of the Indenture, except, among other things, a default not
theretofore cured in payment of the principal of, or premium, if any, or
interest on, any of the Debt Securities of such series.
The Indenture includes a covenant that the Company will file annually with
the Trustee a certificate stating whether or not any default exists.
WAIVERS
The provisions of the various covenants discussed above cannot be waived,
except that, in certain cases, the Holders of a majority in principal amount of
the outstanding Senior Notes may on behalf of the Holders of all Senior Notes
waive any past Default or Event of Default with respect to the Senior Notes,
including a breach of covenant, other than a Default not theretofore cured in
payment of the principal of, or premium, if any, or interest on, any of the
Senior Notes. No such waiver, however, shall extend to any subsequent or other
Default or impair any right consequent thereon.
DEFEASANCE
The Indenture provides that the Company, at its option, (i) will be
Discharged from any and all obligations in respect of any series of Debt
Securities (except in each case for certain obligations to register the transfer
or exchange of Debt Securities, replace stolen, lost or mutilated Debt
Securities, maintain paying agencies and hold moneys for payment in trust) on
the 91st day after satisfaction of the conditions set forth below, or (ii) will
not thereafter be subject to certain provisions of the Indenture (including the
Events of Default described above other than defaults on payments due on the
Debt Securities), in each case if the Company irrevocably deposits or causes to
be deposited with the Trustee, in trust, money or Government Obligations which
through the payment of interest thereon and principal thereof in accordance with
their terms will provide money, in an amount sufficient to pay all the principal
of, and interest on, such series not later than one day before the dates such
payments are due in accordance with the terms of such series. To exercise any
such option, there shall not exist any Event of Default or event which would
become an Event of Default with notice or lapse of time or both, which shall
have occurred and be continuing at the time of such deposit, and the Company
shall deliver to the Trustee an Opinion of Counsel to the effect that (A) the
deposit and related defeasance would not cause the Holders of such series to
recognize income, gain or loss for federal income tax purposes and, in the case
of a Discharge pursuant to clause (i), accompanied by a ruling to such effect
received from or published by the United States Internal
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Revenue Service, and (B) if such series of Debt Securities are then listed on
the New York Stock Exchange, such Debt Securities would not be delisted as a
result of the exercise of such option.
The Indenture also provides that if at any time (i) all Debt Securities
theretofore authenticated (other than any Debt Securities which shall have been
destroyed, lost or stolen and which shall have been replaced or paid as provided
in the Indenture) shall have been delivered to the Trustee for cancellation, or
(ii) all Debt Securities not theretofore canceled or delivered to the Trustee
for cancellation shall have become due and payable, or will become due and
payable in accordance with their terms, within one year, and the Company shall
deposit or cause to be deposited with the Trustee, in trust, funds sufficient to
pay at maturity the entire amount of all such Debt Securities not theretofore
delivered to the Trustee for cancellation, including principal and interest due
or to become due to such date of maturity and if the Company shall also pay or
cause to be paid all other sums payable hereunder by the Company, then the
Indenture shall cease to be of further effect, and on demand of and at the cost
and expense of the Company, the Trustee shall execute proper instruments
acknowledging satisfaction of and discharging the Indenture.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the Holders of not less than a majority in aggregate
principal amount of the outstanding Debt Securities of each series to be
affected, to execute supplemental indentures adding any provisions to or
changing or eliminating any of the provisions of the Indenture or modifying the
rights of the Holders of the Debt Securities of such series to be affected,
except that no such supplemental indenture may, without the consent of the
Holders of affected Debt Securities, among other things, change the fixed
maturity of any Debt Securities, or reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon, or reduce any
premium payable upon the redemption thereof, or reduce the relative ranking of
any Debt Securities, or reduce the aforesaid percentage of Debt Securities of
any series the consent of the Holders of which is required for any such
supplemental indenture.
THE TRUSTEE
The Fifth Third Bank is the Trustee under the Indenture. The Trustee
maintains normal banking relationships with the Company and its subsidiaries,
including as a participant in the Company's Credit Facilities. The Trustee may
perform certain services for and transact other business with the Company from
time to time in the ordinary course of business.
CERTAIN DEFINITIONS
Set forth is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other capitalized terms used herein for which no
definition is provided.
"Additional Assets" means (i) any Property or assets (other than
Indebtedness and Capital Stock) that the Board of Directors determines to be
useful in the conduct of the business of the Company and its Subsidiaries,
whether or not such business is conducted on the date of the original issuance
of the Senior Notes ("Approved Business"), (ii) 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 (iii) 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 (ii) or (iii) above is primarily engaged in an Approved
Business.
"Additional Core Assets" means (i) any Property or assets (other than
Indebtedness or Capital Stock) used or intended for use in the Core Business,
(ii) the Capital Stock of a Person engaged in the Core
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Business that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary engaged in
the Core Business, or (iii) Capital Stock constituting a minority interest in
any Person that at such time is a Restricted Subsidiary engaged in the Core
Business.
"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. As used in this definition, "control" (including, with its correlative
meanings, "controlled by" and "under common control with") shall mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership,
membership or other ownership interests, by contract or otherwise), provided
that, in any event, each Unrestricted Subsidiary shall be deemed to be an
Affiliate of the Company and of each other Subsidiary. Notwithstanding the
foregoing, no individual shall be deemed to be an Affiliate of a Person solely
by reason of his or her being an officer or director (or equivalent) of such
Person and neither the Company nor any of its Restricted Subsidiaries shall be
deemed to be Affiliates of each other.
"AFSC" means Armco Financial Services Corporation.
"Asset Sale" means, with respect to any Person, any transfer, conveyance,
sale, lease or other disposition (including, without limitation, dispositions
pursuant to any consolidation or merger, but excluding any Restricted Payment or
Sale and Leaseback Transaction) by such Person or any of its Restricted
Subsidiaries (including any consolidation, merger or other sale of any such
Restricted Subsidiaries with, into or to another Person in a transaction in
which such Restricted Subsidiary ceases to be a Restricted Subsidiary, but
excluding a disposition by a Restricted Subsidiary of such Person to such Person
or a wholly owned Restricted Subsidiary of such Person or by such Person to a
wholly owned Restricted Subsidiary of such Person) in any single transaction or
series of transactions of (i) shares of Capital Stock (other than directors'
qualifying shares) or other ownership interests of a Restricted Subsidiary of
such Person, (ii) all or substantially all the Property of any division,
business segment or comparable line of business of such Person or any of its
Restricted Subsidiaries or (iii) any other Property of such Person or any of its
Restricted Subsidiaries having a Fair Market Value in excess of $5,000,000 and
transferred, conveyed, sold, leased or otherwise disposed of outside of the
ordinary course of business of such Person or Restricted Subsidiary; PROVIDED
that the term "Asset Sale," when used with respect to the Company, shall not
include (x) any asset disposition permitted pursuant to "--Merger,
Consolidation" which constitutes a disposition of all or substantially all of
the Company's assets, (y) a disposition of obsolete assets in the ordinary
course of business, or (z) a sale or transfer of accounts receivable under the
Credit Facilities.
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable other than a Capital Lease Obligation, and at any
date as of which the amount thereof is to be determined, the total net amount of
rent required to be paid by such Person under such lease during the initial term
thereof as determined in accordance with GAAP, discounted from the last date of
such initial term to the date of determination at a rate per annum equal to the
discount rate which would be applicable to a Capital Lease Obligation with like
term in accordance with GAAP. The net amount of rent required to be paid under
any such lease for any such period shall be the aggregate amount of rent payable
by the lessee with respect to such period after excluding amounts required to be
paid on account of insurance, taxes, assessments, utility, operating and labor
costs and similar charges. In the case of any lease which is terminable by the
lessee upon the payment of a penalty, such net amount shall also include the
amount of such penalty, but no rent shall be considered as required to be paid
under such lease subsequent to the first date upon which it may be so
terminated. "Attributable Value" means, as to a Capital Lease Obligation under
which any Person is at the time liable and at any date as of which the amount
thereof is to be determined, the capitalized amount thereof that would appear on
the face of the balance sheet of such Person in accordance with GAAP.
"Average Life" means, as of any date, with respect to any debt security or
Redeemable Preferred Stock, the quotient obtained by dividing (i) the sum of the
products of (x) the number of years from such
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date to the date of each scheduled principal or redemption (including any
sinking fund or mandatory redemption payment requirements) of such debt or
equity security multiplied in each case by (y) the amount of such principal or
redemption payment by (ii) the sum of all such principal or redemption payments.
"Capital Expenditure Indebtedness" means Indebtedness Incurred by any Person
to finance the purchase or construction of any Property acquired (other than
from an Affiliate) or constructed by such Person so long as (i) the purchase or
construction price for such Property is or should be included in "addition to
property, plant or equipment" in accordance with GAAP, (ii) the acquisition or
construction of such Property is not part of any acquisition of a Person or
business unit, and (iii) such Indebtedness is Incurred within 360 days of the
acquisition or completion of construction of such Property.
"Capital Lease Obligation" of any Person means the obligation to pay rent or
other payment amounts under a lease of (or other Indebtedness arrangement
conveying the right to use) real or personal property of such Person which is
required to be classified and accounted for as a capital lease or a liability on
the face of a balance sheet of such Person in accordance with GAAP.
"Capital Stock" in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person and any rights (other than debt securities convertible into an
equity interest), warrants or options to subscribe for or to acquire an equity
interest in such Person.
"Change of Control" means an event or series of events by which (i)(A) the
Company consolidates with or merges into any other Person or conveys, transfers
or leases all or substantially all of its assets to any Person or group of
Persons or (B) any Person consolidates with or merges into the Company, in the
case of either (A) or (B) pursuant to a transaction or series of transactions
(other than a transaction or series of transactions between the Company and a
wholly owned Restricted Subsidiary of the Company) as a result of which the
existing shareholders of the Company immediately prior thereto hold less than
50% of the combined voting power of the Voting Stock of the surviving Person, or
(ii) any "person" or "group" (each as defined in Section 13(d)(3) of the
Exchange Act) becomes the "beneficial owner" (as defined under Rule 13d-3 of the
Exchange Act), directly or indirectly, of 50% or more of the total voting power
of all classes of Voting Stock of the Company, or (iii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors (together with any new or replacement directors whose
election by the Board of Directors or whose nomination for election by the
Company's stockholders was approved by a vote of at least 66 2/3% of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the directors then in
office.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker that would be utilized, at the time
of selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining term
of the Senior Notes. "Independent Investment Banker" means one of the Reference
Treasury Dealers appointed by the Trustee after consultation with the Company.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Securities" or (ii) if such release (or any successor release) is not published
or does not contain such prices on such business day, (A) the average of the
Reference Treasury Dealer Quotations for such redemption date, (B) if the
Trustee is able to obtain only one Reference Treasury Dealer Quotation from the
Reference Treasury Dealers, such Quotation, or (C) if the Trustee is not able to
obtain any Reference Treasury Dealer Quotations from the Reference Treasury
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Dealers, the average of the Reference Treasury Dealer Quotations obtained from
two other Primary Treasury Dealers designated by the Company as Reference
Treasury Dealers for the purpose of determining such Comparable Treasury Price.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer as of 3:30 p.m., New
York time, on the third business day preceding such redemption date.
"Consolidated EBITDA" of any Person means, for any period, the Consolidated
Net Income of such Person, (i) increased (to the extent deducted in determining
Consolidated Net Income) by the sum of (A) all income taxes of such Person and
its Restricted Subsidiaries paid or accrued in accordance with GAAP (other than
income taxes attributable to extraordinary gains), (B) the Consolidated Interest
Expense of such Person and its Restricted Subsidiaries for such period, other
than interest capitalized by such Person or its Restricted Subsidiaries during
such period, (C) depreciation and amortization expenses of such Person and its
Restricted Subsidiaries for such period, including without limitation,
amortization of capitalized debt issuance costs; and (D) other non-cash items of
such Person and its Restricted Subsidiaries for such period to the extent such
non-cash items reduce Consolidated Net Income (excluding any non-cash charge
that will require cash payments and for which an accrual or reserve is, or is
required by GAAP to be, made) MINUS non-cash items to the extent such non-cash
items increase the Consolidated Net Income (excluding any items which represent
the reversal of any accrual or reserve for cash charges established in any prior
period) of such Person and its Restricted Subsidiaries and (ii) decreased (to
the extent included in determining Consolidated Net Income) by any revenues
accrued but not received by such Person or any of its Restricted Subsidiaries
from any other Person (other than such Person or its Restricted Subsidiaries) in
respect of any Investment for such period, all as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Interest Coverage Ratio" means, with respect to any Person,
the ratio of (i) the aggregate amount of Consolidated EBITDA of such Person for
the four consecutive fiscal quarters for which consolidated financial statements
in respect thereof are available immediately prior to the relevant Transaction
Date (the "Determination Period") to (ii) the aggregate amount of Consolidated
Interest Expense of such Person for the Determination Period; PROVIDED, HOWEVER,
that for purposes of calculating the Consolidated Interest Coverage Ratio of any
specified Person, the Consolidated EBITDA and Consolidated Interest Expense of
such specified Person shall be calculated on a PRO FORMA basis as if the
transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio had taken place on the first day of the Determination Period, and
shall (A) include the Consolidated Interest Expense in respect of any
Indebtedness Incurred by such Person subsequent to the first day of the
Determination Period and prior to the Transaction Date as if such Indebtedness
had been Incurred on the first day of the Determination Period, (B) exclude,
from the first day of the Determination Period, the Consolidated Interest
Expense in respect of (1) any Indebtedness of such Person that has been redeemed
or retired subsequent to the first day of the Determination Period and prior to
the Transaction Date and (2) if the transaction giving rise to the need to
calculate the Consolidated Interest Coverage Ratio is an Incurrence of
Indebtedness, any Indebtedness (x) that the Company anticipates as of the time
of determination will be redeemed or retired with the proceeds of, and within 90
days following the Incurrence of, such Indebtedness giving rise to such need or
(y) with respect to which the Company has deposited or caused to be deposited
irrevocably with the Trustee or Fiscal Agent for such Indebtedness funds
sufficient to redeem or retire such Indebtedness or has irrevocably committed to
redeem such Indebtedness, (C) include the Consolidated EBITDA and Consolidated
Interest Expense of any other Person acquired subsequent to the first day of the
Determination Period and prior to the Transaction Date by such specified Person
as a Restricted Subsidiary of such specified Person as if such Person had been
acquired on the first day of the Determination Period, (D) exclude, from the
first day of the Determination Period, the Consolidated EBITDA of such specified
Person directly attributable to any Property of such specified Person
(including, without limitation, Capital Stock) which was the subject of an Asset
Sale at any time subsequent to the first
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day of the Determination Period and prior to the Transaction Date and (E) for
purposes of "--Limitation on Indebtedness" and "--Merger, Consolidation," where
the Consolidated Interest Coverage Ratio is calculated to give effect to the
transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio, such calculation shall also include the Consolidated EBITDA and
Consolidated Interest Expense of any other Person to be acquired by such
specified Person as a Restricted Subsidiary of such specified Person in
connection with the transaction giving rise to the need to calculate the
Consolidated Interest Coverage Ratio. When the Consolidated Interest Coverage
Ratio is determined with respect to the Company, the term "Restricted
Subsidiary" shall be deemed to include any Unrestricted Subsidiary that became a
Restricted Subsidiary at any time between the first day of the Determination
Period and the Transaction Date, PROVIDED that such Subsidiary is a Restricted
Subsidiary on the Transaction Date.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication (i) the sum of (A) the aggregate amount of cash and
non-cash interest expense (net of interest income) of such Person and its
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP in respect of Indebtedness (including, without limitation,
(u) capitalized interest, (v) any amortization of debt discount, (w) net costs
associated with Interest Rate Protection Agreements (including any amortization
of discounts), (x) the interest portion of any deferred payment obligation, (y)
all accrued interest, and (z) all commissions, discounts and other fees and
charges owed with respect to letters of credit, bankers' acceptances or similar
facilities) paid, accrued or scheduled to be paid or accrued, during such
period; (B) Preferred Stock dividends of such Person (and of its Restricted
Subsidiaries if paid to a Person other than such Person or its Restricted
Subsidiaries) declared and payable in cash; (C) the portion of any rental
obligation of such Person or its Restricted Subsidiaries in respect of any
Capital Lease Obligation allocable to interest expense in accordance with GAAP;
(D) the portion of any rental obligation of such Person or its Restricted
Subsidiaries in respect of any Sale and Leaseback Transaction allocable to
interest expense (determined as if such were treated as a Capital Lease
Obligation); and (E) to the extent any Indebtedness of any other Person is
Guaranteed by such Person or any of its Restricted Subsidiaries (other than
Guarantees relating to obligations of customers, either of such Person or any of
its Restricted Subsidiaries, that are made in the ordinary course of business
consistent with the past practices of such Person or such Restricted
Subsidiaries), the aggregate amount of interest paid, accrued or scheduled to be
paid or accrued, by such other Person during such period attributable to any
such Indebtedness, less (ii) to the extent included in (i) above, amortization
or write-off of deferred financing costs of such Person and its Restricted
Subsidiaries during such period and any charge related to any premium or penalty
paid in connection with redeeming or retiring any Indebtedness of such Person
and its Restricted Subsidiaries prior to its Stated Maturity; in the case of
both (i) and (ii) above, after elimination of intercompany accounts among such
Person and its Restricted Subsidiaries and as determined in accordance with
GAAP.
