<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 3, 1999
REGISTRATION NO. 333-71203
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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)
<TABLE>
<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
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
OFFER TO EXCHANGE
ALL OUTSTANDING
8 7/8% SENIOR NOTES DUE 2008
FOR
8 7/8% SENIOR NOTES DUE 2008
OF
ARMCO INC.
-------------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON MARCH 8, 1999 UNLESS EXTENDED
---------------------
We are offering a total of $75,000,000 of our 8 7/8% Senior Notes due 2008,
which will be freely transferable, in exchange for our outstanding 8 7/8% Senior
Notes due 2008. We refer to this prospectus and the letter of transmittal that
accompanies it as the "exchange offer." We refer to the 8 7/8% Senior Notes due
2008 being offered in the exchange offer as the "new notes" and we refer to the
outstanding 8 7/8% Senior Notes due 2008 that can be exchanged for new notes as
the "old notes." We refer to new notes and old notes together as the "notes."
TERMS OF THE EXCHANGE OFFER
- The exchange offer expires at 5:00 p.m., New York City time, on March 8,
1999, unless it is extended.
- If you decide to participate in the exchange offer, the new notes issued
to you will have substantially the same terms as your old notes, except
that the new notes will be registered and will be able to be resold
without complying with the registration requirements of the Securities Act
of 1933. Any old notes not exchanged will continue to have restrictions on
their transfer.
- There is no existing public market for your old notes, and there will be
no public market for the new notes issued in the exchange offer.
- We will exchange all of the old notes that you validly tender and do not
validly withdraw.
- You may withdraw tenders of your old notes at any time before the
expiration of the exchange offer.
- The exchange offer is subject to certain customary conditions, including
that it not violate any applicable law or interpretation of the staff of
the Securities and Exchange Commission.
- We will not receive any proceeds from the exchange offer.
- The exchange of your old notes into new notes will not be a taxable
exchange for U.S. federal income tax purposes.
THIS INVESTMENT INVOLVES RISKS. WE URGE YOU TO READ THE "RISK FACTORS"
SECTION OF THIS PROSPECTUS BEGINNING ON PAGE 7 THAT DESCRIBES SPECIFIC
RISKS ASSOCIATED
WITH THE EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NEW NOTES OR PASSED
UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. The letter of transmittal
accompanying this prospectus 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
the old notes were acquired by the broker-dealer as a result of market-making
activities or other trading activities. We have agreed that, starting on the
expiration date of the exchange offer and ending on the close of business one
year after the expiration date of the exchange offer, we will make this
prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution" in this prospectus for more information.
The date of this prospectus is February 5, 1999
<PAGE>
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Where You Can Find More Information........................................................................ ii
Forward-Looking Statements................................................................................. iv
Prospectus Summary......................................................................................... 1
Risk Factors............................................................................................... 7
Our Business............................................................................................... 13
Recent Developments........................................................................................ 15
Use of Proceeds............................................................................................ 15
Capitalization............................................................................................. 16
Selected Historical Consolidated Financial and Other Data.................................................. 17
The Exchange Offer......................................................................................... 19
Description of the New Notes............................................................................... 28
Federal Income Tax Consequences............................................................................ 54
Plan of Distribution....................................................................................... 58
Legal Matters.............................................................................................. 59
Experts.................................................................................................... 59
</TABLE>
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED.
THE INFORMATION IN THIS PROSPECTUS IS ACCURATE AS OF THE DATE ON THE FRONT
COVER. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS
IS ACCURATE AS OF ANY OTHER DATE.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. Our filings with the
Commission are available to the public over the Internet at the Commission's web
site at http://www.sec.gov. You may also read and copy any document that we file
at the Commission's public reference room at 450 Fifth Street, N.W., Washington,
D.C. 20549. These documents are also available at the public reference rooms at
the Commission's regional offices in New York, New York and Chicago, Illinois.
Please call the Commission at 1-800-SEC-0330 for further information on the
public reference rooms. The documents and other information that we file with
the Commission are also available at the offices of the New York Stock Exchange,
20 Broad Street, New York, New York 10005, on which our common stock is listed.
We are "incorporating by reference" in this prospectus the information that
we file with the Commission, which means that we can disclose important
information to you by referring you to those documents. Any documents or other
information that we file with the Commission after the date of this prospectus
will automatically update and supersede the information contained or
incorporated by reference in this prospectus. We are incorporating by reference
our documents listed below and any future filings that we make with the
Commission under Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act until
the day that is one year from the expiration date of the exchange offer.
- Annual report on Form 10-K for the fiscal year ended December 31, 1997;
- Quarterly reports on Form 10-Q for the quarters ended March 31, 1998, June
30, 1998 and September 30, 1998;
ii
<PAGE>
- Amendment to quarterly report on Form 10-Q/A for the quarter ended
September 30, 1998; and
- Current reports on Form 8-K, dated April 8, 1998, April 27, 1998 and
December 7, 1998.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Armco Inc.
One Oxford Centre
301 Grant Street
Pittsburgh, PA 15219-1415
Attn: Corporate Secretary
(412) 255-9800
iii
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements in this prospectus, including the information
incorporated by reference in this prospectus, may constitute "forward-looking
statements" for purposes of the Securities Act of 1933, as amended (the
"Securities Act") and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause our actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. When used in this prospectus, the words "believe," "anticipate,"
"estimate," "project," "intend," "expect" and similar expressions, when used in
connection with Armco or its management, are intended to identify such
forward-looking statements. We caution readers that these forward-looking
statements were based on various results that were derived utilizing numerous
important assumptions and other important factors. Actual results could differ
materially from those in the forward-looking statements. We assume no obligation
to update or to publicly announce the results of any revisions to any of these
forward-looking statements to reflect actual results, future events or
developments, changes in assumptions or changes in other factors affecting such
forward-looking statements.
iv
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights selected information about the exchange
offer and the new notes and may not contain all of the information that you
would find important in making your decision to participate in the exchange
offer. This prospectus includes the terms of the exchange offer and the new
notes being offered to you, as well as selected business information and
financial data. You are strongly encouraged to read this entire prospectus.
Except as otherwise required by the context, references in this prospectus
to "Armco," "we" or "us" are to Armco Inc., an Ohio corporation, and its
subsidiaries.
THE EXCHANGE OFFER
You are entitled to exchange your old notes for new notes that have been
registered under the Securities Act. The new notes will have substantially the
same terms as the old notes you currently hold, except that the new notes will
be registered under the Securities Act and will not have registration rights. As
a result of this registration, and only if you participate in the exchange offer
and exchange your old notes for new notes, we believe that you may resell the
new notes without complying with the registration and prospectus delivery
provisions of the Securities Act. Following the exchange offer, any old notes
held by you that are not exchanged will continue to have the existing
restrictions on their transfer and, except in certain circumstances, we will
have no further obligation to register your old notes under the Securities Act.
We entered into a registration agreement dated December 10, 1998 with
Salomon Smith Barney Inc., Chase Securities Inc. and PNC Capital Markets, Inc.,
the initial purchasers of the old notes. (Salomon Smith Barney Inc., Chase
Securities Inc. and PNC Capital Markets, Inc. are referred to in this prospectus
as the "initial purchasers.") Under the registration agreement, we must deliver
this prospectus to you and file a registration statement with the Commission to
register the new notes. You should read the discussion under the heading "The
Exchange Offer" for further information regarding the exchange offer and resales
of the new notes. You should also read the discussion under the headings
"Prospectus Summary--Summary of Terms of the New Notes" and "Description of the
New Notes" for further information regarding the new notes.
SUMMARY OF TERMS OF THE EXCHANGE OFFER
<TABLE>
<S> <C>
Securities Offered........................... Armco is offering $75,000,000 in principal
amount of 8 7/8% Senior Notes due 2008. These
new notes have substantially the same terms
as the old notes you hold, except that these
new notes will be registered under the
Securities Act and will be freely
transferable.
Registration Rights Agreement................ At the time the old notes were sold, we
entered into the registration agreement that
requires us to make this exchange offer.
After the exchange offer is complete, you
will no longer be entitled to exchange your
old notes for registered new notes. Under
certain circumstances, we may be required to
file a shelf registration statement under the
Securities Act with respect to your old
notes.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
The Exchange Offer........................... We are offering to exchange $1,000 principal
amount of new notes for each $1,000 principal
amount of the old notes held by you. In order
to be exchanged, your old notes must be
properly tendered and accepted. All old notes
that are validly tendered and not validly
withdrawn will be exchanged.
Today, there is $75,000,000 principal amount
of old notes outstanding.
We will issue new notes on or promptly after
the expiration of the exchange offer.
Ability to Resell New Notes.................. We believe that new notes issued in the
exchange offer may be offered for resale,
resold and otherwise transferred by you
without compliance with the registration and
prospectus delivery provisions of the
Securities Act if:
- the new notes issued in the exchange
offer are being acquired in the ordinary
course of your business;
- you are not participating, do not
intend to participate and have no
arrangement or understanding with any
person to participate in the
distribution of new notes issued to you
in the exchange offer; and
- you are not our affiliate.
If this belief is inaccurate and you transfer
any new notes issued to you in the exchange
offer without delivering a prospectus meeting
the requirements of the Securities Act or
without an exemption from registration of
your new notes from such requirements, you
may incur liability under the Securities Act.
We do not assume responsibility for or
indemnify you against such liability.
A broker-dealer may use this prospectus for
an offer to resell, resale or other
retransfer of the new notes issued to it in
the exchange offer.
The exchange offer is not being made to:
- holders of notes in any jurisdiction in
which the exchange offer or its
acceptance would not comply with the
applicable securities or blue sky laws
of that jurisdiction; and
- holders of notes who are our
affiliates.
Consequences of Failure to Exchange
Your Notes................................. If you do not exchange your old notes for new
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
notes in the exchange offer, you will
continue to have the restrictions on transfer
provided in the old notes and in the
indenture governing the old notes. In
general, your old notes may not be offered or
sold unless registered under the Securities
Act, except for offers or sales made in
reliance on an exemption from, or in a
transaction not governed by, the Securities
Act and applicable state securities laws. We
have no current plans to register your old
notes under the Securities Act.
Expiration Date.............................. The exchange offer will expire at 5:00 p.m.,
New York City time, on March 8, 1999, unless
it is extended. The expiration date is the
latest date and time to which we extend the
exchange offer.
Conditions to the Exchange Offer............. The exchange offer has certain customary
conditions. There is no minimum amount of old
notes that must be tendered to complete the
exchange offer.
Procedures for Tendering Your Old Notes...... If you wish to tender your old notes for
exchange in the exchange offer you must
transmit to Star Bank, N.A., the exchange
agent for the exchange offer, on or before
the expiration date of the exchange offer,
either:
- a properly completed and executed
letter of transmittal, which has been
provided to you with this prospectus,
or a facsimile of the letter of
transmittal, together with your old
notes and any other documentation
requested by the letter of transmittal,
to the exchange agent at the address
set forth in this prospectus under the
heading "The Exchange Offer--Exchange
Agent," and on the front cover of the
letter of transmittal; or
- a computer-generated message
transmitted by means of the Depository
Trust Company's Automated Tender Offer
Program system and received by the
exchange agent and forming a part of a
confirmation of book-entry transfer in
which you acknowledge and agree to be
bound by the terms of the letter of
transmittal.
By executing the letter of transmittal, each
holder of old notes will make those
representations described under the heading
"The Exchange Offer--Procedures for
Tendering."
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Guaranteed Delivery Procedures............... If you wish to tender your old notes and time
will not permit the documents required by the
letter of transmittal to reach the exchange
agent prior to the expiration date of the
exchange offer, or the procedure for
book-entry transfer cannot be completed on a
timely basis, you must tender your old notes
according to the guaranteed delivery
procedures described in this prospectus under
the heading "The Exchange Offer--Guaranteed
Delivery Procedures."
Special Procedures for Beneficial Owners..... If you are a beneficial owner whose old notes
are registered in the name of a broker,
dealer, commercial bank, trust company or
other nominee and you wish to tender your old
notes in the exchange offer, you should
contact such registered holder promptly and
instruct such registered holder to tender on
your behalf. If you wish to tender on your
own behalf, you must either make appropriate
arrangements to register ownership of the old
notes in your name or obtain a properly
completed bond power from the registered
holder, prior to completing and executing the
letter of transmittal and delivering your old
notes.
We must advise you that the transfer of
registered ownership may take considerable
time and may not be able to be completed
prior to the expiration date of the exchange
offer.
Withdrawal Rights............................ Unless the date is extended, you may withdraw
the tender of your old notes at any time
prior to 5:00 p.m., New York City time, on
the expiration date.
Federal Tax Considerations................... The exchange of old notes is not a taxable
exchange for United States federal income tax
purposes. You will not recognize any taxable
gain or loss or any interest income as a
result of the exchange. For additional
information regarding federal income tax
considerations, you should read the
discussion under the heading "Federal Income
Tax Consequences."
Use of Proceeds.............................. We will not receive any proceeds from the
issuance of new notes in the exchange offer.
We will pay all expenses incident to the
exchange offer.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Exchange Agent............................... Star Bank, N.A. is serving as the exchange
agent for the exchange offer. The exchange
agent's address, telephone number and
facsimile number is:
Star Bank, N.A.
Corporate Trust
425 Walnut Street
Mail Location 5155
Cincinnati, Ohio 45202
Attention: Robert Jones
Phone: (513) 632-4427
Facsimile: (513) 632-5511
</TABLE>
Please review the information contained under the heading "The Exchange
Offer" for more detailed information concerning the exchange offer.
SUMMARY OF TERMS OF THE NEW NOTES
The new notes to be issued to you in the exchange offer will evidence the
same obligations of Armco as the old notes you currently hold. You should be
aware that the indenture that currently governs your old notes is the same
indenture that will govern the new notes, except that there will be no
restrictions on your ability to transfer the new notes. A more detailed
description of the indenture can be found under the heading "Description of the
New Notes."
<TABLE>
<S> <C>
Total Amount of New Notes Offered............ $75,000,000 in principal amount.
Maturity..................................... December 1, 2008.
Interest Payment Dates....................... June 1 and December 1 of each year,
commencing on June 1, 1999.
Optional Redemption.......................... On or after December 1, 2003, Armco may
redeem the notes, in whole or in part, at the
redemption prices described under the heading
"Description of the New Notes--Optional
Redemption," plus accrued and unpaid
interest, if any, to the date of redemption.
In addition, upon a change of control of
Armco prior to December 1, 2003, we may
redeem all (but not less than all) of the
outstanding notes at a redemption price equal
to 100% of their principal amount, plus a
premium, as described in "Description of the
New Notes--Optional Redemption."
Change of Control of Armco................... Upon a change of control of Armco, we will be
required to offer to purchase the notes from
you at a purchase price equal to 101% of
their principal amount, plus accrued and
unpaid interest, if any, to the date of
repurchase.