"Consolidated Net Income" of any Person means, for any period, the aggregate
net income (or net loss) of such Person and its Restricted Subsidiaries for such
period on a consolidated basis determined in accordance with GAAP; PROVIDED that
there shall be excluded therefrom, without duplication, (i) all items classified
as extraordinary, (ii) any net loss or net income of any Person other than such
Person and its Restricted Subsidiaries, except to the extent of the amount of
dividends or other distributions actually paid to such Person or its Restricted
Subsidiaries by such other Person during such period, (iii) the net income of
any Person acquired by such Person or any of its Restricted Subsidiaries in a
pooling-of-interests transaction for any period prior to the date of such
acquisition, (iv) any gain or loss, net of taxes, realized on the termination of
any employee pension benefit plan, (v) gains or losses in respect of Asset Sales
by such Person or its Restricted Subsidiaries, (vi) the net income of any
Restricted Subsidiary of such Person to the extent that the payment of dividends
or other distributions to such Person is restricted by contract or otherwise,
except for any dividends or distributions actually paid by such Restricted
Subsidiary to such Person, (vii) any extraordinary, unusual or nonrecurring
gains or losses (and related tax effects) in accordance with GAAP, and (viii)
the effect of the adoption of Statement of Financial Accounting Standards No.
106 ("SFAS 106") to the extent expenses recognized pursuant to such adoption
exceed the
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amounts with respect to such expenses which would have been recognized during
such period using the "pay as you go" accounting method; PROVIDED FURTHER that
there shall be included in determining the net income or net loss of such person
expenses that would have been recognized using the "pay as you go" accounting
method to the extent that such expenses exceed the expenses recognized during
such period pursuant to SFAS 106.
"Consolidated Net Tangible Assets" of any Person means the sum of Tangible
Assets of such Person and its Restricted Subsidiaries after eliminating
inter-company items, all determined in accordance with GAAP, including
appropriate deductions for any minority interest in Tangible Assets of such
Restricted Subsidiaries.
"Consolidated Net Worth" of any Person means the stockholders' equity of
such Person and its Restricted Subsidiaries, as determined on a consolidated
basis in accordance with GAAP, less amounts attributable to Redeemable Stock of
such Person.
"Core Business" means the specialty flat-rolled steel business.
"Corporation" includes corporations, associations, companies and business
trusts.
"Credit Facilities" means the two bank credit facilities dated as of
December 22, 1995 between the Company and Armco Funding Corporation,
respectively, on the one hand, and the banks signatory thereto on the other, and
all related notes, collateral documents, guarantees, instruments and other
agreements executed in connection therewith, as the same may be amended,
modified, supplemented, restated or Refinanced from time to time.
"Default" means any event, act or condition the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
"Discharge" or "Discharged" means that the Company shall be deemed to have
paid and discharged the entire indebtedness represented by, and obligations
under, the Debt Securities of such series and to have satisfied all the
obligations under this Indenture relating to the Debt Securities of such series
(and the Trustee, at the expense of the Company, shall execute proper
instruments acknowledging the same and satisfaction of and discharging this
Indenture).
"Eligible Receivables" means, as of any date, trade receivables (less
allowance for doubtful accounts) of the Company and its Restricted Subsidiaries
that would be shown on a consolidated balance sheet of the Company and its
Restricted Subsidiaries as of that date prepared in accordance with GAAP.
"Equity Offering" means a registered public offering of common stock of the
Company resulting in net proceeds to the Company in excess of $25,000,000.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and the rules and regulations promulgated thereunder.
"Fair Market Value" means, with respect to the total consideration received
pursuant to any Asset Sale or any non-cash consideration received by any Person,
the fair market value of such consideration as determined in good faith by the
Board of Directors as evidenced by a Certified Resolution.
"fiscal year" means, with respect to the Company, the twelve consecutive
months ending December 31.
"GAAP" or "generally accepted accounting principles," with respect to any
computation required or permitted hereunder shall, except as otherwise
specifically provided, mean such accounting principles as are generally accepted
in the United States of America at the date of such computation.
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"Guarantee" by an Person means any obligation, contingent or otherwise, of
such Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness of any other Person (the "primary obligor") in any manner, whether
directly or indirectly, and including, without limitation, any obligation of
such Person, (i) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or to purchase (or to advance or supply funds
for the purchase of) any security for the payment of such Indebtedness, (ii) to
purchase Property, securities or services for the purpose of assuring the holder
of such Indebtedness of the payment of such Indebtedness, or (iii) to maintain
working capital, equity capital or other financial statement condition or
liquidity of the primary obligor so as to enable the primary obligor to pay such
Indebtedness (and "Guaranteed," "Guaranteeing" and "Guarantor" shall have
meanings correlative to the foregoing); PROVIDED, HOWEVER, that a Guarantee by
any Person shall not include endorsements by such Person for collection or
deposit, in either case, in the ordinary course of business.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), extend,
assume, Guarantee or otherwise become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise, of
any such Indebtedness or obligation on the balance sheet of such Person (and
"Incurrence," "Incurred," "Incurrable" and "Incurring" shall have meanings
correlative to the foregoing); PROVIDED, HOWEVER, that a change in GAAP that
results in an obligation of such Person that exists at such time becoming
Indebtedness shall not be deemed an Incurrence of such Indebtedness.
"Indebtedness" means at any time (without duplication), with respect to any
Person, whether recourse is to all or a portion of the assets of such Person,
and whether or not contingent, (i) any obligation of such Person for borrowed
money, (ii) any obligation of such Person evidenced by bonds, debentures, notes,
Guarantees or other similar instruments, including, without limitation, any such
obligations Incurred in connection with acquisition of Property or businesses,
(iii) any reimbursement obligation of such Person with respect to letters of
credit, bankers' acceptances or similar facilities issued for the account of
such Person, (iv) any obligation of such Person issued or assumed as the
deferred purchase price of Property or services (but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of business), (v)
any Capital Lease Obligation of such Person, (vi) the maximum fixed redemption
or repurchase price of Redeemable Stock of such Person at the time of
determination, (vii) any payment obligation of such Person under Interest Rate
Protection Agreements at the time of determination, (viii) any obligation to pay
rent or other payment amounts of such Person with respect to any Sale and
Leaseback Transaction to which such Person is a party and (ix) any obligation of
the type referred to in clauses (i) through (viii) of another Person and all
dividends of another Person the payment of which, in either case, such Person
has Guaranteed or is responsible or liable, directly or indirectly, as obligor,
Guarantor or otherwise. For purposes of the preceding sentence, the maximum
fixed repurchase price of any Redeemable Stock that does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Stock as if such Redeemable Stock were repurchased on any date on
which Indebtedness shall be required to be determined pursuant to this
Indenture; PROVIDED, HOWEVER, that if such Redeemable Stock is not then
permitted to be repurchased, the repurchase price shall be the book value of
such Redeemable Stock. 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 of any contingent obligations in
respect thereof at such date.
"Interest Rate Protection Agreement" means, with respect to any Person, any
interest rate swap agreement, interest rate cap agreement, currency swap
agreement or other financial agreement or arrangement designed to protect such
Person or its Restricted Subsidiaries against fluctuations in interest rates or
currency exchange rates, as in effect from time to time.
"Investment" means, with respect to any Person, any direct, indirect or
contingent (i) payment or transfer (including, without limitation, by means of
any payment for Property or services for the account or use of another Person)
of cash, Capital Stock or other Property, or assumption of Indebtedness, made by
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such Person in exchange for Capital Stock, notes or bonds of, or as a capital
contribution to, any other Person or (ii) loan, advance or other extension of
credit (including, without limitation, by means of a Guarantee, letter of credit
or similar arrangement other than advances or loans to customers in the ordinary
course of business that are recorded as accounts receivable of such Person or
its Restricted Subsidiaries in accordance with GAAP) made by such Person to or
on behalf of any other Person.
"Lien" means, with respect to any Property, any mortgage or deed of trust,
pledge, hypothecation, assignment, deposit arrangement, security interest, lien
(statutory or other), charge, easement, encumbrance, preference, priority or
other security or similar agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such Property (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Make-Whole Premium" means, with respect to a Senior Note, an amount equal
to the greater of (i) 1.0% of the outstanding principal amount of such Senior
Note and (ii) the excess of (a) the present value of the remaining interest,
premium and principal payments due on such Senior Note as if such Senior Note
were redeemed on September 15, 2002, computed using a discount rate equal to the
Treasury Rate plus 75 basis points, over (b) the outstanding principal amount of
such Senior Note.
"Net Cash Proceeds" from any Asset Sale by any Person or its Restricted
Subsidiaries means cash, cash equivalents or readily marketable securities
received (including by way of sale or discounting of a note, installment
receivable or other receivable, but excluding any other consideration received
in the form of assumption of Indebtedness or other obligations relating to the
Properties sold or otherwise conveyed or received in any other non-cash form
unless such non-cash consideration is immediately converted into cash therefrom
by such Person or its Restricted Subsidiaries), net of (i) all reasonable
out-of-pocket expenses of such Person or such Restricted Subsidiary Incurred in
connection with an Asset Sale of such type, including, without limitation, all
legal, title and recording tax expenses, commissions and other fees and expenses
Incurred (but excluding any finder's fee or broker's fee payable to any
Affiliate of such Person) and all federal, state, provincial, foreign and local
taxes arising in connection with such Asset Sale that are paid or required to be
accrued as a liability under GAAP by such Person or its Restricted Subsidiaries,
(ii) all payments made by such Person or its Restricted Subsidiaries on any
Indebtedness which is secured by such Properties in accordance with the terms of
any Lien upon or with respect to such Properties or which must, by the terms of
such Lien, or in order to obtain a necessary consent to such Asset Sale or by
applicable law, be repaid out of the proceeds from such Asset Sale, and (iii)
all distributions and other payments made to minority interest holders in
Restricted Subsidiaries of such Person as a result of such Asset Sale; PROVIDED
that, in the event that any consideration for an Asset Sale (which would
otherwise constitute Net Cash Proceeds) is required to be held in escrow pending
determination of whether a purchase price adjustment will be made, such
consideration (or any portion thereof) shall become Net Cash Proceeds only at
such time as it is released to such Person or its Restricted Subsidiaries from
escrow, and PROVIDED that any non-cash consideration received in connection with
an Asset Sale, which is subsequently converted to cash, shall be deemed to be
Net Cash Proceeds at such time and shall thereafter be applied in accordance
with "--Limitation on Asset Sales."
"Non-Core Businesses" means the following businesses of the Company,
including any tangible and intangible Property and assets held by such
businesses (excluding cash, Indebtedness and Capital Stock of any other Person
(other than Capital Stock of Subsidiaries of AFSC that do not, directly or
indirectly, hold Property or assets of the Core Business) held by such
businesses), substantially as conducted and reported on June 30, 1997, (i) the
Company's Sawhill Tubular Division, (ii) Douglas Dynamics, L.L.C., (iii) Greens
Port Industrial Park, (iv) the Company's steelmaking facilities in Dover, Ohio,
(v) AFSC and Subsidiaries of AFSC that do not, directly or indirectly, hold
Property or assets of the Core Business and (vi) any other business other than
the Core Business.
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"Permitted Refinancing Indebtedness" means Indebtedness of the Company, the
proceeds of which are used to Refinance outstanding Indebtedness of the Company
or any Restricted Subsidiary, PROVIDED that (i) if the Indebtedness being
Refinanced is PARI PASSU with or subordinated in right of payment to the Senior
Notes, then such Indebtedness is PARI PASSU with or subordinated in right of
payment to, as the case may be, the Senior Notes at least to the same extent as
the Indebtedness being Refinanced, (ii) such Indebtedness is scheduled to mature
no earlier than the Indebtedness being Refinanced and (iii) such Indebtedness
has an Average Life at the time such Indebtedness is Incurred that is equal to
or greater than the Average Life of the Indebtedness being Refinanced; PROVIDED
FURTHER that such Indebtedness is in an aggregate principal amount (or, if such
Indebtedness is issued at a price less than the principal amount thereof, has an
aggregate original issue price) not in excess of the aggregate principal amount
then outstanding of the Indebtedness being Refinanced (or if the Indebtedness
being Refinanced was issued at a price less than the principal amount thereof,
then not in excess of the amount of liability in respect thereof determined in
accordance with GAAP) plus (A) prepayment premium and accrued interest on and
defeasance costs associated with such Indebtedness being Refinanced and (B) plus
fees and expenses associated with the Incurrence of such refinancing
Indebtedness.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Property" means, with respect to any Person, any interest of such Person in
any kind of property or asset, whether real, personal or mixed, or tangible or
intangible, including, without limitation, Capital Stock in any other Person.
"Qualified Capital Stock" means Capital Stock of the Company or any of its
Restricted Subsidiaries that does not by its terms require any dividends,
distributions, mandatory prepayment or redemption prior to the first anniversary
following the Stated Maturity of the Senior Notes.
"Redeemable Stock" of any Person means any equity security of such Person
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable), or otherwise (including, on the happening of
an event), is required to be redeemed or is redeemable at the option of the
holder thereof, in whole or part, prior to the Stated Maturity of the Senior
Notes, or is exchangeable for debt at any time, in whole or part, prior to the
Stated Maturity of the Senior Notes.
"Redemption Date" means, when used with respect to any Senior Note to be
redeemed, the date fixed for redemption of such Senior Note pursuant to Article
IV of Supplemental Indenture No. 2 and the Senior Notes.
"Redemption Price" means, when used with respect to any Senior Note to be
redeemed, the price fixed for redemption of such Senior Note pursuant to Article
IV of Supplemental Indenture No. 2 and the Senior Notes, plus accrued and unpaid
interest thereon to the Redemption Date.
"Reference Treasury Dealer" means each of Salomon Brothers Inc and Chase
Securities Inc. and their respective successors; PROVIDED, HOWEVER, that if any
of the foregoing shall cease to be a primary U.S. Government securities dealer
in New York City (a "Primary Treasury Dealer"), the Company shall substitute
therefor another nationally recognized investment banking firm that is a Primary
Treasury Dealer.
"Refinance" means, with respect to any Indebtedness, to renew, extend,
refinance, refund, replace or repurchase, or be substituted for, such
Indebtedness and "Refinancing" means the renewal, extension, refinancing,
refunding, replacement or repurchasing of, or substitution for, such
Indebtedness.
"Restricted Payment" means (i) a dividend or other distribution declared and
paid on the Capital Stock of the Company or to the Company's stockholders (in
their capacity as such), or declared and paid to
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any Person other than the Company or a Restricted Subsidiary of the Company on
the Capital Stock of any Restricted Subsidiary of the Company, in each case,
other than dividends, distributions or payments payable or made solely in
Qualified Capital Stock, (ii) a payment made by the Company or any of its
Restricted Subsidiaries (other than to the Company or any Restricted Subsidiary
of the Company) to purchase, redeem, acquire or retire any Capital Stock of the
Company or of a Restricted Subsidiary, (iii) a payment made by the Company or
any of its Restricted Subsidiaries to redeem, repurchase, defease (including,
but not limited to, in-substance or legal defeasance) or otherwise acquire or
retire for value, prior to any scheduled maturity, scheduled repayment or
scheduled sinking fund or mandatory redemption payment, Indebtedness of the
Company which is subordinate (whether pursuant to its terms or by operation of
law) in right of payment to the Senior Notes and which was scheduled to mature
(after giving effect to any and all options to extend the maturity thereof) on
or after the Stated Maturity of the Senior Notes or (iv) a payment made by the
Company or any of its Restricted Subsidiaries to purchase, acquire, retire or
redeem any Indebtedness of or equity interest in or otherwise to make any
Investment in any Affiliate thereof or in any Person that would become an
Affiliate thereof in connection with or as a result of such investment;
PROVIDED, that Restricted Payments shall not include any payment or transfer of
any Capital Stock of any Person in exchange for, or to purchase or otherwise
acquire, Capital Stock of, or an equity interest in, another Person that is, or
other Persons that are, or will, as part of such transaction, become, the
successor or successors to substantially all of the assets and business of such
first Person.
"Restricted Subsidiary" means, (i) with respect to the Company, (A) any
Subsidiary of the Company that exists on the date of the closing of the Offer
made hereby other than AFSC and its Subsidiaries, (B) any other Subsidiary of
the Company that the Company has not designated as an Unrestricted Subsidiary
pursuant to the first paragraph under "--Restricted and Unrestricted
Subsidiaries" and, (ii) with respect to a Person other than the Company and its
Subsidiaries, a Subsidiary of such other Person.
"Sale and Leaseback Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or transferred
by such Person or a Restricted Subsidiary of such Person and is thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Restricted Subsidiaries.
"Senior Indebtedness" means, at any date, any outstanding Indebtedness of
the Company that is PARI PASSU in right of payment with the Senior Notes.
"Significant Restricted Subsidiary" means each Restricted Subsidiary of the
Company that (i) during the most recent four consecutive fiscal quarters of the
Company for which financial information in respect thereof is available
accounted for more than 10% of the Consolidated EBITDA of the Company or (ii) is
the owner, directly or indirectly, of more than 10% of the Consolidated Net
Tangible Assets of the Company, PROVIDED that clause (i) shall be determined on
a pro forma basis in the case of a Restricted Subsidiary that became a
Restricted Subsidiary during or subsequent to the end of such four-consecutive-
fiscal-quarter period as if the transaction in which it became a Restricted
Subsidiary occurred on the first day of such period.
"Stated Maturity" means, when used with respect to any security, the date
specified in such security as the fixed date on which the principal or
redemption price of such security is due and payable and, when used with respect
to any installment of interest on a security, the fixed date on which such
installment of interest is due and payable. The Stated Maturity of a Capital
Lease Obligation 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.
"Subsidiary," with respect to any Person, means (i) a corporation a majority
of whose Capital Stock with voting power, under ordinary circumstances, to elect
directors is at the time, directly or indirectly, owned by such Person, by such
Person and one or more Subsidiaries of such Person or by one or more
Subsidiaries of such Person, or (ii) any other Person (other than a corporation)
in which such Person, one
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or more Subsidiaries of such Person, or such Person and one or more Subsidiaries
of such Person, directly or indirectly, at the date of determination thereof has
at least a majority ownership interest.
"Tangible Assets" of any Person means, at any date, the gross book value as
shown by the accounting books and records of such Person of all its Property,
less the net book value of all items that would be classified as intangibles
under GAAP, including, without limitation, (i) licenses, patents, patent
applications, copyrights, trademarks, trade names, goodwill, noncompete
agreements and organizational expenses, (ii) unamortized debt discount and
expense, (iii) all reserves for depreciation, obsolescence, depletion and
amortization of its Properties and (iv) all other proper reserves which in
accordance with GAAP should be provided in connection with the business
conducted by such Person.
"Transaction Date" means the date of any transaction giving rise to the need
to calculate the Consolidated Interest Coverage Ratio.
"Treasury Rate" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity (computed as of the
second business day immediately preceding such redemption date) of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date.
"Unrestricted Subsidiary" means (i) AFSC and its Subsidiaries and, (ii) any
Subsidiary of the Company that the Company has classified, pursuant to the first
paragraph of "--Restricted and Unrestricted Subsidiaries," as an Unrestricted
Subsidiary and that has not been reclassified as a Restricted Subsidiary
pursuant to such paragraph.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only as long as no
senior class of securities has such voting power by reason of any contingency.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Old Notes have been, and the
New Notes will be, issued in the form of one or more global notes (the "Global
Notes"). The Global Notes will be deposited with, or on behalf of, the
Depositary and registered in the name of the Depositary or its nominee. Except
as set forth below, a Global Note may be transferred, in whole and not in part,
only to the Depositary or another nominee of the Depositary. Investors may hold
their beneficial interests in a Global Note directly through the Depositary if
they have an account with the Depositary or directly through organizations which
have accounts with the Depositary.
The Depositary has advised the Company as follows: the Depositary is a
limited-purpose trust company and organized under the laws of the State of New
York, 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 Securities Exchange
Act of 1934 (the "Exchange Act"). The Depositary was created to hold securities
of institutions that have accounts with the Depositary ("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. The Depositary's participants include securities
brokers and dealers (which may include the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to the
Depositary's book-entry system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a participant, whether directly or indirectly.
Upon the issuance of a Global Note, the Depositary will credit, on its
book-entry registration and transfer system, the principal amount of the New
Notes represented by such Global Note to the accounts of participants. Ownership
of beneficial interests in a Global Note will be limited to participants or
persons
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that may hold interests through participants. Ownership of beneficial interests
in such Global Note will be shown on, and the transfer of those ownership
interests will be effected only through, records maintained by the Depositary
(with respect to participants' interest) and such participants (with respect to
the owners of beneficial interests in the Global Note 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 a
Global Note.
So long as the Depositary, or its nominee, is the registered Holder and
owner of a Global Note, the Depositary or such nominee, as the case may be, will
be considered the sole legal owner and Holder of the related New Notes for all
purposes of such New Notes and the Indenture. Except as set forth below, owners
of beneficial interests in a Global Note will not be entitled to have the New
Notes represented by such Global Note registered in their names, will not
receive or be entitled to receive physical delivery of Certificated Notes in
definitive form (the "Certificated Notes") and will not be considered to be the
owners or Holders of any New Notes under such Global Note. The Company
understands that under existing industry practice, in the event that an owner of
a beneficial interest in a Global Note desires to take any action that the
Depositary, as the Holder of such Global Note, is entitled to take, the
Depositary would authorize the participants to take such action, and that 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.
Payment of principal of and interest on New Notes represented by a Global
Note registered in the name of and held by the Depositary or its nominee will be
made to the Depositary or its nominee, as the case may be, as the registered
owner and Holder of such Global Note.
The Company expects that the Depositary or its nominee, upon receipt of any
payment of principal of or interest on a Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records of
the Depositary or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in a Global Note held through
such participants will be governed by standing instructions and customary
practices and will be the responsibility of such participants. The Company will
not have any responsibility or liability for any aspect of the records relating
to, or payments made on account of, beneficial ownership interests in a Global
Note for any New Note or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests or for any other aspect of the
relationship between the Depositary and its participants or the relationship
between such participants and the owners of beneficial interests in such Global
Note owning through such participants.
Unless and until it is exchanged in whole or in part for Certificated Notes,
a Global Note may not be transferred except as a whole by the Depositary to a
nominee of such Depositary or by a nominee of such Depositary to such Depositary
or another nominee of such Depositary.
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in Global Notes among participants of the
Depositary, it is 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 for the performance by the
Depositary or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
The New Notes represented by a Global Note are exchangeable for Certificated
Notes of like tenor in denominations of U.S.$1,000 and integral multiples
thereof if (i) the Depositary notifies the Company that it is unwilling or
unable to continue as Depositary for such Global Note or if at any time the
Depositary ceases to be a clearing agency registered under the Exchange Act,
(ii) the Company in its discretion at any time determines not to have all of the
New Notes represented by such Global Note or (iii) a default entitling the
Holders of the New Notes to accelerate the maturity thereof has occurred and is
continuing. Any New Note that is exchangeable pursuant to the preceding sentence
is exchangeable for Certificated Notes issuable in authorized denominations and
registered in such names as the Depositary shall direct. Subject to the
foregoing, a Global Note is not exchangeable, except for a Global Note of the
same aggregate denomination to be registered in the name of the Depositary or
its nominee.
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REGISTRATION RIGHTS AGREEMENT
Pursuant to the Registration Agreement, the Company has agreed, for the
benefit of the holders of the Senior Notes, at the Company's cost, to use its
best efforts (i) to file the Registration Statement of which this Prospectus is
a part with the Commission on or before November 11, 1997, (ii) cause the
Registration Statement to be declared effective under the Securities Act no
later than February 9, 1998, and (iii) to consummate the Exchange Offer by March
11, 1998. The Company will keep the Exchange Offer open for not less than 30
days (or longer if required by applicable law) after the date notice of the
Exchange Offer is mailed to the holders of the Old Notes.
In the event that any changes in law or applicable interpretations of the
staff of the Commission do not permit the Company to effect the Exchange Offer,
or if for any reason the Registration Statement is not declared effective by
February 9, 1998, the Company will, in lieu of effecting the registration of the
New Notes pursuant to the Registration Statement or upon the request of an
Initial Purchaser under certain circumstances, and in either case, at its cost,
use its best efforts to (i) as promptly as practicable, file with the Commission
a shelf registration covering resales of the Senior Notes (the "Shelf
Registration Statement"), (ii) cause the Shelf Registration Statement to be
declared effective under the Securities Act by March 11, 1998 (or promptly in
the event of a request by an Initial Purchaser) and (iii) keep effective the
Shelf Registration Statement until two years after its effective date (or until
one year after its effective date if such Shelf Registration Statement is filed
at the request of an Initial Purchaser). The Company will in the event of the
filing of a Shelf Registration Statement, provide to each holder of the Senior
Notes covered by the Shelf Registration Statement copies of the prospectus that
is part of the Shelf Registration Statement, notify each holder when the Shelf
Registration Statement has been filed and when it has become effective and take
certain other actions as are required to permit unrestricted resales of the
Senior Notes. A holder that sells Senior Notes pursuant to the Shelf
Registration Statement generally will 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 Agreement that are applicable to such a holder
(including certain indemnification obligations). In addition, each holder of the
Senior Notes will be required to deliver information to be used in connection
with the Shelf Registration Statement and to provide comments on the Shelf
Registration Statement within the time periods set forth in the Registration
Agreement in order to have its Senior Notes included in the Shelf Registration
Statement and to benefit from the provisions regarding Special Interest set
forth in the following paragraphs.