Guarantees................................... None.
Ranking...................................... The new notes:
- are unsecured obligations of Armco;
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
- rank senior in right of payment to all
subordinated debt of Armco;
- rank equally in right of payment with
all existing and future unsecured senior
debt of Armco; and
- are effectively subordinated to all
secured debt of Armco, to the extent of
assets securing that indebtedness and
to the debt of Armco's subsidiaries.
As of September 30, 1998, we had a $70.0
million revolving credit facility (as amended
as of November 10, 1998), secured by
inventory, with no borrowings under this
facility. We also had $15.8 million of other
debt, secured by assets of Armco, outstanding
on that date. In addition, a wholly owned
subsidiary of Armco has a revolving credit
facility (as amended as of November 10, 1998)
that provides up to $100.00 million for
revolving credit loans and letters of credit
secured by the subsidiary's receivables. As
of September 30, 1998, there were no
borrowings under this facility, but $61.1
million of letters of credit were
outstanding. A more detailed description of
our indebtedness can be found under the
heading "Risk Factors--Risks Relating to Our
Business and Operations--Highly Leveraged
Financial Position."
Certain Covenants............................ The indenture under which the new notes will
be issued contains covenants for your benefit
that restrict the ability of Armco and its
subsidiaries to, among other things:
- borrow additional money;
- pay dividends on or redeem capital
stock of Armco, or make certain other
restricted payments or investments;
- sell certain assets;
- enter into certain transactions with
our affiliates;
- merge or consolidate with any other
person;
- sell all or substantially all of our
assets; and
- create liens.
Absence of a Public Market................... The new notes generally will be transferable
without any restrictions but will be new
securities for which there is no established
market.
</TABLE>
6
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS TOGETHER WITH THE OTHER
MATTERS SET FORTH IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS BEFORE DECIDING WHETHER TO EXCHANGE YOUR OLD NOTES FOR NEW NOTES IN
THE EXCHANGE OFFER.
RISKS RELATING TO YOUR FAILURE TO PARTICIPATE IN THE EXCHANGE OFFER
If you do not elect to exchange your old notes for new notes you will hold
securities that are not registered and that contain restrictions on transfer.
As we explained earlier, the old notes not tendered or exchanged will remain
restricted securities. That means that if you desire to resell, pledge or
otherwise transfer any old note at some future time, it may be resold, pledged
or transferred only as follows:
- if the old note is eligible for resale pursuant to Rule 144A under the
Securities Act, to a qualified institutional buyer that purchases for its
own account or for the account of a qualified institutional buyer to whom
notice is given that the resale, pledge or transfer is being made in
reliance on Rule 144A;
- in an offshore transaction in accordance with Regulation S under the
Securities Act;
- under an available exemption from registration provided by Rule 144 or
Rule 145 under the Securities Act;
- in reliance on another exemption from the registration requirements of the
Securities Act, but only upon the receipt by the registrar of a
certification of the transferor and a satisfactory opinion of counsel to
the effect that such transfer is in compliance with the Securities Act; or
- under an effective registration statement under the Securities Act,
in each case in accordance with any applicable securities law of any state of
the United States.
Following the exchange offer, if you did not elect to participate you will
not be entitled to any further registration rights under the registration
agreement or under the purchase agreement governing your old notes, except for
certain shelf registration rights. See "The Exchange Offer--Purpose of the
Exchange Offer." We do not currently intend to file a registration statement to
register your old notes except in connection with this exchange offer.
RISKS RELATING TO ABSENCE OF PUBLIC MARKET FOR THE NOTES
The new notes will constitute a new issue of securities for which currently
there is no trading market. We do not intend to apply for listing of the new
notes on any securities exchange or for quotation through the National
Association of Securities Dealers Automated Quotation system. The initial
purchasers have informed us that they currently intend to make a market in the
new notes. However, they are not obligated to do so and may discontinue any such
market making at any time without notice. The liquidity of any market for the
new notes will depend upon the number of holders of the new notes, the interest
of securities dealers in making a market for the new notes and other factors
that are not under Armco's control. Accordingly, we cannot assure you that a
market or liquidity will develop for the new notes.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the new notes. We cannot assure you that the market for the new
notes, if any, will not be subject to similar disruptions. Any such disruptions
may adversely affect you as a holder of the new notes.
7
<PAGE>
RISKS RELATING TO OUR BUSINESS AND OPERATIONS
HIGHLY LEVERAGED FINANCIAL POSITION
We have substantial debt and debt service requirements. Adjusting for the
sale of the old notes and the redemption of the 9 3/8% Senior Notes due 2000, as
of September 30, 1998 we would have had total consolidated debt of approximately
$259.3 million. In addition, we have substantial employee postretirement benefit
obligations. See "--Substantial Employee Postretirement Benefit Obligations."
Our highly leveraged financial position has important consequences for us,
including:
- our ability to borrow additional amounts for working capital, capital
expenditures, debt service requirements or other purposes may be limited;
- a substantial portion of our cash flow from operations will be required to
make debt service payments and payments for postretirement benefit
obligations;
- our leverage could limit our ability to capitalize on significant business
opportunities and our flexibility to react to changes in general economic
conditions, competitive pressures and adverse changes in government
regulation;
- our high leverage could place us at a competitive disadvantage with
respect to companies with which we compete; and
- we may be more vulnerable in the event of a downturn or disruption in our
business or in the economy generally.
While we expect to be able to repay the balance of our indebtedness and meet
our other obligations through cash generated from operations, we may need to
obtain new credit arrangements and other sources of financing in order to meet
our future obligations and working capital requirements and to fund our future
capital expenditures. You should be aware that our ability to repay or refinance
our current debt and to fund our capital expenditures and other obligations
depends on our successful financial and operating performance and on our ability
to implement successfully our business strategy. Unfortunately, we cannot assure
you that we will be successful in implementing our strategy or in realizing our
anticipated financial results. You should also be aware that our financial and
operational performance depends upon a number of factors, many of which are
beyond our control. These factors include:
- the economic and competitive conditions in the steel industry;
- any operating difficulties, increased operating costs or pricing pressures
we may experience;
- the passage of legislation or other regulatory developments that may
adversely affect us;
- the economic conditions in the automotive industry; and
- volatility in financial markets, which may affect invested pension plan
assets and the calculation of benefit plan liabilities.
We have a $70.0 million revolving credit facility (as amended as of November
10, 1998), secured by certain of our inventories. As of September 30, 1998,
there were no borrowings under this facility. However, we had $15.8 million of
other debt outstanding as of that date that was secured by assets of Armco. In
addition, under a receivables facility, we sell substantially all of our trade
receivables to a wholly owned subsidiary. This subsidiary has a revolving credit
facility (as amended as of November 10, 1998) that provides up to $100.0 million
for revolving credit loans and letters of credit secured by the subsidiary's
receivables. As of September 30, 1998, there were no borrowings under this
credit facility, but $61.1 million of letters of credit were outstanding. This
subsidiary is a separate and distinct legal entity and has no obligation to pay
any amounts due under the notes or to make funds available for
8
<PAGE>
any such payment. If we default, your right to payment under the notes will be
junior to our secured debt and will be effectively subordinated to the claims of
creditors under our subsidiary's revolving credit facility to the extent of that
subsidiary's assets.
These and other factors could have an adverse effect on the marketability,
price and future value of the notes and our ability to pay the interest on and
the principal amount of the notes.
RELIANCE ON THE AUTOMOTIVE INDUSTRY
We sell a significant amount of our products to the automotive industry. The
following table shows the approximate percentage of our sales made directly to
the automotive industry in each of the past several years:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------- ---------------
<S> <C>
1994.......................................................... 31
1995.......................................................... 33
1996.......................................................... 36
1997.......................................................... 32
</TABLE>
In addition, a substantial amount of our sales made 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 historically has experienced
significant fluctuations in demand, based on such factors as general economic
conditions, interest rates and consumer confidence. In addition, the industry
historically has experienced significant fluctuations in production due to
strikes, lockouts, work stoppages or other production interruptions in the
automotive industry. Any material decrease in the production or sale of
automobiles could have a material adverse effect on the results of our
operations.
In recent years, United States demand for automotive exhaust stainless sheet
and strip steel has been high, with total United States demand for such material
increasing from approximately 223,000 tons in 1992 to approximately 438,000 tons
in 1997. However, we cannot assure you that demand will remain at these levels.
Although the production of light vehicles in North America increased from
approximately 12.5 million units in 1992 to 15.6 million units in 1997, we also
cannot assure you that such production levels will be maintained.
HIGHLY COMPETITIVE NATURE OF STEEL INDUSTRY; OTHER FACTORS AFFECTING STEEL
PRICES
The steel industry is extremely competitive, particularly with respect to
price. We face intense competition from domestic and foreign steel producers. In
addition, we face competition from 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 of the industry.
Increases in the production capacity and efficiency of other domestic steel
producers, together with possible new entrants into the specialty steel market,
also could result in intensified competition that could exert downward pressure
on prices and market share. In 1995, Nucor Corporation, a mini-mill steel
company, entered the automotive chrome stainless steel business with the
addition of an argon-oxygen decarburization vessel at its Crawfordsville,
Indiana melt shop. AK Steel Corporation, an integrated steel company, is
building a stainless steel finishing facility in Rockport, Indiana that is
expected to be completed in mid-1999. When completed, this facility will provide
AK Steel Corporation with substantial stainless steel processing and finishing
capacity.
9
<PAGE>
Foreign producers also compete with us, although to a lesser extent than
domestic producers. Some foreign producers have lower labor costs and are
subsidized by their governments. Political and social considerations may
influence their decisions with regard to production and sales more than
prevailing market forces. Many foreign steel producers continue to ship to the
United States market despite decreasing profit margins or losses. Other factors
that influence the level of foreign competition include the relative strength of
the dollar, the level of imports, and the effectiveness of United States trade
laws. In June 1998, Armco and other domestic producers of flat-rolled stainless
sheet and strip products filed petitions with the U.S. Department of Commerce
and the International Trade Commission charging eight foreign countries with
violations of U.S. trade laws. The U.S. International Trade Commission issued a
preliminary finding in July 1998 that there has been injury to domestic
producers of flat-rolled stainless sheet and strip products. In November 1998,
the U.S. Department of Commerce announced preliminary results in its
investigations, establishing countervailing duty rates for companies in France,
Italy and South Korea. In December 1998, a preliminary determination on
antidumping margins was announced by the U.S. Department of Commerce for
companies in these three countries, as well as in Germany, Japan, Mexico, Taiwan
and the United Kingdom. Final antidumping duties are expected to be set by the
second quarter of 1999. However, we cannot assure you that meaningful tariffs
will be imposed on imports of these products. In addition, with respect to
electrical steel, the U.S. Department of Commerce and the U.S. International
Trade Commission are expected to review existing antidumping and countervailing
duty cases involving Italian and Japanese producers in mid-1999 to determine
whether these protections should be extended for another five years. The failure
to obtain or extend meaningful tariff protection for these products could
adversely affect the prices of our products and reduce our profitability.
Historically, the steel industry, including the specialty steel sector, has
been cyclical in nature. This is due to the cyclical nature of many of the
principal markets the steel industry serves, including the automotive, appliance
and construction industries, as well as to changes in total industry demand.
Since 1993, steel prices have fluctuated. In 1997, average specialty steel
prices were lower than in 1996. Although demand for steel has been strong since
1993, we cannot assure you that demand will continue at current levels. Further,
we cannot assure you that increased production capacity or efficiency of
competitors, or increased foreign and domestic competition will not adversely
affect pricing and profit margins. In addition, the steel industry is vulnerable
to price increases in raw materials and energy, which represent major components
in the per ton cost of production.
RISKS ASSOCIATED WITH LABOR
Unions represent most of our domestic production and maintenance employees,
although some of our operations are not unionized. Future collective bargaining
agreements, or the negotiation of such agreements, may have an adverse effect on
Armco's financial condition and results of operations. In August 1999, the labor
contract with the employees at our Mansfield, Ohio facility will expire. We
cannot assure you of the results of our negotiations of future collective
bargaining agreements with our employees. Further, we cannot assure you that the
Mansfield labor contract or other collective bargaining agreements will be
negotiated without production interruptions. Labor disputes and resulting work
stoppages or slowdowns occasionally occur in the steel industry. We cannot
assure you that work stoppages or slowdowns will not occur in the future in
connection with our labor negotiations or otherwise.
SUBSTANTIAL EMPLOYEE POSTRETIREMENT BENEFIT OBLIGATIONS
We have substantial financial obligations related to our 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" requires that we accrue retiree
medical and life insurance benefits during an employee's service rather than
defer the recognition of costs until
10
<PAGE>
claims are actually paid. In accordance with this accounting standard, we have
established a liability for the present value of the estimated future unfunded
medical and life insurance benefit obligations. As of December 31, 1997, we had
accumulated postretirement health care and life insurance benefit obligations
estimated at $755.2 million. In addition, as of that date we had accrued a
balance sheet liability of $1,037.7 million for these postretirement
obligations. The cash payments for actual postretirement health and life
insurance claims were $55.2 million in 1996, $60.0 million in 1997 and $44.4
million for the first nine months of 1998.
In accordance with the Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions," we had an accrued pension liability of
$189.4 million at December 31, 1997 for our defined benefit pension plans. As of
December 31, 1997, the funded status of our defined benefit pension plans showed
plan assets of $2,106.4 million, exceeding projected benefit obligations by $7.4
million. However, adverse developments in health care costs or in the financial
markets could materially increase the amount of our postretirement benefit
obligations. In addition, plant shutdowns, layoffs or other similar events could
increase the amount of the obligations.
Effective January 1, 1998, we changed the accounting method that we use to
amortize unrecognized net gains and losses associated with our pension and
postretirement benefit plans. Under this accounting method, we
- recognize into income, as a fourth-quarter adjustment in each year, net
gains and losses that exceed 10% of the larger of our benefit obligations
or our plan assets, and
- amortize amounts inside this 10% corridor over the average remaining
service life of active participants (approximately 15 years).
Before this accounting change we chose to use the minimum amortization
method allowable under Statement of Financial Accounting Standards No. 87. Under
that method, we amortized unrecognized net gains and losses outside the 10%
corridor over the average remaining service life of active participants. This
older method resulted in the accumulation of substantial unrecognized net gains,
causing long-term employee benefit liabilities on our balance sheet to be higher
than the actuarially determined economic obligations. The new accounting method
that we have adopted therefore accelerates the recognition of certain net gains
and losses associated with our pension and postretirement benefit plans. In the
nine months ended September 30, 1998, we recognized income of $237.5 million for
the cumulative effect of this accounting change. The cumulative effect of this
accounting change increased our first quarter net income. The change also
resulted in our reporting positive total shareholder's equity for the first time
since 1992.