In the event that either (i) the Exchange Offer Registration Statement is
not filed with the Commission on or prior to the 60th day following the date of
original issuance of the Senior Notes, (ii) the Exchange Offer Registration
Statement is not declared effective on or prior to the 150th day following the
date of original issuance of the Senior Notes or (iii) the Exchange Offer is not
consummated or a Shelf Registration Statement with respect to the Senior Notes
is not declared effective on or prior to the 180th day following the date of
original issuance of the Senior Notes, interest in addition to stated interest
on the Senior Notes will accrue from and including the next day following each
of (a) such 60-day period in the case of clause (i) above and (b) such 150-day
period in the case of clause (ii) above and (c) such 180-day period in the case
of clause (iii) above. In each case such additional interest (the "Special
Interest") will be payable in cash semiannually in arrears each March 15, and
September 15, commencing March 15, 1998, at a rate per annum equal to 0.5% of
the principal amount of the Senior Notes. The aggregate amount of Special
Interest payable pursuant to the above provisions will in no event exceed 1.0%
per annum of the principal amount. Upon (1) the filing of the Exchange Offer
Registration Statement after the 60-day period described in clause (i) above,
(2) the effectiveness of the Exchange Offer Registration Statement after the
150-day period described in clause (ii) above or (3) the consummation of the
Exchange Offer or the effectiveness of a Shelf Registration Statement, as the
case may be, after the 180-day period described in clause (iii) above, the
Special Interest attributable to the occurrence of any event described in such
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clause (1), (2) or (3) will cease to accrue from the date of such filing,
effectiveness or consummation, as the case may be.
In the event that a Shelf Registration Statement is declared effective, if
the Company fails to keep such Registration Statement continuously effective and
generally useable for resales for the period required by the Registration
Agreement, then from the next day following such time as the Shelf Registration
Statement is no longer effective or useable until the earlier of (i) the date
that the Shelf Registration Statement is again deemed effective or is useable,
(ii) the date that is the second anniversary of the original issuance of the
Senior Notes or (iii) the date as of which all of the Senior Notes are sold
pursuant to the Shelf Registration Statement, Special Interest will accrue at a
rate per annum equal to 0.5% of the principal amount of the Senior Notes (to be
increased to 1.0% if and when the Shelf Registration Statement is no longer
effective for 30 days or more) and shall be payable in cash, semiannually in
arrears each March 15 and September 15, commencing March 15, 1998.
The summary herein of certain provisions of the Registration Agreement does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Registration Agreement, a copy of
which has been filed as an Exhibit to the Registration Statement of which this
Prospectus forms a part.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following general discussion summarizes certain of the material U.S.
federal income tax aspects of the acquisition, ownership and disposition of the
New Notes. This discussion is a summary for general information only and does
not consider all aspects of U.S. federal income tax that may be relevant to the
exchange of Old Notes for New Notes pursuant to the Exchange Offer and to the
ownership, and disposition of the New Notes by a prospective investor in light
of that investor's personal circumstances. This discussion also does not address
the federal income tax consequences of ownership of New Notes not held as
capital assets within the meaning of Section 1221 of the U.S. Internal Revenue
Code of 1986 as amended (the "Code"), or the federal income tax consequences to
investors subject to special treatment under the federal income tax laws, such
as dealers in securities or foreign currency, tax-exempt entities, banks,
thrifts, insurance companies, persons that hold the New Notes as part of a
"straddle," a "hedge" against currency risk or a "conversion transaction,"
persons that have a "functional currency" other than the U.S. dollar, and
investors in pass-through entities. In addition, this discussion is generally
limited to the tax consequences to initial holders. It does not describe any tax
consequences arising out of the tax laws of any state, local or foreign
jurisdiction.
This discussion is based upon the Code, existing and proposed regulations
thereunder, and current administrative rulings and court decisions. All of the
foregoing are subject to change, possibly on a retroactive basis and any such
change could affect the continuing validity of this discussion.
PROSPECTIVE HOLDERS OF THE NEW NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS
CONCERNING THE APPLICATION OF FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS OF
ANY STATE, LOCAL, OR FOREIGN TAXING JURISDICTION TO THEIR PARTICULAR SITUATIONS.
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not be a taxable exchange for federal income tax purposes. As a result,
there should be no federal income tax consequences to Holders exchanging the Old
Notes for the New Notes pursuant to the Exchange Offer.
U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a New Note that is (i) a citizen or
resident (as defined in 7701(b)(1) of the Code) of the United States, (ii) a
corporation organized under the laws of the United States or any political
subdivision thereof or
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therein, (iii) an estate or trust, the income of which is subject to U.S.
federal income tax regardless of the source, or (iv) a trust if a U.S. court is
able to exercise primary supervision over the trust's administration and one or
more U.S. persons have authority to control all of the trust's substantial
decisions (a "U.S. Holder"). Certain U.S. federal income tax consequences
relevant to a holder other than a U.S.Holder (a "Non-U.S. Holder") are discussed
separately below.
STATED INTEREST
Interest on a New Note will be taxable to a U.S. Holder as ordinary interest
income at the time it accrues or is received in accordance with such holder's
method of accounting for tax purposes.
SALE, EXCHANGE OR REDEMPTION OF THE SENIOR NOTES
Upon the disposition of a New Note by sale, exchange or redemption, the U.S.
Holder will generally recognize gain or loss equal to the difference between (i)
the amount realized on the disposition (other than amounts attributable to
accrued interest) and (ii) the U.S. Holder's tax basis in the New Note. In
general, a U.S. Holder's tax basis in a New Note will be the same immediately
after the exchange as its basis in the Old Note immediately before the exchange
and such basis will be reduced by any payments other than payments of qualified
stated interest made on such New Note.
Assuming the New Note is held as a capital asset, such gain or loss will
generally constitute capital gain or loss and will be long-term capital gain or
loss if the U.S. Holder has held such New Note for longer than one year (the
holding period of such New Note will include the holding period of the exchanged
Old Note). The Taxpayer Relief Act of 1997 generally reduces tax rates on
capital gains recognized by individuals in respect of capital assets held for
more than 18 months. Owners are advised to consult with their own tax advisors
as to the consequences of the Taxpayer Relief Act of 1997 in their particular
circumstances.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under the Code, a U.S. Holder of a New Note may be subject, under certain
circumstances, to information reporting and/or backup withholding at a 31% rate
with respect to cash payments in respect of interest or the gross proceeds from
dispositions thereof. This withholding applies only if the holder (i) fails to
furnish its social security or other taxpayer identification number ("TIN")
within a reasonable time after a request therefor, (ii) furnishes an incorrect
TIN, (iii) fails to report interest properly, or (iv) fails, under certain
circumstances, to provide a certified statement, signed under penalty of
perjury, that the TIN provided is its correct number and that it is not subject
to backup withholding. Any amount withheld from a payment to a U.S. Holder under
the backup withholding rules is allowable as a credit (and may entitle such
holder to a refund) against such holder's U.S. federal income tax liability,
provided that the required information is furnished to the Service. Certain
persons are exempt from backup withholding, including corporations and financial
institutions. Holders of New Notes should consult their tax advisors as to their
qualification for exemption from withholding and the procedure for obtaining
such exemption.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a note that is not (i) a citizen or
resident of the United States, (ii) a corporation organized under the laws of
the United States or any political subdivision thereof or therein, (iii) an
estate or trust, the income of which is subject to U.S. federal income tax
regardless of the source, or (iv) a trust if a U.S. court is able to exercise
primary supervision over the trust's administration and one or more U.S. persons
have the authority to control all of the trust's substantial decisions (a
"Non-U.S. Holder").
This discussion does not deal with all aspects of U.S. federal income and
estate taxation that may be relevant to the exchange of Old Notes for New Notes
pursuant to the Exchange Offer and to the
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ownership or disposition of the New Notes by any particular Non-U.S. Holder in
light of that Holder's personal circumstances, including holding the New Notes
through a partnership. For example, persons who are partners in foreign
partnerships and beneficiaries of foreign trusts or estates who are subject to
U.S. federal income tax because of their own status, such as United States
residents or foreign persons engaged in a trade or business in the United
States, may be subject to U.S. federal income tax even though the entity is not
subject to income tax on the disposition of its New Note.
For purposes of the following discussion, interest and gain on the sale,
exchange or other disposition of the New Note will be considered "U.S. trade or
business income" if such income or gain is (i) effectively connected with the
conduct of a U.S. trade or business or (ii) in the case of a treaty resident,
attributable to a U.S. permanent establishment (or to a fixed base) in the
United States.
STATED INTEREST
Generally, any interest paid to a Non-U.S. Holder of a New Note that is not
"U.S. trade or business income" will not be subject to United States tax if the
interest qualifies as "portfolio interest." Generally, interest on the New Notes
will qualify as portfolio interest if (i) the Non-U.S. Holder does not actually
or constructively own 10% or more of the total voting power of all voting stock
of the Company and is not a controlled foreign corporation with respect to which
the Company is a "related person" within the meaning of the Code, and (ii) the
beneficial owner, under penalty of perjury, certifies that the beneficial owner
is not a United States person and such certificate provides the beneficial
owner's name and address.
The gross amount of payments to a Non-U.S. Holder of interest that do not
qualify for the portfolio interest exception and that are not U.S. trade or
business income will be subject to U.S. federal income tax at the rate of 30%
unless a U.S. income tax treaty applies to reduce or eliminate withholding. U.S.
trade or business income will be taxed at regular U.S. rates rather than the 30%
gross rate. To claim the benefit of a tax treaty or to claim exemption from
withholding because the income is U.S. trade or business income, the Non-U.S.
Holder must provide a properly executed Form 1001 or 4224, as applicable, prior
to the payment of interest. The Forms 1001 and 4224 must be periodically
updated.
SALE, EXCHANGE OR REDEMPTION OF SENIOR NOTES
Except as described below and subject to the discussion concerning backup
withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or
redemption of a New Note generally will not be subject to U.S. federal income
tax, unless (i) such gain is U.S. trade or business income, (ii) subject to
certain exceptions, the Non-U.S. Holder is an individual who holds the New Note
as a capital asset and is present in the United States for 183 days or more in
the taxable year of the disposition, or (iii) the Non-U.S. Holder is subject to
tax pursuant to the provisions of U.S. tax law applicable to certain U.S.
expatriates.
FEDERAL ESTATE TAX
New Notes held (or treated as held) by an individual who is a Non-U.S.
Holder at the time of his death will not be subject to U.S. federal estate tax
provided that the individual does not actually or constructively own 10% or more
of the total voting power of all voting stock of the Company and income on the
New Notes was not U.S. trade or business income.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the Service and to each Non-U.S. Holder
any interest that is subject to withholding or that is exempt from U.S.
withholding tax pursuant to a tax treaty or the portfolio interest exception.
Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities of the
country in which the Non-U.S. Holder resides.
75
<PAGE>
In the case of payments of principal on the New Notes by the Company to a
Non-U.S. Holder, the regulations provide that backup withholding and information
reporting will not apply to payments if the Holder certifies to its non-U.S.
status under penalties of perjury or otherwise establishes an exemption
(provided that neither the Company nor its paying agent has actual knowledge
that the holder is a United States person or that the conditions of any other
exemption are not, in fact, satisfied).
The payment of the proceeds from the disposition of New Notes to or through
the United States office of any broker, U.S. or foreign, will be subject to
information reporting and possible backup withholding unless the owner certifies
its non-U.S. status under penalty of perjury or otherwise establishes an
exemption, provided that the broker does not have actual knowledge that the
Holder is a U.S. person or that the conditions of any other exemption are not,
in fact, satisfied. The payment of the proceeds from the disposition of a New
Note to or through a non-U.S. office of a non-U.S. broker that is not a U.S.
related person will not be subject to information reporting or backup
withholding. For this purpose, a "U.S. related person" is (i) a "controlled
foreign corporation" for U.S. federal income tax purposes, or (ii) a foreign
person 50% or more of whose gross income from all sources for the three-year
period ending with the close of its taxable year preceding the payment (or for
such part of the period that the broker has been in existence) is derived from
activities that are effectively connected with the conduct of a United States
trade or business.
In the case of the payment of proceeds from the disposition of New Notes to
or through a non-U.S. office of a broker that is either a U.S. person or a "U.S.
related person," regulations require information reporting on the payment,
unless the broker has documentary evidence in its files that the owner is a Non-
U.S. Holder and the broker has no knowledge to the contrary. Backup withholding
will not apply to payments made through foreign offices of a broker that is a
U.S. person or a U.S. related person (absent actual knowledge that the payee is
a U.S. person).
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
76
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such New
Notes. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of New Notes received
in exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any 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 meeting the
requirements of the Securities Act, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act.
The Company has agreed, pursuant to the Registration Agreement, to pay all
expenses incident to the Exchange Offer other than commissions or concessions of
any brokers or dealers and will indemnify the holders of the Senior Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for Armco
by Arnold & Porter, New York, New York. Arnold & Porter may rely on the opinion
of Gary R. Hildreth, Esq., Vice President, General Counsel and Secretary of the
Company, as to matters of Ohio law.
EXPERTS
The "Consolidated Financial Statements" for the years ended December 31,
1996 and 1995 incorporated by reference in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports included
herein, and are included in reliance upon reports of such firm given upon their
authority as experts in accounting and auditing.
77
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-K for its fiscal year ended December
31, 1996, the Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997 and the Company's current report on Form 8-K
dated August 28, 1997, which were previously filed with the Commission pursuant
to the Exchange Act (File No. 1-873-2), are incorporated herein by reference.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Exchange Offer shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
such documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. These documents (not including exhibits to such
documents, unless such exhibits are specifically incorporated by reference in
such documents) are available without charge upon written or oral request
directed to Armco Inc., One Oxford Centre, 301 Grant Street, Pittsburgh,
Pennsylvania 15219 (telephone (412) 255-9800), Attention: Corporate Secretary.
78
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER MADE
HEREBY EXCEPT AS CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH
INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 5
Risk Factors.................................... 15
Use of Proceeds................................. 20
Capitalization.................................. 21
Selected Historical Consolidated Financial and
Other Data.................................... 22
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 24
Business........................................ 34
The Exchange Offer.............................. 41
Description of Senior Notes..................... 48
Registration Rights Agreement................... 72
Certain Federal Income Tax Consequences......... 73
Plan of Distribution............................ 77
Legal Matters................................... 77
Experts......................................... 77
Incorporation of Certain Documents by
Reference..................................... 78
</TABLE>
UNTIL JANUARY 15, 1997 (90 DAYS AFTER THE DATE OF THIS EXCHANGE OFFER), ALL
DEALERS OFFERING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN
THIS EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
$150,000,000
ARMCO INC.
9% SENIOR NOTES DUE 2007
[LOGO]
------------------
PROSPECTUS
------------------
DATED OCTOBER 17, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 1701.13(E) of the Ohio Revised Code, under which law Armco is
incorporated, grants corporations the power to indemnify a director, officer,
employee or agent against expenses, including attorney's fees, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with any proceeding, other than a derivative action, to which he is a
party by reason of the fact that he is or was a director, officer, employee or
agent of the corporation or was serving in a similar capacity with another
entity at the request of the corporation if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, he had
no reason to believe his conduct was unlawful. In the case of a derivative
action, indemnification is limited to expenses and no indemnification shall be
made in respect of (i) any claim, issue or matter as to which such person is
adjudged to be liable for negligence or misconduct in the performance of his
duty to the corporation unless, and only to the extent that, a court determines,
despite the adjudication of liability, but in view of all the circumstances of
the case, that such person is fairly and reasonably entitled to indemnity for
expenses or (ii) any action or suit in which the only liability asserted against
a director is pursuant to Section 1701.95 of the Revised Code dealing with
unlawful loans, dividends and distribution of assets. Indemnification for
expenses is mandatory under the statutory provisions if the person has been
successful on the merits or otherwise in any such proceeding. The
indemnification authorized by statute is not exclusive.
Article IV of Armco's Regulations provides that Armco shall indemnify
directors, officers, employees or agents to the full extent permitted by
applicable law and may, subject to certain exceptions, do so in cases where
applicable law does not provide for indemnification if authorized by the
directors upon the determination that such indemnification is in the best
interest of Armco.
Armco maintains insurance policies insuring Armco and its directors and
officers against claims resulting from defined acts or omissions to act, subject
to various exclusions, including pollution and antitrust claims and claims
resulting from dishonesty. After certain deductibles, policies cover up to
$50,000,000 for all losses in the year.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
3.1 -- Articles of Incorporation of Armco Inc., as amended as of April 4, 1996 (incorporated herein by
reference to Exhibit 3(a) to Armco's Annual Report on Form 10-K for the year ended December 31,
1996).
3.2 -- Regulations of Armco Inc. (incorporated herein by reference to Exhibit 3(b) to Armco's Annual
Report on Form 10-K for the year ended December 31, 1996).
4.1 -- Armco hereby agrees to furnish to the Securities and Exchange Commission, upon its request, a copy
of each instrument defining the rights of holders of long-term debt of Armco and its subsidiaries,
omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K.
4.2 -- Indenture, dated as of October 1, 1992, between the Company and Fifth Third Bank (the "Indenture")
(incorporated herein by reference to Exhibit 4 to Armco's Registration Statement on Form S-3, No.
33-51806 ("Registration No. 33-51806")).
4.3 -- Supplemental Indenture No. 1, dated as of October 1, 1992, to the Indenture (incorporated herein
by reference to Exhibit 4(b) to Armco's Report on Form 8-K dated October 1, 1992).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
4.4 -- Supplemental Indenture No. 2, dated as of September 1, 1997, to the Indenture (including form of
Senior Notes).*
<S> <C>
4.5 -- Registration Agreement, dated as of September 9, 1997 among Armco, Salomon Brothers Inc and Chase
Securities Inc.*
5 --Opinion of Arnold and Porter (with opinion of Gary R. Hildreth, Esq. attached).**
10.1 -- Deferred Compensation Plan for Directors (incorporated herein by reference to Exhibit 10(a) to
Armco's Annual Report on Form 10-K for the year ended December 31, 1996).
10.2 -- 1993 Long-Term Incentive Plan of Armco Inc. (incorporated herein by reference to Exhibit 10 to
Armco's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993).
10.3 -- Severance Agreements (incorporated herein by reference to Exhibit 10(a) to Armco's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1988 (SEC File No. 001-00873)).
10.4 -- 1988 Restricted Stock Plan (incorporated herein by reference to Exhibit 10(i) to Armco's Annual
Report on Form 10-K for the year ended December 31, 1988 (SEC File No. 001-00873)).
10.5 -- Executive Supplemental Deferred Compensation Plan Trust (incorporated herein by reference to
Exhibit 10(b) to Armco's Quarterly Report on Form 10-Q for the quarter ended June 30, 1988 (SEC
File No. 001-00873)).
10.6 -- Executive Supplemental Deferred Compensation Plan (incorporated herein by reference to Exhibit
10(c) to Armco's Quarterly Report on Form 10-Q for the quarter ended June 30, 1988 (SEC File No.
001-00873)).
10.7 -- Pension Plan for Outside Directors (incorporated herein by reference to Exhibit 10(p) to Armco's
Annual Report on Form 10-K for the year ended December 31, 1989 (SEC File No. 001-00873)).
10.8 -- Key Management Severance Policy (incorporated herein by reference to Exhibit 10(p) to Armco's
Annual Report on Form 10-K for the year ended December 31, 1990).
10.9 -- Minimum Pension Plan (incorporated herein by reference to Exhibit 10(r) to Armco's Annual Report
on Form 10-K for the year ended December 31, 1991).
10.10 -- Stainless Steel Toll Rolling Services Agreement (incorporated herein by reference from Exhibit
10(s) to Armco's Annual Report on Form 10-K for the year ended December 31, 1993).
10.11 -- Equity Exchange Agreement (incorporated herein by reference to Exhibit 2 to Armco's Form 8-K dated
April 7, 1994).
10.12 -- Stock Purchase Agreement among Armco Inc., Armco Financial Services Corporation and Vik Brothers
Insurance, Inc. dated as of August 2, 1994 (incorporated herein by reference to Exhibit 10 to
Armco's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994).
10.13 -- Asset Sale Agreement By and Among Armco Inc., Eastern Stainless Corporation, Avesta Sheffield
East, Inc. and Avesta Sheffield Holding Co. dated as of February 9, 1995 (incorporated herein by
reference to Exhibit 2 to Armco's Form 8-K dated March 14, 1995).
10.14 -- Purchase Agreement, as amended, among Oilwell, Inc., National Supply Company, Inc., USX
Corporation, Armco Inc. and NOW Holdings, Inc. (incorporated herein by reference to Exhibit 2 to
Armco's Form 8-K dated January 16, 1996).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
10.15 -- Rights Agreement dated as of February 23, 1996 between Armco Inc. and Fifth Third Bank
(incorporated herein by reference to Exhibit 10(p) to Armco's Form 10-K for the year ended December
31, 1995).
<S> <C>
12 --Ratio of Earnings to Fixed Charges.**
21 -- List of subsidiaries of Armco (incorporated herein by reference to Exhibit 21 to Armco's Annual
Report on Form 10-K for the year ended December 31, 1996).
23.1 --Consent of Deloitte & Touche LLP.*
23.2 --Consent of Arnold and Porter (included in Exhibit 5 to the Registration Statement).
23.3 -- Consent of Gary R. Hildreth, Esq. (included in Exhibit 5 to the Registration Statement).
24 --Powers of Attorney.*
25 -- Statement of Eligibility on Form T-1 of The Fifth Third Bank (incorporated herein by reference to
Exhibit 26 to Registration No. 33-51806).
99.1 --Form of Letter of Transmittal.**
99.2 -- Form of Exchange Agent Agreement between Armco and Fifth Third Bank.**
</TABLE>
- ------------------------
* Filed previously
** Filed herewith
(B) SCHEDULES
All schedules are omitted as the required information is presented in the
Registrant's consolidated financial statements or related notes or such
schedules are not applicable.
ITEM 22. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Armco Inc., certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Pittsburgh, Commonwealth
of Pennsylvania.
<TABLE>
<S> <C> <C>
Date: October 14, 1997 ARMCO INC.
By: /s/ JAMES F. WILL
-----------------------------------------
James F. Will
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities indicated on October 14, 1997.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
* Chairman of the Board, October 14, 1997
- ------------------------------ President, Chief Executive
James F. Will Officer and Director
* Vice President and Chief October 14, 1997
- ------------------------------ Financial Officer
Jerry W. Albright
* Vice President and October 14, 1997
- ------------------------------ Controller
John N. Davis
* Director October 14, 1997
- ------------------------------
Paula H.J. Cholmondeley
* Director October 14, 1997
- ------------------------------
David A. Duke
* Director October 14, 1997
- ------------------------------
Dorothea C. Gilliam
* Director October 14, 1997
- ------------------------------
John C. Haley
* Director October 14, 1997
- ------------------------------
Bruce E. Robbins
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Director
- ------------------------------
Burnell R. Roberts
* Director October 14, 1997
- ------------------------------
John D. Turner
* By his signature set forth below, Gary R. Hildreth has signed this Amendment
to the Registration Statement as attorney for the persons noted above, in
the capacities above stated, pursuant to powers of attorney filed with the
Securities and Exchange Commission as exhibits to this Registration
Statement.
By: /s/ GARY R. HILDRETH
-------------------------
Gary R. Hildreth
ATTORNEY-IN-FACT
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 -- Articles of Incorporation of Armco Inc., as amended as of April 4, 1996 (incorporated
herein by reference to Exhibit 3(a) to Armco's Annual Report on Form 10-K for the year
ended December 31, 1996).
3.2 -- Regulations of Armco Inc. (incorporated herein by reference to Exhibit 3(b) to Armco's
Annual Report on Form 10-K for the year ended December 31, 1996).
4.1 -- Armco hereby agrees to furnish to the Securities and Exchange Commission, upon its
request, a copy of each instrument defining the rights of holders of long-term debt of
Armco and its subsidiaries, omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K.
4.2 -- Indenture, dated as of October 1, 1992, between the Company and Fifth Third Bank (the
"Indenture") (incorporated herein by reference to Exhibit 4 to Armco's Registration
Statement on Form S-3, No. 33-51806 ("Registration No. 33-51806")).
4.3 -- Supplemental Indenture No. 1, dated as of October 1, 1992, to the Indenture (incorporated
herein by reference to Exhibit 4(b) to Armco's Report on Form 8-K dated October 1, 1992).
4.4 -- Supplemental Indenture No. 2, dated as of September 1, 1997, to the Indenture (including
form of Senior Notes).*
4.5 -- Registration Agreement, dated as of September 9, 1997 among Armco, Salomon Brothers Inc
and Chase Securities Inc.*
5 --Opinion of Arnold and Porter (with opinion of Gary R. Hildredth, Esq. attached).**
10.1 -- Deferred Compensation Plan for Directors (incorporated herein by reference to Exhibit
10(a) to Armco's Annual Report on Form 10-K for the year ended December 31, 1996).
10.2 -- 1993 Long-Term Incentive Plan of Armco Inc. (incorporated herein by reference to Exhibit
10 to Armco's Quarterly Report on Form 10-Q for the quarter ended March 31, 1993).
10.3 -- Severance Agreements (incorporated herein by reference to Exhibit 10(a) to Armco's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1988 (SEC File No.
001-00873)).
10.4 -- 1988 Restricted Stock Plan (incorporated herein by reference to Exhibit 10(i) to Armco's
Annual Report on Form 10-K for the year ended December 31, 1988 (SEC File No. 001-00873)).
10.5 -- Executive Supplemental Deferred Compensation Plan Trust (incorporated herein by reference
to Exhibit 10(b) to Armco's Quarterly Report on Form 10-Q for the quarter ended June 30,
1988 (SEC File No. 001-00873)).
10.6 -- Executive Supplemental Deferred Compensation Plan (incorporated herein by reference to
Exhibit 10(c) to Armco's Quarterly Report on Form 10-Q for the quarter ended June 30, 1988
(SEC File No. 001-00873)).
10.7 -- Pension Plan for Outside Directors (incorporated herein by reference to Exhibit 10(p) to
Armco's Annual Report on Form 10-K for the year ended December 31, 1989 (SEC File No.
001-00873)).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------
10.8 -- Key Management Severance Policy (incorporated herein by reference to Exhibit 10(p) to
Armco's Annual Report on Form 10-K for the year ended December 31, 1990).
<S> <C> <C>
10.9 -- Minimum Pension Plan (incorporated herein by reference to Exhibit 10(r) to Armco's Annual
Report on Form 10-K for the year ended December 31, 1991).
10.10 -- Stainless Steel Toll Rolling Services Agreement (incorporated herein by reference from
Exhibit 10(s) to Armco's Annual Report on Form 10-K for the year ended December 31, 1993).
10.11 -- Equity Exchange Agreement (incorporated herein by reference to Exhibit 2 to Armco's Form
8-K dated April 7, 1994).
10.12 -- Stock Purchase Agreement among Armco Inc., Armco Financial Services Corporation and Vik
Brothers Insurance, Inc. dated as of August 2, 1994 (incorporated herein by reference to
Exhibit 10 to Armco's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994).
10.13 -- Asset Sale Agreement By and Among Armco Inc., Eastern Stainless Corporation, Avesta
Sheffield East, Inc. and Avesta Sheffield Holding Co. dated as of February 9, 1995
(incorporated herein by reference to Exhibit 2 to Armco's Form 8-K dated March 14, 1995).
10.14 -- Purchase Agreement, as amended, among Oilwell, Inc., National Supply Company, Inc., USX
Corporation, Armco Inc. and NOW Holdings, Inc. (incorporated herein by reference to Exhibit
2 to Armco's Form 8-K dated January 16, 1996).
10.15 -- Rights Agreement dated as of February 23, 1996 between Armco Inc. and Fifth Third Bank
(incorporated herein by reference to Exhibit 10(p) to Armco's Form 10-K for the year ended
December 31, 1995).
12 --Ratio of Earnings to Fixed Charges.**
21 -- List of subsidiaries of Armco (incorporated herein by reference to Exhibit 21 to Armco's
Annual Report on Form 10-K for the year ended December 31, 1996).
23.1 --Consent of Deloitte & Touche LLP.*
23.2 -- Consent of Arnold and Porter (included in Exhibit 5 to the Registration Statement).
23.3 -- Consent of Gary R. Hildreth, Esq. (included in Exhibit 5 to the Registration Statement).
24 --Powers of Attorney.*
25 -- Statement of Eligibility on Form T-1 of The Fifth Third Bank (incorporated herein by
reference to Exhibit 26 to Registration No. 33-51806).
99.1 --Form of Letter of Transmittal.**
99.2 -- Form of Exchange Agent Agreement between Armco and Fifth Third Bank.**
</TABLE>
- ------------------------
* Filed previously
** Filed herewith
<PAGE>
Exhibit 5
[Letterhead of Arnold & Porter]
October 14, 1997
Armco Inc.
One Oxford Centre
301 Grant Street
Pittsburgh, Pennsylvania 15219
Ladies and Gentlemen:
We refer to the registration statement under Form S-4, Registration No.