Because the new accounting method accelerates net gains and losses resulting
from, among other things, the investment returns on pension plan assets and
changes in interest rates, the accounting change could cause our future earnings
to be more volatile. For the nine months ended September 30, 1998, adoption of
the new accounting method increased income from continuing operations by
approximately $2.3 million. However, a decline in interest rates or a marked
deterioration in investment earnings on pension plan assets in future quarters
could require us to recognize a charge related to unrecognized losses outside
the 10% corridor.
FUTURE USE OF NET OPERATING LOSS CARRYFORWARDS
At December 31, 1997, we had net operating loss carryforwards for federal
income tax purposes of approximately $1,060.7 million. This represented a
portion of the net deferred tax asset recorded on our balance sheet of $328.5
million. A certain amount of these net operating loss carryforwards will expire
each year between 1998 and 2011. To use such net operating loss carryforwards,
we must generate taxable income equal in amount to the net operating loss
carryforwards prior to their expiration. Because we operate in a highly cyclical
industry, historically we have generated and then
11
<PAGE>
utilized net operating loss carryforwards. During the 1987, 1988 and 1989 fiscal
years, we utilized approximately $350.0 million of net operating loss
carryforwards. While we incurred tax losses for the seven fiscal years ending
December 31, 1996, our management believes that it is more likely than not that
we will generate sufficient taxable income to realize that portion of the tax
benefit associated with future deductible temporary differences and net
operating loss carryforwards represented by the net deferred tax asset recorded
on our balance sheet at December 31, 1997. We base this belief upon, among other
factors, changes in operations during the 1990s, as well as our consideration of
available tax planning strategies. Specifically, we are realizing cost savings
associated with new capital investments. In 1997, we recorded taxable income for
the first time since 1989 and utilized approximately $15.9 million of our net
operating loss carryforwards. While we expect these cost savings to continue to
improve operating results, we cannot assure you that the deferred tax asset
reflected on our consolidated balance sheets will actually be fully utilized.
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, federal and state regulatory authorities may
require investigation and cleanup of contaminated sites, even when a party acted
in accordance with applicable laws and requirements. In litigation under such
laws, courts generally will hold the responsible parties jointly and severally
liable absent proof that damages are divisible.
Certain parties have sued us, or identified us as a potentially responsible
party, in various proceedings in which the federal or state government seeks
reimbursement for, or to compel cleanup of, contaminated sites. Federal and
state agencies have required us to perform or fund such cleanups or participate
in cleanups with others at a number of sites, including some of our current or
former facilities and other sites at which our facilities disposed of wastes in
the past. In addition, such federal and state agencies may, from time to time,
require us to remediate or join with others in the remediation of additional
sites identified by federal or state authorities. We also have been named as a
defendant in several private lawsuits alleging property damage and personal
injury from waste disposal sites and from former facilities of Armco.
We may incur environmental exit costs if we decide to sell a current
property. (It is our policy not to accrue such environmental exit costs until we
decide to dispose of a property.) These costs include, among other things,
remediation and closure costs--for example, expenses relating to our clean-up of
soil contamination, our closing of waste treatment facilities and our monitoring
commitments. We also have retained certain environmental liabilities relating to
businesses and properties that we have sold. We believe 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 our consolidated financial
condition or liquidity. However, 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 us. These increased costs may
have a material adverse effect on our financial condition, liquidity and results
of operations.
In common with other U.S. manufacturers, we are subject to various federal,
state and local requirements for environmental controls relating to our
operations. We have spent substantial amounts of money to control air and water
pollution pursuant to applicable environmental requirements. We have also spent,
and will continue to spend, substantial amounts for proper handling and disposal
and for the environmental investigation and cleanup of properties. Along with
capital investments and operating costs relating to environmental matters, from
time to time we have been and may be subject to penalties or other requirements
as a result of administrative action by regulatory agencies.
12
<PAGE>
Statutory and regulatory requirements in this area continue to evolve and,
accordingly, we cannot predict with certainty the type and magnitude of
expenditures that will be required in the future. However, we have estimated
that our total expenditures for capital projects for pollution control during
the five-year period from 1998 through 2002 will be approximately $32.3 million.
Of this amount, approximately $8.4 million is related to control of air
pollution as required by amendments to the federal Clean Air Act, corresponding
state laws and implementing regulations. A substantial portion of our capital
expenditures is also attributable to control of water pollution under the Clean
Water Act. Future Clean Air Act requirements may also increase the operating
costs of electrical utilities that rely on fossil fuels. This, in turn, could
increase the costs for utility services upon which our operations depend.
FINANCING CHANGE OF CONTROL OFFER
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all outstanding notes at a premium
and pay accrued interest. We also may be required to repurchase or prepay other
debt. However, it is possible that we will not have sufficient funds at the time
of the change of control to make these required repurchases or prepayments or
that restrictions in our credit facilities will not allow such repurchases or
prepayments. If we do not have sufficient funds to make the required repurchase
of notes, we would be required to seek additional funds from outside sources in
order to repurchase the notes. We cannot be certain that additional funds would
be available to us on satisfactory terms. If we fail to repurchase the notes
when required by a change of control event, the trustee under the indenture
relating to the notes and the holders of notes will be entitled to the rights
described under the caption "Description of the New Notes--Events of Default."
See "Description of the New Notes--Change of Control." In addition, certain
important corporate events, such as leveraged recapitalizations that would
increase the level of our indebtedness, would not constitute a change of control
under the indenture. See "Description of the New Notes-- Optional Redemption."
RISK FACTORS ASSOCIATED WITH THE "YEAR 2000" PROBLEM
Many computer systems and software products will not function properly in
the year 2000 and beyond due to a once-common programming standard that
represents years using two digits. This problem is often referred to as the
"Year 2000" problem. We have prioritized our efforts, with the goal of
completing work on noncompliant systems in the most critical areas first. We
spent approximately $6.0 million in 1998 and currently anticipate that we will
spend approximately $11.0 million in 1999 on Year 2000 compliance activities.
While we expect that virtually all Year 2000 compliance activities, including
system testing, will be completed by September 30, 1999, we cannot assure you
that all of our computer systems will be compliant by that date. We continue to
monitor Year 2000 compliance efforts of our suppliers and to seek to obtain, to
the extent possible, assurances that they will be able to deliver their products
and services without interruption. However, our failure to address these
problems or the failure of our critical suppliers and other companies with which
we do business to convert their systems on a timely basis could have a material
adverse effect on our financial condition, liquidity and results of operations.
OUR BUSINESS
THE FOLLOWING IS A SUMMARY OF OUR BUSINESS. IT DOES NOT CONTAIN ALL OF THE
INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD READ CAREFULLY THIS ENTIRE
PROSPECTUS, INCLUDING THE INFORMATION THAT WE INCORPORATE BY REFERENCE, BEFORE
YOU DECIDE TO PARTICIPATE IN THIS EXCHANGE OFFER.
Armco Inc. is the largest domestic producer of stainless sheet and strip and
electrical steel, based on tons shipped. We operate in two business segments:
Specialty Flat-Rolled Steels, which contributed
13
<PAGE>
83% of total sales, and Fabricated Products, which contributed 17% of total
sales, in each case for the twelve months ended September 30, 1998. Our
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 September 30,
1998, the Specialty Flat-Rolled Steels segment had shipments of 1,218,000 tons.
Our major customers in this segment include automotive exhaust systems
producers, manufacturers of industrial and electrical equipment, other
manufacturers, service centers and converters. Our 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.
Our total sales were $1,749.6 million for the twelve months ended September 30,
1998.
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 1997,
consumption of stainless sheet and strip in the United States had a compound
annual growth rate of 5.8% as compared to a rate of 3.1% for the total steel
market. Among the characteristics that make stainless steel 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.
Another factor contributing 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 we have the leading United States
market position. From 1990 to 1997, stainless steel usage in automotive exhaust
systems grew from 25 pounds per vehicle to 56 pounds per vehicle. In addition to
increased usage per vehicle, automotive stainless steel demand has been driven
by strong North American production of light vehicles, with 14.9 million in
1995, 15.1 million in 1996 and 15.6 million in 1997, as compared to an annual
average of 13.3 million vehicles from 1991 to 1994.
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. We believe that we are
the largest domestic supplier and the only producer of a full product line of
electrical steels in the United States.
Our strategic objective is to enhance our position as a leading domestic
producer of specialty flat-rolled steels by focusing on our existing strong
market positions, especially in the automotive chrome and electrical steel
markets. We intend to strengthen our position in these markets by continuing to
focus on our core specialty steels business, by utilizing our recently upgraded
and improved facilities to produce higher quality products and by providing
improved customer service.
We have taken significant steps in recent years to become a focused
specialty steel company by streamlining our operations, investing in the
expansion and upgrade of our specialty flat-rolled steel facilities and
divesting or otherwise rationalizing certain unprofitable or non-strategic
operations. From 1993 through 1996, we sold or disposed of 13 operations and
investments, generating cash proceeds of over $400 million.
Since 1993, we have invested approximately $235 million in two major
programs to upgrade our facilities and thereby increase productivity, lower
operating costs, increase yields and improve customer service. The first of
these programs included the installation at our 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
14
<PAGE>
products because it eliminates intermediate production steps and reduces the
amount of rolling required to achieve the desired thickness. We made the
thin-slab caster, certain hot mill upgrades and other modifications at the
Mansfield plant 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 our stainless and electrical steel finishing facilities. We initiated
this strategic facilities upgrade 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. We completed these upgrades during 1996. We
have realized the benefits of these programs in the form of improved quality,
productivity and cost since 1997.
In addition, we intend to continue to pursue research and development
activities. Our 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, we have reorganized our research and technology functions to
facilitate more direct interaction with customers in the development of new
products and processes.
Our principal executive offices are located at One Oxford Centre, 301 Grant
Street, Pittsburgh, Pennsylvania, 15219-1415 and our telephone number is (412)
255-9800.
RECENT DEVELOPMENTS
On January 21, 1999, we released preliminary, unaudited results for the
fourth quarter of 1998. For this quarter Armco reported net income of $27.5
million, compared with $19.2 million of net income in the same period in 1997.
Included in 1998 net income is a one-time gain of $4.3 million relating to a tax
settlement. For the year ended December 31, 1998, income before the cumulative
effect of an accounting change rose to $109.6 million, a 43% increase over 1997
net income of $76.8 million. Armco attributed the earnings improvement for both
the fourth quarter and full year to continuing strong demand for automotive
stainless and electrical steels, operating improvements and lower costs related
to retiree medical and pension benefits. Sales for the fourth quarter and full
year of 1998 declined 10 percent and 7 percent to $393.3 million and $1.7
billion, respectively, primarily as a result of lower specialty steel selling
prices, reduced shipments of specialty semi-finished and galvanized carbon
steels and lower snowplow and pipe and tube sales.
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. The net proceeds
to Armco from the sale of the $75.0 million of old notes was approximately $72.5
million after deducting discounts and offering expenses that we had to pay. We
used all of the net proceeds from the offering of the old notes, plus some of
our own funds, to redeem or repurchase all $125 million outstanding of our
9 3/8% Senior Notes due 2000, which were subject to redemption by Armco at a
redemption price of 101.75% of their principal amount plus accrued and unpaid
interest, to the date of redemption. Such redemption or repurchase resulted in
an extraordinary loss of approximately $3.3 million.
15
<PAGE>
CAPITALIZATION
The following table shows our historical capitalization as of September 30,
1998 and as adjusted to give effect to the offering of the old notes and the use
of the estimated net proceeds. You should read this table together with our
consolidated financial statements and related notes included in our quarterly
report on Form 10-Q for the quarter ended September 30, 1998 that we incorporate
by reference in this prospectus. Please refer to the section of this prospectus
entitled, "Where You Can Find More Information."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------------
<S> <C> <C>
HISTORICAL AS ADJUSTED
----------- -----------
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
CASH AND SHORT-TERM LIQUID INVESTMENTS
Cash and cash equivalents.............................................................. $ 111.1 $ 56.4
Short-term liquid investments.......................................................... 12.6 12.6
----------- -----------
Total cash and short-term liquid investments....................................... $ 123.7 $ 69.0
----------- -----------
----------- -----------
CURRENT MATURITIES OF LONG-TERM DEBT..................................................... $ 5.9 $ 5.9
LONG-TERM DEBT (less current maturities)
Credit facilities (a).................................................................. -- --
5% Note Due 2000....................................................................... 7.7 7.7
9 3/8% Senior Notes Due 2000........................................................... 125.0 --
Variable rate pollution control revenue bonds due 2008................................. 12.1 12.1
9% Senior Notes Due 2007............................................................... 150.0 150.0
8 7/8% Senior Notes Due 2008........................................................... -- 75.0
Variable rate economic development revenue bonds due 2020.............................. 7.3 7.3
Other long-term debt................................................................... 1.9 1.3
----------- -----------
Total long-term debt............................................................... 304.0 253.4
SHAREHOLDERS' EQUITY
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............................................................. 972.0 972.0
Accumulated deficit (c)................................................................ (998.8) (1,002.1)
Other.................................................................................. (3.0) (3.0)
----------- -----------
Total shareholders' equity......................................................... 157.2 153.9
----------- -----------
Total capitalization............................................................... $ 467.1 $ 413.2
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(a) As of September 30, 1998, there were no borrowings under the credit
facilities, which have a total commitment of $170.0 million. However, $61.1
million of letters of credit were outstanding under one facility.
(b) Common stock outstanding does not include 25,462,568 shares issuable upon
the conversion of outstanding shares of cumulative preferred stock or the
exercise of outstanding vested stock options.
(c) The redemption or repurchase of certain of our indebtedness as described in
"Use of Proceeds" is expected to result in an extraordinary loss of
approximately $3.3 million.
16
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
The following table summarizes certain selected consolidated financial data,
which should be read in connection with our consolidated financial statements
and the related notes and with the annual, quarterly and special reports that we
incorporate by reference in this prospectus. See the section of this prospectus
entitled, "Where You Can Find More Information." The selected consolidated
financial data as of and for the years ended December 31, 1997, 1996, 1995,
1994, and 1993 have been derived from our audited financial statements. The
selected consolidated financial data presented below as of and for the nine
months ended September 30, 1998 and 1997 are derived from our unaudited
consolidated financial statements. The unaudited financial statements include
all adjustments (consisting of only normal recurring adjustments) that we
consider necessary for a fair presentation of our financial position and results
of operations for these periods. Operating results for the nine months ended
September 30, 1998 are not necessarily indicative of the results that may be
expected for future periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................... $ 1,313.2 $ 1,392.9 $ 1,829.3 $ 1,724.0 $ 1,559.9 $ 1,437.6 $ 1,664.0
--------- --------- --------- --------- --------- --------- ---------
Gross profit................................ 152.1 156.4 205.4 175.6 167.2 170.6 144.5
Selling and administrative expenses......... (68.7) (75.2) (100.0) (92.1) (98.2) (96.4) (125.0)
Special charges (a)......................... -- -- -- (8.8) -- (35.0) (165.5)
--------- --------- --------- --------- --------- --------- ---------
Operating profit............................ 83.4 81.2 105.4 74.7 69.0 39.2 (146.0)
Interest expense, net....................... (15.7) (19.3) (24.9) (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 Armco Steel Company,
L.P....................................... -- -- -- -- -- -- (27.9)
Sundry other, net........................... 19.8 (0.8) (1.1) (21.1) (49.6) (41.4) (43.2)
Credit (provision) for income taxes......... (5.4) (1.8) (2.3) (1.4) (2.0) 28.7 7.3
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing operations.... 82.1 59.3 77.1 26.0 23.5 65.8 (247.5)
Discontinued operations..................... -- 1.3 2.7 6.5 6.3 11.9 (79.5)
Extraordinary losses........................ -- (3.0) (3.0) -- -- -- (7.3)
Cumulative effect of changes in accounting
for postretirement and postemployment
benefits and income taxes (b)............. 237.5 -- -- -- -- -- (307.5)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)........................... $ 319.6 $ 57.6 $ 76.8 $ 32.5 $ 29.8 $ 77.7 $ (641.8)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings per share
Basic..................................... $ 2.84 $ 0.41 $ 0.55 $ 0.14 $ 0.11 $ 0.57 $ (6.35)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Diluted................................... 2.49 0.41 0.55 0.14 0.11 0.57 (6.35)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER DATA:
Depreciation and amortization............... $ 52.6 $ 49.5 $ 66.2 $ 58.7 $ 52.8 $ 48.8 $ 53.2
Capital expenditures........................ 19.0 25.5 41.9 59.8 159.5 96.4 53.9
Preferred stock dividends declared.......... 13.4 13.4 17.9 17.9 17.9 17.8 17.8
Ratio of earnings to fixed charges (c)...... 4.8x 3.2x 3.1x 1.7x 1.5x 1.6x --
Total Specialty Flat-Rolled Steels shipments
(in thousands of tons) (unaudited)........ 925 938 1,231 1,140 939 815 1,065
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 111.1 $ 279.9 $ 189.9 $ 168.9 $ 136.8 $ 202.8 $ 183.5
Working capital............................. 324.8 305.9 251.1 213.6 194.8 258.6 272.4
Total assets................................ 1,830.3 2,034.8 1,881.3 1,867.8 1,896.6 1,934.9 1,904.7
Total debt.................................. 309.9 488.1 345.1 371.5 387.4 374.3 388.0
Long-term employee benefit obligations
(b)....................................... 901.5 1,192.5 1,178.1 1,200.2 1,165.9 1,221.9 1,249.9
Preferred stock............................. 185.9 185.9 185.9 185.9 185.9 185.9 185.9
Total shareholders' equity (deficit)........ 157.2 (168.8) (152.5) (212.0) (230.4) (218.5) (313.1)
</TABLE>
- ------------------------
(a) In 1996, we recognized a special charge of $5.9 million to record a change
in the estimated loss on the sale of our nonresidential construction
business and a $2.9 million special charge primarily for the writedown of
inventory and severance costs related to our decision to discontinue a line
of light truck equipment manufactured by Armco's snowplow and ice control
equipment business. In 1994, we recorded a special charge of $20.0 million
for expenses associated with the temporary idling and restructuring of our
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 our strategy to focus on the production of
specialty flat-rolled steel, we sold our Brazilian operations and decided to
exit a number of domestic businesses, recording special charges totaling
$165.5 million.
(b) Effective January 1, 1998, we changed the accounting method that we use to
amortize unrecognized net gains and losses associated with our pension and
postretirement benefit plans. We recognized income of $237.5 million for the
cumulative effect of this accounting change. For a discussion of this
accounting change, see the section of this prospectus entitled "Risk
Factors--Risks Relating to Our Business and Operations--Substantial Employee
Postretirement Benefit Obligations." In 1993, Armco adopted SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions, SFAS
No. 109, Accounting for Income Taxes and SFAS No. 112, Employers' Accounting
For Postemployment Benefits. The net cumulative effect of adopting these
statements was a charge of $307.5 million for the year ended December 31,
1993.
(c) 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. In the year ended
December 31, 1993, earnings as defined were insufficient to cover fixed
charges by $264.4 million.
18
<PAGE>
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
We sold the old notes in a private offering on December 15, 1998, to Salomon
Smith Barney Inc., Chase Securities Inc. and PNC Capital Markets, Inc., the
initial purchasers, pursuant to a purchase agreement dated December 10, 1998
among Armco and the initial purchasers. The initial purchasers subsequently
resold the old notes to qualified institutional buyers in reliance, and subject
to the restrictions imposed under, Rule 144A under the Securities Act.
Under the registration agreement that we and the initial purchasers entered
into in connection with the private offering of the old notes, we are required
to file, no more than 60 days following the date the old notes were originally
issued, the issue date, the registration statement of which this prospectus is a
part. The registration statement provides for a registered exchange offer of new
notes identical in all material respects to the old notes, except that the new
notes will be freely transferable and will not have any covenants regarding
exchange and registration rights. Under the registration agreement, we are
required to use our best efforts to:
- file the registration statement no later than 60 days after the issue date
of the old notes;
- cause the registration statement to be declared effective no later than
150 days after the issue date of the old notes; and
- consummate the exchange offer as promptly as practicable, but no later
than 180 days after the issue date of the old notes.
We are also required to keep the exchange offer open for not less than 30
business days (or longer if required by applicable law) after the date that
notice of the exchange offer is mailed to holders of the old notes.
The registration agreement also provides that, under certain circumstances,
we will file with the Commission a shelf registration statement relating to the
offer and sale of old notes by holders of old notes who satisfy certain
conditions regarding the provision to us of information in connection with the
shelf registration statement.
For a more complete understanding of your exchange and registration rights,
you should refer to the registration agreement, which is included as an exhibit
to the registration statement of which this prospectus is a part, and a copy of
which is available as set forth under the heading "Where You Can Find More
Information."
EFFECT OF THE EXCHANGE OFFER
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, we believe that you may offer for
resale, resell and otherwise transfer the new notes issued to you pursuant to
the exchange offer in exchange for your old notes without compliance with the
registration and prospectus delivery provisions of the Securities Act, so long
as you represent that:
- you are not our "affiliate" (as defined in Rule 405 of the Securities
Act);
- you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of the new notes; and
- you are acquiring the new notes in the ordinary course of your business.
In addition, each broker-dealer that receives new notes for its own account
in exchange for old notes, where such old notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such new notes. See "Plan of Distribution." In the
registration agreement, Armco has agreed
19
<PAGE>
that it will allow exchanging dealers (and any other persons subject to similar
prospectus delivery requirements) to use this prospectus in connection with such
resale.
To the extent old notes are tendered and accepted in the exchange offer, the
principal amount of outstanding old notes will decrease with a resulting
decrease in the liquidity in the market for the old notes. Old notes that are
still outstanding following the consummation of the exchange offer will continue
to be subject to certain transfer restrictions.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, we will accept any and all old notes validly
tendered and not validly withdrawn prior to 5:00 p.m., New York City time, on
the expiration date of the exchange offer. As of the date of this prospectus, a
total of $75.0 million principal amount of the old notes is outstanding. We will
issue $1,000 principal amount of new notes in exchange for each $1,000 principal
amount of outstanding old notes accepted in the exchange offer. You may tender
some or all of your old notes pursuant to the exchange offer. However, old notes
may be tendered only in integral multiples of $1,000.
By tendering old notes in exchange for new notes and by executing the letter
of transmittal that accompanies this prospectus, you will be required to
represent, among other things, that:
- you are not an "affiliate" (as defined in Rule 405 of the Securities Act)
of Armco;
- you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of the new notes; and
- you are acquiring the new notes in the ordinary course of your business.
The form and terms of the new notes will be identical in all material
respects to the form and terms of the old notes, except that:
- the offering of the new notes has been registered under the Securities
Act;
- the new notes will not be subject to transfer restrictions; and
- the new notes will be issued free of any covenants regarding exchange and
registration rights.
The new notes will evidence the same debt as the old notes and will be
entitled to the benefits of the indenture under which the old notes were, and
the new notes will be, issued.
This prospectus, together with the accompanying letter of transmittal, is
initially being sent to all registered holders of old notes on or about February
5, 1999. The exchange offer is not conditioned upon any minimum aggregate
principal amount of old notes being tendered. However, the exchange offer is
subject to certain customary conditions, which we may waive, and to the terms
and provisions of the registration agreement. See "--Certain Conditions to the
Exchange Offer."
You do not have any appraisal or dissenters' rights under law or the
indenture in connection with the exchange offer. We intend to conduct the
exchange offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission established under the
Exchange Act.
If we do not accept for exchange any tendered old notes because of an
invalid tender, the occurrence of certain other events set forth in this
prospectus or for another reason, certificates for any such unaccepted old notes
will be returned, without expense to you, as promptly as practicable after the
expiration date of the exchange offer.
If you tender old notes in the exchange offer you will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with
20
<PAGE>
respect to the exchange of old notes pursuant to the exchange offer. We will pay
all charges and expenses, other than certain applicable taxes, in connection
with the exchange offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" means 5:00 p.m., New York City time, on March 8,
1999, unless we, in our sole discretion, extend the exchange offer, in which
case the term "expiration date" will mean the latest date and time to which the
exchange offer is extended.
We have the right to delay accepting any old notes, to extend the exchange
offer or, if any of the conditions set forth below under "--Certain Conditions
to the Exchange Offer" have been satisfied, to terminate the exchange offer, by
giving oral or written notice of the delay, extension or termination to the
exchange agent. We also have the right to amend the terms of the exchange offer.
If we delay acceptance of any old notes, or terminate or amend the exchange
offer, we will make a public announcement to that effect as promptly as
practicable. If we believe that we have made a material amendment of the terms
of the exchange offer, we will promptly disclose the amendment in a manner
reasonably calculated to inform you of such amendment and we will extend the
exchange offer to the extent required by law. We will notify the exchange agent
of any extension of the exchange offer in writing or orally (which we will
promptly confirm in writing). Unless otherwise required by applicable law or
regulation, we will make a public announcement of any extension of the
expiration date before 9:00 a.m., New York City time, on the first business day
after the previously scheduled expiration date. We have no obligation to
publish, advise or otherwise communicate any public announcement, other than by
making a timely press release.
INTEREST ON THE NEW NOTES
Interest on the new notes will accrue from the last interest payment date on
which interest was paid on the old notes surrendered in exchange for them or, if
no interest has been paid on the old notes, from December 15, 1998. The new
notes will bear interest at a rate of 8 7/8% per year. Interest on the new notes
will be payable on June 1 and December 1 of each year, beginning June 1, 1999.
PROCEDURES FOR TENDERING
Each holder of old notes wishing to accept the exchange offer must (i)
complete, sign and date the letter of transmittal, or a facsimile of it, (ii)
have the signatures on it guaranteed if required by the letter of transmittal,
and (iii) mail or otherwise deliver the letter of transmittal or the facsimile,
together with the old notes and any other required documents, to the exchange
agent prior to 5:00 p.m., New York City time, on the expiration date of the
exchange offer (unless such tender is being effected pursuant to the procedure
for book-entry transfer described below).
Any financial institution that is a participant in the book-entry transfer
facility system of The Depository Trust Company (the "DTC") may make book-entry
delivery of the old notes by causing DTC to transfer such old notes into the
exchange agent's account and to deliver an agent's message (as described below)
on or prior to the expiration date of the exchange offer in accordance with
DTC's procedures for such transfer and delivery. If delivery of old notes is
made through book-entry transfer into the exchange agent's account at DTC and an
agent's message is not delivered, the letter of transmittal (or facsimile of
it), with any required signature guarantees and any other required documents
must be transmitted to and received or confirmed by the exchange agent at its
addresses set forth under "--Exchange Agent" prior to 5:00 p.m., New York City
time, on the expiration date of the exchange offer. DELIVERY OF DOCUMENTS TO DTC
IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
21
<PAGE>
The term "agent's message" means a message that states that DTC has received
an express acknowledgment from the tendering DTC participant that such DTC
participant has received and agrees to be bound by, and makes the
representations and warranties contained in, the letter of transmittal and that
we may enforce the letter of transmittal against such DTC participant. The
agent's message is transmitted by DTC to, and received by, the exchange agent
and forms a part of the confirmation of the book-entry tender of old notes into
the exchange agent's account at DTC.
The tender (as set forth above) by a holder of old notes will constitute an
agreement between such holder and us in accordance with the terms and subject to
the conditions set forth in this prospectus and in the letter of transmittal.
Delivery of all documents must be made to the exchange agent at its address
set forth in this prospectus under "--Exchange Agent." Holders may also request
that their respective brokers, dealers, commercial banks, trust companies or
nominees effect such tender for the holders.
The method of delivery of old notes, the letter of transmittal and all other
required documents to the exchange agent is at the election and risk of the
holders. Instead of delivery by mail, we recommend that holders use an overnight
or hand delivery service. In all cases, you should allow enough time to assure
timely delivery. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO US.
Only a holder of old notes may tender such old notes in the exchange offer.
The term "holder" with respect to the exchange offer means any person in whose
name old notes are registered on the register maintained by the trustee or any
other person who has obtained a properly completed bond power from the
registered holder, or any person whose old notes are held of record by DTC who
desires to deliver such old notes by book-entry transfer at DTC.
Any beneficial holder whose old notes are registered in the name of his
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 his behalf. If the beneficial holder wishes to
tender on his own behalf, he must, prior to completing and executing the letter
of transmittal and delivering his old notes, obtain a properly completed bond
power from the registered holder. The transfer of record ownership may take
considerable time.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by:
- a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.;
- a commercial bank or trust company having an office or correspondent in
the United States; or
- an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act,
unless the old notes tendered pursuant to the letter of transmittal are
tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter of
transmittal; or
- for the account of an eligible guarantor institution.
If the letter of transmittal is signed by a person other than the registered
holder of any old notes listed in it, such old notes must be endorsed or
accompanied by appropriate bond powers that authorize such person to tender the
old notes on behalf of the registered holder, and, in either case, signed as the
name of the registered holder or holders appears on the old notes.
If the letter of transmittal or any old notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting as fiduciaries or
22
<PAGE>
representatives, such persons should so indicate when signing, and, unless we
waive the requirement, must submit with the letter of transmittal evidence
satisfactory to us of their authority to so act.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered old notes will be determined
by us in our sole discretion. Our determination will be final and binding. We
reserve the absolute right to reject any and all old notes not properly tendered
or any old notes that, in the opinion of our counsel, it would be unlawful for
us to accept. We also reserve the absolute right to waive any irregularities or
conditions of tender as to particular old notes. Our interpretation of the terms
and conditions of the exchange offer (including the instructions in the letter
of transmittal) will 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 we shall determine. Neither we, the exchange agent nor any
other person is under any duty to give notification of defects or irregularities
with respect to tenders of old notes. Also, neither we, the exchange agent nor
any other person has any liability for failure to give such notification.