333-36691 (the "Registration Statement"), filed by Armco Inc., an Ohio
corporation (the "Company") with the Securities and Exchange of 1933, as
amended (the "Act"), pursuant to which the Company is registering
$150,000,000 aggregate principal amount of 9% Senior Notes due 2007 (the
"Exchange Notes"), under an Indenture dated as of October 1, 1992, between
the Company and The Fifth Third Bank, as trustee (the "Trustee"), as
supplemented by Supplemental Indenture No. 1, dated as of October 1, 1992,
and Supplemental Indenture No. 2, dated as of September 1, 1997, to be issued
in exchange for $150,000,000 aggregate principal amount of the Company's 9%
Senior Notes (the "Exchange Offer"). The terms and conditions of the
Exchange Notes and the Exchange Offer are as set forth in the Registration
Statement and the prospectus (the "Prospectus") contained therein.
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of the Registration Statement, the Indenture, the form of
Exchange Notes set forth in the Indenture, and such corporate records,
agreements, documents and other instruments, and such certificates or
comparable documents of public officials and of officers and representatives
of the Company, and have made such inquiries of such officers and
representatives as we have deemed relevant and necessary as a basis for the
opinions hereinafter set forth.
Based upon and subject to the foregoing, we are of the opinion that the
Exchange Notes have been duly authorized by the Company and when the Exchange
Notes have been duly executed by the Company and authenticated by the Trustee
in accordance with the terms of the Indenture and issued in
<PAGE>
exchange for the Old Notes in accordance with the terms of the Exchange
Offer, the Exchange Notes will constitute valid and binding obligations of
the Company under the laws of the State of New York, subject to bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium, receivership
and similar laws relating to or affecting creditors' rights generally and to
equitable principles (regardless of whether enforcement is sought in a
proceeding in equity or at law).
The foregoing opinion is limited to the laws of the State of New York and,
in reliance upon the opinion of Gary R. Hildreth, Vice President, General
Counsel and Secretary of the Company, an executed copy of which is attached
hereto (the "Hildreth Opinion"), the laws of the State of Ohio, and we do not
express any opinion herein concerning the laws of any other jurisdiction. To
the extent the foregoing opinion relates to matters governed by the laws of
the State of Ohio, such opinion is subject to the qualifications and
limitations expressed in the Hildreth Opinion.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Registration Statement. In giving the foregoing
consent, we do not thereby admit that we are in the category of persons whose
consent is required under Section 7 of the Act or the rules and regulations
of the Securities and Exchange Commission thereunder.
This opinion is solely for your information and is not to be quoted in
whole or in part, summarized or otherwise referred to without our written
consent, except as provided in the preceeding paragraph. This opinion is as
of the date hereof. We disclaim any responsibility to update or supplement
this opinion to reflect any events or state of facts which may hereafter come
to our attention or any changes in statutes or regulations or any court
decisions which may hereafter occur.
Very truly yours,
/s/ ARNOLD & PORTER
<PAGE>
Attachment to Exhibit 5
[Letterhead of Armco]
October 14, 1997
Arnold & Porter
399 Park Avenue
New York, New York 10022
Ladies and Gentlemen:
I refer to the registration statement under Form S-4, Registration
No. 333-36691 (the "Registration Statement"), filed with the Securities and
Exchange of 1933, as amended (the "Act"), pursuant to which Armco Inc. (the
"Company") is registering $150,000,000 aggregate principal amount of 9%
Senior Notes due 2007 (the "Exchange Notes"), under an Indenture dated as of
October 1, 1992, between the Company and The Fifth Third Bank, as trustee
(the "Trustee"), as supplemented by Supplemental Indenture No. 1, dated as of
October 1, 1992, and Supplemental Indenture No. 2, dated as of September 1,
1997, to be issued in exchange for $150,000,000 aggregate principal amount of
the Company's 9% Senior Notes (the "Exchange Offer"). The terms and
conditions of the Exchange Notes and the Exchange Offer are as set forth in
the Registration Statement and the prospectus (the "Prospectus") contained
therein.
I have examined originals or copies, certified or otherwise
identified to my satisfaction, of the Registration Statement, the Indenture,
the form of Exchange Notes set forth in the Indenture, and such corporate
records, agreements, documents and other instruments, and such certificates
or comparable documents of public officials and of officers and
representatives of the Company, and have made such inquiries of such officers
and representatives as I have deemed relevant and necessary as a basis for
the opinions hereinafter set forth.
Based upon and subject to the foregoing, I am of the opinion that
the Exchange Notes have been duly authorized by the Company and when the
Exchange Notes have been duly executed by the Company and authenticated by
the Trustee in accordance with the terms of the Indenture and issued in
exchange for the Old Notes in accordance with the terms of the
<PAGE>
Exchange Offer, the Exchange Notes will constitute valid and binding
obligations of the Company under the laws of the State of Ohio, subject to
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium,
receivership and similar laws relating to or affecting creditors' rights
generally and to equitable principles (regardless of whether enforcement is
sought in a proceeding in equity or at law).
The foregoing opinion is limited to the laws of the State of Ohio
and I express no opinion herein concerning the laws of any other jurisdiction.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and/or as an attachment to your opinion being filed as
an exhibit to the Registration Statement (and in this regard I consent to
your reliance on this opinion) and to be named under the caption "Legal
Matters" in the Prospectus forming part of the Registration Statement. In
giving this consent, I do not thereby admit that I am within the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Gary R. Hildreth
Gary R. Hildreth
Vice President, General
Counsel and Secretary
<PAGE>
EXHIBIT 12
ARMCO INC.
HISTORICAL RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing operations......... $ 29.6 $ 2.9 $ 26.0 $ 23.5 $ 65.8 $ (247.5) $ (421.9)
Income tax provision (benefit)................... 1.3 0.6 1.4 2.0 (28.7) (7.3) (34.0)
Adjustment to pretax income (loss) for
unconsolidated businesses and minority
interest....................................... 0.8 0.5 (7.8) 0.9
--------- --------- --------- --------- --------- --------- ---------
Pretax income (loss) from continuing operations.. 30.9 3.5 27.4 26.3 37.6 (262.6) (455.0)
Add fixed charges:
Interest expense--consolidated group........... 17.2 18.5 36.4 33.0 44.1 79.6 44.6
Interest expenses--50% or more owned
unconsolidated subsidiaries.................. 27.1
Interest portion of rental expense............. 0.8 0.8 1.5 2.5 2.5 4.3 4.8
--------- --------- --------- --------- --------- --------- ---------
Total fixed charges.......................... 18.0 19.3 37.9 35.5 46.6 83.9 76.5
--------- --------- --------- --------- --------- --------- ---------
Total income (loss) and fixed charges........ $ 48.9 $ 22.8 $ 65.3 $ 61.8 $ 84.2 $ (178.7) $ (378.5)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Fixed charges
From above..................................... $ 18.0 $ 19.3 $ 37.9 $ 35.5 $ 46.6 $ 83.9 $ 76.5
Capitalized interest........................... 0.6 0.3 0.8 5.1 4.9 1.8 6.2
--------- --------- --------- --------- --------- --------- ---------
Total fixed charges.............................. $ 18.6 $ 19.6 $ 38.7 $ 40.6 $ 51.5 $ 85.7 $ 82.7
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Ratio............................................ 2.6x 1.2x 1.7x 1.5x 1.6x * *
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
- ------------------------
* For the years ended December 31, 1993 and 1992, earnings as defined were
insufficient to cover fixed charges by $264.4 million and $461.2 million,
respectively.
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
ARMCO INC.
OFFER TO EXCHANGE
ALL OUTSTANDING
9% SENIOR NOTES DUE 2007
FOR
9% SENIOR NOTES DUE 2007,
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED,
PURSUANT TO THE PROSPECTUS,
DATED , 1997
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997 UNLESS EXTENDED (THE "EXPIRATION DATE")
- --------------------------------------------------------------------------------
THE FIFTH THIRD BANK, Exchange Agent
<TABLE>
<S> <C> <C>
BY HAND OR OVERNIGHT BY MAIL: BY FACSIMILE:
DELIVERY: 38 Fountain Square Plaza (513) 744-8909
38 Fountain Square Plaza Corporate Trust Operations CONFIRM BY TELEPHONE:
Corporate Trust Operations Mail Drop 1090 F5-4129 (513) 744-8741
Fifth Third Center--15th Cincinnati, Ohio 45263
Floor Attention: Paul Smith
Cincinnati, Ohio 45263
Attention: Paul Smith
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated , 1997 (the "Prospectus") of Armco Inc., an Ohio
corporation (the "Company") and this Letter of Transmittal (the "Letter"), which
together constitute the Company's offer (the "Exchange Offer") to exchange an
aggregate principal amount of up to $150,000,000 of the Company's 9% Senior
Notes Due 2007 (the "New Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which the Prospectus is part, for a like principal
amount of the issued and outstanding 9% Senior Notes Due 2007 (the "Old Notes")
of the Company from the registered holders (the "Holders") thereof.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. Accordingly, registered holders of New Notes on the relevant record
date for the first interest payment date following the consummation of the
Exchange Offer will receive interest accruing from the most recent date to which
interest has been paid or, if no interest has been paid, from September 15,
1997. Old Notes accepted for exchange will cease to accrue interest from and
after the date of consummation of the Exchange Offer. Holders whose Old Notes
are accepted for exchange will not receive any payment in respect of accrued
interest on such Old Notes otherwise payable on any interest payment date the
record date for which occurs on or after consummation of the Exchange Offer.
<PAGE>
This Letter is to be completed by a Holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for Old
Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in "The
Exchange Offer--Book-Entry Transfer" section of the Prospectus. Holders of Old
Notes whose certificates are not immediately available, or who are unable to
deliver their certificates or confirmation of the book-entry tender of their Old
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility (a
"Book-Entry Confirmation") and all other documents required by this Letter to
the Exchange Agent on or prior to the Expiration Date, must tender their Old
Notes according to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
BELOW AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX BELOW.
LIST BELOW THE OLD NOTES TO WHICH THIS LETTER RELATES. If the space
provided below is inadequate, the certificate numbers and principal amount of
Old Notes should be listed on a separate signed schedule affixed hereto.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE
COMPLETING THE BOX
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
DESCRIPTION OF 9% SENIOR NOTES DUE 2007
----------------------------------------------------------------------------------------------------
PRINCIPAL
AGGREGATE AMOUNT
PRINCIPAL TENDERED
AMOUNT (MUST BE IN
NAMES AND ADDRESS(ES) OF REPRESENTED INTEGRAL
REGISTERED HOLDERS CERTIFICATE BY MULTIPLES
(PLEASE FILL IN, IF BLANK) NUMBER(S) CERTIFICATE(S) OF $1,000)*
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
TOTAL
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Unless indicated in the column labeled "Principal Amount Tendered," any
tendering Holder of 9% Senior Notes due 2007 will be deemed to have rendered
the entire aggregate principal amount represented by the column labeled
"Aggregate Principal Amount Represented by Certificates(s)."
If the space provided above is inadequate, list the certificate numbers and
principal amounts on a separate signed schedule and affix the list to this
Letter of Transmittal.
The minimum permitted tender is $1,000 in principal amount of 9% Senior
Notes Due 2007. All other tenders must be in integral multiples of $1,000.
/ / CHECK HERE IF TENDERED OLD NOTES ARE ENCLOSED HEREWITH.
<PAGE>
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS HEREINAFTER DEFINED)
ONLY):
Name of Tendering Institution ______________________________________________
Account Number _____________________________________________________________
Transaction Code Number ____________________________________________________
/ / CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING (FOR USE
BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered Old Noteholder(s) ____________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Window Ticket Number (if available) ________________________________________
Name of Institution which Guaranteed Delivery ______________________________
Account Number (if delivered by book entry transfer) _______________________
- --------------------------------------------------------------------------------
- ------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY (i) if certificates for Old Notes not tendered, or
New Notes issued in exchange for Old Notes accepted for exchange, are to
issued in the name of someone other than the undersigned, or (ii) if Old
Notes tendered by book-entry transfer which are not exchange are to be
returned by credit to an account maintained at Depository Trust Company
("DTC").
Issue certificate(s) to:
Name _______________________________________________________________________
(PLEASE PRINT)
Address ____________________________________________________________________
(INCLUDE ZIP CODE)
__________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
Credit Old Notes not exchanged and delivered by book-entry transfer to
the DTC account set forth below:
__________________________________________________________________________
DTC ACCOUNT NUMBER
- ------------------------------------------------------------
- ------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if certificates for Old Notes not tendered, or New
Notes issued in exchange, are to be sent to someone other than the
undersigned, or to the undersigned at an address other than that shown
above.
Mail to:
Name _______________________________________________________________________
(PLEASE PRINT)
Address ____________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
__________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
- -----------------------------------------------------
PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes as are being tendered hereby. The undersigned
hereby irrevocably constitutes and appoints the Exchange Agent its agent and
attorney-in-fact (with full knowledge that the Exchange Agent also acts as the
agent of the Company) with respect to the tendered Old Notes with full power of
substitution to (i) deliver certificates for such Old Notes, or transfer
ownership of such Old Notes on the account books maintained by DTC, to the
Company and deliver all accompanying evidences of transfer and authenticity to,
or upon the order of, the Company and (ii) present such Old Notes for transfer
on the books of the Company and receive all benefits and otherwise exercise all
rights of beneficial ownership of such Old Notes, all in accordance with the
terms of the Exchange Offer. The power of attorney granted in this paragraph
shall be deemed irrevocable and coupled with an interest.