Tenders of old notes will not be deemed to have been made until any
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 without cost by
the exchange agent to the tendering holder of such old notes unless otherwise
provided in the letter of transmittal as soon as practicable following the
expiration date of the exchange offer.
In addition, we reserve the right in our sole discretion to:
- purchase or make offers for any old notes that remain outstanding after
the expiration date of the exchange offer, or (as set forth under
"--Certain Conditions to the Exchange Offer") to terminate the exchange
offer; and
- to the extent permitted by applicable law, purchase old notes in the open
market, in privately negotiated transactions or other ways.
The terms of any of these purchases or offers may differ from the terms of the
exchange offer.
By tendering, you will represent to us that, among other things:
- the new notes acquired pursuant to the exchange offer in exchange for your
old notes are being obtained in the ordinary course of your business;
- you do not have an arrangement or understanding with any person to
participate in the distribution of the new notes; and
- you are not an "affiliate" of Armco within the meaning of Rule 405 under
the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the exchange offer,
we will accept, promptly after the expiration date of the exchange offer, 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."
For each old note that we accept 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.
For purposes of the exchange offer, we will be deemed to have accepted
properly tendered old notes for exchange when, as and if we give oral or written
notice to that effect to the exchange agent, with written confirmation of any
oral notice to be given promptly afterwards.
In all cases, we will issue new notes for old notes that we accept for
exchange pursuant to the exchange offer only after timely receipt by the
exchange agent of:
- certificates for such old notes,
23
<PAGE>
- a properly completed and duly executed letter of transmittal, and
- all other required documents or a timely book-entry confirmation of such
old notes into the exchange agent's account at DTC.
If we do not accept any tendered old notes 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 desired to exchange, we will return these
unaccepted or non-exchanged old notes without expense to the tendering holder
(or, in the case of old notes tendered by book-entry transfer into the exchange
agent's account at DTC pursuant to the book-entry procedures described below,
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
date 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 DTC 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 DTC's systems may make book-entry delivery of old notes by
causing DTC to transfer such old notes into the exchange agent's account at DTC
in accordance with DTC's procedures for transfer. Although delivery of old notes
may be effected through book-entry transfer at DTC, either:
- the letter of transmittal (or a facsimile of it or an agent's message in
lieu of it), with any required signature guarantees and any other required
documents, must always be transmitted to and received by the exchange
agent at one of the addresses set forth below under "--Exchange Agent" on
or prior to the expiration date of the exchange offer, or
- the guaranteed delivery procedures described below must be complied with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their old notes and who cannot deliver their old
notes, the letter of transmittal, or any other required documents to the
exchange agent prior to the expiration date of the exchange offer, or holders
who cannot complete the procedure for book-entry transfer on a timely basis, may
effect a tender if:
- the tender is made through an eligible guarantor institution;
- prior to the expiration date of the exchange offer, the exchange agent
receives from the eligible guarantor institution a properly completed and
duly executed notice of guaranteed delivery (by facsimile transmission,
mail or hand delivery):
(i) setting forth the name and address of the holder of the old notes, the
certificate number or numbers of such old notes and the principal amount
of old notes tendered,
(ii) stating that the tender is being made, and
(iii) guaranteeing that, within three business days after the expiration
date of the exchange offer, the letter of transmittal (or facsimile of
it), together with the certificate(s) representing the old notes to be
tendered in proper form for transfer and any other documents required by
the letter of transmittal, will be deposited by the eligible guarantor
institution with the exchange agent; and
- the properly completed and executed letter of transmittal (or facsimile of
it), together with the certificate(s) representing all tendered old notes
in proper form for transfer (or confirmation of a book-entry transfer into
the exchange agent's account at DTC of old notes delivered
24
<PAGE>
electronically) and all other documents required by the letter of
transmittal are received by the exchange agent within three business days
after the expiration date of the exchange offer.
Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their old notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of old notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration
date of the exchange offer.
To withdraw a tender of old notes in the exchange offer, the exchange agent
must receive a facsimile transmission or letter notice of withdrawal at its
address set forth in this prospectus prior to 5:00 p.m., New York City time, on
the expiration date of the exchange offer. A notice of withdrawal must:
- specify the name of the person having deposited the old notes to be
withdrawn (the "depositor");
- include a statement that the depositor is withdrawing its election to have
old notes exchanged and identify the old notes to be withdrawn (including
the certificate number or numbers and principal amount of such old notes);
- be signed by the depositor in the same manner as the original signature on
the letter of transmittal by which such old notes were tendered (including
any required signature guarantees) or be accompanied by documents of
transfer that will permit the trustee with respect to the old notes to
register the transfer of such old notes into the name of the depositor
withdrawing the tender; and
- specify the name in which any such old notes are to be registered, if
different from that of the depositor.
If old notes have been tendered pursuant to the procedures for book-entry
transfer set forth in "--Procedures for Tendering" and "--Book-Entry Transfer,"
the notice of withdrawal must specify the name and number of the account at DTC
to be credited with the withdrawal of old notes, in which case a notice of
withdrawal will be effective if delivered to the exchange agent by written,
telegraphic, telex or facsimile transmission.
All questions as to the validity, form and eligibility (including time of
receipt) for such withdrawal notices will be determined by us, and our
determination will be final and binding on all parties. Any old notes withdrawn
will be deemed not to have been validly tendered for purposes of the exchange
offer and no new notes will be issued with respect to them unless the old notes
that have been withdrawn are validly re-tendered. Properly withdrawn old notes
may be re-tendered by following one of the procedures described above under
"--Procedures for Tendering" at any time prior to the expiration date of the
exchange offer.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
The exchange offer is not subject to any conditions, other than that:
- the exchange offer does not violate any applicable law or interpretation
of the staff of the Commission; and
- there is no injunction, order or decree issued by any court or any
governmental agency that would prohibit, prevent or otherwise materially
impair our ability to proceed with the exchange offer.
25
<PAGE>
We cannot assure you that any such condition will not occur. Holders of old
notes will have certain rights against us under the registration agreement if we
fail to consummate the exchange offer. If we determine that we may terminate the
exchange offer, as set forth above, we may:
- refuse to accept any old notes and return any old notes that have been
tendered to their holders;
- extend the exchange offer and retain all old notes tendered before the
expiration date of the exchange offer, subject to the rights of such
holders of tendered old notes to withdraw their tendered old notes; or
- waive such termination event with respect to the exchange offer and accept
all properly tendered old notes that have not been withdrawn.
If a waiver constitutes a material change in the exchange offer, we will
disclose the change by means of a supplement to this prospectus that will be
distributed to each registered holder of old notes, and we will extend the
exchange offer for a period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders of the old notes, if the exchange offer would otherwise expire during
such period.
EXCHANGE AGENT
Star Bank, N.A., the trustee under the indenture, has been appointed as
exchange agent for the exchange offer. Questions and requests for assistance and
inquiries for additional copies of this prospectus or of the letter of
transmittal should be directed to the exchange agent addressed as follows:
<TABLE>
<CAPTION>
BY MAIL: BY HAND OR OVERNIGHT DELIVERY:
<S> <C>
Corporate Trust Corporate Trust
425 Walnut Street 425 Walnut Street
Mail Location 5155 6th Floor
Cincinnati, Ohio 45202 Cincinnati, Ohio 45202
Attention: Robert Jones Attention: Robert Jones
(IF BY MAIL, REGISTERED OR CERTIFIED MAIL RECOMMENDED)
FACSIMILE TRANSMISSION NUMBER:
(FOR ELIGIBLE INSTITUTIONS ONLY)
(513) 632-5511
CONFIRM BY TELEPHONE:
(513) 632-4427
</TABLE>
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
We will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer.
We will pay the cash expenses to be incurred in connection with soliciting
tenders pursuant to the exchange offer. These expenses include fees and expenses
of the exchange agent and the trustee, accounting and legal fees and printing
costs, among others.
26
<PAGE>
TRANSFER TAXES
Holders who tender their old notes for exchange will not be obligated to pay
any transfer taxes in connection with the tender, except that holders who
instruct us to register new notes in the name of, or request that old notes not
tendered or not accepted in the exchange offer be returned to, a person other
than the registered tendering holder, will be responsible for the payment of any
applicable transfer tax.
ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying value as the old notes
on the date of the exchange. Accordingly, we will not recognize any gain or loss
for accounting purposes. The expenses of the exchange offer and the unamortized
expenses relating to the issuance of the old notes will be amortized over the
term of the new notes.
27
<PAGE>
DESCRIPTION OF THE NEW NOTES
We will issue the new notes under an indenture, dated as of November 1,
1993, between Armco and Star Bank, N.A., as supplemented by a supplemental
indenture dated as of December 15, 1998. The terms of the new notes include
those stated in the indenture and those made part of the indenture by reference
to the Trust Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights as
holders. We have filed a copy of the indenture as an exhibit to the registration
statement of which this prospectus is a part.
You can find the definitions of certain capitalized terms used in this
description under the subheading "Certain Definitions." Capitalized terms not
defined there have the meanings ascribed to them in the indenture. Words that
are not capitalized have their ordinary meaning. In this description, "notes"
means the outstanding old notes and the new notes we will issue to you in the
exchange offer. References to a "holder" or "holders" mean you, or all holders
of the notes.
PRINCIPAL, MATURITY AND INTEREST
The notes will mature on December 1, 2008 and bear interest at an annual
rate of 8 7/8%. Interest on the notes accrues from December 15, 1998 and is
payable in arrears on June 1 and December 1 of each year, commencing June 1,
1999, to the holders of registered notes at the close of business on May 15 or
November 15, as the case may be, immediately preceding the relevant interest
payment date. The notes are limited to an aggregate principal amount of
$125,000,000, of which $75,000,000 has been issued. Issuance of the remaining
notes is at Armco's discretion and will be subject to the limitations set forth
under "--Certain Covenants--Limitations on Indebtedness." Except for the
registration provisions of the old notes, all notes will have identical terms,
will be fungible and will constitute one series of debt securities.
Interest on the notes is computed on the basis of a 360-day year of twelve
months. Principal and interest on the notes is payable at the office of the
paying agent, but, at the option of Armco, interest may be paid by check mailed
to the registered holders at their registered address. The notes may be
presented for transfer or exchange at such office without any service charge,
but Armco may require a sum sufficient to cover any tax or other governmental
charges payable in connection with a transfer or exchange. Armco is not required
to exchange or register the transfer of any notes (i) for a period of fifteen
days next preceding any selection of notes to be redeemed or (ii) selected,
called or being called for redemption.
SUBORDINATION
The notes are unsecured obligations of Armco and rank equally in right of
payment with all other unsecured senior debt of Armco. The notes rank senior in
right of payment to any subordinated debt of Armco. The notes are not secured by
any assets and, therefore, are effectively junior to secured debt of Armco, to
the extent of the assets securing the debt, and to debt of subsidiaries of
Armco, to the extent of the assets of such subsidiaries. At September 30, 1998,
Armco had total consolidated debt obligations of $309.9 million, of which $15.8
million was secured by assets of Armco. In addition, the borrowings under
Armco's $170.0 million Credit Facilities are secured by certain of Armco's
inventory and receivables. The indenture does not limit the aggregate amount of
debt securities that may be issued under its terms. The indenture provides that
debt securities may be issued from time to time in one or more series.
28
<PAGE>
OPTIONAL REDEMPTION
On or after December 1, 2003, the notes will be redeemable in whole or in
part, at Armco's option, at the following redemption prices (expressed in
percentages of the principal amount), plus accrued and unpaid interest on the
notes, to the redemption date.
<TABLE>
<CAPTION>
REDEMPTION PERIOD PERCENTAGE
- ------------------------------------------------------------- -----------
<S> <C>
December 1, 2003 to November 30, 2004 104.438%
December 1, 2004 to November 30, 2005 102.958%
December 1, 2005 to November 30, 2006 101.479%
December 1, 2006 and thereafter 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to December 1, 2001 Armco,
at its option, may redeem up to 33 1/3% of the aggregate principal amount of
notes originally issued with the net proceeds of one or more Equity Offerings at
a redemption price equal to 108 7/8% of their principal amount, plus accrued and
unpaid interest, if any, to the date of redemption so long as after any such
redemption at least 66 2/3% of the aggregate principal amount of the original
issue of the notes remains outstanding. Any such redemption must occur on or
prior to 120 days after the receipt of such net proceeds.
If less than all of the notes are to be redeemed, the selection of the notes
to be redeemed will be made as provided in the indenture. Notice of redemption
will be given at least 30 but not more than 60 days before the redemption date.
In addition, if there is a Change of Control prior to December 1, 2003,
Armco, at its option, may redeem all (but not less than all) of the outstanding
notes at a redemption price equal to 100% of the principal amount thereof plus
the applicable Make-Whole Premium. Armco will give not less than 30 nor more
than 60 days' prior notice to holders of such redemption within 30 days
following the Change of Control.
CHANGE OF CONTROL
If a Change of Control occurs, each holder will have the right to require
Armco to repurchase all or a part of that holder's notes, in whole or in part,
pursuant to the Change of Control offer described in the next paragraph. The
Repurchase Price will be an amount in cash equal to 101% of the aggregate
principal amount of the repurchased notes plus accrued and unpaid interest, if
any, to the Change of Control payment date.
Within 30 days following the date of the Change of Control, we will mail a
notice to each holder describing the terms of the Change of Control offer. This
notice will state the purchase date, which must be a business day no earlier
than 30 days nor later than 60 days from the date notice is mailed, unless
otherwise required by applicable law.
If a Change of Control offer is made, we cannot assure you that we will have
sufficient funds to pay the purchase price for all the notes that might be
delivered by holders seeking to accept the Change of Control offer. If we are
required to purchase outstanding notes pursuant to a Change of Control offer, we
expect that we would seek third party financing if we do not have available
funds to meet our purchase obligations. However we cannot assure you that we
would be able to obtain such financing. Neither Armco's Board of Directors nor
the trustee may waive the covenant relating to a holder's right to redemption
upon a Change of Control.
The definition of Change of Control includes a phrase relating to the sale,
lease, exchange or other transfer of "all or substantially all" of Armco's
assets. There is a limited body of case law interpreting the phrase "all or
substantially all," and therefore there is no precise established definition of
the phrase under applicable law. Accordingly, it may be unclear whether a Change
of Control has occurred and whether the notes are subject to a Change of Control
offer. We will comply with the
29
<PAGE>
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations under the Exchange Act to the extent such laws and regulations
are applicable in connection with the repurchase of the notes as a result of a
Change of Control.