<PAGE>
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Old Notes tendered
hereby and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby further represents that any New Notes acquired in exchange
for Old Notes tendered hereby will have been acquired in the ordinary course of
business of the person receiving such New Notes, whether or not such person is
the undersigned, that neither the Holder of such Old Notes nor any such other
person has an arrangement or understanding with any person to participate in the
distribution of such New Notes and that neither the Holder of such Old Notes nor
any such other person is an "affiliate," as defined in Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act"), of the Company.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on interpretations by the staff of the Securities and Exchange
Commission (the "SEC"), as set forth in no-action letters issued to third
parties, that the New Notes issued pursuant to the Exchange Offer in exchange
for the Old Notes may be offered for resale, resold and otherwise transferred by
Holders thereof (other than any such Holder which is an "affiliate" of the
Company 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 such New Notes are acquired in the ordinary course
of such Holders' business and such Holders have no arrangement with any person
to participate in a distribution of such New Notes. However, the SEC has not
considered the Exchange Offer in the context of a no-action letter and there can
be no assurance that the staff of the SEC would make a similar determination
with respect to the Exchange Offer as in other circumstances. If the undersigned
is not a broker-dealer, the undersigned represents that it is not engaged in,
and does not intend to engage in, a distribution of New Notes and has no
arrangement or understanding to participate in a distribution of New Notes. If
any Holder is an affiliate of the Company, is engaged in or intends to engage
in, or has any arrangement or understanding with any person to participate in, a
distribution of the New Notes to be acquired pursuant to the Exchange Offer,
such Holder (i) may not rely on the applicable interpretations of the staff of
the SEC and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction. If
the undersigned is a broker-dealer that will receive New Notes for its own
account pursuant to the Exchange Offer, it represents that the Old Notes to be
exchanged for the New Notes were acquired by it as a result of market-making
activities or other trading activities and acknowledges that it will deliver a
prospectus in connection with any resale of such New Notes; however, by so
acknowledging and by delivering a prospectus, the undersigned will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer--Withdrawal Rights" section
of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" above, please issue the New Notes (and, if applicable, substitute
certificates representing Old Notes for any Old Notes not exchanged) in the name
of the undersigned or, in the case of a book-entry delivery of Old Notes, please
credit the account indicated above maintained at the Book-Entry Transfer
Facility. Similarly, unless otherwise indicated under the box entitled "Special
Delivery Instructions" above, please send the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
to the undersigned at the address shown above in the box entitled "Description
of Old Notes."
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE W-9 ON REVERSE SIDE)
Dated: ________________, 1997
<TABLE>
<C> <S>
X
- ------------------------------------------------------------------ -------------------------------
Date
- ------------------------------------------------------------------ -------------------------------
Signature(s) of Owner Date
Area Code and Telephone Number: ( )
</TABLE>
If a holder is tendering any Old Notes, this letter must be signed by the
registered holder(s) as the name(s) appear(s) on the certificate(s) for the Old
Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a fiduciary
or representative capacity, please set forth full title. See Instruction 3.
Name(s): _______________________________________________________________________
(PLEASE PRINT)
Capacity (full title) __________________________________________________________
Address(es): ___________________________________________________________________
________________________________________________________________________________
(INCLUDE ZIP CODE)
SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by an Eligible Institution: ____________________________
(Authorized Signature)
________________________________________________________________________________
(Title)
________________________________________________________________________________
(Name and Firm)
Dated: _________________, 1997
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES. This
Letter is to be completed by holders of Old Notes either if certificates are to
be forwarded herewith or if tenders are to be made pursuant to the procedures
for delivery by book-entry transfer set forth in "The Exchange Offer--Book-Entry
Transfer" section of the Prospectus. Certificates for all physically tendered
Old Notes, or Book-Entry Confirmation, as the case may be, as well as a properly
completed and duly executed Letter (or manually signed facsimile hereof) and any
other documents required by this Letter, must be received by the Exchange Agent
at the address set forth herein on or prior to the Expiration Date, or the
tendering holder must comply with the guaranteed delivery procedures set forth
below. Old Notes tendered hereby must be in denominations of principal amount of
$1,000 and any integral multiple thereof.
Holders whose certificates for Old Notes are not immediately available or
who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old Notes
pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to
such procedures, (i) such tender must be made through an Eligible Institution;
(ii) on or prior to 5:00 p.m., New York City time, on the Expiration Date, the
Exchange Agent must receive from such Eligible Institution a properly completed
and duly executed Letter (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Old Notes and the amount of Old Notes tendered stating
that the tender is being made thereby and guaranteeing that within three New
York Stock Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and any other documents required by this Letter will be deposited by the
Eligible Institution with the Exchange Agent; and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or Book-Entry
Confirmation, as the case may be, and all other documents required by this
Letter, are deposited by the Eligible Institution within three NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering Holders, but the delivery
will be deemed made only when actually received or confirmed by the Exchange
Agent. If Old Notes are sent by mail, it is suggested that the mailing be
registered mail, properly insured, with return receipt requested, and made
sufficiently in advance of the Expiration Date to permit delivery to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
Any beneficial holder of Old Notes who is not the registered holder and who
wishes to tender should arrange with the registered holder to execute and
deliver this Letter of Transmittal on his behalf or must, prior to completing
and executing this Letter of Transmittal and delivering his Old Notes, either
make appropriate arrangements to register ownership of the Old Notes in such
holder's name or obtain a properly completed bond power from the registered
holder.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Issuer in its sole discretion, which determination
will be final and binding. The Issuer reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Issuer's acceptance
of which would, in the opinion of counsel for the Issuer, be unlawful. The
Issuer also reserves the right to waive any irregularities or conditions of
tender as to particular Old Notes. The Issuer's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in this Letter of
Transmittal) shall be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Issuer shall determine. Neither the Issuer, the Exchange
Agent nor any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of Old Notes, nor shall any of
them incur any liability for failure to give such notification. Tenders of Old
Notes will not be deemed to have been made until such defects or irregularities
have been cured or waived. Any Old Notes received by the Exchange Agent that are
not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned by the Exchange Agent to the tendering
Holders of Old Notes, unless otherwise provided in this Letter of Transmittal,
as soon as practicable following the Expiration Date.
<PAGE>
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER). If less than all of the Old Notes evidenced by a submitted
certificate are to be tendered, the tendering Holder(s) should fill in the
aggregate principal amount of Old Notes to be tendered in the box above entitled
"Description of Old Notes--Principal Amount Tendered." A reissued certificate
representing the balance of nontendered Old Notes will be sent to such tendering
holder, unless otherwise provided in the appropriate box of this Letter,
promptly after the Expiration Date. All of the Old Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
3. SIGNATURES ON THIS LETTER, BOND POWERS AND ENDORSEMENTS, GUARANTEE OF
SIGNATURES. If this Letter is signed by the registered holder of the Old Notes
tendered hereby, the signature must correspond exactly with the name as written
on the face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all of such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this letter as there are different registrations of certificates.
When this Letter is signed by the registered holder or holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered holder, then endorsements of any certificates transmitted hereby or
separate bond powers are required. Signatures on such certificate(s) must be
guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered holder or
holders of any certificate(s) specified herein, such certificate(s) must be
endorsed accompanied by appropriate bond powers, in either case signed exactly
as the name or names of the registered holder or holders appear(s) on the
certificate(s) and signatures on such certificate(s) must be guaranteed by an
Eligible Institution.
If this Letter or any certificates 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, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
Endorsements on certificates for Old Notes or signatures on bond powers
required by this Instruction 3 must be guaranteed by a financial institution
(including most banks, savings and loan associations and brokerage houses) that
is a participant in the Securities Transfer Agents Medallion Program, the New
York Stock Exchange Medallion Signature Program or the Stock Exchanges Medallion
Program (each, an "Eligible Institution").
Signatures on this Letter need not be guaranteed by an Eligible Institution,
provided the Old Notes are tendered: (i) by a registered holder of Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on this Letter, or (ii) for the account of an Eligible
Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders of Old
Notes should indicate in the applicable box the name and address to which New
Notes issued pursuant to the Exchange Offer and/or substitute certificates
evidencing Old Notes not exchanged are to be issued or sent, if different from
the name or address of the person signing this Letter. In the case of issuance
in a different name, the employer identification or social security number of
the person named must also be indicated. Noteholders tendering Old Notes by
book-entry transfer may request that Old Notes not exchanged be credited to such
account maintained at the Book-Entry Transfer Facility as such noteholder may
designate hereon. If no such instructions are given, such Old Notes not
exchanged will be returned to the name and address of the person signing this
Letter.
<PAGE>
5. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the transfer of Old Notes to it or its order pursuant to the
Exchange Offer. If, however, New Notes and/or substitute Old Notes not exchanged
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the Old Notes tendered hereby, or if
tendered Old Notes are registered in the name of any person other than the
person signing this Letter, or if a transfer tax is imposed for any reason other
than the transfer of Old Notes to the Company or its order pursuant to the
Exchange Offer, the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed to such
tendering holder and the Exchange Agent will retain possession of an amount of
New Notes with a face amount equal to the amount of such transfer taxes due by
such tendering holder pending receipt by the Exchange Agent of the amount of
such taxes.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes specified in this Letter.
6. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive
satisfaction of any or all conditions enumerated in the Prospectus.
7. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Old Notes, by
execution of this Letter, shall waive any right to receive notice of the
acceptance of their Old Notes for exchange.
Although the Company intends to notify holders of defects or irregularities
with respect to tenders of Old Notes, neither the Company, the Exchange Agent
nor any other person shall incur any liability for failure to give any such
notice.
8. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
9. WITHDRAWAL OF TENDERS. Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date.
For a withdrawal of a tender of Old Notes to be effective, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth above prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) be signed by the holder
in the same manner as the original signature on this Letter (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the trustee under the Indenture register the transfer of such
Old Notes into the name of the person withdrawing the tender and (iv) specify
the name in which any such Old Notes are to be registered, if different from
that of the Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes that have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following the procedures described
above at any time on or prior to 5:00 p.m., New York City time, on the
Expiration Date.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus, this Letter and other related documents may be directed to the
Exchange Agent, at the address and telephone number indicated above.
<PAGE>
11. IMPORTANT TAX INFORMATION. Under current federal income tax law, a
holder of New Notes is required to provide the Company (as payor) with such
holder's correct taxpayer identification number ("TIN") on Substitute Form W-9
or otherwise establish a basis for exemption from backup withholding to prevent
backup withholding on any New Notes delivered pursuant to the Exchange Offer and
any payments received in respect of the New Notes. If a holder of New Notes is
an individual, the TIN is such holder's social security number. If the Company
is not provided with the correct taxpayer identification number, a holder of New
Notes may be subject to a $50 penalty imposed by the Internal Revenue Service.
Accordingly, each prospective holder of New Notes to be issued pursuant to
Special Issuance Instructions should complete the attached Substitute Form W-9.
The Substitute Form W-9 need not be completed if the box entitled Special
Issuance Instructions has not been completed.
Certain holders of New Notes (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Exempt prospective holders of New Notes should indicate
their exempt status on Substitute Form W-9. A foreign individual may qualify as
an exempt recipient by submitting to the Company, through the Exchange Agent, a
properly completed Internal Revenue Service Form W-8 (which the Exchange Agent
will provide upon request) signed under penalty of perjury, attesting to the
holder's exempt status. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional
instructions.
If backup withholding applies, the Company is required to withhold 31% of
any payment made to the holder of New Notes or other payee. Backup withholding
is not an additional federal income tax. Rather, the federal income tax
liability of persons subject to backup withholding will be reduced by the amount
of tax withheld. If withholding results in an overpayment of taxes, a refund may
be obtained from the Internal Revenue Service.
To prevent backup withholding on any New Notes delivered pursuant to the
Exchange Offer and any payments received in respect of the New Notes, each
prospective holder of New Notes to be issued pursuant to Special Issuance
Instructions should provide the Company, through the Exchange Agent, with
either: (i) such prospective holder's correct TIN by completing the form below,
certifying that the TIN provided on Substitute Form W-9 is correct (or that such
prospective holder is awaiting a TIN) and that (A) such prospective holder has
not been notified by the Internal Revenue Service that he or she is subject to
backup withholding as a result of a failure to report all interest or dividends
or (B) the Internal Revenue Service has notified such prospective holder that he
or she is no longer subject to backup withholding; or (ii) an adequate basis for
exemption.
The prospective holder of New Notes to be issued pursuant to Special
Issuance Instructions is required to give the Exchange Agent the TIN (e.g.,
social security number or employer identification number) of the prospective
record owner of the New Notes. If the New Notes will be held in more than one
name or are not held in the name of the actual owner, consult the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional guidance regarding which number to report.
To prevent backup withholding, each tendering holder of Old Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth below,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, or (ii) the
holder has not been notified by the Internal Revenue Service that such holder is
subject to backup withholding as a result of a failure to report all interest or
dividends or (iii) the Internal Revenue Service has notified the holder that
such holder is no longer subject to backup withholding. If the tendering holder
of Old Notes is a nonresident alien or foreign entity not subject to backup
withholding, such holder must give the Company a completed Form W-8, Certificate
of Foreign Status. These forms may be obtained from the Exchange Agent. If the
Old Notes are in more than one name or are not in the name of the actual owner,
such holder should consult the W-9 Guidelines for information on which TIN to
report. If such holder does not have a TIN, such holder should consult the W-9
Guidelines for instructions on applying for a TIN, check the box in Part 2 of
the Substitute Form W-9 and write "applied for" in lieu of its TIN. Note:
Checking this box and writing "applied for" on the form means that such holder
has already applied for a TIN or that such holder intends to apply for one in
the near future. If such holder does not provide its TIN to the Company within
60 days, backup withholding will begin and continue until such holder furnishes
its TIN to the Company.
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5)
<TABLE>
<C> <S> <C>
PAYOR'S NAME: ARMCO INC.
- ---------------------------------------------------------------------------------------------------
SUBSTITUTE PART I--PLEASE PROVIDE YOUR TIN TIN:
FORM W-9 IN THE BOX AT RIGHT AND CERTIFY (Social Security Number or
BY SIGNING AND DATING BELOW. Employer Identification Number)
-----------------------------------------------------------------
DEPARTMENT OF THE TREASURY CERTIFICATION--UNDER PENALTIES OF PERJURY, I CERTIFY THAT: (1)
INTERNAL REVENUE SERVICE THE NUMBER SHOWN ON THIS FORM IS MY CORRECT TAXPAYER
PART II--TIN APPLIED IDENTIFICATION NUMBER (OR I AM WAITING FOR A NUMBER TO BE ISSUED
FOR / / TO ME); (2) I AM NOT SUBJECT TO BACKUP WITHHOLDING EITHER
BECAUSE: (A) I AM EXEMPT FROM BACKUP WITHHOLDING, OR (B) I HAVE
NOT BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE (THE "IRS")
THAT I AM SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF FAILURE TO
REPORT ALL INTEREST OR DIVIDENDS, OR (C) THE IRS HAS NOTIFIED ME
THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING; AND (3) ANY
OTHER INFORMATION PROVIDED ON THIS FORM IS TRUE AND CORRECT.
SIGNATURE: DATE:
YOU MUST CROSS OUT ITEM (2) OF THE ABOVE CERTIFICATION IF YOU
HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO BACKUP
WITHHOLDING BECAUSE OF UNDERREPORTING OF INTEREST OR DIVIDENDS ON
YOUR TAX RETURN AND YOU HAVE NOT BEEN NOTIFIED BY THE IRS THAT
YOU ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING.