TAKEOVERS AND LEVERAGED TRANSACTIONS
Restrictive covenants in the indenture may make it more difficult or
discourage a takeover of Armco. To complete such transactions, redemption or
repurchase of the Notes may be required. We cannot assure you that we or the
acquiring party will have sufficient financial resources to effect such
redemption or repurchase. Moreover, although restrictions in the indenture with
respect to transactions with Affiliates may make a leveraged buyout of Armco or
any of our subsidiaries by Armco's management more difficult, the indenture may
not afford holders protection from the adverse aspects of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction.
CROSS-DEFAULT PROVISIONS
Some of Armco's other debt agreements provide that certain Change of Control
events constitute a default under those agreements. If a Change of Control
occurs at a time when we are prohibited from purchasing notes, we could seek the
consent of our lenders to the purchase of notes or could attempt to repay the
borrowings that contain such prohibition. If we do not obtain such a consent or
repay such borrowings, we will remain prohibited from purchasing our notes. In
such case, our failure to purchase tendered notes would constitute an Event of
Default under the indenture that would, in turn, constitute a default under our
other debt agreements.
SINKING FUND
There will be no mandatory sinking fund payments for the notes.
CERTAIN COVENANTS
The indenture contains covenants that limit the ability of Armco and its
Restricted Subsidiaries to engage in a highly leveraged transaction, whether the
transaction is initiated or supported by Armco, its management or affiliates or
an unrelated third party.
TRANSACTIONS WITH AFFILIATES
Armco will not, and will not permit any of its Subsidiaries to 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
Armco, unless:
(i) such transaction or series of transactions is on terms no less
favorable, on the whole, to Armco or such Subsidiary than terms that could
be obtained in a comparable arm's-length transaction with an entity that is
not an Affiliate of Armco 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 of such transaction(s) are set forth in writing
and the Board of Directors (including a majority of the disinterested
directors) 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 of the Board of Directors.
The foregoing limitations do not apply to:
(i) any transaction with an officer or director of Armco or any
Subsidiary entered into in the ordinary course of business consistent with
past practice (including compensation or employee
30
<PAGE>
benefit arrangements with any officer or director of Armco or any
Subsidiary) and the cash-out of supplemental pension benefits, or
(ii) transactions between Armco and its Restricted Subsidiaries or among
such Restricted Subsidiaries.
LIMITATION ON RESTRICTED PAYMENTS
Armco will not, and will not permit any of its Restricted Subsidiaries to
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;
(ii) Armco could not Incur at least $1.00 of additional Indebtedness
pursuant to the first paragraph under "--Limitation on Indebtedness" below;
or
(iii) the aggregate amount of Restricted Payments from September 12, 1997
exceeds the sum of;
(A) 50% of the aggregate Consolidated Net Income of Armco and its
Restricted Subsidiaries (or, if Consolidated Net Income is a deficit,
minus 100% of such deficit) after June 30, 1997 and ending on the last
day of the fiscal quarter immediately preceding the date of the
Restricted Payment, plus
(B) 100% of the total net proceeds, including cash and the Fair
Market Value of Property other than cash, received by Armco after
September 12, 1997, from capital contributions from its stockholders or
from the issuance or sale (other than to a Subsidiary) of Qualified
Capital Stock of Armco or of any convertible securities or debt
obligations that have been converted into, exchanged for or satisfied by
the issuance of Qualified Capital Stock, plus
(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 Armco or any wholly
owned Restricted Subsidiary of Armco from Unrestricted Subsidiaries, (2)
to the extent that any Investment in an Unrestricted Subsidiary that was
made after September 12, 1997 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 aggregate amount of the net reduction in such Investments will
not exceed, in the case of any Unrestricted Subsidiary, the amount of
such Investments made as Restricted Payments previously made by Armco or
any Restricted Subsidiary in such Unrestricted Subsidiary, which amount
was included in the calculation of the amount of Restricted Payments.
The foregoing limitations do not prevent Armco or its Restricted
Subsidiaries from:
(i) paying a dividend on its Capital Stock within 60 days after it is
declared if, on the declaration date, Armco 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 a total of $2,000,000 in
any fiscal year of Armco, (C) pursuant to an order of a court of competent
jurisdiction, or (D) in connection with repurchase provisions under employee
stock
31
<PAGE>
option and stock purchase agreements or other agreements to compensate
management employees of Armco;
(iii) making cash payments in respect of stock appreciation rights
granted to Armco employees;
(iv) the purchase for value of shares of Armco's Capital Stock (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 that do not exceed a total of $10,000,000;
(v) Restricted Payments for the redemption, repurchase or other
acquisition of shares of Armco's Capital Stock 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 Armco's Capital Stock (other than Redeemable Stock) or (B)
incurrence of Indebtedness of Armco that is contractually subordinated in
right of payment to the notes and has a Stated Maturity later than the
Stated Maturity of the notes and an Average Life greater than the remaining
Average Life of any of the notes;
(vii) declaring and paying dividends on the Armco Preferred Stock
outstanding on September 12, 1997;
(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 not to exceed $25,000,000 in total
(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
(A) 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 Armco or any wholly owned Restricted Subsidiary from
Unrestricted Subsidiaries, (B) 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 (C) 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 are excluded for
purposes of 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) of the preceding paragraph will
be included for purposes of calculations pursuant to the first paragraph of this
covenant of the aggregate amount of Restricted Payments outstanding.
LIMITATION ON INDEBTEDNESS
Armco will not 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
of such Indebtedness as if such Indebtedness had been Incurred and
32
<PAGE>
the proceeds applied on the first day of the Determination Period, the
Consolidated Interest Coverage Ratio of Armco at such date exceeds the ratio of
2.0 to 1.0.
Notwithstanding the foregoing, Armco may Incur the following Indebtedness:
(i) Indebtedness Incurred by Armco or by Armco Funding Corporation under
the Credit Facilities, so long as 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 Armco and its Restricted
Subsidiaries and (2) 50% of the book value of the inventory of Armco and its
Restricted Subsidiaries, in the case of clauses (B)(1) and (B)(2) 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 notes;
(iii) (A) Indebtedness of Armco in respect of Capital Lease Obligations
or (B) Capital Expenditure Indebtedness directly Incurred by Armco, so long
as 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, so long as
the obligations under these agreements are related to payment obligations on
Indebtedness otherwise permitted by the terms of this covenant;
(v) Indebtedness of Armco to any wholly owned Restricted Subsidiary (but
only so long as such Indebtedness is held by such wholly owned Restricted
Subsidiary);
(vi) Indebtedness outstanding on September 12, 1997;
(vii) Permitted Refinancing Indebtedness;
(viii) surety obligations of Armco and its Restricted Subsidiaries entered
into in the ordinary course of business;
(ix) Indebtedness of Armco and its Restricted Subsidiaries Incurred to
finance the purchase of insurance in the ordinary course of business;
(x) Indebtedness of Armco 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, so long as 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, that, together with any other outstanding
Indebtedness Incurred under this clause (xi) of this paragraph, has an
aggregate principal amount that does not exceed $40,000,000 at any one time
outstanding.
Any Indebtedness Incurred pursuant to the previous paragraph will be
included, to the extent outstanding at the Transaction Date, in the
determination of the Consolidated Interest Coverage Ratio.
LIMITATION ON RESTRICTED SUBSIDIARY INDEBTEDNESS AND PREFERRED STOCK
Armco will not permit any of its Restricted Subsidiaries to Incur any
Indebtedness or Preferred Stock, except:
33
<PAGE>
(i) (A) Indebtedness or Preferred Stock outstanding on September 12,
1997 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 Armco or a
wholly owned Restricted Subsidiary (but only so long as such Indebtedness or
Preferred Stock is held or owned by Armco or a wholly owned Restricted
Subsidiary);
(iii) (A) Indebtedness of a Restricted Subsidiary in respect of Capital
Lease Obligations or (B) Capital Expenditure Indebtedness directly Incurred
by a Restricted Subsidiary, so long as after giving effect to such
Indebtedness the Company could Incur at least $1.00 of additional
Indebtedness pursuant to the first paragraph under "--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, so long as 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 the Indebtedness or the
liquidation value of the Preferred Stock Incurred does not exceed the
principal amount or liquidation value of the Indebtedness or Preferred Stock
exchanged or Refinanced and (B) the Indebtedness or Preferred Stock Incurred
has a Stated Maturity or final redemption date later than the Stated
Maturity or final redemption date 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 Transaction Date, in any subsequent determination of the Consolidated
Interest Coverage Ratio.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
Armco will not, and will not permit any of its Restricted Subsidiaries to,
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) Armco or the Restricted Subsidiary is permitted to Incur such
Indebtedness under the provisions of "--Limitation on Indebtedness" or
"--Limitation on Restricted Subsidiary Indebtedness and Preferred Stock"
above;
(ii) Armco or the 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 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 notes;
(iii) Armco or the 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 entered into, or assumed
or Guaranteed by, Armco or the Restricted Subsidiary, or Armco or the
Restricted Subsidiary becomes liable with respect to the transaction, more
than 360 days after the Property subject to the Sale and Leaseback
Transaction is acquired or constructed by Armco or the Restricted
Subsidiary, Armco applies the proceeds of such Sale and Leaseback
Transaction, net of all reasonable out-of-pocket
34
<PAGE>
expenses Incurred by Armco or such Restricted Subsidiary in connection with
the transaction, 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
Armco will not, and will not permit any of its Restricted Subsidiaries to,
Incur any Lien on or with respect to any Property of Armco or such Restricted
Subsidiary, or any interest in such Property or any income or profits from it,
unless the notes are secured equally and ratably with (or prior to) any and all
other Indebtedness secured by the Lien, except for:
(i) any Lien securing Indebtedness that is 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 Armco 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 its acquisition (and not
Incurred in anticipation of such transaction) whether or not assumed by
Armco or any Restricted Subsidiary; so long as in any such case the Lien may
extend only to the Property acquired or constructed and improvements on it.
(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
that is 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 secured is not increased;
(vi) any Lien securing only the notes;
(vii) any Lien in favor of Armco 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 worker's compensation,
unemployment insurance or other social security legislation, including Liens
with respect to judgments that 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 September 12, 1997;
(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
35
<PAGE>
and the claims secured thereby are currently being contested in good faith
by appropriate proceedings.
In addition to Liens permitted by the preceeding paragraph, Armco 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 notes,
if the sum of (i) the amount of Indebtedness secured by all Liens entered into
after September 12, 1997 and (ii) the Attributable Value of all Sale and
Leaseback Transactions or Capital Lease Obligations in respect of such
transactions entered into after September 12, 1997 and otherwise prohibited by
the indenture does not exceed 10% of Armco's Consolidated Net Tangible Assets.
LIMITATION CONCERNING DISTRIBUTIONS OR TRANSFERS BY RESTRICTED SUBSIDIARIES
Armco will not, and will not permit any Restricted Subsidiary to create or
otherwise cause or permit to exist any encumbrance or restriction (other than
pursuant to law or regulation) on the ability of any Restricted Subsidiary to:
(i) pay dividends or make any other distributions in respect of its
Capital Stock or pay any Indebtedness or other obligation owed to Armco or
any other Restricted Subsidiary;
(ii) make loans or advances to Armco or any Restricted Subsidiary; or
(iii) transfer any of its Property to Armco or any other Restricted
Subsidiary,
except for any encumbrance or restrictions pursuant to any agreement in
effect on September 12, 1997 or any Refinancing thereof containing encumbrances
or restrictions no greater than in the agreement so Refinanced.
LIMITATION ON ASSET SALES
Armco will not, and will not permit any Restricted Subsidiary to consummate
any Asset Sale unless:
(i) Armco or the 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 Armco 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 (A) cash, (B) cash equivalents, (C) readily
marketable securities, (D) non-cash consideration that is immediately
converted to cash, or (E) the assumption by the purchaser of such Property
of Senior Indebtedness (so long as such Senior Indebtedness was not Incurred
in connection with or in anticipation of such Asset Sale) so long as Armco,
at its option, either;
(A) (1) commits, or causes such Restricted Subsidiary to commit (such
commitments to include amounts anticipated to be expended pursuant to
Armco'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) applies, or causes 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), the
Net Cash Proceeds of the Asset Sale within 24 months of the consummation of
the Asset Sale; however, if any commitment under this clause (A) is
terminated
36
<PAGE>
or rescinded after the 225th day after the consummation of such Asset Sale,
Armco or such Restricted Subsidiary, as the case may be, will have 45 days
after the termination or rescission to (a) apply the Net Cash Proceeds
pursuant to clause (B) or (C) below, or (b) commit, or cause such Restricted
Subsidiary to commit, to 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) offers to apply an amount equal to the 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 the
Restricted Subsidiary) debt of a Restricted Subsidiary, and repay the
Indebtedness of any lender or debt holder who accepts the offer or, in the
case of any Indebtedness under a revolving credit facility, repay an amount
outstanding under the facility equal to the Net Cash Proceeds and
concurrently therewith, makes a permanent reduction in the committed
availability under the facility; and/or
(C) offers to apply an amount equal to the Net Cash Proceeds (or
remaining Net Cash Proceeds) to the repayment of the notes and repurchases
any notes properly tendered in acceptance of this 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
repurchase.
If 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, then
the application of an amount equal to such Net Cash Proceeds to a pro rata offer
to repurchase the notes may be deferred until the Net Cash Proceeds, together
with Net Cash Proceeds from any other Asset Sales not 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 Armco has complied with
the preceding sentence and so long as all holders have been given the
opportunity to tender their notes for repurchase as provided in clause (C)
above, Armco or the Restricted Subsidiary may use these remaining amount for
general corporate purposes.
Within 280 days from the date of an Asset Sale, Armco will, if it chooses
(or is obligated) to apply an amount equal to any remaining Net Cash Proceeds
(or any portion) to fund an offer to repurchase the notes, send a written
Prepayment Offer Notice to the holders of the notes, along with such information
about Armco and its Subsidiaries as Armco in good faith believes will enable
such holders to make an informed decision with respect to the Prepayment Offer.
Notwithstanding the foregoing, if any note (or any portion) accepted for
payment is not 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 note is paid, interest will be paid on the unpaid
principal (and premium, if any) and, to the extent permitted by law, on any
accrued but unpaid interest, in each case, at the rate prescribed by such note.
RESTRICTED AND UNRESTRICTED SUBSIDIARIES
Armco may designate a Subsidiary (including a newly formed or newly acquired
Subsidiary) of Armco or any of its Restricted Subsidiaries as an Unrestricted
Subsidiary if;
(i) the Subsidiary has total assets of $1,000 or less, or
(ii) the designation is effective immediately upon such Person becoming
a Subsidiary of either Armco or any of its Restricted Subsidiaries.