- ---------------------------------------------------------------------------------------------------
</TABLE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of the exchange, 31 percent of all reportable payments made to me
thereafter will be withheld until I provide a number.
<TABLE>
<S> <C>
Signature Date
</TABLE>
2
<PAGE>
EXHIBIT 99.2
EXCHANGE AGENT AGREEMENT
This EXCHANGE AGENT AGREEMENT (this "AGREEMENT") dated as of October __,
1997 between Armco Inc., an Ohio corporation ("ARMCO"), and The Fifth Third
Bank.
W I T N E S S E T H:
WHEREAS, ARMCO is offering to exchange (the "EXCHANGE OFFER") all of its
outstanding 9% Senior Notes due 2007 (the "OLD NOTES"), of which an aggregate of
$150,000,000 in principal amount are outstanding as of the date hereof, for an
equal principal amount of newly issued 9% Senior Notes due 2007 (the "NEW
NOTES"), on the terms and in the manner set forth in the Prospectus, dated
October __, 1997 (the "EXCHANGE OFFER PROSPECTUS"); and
WHEREAS, Armco wishes to appoint the Exchange Agent as its agent for the
purpose of administering the Exchange Offer and the Exchange Agent wishes to
accept such appointment.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties agree as follows:
1. APPOINTMENT OF EXCHANGE AGENT; PERFORMANCE OF DUTIES. Armco hereby
appoints the Exchange Agent as its agent for the exchange of its Old Notes for
its New Notes, and the Exchange Agent accepts such appointment subject to the
terms and conditions contained in this Agreement.
2. DOCUMENTS. The Exchange Agent shall establish an account with respect
to the Old Notes at the Depository Trust Company ("DTC") for purposes of the
Exchange Offer within two business days after the date of the Exchange Offer
Prospectus so that any Participant (as defined herein) may make book-entry
delivery of the Old Notes by causing DTC to transfer such Old Notes into such
account in accordance with DTC's procedures for such transfer. ARMCO shall
provide the Exchange Agent with copies of a letter of transmittal substantially
in the form of Exhibit A attached hereto (the "LETTER OF TRANSMITTAL"). The
Exchange Agent shall request from DTC no later than the
<PAGE>
effective date of the Exchange Offer a Special Security Position Listing of all
participants eligible to participate in the Exchange Offer (the "PARTICIPANTS")
and the amount of Old Notes owned of record by each such Participant; PROVIDED,
HOWEVER, that the Exchange Agent shall not be responsible for any changes in the
Participants or of the beneficial ownership of the Old Notes during the Exchange
Offer. The Exchange Agent shall make copies of the Letter of Transmittal
available to Holders (as such term is defined in the Letter of Transmittal) and
the Participants upon requests directed to The Fifth Third Bank, Department, 38
Fountain Square Plaza, Cincinnati, Ohio 45363 by registered or certified mail or
by overnight courier.
3. EXCHANGE AGENT RESPONSIBILITIES. The Exchange Agent shall examine the
Letters of Transmittal (or a facsimile thereof) and other documents received by
it or ascertain that (a) each Letter of Transmittal is completed and duly
executed in accordance with the instructions therefor and (b) any other document
required by the instructions accompanying the Letters of Transmittal is
completed and duly executed in accordance with such instructions. Except as
otherwise provided in this Paragraph 3, Old Notes shall not be deemed to be
properly tendered unless all of the foregoing requirements are met prior to the
Expiration Date (as defined in the Exchange Offer Prospectus). The Exchange
Agent shall take all steps as it shall deem reasonable and appropriate to cause
the person tendering Old Notes pursuant to the Exchange Offer to correct any
defect that exists in any Letter of Transmittal or accompanying document. In
the event that the Exchange Agent is unable to cause the correction of any such
defect, the Exchange Agent shall promptly send to Armco any Letter of
Transmittal or other document or copies thereof containing any defect therein,
which in its judgment would prevent acceptance thereof, together with a request
for instructions as to actions to be taken with respect thereto in accordance
with Paragraph 8(f) of this Agreement. All questions with respect to the duties
of the Exchange Agent under this Paragraph 3 will be determined by Armco, which
determination shall be final and binding for the purposes of this Agreement.
Armco reserves the right, if it so elects in its discretion, to waive the
failure of any delivery of Old Notes, Letters of Transmittal or other document
pursuant to the Exchange Offer to comply
- 2 -
<PAGE>
with any requirement of this Paragraph 3 or the Letter of Transmittal. Armco
reserves the right to terminate or, prior to the Expiration Date, amend the
Exchange Offer as provided in the Exchange Offer Prospectus. If notified by
Armco of termination of the Exchange Offer, the Exchange Agent shall promptly
return all tendered Old Notes to the tendering Holders. If notified by Armco of
an amendment of the Exchange Offer, the Exchange Agent shall follow the
reasonable instruction of Armco contained in such notice to the extent
consistent with this Agreement. Each day upon which the Exchange Agent receives
one or more Letters of Transmittal, the Exchange Agent shall provide Armco with
a written account of the following information: (1) the number of properly
tendered Old Notes submitted that day; (2) the cumulative number of properly
tendered Old Notes submitted and not properly withdrawn through such day; (3)
the number of Old Notes covered by defective tenders submitted that day; (4) the
number of Old Notes that are submitted that day pursuant to the guaranteed
delivery procedures contained in the Letter of Transmittal; and (5) the
cumulative number of Old Notes covered by uncorrected defective tenders as of
such date.
4. ACCEPTANCES AND EXCHANGE.
(a) At any time after the Expiration Date (as defined in the Exchange
Offer Prospectus), upon receiving a notice from Armco directing the exchange of
properly tendered Old Notes, the Exchange Agent shall, as agent of Armco and
subject to all the conditions of the Exchange Offer, accept for exchange all Old
Notes properly tendered in accordance with this Agreement that are not properly
withdrawn prior to the Expiration Date (as defined in the Exchange Offer
Prospectus). Thereafter, unless notified otherwise by Armco, the Exchange Agent
shall continue to accept for exchange all Old Notes that are properly delivered
to the Exchange Agent pursuant to Notices of Guaranteed Delivery (as defined in
the Exchange Offer Prospectus) but shall not accept any other Old Notes for
exchange.
(b) Following such acceptance of Old Notes, the Exchange Agent shall
promptly present all such Old Notes to the registrar with instructions to cause
such Old Notes to be marked as "canceled" in the name of Armco in the
appropriate registers. The Exchange Agent
- 3 -
<PAGE>
promptly shall notify The Fifth Third Bank, as Registrar and Transfer Agent for
the New Notes (in such capacity, the "REGISTRAR"), of (A) the names of the
Holders on whose behalf Old Notes have been so presented and the number of Old
Notes so presented on behalf of each and (B) the instructions for delivery of
New Notes provided in the Letters of Transmittal submitted by each such Holder.
The Exchange Agent shall from time to time request the Registrar to issue such
New Notes as are required for delivery hereunder.
5. ASSIGNEES; SIGNATURES. If a New Note or beneficial ownership thereof is
to be delivered to, or reflected on the records of DTC as belonging to, an
assignee of the Holder or beneficial owner of the surrendered Old Notes, the
assignee of the Holder or the beneficial owner shall pay to the Exchange Agent
the amount of any transfer taxes applicable to such transfer unless satisfactory
evidence of the payment of such tax, or exception therefrom, is submitted.
The signature (or signatures, in the case of any Old Notes owned by two or
more joint holders) on a Letter of Transmittal must correspond exactly with the
name(s) appearing on the records of the Registrar.
6. RECORDS. The Exchange Agent shall maintain, on a continuing basis, in
addition to the information required by Paragraphs 3 and 4 hereof, a record
showing the following: (i) the names and addresses of all Holders who have
tendered Old Notes for exchange and of all Holders to whom New Notes will be or
have been issued or to whose DTC account New Notes will be or have been
credited, (ii) the face amount of Old Notes held by each such Holder, and (iii)
the face amount of Old Notes tendered by and New Notes to be issued to each such
Holder. Upon the request of Armco, the Exchange Agent shall provide Armco with
a report setting forth the information maintained pursuant to this Paragraph 6,
together with such other information as may from time to time be reasonably
requested.
7. FEES. Armco shall pay all reasonable out-of-pocket expenses of the
Exchange Agent for postage, stationery, printing, telephone, facsimile, telex
and other similar items (other than those specifically described below) and the
reasonable fees and disbursements of legal counsel to the Exchange
- 4 -
<PAGE>
Agent incurred in rendering services hereunder at cost, pursuant to monthly
invoices from the Exchange Agent. In no case, however, unless agreed to in
advance by Armco, shall the payment of Armco of the fees and disbursements of
legal counsel to the Exchange Agent exceed the sum of $[2,500]. In addition,
Armco shall pay such fees as Armco and the Exchange Agent may agree in writing
from time to time.
8. LIMITATION OF DUTIES. As Exchange Agent hereunder, the Exchange Agent:
(a) shall have no duties or obligations other than those specifically
set forth herein;
(b) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness of any
Old Notes or New Notes or any Letter of Transmittal or other document deposited
with or delivered to the Exchange Agent hereunder or any signature or
endorsement in connection therewith and will not be required to and will not
make any representation as to their validity, value or genuineness;
(c) shall not be obligated to take any legal action hereunder that
might in the judgment of the Exchange Agent involve any expense or liability
unless the Exchange Agent shall have been furnished with indemnity acceptable to
it;
(d) may rely on and shall be protected in acting upon any certificate,
instrument, opinion, notice, letter, telegram or other document or security
delivered to the Exchange Agent without gross negligence, bad faith or without
misconduct to be genuine and to have been signed by the proper party or parties;
(e) shall not be liable for any action taken or omitted by the
Exchange Agent, or any action suffered by it to be taken or omitted, without
gross negligence, bad faith or willful misconduct on its part, by reason of or
as a result of the administration of its duties hereunder, and it may rely on
and shall be protected in acting upon the written instructions of any person
reasonably believed by it to be a proper
- 5 -
<PAGE>
officer or representative of Armco relating to the Exchange Agent's duties
hereunder;
(f) may apply to Armco for written instructions with respect to any
matter arising in connection with the Exchange Agent's duties and obligations
arising under this Agreement, and the application by the Exchange Agent for
written instructions from Armco may, at the option of the Exchange Agent, set
forth in writing any action proposed to be taken or omitted by the Exchange
Agent with respect to its duties or obligations under this Agreement and the
date or dates on or after which such action shall be taken, and the Exchange
Agent shall not be liable for any action taken or omitted in accordance with a
proposal included in any such application on or after the date specified therein
(which date shall not, without Armco's consent, be less than five business days
after Armco is deemed to have received such application) unless, prior to taking
or omitting any such action, the Exchange Agent has received written
instructions from Armco in response to such application specifying the action to
be taken or omitted. The right conferred by this Paragraph 8(f) shall be
restricted by the requirement of Paragraph 3 hereof that, with respect to
defects in any Letter of Transmittal or accompanying document, the Exchange
Agent shall take such steps as it shall deem reasonable and appropriate to
correct the same before applying to Armco under this Paragraph 8(f) for
instructions; and
(g)may consult counsel satisfactory to the Exchange Agent and Armco,
and the opinion of such counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion of such counsel.
9. COURT ORDERS. If any property subject hereto is at any time attached,
garnished or levied upon under any court order or in case the payment,
assignment, transfer, conveyance or delivery of any such property shall be
stayed or enjoined by any court order, or in case any order, judgment or decree
shall be made or entered by any court affecting such property or any part
thereof, then and in any such event the Exchange Agent is authorized, in its
sole discretion, to rely upon and comply with any such order, writ,
- 6 -
<PAGE>
judgment or decree that it is advised by legal counsel of its own choosing is
binding upon them, and, if it complies with any such order, writ, judgment or
decree, it shall not be liable to any of the parties hereto or to any other
person, firm or corporation by reason of such compliance even through such
order, writ, judgment or decree may be subsequently reversed, modified,
annulled, set aside or vacated.
10. INDEMNIFICATION. Armco agrees to indemnify the Exchange Agent and hold
it harmless from and against any loss, liability or expense (including
reasonable counsel fees and expenses) incurred by the Exchange Agent without
gross negligence, bad faith or willful misconduct on its part arising out of or
in connection with the administration of its duties and any action taken or
omitted to be taken hereunder and otherwise in connection with the Exchange
Offer and against any stock transfer or other tax.
11. AMENDMENTS. This Agreement may be amended only by an instrument in
writing executed by the parties hereto or their successors and assigns.
12. REPORTS; NOTICES. All reports, notices, applications (including
applications for instructions in accordance with Paragraph 8(f) hereof) and
other communications required or permitted hereunder shall be in writing and
shall be deemed given when addressed and delivered by facsimile transmission
(confirmed by telephone call), which delivery may be followed by delivery by
hand or overnight delivery service, to the address for the party set forth below
or at such other address as a party may furnish by like notice to the other
parties hereto:
If to Armco:
Armco Corporation
One Oxford Centre
301 Grant Street
Pittsburgh, PA 15219-1415
Attn: Corporate Secretary
Facsimile Number: (412) 255-9805
with a copy to:
- 7 -
<PAGE>
Arnold & Porter
399 Park Avenue
New York, NY 10022
Attn: Jonathan C. Stapleton, Esq.
Facsimile Number: (212) 715-1399
If to the Exchange Agent:
The Fifth Third Bank
Corporate Trust Operations
38 Fountain Square Plaza
Cincinnati, OH 45263
Attn: Paul Smith
Facsimile Number: (513) 744-8909
Delivery of a notice sent by facsimile transmission shall be deemed to be
effective 24 hours after delivery has been confirmed by telephone.
13. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original but both of which together shall
constitute but one agreement.
14. TERMINATION. This Agreement shall terminate on [December __, 1997], or
on such earlier date as may be agreed in a signed writing between Armco and the
Exchange Agent. Upon termination, copies of all information maintained by the
Exchange Agent for Armco under this Agreement shall be delivered to Armco as
soon as practicable following Armco's request for such information. The right
of the Exchange Agent to be reimbursed for out-of-pocket expenses as provided in
Paragraph 7 and the indemnification provisions of Paragraph 10 hereof shall
survive termination of this Agreement.
15. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
- 8 -
<PAGE>
IN WITNESS WHEREOF, Armco Inc. and The Fifth Third Bank have duly executed
this Agreement as of the date first set forth above.
ARMCO INC.
By:
-------------------------
Name:
Title:
THE FIFTH THIRD BANK
By:
-------------------------
Name:
Title:
- 9 -