Unless it is designated as an Unrestricted Subsidiary, any Person that becomes a
Subsidiary of Armco or any of its Restricted Subsidiaries will be classified as
a Restricted Subsidiary. Except as provided in clause (i) of this paragraph, no
Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary. Subject
to the next paragraph, an Unrestricted Subsidiary may be redesignated as a
Restricted Subsidiary.
37
<PAGE>
Armco will not, and will not permit any of its Restricted Subsidiaries to,
take any action that would result in a Person becoming a Restricted Subsidiary
unless, after giving effect to such action:
(i) on a pro forma basis, Armco 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 the Subsidiary
other than Liens permitted to be Incurred under "--Limitation on Liens."
Armco will not, and will not permit any of its Restricted Subsidiaries to,
take any action that would result in any such Restricted Subsidiary ceasing to
be a Subsidiary (other than a merger or consolidation with Armco or another
Restricted Subsidiary) unless, after giving effect to such action, either:
(i) (A) neither Armco nor any of its Affiliates (other than a Person
that is an Affiliate by virtue of its ownership of Capital Stock or control
of Armco) owns any Capital Stock of such former Restricted Subsidiary or any
successor in interest to the business thereof, and (B) there is no
Indebtedness of the former Restricted Subsidiary or any successor in
interest to its business in favor of Armco or any of its Restricted
Subsidiaries; or
(ii) Armco and its Restricted Subsidiaries would be permitted to make a
Restricted Payment in the amount of the total Investment (excluding (A) any
Investment to the extent of cash or the Fair Market Value of Property other
than cash received by Armco 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 Armco 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 September 12, 1997.
Merger, Consolidation
Armco may not merge or consolidate with any other corporation (other than a
merger of a Restricted Subsidiary into Armco in which Armco 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 Armco) or to which such sale, transfer or conveyance is made
is a corporation organized and existing under the laws of the United States
of America or a State or the District of Columbia and that 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 notes and the due and punctual performance and observance of all of the
covenants and conditions of the indenture to be performed by Armco;
(ii) immediately before and after giving effect to the transaction or
series of transactions, no Default or Event of Default has occurred and is
continuing;
(iii) immediately after giving effect to the transaction or series of
transactions on a pro forma basis (including any Indebtedness Incurred or
anticipated to be Incurred in connection with the transaction or series of
transactions), Armco (or the surviving entity if Armco is not continuing)
would be able to Incur at least $1.00 of additional Indebtedness under the
first paragraph under
38
<PAGE>
"--Limitation on Indebtedness," or, in the case of a merger or consolidation
of Armco 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 Armco immediately prior to the
merger or consolidation;
(iv) immediately after giving effect to the transaction or series of
transactions on a pro forma basis (including any Indebtedness Incurred or
anticipated to be Incurred in connection with the transaction or series of
transactions) as if the transaction had occurred on the first day of the
Determination Period, Armco (or the surviving entity if Armco is not
continuing) has a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of Armco immediately before the transaction or series
of transactions; and
(v) the trustee has 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 with respect to any
series of debt securities occurs and is continuing, either the trustee or the
holders of 25% in principal amount of the outstanding debt securities of that
series may declare the principal of all the debt securities of that series to be
due and payable. In the case of certain Events of Default involving a bankruptcy
event with respect to Armco, such principal shall become immediately due and
payable, without any requirement of notice or declaration.
Events of Default for a series of debt securities include:
- default for 30 days in payment of an interest installment or any sinking
or analogous fund payment;
- default in payment of principal on the debt securities of any series when
due;
- default for 30 days after notice to Armco 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
- 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, the supplemental indenture provides that the
following are also Events of Default with respect to the notes:
- a default by Armco or any of its Significant Restricted Subsidiaries under
certain other obligations for borrowed money and the indebtedness has been
accelerated (or has matured) and remains unpaid, if the principal amount
of such indebtedness is $5,000,000 or more; or
- the entry by a court of competent jurisdiction of one or more judgments or
orders against Armco or any of its Significant Restricted Subsidiaries in
an uninsured total amount in excess of $5,000,000 is not discharged,
waived, stayed or satisfied for a period of 60 consecutive days.
The trustee will, within 90 days after the occurrence of a default with
respect to the debt securities of any series, give the holders of the debt
securities of such series notice of all uncured and unwaived defaults known to
it. However, 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 this notice if it determines in good faith that
withholding this 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
39
<PAGE>
happening of any of the Events of Default specified above, except that any grace
period or notice requirement is eliminated.
Subject to the duty of the trustee during an Event of Default to act with
the required standard of care, the holders of the notes may be required to
indemnify the trustee before the trustee proceeds to exercise any right or power
under the indenture at the request of holders of the notes.
The holders of a majority in principal amount of the outstanding notes 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 notes may, on behalf of the holders of
notes, waive any past default or Event of Default with respect to notes 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 notes.
Armco 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 notes may, on behalf of the holders of all notes, waive any past
Default or Event of Default with respect to the 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 notes. No such waiver,
however, shall extend to any subsequent or other Default or impair any
consequent right.
DEFEASANCE
Armco, at its option:
(i) will be Discharged from any and all obligations in respect of the
notes (except for certain obligations to register the transfer or exchange
of notes, replace stolen, lost or mutilated notes, 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 be subject to certain provisions of the indenture (including
the Events of Default described above other than defaults on payments due on
the notes),
in each case if Armco irrevocably deposits or causes to be deposited with the
trustee, in trust, money or government obligations that through the payment of
interest and principal in accordance with their terms will provide money, in an
amount sufficient to pay all the principal of, and interest on, the notes not
later than one day before the payments are due. To exercise this option, there
must not exist any Event of Default or event that would become an Event of
Default with notice or lapse of time or both, that shall have occurred and be
continuing at the time of such deposit, and Armco must deliver to the trustee an
opinion of counsel to the effect that:
- the deposit and related defeasance would not cause the holders of notes 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
Revenue Service, and
- if notes are then listed on the New York Stock Exchange, the notes would
not be delisted as a result of the exercise of such option.
40
<PAGE>
The indenture also provides that if at any time:
- all authenticated notes (other than any notes that have been destroyed,
lost or stolen and that have been replaced or paid as provided in the
indenture) have been delivered to the trustee for cancellation, or
- all notes not canceled or delivered to the trustee for cancellation have
become due and payable, or will become due and payable in accordance with
their terms, within one year,
and
- Armco shall deposit or cause to be deposited with the trustee, in trust,
sufficient funds to pay at maturity the entire amount of all notes not
previously delivered to the trustee for cancellation, including principal
and interest due or to become due to such date of maturity and
- if Armco shall also pay all other sums payable under the indenture by
Armco,
- then the indenture shall cease to be of further effect, and on our demand
of and at our cost and expense, the trustee will execute proper
instruments acknowledging satisfaction of and Discharging the indenture.
MODIFICATION TO THE INDENTURE
The indenture contains provisions permitting Armco 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
their principal amount, or reduce their rate or extend the time of payment of
interest, or reduce any premium payable upon their redemption, or reduce the
relative ranking of any debt securities, or reduce the percentage of debt
securities of any series the consent of the holders of which is required for any
such supplemental indenture.
THE TRUSTEE
Star Bank, N.A. is the trustee under the indenture. The trustee maintains
normal banking relationships with Armco and its subsidiaries, including as a
participant in Armco's Credit Facilities. The trustee may perform certain
services for and transact other business with Armco from time to time in the
ordinary course of business.
CERTAIN DEFINITIONS
The following is a summary of certain defined terms used in the indenture.
Please refer to the indenture for the full definition of all such terms, as well
as any other capitalized terms used in this prospectus 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 Armco and its Subsidiaries, whether or
not such business is conducted on the date of the original issuance of the 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
Armco 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.
41
<PAGE>
"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 Business that becomes a
Restricted Subsidiary as a result of the acquisition of such Capital Stock by
Armco 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 that 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 Armco 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 Armco 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 Armco, shall not include
(x) any asset disposition permitted pursuant to "--Merger, Consolidation" which
constitutes a disposition of all or substantially all of Armco'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
42
<PAGE>
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 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) Armco
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 Armco, 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 Armco and a wholly owned
Restricted Subsidiary of Armco) as a result of which the existing shareholders
of Armco 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 Armco, 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 Armco'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 notes. "Independent Investment Banker" means one of the Reference
Treasury Dealers appointed by the trustee after consultation with Armco.
"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
43
<PAGE>
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
Dealers, the average of the Reference Treasury Dealer Quotations obtained from
two other Primary Treasury Dealers designated by Armco 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 Armco 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
44
<PAGE>
respect to which Armco 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 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 Armco, 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
45
<PAGE>
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 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 Armco 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 Armco shall be deemed to have paid
and discharged the entire indebtedness represented by, and obligations under,
the notes and to have satisfied all the obligations under the indenture relating
to the notes (and the trustee, at the expense of Armco, shall execute proper
instruments acknowledging the same and satisfaction of and discharging the
indenture).
"Eligible Receivables" means, as of any date, trade receivables (less
allowance for doubtful accounts) of Armco and its Restricted Subsidiaries that
would be shown on a consolidated balance sheet of Armco and its Restricted
Subsidiaries as of that date prepared in accordance with GAAP.
"Equity Offering" means a registered public offering of common stock of
Armco resulting in net proceeds to Armco in excess of $25,000,000.
"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 Armco, the twelve consecutive months
ending December 31.
46
<PAGE>
"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.
"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
47
<PAGE>
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
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 note, an amount equal to the
greater of (i) 1.0% of the outstanding principal amount of such note and (ii)
the excess of (a) the present value of the remaining interest, premium and
principal payments due on such note as if such note were redeemed on December 1,
2003, computed using a discount rate equal to the Treasury Rate plus 75 basis
points, over (b) the outstanding principal amount of such 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 Armco, including any
tangible and intangible Property and assets held by such businesses (excluding
cash, Indebtedness and Capital Stock
48
<PAGE>
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 September 30,
1998, (i) the Company's Sawhill Tubular Division, (ii) Douglas Dynamics, L.L.C.,
(iii) Greens Port Industrial Park, (iv) Armco'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.
"Permitted Refinancing Indebtedness" means Indebtedness of Armco, the
proceeds of which are used to Refinance outstanding Indebtedness of Armco or any
Restricted Subsidiary, provided that (i) if the Indebtedness being Refinanced is
pari passu with or subordinated in right of payment to the notes, then such
Indebtedness is pari passu with or subordinated in right of payment to, as the
case may be, the 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 Armco 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 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 notes, or
is exchangeable for debt at any time, in whole or part, prior to the Stated
Maturity of the notes.
"Redemption Date" means, when used with respect to any note to be redeemed,
the date fixed for redemption of such note pursuant to Article IV of
Supplemental Indenture No. 2 and the notes.
"Redemption Price" means, when used with respect to any note to be redeemed,
the price fixed for redemption of such note pursuant to Article IV of
Supplemental Indenture No. 2 and the notes, plus accrued and unpaid interest
thereon to the Redemption Date.
"Reference Treasury Dealer" means each of Salomon Smith Barney 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"), Armco shall substitute
therefor another nationally recognized investment banking firm that is a Primary
Treasury Dealer.
49
<PAGE>
"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 Armco or to Armco's stockholders (in their capacity
as such), or declared and paid to any Person other than Armco or a Restricted
Subsidiary of Armco on the Capital Stock of any Restricted Subsidiary of Armco,
in each case, other than dividends, distributions or payments payable or made
solely in Qualified Capital Stock, (ii) a payment made by Armco or any of its
Restricted Subsidiaries (other than to Armco or any Restricted Subsidiary of
Armco) to purchase, redeem, acquire or retire any Capital Stock of Armco or of a
Restricted Subsidiary, (iii) a payment made by Armco 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 Armco which is subordinate
(whether pursuant to its terms or by operation of law) in right of payment to
the 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
notes or (iv) a payment made by Armco 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 Armco, (A) any Subsidiary
of Armco that exists on September 12, 1997 other than AFSC and its Subsidiaries,
(B) any other Subsidiary of Armco that Armco 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 Armco
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
Armco that is pari passu in right of payment with the notes.
"Significant Restricted Subsidiary" means each Restricted Subsidiary of
Armco that (i) during the most recent four consecutive fiscal quarters of Armco
for which financial information in respect thereof is available accounted for
more than 10% of the Consolidated EBITDA of Armco or (ii) is the owner, directly
or indirectly, of more than 10% of the Consolidated Net Tangible Assets of
Armco, 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
50
<PAGE>
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 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 described in the next paragraph, the new notes will be issued in
the form of one or more global notes. The global notes will be deposited with,
or on behalf of, DTC and registered in the name of DTC or its nominee.
THE GLOBAL NOTES
We expect that under the procedures established by DTC (1) upon the issuance
of the global notes, DTC or its custodian will credit on its internal system the
principal amount of new notes of the individual beneficial interests represented
by such global notes to the respective accounts of persons who have accounts
with such depositary and (2) ownership of beneficial interest in the global
notes will be shown on, and the transfer of such ownership will be effective
only through, records maintained by DTC or its nominee (with respect to interest
of participants) and the records of participants (with respect to interest of
persons other than participants). Ownership of beneficial interests in the
global notes will be limited to persons who have accounts with DTC
("participants") or persons who hold interests through participants.
51
<PAGE>
So long as DTC, or its nominee, is the registered owner or holder of the new
notes, DTC or such nominee will be considered the sole owner or holder of the
new notes represented by such global notes for all purposes under the
indentures. No beneficial owner of an interest in the global notes will be able
to transfer that interest except in accordance with DTC's procedures.
Payments of the principal of, premium (if any) and interest on, the global
notes will be made to DTC or its nominee as the registered owner of the note.
Armco, the trustee or any paying agent 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 the global notes or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interest.
We expect that DTC or its nominee, upon receipt of any payment of principal,
premium, if any, and interest on the global notes, will credit participants'
accounts with payments in amounts proportionate to their beneficial interests in
the principal amount of the global notes as shown on the records of DTC or its
nominee. We also expect that payments by participants to owners of beneficial
interests in the global notes held through such participants will be governed by
standing instructions and customary practice, as is now the case with securities
held for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Ownership of beneficial interests in the global notes will be shown on, and
the transfer of those ownership interests will be effected only through, records
maintained by DTC (with respect to participants' interest) and such participants
(with respect to the owners of beneficial interests in the global notes other
than participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of those securities in
definitive form. These limits and laws may impair the ability to transfer or
pledge beneficial interests in a global note.
DTC has advised us that it will take any action permitted to be taken by a
holder of new notes (including the presentation of new notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in the global notes are credited and only in respect
of such portion of the aggregate principal amount of new notes as to which such
participant or participants has or have given such direction.
DTC has advised us as follows: DTC is a limited purpose trust company
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 Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. Indirect
access to the DTC system is available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the global notes among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither we nor the trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their obligations under the rules and procedures governing their
operations.
52
<PAGE>
CERTIFICATED NOTES
The notes represented by a global note are exchangeable for certificated
notes in definitive form of like terms in denominations of $1,000 and integral
multiples of $1,000 if:
- DTC notifies Armco that it is unwilling or unable to continue as
depositary for such global note or if at any time DTC ceases to be a
clearing agency registered under the Exchange Act;
- Armco in its discretion at any time determines not to have all of the
notes represented by such global note; or
- a default entitling the holders of the notes to accelerate the maturity of
the notes has occurred and is continuing.
53
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of the principal United States federal
income tax consequences to holders of old notes who exchange their old notes for
new notes pursuant to the exchange offer. This discussion is based on currently
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing, temporary and proposed Treasury regulations promulgated under
the Code, and administrative and judicial interpretations of the Code, all as in
effect or proposed on the date hereof and all of which are subject to change,
possibly with retroactive effect, or different interpretations. This discussion
is limited to holders of notes who hold the notes as capital assets within the
meaning of section 1221 of the Code. Moreover, this discussion is for general
information only and does not address all of the tax consequences that may be
relevant to holders of old notes and new notes in light of their personal
circumstances or to certain types of holders of old notes and new notes (such as
certain financial institutions, insurance companies, tax-exempt entities,
dealers in securities, investors in pass-through entities, persons that have a
functional currency other than U.S. dollar, or persons who have hedged the risk
of owning notes). In addition, this discussion does not address any tax
consequences arising under the laws of any state, locality or foreign
jurisdiction.
EXCHANGE OF OLD NOTES FOR NEW NOTES
The exchange of the old notes for new notes pursuant to the exchange offer
should not be a taxable exchange for federal income tax purposes. As a result,
no gain or loss should be recognized for federal income tax purposes by holders
who exchange old notes for new notes pursuant to the exchange offer. A holder
who exchanges an old note for a new note should have the same basis and holding
period in the new note immediately after the exchange as the holder had in the
old note immediately before the exchange.
U.S. HOLDERS OF NEW NOTES
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a note that is
- a citizen or resident (as defined in 7701(b)(1) of the Code) of the United
States,
- a corporation organized under the laws of the United States or any
political subdivision of or within the United States,
- an estate or trust, the income of which is subject to U.S. federal income
tax regardless of the source, or
- 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,
each, a "U.S. holder." Certain U.S. federal income tax consequences relevant to
a holder other than a 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 the holder's
method of accounting for tax purposes.
SALE, EXCHANGE OR REDEMPTION OF THE NEW 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
54
<PAGE>
- the amount realized on the disposition (other than amounts attributable to
accrued interest) and
- the U.S. holder's tax basis in the new note.
A U.S. holder's tax basis in a new note received in exchange for an old note
generally will equal the cost of the note (net of accrued interest) to the U.S.
holder reduced by any payments other than payments of qualified stated interest
made on either the old note or the new note.
Assuming the new note is held as a capital asset, that 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 the new note and the old note exchanged for the
new note for an aggregate period longer than one year. Long-term capital gain of
a non-corporate U.S. holder is generally subject to a maximum tax rate of 20%.
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
- fails to furnish its social security or other taxpayer identification
number ("TIN") within a reasonable time after a request therefor,
- furnishes an incorrect TIN,
- fails to report interest properly, or
- 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 against that holder's U.S. federal income tax
liability (and may entitle the holder to a refund), provided that the required
information is furnished to the Internal Revenue 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
qualifications for exemption from withholding and the procedure for obtaining
that exemption.
NON-U.S. HOLDERS OF NEW NOTES
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a note that is not
- a citizen or resident of the United States,
- a corporation organized under the laws of the United States or any
political subdivision of or within the United States,
- an estate or trust, the income of which is subject to U.S. federal income
tax regardless of the source, or
- 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,
each, 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 acquisition,
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
55
<PAGE>
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 a new note will be considered "U.S. trade or
business income" if such income or gain is
- effectively connected with the conduct of a U.S. trade or business, or
- 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
- the non-U.S. holder does not actually or constructively own 10% or more of
the total voting power of all voting stock of Armco and is not a
controlled foreign corporation with respect to which Armco is a "related
person" within the meaning of the Code, and
- 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 NEW 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
- such gain is U.S. trade or business income,
- subject to certain exceptions, the non-U.S. holder is an individual who
holds the new notes as a capital asset and is present in the United States
for 183 days or more in the taxable year of the disposition, or
- 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
56
<PAGE>
constructively own 10% or more of the total voting power of all voting stock of
Armco and income on the new notes is not U.S. trade or business income.
INFORMATION REPORTING AND BACKUP WITHHOLDING
Armco 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.
In the case of payments of principal on the new notes by Armco 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 penalty of perjury or otherwise establishes an exemption (provided
that neither Armco 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,
if 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
- a "controlled foreign corporation" for U.S. federal income tax purposes,
- 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, or
- with respect to payments made after December 31, 1999, a foreign
partnership that, at any time during its taxable year, is 50% or more (by
income or capital interest) owned by U.S. persons or is engaged in the
conduct of a U.S. 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.
57
<PAGE>
PLAN OF DISTRIBUTION
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties in similar transactions, we believe
that the new notes issued in the exchange offer in exchange for the old notes
may be offered for resale, resold and otherwise transferred by holders (other
than any such holder which is our "affiliate" within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act. However, this applies only
if the new notes are acquired in the ordinary course of such holders' business
and such holders have no arrangement with any person to participate in the
distribution of such new notes. We refer you to the "Morgan Stanley & Co. Inc."
SEC No-Action Letter (available June 5, 1991), "Exxon Capital Holdings
Corporation" SEC No-Action Letter (available May 13, 1988) and "Shearman &
Sterling" SEC No-Action Letter (available July 2, 1993) for support of this
belief.
Each broker-dealer that receives new notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus 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. We have
agreed that starting on the expiration date of the exchange offer and ending on
the close of business one year after the expiration date of the exchange offer,
we will make this prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale.
We will not receive any proceeds from any sale of new notes by
broker-dealers or any other persons. New notes received by broker-dealers for
their own account in 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 and/or the purchasers of any such new notes. Any broker-dealer
that resells new notes that were received by it for its own account pursuant to
the exchange offer and any broker or dealer that participates in a distribution
of such new notes may be deemed to be an underwriter within the meaning of the
Securities Act, and any profit on any such resale of new notes and any
commissions or concessions received by any such persons may be 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 admitting that
it is an underwriter within the meaning of the Securities Act.
For a period of one year after the expiration date of the exchange offer,
Armco will promptly send additional copies of this prospectus and any amendment
or supplement to this prospectus to any broker-dealer that requests such
documents in the letter of transmittal. We have agreed to pay all expenses
incident to the exchange offer (including the expenses of one counsel for the
holders of the old notes), other than commissions or concessions of any brokers
or dealers. We have agreed to indemnify holders of the notes (including any
broker-dealers) against certain liabilities, including certain liabilities under
the Securities Act.
58
<PAGE>
LEGAL MATTERS
Arnold & Porter, New York, New York, will pass upon the validity of the new
notes for Armco.
EXPERTS
The consolidated financial statements incorporated in this prospectus by
reference from Armo Inc.'s Annual Report on Form 10-K for the year ended
December 31, 1997 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
59
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$75,000,000
ARMCO INC.
8 7/8% SENIOR NOTES DUE 2008
[LOGO]
------
P R O S P E C T U S
FEBRUARY 5, 1999
---------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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,
1997).
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, 1997).
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 November 1, 1993, between Armco and Star Bank, N.A. (the "Indenture")
(incorporated herein by reference to Exhibit 4 to Armco's Registration Statement on Form S-3, No.
33-50205 ("Registration No. 33-50205")).
4.3 --Supplemental Indenture No. 2, dated as of December 15, 1998, to the Indenture (including form of
Senior Notes).*
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
4.4 --Registration Agreement, dated as of December 10, 1998 among Armco, Salomon Smith Barney Inc., Chase
Securities Inc. and PNC Capital Markets, Inc.*
<S> <C>
5 --Opinion of Arnold and Porter (with opinion of Gary R. Hildreth, Esq. attached).**
12 --Ratio of Earnings to Fixed Charges.*
23.1 --Consent of Deloitte & Touche LLP.*
23.2 --Consent of Arnold and Porter (included in Exhibit 5 hereto).
24 --Powers of Attorney.*
25 --Statement of Eligibility on Form T-1 of Star Bank, N.A. (incorporated herein by reference to
Exhibit 25 to Registration No. 33-50205).
99.1 --Form of Letter of Transmittal.*
99.2 --Form of Notice of Guaranteed Delivery.*
99.3 --Form of Exchange Agent Agreement.**
</TABLE>
- ------------------------
* Previously filed
** 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 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 Commission such indemnification is
against public policy as expressed in the Securities 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 Securities 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-2
<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: February 3, 1999 ARMCO INC.
By: *
-----------------------------------------
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 February 3, 1999.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
* Chairman of the Board, February 3, 1999
- ------------------------------ President, Chief Executive
James F. Will Officer and Director
* Vice President and Chief February 3, 1999
- ------------------------------ Financial Officer
Jerry W. Albright
* Vice President and February 3, 1999
- ------------------------------ Controller
John N. Davis
* Director February 3, 1999
- ------------------------------
Dan R. Carmichael
Director
- ------------------------------
Paula H.J. Cholmondeley
* Director February 3, 1999
- ------------------------------
Dorothea C. Gilliam
* Director February 3, 1999
- ------------------------------
John C. Haley
* Director February 3, 1999
- ------------------------------
Charles J. Hora, Jr.
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
* Director February 3, 1999
- ------------------------------
Bruce E. Robbins
* Director February 3, 1999
- ------------------------------
Jan H. Suwinski
* Director February 3, 1999
- ------------------------------
John D. Turner
* By his signature set forth below, Gary R. Hildreth has signed this
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, 1997).
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, 1997).
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 November 1, 1993, between Armco and Star Bank, N.A. (the
"Indenture") (incorporated herein by reference to Exhibit 4 to Armco's Registration
Statement on Form S-3, No. 33-50205 ("Registration No. 33-50205")).
4.3 --Supplemental Indenture No. 2, dated as of December 15, 1998, to the Indenture (including
form of Senior Notes).*
4.4 --Registration Agreement, dated as of December 10, 1998 among Armco, Salomon Smith Barney
Inc., Chase Securities Inc. and PNC Capital Markets, Inc.*
5 --Opinion of Arnold and Porter.**
12 --Ratio of Earnings to Fixed Charges.*
23.1 --Consent of Deloitte & Touche LLP.*
23.2 --Consent of Arnold and Porter (included in Exhibit 5 hereto).
24 --Powers of Attorney.*
25 --Statement of Eligibility on Form T-1 of Star Bank, N.A. (incorporated herein by reference
to Exhibit 25 to Registration No. 33-50205).
99.1 --Form of Letter of Transmittal.*
99.2 --Form of Notice of Guaranteed Delivery.*
99.3 --Form of Exchange Agent Agreement.**
</TABLE>
- ------------------------
* Previously filed
** Filed herewith
<PAGE>
Exhibit 5
[Letterhead of Arnold & Porter]
February 3, 1999
Armco Inc.
One Oxford Centre
301 Grant Street
Pittsburgh, Pennsylvania 15219
Ladies and Gentlemen:
We refer to the registration statement on Form S-4, Registration No.
333-71203 (the "Registration Statement"), filed by Armco Inc., an Ohio
corporation (the "Company"), with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Act"), pursuant to which
the Company is registering $75,000,000 aggregate principal amount of 8 7/8%
Senior Notes due 2008 (the "Exchange Notes"), under an Indenture dated as of
November 1, 1993 between the Company and Star Bank, N.A., as trustee (the
"Trustee"), as supplemented by Supplemental Indenture No. 1, dated as of
November 1, 1993, and Supplemental Indenture No. 2, dated as of December 15,
1998 (the "Indenture"), to be issued in exchange for $75,000,000 aggregate
principal amount of the Company's outstanding 8 7/8% Senior Notes due 2008
(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
<PAGE>
the terms of the Indenture and issued in 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, General Counsel 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]
February 3, 1999
Arnold & Porter
399 Park Avenue
New York, New York 10022
Ladies and Gentlemen:
I refer to the registration statement on Form S-4, Registration No.
333-71203 (the "Registration Statement"), filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act"),
pursuant to which Armco Inc., an Ohio corporation (the "Company"), is
registering $75,000,000 aggregate principal amount of 8 7/8% Senior Notes due
2008 (the "Exchange Notes"), under an Indenture dated as of November 1, 1993
between the Company and Star Bank, N.A., as trustee (the "Trustee"), as
supplemented by Supplemental Indenture No. 1, dated as of November 1 1993,
and Supplemental Indenture No. 2, dated as of December 15, 1998 (the
"Indenture"), to be issued in exchange for $75,000,000 aggregate principal
amount of the Company's outstanding 8 7/8% Senior Notes due 2008 (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.
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.
<PAGE>
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
General Counsel
<PAGE>
Exhibit 99.3
EXCHANGE AGENT AGREEMENT
This EXCHANGE AGENT AGREEMENT (this "AGREEMENT") dated as of
February 2, 1999 between Armco Inc., an Ohio corporation ("ARMCO"), and Star
Bank, N.A.
W I T N E S S E T H:
WHEREAS, Armco is offering to exchange (the "EXCHANGE OFFER") all of
its outstanding 8 7/8% Senior Notes due 2008 (the "OLD NOTES"), of which an
aggregate of $75,000,000 in principal amount are outstanding as of the date
hereof, for an equal principal amount of newly issued 8 7/8% Senior Notes due
2008 (the "NEW NOTES"), on the terms and in the manner set forth in the
Prospectus, dated February 5, 1999 (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 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 Star Bank, N.A., Corporate Trust, 425 Walnut Street,
Mail Location 5155, Cincinnati, Ohio 45202 by registered or certified mail or
by overnight courier.
<PAGE>
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 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
-2-
<PAGE>
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 promptly shall notify Star
Bank, N.A., 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
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.
-3-
<PAGE>
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 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
-4-
<PAGE>
(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, 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
-5-
<PAGE>
with a copy to:
Arnold & Porter
399 Park Avenue
New York, NY 10022
Attn: Jonathan C. Stapleton, Esq.
Facsimile Number: (212) 715-1399
If to the Exchange Agent:
Star Bank, N.A.
Corporate Trust
425 Walnut Street
Mail Location 5155
Cincinnati, OH 45202
Attn: Robert Jones
Facsimile Number: (513) 632-5511
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 April 2, 1999, 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
-6-
<PAGE>
IN WITNESS WHEREOF, Armco Inc. and Star Bank, N.A. have duly executed
this Agreement as of the date first set forth above.
ARMCO INC.
By:
-------------------------------
Name:
Title:
STAR BANK, N.A.
By:
-------------------------------
Name:
Title:
