<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 8, 1996
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
FORM S-1
NEW CF&I, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3370 93-1086900
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation of organization) Classification Code Number) No.)
1000 S.W. BROADWAY, SUITE 2200, PORTLAND, OREGON 97205 (503) 223-9228
(Address, including zip code, and telephone number, including area code, of registrant's principal
executive offices)
</TABLE>
---------------------
FORM S-1
CF&I STEEL, L.P.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3370 93-1103440
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
1000 S.W. BROADWAY, SUITE 2200, PORTLAND, OREGON 97205 (503) 223-9228
(Address, including zip code, and telephone number, including area code, of registrant's principal
executive offices)
</TABLE>
---------------------
FORM S-3
OREGON STEEL MILLS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 94-0506370
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
1000 S.W. BROADWAY, SUITE 2200, PORTLAND, OREGON 97205 (503) 223-9228
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
<TABLE>
<S> <C> <C>
THOMAS B. BOKLUND THOMAS B. BOKLUND THOMAS B. BOKLUND
NEW CF&I, INC. CF&I STEEL, L.P. OREGON STEEL MILLS, INC.
PRESIDENT AND CHIEF EXECUTIVE 1000 S.W. BROADWAY, SUITE 2200 CHAIRMAN AND CHIEF EXECUTIVE OFFICER
OFFICER PORTLAND, OREGON 97205 1000 S.W. BROADWAY, SUITE 2200
1000 S.W. BROADWAY, SUITE 2200 (503) 223-9228 PORTLAND, OREGON 97205
PORTLAND, OREGON 97205 (503) 223-9228
(503) 223-9228
</TABLE>
(Name, address, including zip code, and telephone number, including area code,
of agents for service)
---------------------
Copies to:
<TABLE>
<S> <C>
ROBERT J. MOORMAN ERIC S. HAUETER
JOHN R. THOMAS BROWN & WOOD
STOEL RIVES LLP 555 CALIFORNIA STREET
900 SW FIFTH AVENUE SAN FRANCISCO, CALIFORNIA 94104
PORTLAND, OREGON 97204 (415) 772-1200 (PHONE)
(503) 224-3380 (PHONE) (415) 397-4621 (FAX)
(503) 220-2480 (FAX)
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable following the effectiveness of this Registration Statement.
---------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% First Mortgage Notes due 2003............... $235,000,000 100% $235,000,000 $81,035
- ----------------------------------------------------------------------------------------------------------------------------------
Guarantees of First Mortgage Notes due 2003....... -- -- -- (2)
==================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the Registration Fee
pursuant to Rule 457(c) of the General Rules and Regulations under the
Securities Act of 1933.
(2) No additional consideration will be paid in respect of these Guarantees.
---------------------
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
NEW CF&I, INC.
CF&I STEEL, L.P.
------------------------
CROSS REFERENCE SHEET SHOWING LOCATION
IN PROSPECTUS OF INFORMATION
REQUIRED BY ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN
FORM S-1 REGISTRATION STATEMENT LOCATION OR CAPTION IN PROSPECTUS
------------------------------------------- -------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Forepart of the Registration Statement;
Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; The Company; Risk
Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Not applicable
6. Dilution................................... Not applicable
7. Selling Security Holders................... Not applicable
8. Plan of Distribution....................... Outside and Inside Front Cover Pages;
Underwriting
9. Description of Securities to be
Registered................................. Description of the Notes
10. Interests of Named Experts and Counsel..... Not applicable
11. Information with Respect to the
Registrant................................. Outside and Inside Front Cover Pages;
Additional Information; Prospectus Summary;
The Company; Risk Factors; Use of Proceeds;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Description of the
Notes; Description of Capital Stock
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED APRIL 8, 1996
$235,000,000
LOGO
% FIRST MORTGAGE NOTES DUE 2003
---------------------
Oregon Steel Mills, Inc. ("Oregon Steel" or the "Company") is offering (the
"Notes Offering") $235,000,000 aggregate principal amount of its % First
Mortgage Notes due 2003 (the "Notes"). The Notes will bear interest at the rate
of % per annum from the date of original issuance. Interest on the Notes
will be payable semi-annually on and of each year, commencing
, 1996. The Notes will mature on , 2003 and will be
redeemable, in whole or in part, at the option of the Company, on or after
, 2000 at the redemption prices set forth herein plus accrued
interest to the date of redemption.
In the event of a Change of Control (as defined), the Company will be
obligated to make an offer to purchase all outstanding Notes at a purchase price
of 101% of the principal amount thereof plus accrued interest. In addition, the
Company will be obligated in certain instances to offer to purchase Notes at a
purchase price of 100% of the principal amount thereof plus accrued interest
with the net cash proceeds of certain sales or other dispositions of assets. See
"Description of the Notes -- Certain Covenants -- Change of Control" and
"Description of the Notes -- Certain Covenants -- Disposition of Proceeds of
Asset Sales."
The Notes will be unconditionally guaranteed (the "Guarantees"), jointly and
severally, by two subsidiaries of the Company (the "Guarantors"). The Notes and
the Guarantees will be secured by a lien on certain assets of the Company and
the Guarantors, respectively. The Notes and the Guarantees will rank pari passu
in right of payment with all existing and future unsubordinated indebtedness of
the Company and the Guarantors, respectively, except to the extent of any
collateral which may be pledged to secure such other indebtedness. After giving
effect to the Offerings (as defined below), the Mergers (as defined herein) and
the application of the estimated net proceeds therefrom as if such transactions
had occurred on December 31, 1995, the Company and the Guarantors would have
had, in addition to the Notes and excluding intercompany liabilities, $229
million of consolidated liabilities, including $50.7 million of unsecured
consolidated long-term debt (excluding current portion of $4.6 million). The
Notes will be effectively subordinated to all existing and future liabilities
(whether or not for borrowed money) of the Company's subsidiaries which are not
Guarantors. After giving effect to the Offerings, the Mergers and the
application of the estimated net proceeds therefrom as if such transactions had
occurred on December 31, 1995, subsidiaries of the Company which are not
Guarantors would have had, excluding liabilities owed to the Company, $16.8
million of consolidated liabilities, including secured long-term debt of
Canadian $9.2 million.
Ownership of the Notes will be maintained in book-entry form by or through
the Depository (as defined herein). Interests in the Notes will be shown on, and
transfers thereof will be effected only through, records maintained by the
Depository and its participants. Beneficial owners of the Notes will not have
the right to receive physical certificates evidencing their ownership of the
Notes except under the limited circumstances described herein. Settlement for
the Notes will be made in immediately available funds. The Notes will trade in
the Depository's Same-Day Funds Settlement System and secondary market trading
activity for the Notes will therefore settle in immediately available funds. All
payments of principal of premium, if any, and interest on the Notes will be made
by the Company in immediately available funds so long as the Notes are
maintained in book-entry form. Beneficial interests in the Notes may be
acquired, or subsequently transferred, only in denominations of $1,000 and
integral multiples thereof.
Concurrently with the Notes Offering, the Company is publicly offering
shares of its Common Stock pursuant to a separate prospectus (the "Common Stock
Offering" and, together with the Notes Offering, the "Offerings"). The Notes
Offering is contingent upon the concurrent completion of the Common Stock
Offering and the effectiveness of the Amended Credit Agreement (as defined
herein).
SEE "RISK FACTORS" BEGINNING ON PAGE 13 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
NOTES.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
======================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note.................................. % % %
- ------------------------------------------------------------------------------------------------------
Total..................................... $235,000,000 $ $
======================================================================================================
</TABLE>
(1) Plus accrued interest, if any, from the date of original issuance.
(2) For information regarding indemnification, see "Underwriting".
(3) Before deducting expenses payable by the Company estimated at $400,000.
---------------------
The Notes are offered by the several Underwriters named herein, subject to
prior sale, when, as and if accepted by them and subject to certain conditions.
It is expected that delivery of the Notes will be made through the book-entry
facilities of the Depository on or about , 1996.
---------------------
SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
SCOTIA CAPITAL MARKETS (USA) INC.
, 1996
<PAGE> 4
Continuous Caster -- CF&I Steel
Division
Only domestic minimill to utilize 100%
continuously
cast rounds
Rod and Bar Mill -- CF&I Steel Division
Newly modernized rod and bar mill
produces a full range
of grades, available in coil weights up
to 6,000 pounds
Pressure Cast Slab -- Oregon
Steel Division
Bottom poured cast slab provides
a uniform structure ideal for hot
rolled plate
Napa Pipe Mill -- Oregon Steel
Division Only large diameter pipe
mill in the western United States
<PAGE> 5
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following regional offices of the Commission: New York Regional Office, 7 World
Trade Center, New York, New York 10048 and Chicago Regional Office, 1400
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, the aforementioned material can also be inspected
at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005.
The Company and the Guarantors have filed with the Commission a
Registration Statement on Form S-3 and Form S-1, respectively, (together with
all amendments and exhibits thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information, reference is made to the
Registration Statement, copies of which are available from the Public Reference
Section of the Commission at prescribed rates as described above. Statements
contained herein concerning the provisions of documents filed with, or
incorporated by reference in, the Registration Statement as exhibits are
necessarily summaries of such provisions and documents and each such statement
is qualified in its entirety by reference to the copy of the applicable document
filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following document, filed with the Commission by the Company, is
incorporated in this Prospectus by reference: the Company's Annual Report on
Form 10-K (and amendment thereto on Form 10-K/A) for the fiscal year ended
December 31, 1995.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering made hereby shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of the filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus has been delivered, on
written or oral request, a copy of any and all of the documents incorporated in
this Prospectus by reference, other than exhibits to such documents not
specifically incorporated by reference therein. Requests for such copies should
be directed to Oregon Steel Mills, Inc., at its principal executive offices
located at 1000 S.W. Broadway, Suite 2200, Portland, Oregon 97205, Attention:
Director of Investor Relations (telephone: (503) 223-9228).
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OF THE
COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
3
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements included and incorporated by reference in
this Prospectus. Unless otherwise indicated or the context otherwise requires,
(i) all information in this Prospectus assumes that the over-allotment option to
purchase up to an additional 900,000 shares of Common Stock granted to the
underwriters by the Company in the Common Stock Offering is not exercised and
(ii) the terms "Company" and "Oregon Steel" refer to Oregon Steel Mills, Inc.
and its consolidated subsidiaries.
THE COMPANY
Oregon Steel operates two steel minimills and four finishing facilities in
the western United States and Canada that produce one of the broadest lines of
specialty and commodity steel products of any domestic minimill company. The
Company emphasizes the cost-efficient production of higher margin specialty
steel products targeted at a diverse customer base located primarily in the
western United States, western Canada and the Pacific Rim. The Company's
manufacturing flexibility allows it to manage actively its product mix in
response to changes in customer demand and individual product cycles.
Through strategic acquisitions and selective capital additions, the Company
has:
- increased shipments of steel products from 762,700 tons in 1991 to 1.4
million tons in 1995
- expanded its range of finished products from plate and large diameter
welded pipe in 1991 to eight products currently by adding electric
resistance welded ("ERW") pipe, rail, rod, bar, wire and seamless oil
country tubular goods ("OCTG")
- increased its emphasis on higher margin specialty products
- expanded its geographic markets from the western United States to
national and international markets
The Company is organized into two business units: the Oregon Steel Division
and the CF&I Steel Division. The Oregon Steel Division is centered on the
Company's steel plate minimill in Portland, Oregon (the "Portland Mill"), which
is the only steel plate minimill in the 11 western states and one of only two
steel plate production facilities operating in that region. The Oregon Steel
Division's steel pipe mill in Napa, California (the "Napa Pipe Mill"), one of
only four large diameter pipe mills operating in the United States and the only
such mill in the 11 western states, produces large diameter pipe that satisfies
the demanding specifications of oil and gas transmission companies. The Oregon
Steel Division also produces large diameter pipe and ERW pipe at its 60% owned
pipe mill in Camrose, Alberta, Canada (the "Camrose Pipe Mill"), which is
strategically located in the Alberta natural gas fields to provide transmission
pipe to western Canada's gas industry.
The CF&I Steel Division consists of steelmaking and finishing facilities in
Pueblo, Colorado (the "Pueblo Mill"). Through the Pueblo Mill, the Company is
the sole rail manufacturer west of the Mississippi River and is one of only two
rail manufacturers in the United States. During 1995 the Company completed the
construction and start-up of a combination rod and bar mill that has an annual
capacity of approximately 600,000 tons and the capability to produce specialty
bar products and high carbon rod in 6,000-pound coils. The Pueblo Mill is also a
producer of wire products and OCTG.
Oregon Steel seeks to be a cost-efficient producer of specialty and
commodity steel products. The Company strives to reduce costs and improve
performance by (i) operating manufacturing facilities capable of responding
rapidly to changes in customer demand and individual product cycles, (ii)
emphasizing the production of higher margin specialty steel products and (iii)
investing in efficient and flexible manufacturing technology.
4
<PAGE> 7
CAPITAL IMPROVEMENT PROGRAM
As part of its effort to reduce manufacturing costs, upgrade its
steelmaking facilities and improve product quality and product mix, the Company
initiated a $400 million (excluding capitalized interest) capital improvement
program in late 1993, of which approximately $295 million had been expended as
of December 31, 1995. The purpose of the program is to (i) expand and improve
the steelmaking and casting capability at the Pueblo Mill from 900,000 tons to
1.2 million tons annually, (ii) reduce the cost of producing rail, rod and bar
products at the Pueblo Mill while improving product quality and expanding the
specialty grades that can be manufactured there, (iii) reduce the cost and
improve the yield of plate rolling and other finishing operations at the
Portland Mill while increasing plate rolling capacity from 430,000 tons to 1.2
million tons annually and (iv) reduce dependence on scrap steel. Several of
these projects have been completed, and construction of various other projects
is scheduled to continue through 1996.
As part of its strategy in acquiring the CF&I Steel Division in 1993, the
Company initiated significant capital additions to the Pueblo Mill. In 1993 work
began on a series of capital improvements, principally to the steelmaking
facility, rod and bar mills and rail production facilities. These improvements
have been substantially completed except for the installation of equipment
capable of producing in-line head hardened rail, which is expected to begin
operating in the third quarter of 1996. The new rod and bar mill was completed
in July 1995 and is expected to reach full production capacity in the third
quarter of 1996. Major improvements completed to date include expansion of
steelmaking and casting capacity from 900,000 tons to 1.2 million tons annually,
upgrading from ingot to continuous casting for rail production, enhancement of
the ability to produce specialty grades of steel and construction of a new rod
and bar mill. These changes are expected to reduce average production costs at
the Pueblo Mill, primarily as a result of increased yields and enhanced
production efficiencies, and to improve product quality and allow production of
a broader range of products.
At the Portland Mill, the Company has begun engineering, site preparation
and construction work for installation of a new Steckel combination rolling mill
(the "Combination Mill"). When fully operational, the Combination Mill is
expected to (i) increase capacity of plate rolling operations from 430,000 tons
to 1.2 million tons annually, (ii) reduce the cost and improve the yield of
plate rolling and other finishing operations, (iii) provide enhanced
manufacturing flexibility, (iv) supply substantially all the Company's
requirements for plate used in its manufacturing of large diameter line pipe,
(v) add coiled plate to the product mix and (vi) be capable of producing wider
steel plate than any such mill currently operating in the world. The Combination
Mill is currently scheduled to begin start-up operation in the second half of
1996 and to be fully operational by the third quarter of 1997. The Company plans
to operate the existing rolling mill at the Portland Mill until the Combination
Mill is fully operational.
The Company believes the improvements described above will significantly
reduce production costs at both the CF&I and Oregon Steel Divisions. The Company
estimates that the capital improvements at the Pueblo Mill, when fully
operational, should reduce the average production costs of making cast steel for
use in its finishing operations by approximately $27 per ton and should reduce
the average production costs of making rod and bar products from cast steel by
approximately $28 per ton (assuming annual production of approximately 1,000,000
tons of cast steel and approximately 500,000 tons of rod and bar products), in
each case compared to average costs for the year ended December 31, 1995. In
that regard, average manufacturing costs at the CF&I Steel Division during 1995
were higher than anticipated due to start-up difficulties related to the new rod
and bar mill. At the Oregon Steel Division, the Company estimates that the
Combination Mill and related improvements, when fully operational and assuming
production of approximately 775,000 tons of steel plate and coil product
annually, should decrease average rolling costs by approximately $45 per ton,
including estimated savings of approximately $11 per ton due to the elimination
of transportation costs related to the operations at the Company's plate rolling
mill in Fontana, California (the "Fontana Plate Mill"), compared to average
plate rolling costs for the year ended December 31, 1994. The Company believes
1994 results are more appropriate than 1995 results for calculating the
estimated cost savings at the Oregon Steel Division because of the closure of
the Fontana Plate Mill in the fourth quarter of 1994. Closure of the Fontana
Plate Mill, which was an initial step in the Company's plan to consolidate plate
rolling operations at the Portland Mill, reduced the Company's effective plate
rolling capacity in 1995 and thereafter by approximately
5
<PAGE> 8
50%. The Company anticipates that plate rolling capacity lost as a result of the
Fontana Plate Mill closure will be restored when the Combination Mill is fully
operational, which is scheduled for the third quarter of 1997.
There is no assurance that these estimated cost savings will be realized,
and actual results will vary from the estimates set forth above. The estimates
of cost savings are based on a number of estimates and assumptions, including
completion of the capital improvement program and an assumed increase in
production, as a result of the capital improvement program, to the production
levels set forth above (which in certain cases are at or near the maximum
production levels for the respective facilities); average estimated cost savings
per ton would be lower, perhaps substantially, at lower rates of production. In
addition, these estimates do not take into account, among other things,
estimated increased depreciation expenses resulting from the capital improvement
program. Due in large part, however, to the assumed increase in production
levels as set forth above, depreciation, if taken into account, would not
significantly affect the estimated average cost savings for cast steel, but
would reduce the estimated average cost savings for rod and bar to $27 per ton
and for steel plate to $35 per ton. Moreover, completion of the capital
improvement program is subject to a number of uncertainties, including the
continued availability of borrowings under the Amended Credit Agreement, and
there is no assurance that the program will be completed as planned. See "Risk
Factors -- Start-Up Difficulties," "-- Funding for the Capital Improvement
Program," "-- Potential Delay in Completion of Capital Improvement Program" and
"-- Uncertainty of Benefits of Capital Improvement Program; Increase in Interest
and Depreciation Expense" and "Business -- Capital Improvement Program."
The information set forth in the preceding two paragraphs includes
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and is subject to the safe harbor created by that section. Certain factors
that could cause results to differ materially from those projected in the
forward-looking statements are set forth in those paragraphs and in "Risk
Factors" and "Business -- Capital Improvement Program."
THE REFINANCING
The Notes Offering is part of a refinancing (the "Refinancing") which will
include (i) the Common Stock Offering and the Notes Offering, (ii) the amendment
of the Company's existing bank credit agreement (the "Old Credit Agreement") to
establish a $125 million credit facility (the "Amended Credit Agreement")
collateralized by accounts receivable and inventory, none of which is expected
to be borrowed as of the completion of the Offerings, and (iii) the repayment in
full of all of the outstanding indebtedness under the Old Credit Agreement. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Description of Certain
Indebtedness."
In connection with the proposed Refinancing, Napa Pipe Corporation and
Oregon Steel Mills -- Fontana Division, Inc., former subsidiaries of the
Company, were merged into the Company in February 1996 (the "Mergers").
The following table sets forth the estimated sources and uses of funds from
the Refinancing as if it had occurred as of February 29, 1996, assuming a public
offering price of $14.00 per share for the Common Stock Offering (in thousands).
<TABLE>
<S> <C>
Sources:
Common Stock Offering(1)...................................................... $ 84,000
Notes Offering(1)............................................................. 235,000
Amended Credit Agreement...................................................... --
--------
Total sources......................................................... $319,000
========
Uses:
Repay borrowings under Old Credit Agreement................................... $271,900
Estimated fees and cash expenses(2)........................................... 13,300
Capital expenditures and other general corporate purposes..................... 33,800
--------
Total uses............................................................ $319,000
========
</TABLE>
- ---------------
(1) Represents gross proceeds.
(2) Includes (i) estimated underwriting discounts and commissions and related
expenses of the Offerings and (ii) estimated cash payments in the
approximate aggregate amount of $1.9 million to terminate certain interest
rate swap agreements related to the Old Credit Agreement.
6
<PAGE> 9
RECENT DEVELOPMENTS
Certain selected operating information for January and February 1996 and
the fourth quarter of 1995 is set forth below. The information for January and
February 1996 is not necessarily indicative of production results or results of
operations to be expected for the quarter ending March 31, 1996, the year ending
December 31, 1996 or for any other future period. In particular, rail production
levels historically have tended to be higher in the first half of the year. See
"Risk Factors -- Start-Up Difficulties" and "Risk Factors -- Uncertainty of
Benefits of Capital Improvement Program; Increase in Interest and Depreciation
Expense."
CF&I Steel Division. The Company completed the preoperational phase at the
newly constructed rod and bar mill in July 1995. From October 1995 through
February 1996, the mill's production rate increased gradually, with average
monthly production of rod and bar products increasing from 35,500 tons per month
in the fourth quarter of 1995 to 37,600 tons per month in January and February
1996. The following table sets forth the CF&I Steel Division's average monthly
production and certain average monthly financial data for January and February
1996 and for the fourth quarter of 1995. January and February 1996 operations
reflect higher than normal rail sales, which generally have a higher gross
profit margin than other products produced by the CF&I Steel Division.
<TABLE>
<CAPTION>
JANUARY AND
FOURTH QUARTER 1995 FEBRUARY 1996
MONTHLY AVERAGE MONTHLY AVERAGE
------------------- ---------------
<S> <C> <C>
Tons produced........................... 70,100 82,900
Tons sold............................... 62,600 83,200
Average price per ton sold.............. $ 438 $ 443
Sales................................... $27.4 million $36.9 million
Gross profit............................ $ 0.3 million $ 4.1 million
Gross profit margin..................... 1.0% 11.2%
</TABLE>
The Company believes that, because the January and February 1996 results of
operations reflect in part the higher average cost of inventory produced in
1995, such results do not fully reflect the recent improvements in operating
efficiencies resulting from the capital improvement program at the CF&I Steel
Division.
Oregon Steel Division. The following table sets forth the Oregon Steel
Division's average monthly production and certain average monthly financial data
for January and February 1996 and for the fourth quarter of 1995.
<TABLE>
<CAPTION>
JANUARY AND
FOURTH QUARTER 1995 FEBRUARY 1996
MONTHLY AVERAGE MONTHLY AVERAGE
------------------- ---------------
<S> <C> <C>
Tons produced........................... 58,100 60,100
Tons sold............................... 56,900 49,100
Average price per ton sold.............. $ 575 $ 602
Sales................................... $32.7 million $29.5 million
Gross profit............................ $ 4.5 million $ 4.9 million
Gross profit margin..................... 13.7% 16.7%
</TABLE>
7
<PAGE> 10
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective purchasers of the Notes.
FORWARD-LOOKING STATEMENTS
The information set forth in this Prospectus under the captions "Prospectus
Summary," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act and is subject to the
safe harbor created by that section. Certain factors that could cause results to
differ materially from those projected in the forward-looking statements are set
forth in "Risk Factors" and "Business -- Capital Improvement Program."
THE NOTES OFFERING
Securities Offered......... $235,000,000 aggregate principal amount of %
First Mortgage Notes due 2003 (the "Notes"). Upon
issuance, all Notes will be represented by one or
more fully registered global Notes. Ownership of
the global Notes will be maintained in book-entry
form by or through the Depository.
Interest Payments.......... Interest on the Notes will accrue from the date of
original issuance and will be payable semi-annually
on and of each year,
commencing , 1996.
Maturity Date.............. , 2003.
Optional Redemption........ The Notes will be redeemable, in whole or in part,
at the option of the Company, on or after
, 2000, at the redemption prices set
forth herein plus accrued interest to the date of
redemption.
Change of Control.......... In the event of a Change of Control (as defined),
the Company will be obligated to make an offer to
purchase all outstanding Notes at a purchase price
of 101% of the principal amount thereof plus
accrued interest.
Asset Sale Proceeds........ The Company will be obligated in certain instances
to offer to purchase Notes at a purchase price of
100% of the principal amount thereof plus accrued
interest with the net cash proceeds of certain
sales or other dispositions of assets.
Guarantees................. The Notes will be unconditionally guaranteed (the
"Guarantees"), jointly and severally, by the
following subsidiaries of the Company: CF&I Steel,
L.P., a Delaware limited partnership ("CF&I"), and
New CF&I, Inc., a Delaware corporation ("New CF&I")
(the "Guarantors"). CF&I owns the Pueblo Mill and
New CF&I is a holding company through which the
Company holds its interest in CF&I. See
"Description of the Notes -- Guarantees."
Ranking.................... The Notes and the Guarantees will rank pari passu
in right of payment with all existing and future
unsubordinated indebtedness of the Company and the
Guarantors, respectively, except to the extent of
any collateral which may be pledged to secure such
other indebtedness. After giving effect to the
Offerings, the Mergers and the application of the
estimated net proceeds therefrom as if such
transactions had occurred on December 31, 1995, the
Company and the Guarantors would have had, in
addition to the Notes and excluding intercompany
liabilities, $229 million of consolidated
liabilities, including $50.7 million of unsecured
consolidated long-term debt (excluding current
portion of $4.6 million). In addition, concurrently
with the effectiveness of the Offerings, the
Company will enter into the Amended Credit
Agreement, which will initially be guaranteed by
CF&I and New CF&I and secured by
8
<PAGE> 11
accounts receivable and inventory. See "Description
of Certain Indebtedness."
The Notes will be effectively subordinated to all
existing and future liabilities (whether or not for
borrowed money) of the Company's subsidiaries which
are not Guarantors. After giving effect to the
Offerings, the Mergers and the application of the
estimated net proceeds therefrom as if such
transactions had occurred on December 31, 1995,
subsidiaries of the Company which are not
Guarantors would have had, excluding liabilities
owed to the Company, $16.8 million of consolidated
liabilities, including secured long-term debt of
Canadian $9.2 million.
Security................... The Notes will be secured by a lien on
substantially all of the buildings, fixtures and
equipment which comprise the Portland Mill and the
Napa Pipe Mill, together with the real property on
which such buildings are located. CF&I's Guarantee
will be secured by substantially all of the
buildings, fixtures and equipment which comprise
the Pueblo Mill, together with substantially all of
the real property on which such buildings are
located. The collateral for the Notes and the
Guarantees will not include, among other things,
(i) inventory and accounts receivable and related
books and records (which will be pledged as
collateral for the Company's proposed $125 million
Amended Credit Agreement), (ii) any partnership
interests in CF&I or Camrose Pipe Company
("Camrose") or any capital stock of (or other
equity interests in) New CF&I or any other
subsidiary of the Company, (iii) any intercompany
indebtedness or (iv) any Excluded Assets (as
defined). In that regard, once the Combination Mill
is operational, the existing rolling mill at the
Portland Mill will be released as Collateral for
the Notes. Furthermore, New CF&I is a holding
company whose only material assets consist of the
general partnership interest in CF&I and the
capital stock of another subsidiary, none of which
will be pledged as collateral for its Guarantee.
See "Description of the Notes -- Security."
Certain Covenants.......... The indenture under which the Notes will be issued
(the "Indenture") will contain certain covenants
that, among other things, will limit the ability of
the Company and certain of its subsidiaries to
incur additional indebtedness, pay dividends or
make other distributions, create certain liens,
make certain asset sales, sell the capital stock of
certain subsidiaries, enter into transactions with
affiliates, create restrictions on the ability of
certain subsidiaries to pay dividends to the
Company, enter into sale-leaseback transactions,
and enter into certain consolidations, mergers or
other business combinations, in each case subject
to the exceptions and qualifications provided
therein. See "Description of the Notes."
Listing.................... The Company will apply to list the Notes on the New
York Stock Exchange.
Use of Proceeds............ The net proceeds from the Notes Offering and the
Common Stock Offering will be used primarily to
repay debt outstanding under the Old Credit
Agreement. Remaining net proceeds will be used for
capital expenditures and other general corporate
purposes. See "Use of Proceeds."
Conditions to the Notes
Offering................. The Notes Offering is contingent upon the
concurrent completion of the Common Stock Offering
and the effectiveness of the Amended Credit
Agreement. See "Description of Certain
Indebtedness."
9
<PAGE> 12
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1991 1992(1) 1993(2) 1994(3) 1995(4)
-------- -------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND PER TON DATA,
RATIOS AND TONNAGE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales....................................... $489,357 $397,722 $ 679,823 $ 838,268 $ 710,971
Gross profit................................ 102,840 81,267 71,587 76,933 72,558
Operating income............................ 54,644 37,471 24,860 1,673 24,019
Net income (loss)(15)....................... 35,465 19,977 14,805 (338) 12,434
Net income (loss) per share(5)(15)............ $ 1.89 $ 1.04 $ .75 $ (.02) $ .62
Cash dividends declared per common share...... $ .50 $ .56 $ .56 $ .56 $ .56
Weighted average common shares and common
share equivalents outstanding(5)............ 18,735 19,183 19,822 19,973 20,016
BALANCE SHEET DATA:
Working capital............................. $122,780 $ 99,444 $ 139,461 $ 141,480 $ 115,453
Total assets................................ 323,529 354,252 549,670 665,733 805,266
Long-term debt.............................. 3,417 -- 76,487 187,935 312,679
Total stockholders' equity(15).............. 245,006 257,515 275,242 263,477 266,790
OTHER DATA:
Depreciation and amortization............... $ 12,441 $ 16,253 $ 21,375 $ 22,012 $ 24,964
Capital expenditures........................ $ 38,481 $ 34,281 $ 40,905 $ 128,237 $ 176,885
Ratio of earnings to fixed charges(6)(15)... 29.9x 36.8x 4.4x .4x 1.1x
EBITDA(7)................................... $ 68,676 $ 55,776 $ 44,806 $ 44,777 $ 51,467
Ratio of EBITDA to interest expense
(including capitalized interest).......... 49.1x 175.4x 7.9x 4.0x 2.3x
Total long-term debt as a percentage of
capitalization(8)(15)..................... 1.4% -- 21.7% 41.6% 54.0%
Tonnage sold:
Oregon Steel Division(9):
Commodity plate......................... 232,900 241,200 278,900 269,400 136,200
Specialty plate......................... 111,200 138,500 157,300 154,700 159,700
ERW pipe................................ -- 16,100 75,100 94,900 48,400
Large diameter pipe..................... 418,600 269,500 248,600 356,300 223,000
Semifinished............................ -- -- 18,400 45,400 196,200
-------- -------- ---------- ---------- ----------
Total Oregon Steel Division.......... 762,700 665,300 778,300 920,700 763,500
-------- -------- ---------- ---------- ----------
CF&I Steel Division(10):
Rail.................................... -- -- 186,200 250,500 240,700
Rod, bar and wire products.............. -- -- 346,100 379,300 271,300
Seamless pipe........................... -- -- 85,300 130,000 116,100
Semifinished............................ -- -- 7,100 5,800 12,100
-------- -------- ---------- ---------- ----------
Total CF&I Steel Division............ -- -- 624,700 765,600 640,200
-------- -------- ---------- ---------- ----------
Total Company........................ 762,700 665,300 1,403,000 1,686,300 1,403,700
========= ========= ========== ========== ==========
Average price per ton sold:
Oregon Steel Division..................... $ 642 $ 598 $ 533 $ 542 $ 534
CF&I Steel Division....................... -- -- 424 443 467(11)
Total Company........................ 642 598 485 497 504(11)
PRO FORMA DATA(12):
Operating income........................................................................ $ 24,019
Interest expense (including capitalized interest)(13)................................... $ 31,507
Net income.............................................................................. $ 7,370
Ratio of earnings to fixed charges(6)................................................... .8x
Ratio of EBITDA to interest expense (including capitalized interest).................... 1.6x
Total long-term debt as a percentage of capitalization(8)............................... 45.9%
</TABLE>
(Footnotes on following page)
10
<PAGE> 13
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
----------------------------
ACTUAL AS ADJUSTED(14)
-------- ---------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................................................. $ 644 $ 48,322
Working capital............................................................ 115,453 165,911
Total assets............................................................... 805,266 861,170
Long-term debt (excluding current portion)................................. 312,679 292,379
Stockholders' equity....................................................... 266,790 345,035
</TABLE>
- ---------------
(1) Results for 1992 include the results of operations of the Camrose Pipe Mill
from the date of its acquisition on June 30, 1992.
(2) Results for 1993 include the results of operations of the CF&I Steel
Division from the date of its acquisition on March 3, 1993.
(3) In the fourth quarter of 1994, the Company began construction of the
Combination Mill and, in connection therewith, in the third quarter of 1994
the Company recorded a non-cash, pre-tax charge of $8.9 million to reduce
the carrying value of certain plant and equipment and inventories that are
unlikely to be used following completion of the Combination Mill. The
Fontana Plate Mill ceased production in the fourth quarter of 1994 and
closed permanently in the first quarter of 1995. As a result of the
closure, the Company recognized a pre-tax loss for the disposal and exit
costs of $13.2 million in the third quarter of 1994. Also in the fourth
quarter of 1994, the Company received property tax refunds totaling $4.6
million related to prior years for the over-assessment of its Portland and
Pueblo Mills. The refunds reduced 1994 cost of sales by $3.5 million and
increased 1994 interest income by $1.1 million.
(4) Sales for 1995 include insurance proceeds of approximately $4.0 million
received in the second quarter of 1995 as reimbursement of lost profits
resulting from lost production and start-up delays at the Pueblo Mill
caused by an explosion in the third quarter of 1994. In 1995 revenues of
$26.0 million and related product costs of $26.7 million were capitalized
during construction of the rod and bar mill at the Pueblo Mill prior to
placement of the mill in service on August 1, 1995.
(5) Includes 598,400 shares of Common Stock reserved for issuance on March 3,
2003 as payment of a portion of the purchase price for the acquisition of
the CF&I Steel Division. Excludes 100,000 shares of Common Stock reserved
for issuance upon exercise of warrants, to be issued in connection with the
acquisition of the CF&I Steel Division, with an exercise price of $35 per
share. See "Capitalization."
(6) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of consolidated income (loss) before income taxes plus
fixed charges (excluding capitalized interest) and minority interest in
income of majority-owned subsidiaries with fixed charges, less minority
interest in losses of majority-owned subsidiaries. Fixed charges consist of
consolidated interest on indebtedness, including capitalized interest,
amortization of debt issue costs and that portion of rental expense deemed
to be representative of the interest factor (one-third of rental expenses).
Fixed charges exceeded earnings by $7.3 million for the year ended December
31, 1994. Pro forma fixed charges exceeded pro forma earnings by $5.9
million for the year ended December 31, 1995.
(7) EBITDA means, in general, the sum of consolidated net income (loss),
consolidated depreciation and amortization expense, consolidated interest
expense and consolidated income tax expense or benefit, excluding any
provisions for rolling mill closures and settlements of litigation. EBITDA
has been included solely because the Company understands that it is used by
certain investors as one measure of a company's historical ability to
service its debt. EBITDA is not intended to represent cash flows for the
period nor has it been presented as an alternative to operating income or
net income as an indicator of operating performance and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
(8) For purposes of this percentage, long-term debt excludes current portion,
and capitalization is defined as the sum of long-term debt plus
stockholders' equity.
(9) The Oregon Steel Division consists primarily of the operations of the
Portland Mill, the Napa Pipe Mill, the Camrose Pipe Mill and, until its
closure in November 1994, the Fontana Plate Mill.
(10) The CF&I Steel Division consists primarily of the operations of the Pueblo
Mill.
(11) Excludes insurance proceeds of approximately $4.0 million received in the
second quarter of 1995 as reimbursement of lost profits resulting from lost
production and start-up delays at the Pueblo Mill caused by an explosion
that occurred during the third quarter of 1994.
(12) Gives effect to the Refinancing as if it had occurred on January 1, 1995
except for total long-term debt as a percentage of capitalization which
gives effect to the Refinancing as if it had occurred on December 31, 1995.
The pro forma data does not purport to represent what the Company's results
of operations would have been had such transaction occurred on such date or
to project the Company's results of operations for any future period. Such
pro forma data should be read in conjunction with, and are qualified in
their entirety by reference to, the pro forma unaudited condensed
consolidated financial statements and notes thereto and other pro forma
data set forth under "Pro Forma Unaudited Condensed Consolidated Financial
Data."
11
<PAGE> 14
(13) Interest expense has been adjusted to reflect (i) interest expense on the
Notes at an assumed rate of 10% per annum, (ii) elimination of interest
expense on the Old Credit Agreement, (iii) amortization of debt issue costs
resulting from the Refinancing and (iv) capitalization of interest using
the assumed annual rate of 10% on the Notes.
(14) As adjusted to reflect (i) receipt by the Company of the estimated net
proceeds from the Offerings (assuming a public offering price of $14.00 per
share in the Common Stock Offering) and (ii) application of substantially
all of the estimated net proceeds therefrom to repay borrowings outstanding
and accrued interest under the Old Credit Agreement. See "Capitalization"
and "Pro Forma Unaudited Condensed Consolidated Financial Data."
(15) The 1994 amounts have been restated to reflect proceeds from the sale of a
10% equity interest in New CF&I, Inc., a subsidiary of the Company, as a
minority interest. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations."
12
<PAGE> 15
RISK FACTORS
Prospective investors should carefully review the risk factors set forth
below and the other information set forth and incorporated by reference in this
Prospectus.
SUBSTANTIAL INCREASE IN DIVIDEND REQUIREMENTS; LIMITATIONS ON PAYMENT OF COMMON
STOCK DIVIDENDS
The Common Stock Offering will substantially increase the number of shares
of Common Stock outstanding and the Company's dividend requirements. For the
year ended December 31, 1995, the Company paid total Common Stock dividends of
$10.9 million (based on a quarterly dividend rate of $0.14 per share) and had
net income of $12.4 million. Assuming that the Common Stock Offering and other
transactions contemplated by the Refinancing had occurred on January 1, 1995,
and giving effect to the other assumptions and adjustments described under "Pro
Forma Unaudited Condensed Consolidated Financial Data," pro forma Common Stock
dividends for 1995 would have been approximately $14.2 million (based on a
quarterly dividend rate of $0.14 per share) and pro forma net income for 1995
would have been approximately $7.4 million.
The amount of future dividends, as well as the decision to pay any
dividends, on the Common Stock will depend on the Company's results of
operations, capital requirements and financial condition and other factors the
Board of Directors deems relevant. In addition, the Amended Credit Agreement and
the indenture (the "Indenture") relating to the Notes will contain, and other
debt instruments and agreements to which the Company and its subsidiaries are or
may in the future become parties contain or may contain, restrictive covenants
and provisions that limit or could limit the amount of dividends payable by the
Company. In particular, following completion of the Offerings, the Company's
ability to pay Common Stock dividends will be limited by the covenants described
in the following paragraph. See "Description of Certain Indebtedness."
The Indenture will contain a covenant which, in general, will limit the
aggregate amount of dividends payable by the Company after the date on which the
Notes are issued (the "Issue Date") to an amount (the "Restricted Payment
Amount") equal to 50% of the Company's consolidated net income (as defined)
(calculated on a cumulative basis commencing on the first day of the fiscal
quarter in which the Notes are issued). The Indenture will contain an exception
to this covenant which will permit the payment of Common Stock dividends in an
aggregate amount of up to $25 million. To the extent the Company fully utilizes
this $25 million exception to pay dividends, however, additional Common Stock
dividends may only be paid if the amount of those dividends, when added to the
aggregate amount of all Common Stock dividends (excluding those paid pursuant to
such $25 million exception) and certain other restricted payments paid since the
Issue Date, does not exceed the Restricted Payment Amount. In that regard,
assuming the Refinancing had occurred on January 1, 1995, and giving effect to
the other assumptions and adjustments described under "Pro Forma Unaudited
Condensed Consolidated Financial Data," the pro forma Restricted Payment Amount
for the year ended December 31, 1995 would have been approximately $3.7 million,
and the pro forma amount of dividends payable on the Company's Common Stock at
the current quarterly rate of $0.14 per share would have been approximately
$14.2 million. As a result, on a pro forma basis for the year ended December 31,
1995 the Company would have been required to utilize approximately $10.5 million
of the $25 million exception to sustain its current level of Common Stock
dividends. It is anticipated that the Amended Credit Agreement will contain a
covenant which will require the Company to maintain a consolidated tangible net
worth (as defined) of not less than $232.5 million (i) plus 50% of its
consolidated net income (as defined) (without giving effect to any losses) for
each fiscal quarter beginning on or after January 1, 1996, (ii) plus the net
proceeds from equity offerings by the Company or any of its subsidiaries after
that date, including the Common Stock Offering, (iii) plus certain other
amounts. At December 31, 1995, the Company had a consolidated tangible net worth
(as expected to be defined in the Amended Credit Agreement) of approximately
$260.9 million. The effect of this covenant is substantially similar to the
effect of the Indenture restriction described above. Accordingly, these
covenants will require that the Company substantially improve its results of
operations to sustain its current level of Common Stock dividends after the
Offerings, and there is no assurance that such an improvement will occur. Absent
such an improvement, to the extent the Company has exhausted the $25 million
exception under the Indenture referred to above or the similar exception under
the Amended Credit Agreement, the Company will be required to reduce the amount
of its Common Stock dividends, which would likely have a material adverse effect
on the market price of the Common Stock. In addition, it is anticipated that the
Amended Credit Agreement will contain a covenant prohibiting the
13
<PAGE> 16
payment of any dividend if, at the time of or after giving effect to such
payment, there exists an event of default (as defined) under the Amended Credit
Agreement or an event which, with notice or lapse of time, would constitute such
an event of default.
STEEL INDUSTRY CYCLICALITY
The steel industry is cyclical in nature, and the domestic steel industry
has been adversely affected in recent years by high levels of steel imports,
worldwide production overcapacity and other factors. The Company also is subject
to industry trends and conditions, such as the presence or absence of sustained
economic growth and construction activity, currency exchange rates and other
factors. The Company is particularly sensitive to trends in the oil and gas, gas
transmission, construction, capital equipment, rail transportation, agriculture
and durable goods industries, because these industries are significant markets
for the Company's products. Further, the Company has seen substantial shrinkage
in the domestic large diameter pipe market in recent years, which has adversely
affected the Company's average price per ton of steel shipped and results of
operations beginning in 1993. These trends have led the Company to seek new
overseas markets for large diameter pipe and to seek to increase sales of its
higher quality plate products.
VARIABILITY OF FINANCIAL RESULTS
Historically, the Company's operating results have fluctuated substantially
and this variability may continue. In the past, operating results have been, and
in the future will be, affected by numerous factors, including the prices and
availability of raw materials, particularly scrap; the demand for and prices of
the Company's products; the level of competition, particularly in the western
United States and, to a lesser extent, certain Pacific Rim countries; the level
of unutilized production capacity in the steel industry; the mix of products
sold by the Company; the timing and pricing of large orders; start-up
difficulties with respect to new capital equipment; the integration and
modification of facilities acquired in acquisitions; costs associated with
closing existing facilities and other factors. Beginning in 1993, the Company's
results of operations have been adversely affected by a decline in domestic
demand for large diameter pipe. In addition, products manufactured by the Pueblo
Mill generally have lower average selling prices and gross margins than products
manufactured by the Oregon Steel Division. As a result, the acquisition of the
Pueblo Mill in March 1993 has exerted downward pressure on the Company's
operating margin per ton and average price per ton shipped. In addition,
start-up difficulties with respect to certain elements of the Company's capital
improvement program have adversely affected, and may continue to adversely
affect, the Company's results of operations. See "-- Start-Up Difficulties."
There is no assurance that these events and circumstances will not continue
or that other events or circumstances, such as an economic downturn adversely
affecting the steel industry generally or the Company in particular, will not
occur, any of which could have a material adverse effect on the Company.
START-UP DIFFICULTIES
The Company experienced significant delays and operational difficulties in
bringing the new rod and bar mill at the Pueblo Mill up to full production
capacity, which required the CF&I Steel Division to operate its steelmaking and
casting facilities, as well as the new rod and bar mill, at substantially below
full capacities during much of 1995. Although the Company believes these
difficulties and delays are typical of those encountered when commissioning
major pieces of capital equipment and that the Pueblo Mill will reach full
production capacity in the third quarter of 1996, the Company may continue to
experience difficulties with this mill that could adversely affect its results
of operations. In addition, the Company may experience similar start-up
difficulties and delays with respect to the Combination Mill and other capital
improvements, which could interrupt or reduce production and materially
adversely affect its results of operations.
FUNDING FOR THE CAPITAL IMPROVEMENT PROGRAM
The Company's capital improvement program contemplates capital expenditures
at the Portland and Pueblo Mills of approximately $93 million (excluding
capitalized interest) for 1996 and 1997, and also contemplates expenditures of
up to $12 million in 1996 and 1997 for investments in raw material ventures
intended to reduce dependence on scrap steel. The Company is also continuing
various upgrade and maintenance projects for which it has budgeted approximately
$41 million for 1996 and 1997; the cost of these
14
<PAGE> 17
upgrade and maintenance projects is in addition to amounts budgeted for the
capital improvement program. Completion of the capital improvement program and
these other projects will require the continued availability of funds from
operations and borrowings under the Amended Credit Agreement. The availability
of borrowings under the Amended Credit Agreement will require the Company to
comply with the financial and other covenants therein. See "-- Leverage and
Access to Funding; Compliance with Financial Covenants." As a result, there is
no assurance that borrowings will be available under the Amended Credit
Agreement or that sufficient funds otherwise will be available to complete the
capital improvement program or to make other capital expenditures as planned.
Failure to obtain required funds would delay or prevent some portions of the
capital improvement program and other capital expenditures from being initiated
or completed, which could have a material adverse effect on the Company.
Completion of the capital improvement program is subject to a number of
additional uncertainties, and there is no assurance that the program will be
completed as planned or at costs currently budgeted. See "-- Potential Delay in
Completion of Capital Improvement Program," "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Business -- Capital Improvement Program."
The Company's business is capital intensive and will likely require
substantial expenditures (in addition to those discussed above) for, among other
things, the purchase and maintenance of equipment used in its steelmaking and
finishing operations, and there is no assurance the Company will have adequate
sources of funds for any such future capital expenditures, which could have a
material adverse effect on the Company.
LEVERAGE AND ACCESS TO FUNDING; COMPLIANCE WITH FINANCIAL COVENANTS
Upon completion of the Offerings, the Company will have significant amounts
of outstanding indebtedness and increased interest expense. At December 31,
1995, on a pro forma basis after giving effect to the Offerings and the
repayment of amounts outstanding under the Old Credit Agreement, the Company
would have had total liabilities of $480.5 million, total long-term debt
(excluding current portion) of $292.4 million, total assets of $861.2 million
and stockholders' equity of $345.0 million, and the Company's percentage of
long-term debt to total capitalization (defined as total long-term debt (less
current portion) plus total stockholders' equity) would have been approximately
45.9%. See "Pro Forma Unaudited Condensed Consolidated Financial Data." Assuming
the Refinancing had occurred on January 1, 1995, the Company's pro forma ratio
of earnings to fixed charges would have been 0.8 to 1 for the year ended
December 31, 1995. See Note 3 to "Pro Forma Unaudited Condensed Consolidated
Financial Data." Moreover, the Company and its subsidiaries will be permitted,
subject to restrictions in their debt instruments, to incur additional
indebtedness in the future. The Company's level of indebtedness presents risks
to investors, including the possibility that the Company and its subsidiaries
may be unable to generate cash sufficient to pay principal of and interest on
their indebtedness when due.
The Company's debt instruments require, and the Amended Credit Agreement
and the Indenture will require, that the Company and its subsidiaries comply
with various financial tests and impose and will impose restrictions affecting,
among other things, the ability of the Company and its subsidiaries to incur
additional indebtedness, create liens on assets, make loans or investments, pay
dividends and effect other corporate actions. In that regard, the Company
anticipates that, following the Refinancing, it will not meet the minimum pro
forma consolidated fixed charge coverage ratio (as defined) required by the
Indenture for the incurrence of additional indebtedness and, unless its results
of operations improve, the Company will be prohibited by the Indenture from
incurring additional indebtedness other than under the Amended Credit Agreement
and subject to certain additional exceptions. The level of the Company's
indebtedness and the restrictive covenants contained in its debt instruments,
including the Notes and the Amended Credit Agreement, could significantly limit
the operating and financial flexibility of the Company and its ability to
respond to competitive pressures or adverse industry conditions. In addition,
this level of indebtedness and these covenants, as well as the pledge of
substantially all of the assets of the Company and its subsidiaries to
collateralize borrowings under the Notes, the Amended Credit Agreement and the
$18 million (in Canadian dollars ("Cdn.$")) credit facility (the "Camrose Credit
Facility") maintained by Camrose, a 60% owned subsidiary which owns the Camrose
Pipe Mill, will likely limit significantly the Company's ability to obtain
additional financing or make the terms of any financing which may be obtained
less favorable.
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The amount of the Company's borrowings which may be outstanding under the
Amended Credit Agreement at any time will be limited to a specified percentage
of its eligible accounts receivable and eligible inventory. Moreover, the
Company's ability to borrow under the Amended Credit Agreement will require its
compliance with financial and other covenants contained therein. See
"Description of Certain Indebtedness." As of September 30, 1995 and December 31,
1995, the Company obtained amendments to the Old Credit Agreement to, among
other things, modify the interest coverage ratio covenant and certain other
restrictive covenants and to facilitate the Company in pursuing other or
additional financing alternatives. The amendments were needed for the Company to
remain in compliance with certain financial covenants in the Old Credit
Agreement in light of lower than anticipated earnings and higher than
anticipated borrowing requirements. Compliance with the terms of the Amended
Credit Agreement, which also will contain certain restrictive financial
covenants and other customary terms, will depend upon an improvement in the
Company's results of operations, including improved performance by the Pueblo
Mill. There is no assurance these improvements will occur and, if they do not,
the Company could be required to obtain amendments or waivers under the Amended
Credit Agreement to avoid a default and obtain future borrowings thereunder.
There is no assurance that any such amendment or waiver could be obtained on
terms satisfactory to the Company, if at all. In the event of a default under
the Amended Credit Agreement or the Indenture, or if the Company or its
subsidiaries are unable to comply with covenants contained in other debt
instruments or to pay their indebtedness when due, the holders of such
indebtedness generally will be able to declare all indebtedness owing them to be
due and payable immediately and, in the case of collateralized indebtedness, to
proceed against their collateral. In addition, default on one debt instrument
could in turn permit lenders under other debt instruments to declare borrowings
outstanding thereunder to be due and payable pursuant to cross-default clauses.
As a result, any default by the Company or any of its subsidiaries under any of
their respective debt instruments or credit facilities would likely have a
material adverse effect on the Company. Furthermore, the Amended Credit
Agreement will bear, and the Camrose Credit Facility bears, interest at variable
interest rates. Accordingly, increases in the applicable interest rates may
adversely affect the Company's cost of capital.
If the Company and its subsidiaries remain in compliance with the terms of
their respective credit facilities and debt instruments, the Company believes
its anticipated cash needs for currently budgeted capital expenditures and for
working capital through the end of 1996 will be met from the net proceeds of the
Offerings, borrowings under the credit facilities, existing cash balances and
funds generated by operations. There is no assurance, however, that the amounts
available from these sources will be sufficient for such purposes. In that
event, or for other reasons, the Company may be required to seek additional
financing, which may include additional bank financing and debt or equity
securities offerings. There is no assurance that such sources of funding will be
available if required or, if available, will be on terms satisfactory to the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
POTENTIAL DELAY IN COMPLETION OF CAPITAL IMPROVEMENT PROGRAM
Completion of the capital improvement program, including the Combination
Mill at the Portland Mill, is subject to a number of uncertainties, including
the need for borrowings under the Amended Credit Agreement and completion of the
design and construction of the facilities. The Company experienced significant
delays and difficulties in bringing new capital equipment at its Pueblo Mill up
to production capacity (see "-- Start-Up Difficulties"); and there is no
assurance that the Company will not experience delays and difficulties with
respect to the Combination Mill or other capital expenditure projects, which
could include substantial construction or production interruptions and the
diversion of resources from the Company's other facilities. There is no
assurance that the capital improvement program can be completed in a timely
manner or for the amounts budgeted. Failure to complete, or a substantial
disruption or delay in completing, the projects included in the program, or a
substantial increase in the cost of these projects, could have a material
adverse effect on the Company.
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UNCERTAINTY OF BENEFITS OF CAPITAL IMPROVEMENT PROGRAM; INCREASE IN INTEREST AND
DEPRECIATION EXPENSE
The ability of the Company to achieve the anticipated cost savings,
operating efficiencies, yield improvements and other benefits from the capital
improvement program is subject to significant uncertainties, many of which are
beyond the control of the Company. There is no assurance that such anticipated
cost savings or yield improvements or other benefits will be realized or that
sufficient demand will exist for the products that can be produced as a result
of the planned improvements, any of which could have a material adverse effect
on the Company and, in particular, its ability to comply with financial
covenants in the Amended Credit Agreement. See "-- Leverage and Access to
Funding; Compliance with Financial Covenants" and "Business -- Capital
Improvement Program."
The capital improvement program will have other effects on the Company's
results of operations. In particular, the Company will have a substantial
increase in interest costs due to the debt incurred to finance the program,
including the debt incurred in the Notes Offering, and a substantial increase in
depreciation expense. In addition, a substantial portion of the Company's
interest costs have been and are being capitalized during the construction phase
of the capital improvement program. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Comparison of 1995 to
1994 -- Interest Expense." As the related projects under the capital improvement
program are completed, ongoing interest costs will be expensed (rather than
capitalized), which will substantially increase the interest expense reflected
on the Company's financial statements. In connection with the Refinancing, the
Company will terminate certain interest rate swap agreements related to the Old
Credit Agreement, which will result in an estimated cash payment by the Company
of approximately $1.9 million and a related pre-tax charge against income in the
same amount, based on prevailing market interest rates as of December 31, 1995.
See "Pro Forma Unaudited Condensed Consolidated Financial Data." The Company
also anticipates that it will incur start-up and transition costs as projects
are initiated, completed and implemented.
AVAILABILITY AND COST OF RAW MATERIALS
The Company's principal raw material for the Portland and Pueblo Mills is
ferrous scrap metal derived from, among other sources, junked automobiles,
railroad cars and railroad track materials and demolition scrap from obsolete
structures, containers and machines. In addition, hot briquetted iron ("HBI")
can substitute for a limited portion of the scrap used in minimill steel
production, although the sources and availability of HBI are substantially more
limited than those of scrap. The purchase prices for scrap and HBI are subject
to market forces largely beyond the control of the Company, including demand by
domestic and foreign steel producers, freight costs, speculation by scrap
brokers and other conditions. The cost of scrap and HBI to the Company can vary
significantly, and product prices often cannot be adjusted, especially in the
short term, to recover the costs of increases in scrap or HBI prices. To the
extent higher scrap or HBI prices cannot be passed through in the form of higher
steel prices, significant increases in scrap or HBI prices may have a material
adverse effect on the Company. To date, the Company has purchased substantially
all of the HBI it has used from a single source, but it has no long-term
contracts for material amounts of HBI, and there is no assurance it will be able
to obtain satisfactory quantities of HBI in the future. See "Business -- Raw
Materials."
The Company purchases semi-finished steel slabs to supplement its steel
production capacity and enable it to produce steel plate in thicknesses greater
than three inches. Generally, the Company has been able to adjust product prices
in response to increases in slab prices. The world demand for slab can, however,
significantly affect its purchase price, and there is no assurance the Company
will be able to adjust product prices to offset any future increases in slab
prices. Although the Company purchased significant quantities of slabs in the
first six months of 1994, it was a net seller of slabs throughout 1995. The
Company anticipates, however, that it will need to purchase slab from outside
suppliers when the Combination Mill is completed and fully operational
(currently anticipated in the third quarter of 1997).
The Portland Mill is able to roll plate in widths up to 103 inches, which
enables the Company's Napa Pipe Mill to make pipe in diameters of up to 30
inches. Since the closure of the Fontana Plate Mill in the fourth quarter of
1994, the Company has been required to seek outside sources of plate to
manufacture pipe in
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diameters greater than 30 inches. There is no assurance that the Company will be
able to obtain such plate at prices which enable it to compete effectively in
the market for large diameter pipe, which could have a material adverse effect
on the Company. After the Combination Mill is completed and fully operational,
the Company will be able to produce plate in widths sufficient to enable the
Napa Pipe Mill to manufacture pipe in diameters of up to 42 inches.
COMPETITION
Competition within the steel industry is intense. The Company competes
primarily on the basis of product quality, price and responsiveness to customer
needs. Many of the Company's competitors are larger and have substantially
greater capital resources, more modern technology and lower labor and raw
material costs than the Company. In addition, a new minimill in Arizona and an
upgraded minimill in Oregon are expected to commence production of rod and bar
products in the near future. The Company expects increased competition as these
competitors commence and increase production. Moreover, U.S. steel producers
have historically faced significant competition from foreign producers, although
the weakness of the U.S. dollar relative to certain foreign currencies has
dampened this competition in the United States in recent years. The highly
competitive nature of the industry, combined with excess production capacity in
some products, may in the future exert downward pressure on prices for certain
of the Company's products. There is no assurance that the Company will be able
to compete effectively in the future.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local environmental laws and
regulations concerning, among other things, wastewater, air emissions, toxic use
reduction and hazardous materials disposal. The Portland and Pueblo Mills are
classified in the same manner as other similar steel mills in the industry as
generating hazardous waste materials because the melting operation produces dust
that contains heavy metals. The Company owns or has owned properties and
conducts or has conducted operations at properties which have been assessed as
contaminated with hazardous or other controlled substances or as otherwise
requiring remedial action under federal, state or local environmental laws or
regulations. At December 31, 1995, the Company's financial statements reflected
total liabilities of $38.1 million to cover future costs arising from
environmental issues relating to these properties. The Company's actual future
expenditures, however, for installation of and improvements to environmental
control facilities, remediation of environmental conditions existing at its
properties and other similar matters cannot be conclusively determined.
Environmental legislation and regulations and related administrative policies
have changed rapidly in recent years. It is likely that the Company will be
subject to increasingly stringent environmental standards in the future
(including those under the Clean Air Act Amendments of 1990, the Clean Water Act
Amendments of 1990 stormwater permit program and toxic use reduction programs)
and will be required to make additional expenditures, which could be
significant, relating to environmental matters on an ongoing basis. Furthermore,
although the Company has established reserves for environmental remediation,
there is no assurance regarding the cost of remedial measures that might
eventually be required by environmental authorities or that additional
environmental hazards, requiring further remedial expenditures, might not be
asserted by such authorities or private parties. Accordingly, the costs of
remedial measures may exceed the amounts reserved. In addition, the Company may
be subject to legal proceedings brought by private parties or governmental
agencies with respect to environmental matters. There is no assurance that
expenditures or proceedings of the nature described above, or other expenditures
or liabilities resulting from hazardous substances located on the Company's
property or used or generated in the conduct of its business, or resulting from
circumstances, actions, proceedings or claims relating to environmental matters,
will not have a material adverse effect on the Company. See
"Business -- Environmental Matters."
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RANKING; HOLDING COMPANY STRUCTURE
The Notes will be unsubordinated obligations of the Company and the
Guarantees will be unsubordinated obligations of the Guarantors. The Notes and
the Guarantees will rank pari passu in right of payment with all existing and
future unsubordinated indebtedness of the Company and the Guarantors,
respectively, except to the extent of any collateral which may be pledged to
secure such other indebtedness. After giving effect to the Offerings, the
Mergers and the application of the estimated net proceeds therefrom as if all
such transactions had occurred on December 31, 1995, the Company and the
Guarantors would have had, in addition to the Notes and excluding intercompany
liabilities, $229 million of consolidated liabilities, including $50.7 million
of unsecured consolidated long-term debt (excluding current portion of $4.6
million).
The Notes will be effectively subordinated to all existing and future
liabilities (whether or not for borrowed money) of the Company to the extent of
any assets serving as collateral for such liabilities and each Guarantee
likewise will be effectively subordinated to all existing and future liabilities
(whether or not for borrowed money) of the respective Guarantors to the extent
of any assets serving as collateral for such liabilities. In that regard,
borrowings and other obligations under the proposed $125 million Amended Credit
Agreement will be secured by a first priority lien on the Bank Collateral (as
defined under "Description of the Notes -- Certain Definitions"), which will
initially include accounts receivable and inventory (and books and records
related thereto) of the Company, New CF&I and CF&I (and may in the future
include accounts receivable and inventory and related books and records of other
subsidiaries of the Company) and the Notes and the Guarantees will therefore be
effectively subordinated to indebtedness and other obligations under the Amended
Credit Agreement to the extent of the Bank Collateral. In addition, the
Indenture will permit the Company and the Guarantors to create liens on certain
of their assets, including liens securing purchase money indebtedness, and the
Notes and the Guarantees will also be effectively subordinated to such purchase
money indebtedness and other obligations secured by such liens. See the
definition of "Permitted Liens" under "-- Certain Definitions".
Although the Portland Mill and the Napa Pipe Mill are owned by the Company
directly, the Company conducts substantially all of its other operations through
subsidiaries, effectively subordinating the Notes to all existing and future
liabilities (whether or not for borrowed money) of the Company's subsidiaries
which are not Guarantors. Therefore, the Company's rights and the rights of its
creditors, including holders of the Notes, to participate in the assets of any
subsidiary upon the latter's liquidation or recapitalization will be subject, in
the case of any subsidiary which is not a Guarantor, to the prior claims of such
subsidiary's creditors, except to the extent that the Company itself may be a
creditor with recognized claims against the subsidiary, in which case the claims
of the Company would still be effectively subordinated to any mortgage or other
liens on the assets of such subsidiary and would be subordinate to any
indebtedness of such subsidiary senior to that held by the Company. After giving
effect to the Offerings, the Mergers and the application of the estimated net
proceeds therefrom as if such transactions had occurred on December 31, 1995,
subsidiaries of the Company which are not Guarantors would have had, excluding
liabilities owed to the Company, $16.8 million of consolidated liabilities. This
debt would have included Cdn.$9.2 million of borrowings by Camrose (the
subsidiary which owns the Camrose Pipe Mill and which will not be a Guarantor)
outstanding under the Cdn. $18 million Camrose Credit Facility which is secured
by Camrose's assets. In addition, borrowings and other obligations under the
Company's proposed Amended Credit Agreement will initially be guaranteed by New
CF&I and CF&I (the "Bank Guarantors"), will be secured by the Bank Collateral
and otherwise will rank pari passu in right of payment with the Guarantees, and
may in the future be guaranteed by other subsidiaries of the Company.
Accordingly, there can be no assurance that, after providing for all prior
claims and all pari passu claims, there would be sufficient assets available to
satisfy the obligations of the Company and the Guarantors under the Notes and
the Guarantees.
Because the Company conducts substantial operations through its
subsidiaries, the Company is and will be dependent upon the distribution of the
earnings of its subsidiaries, whether in the form of dividends, advances or
payments on account of intercompany obligations, to service its debt
obligations, including the Notes. In that regard, at December 31, 1995,
intercompany indebtedness of approximately $182 million was owed to the Company
by CF&I. The Company's subsidiaries are separate and distinct legal entities
and, except for the Guarantors, have no obligation, contingent or otherwise, to
pay any amounts due on the Notes or to make any funds available therefor. In
addition, dividends, loans and advances from certain subsidiaries of
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the Company are subject to contractual or other restrictions, are contingent
upon results of operations of such subsidiaries and are subject to various
business considerations. See "Description of Certain Indebtedness".
Certain of the Company's subsidiaries (including CF&I, Camrose and New
CF&I) are not wholly-owned. As a result, the Company may owe a fiduciary duty to
the holders of minority interest in those subsidiaries and may therefore be
unable to exercise unfettered control of such subsidiaries. See "Description of
the Notes--Ranking; Holding Company Structure".
CERTAIN LIMITATIONS ON THE COLLATERAL AND THE GUARANTEES
The Notes will be obligations of the Company and will be guaranteed,
jointly and severally, by the Guarantors. The Company will secure its
obligations under the Notes by the pledge of certain of its assets, and each
Guarantor will secure its respective obligation under its Guarantee by the
pledge of certain of its assets. However, the Collateral (as defined under
"Description of the Notes -- Certain Definitions") securing the Notes and the
Guarantees will not include, among other things, (i) inventory and accounts
receivable and books and records related thereto (which will be pledged to
secure the obligations under the Amended Credit Agreement), (ii) any partnership
interests in CF&I or Camrose or any capital stock of (or other equity interests
in) New CF&I or any other subsidiary of the Company, (iii) any intercompany
indebtedness or (iv) any Excluded Assets (as defined). Excluded Assets include,
among other things, (i) assets encumbered by purchase money liens, (ii) the
existing steel plate rolling mill at the Portland Mill (but only after it has
been replaced by the Combination Mill), (iii) the old rod mill at the Pueblo
Mill (which has been replaced by the new rod and bar mill), (iv) the steel plate
rolling mill at the Fontana Plate Mill (which has been closed and is being
dismantled), (v) approximately 74 acres of real property adjacent to the site of
the Portland Mill (together with all buildings, improvements and fixtures
thereon and all leases, rents and other rights relating to such real property or
to such buildings, improvements or fixtures), (vi) the approximately 450,000
square foot tube mill building at the Pueblo Mill (which building is not being
used by the Company) known as Tube Mill No. 2, approximately 35 acres of land on
which such building and related parking and storage areas are situated, and
related non-exclusive rights to or easements for access and utilities, together
with all related fixtures and all proceeds, leases, rents and other rights
relating to such real property, building and fixtures, (vii) certain motor
vehicles and mobile equipment (including mobile cranes, loaders, forklifts,
trailers, backhoes, towmotors and graders) owned by CF&I, and (viii) all other
motor vehicles. With respect to the rights and easements referred to in clause
(vi) of the preceding sentence, such easements will run across real property at
the Pueblo Mill pledged by CF&I as Collateral for its Guarantee, and the Trustee
will not be entitled to terminate such rights or easements in the event of a
foreclosure of the Mortgage (as defined under "Description of the
Notes -- Certain Definitions") granted by CF&I. Furthermore, New CF&I is a
holding company whose only material assets consist of the general partnership
interest in CF&I and the capital stock of Colorado & Wyoming Railway Company, a
subsidiary, none of which will be pledged as collateral for its Guarantee. As a
result, the Guarantee of New CF&I will initially not be secured by any assets
and will only be secured if and to the extent that New CF&I acquires any real
property, buildings, equipment or certain other types of assets(other than
accounts receivable and inventory and books and records related thereto, capital
stock of or partnership interests in subsidiaries, intercompany indebtedness and
other Excluded Assets) in the future.
A number of the Company's subsidiaries will not guarantee the Notes or
pledge any collateral to secure the Notes or the Guarantees. In particular,
Camrose, the subsidiary which owns the Camrose Pipe Mill, and Camrose Pipe
Corporation ("CPC"), a wholly-owned subsidiary of the Company through which the
Company holds its 60% general partnership interest in Camrose, will not be
Guarantors. In the aggregate, the Company's subsidiaries which will not be
Guarantors (including Camrose and CPC) accounted for approximately 6% of the
Company's consolidated total assets and approximately 8% of the Company's
consolidated sales as of and for the year ended December 31, 1995, respectively.
See "Description of the Notes -- Guarantees" and "Description of the
Notes -- Security".
No appraisals of any of the Collateral have been prepared by or on behalf
of the Company in connection with this offering. The consolidated book value
(net of depreciation) of the property, plant and equipment included in the
Collateral as of December 31, 1995 was approximately $468 million. The value of
the
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Collateral in the event of a liquidation will depend upon market and economic
conditions, the availability of buyers and similar factors. Accordingly, there
can be no assurance that the proceeds of any sale of the Collateral following an
Event of Default (as defined under "Description of the Notes -- Certain
Definitions") with respect to the Notes would be sufficient to satisfy, or would
not be substantially less than, payments due on the Notes. If the proceeds of
any sale of the Collateral were not sufficient to repay all amounts due on the
Notes, the holders of the Notes (to the extent not repaid from the proceeds of
the sale of the Collateral) would have only an unsecured claim against the
remaining assets of the Company and, subject to the limitations referred to
below under "Risk Factors -- Fraudulent Conveyance Issues", the Guarantors. See,
also, "Risk Factors -- Ranking; Holding Company Structure". By its nature, some
or all of the Collateral will be illiquid and may have no readily ascertainable
market value. Likewise, there is no assurance that the Collateral will be
saleable or, if saleable, that there will not be substantial delays in its
liquidation. To the extent that liens, rights and easements granted to third
parties encumber assets located on property owned by the Company or any
Guarantor, such third parties have or may exercise rights and remedies with
respect to the property subject to such liens that could adversely affect the
value of the Collateral located at such site and the ability of the trustee (the
"Trustee") under the Indenture or the holders of the Notes to realize or
foreclose on Collateral at such site.
The collateral release provisions of the Indenture permit the release of
Collateral without the substitution of additional collateral under certain
circumstances. See "Description of the Notes -- Security."
The right of the Trustee to repossess and dispose of the Collateral upon
the occurrence of an Event of Default under the Indenture is likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy case were to
be commenced by or against the Company or any of its subsidiaries (including any
Guarantor) prior to the Trustee having repossessed and disposed of the
Collateral and, in the case of real property Collateral, could also be
significantly impaired by restrictions under state law. See "Risk
Factors -- Certain Limitations under State Law" and "Risk Factors -- Certain
Bankruptcy Limitations".
Prior to the consummation of the offering made hereby, the Trustee, on
behalf of the holders of Notes, will enter into an intercreditor agreement (the
"Intercreditor Agreement") with the agent for the banks under the Amended Credit
Agreement. The Intercreditor Agreement will provide, among other things, that
following the commencement of any action to enforce the rights of holders of the
Notes, the bank agent may enter upon all or any portion of the premises of the
Company or any of its subsidiaries, use the Collateral to the extent necessary
to complete the manufacture of inventory, collect accounts receivable and
remove, sell or otherwise dispose of the Bank Collateral. The right of the bank
agent to enter the premises and use the Collateral as aforesaid could delay
liquidation of the Collateral.
The Mortgage to be entered into by CF&I will cover real property owned by
CF&I in Pueblo County and Fremont County, Colorado. Of this real property,
approximately 2,075 acres (including the land on which the Pueblo Mill and
related rail welding facility are located) will be surveyed and will be insured
under a mortgage title insurance policy which will have survey coverage insuring
against defects in title which would be disclosed by a survey and which are not
shown either by the survey or by the relevant public records. The remaining
approximately 14,470 acres will not be surveyed and therefore will be insured
under a mortgage title insurance policy with survey exceptions. In general, a
mortgage title insurance policy with survey exceptions will not cover easements,
encroachments and other similar matters which would have been reflected on a
survey and, because no survey has been prepared for this portion of the
property, there can be no assurance that this title insurance policy or the
Mortgage which it purports to insure will in fact cover the real property,
buildings, fixtures and improvements which the Company believes it covers, any
of which could have a material adverse effect on the value of the Collateral.
CERTAIN LIMITATIONS UNDER STATE LAW
The Notes, because they will be secured in part by liens on certain real
property (including improvements) at the Napa Pipe Mill, which is located in
California, may be subject to California's "one form of action rule" and
"anti-deficiency laws", among other laws applicable to real property collateral.
Section 726 of the California Code of Civil Procedure provides that "[t]here can
be but one form of action for the recovery of any debt or the enforcement of any
right secured by mortgage upon real property". Under judicial decisions
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construing that statute, a creditor secured by a mortgage or deed of trust (i)
must first exhaust all of its real property collateral in California if it
wishes to preserve a claim against the debtor for a deficiency and (ii) may be
required to realize upon its real property collateral before it may exercise
other remedies. If the secured creditor obtains a personal judgment on the debt
before exhausting its real property collateral in California, the secured
creditor may lose its lien on the real property collateral located in
California. Similarly, if the secured creditor employs another form of action in
an attempt to realize upon assets of the debtor, such as exercising a right of
set-off against funds of the debtor that are on deposit with the secured
creditor, the secured creditor may lose both its lien on the real property
located in California and its right to obtain a judgment for the portion of the
obligation remaining unpaid after such action.
Section 580d of the California Code of Civil Procedure provides that "[n]o
judgment shall be rendered for any deficiency upon a note secured by a deed of
trust or mortgage upon real property . . . in any case in which the real
property . . . has been sold by the mortgagee or trustee under power of sale
contained in the mortgage or deed of trust". Accordingly, if a secured creditor
wishes to preserve its claim against the debtor for any deficiency, it may be
required to first proceed by judicial foreclosure (rather than a non-judicial
foreclosure sale) against the real property collateral located in California.
Under Section 726 of the California Code of Civil Procedure, the amount of any
deficiency will, in general, be based upon the amount of secured indebtedness
less an amount equal to the court's determination of the fair value of the real
property collateral (and not the amount realized upon the sale of that
collateral in the foreclosure proceeding) unless the amount realized in such
foreclosure proceeding is greater than such fair value.
Under Oregon law a creditor holding a trust deed on real property may
enforce the lien of the trust deed through a judicial foreclosure or a
non-judicial sale. Oregon law provides, however, that if the creditor proceeds
by nonjudicial sale, the creditor may not thereafter enforce any unpaid portion
of the indebtedness as a personal liability of the debtor, although the creditor
would be entitled to proceed against any other collateral pledged as security
for the debt. Accordingly, any election by the Trustee to proceed by
non-judicial sale of real property Collateral located in Oregon (such as the
real property and improvements at the Portland Mill) could preclude recourse by
the Trustee or the holders of the Notes against the Company or the other
Guarantors as unsecured creditors.
The Notes and the Guarantees will be secured by, among other things, real
property and improvements located in California, Oregon and Colorado. The
applicability of the foregoing provisions of California or Oregon law to real
property located in other states is uncertain. A California court could take the
position that legal proceedings brought against the Company or a Guarantor in
Oregon, Colorado or another state could violate the one form of action rule and
anti-deficiency laws of California, with the consequences described above. In
the event that a California court were to take such position, it could have a
material adverse effect on the ability of holders to collect amounts due under
the Notes following an Event of Default under the Indenture.
Under Colorado law, a deed of trust to a public trustee covering real
property (including improvements) located in Colorado (such as the Mortgage
which CF&I will grant on certain real property and improvements at the Pueblo
Mill to secure its Guarantee) may be foreclosed through a sale by the public
trustee only if it secures an "evidence of debt." The Company does not believe
that there has been any definitive judicial interpretation of what constitutes
an "evidence of debt" under the applicable Colorado statute and, as a result, no
assurance can be given that CF&I's Guarantee would be found to constitute such
an "evidence of debt" or that the Mortgage on the real property, buildings,
improvements and fixtures at the Pueblo Mill could be foreclosed through a sale
by a public trustee following an event of default under the Indenture. If such
Mortgage cannot be foreclosed through sale by a public trustee, foreclosure must
be made through a judicial foreclosure, which can take considerably longer than
the sale by a public trustee. To seek to address the foregoing concerns, CF&I
will deliver to the Trustee a promissory note (the "CF&I Note") evidencing its
obligations under its Guarantee; however, no assurance can be given that the
CF&I Note would be found to constitute an "evidence of debt" within the meaning
of the applicable Colorado statute.
In addition, under Colorado law, in order to release or to foreclose a deed
of trust to a public trustee which secures an "evidence of debt," the holder of
the debt secured thereby must file with the public trustee,
22
<PAGE> 25
among other things, the original "evidence of debt." As a result, if the Notes
(rather than, or in addition to, the CF&I Note) are deemed to constitute the
"evidence of debt," the statute would require holders of the Notes to deliver
the original Notes (or a corporate surety bond in lieu thereof) in order to
foreclose or release the Mortgage granted by CF&I on the real property and
improvements at the Pueblo Mill. To seek to address the foregoing concern, the
Notes will initially be represented by one or more global Notes which the
Trustee could present to the public trustee in connection with a release or
foreclosure of the Mortgage. See "Description of the Notes -- Depository."
CERTAIN BANKRUPTCY LIMITATIONS
The right of the Trustee to repossess and dispose of the Collateral upon
the occurrence of an Event of Default under the Indenture is likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy case were to
be commenced by or against the Company or its subsidiaries (including any of the
Guarantors) prior to the Trustee having repossessed and disposed of the
Collateral. Under Title 11 of the United States Code (the "Bankruptcy Code"), a
secured creditor such as the Trustee is prohibited from repossessing its
security from a debtor in a bankruptcy case, or from disposing of security
repossessed from such debtor, without bankruptcy court approval. Moreover, the
Bankruptcy Code permits the debtor to continue to retain and to use collateral
even though the debtor is in default under the applicable debt instruments,
provided that the secured creditor is given "adequate protection". The meaning
of the term "adequate protection" may vary according to circumstances, but it is
intended in general to protect the value of the secured creditor's interest in
the collateral and may include cash payments or the granting of additional
security, if and at such times as the court in its discretion determines, for
any diminution in the value of the collateral as a result of the stay of
repossession or disposition or any use of the collateral by the debtor during
the pendency of the bankruptcy case. Generally, adequate protection payments, in
the form of interest or otherwise, are not required to be paid by a debtor to a
secured creditor unless the bankruptcy court determines that the value of the
secured creditor's interest in the collateral is declining during the pendency
of the bankruptcy case. In view of the lack of a precise definition of the term
"adequate protection" and the broad discretionary powers of a bankruptcy court,
it is impossible to predict how long payments under the Notes or the Guarantees
could be delayed following commencement of a bankruptcy case, whether or when
the Trustee could repossess or dispose of the Collateral or whether or to what
extent holders of the Notes would be compensated for any delay in payment or
loss of value of the Collateral through the requirement of "adequate
protection".
FRAUDULENT CONVEYANCE ISSUES
The obligations of each Guarantor under its Guarantee and the grant by each
Guarantor of a lien on certain of its assets to secure its obligations
thereunder may be subject to review under various laws for the protection of
creditors, including, without limitation, laws governing fraudulent conveyances
and transfers. In general, under such laws, if it were found that such
Guarantor, in entering into its Guarantee or granting such lien, had received
less than a reasonably equivalent value therefor and such Guarantor (i) was
insolvent, (ii) was rendered insolvent thereby, (iii) was engaged or about to
engage in a business or transaction for which its remaining unencumbered assets
constituted unreasonably small capital or (iv) intended to incur or believed (or
reasonably should have believed) it would incur debts beyond its ability to pay
as such debts matured, a court could avoid such Guarantor's obligations under
its Guarantee and its grant of the lien on its assets pledged as security for
its Guarantee, and could direct the return of any payments made by such
Guarantor under its Guarantee to such Guarantor or to a fund for the benefit of
its creditors. Moreover, regardless of the factors identified in the foregoing
clauses (i) through (iv), a court could avoid such obligation and such lien, and
direct such repayment, if it found that a Guarantor's Guarantee was entered into
or the lien on its assets was granted with an actual intent to hinder, delay or
defraud its creditors. To the extent that the obligations of any Guarantor under
its Guarantee or the lien on its assets granted by any Guarantor were held to be
unenforceable as a fraudulent conveyance or transfer or for any other reason,
the holders of Notes would cease to have any direct claim in respect of such
Guarantor, and also would cease to have any lien on the assets of such
Guarantor, and would be solely creditors of the Company and any Guarantor whose
obligations under its Guarantee were not avoided or held unenforceable. In an
attempt to avoid this result, the Indenture under which the Notes and the
Guarantees will be issued will contain a savings clause that limits the amount
of each Guarantor's obligations under its Guarantee to the maximum amount as
will result in the
23
<PAGE> 26
obligations of such Guarantor under its Guarantee not constituting a fraudulent
transfer or conveyance. Such amount could be substantially less than the
obligations on the Notes. In addition, any limitation on the state of the law is
currently unclear as to whether and under what circumstances the obligation to
remediate or the liability for remediation costs could be imposed on a secured
lender. Under CERCLA, a lender may be liable as an "owner or operator" of a
mortgaged property for such remediation obligation or such remediation costs if
such lender or its agents or employees have participated in the management of
the operations of the mortgagor, even though the environmental damage or threat
was caused by a prior owner, current owner or operator other than the lender, or
other third party. Excluded from CERCLA's definition of "owner or operator",
however, is a person "who without participating in the management of the
facility, holds indicia of ownership primarily to protect his security interest"
(the "secured-creditor exemption"). The secured-creditor exemption protects a
holder of a security interest such as a secured lender, but generally only to
the extent that the holder of the security interest is acting to protect its
security interest in the facility or property. If a lender's activities begin to
encroach on the actual management of such facility or property, the lender faces
potential liability as an "owner or operator" under CERCLA. Similarly, when a
lender forecloses and takes title to a contaminated facility or property, the
lender may incur potential CERCLA liability in various circumstances, including
among others, when it holds the facility or property as an investment (including
leasing the facility or property to a third party), fails to market the property
in a timely fashion or fails to properly address environmental conditions at the
property or facility.
Under the laws of certain states, failure to perform certain remediation
required or demanded by the state may give rise to a lien on the property to
ensure the reimbursement of the costs of such remediation (a "Superlien"). All
subsequent liens on such property are subordinated to a Superlien. In some
states, even prior recorded liens are subordinated to a Superlien; in these
states, the security interest of the Trustee under the Indenture in any
Collateral that is subject to a Superlien could be adversely affected. While
Oregon and California laws provide for a Superlien, the lien does not have
priority over prior recorded liens. As noted above, however, the costs which
might be incurred by any purchaser of the property in remediating environmental
conditions could reduce or eliminate the value of the property as security for
the Notes and the Guarantees.
Under the Indenture, the Trustee may, prior to taking certain actions,
request that holders of Notes provide an indemnification against its costs,
expenses, and liabilities. It is possible that CERCLA (or analogous) cleanup
costs could become a liability of the Trustee and cause a loss to any holder of
Notes that provided an indemnification. In addition, such holders may act
directly rather than through the Trustee, in specified circumstances, in order
to pursue a remedy under the Indenture. If holders of Notes exercise that right,
they could be deemed to be lenders that are subject to the risks discussed
above.
ABSENCE OF PUBLIC MARKET
The Notes are a new issue of securities with no existing trading market.
Although the Company intends to apply to list the Notes on the New York Stock
Exchange, there can be no assurance as to the liquidity of any market that may
develop for the Notes, the ability of holders of the Notes to sell the Notes or
the prices at which holders of the Notes may be able to sell their Notes. If
such a market were to develop, the Notes could trade at prices higher or lower
than the public offering price depending on many factors, including prevailing
interest rates, the Company's operating results and the market for similar
securities. The Underwriters have advised the Company that they currently intend
to make a market in the Notes. However, the Underwriters are not obligated to do
so, and any market making with respect to the Notes may be discontinued at any
time without notice. Accordingly, no assurance can be given as to the liquidity
of, or trading market for, the Notes.
USE OF PROCEEDS
The net proceeds to the Company from the Notes Offering are estimated to be
approximately $228.1 million. The net proceeds to the Company from the Common
Stock Offering (assuming a public offering price of $14.00 per share) are
estimated to be approximately $79.5 million (approximately $91.4 million if the
underwriters' over-allotment option granted by the Company in connection with
the Common Stock Offering is exercised in full). The Company expects to use
approximately $295 million of the net proceeds of the Offerings to pay in full
the outstanding borrowings under the Old Credit Agreement, which
24
<PAGE> 27
were incurred principally to fund the capital improvement program. At February
29, 1996, the Company had $271.9 million outstanding under the Old Credit
Agreement with a weighted average interest rate of 8.0% per annum, and it
anticipates that approximately $295 million will be outstanding under the Old
Credit Agreement immediately prior to the completion of the Offerings. The
remaining net proceeds will be used for capital expenditures and other general
corporate purposes. Until applied for the foregoing purposes, net proceeds will
be invested in short-term investments. See "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
25
<PAGE> 28
CAPITALIZATION
The following table sets forth the consolidated short-term debt and
consolidated capitalization of the Company at December 31, 1995 and as adjusted
to reflect (i) receipt by the Company of the estimated net proceeds from the
Offerings (assuming a public offering price of $14.00 per share for the Common
Stock Offering) and (ii) application of substantially all of the estimated net
proceeds to repay borrowings under the Old Credit Agreement. See "Use of
Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt (including current portion of long-term debt)....... $ 4,576 $ 4,576
===== =====
Long-term debt (less current portion)
First Mortgage Notes due 2003..................................... $ -- $ 235,000
Old Credit Agreement.............................................. 255,300(1) --
CF&I acquisition debt............................................. 50,666 50,666
Camrose Credit Facility........................................... 6,713 6,713
Amended Credit Agreement.......................................... -- --
----- -----
Total long-term debt...................................... 312,679 292,379
----- -----
Stockholders' equity:
Preferred Stock, par value $.01 per share; 1,000,000 shares
authorized;
none issued.................................................... -- --
Common Stock, par value $.01 per share; 30,000,000 shares
authorized; 19,421,614 shares issued and outstanding;
25,421,614 shares issued and outstanding as adjusted(2)........ 194 254
Additional paid-in capital........................................ 150,826 230,216
Retained earnings................................................. 119,302 118,097(3)
Cumulative foreign currency translation adjustment................ (3,532) (3,532)
----- -----
Total stockholders' equity................................ 266,790 345,035
----- -----
Total long-term debt and stockholders' equity............. $579,469 $ 637,414
===== =====
</TABLE>
- ---------------
(1) At February 29, 1996, $271.9 million, including current portion, was
outstanding under the Old Credit Agreement, and the Company estimates that
approximately $295 million, including current portion, will be outstanding
under the Old Credit Agreement upon completion of the Offerings.
(2) Excludes 598,400 shares of Common Stock reserved for issuance on March 3,
2003 as payment of a portion of the purchase price for the Company's
acquisition of the CF&I Steel Division. These shares are, however, deemed to
be outstanding for purposes of calculating net income per share and weighted
average common shares and common share equivalents outstanding. Also
excludes 100,000 shares of Common Stock reserved for issuance upon exercise
of warrants, to be issued in connection with the Company's acquisition of
the CF&I Steel Division, with an exercise price of $35 per share.
(3) Reflects an estimated charge of $1.2 million, net of income taxes, related
to anticipated losses in connection with the termination of certain interest
rate swap agreements related to the Old Credit Agreement.
26
<PAGE> 29
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data shown below for, and as of the end
of, each of the years in the five-year period ended December 31, 1995 have been
derived from the audited consolidated financial statements of the Company. The
selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and the consolidated financial statements of the Company
as of December 31, 1993, 1994 and 1995 and for the three years ended December
31, 1995 and notes thereto incorporated by reference herein (the "1995 Financial
Statements").
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1991 1992(1) 1993(2) 1994 1995(3)
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales...................................... $489,357 $397,722 $679,823 $838,268 $710,971
Cost of sales.............................. 386,517 316,455 608,236 761,335(4) 638,413
Provision for rolling mill closures........ -- -- -- 22,134(5) --
Selling, general and administrative
expenses................................. 28,910 29,785 41,447 50,052 43,123
Contributions to employee stock ownership
plan..................................... 5,002 3,501 753 738 --
Profit participation....................... 14,284 10,510 4,527 2,336 5,416
-------- -------- -------- -------- --------
Operating income.................... 54,644 37,471 24,860 1,673 24,019
Other income (expense):
Interest and dividend income............. 1,872 741 921 1,620(4) 557
Interest expense......................... -- -- (3,988) (3,910) (10,307)
Other income (expense), net.............. (281) 214 (354) 711 1,065
Settlement of litigation................. -- (5,040) 2,750 -- --
Minority interests(10)................... -- 1,097 (1,996) (3,373) 862
-------- -------- -------- -------- --------
Income (loss) before income
taxes(10)......................... 56,235 34,483 22,193 (3,279) 16,196
Income tax (expense) benefit............... (20,770) (14,506) (7,388) 2,941 (3,762)
-------- -------- -------- -------- --------
Net income (loss)(10)............... $ 35,465 $ 19,977 $ 14,805 $ (338) $ 12,434
======== ======== ======== ======== ========
Net income (loss) per share(6)(10)........... $ 1.89 $ 1.04 $ .75 $ (.02) $ .62
Cash dividends declared per share............ $ .50 $ .56 $ .56 $ .56 $ .56
Weighted average common shares and common
share equivalents outstanding(6)........... 18,735 19,183 19,822 19,973 20,016
BALANCE SHEET DATA:
Working capital............................ $122,780 $ 99,444 $139,461 $141,480 $115,453
Total assets............................... 323,529 354,252 549,670 665,733 805,266
Long-term debt............................. 3,417 -- 76,487 187,935 312,679
Total stockholders' equity(10)............. 245,006 257,515 275,242 263,477 266,790
OTHER DATA:
Depreciation and amortization.............. $ 12,441 $ 16,253 $ 21,375 $ 22,012 $ 24,964
Capital expenditures....................... $ 38,481 $ 34,281 $ 40,905 $128,237 $176,885
Ratio of earnings to fixed
charges(7)(10)........................... 29.9x 36.8x 4.4x .4x 1.1x
EBITDA(8).................................. $ 68,676 $ 55,776 $ 44,806 $ 44,777 $ 51,467
Ratio of EBITDA to interest expense
(including capitalized interest)......... 49.1x 175.4x 7.9x 4.0x 2.3x
Total long-term debt as a percentage of
capitalization(9)(10).................... 1.4% -- 21.7% 41.6% 54.0%
</TABLE>
(Footnotes on following page)
27
<PAGE> 30
- ---------------
(1) Results for 1992 include the results of operations of the Camrose Pipe Mill
from the date of its acquisition on June 30, 1992.
(2) Results for 1993 include the results of operations of the CF&I Steel
Division from the date of its acquisition on March 3, 1993.
(3) Includes insurance proceeds of approximately $4.0 million received in the
second quarter of 1995 as reimbursement of lost profits resulting from lost
production and start-up delays at the Pueblo Mill caused by an explosion
that occurred in the third quarter of 1994. In 1995 revenues of $26.0
million and related product costs of $26.7 million were capitalized during
construction of the rod and bar mill at the Pueblo Mill prior to placement
of the mill in service on August 1, 1995.
(4) In the fourth quarter of 1994, the Company received property tax refunds
totaling $4.6 million related to prior years for the over-assessment of its
Portland and Pueblo Mills. The refunds reduced cost of sales by $3.5
million and increased interest income by $1.1 million.
(5) In the fourth quarter of 1994, the Company began construction of the
Combination Mill and, in connection therewith, in the third quarter of 1994
the Company recorded a non-cash, pre-tax charge of $8.9 million to reduce
the carrying value of certain plant and equipment and inventories that are
unlikely to be used following completion of the Combination Mill. The
Fontana Plate Mill ceased production in the fourth quarter of 1994 and
closed permanently in the first quarter of 1995. As a result of the
closure, in the third quarter of 1994 the Company recognized a pre-tax loss
for the disposal and exit costs of $13.2 million.
(6) Includes 598,400 shares of Common Stock reserved for issuance on March 3,
2003 as payment of a portion of the purchase price for the Company's
acquisition of the CF&I Steel Division. Excludes 100,000 shares of Common
Stock reserved for issuance upon exercise of warrants to be issued in
connection with the Company's acquisition of the CF&I Steel Division with
an exercise price of $35 per share. See "Capitalization."
(7) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of consolidated income (loss) before income taxes plus
fixed charges (excluding capitalized interest) and minority interest in
income of majority-owned subsidiaries with fixed charges, less minority
interest in losses of majority-owned subsidiaries. Fixed charges consist of
consolidated interest on indebtedness, including capitalized interest,
amortization of debt issue costs and that portion of rental expense deemed
to be representative of the interest factor (one-third of rental expenses).
Fixed charges exceeded earnings by $7.3 million for the year ended December
31, 1994.
(8) EBITDA means, in general, the sum of consolidated net income (loss),
consolidated depreciation and amortization expense, consolidated interest
expense and consolidated income tax expense or benefit, excluding any
provisions for rolling mill closures and settlements of litigation. EBITDA
has been included solely because the Company understands that it is used by
certain investors as one measure of a company's historical ability to
service its debt. EBITDA is not intended to represent cash flows for the
period nor has it been presented as an alternative to operating income or
net income as an indicator of operating performance and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
(9) For purposes of this percentage, long-term debt excludes current portion,
and capitalization is defined as the sum of long-term debt plus
stockholders' equity.
(10) The 1994 amounts have been restated to reflect proceeds from the sale of a
10% equity interest in New CF&I, Inc., a subsidiary of the Company, as a
minority interest. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations."
28
<PAGE> 31
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL DATA
The following pro forma unaudited condensed consolidated statement of
income for the year ended December 31, 1995 gives effect to the Refinancing as
if it had occurred as of January 1, 1995. The pro forma unaudited consolidated
condensed balance sheet as of December 31, 1995 gives effect to the Refinancing
as if it had occurred on that date. The pro forma adjustments are described in
the notes thereto. Such pro forma unaudited condensed consolidated financial
data assume a public offering price of $14.00 per share for shares to be sold in
the Common Stock Offering and an interest rate of 10% per annum on the Notes to
be sold in the Notes Offering.
The pro forma unaudited condensed consolidated financial data should be
read in conjunction with the 1995 Financial Statements. The pro forma unaudited
condensed consolidated financial data do not purport to represent what the
Company's results of operations or financial position would actually have been
if the events described above had occurred as of the dates indicated or what
such results of operations or financial position will be for any future periods.
In addition, such data have been prepared on the basis of certain estimates and
assumptions and do not give effect to any matters other than those described in
the notes thereto or in the preceding paragraph.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Sales................................................... $710,971 $ 710,971
Cost of sales........................................... 638,413 638,413
Selling, general and administrative expenses............ 43,123 43,123
Profit participation expense............................ 5,416 5,416
-------- --------
Operating income..................................... 24,019 24,019
Interest and dividend income............................ 557 557
Interest expense........................................ (10,307) $ (8,167)(1) (18,474)
Other income, net....................................... 1,065 1,065
Minority interests...................................... 862 862
-------- --------
Income before income taxes........................... 16,196 8,029
Income tax expense...................................... 3,762 (3,103)(2) 659
-------- --------
Net income........................................... $ 12,434 $ 7,370
======== ========
OTHER DATA:
Ratio of earnings to fixed charges(3)................... 1.1x .8x
EBITDA(4)............................................... $ 51,467 $ 51,467
Ratio of EBITDA to interest expense (including
capitalized interest)................................ 2.3x 1.6x
Total long-term debt as a percentage of
capitalization(5).................................... 54.0% 45.9%
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
----------------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Assets:
Cash and cash equivalents......................... $ 644 $ 47,678(6) $ 48,322
Inventories....................................... 141,310 141,310
Other current assets.............................. 94,826 739(7) 95,565
Property, plant and equipment, net................ 495,154 495,154
Debt issuance costs, net.......................... 2,252 7,487(8) 9,739
Other assets...................................... 71,080 71,080
-------- --------
Total assets.............................. $ 805,266 $ 861,170
======== ========
Liabilities and stockholders' equity:
Accounts payable.................................. $ 85,360 $ 85,360
Other current liabilities......................... 35,967 $ (2,041) (9) 33,926
Long-term debt.................................... 312,679 (20,300)(10) 292,379
Other liabilities................................. 68,845 68,845
-------- --------
Total liabilities......................... 502,851 480,510
-------- --------
Minority interests.................................. 35,625 35,625
-------- --------
Common Stock........................................ 194 60(11) 254
Additional paid-in capital.......................... 150,826 79,390(11) 230,216
Retained earnings................................... 119,302 (1,205)(12) 118,097
Cumulative foreign currency translation
adjustment........................................ (3,532) (3,532)
-------- --------
Total stockholders' equity................ 266,790 345,035
-------- --------
Total liabilities and stockholders'
equity.................................. $ 805,266 $ 861,170
======== ========
</TABLE>
- ---------------
(1) Adjustment to reflect (i) interest expense on the Notes (at an assumed rate
of 10% per annum), (ii) elimination of interest expense on the Old Credit
Agreement, (iii) amortization of debt issue costs resulting from the
Refinancing and (iv) capitalization of interest using the assumed annual
rate of 10% on the Notes.
(2) Adjustment to reflect the federal and state income tax effect related to
the changes in interest expense discussed in Note (1).
(3) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of consolidated income before income taxes plus fixed
charges (excluding capitalized interest) and minority interest in income of
majority-owned subsidiaries with fixed charges, less minority interest in
losses of majority-owned subsidiaries. Fixed charges consist of
consolidated interest on indebtedness, including capitalized interest,
amortization of debt issue costs and that portion of rental expense deemed
to be representative of the interest factor (one-third of rental expenses).
Pro forma fixed charges exceeded pro forma earnings by $5.9 million for the
year ended December 31, 1995.
(4) EBITDA means, in general, the sum of consolidated net income, consolidated
depreciation and amortization expense, consolidated interest expense and
consolidated income tax expense or benefit. EBITDA has been included solely
because the Company understands that it is used by certain investors as one
measure of a company's historical ability to service its debt. EBITDA is
not intended to represent cash flows for the period nor has it been
presented as an alternative to operating income or net income as an
indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
(5) For purposes of this percentage, long-term debt excludes current portion,
and capitalization is defined as the sum of long-term debt plus
stockholders' equity.
(6) Adjustments to reflect receipt of the net proceeds of the Offerings,
repayment of amounts outstanding at December 31, 1995 under the Old Credit
Agreement and estimated cash payments related to anticipated losses in
connection with the termination of certain interest rate swap agreements
related to the Old Credit Agreement and fees in connection with the Amended
Credit Agreement.
(7) Adjustment to income taxes receivable for the income tax effects of cash
payments to terminate certain interest rate swap agreements.
30
<PAGE> 33
(8) Adjustment to reflect the financing fees related to the Amended Credit
Agreement and the Notes.
(9) Adjustment giving effect to the payment of accrued interest at December 31,
1995 under the Old Credit Agreement.
(10) Adjustment giving effect to the issuance of the Notes and the payment in
full of amounts outstanding at December 31, 1995 under the Old Credit
Agreement.
(11) Adjustment giving effect to the issuance of 6,000,000 shares of Common
Stock at an estimated price of $14.00 per share pursuant to the Common
Stock Offering, net of estimated underwriting discount and other issuance
costs of $4.6 million.
(12) Adjustment to reflect anticipated losses, net of income taxes, related to
the termination of certain interest rate swap agreements related to the Old
Credit Agreement.
31
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages
of sales represented by selected consolidated income statement data.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1993(1) 1994 1995
------- ------ ------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Sales.................................................... 100.0% 100.0% 100.0%(2)
Cost of sales............................................ 89.4 90.8(3) 89.8(2)
----- ----- -----
Gross profit............................................. 10.6 9.2 10.2
Provision for rolling mill closure....................... -- 2.6(4) --
Selling, general and administrative expenses............. 6.1 6.0 6.1
Contributions to employee stock ownership plan........... .1 .1 --
Profit participation expense............................. .7 .3 .7
----- ----- -----
Operating income................................. 3.7 .2 3.4
Interest and dividend income............................. .1 .2(3) .1
Interest expense......................................... (.6) (.5) (1.5)
Other income, net........................................ -- .1 .2
Settlement of litigation................................. .4 -- --
Minority interests(13)................................... (.3) (.4) .1
----- ----- -----
Income (loss) before income taxes(13)............ 3.3 (.4) 2.3
Income tax (expense) benefit............................. (1.1) .4 (.5)
----- ----- -----
Net income (loss)(13)............................ 2.2% .0% 1.8%
===== ===== =====
BALANCE SHEET DATA:
Current ratio(5)......................................... 2.2:1 2.2:1 2.0:1
Total long-term debt as a percentage of
capitalization(6)(13)................................. 21.7% 41.6% 54.0%
Net book value per share(7)(13).......................... $14.23 $13.60 $13.74
</TABLE>
(Footnotes on following page)
32
<PAGE> 35
The following table sets forth by division, for the periods indicated,
tonnage sold, sales, average price per ton shipped and other data.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1993(1) 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Tonnage sold:
Oregon Steel Division(8):
Commodity plate.................................... 278,900 269,400 136,200
Specialty plate.................................... 157,300 154,700 159,700
Large diameter pipe................................ 248,600 356,300 223,000
ERW pipe........................................... 75,100 94,900 48,400
Semifinished....................................... 18,400 45,400 196,200
--------- --------- ---------
Total Oregon Steel Division................... 778,300 920,700 763,500
--------- --------- ---------
CF&I Steel Division(9)
Rail............................................... 186,200 250,500 240,700
Rod, bar and wire products......................... 346,100 379,300 271,300
Seamless OCTG...................................... 85,300 130,000 116,100
Semifinished....................................... 7,100 5,800 12,100
--------- --------- ---------
Total CF&I Steel Division..................... 624,700 765,600 640,200
--------- --------- ---------
Total Company................................. 1,403,000 1,686,300 1,403,700
========= ========= =========
Sales (in thousands):
Oregon Steel Division................................. $415,165 $498,794 $407,968
CF&I Steel Division................................... 264,658 339,474 303,003
--------- --------- ---------
Total......................................... $679,823 $838,268 $710,971(2)
========= ========= =========
Average price per ton sold:
Oregon Steel Division................................. $533 $542 $534
CF&I Steel Division................................... 424 443 467(10)
Company average............................... 485 497 504(10)
Operating income per ton sold........................... $18 $14(11) $14(10)
Operating margin........................................ 3.7% 2.8%(11) 3.4%(12)
</TABLE>
- ---------------
(1) Results for 1993 include the results of operations of the CF&I Steel
Division from the date of its acquisition on March 3, 1993.
(2) Includes proceeds from an insurance settlement of $4.0 million received as
reimbursement of lost profits resulting from lost production and start-up
delays at the Pueblo Mill caused by an explosion in the third quarter of
1994. In 1995 revenues of $26.0 million and related product costs of $26.7
million were capitalized during construction of the rod and bar mill at the
Pueblo Mill prior to placement of the mill in service on August 1, 1995.
(3) In the fourth quarter of 1994, the Company received property tax refunds
totaling $4.6 million related to prior years for the over-assessment of its
Portland and Pueblo Mills. The refunds reduced 1994 cost of sales by $3.5
million and increased 1994 interest income by $1.1 million.
(4) In the fourth quarter of 1994, the Company began construction of the
Combination Mill and, in connection therewith, in the third quarter of 1994
the Company recorded a non-cash, pre-tax charge of $8.9 million to reduce
the carrying value of certain plant and equipment and inventories that are
unlikely to be used following completion of the Combination Mill. The
Fontana Plate Mill ceased production in the fourth quarter of 1994 and
closed permanently in the first quarter of 1995. As a result of the
closure, in the third quarter of 1994 the Company recognized a pre-tax loss
for the disposal and exit costs of $13.2 million.
(5) Current ratio is defined as the ratio of current assets to current
liabilities.
(6) For purposes of this percentage, long-term debt excludes current portion,
and capitalization is defined as the sum of long-term debt plus
stockholders' equity.
(7) Calculation of net book value per share excludes 598,400 shares of Common
Stock reserved for issuance on March 3, 2003 as payment of a portion of the
purchase price for the Company's acquisition of the CF&I Steel Division and
excludes 100,000 shares of Common Stock reserved for issuance upon exercise
of warrants to be issued in connection with the Company's acquisition of
the CF&I Steel Division with an exercise price of $35 per share. See
"Capitalization."
(8) The Oregon Steel Division consists primarily of the operations of the
Portland Mill, the Napa Pipe Mill, the Camrose Pipe Mill and, until its
closure in November 1994, the Fontana Plate Mill.
(9) The CF&I Steel Division consists primarily of the operations of the Pueblo
Mill.
(10) Excludes proceeds from insurance settlement referred to in Note (2) above.
(11) Excludes provision for rolling mill closures referred to in Note (4) above.
(12) Includes proceeds from the insurance settlement referred to in Note (2)
above.
(13) The 1994 amounts have been restated to reflect proceeds from the sale of a
10% equity interest in New CF&I, Inc., a subsidiary of the Company, as a
minority interest. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations."
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<PAGE> 36
During 1995 the Company operated two steel mills and four finishing
facilities serving the United States, Canada and certain international markets.
The Company manufactures and markets one of the broadest lines of specialty and
commodity steel products of any domestic minimill company. In 1993 the Company
acquired the Pueblo Mill and organized into two business units known as the
Oregon Steel Division and the CF&I Steel Division. The Oregon Steel Division's
Portland Mill makes steel plate, which it sells to customers and also supplies
to the Company's large diameter pipe finishing facilities at the Napa and
Camrose Pipe Mills, which are included in the Oregon Steel Division. The CF&I
Steel Division consists primarily of the steelmaking and finishing facilities
located at the Pueblo Mill.
The Company's long-range strategic plan emphasizes providing stability for
its operations through expanding its product offerings to minimize the impact of
individual product cycles on the Company's overall performance and by entering
into long-term strategic alliances. In pursuing these goals the Company has
sought alternatives to its reliance in 1991 and 1992 on the domestic market for
large diameter pipe, the demand for which has declined significantly from levels
experienced in those years.
In an effort to decrease the Company's reliance on the domestic large
diameter pipe market and provide additional end use for its steel plate, the
Company acquired a 60% interest in the Camrose Pipe Mill in June 1992 from
Stelco, Inc. ("Stelco"), a large Canadian steel producer, which owns the
remaining 40% interest in the Camrose Pipe Mill. The Camrose Pipe Mill has two
pipe manufacturing mills. One is a large diameter pipe mill similar to that of
the Napa Pipe Mill, and the other is an ERW pipe mill which produces steel pipe
used in the oil and gas industry for drilling and distribution. The combined
capacity of the two mills is approximately 325,000 tons per year depending on
product mix. In 1993, 1994 and 1995 the Camrose Pipe Mill shipped 155,400,
172,800 and 79,400 tons, respectively, of steel pipe and generated revenues of
$92.6 million, $110.0 million and $55.1 million, respectively. During those
years Stelco was a major supplier of steel plate and coil for the Camrose Pipe
Mill. Under the acquisition agreement for the mill, either the Company or Stelco
may initiate a buy-sell procedure pursuant to which the initiating party
establishes a price for the Camrose Pipe Mill and the other party must either
sell its interest to the initiating party at that price or purchase the
initiating party's interest at that price, at any time after March 31, 1997. The
purchase price for the Camrose Pipe Mill included the obligation to pay
additional amounts over a five-year period beginning in 1993 based on the
financial performance of the mill. Although Camrose made payments pursuant to
this earn-out provision for 1993 and 1994, no such payments will be made for
1995.
To expand the Company's steel product lines and enter new geographic areas,
CF&I Steel, L.P. ("CF&I"), a limited partnership whose sole general partner is a
Company subsidiary, New CF&I, Inc. ("New CF&I"), purchased the Pueblo Mill and
related assets in March 1993. The Pension Benefit Guaranty Corporation ("PBGC")
is the sole limited partner in CF&I and holds a 4.8% equity interest. The Pueblo
Mill has melting and finishing capacity of approximately 1.2 million tons per
year. In 1994 and 1995 the Pueblo Mill shipped 765,600 and 640,200 tons,
respectively, and generated revenues of $335.2 million and $296.8 million,
respectively. In August 1994 New CF&I sold a 10% equity interest in New CF&I to
a subsidiary of Nippon Steel Corporation ("Nippon"). In connection with that
sale, Nippon agreed to license to the Company its proprietary technology for
producing in-line deep head hardened rail under a separate equipment supply
agreement. In November 1995 the Company sold a 3% equity interest in New CF&I to
two subsidiaries of the Nissho Iwai Group ("Nissho Iwai"), a large Japanese
trading company. In connection with that sale, Nissho Iwai agreed to promote the
international sale of certain steel products produced by the Company. In
connection with those sales, the Company and New CF&I entered into a
stockholders' agreement with Nippon and Nissho Iwai pursuant to which Nippon and
Nissho Iwai were granted a right to sell all, but not less than all, of their
equity interest in New CF&I back to New CF&I at the then fair market value in
certain circumstances. Those circumstances include, among other things, a change
of control, as defined, in New CF&I, certain changes involving the composition
of the board of directors of New CF&I and the occurrence of certain other events
(which are within the control of the Company) involving New CF&I or CF&I or its
operations. The Company also agreed not to transfer voting control of new CF&I
to a non-affiliate except in circumstances where Nippon and Nissho Iwai are
offered the opportunity to sell their interest in New CF&I to the transferee at
the same per share price obtained by the Company. The Company also
34
<PAGE> 37
retained a right of first refusal in the event that Nippon and Nissho Iwai
desire to transfer their interest in New CF&I to a non-affiliate.
In connection with the foregoing sale of the 10% equity interest in New
CF&I to Nippon, the Company received a cash payment of $16.8 million which was
initially reported in the Company's 1994 financial statements as a non-taxable
gain on the sale of subsidiary stock of approximately $12.3 million. However, in
the fourth quarter of 1995, the Company restated its 1994 financial statements
to reflect the $16.8 million received in connection with that sale as a minority
interest and not as non-taxable gain. Accordingly, on a restated basis no gain
on the sale of subsidiary stock has been included in net income for the year
ended December 31, 1994, and the Company's 1994 consolidated financial
statements reflect a $12.4 million increase in minority interest and a reduction
in retained earnings by a like amount. The effect of the restatement was to
reduce the Company's 1994 net income by $12.4 million ($.62 per share) to a net
loss of $338,000 ($.02 per share) for the year ended December 31, 1994.
On December 31, 1995, approximately 2.3 million shares of the Company's
Common Stock (approximately 12% of the total outstanding) were held of record by
the Company's employee stock ownership plan (the "ESOP") for the benefit of its
participants. Under current federal income tax laws, the amount of any cash
dividends that are declared on shares of capital stock held by the ESOP and
distributed to ESOP participants is deductible by the Company for federal income
tax purposes.
In connection with the Refinancing, the Company anticipates incurring an
estimated pre-tax charge against income in the second quarter of 1996 of
approximately $1.9 million related to anticipated losses in connection with the
termination of certain interest rate swap agreements related to the Old Credit
Agreement. Financing costs and expenses of approximately $2.8 million under the
Amended Credit Agreement will be amortized over the term of the debt. See "Pro
Forma Unaudited Condensed Consolidated Financial Data."
Historically, the Company's operating results have fluctuated
substantially, and the Company's capital improvement program is subject to
certain risks and uncertainties. For a discussion of these and other risk
factors, see "Risk Factors."
The approximate annual tonnage production capacities as of December 31,
1995 of the Company's facilities are set forth below. (Actual production
capacity depends upon product mix and therefore may vary.)
<TABLE>
<CAPTION>
OREGON STEEL DIVISION CF&I STEEL DIVISION
--------------------- -------------------
<S> <C> <C>
Melting capacity................................. 840,000 1,200,000
Welded pipe capacity............................. 675,000 --
Finishing capacity............................... 430,000 1,200,000
</TABLE>
COMPARISON OF 1995 TO 1994
Sales. Sales in 1995 of $711.0 million declined 15.2 percent from sales of
$838.3 million in 1994. For 1995 sales included proceeds from an insurance
settlement of approximately $4.0 million as reimbursement of lost profits
resulting from lost production and start-up delays at the Pueblo Mill caused by
an explosion that occurred in the third quarter of 1994. Shipments decreased
16.8% to 1.4 million tons in 1995 from 1.7 million tons in 1994. Selling prices
in 1995 averaged $504 per ton versus $497 per ton in 1994. Of the $127.3 million
sales decrease, $140.5 million was the result of volume decreases, offset in
part by $9.2 million from higher average selling prices and approximately $4.0
million from the proceeds of the insurance settlement.
The decrease in sales and shipments was primarily the result of reduced
plate and welded pipe product shipments by the Oregon Steel Division and reduced
rod and bar shipments by the CF&I Steel Division, offset in part by increased
semi-finished product sales by the Oregon Steel Division. Plate shipments
declined primarily due to the closure of the Fontana Plate Mill in the fourth
quarter of 1994, which reduced the Company's plate rolling capacity by
approximately 50%, and the resulting discontinuance of plate shipments from the
Fontana Plate Mill in the first quarter of 1995. During 1995 the Fontana Plate
Mill shipped approximately 19,000 tons of plate versus 309,000 tons in 1994, of
which 168,000 tons were converted into pipe at the Napa Pipe Mill. Shipments of
welded pipe products declined due to the completion of a large
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<PAGE> 38
international order that was produced in 1994 and adverse market conditions in
Canada. Rod and bar shipments by the CF&I Steel Division were negatively
impacted by difficulties relating to the startup of the new combination rod and
bar mill which resulted in production delays and reduced production. See "Risk
Factors -- Start-Up Difficulties." In addition, rod and bar costs, net of sales
were capitalized through July 31, 1995. Thus the Company's income statement for
1995 did not reflect $26.0 million from the sale of 78,700 tons of rod and bar
mill products, nor did it reflect $26.7 million for the cost of those sales. The
Company began recognizing all revenues and costs associated with the new rod and
bar mill in its income statement beginning in August 1995.
Gross Profit. Gross profit as a percentage of sales for 1995 was 10.2%
compared to 9.2% for 1994. Gross profit margins were positively impacted by
higher selling prices for most of the Company's products, offset by a 7.5%
increase in the cost of scrap and other metallics. Gross profit margin, as in
1994, continued to be negatively affected by high costs and lower volumes
relating to the completion and start-up of a portion of the equipment upgrades
at the rod and bar mill which are part of the capital improvement program at the
Pueblo Mill. Gross profits for 1995 were positively impacted compared to 1994
due to approximately $4.0 million received from the Company's business
interruption insurance carrier in the second quarter of 1995 for reimbursement
of lost profits at the CF&I Steel Division.
Selling, General and Administrative. Selling, general and administrative
expenses for 1995 decreased $6.9 million or 13.8% compared with 1994 but
increased as a percentage of sales from 6.0% in 1994 to 6.1% in 1995. The dollar
amount decrease is primarily due to reduced expenses by the Oregon Steel
Division as a result of the closure of the Fontana Plate Mill in the first
quarter of 1995 and reduced shipping volume from the Company's Napa and Camrose
Pipe Mills.
Contribution to ESOP and Profit Participation. There was no contribution
made to the ESOP in 1995, compared to a contribution of $738,000 in 1994. Profit
participation plan expense was $5.4 million for 1995 compared to $2.3 million
for 1994. The increase in 1995 profit participation reflects the increased
profitability over 1994 of certain segments of the Oregon Steel Division.
Interest and Dividend Income. Interest and dividend income on investments
was $600,000 in 1995 compared to $1.6 million in 1994. This decrease was
primarily due to interest of $1.1 million earned on property tax refunds
received in 1994 that did not reoccur in 1995.
Interest Expense. Total interest cost for 1995 was $22.5 million, an
increase of $11.2 million compared to 1994. This increase was primarily related
to interest on debt incurred to fund the capital improvement program at the
Oregon Steel and CF&I Steel Divisions. Of the $22.5 million of interest cost in
1995, $12.2 million was capitalized as part of construction in progress. As
projects in the capital improvement program are completed, ongoing interest
costs will be expensed (rather than capitalized), which will substantially
increase the Company's interest expense.
Income Tax Expense. The Company's effective tax rate for state and federal
taxes was 23.2 percent in 1995 compared to a benefit of 89.7 percent in 1994.
The effective income tax rate for both periods varied from the combined state
and federal statutory rate due to earned state tax credits and deductible
dividends paid on stock held by the ESOP and paid to ESOP participants. In 1995
a net tax benefit of $2.5 million was recognized related to enterprise zone
credits for eligible completed capital projects at the Pueblo Mill. In 1994 a
tax provision was recognized for foreign taxes in excess of the federal
statutory rates.
COMPARISON OF 1994 TO 1993
Sales. Sales in 1994 of $838.3 million increased 23.3% from sales of $679.8
million in 1993. Tonnage shipments increased 20.2% to 1.7 million tons in 1994
from 1.4 million tons in 1993. Selling prices in 1994 averaged $497 per ton
versus $485 in 1993. Of the $158.5 million sales increase, $137.4 million was
the result of volume increase and $21.1 million from higher average selling
prices.
The increase in sales and shipments was primarily due to the inclusion of a
full year's operation of the CF&I Steel Division, which was acquired on March 3,
1993. Increased shipments of pipe from the Napa Pipe Mill (278,400 tons in 1994
versus 168,300 tons in 1993) and the Camrose Pipe Mill (172,800 tons in 1994
36
<PAGE> 39
versus 155,400 tons in 1993) also contributed to the increase in shipments. The
Company realized price increases on substantially all products except large
diameter pipe shipped from the Napa Pipe Mill, the average price of which
declined in 1994 by approximately 20 percent.
Gross Profit. Gross profit as a percentage of sales for 1994 was 9.2%
compared to 10.6% for 1993. Gross profit margins were negatively impacted by
significantly lower selling prices for large diameter pipe shipped from the Napa
Pipe Mill and the associated higher costs of producing a higher quality grade of
steel at the Portland Mill for producing low carbon pipe grades for
international shipments. Gross profit margins were also negatively affected by
costs and lower volumes relating to the completion and start-up of a portion of
the equipment upgrades which are part of the capital improvement program at the
Pueblo Mill. See "Risk Factors -- Start-up Difficulties." Gross profits for 1994
were positively impacted due to a $4.6 million property tax refund related to
overassessments in prior years of the Portland and Pueblo Mills, which reduced
1994 cost of sales by $3.5 million and, as described below, increased 1994
interest income by $1.1 million.
Provision for Rolling Mill Closures. During 1994 the Company recognized a
total pre-tax charge of $22.1 million (before income taxes of $8.4 million)
associated with the closure of the Fontana Plate Mill and to reduce the carrying
value of certain plant, equipment and inventories that are unlikely to be used
following shutdown of the existing plate rolling mill at the Portland Mill upon
completion of the construction of the Combination Mill. Of the $13.7 million
after-tax charge, approximately $13 million was a non-cash charge relating to
the write-off of production supplies and property, plant and equipment. The
decision to permanently close the Fontana Plate Mill was based upon the high
operating costs of the facility, depressed pricing in the international large
diameter pipe market and the lack of significant domestic pipeline activity.
Selling, General and Administrative. Selling, general and administrative
expenses for 1994 increased $8.6 million or 20.7% compared with 1993 but
decreased as a percentage of sales from 6.1% in 1993 to 6.0% in 1994. The dollar
amount increase is primarily a result of the inclusion of CF&I Steel Division
costs (which increased by $4.1 million) for 12 months in 1994, versus 10 months
in 1993 and increased shipping costs ($2.8 million) related to welded pipe
shipments from the Oregon Steel Division.
Contribution to ESOP and Profit Participation. The contribution to the ESOP
was $738,000 in 1994 compared with $753,000 in 1993. Profit participation plan
expense was $2.3 million for 1994 compared with $4.5 million for 1993. These
reductions are the result of the decreased profitability of the Company in 1994
versus 1993.
Interest and Dividend Income. Interest and dividend income on investments
was $1.6 million in 1994 compared with $.9 million in 1993. This increase was
primarily due to $1.1 million of interest earned on the property tax refunds
described above.
Interest Expense. Total interest cost for 1994 was $11.3 million, an
increase of $5.6 million compared to 1993. This increase was primarily related
to interest incurred on debt issued to fund the CF&I Steel Division capital
expenditure program. Of the $11.3 million of interest cost, $7.4 million was
capitalized as part of construction in progress.
Settlement of Litigation. The $2.8 million recovery from settlement of
litigation was received from the Company's excess liability insurance carrier in
the second quarter of 1993 and related to former employee lawsuits which were
settled in the fourth quarter of 1992.
Income Tax Expense. The Company's effective income tax rate for state and
federal taxes was a benefit of 89.7 percent for 1994 compared to an expense of
33.3 percent for 1993. The effective income tax rate for both periods varied
from the combined state and federal statutory rate due to earned state tax
credits and deductible dividends paid on stock held by the ESOP and paid to ESOP
participants. In 1994 a tax provision was recognized for foreign taxes in excess
of the federal statutory rates. Income before income taxes in 1993 included a
$2.8 million insurance recovery related to a 1992 litigation settlement that was
treated as a nontaxable item.
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<PAGE> 40
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from 1995 operations was $53.6 million compared to $20.5 million
in 1994. The major items affecting this $33.1 million increase were increased
net income ($12.8 million), increased depreciation and amortization ($3.0
million), increased deferred income taxes ($9.4 million), reduced increase in
trade accounts receivables ($9.1 million), reduced inventories ($18.8 million)
and a decrease in the reduction of accounts payable and accrued expenses ($6.9
million).
Net working capital at December 31, 1995 decreased $26.0 million compared
to December 31, 1994 due to a $22.7 million decrease in current assets and a
$3.3 million increase in current liabilities. Trade accounts receivable and
inventories decreased from $241.0 million at the end of 1994 to $221.8 million
at December 31, 1995. The decrease was due primarily to decreased sales in the
fourth quarter of 1995 versus the fourth quarter of 1994.
The Offerings are contingent upon the effectiveness of an amendment of the
Old Credit Agreement in the form of the Amended Credit Agreement. It is
anticipated that outstanding borrowings under the Old Credit Agreement will be
repaid from the net proceeds of the Offerings. The Amended Credit Agreement is
expected to be a revolving credit facility collateralized by substantially all
of the accounts receivable and inventory of the Company, New CF&I and CF&I. The
maximum amount of borrowings which may be outstanding under the Amended Credit
Agreement at any time will be limited to an amount calculated as a specified
percentage of eligible accounts receivable and inventory, provided that the
maximum amount of borrowings thereunder may not at any time exceed $125 million.
It is anticipated that the Amended Credit Agreement will mature in 1999 and will
be guaranteed by New CF&I and CF&I. It is anticipated that the Amended Credit
Agreement will contain financial and other restrictive covenants, customary
events of default and other provisions, including an event of default due to a
"change of control" (as defined) of the Company. Borrowings under the Amended
Credit Agreement are expected to bear interest at a floating rate and to provide
for payment of certain commitment and other fees to the banks. See "Description
of Certain Indebtedness -- Amended Credit Agreement" for a description of
certain anticipated terms of the Amended Credit Agreement. The Amended Credit
Agreement will be subject to negotiation and execution of definitive
documentation, and there is no assurance that the amount or terms of the Amended
Credit Agreement will not differ from those described herein.
In December 1994 the Company entered into the Old Credit Agreement, which
provides for collateralized borrowing of up to $297 million from a group of
banks ("Lender Banks"). Use of the Old Credit Agreement is to fund capital
expenditures, for general corporate purposes and for working capital. The Old
Credit Agreement is comprised of (i) a $197 million term loan facility ("Term
Loan"), which may be drawn at any time through December 31, 1996 and (ii) up to
a $100 million revolving loan facility ("Revolving Loan"), which may be drawn
and repaid at any time through December 31, 1997 based upon the Company's
accounts receivable and inventory balances. By mutual agreement of the Company
and the Lender Banks, the Revolving Loan may be extended for two additional
one-year periods to December 31, 1999. Annual commitment fees are 1/2 of 1% of
the unused portions of the Old Credit Agreement. At the Company's election,
interest is based on the London Interbank Borrowing Rate ("LIBOR"), the prime
rate or, for the Revolving Loan only, the federal funds rate, plus a margin
determined by the Company's leverage ratio. The outstanding balance of the Term
Loan on December 31, 1996 is required to be repaid in 11 quarterly installments
commencing June 30, 1997. If the Term Loan is fully drawn at December 31, 1996,
the required repayments would total $49 million in 1997, $69 million in 1998 and
$79 million in 1999. Such payments will be reduced pro rata if less than the
full amount is drawn.
The Old Credit Agreement is collateralized by substantially all of the
Company's inventory and accounts receivable, except those of Camrose. In
addition, the Company has pledged as collateral its material loans receivable
from its subsidiaries and the stock of certain material subsidiaries. Amounts
outstanding under the Old Credit Agreement are guaranteed by certain
subsidiaries of the Company. The Old Credit Agreement contains various
restrictive covenants including a minimum current asset to current liability
ratio; minimum interest coverage ratio; minimum ratio of cash flow to scheduled
maturities of long-term debt, interest and
38
<PAGE> 41
taxes; minimum tangible net worth; a maximum ratio of long-term debt to total
capitalization; and restrictions on capital expenditures, liens, investments and
additional indebtedness.
At December 31, 1995, $196.9 million was outstanding under the Term Loan
and $58.4 million was outstanding under the Revolving Loan. The Company has
entered into interest rate swap agreements with banks, as required by the Old
Credit Agreement, to reduce the impact of unfavorable changes in interest rates
on its debt; certain of these swap agreements will be terminated in connection
with the Refinancing.
The Old Credit Agreement was amended as of September 30, 1995 and as of
December 31, 1995 to, among other things, modify the interest coverage ratio
covenant and certain other restrictive covenants and to facilitate the Company's
ability to pursue other or additional financing alternatives. The amendments to
the interest coverage ratio were needed for the Company to remain in compliance
with certain financial covenants in the Old Credit Agreement in light of lower
than anticipated earnings and higher than anticipated borrowings under the Old
Credit Agreement. See "Risk Factors -- Leverage and Access to Funding;
Compliance with Financial Covenants."
Term debt of $67.5 million was incurred by CF&I as part of the purchase
price of the Pueblo Mill on March 3, 1993. This debt is uncollateralized and is
payable over 10 years with interest at 9.5%. As of December 31, 1995, the
outstanding balance on the debt was $55.2 million, of which $50.7 million was
classified as long-term debt.
The Company has an uncollateralized and uncommitted revolving line of
credit with a bank which may be used to support issuance of letters of credit,
foreign exchange contracts and interest rate hedges. At December 31, 1995, $10.3
million was restricted under outstanding letters of credit. In addition, the
Company has a $4 million unsecured and uncommitted revolving credit line with a
bank which is restricted to use for letters of credit. At December 31, 1995,
$3.6 million was restricted under outstanding letters of credit.
Camrose maintains a Cdn.$18 million revolving credit facility with a bank,
the proceeds of which may be used for working capital and general corporate
purposes. The facility is collateralized by substantially all of the assets of
Camrose, and borrowings under this facility are limited to an amount equal to
specified percentages of Camrose's eligible trade accounts receivable and
inventories. The facility expires on January 3, 1997. Depending on Camrose's
election at the time of borrowing, interest is payable based on (1) the bank's
Canadian dollar prime rate, (2) the bank's U.S. dollar prime rate or (3) LIBOR.
As of December 31, 1995, Camrose had $6.7 million outstanding under the
facility.
The Company anticipates that the Notes will be issued in the principal
amount of approximately $235 million, will be guaranteed by New CF&I and CF&I,
will bear interest at a fixed rate per annum, will mature in approximately seven
years and will contain a number of restrictive financial covenants and other
customary terms, including a provision whereby the holders of such indebtedness
will be entitled, at their option, to require the Company to repurchase such
indebtedness following a change of control (as defined) of the Company or in the
event of certain asset sales. It is anticipated that the Notes will be
collateralized by real property, equipment and certain other assets (other than,
among other things, accounts receivable and inventory) of the Company, New CF&I
and CF&I. See "Description of the Notes" for a description of the proposed terms
of the Notes.
During 1995 the Company expended approximately $51.8 million (exclusive of
capitalized interest) on the capital improvement program at the CF&I Steel
Division and $111.9 million (exclusive of capitalized interest) on the
Combination Mill. During 1996 the Company's capital improvement program
contemplates expenditures of approximately $18 million at the Pueblo Mill and
approximately $64 million on the Combination Mill, and also contemplates
expenditures of up to approximately $7 million for investments in raw material
ventures in 1996. In addition, the Company has budgeted approximately $14
million in 1996 for upgrade and maintenance projects to the present facilities
and equipment; the cost of these upgrade and maintenance projects is in addition
to amounts budgeted for the capital improvement program.
If the Company and its subsidiaries remain in compliance with the terms of
their respective credit facilities and other debt instruments, the Company
believes its anticipated cash needs for working capital and for currently
budgeted capital expenditures through the end of 1996 will be met from the net
proceeds of the
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<PAGE> 42
Offerings, borrowings under available credit facilities, existing cash balances
and funds generated by operations. There is no assurance, however, that the
amounts available from these sources will be sufficient for such purposes. In
that event, or for other reasons, the Company may be required to seek additional
financing, which may include additional bank financing and debt or equity
securities offerings. There is no assurance that such sources of funding will be
available if required or, if available, will be on terms satisfactory to the
Company. Failure to obtain required funds would delay or prevent some of the
planned capital expenditure projects from being initiated or completed, which
could have a material adverse effect on the Company. In addition, the Company's
level of indebtedness presents other risks to investors, including the
possibility that the Company and its subsidiaries may be unable to generate cash
sufficient to pay the principal of and interest on their indebtedness when due.
In the event of a default under the Amended Credit Agreement or the Indenture,
or if the Company or its subsidiaries are unable to comply with covenants
contained in other debt instruments or to pay their indebtedness when due, the
holders of such indebtedness generally will be able to declare all indebtedness
owing to them to be due and payable immediately and, in the case of
collateralized indebtedness, to proceed against their collateral, which would
likely have a material adverse effect on the Company. See "Risk
Factors -- Funding for the Capital Improvement Program," "Risk
Factors -- Leverage and Access to Capital; Compliance with Financial Covenants,"
"Use of Proceeds" and "Business -- Capital Improvement Program."
Impact of Inflation. Inflation can be expected to have an effect on many of
the Company's operating costs and expenses. Due to worldwide competition in the
steel industry, the Company may not be able to pass through such increased costs
to its customers.
40
<PAGE> 43
BUSINESS
GENERAL
Oregon Steel operates two steel minimills and four finishing facilities in
the western United States and Canada that produce one of the broadest lines of
specialty and commodity steel products of any domestic minimill company. The
Company emphasizes the cost-efficient production of higher margin specialty
steel products targeted at a diverse customer base located primarily in the
western United States, western Canada and the Pacific Rim. Approximately
one-half of the total tonnage of the Company's products shipped in 1995 were
specialty steel products. The Company's manufacturing flexibility allows it to
manage actively its product mix in response to changes in customer demand and
individual product cycles.
Through strategic acquisitions and selective capital enhancements, the
Company has evolved from an operator of a single minimill facility into one of
the largest domestic minimill companies. Between 1991 and 1995 the Company has:
- increased shipments of steel products from 762,700 tons in 1991 to 1.4
million tons in 1995
- expanded its range of finished products from plate and welded pipe in
1991 to eight products currently by adding ERW pipe, rail, rod, bar, wire
and OCTG
- increased its emphasis on higher margin specialty products
- expanded its geographic markets from the western United States to
national and international markets
The Company's Portland Mill is the only steel plate minimill in the 11
western states and is one of only two steel plate production facilities
operating in that region. The Company's Napa Pipe Mill, one of only four large
diameter pipe mills operating in the United States and the only such mill in the
11 western states, produces large diameter pipe that satisfies the demanding
specifications of oil and gas transmission companies. The Company also produces
large diameter pipe and ERW pipe at its 60% owned Camrose Pipe Mill, which is
located strategically in the Alberta, Canada natural gas fields. Through the
Pueblo Mill of its CF&I Steel Division in Pueblo, Colorado, the Company is the
sole rail manufacturer west of the Mississippi River and is one of only two rail
manufacturers in the United States. The Pueblo Mill also produces specialty and
commodity rod and bar, wire products and seamless pipe.
STRATEGY
Oregon Steel seeks to be a cost-efficient producer of specialty and
commodity steel products. The Company strives to reduce costs and improve
performance through execution of the following strategies:
Operate Flexible Manufacturing Facilities. The Company, through its
capital improvement program, seeks to create finishing capacity in excess
of its melting capacity that permits flexible production and fuller
utilization of melt shop capacity. As a result, the Company expects to
improve its ability to pursue a flexible, market-driven strategy by
shifting finished steel production among products in response to market
demand. This strategy is expected to enhance the Company's ability to
manage its product mix and to help reduce the impact of individual product
cycles on the Company's overall operating performance.
Emphasize Higher Margin Specialty Products. The Company believes
higher quality specialty steel products generally have higher profit
margins and are less susceptible to steel industry cyclicality than
commodity steel products. The Company's current range of specialty steel
products, which represented approximately one-half of the total tonnage
shipped by the Company in 1995, includes alloy plate, heat treated plate,
large diameter and ERW pipe, rail and high carbon rod and specialty bar
products.
Invest in Efficient and Flexible Technology. In late 1993 the Company
initiated a capital improvement program as part of its effort to reduce
manufacturing costs, upgrade its steelmaking facilities and improve product
quality and product mix. The capital improvement program contemplates total
expenditures of $400 million from 1993 through 1997, of which the Company
had expended approxi-
41
<PAGE> 44
mately $295 million as of December 31, 1995. The primary components of the
program completed to date include substantial improvements to the Pueblo
Mill steelmaking facilities, including expansion of steel making capacity
from 900,000 to 1.2 million tons annually, upgrading from ingot to
continuous casting for rail production, enhancement of its ability to
produce specialty grades of steel and construction of a new rod and bar
mill. Improvements to be completed include installation of in-line rail
head hardening equipment at the Pueblo Mill and completion of the
Combination Mill in Portland. See "-- Capital Improvement Program."
Explore Alternative Raw Material Sources to Reduce Dependence on
Scrap. To reduce the effects of scrap price volatility, the Company has
integrated HBI and pig iron ("alternative metallics") into its steelmaking
process. Alternative metallics are low residual scrap substitutes that
allow the Company to purchase lower grades of scrap for use in its
steelmaking operations. Alternative metallics are typically purchased on a
contract basis (whereas scrap is typically purchased on the spot market),
which often limits the effect of price volatility. In 1995 at the Portland
Mill, alternative metallics replaced approximately 11% of total scrap tons
required. Subject to availability, the Company's objective is to increase
the percentage of HBI, pig iron and other alternative metallics it uses in
steelmaking. See "-- Raw Materials."
Promote Employee Productivity. The Company has established the ESOP
and a profit participation plan. At December 31, 1995 the ESOP owned
approximately 12% of the Company's outstanding Common Stock.
CAPITAL IMPROVEMENT PROGRAM
As part of its strategy to invest in efficient and flexible manufacturing
technologies, the Company has undertaken a $400 million (excluding capitalized
interest) capital improvement program at its Pueblo and Portland Mills, of which
the Company had expended approximately $295 million as of December 31, 1995. The
purpose of this program is to (i) improve the steelmaking and casting capability
at the Pueblo Mill, (ii) reduce the cost of producing rail, rod and bar products
at the Pueblo Mill while improving product quality and expanding the specialty
grades that can be manufactured there, (iii) reduce the cost and improve the
yield of plate rolling and other finishing operations at the Portland Mill while
increasing plate rolling capacity from 430,000 tons to 1.2 million tons annually
and (iv) reduce dependence on scrap steel.
42
<PAGE> 45
The principal components, expected benefits, cost and current status of the
capital improvement program are discussed below.
<TABLE>
<CAPTION>
COST
----------
PROJECT BENEFITS STATUS
- -------------------------------- ---------------------------------------- (MILLIONS) ------------------
----------
<S> <C> <C> <C>
CF&I Steel Division
Steelmaking - reduced operating costs $ 46 Completed
- 100% continuous casting
- expanded capacity
- improved steel quality
- higher yields
- broader product line
Rod and bar mill - reduced operating costs $ 85 Completed
- flexible product mix
- increased capacity
- higher yields
- additional specialty products
- larger coils
Rail manufacturing, including - higher yields $ 57* Completed (except
head hardened rail - additional premium product head hardening
- increased head-hardened rail capacity project)
- in-line production of head-hardened
rail
Oregon Steel Division
Combination Mill - reduced operating costs $200* Under construction
- consolidated plate rolling production
- increased manufacturing efficiency
- higher yields
- flexible production
- addition of coiled products
- wider plate
Raw materials ventures - less dependence on scrap $ 12*
- potential cost stabilization
- higher quality end products
-------
Total $400
=======
</TABLE>
- ---------------
* Estimated
Capital Improvements at the CF&I Steel Division. As part of its strategy in
acquiring the CF&I Steel Division in March 1993, the Company anticipated making
significant capital additions to the Pueblo Mill. The Company began a series of
major capital improvements at the Pueblo Mill shortly after its acquisition in
1993 and, with the exception of the installation of the head hardened rail
equipment, these improvements had been substantially completed by the end of the
third quarter of 1995. The Company believes these improvements will increase
yields, improve productivity and quality and expand the Company's ability to
offer specialty rod and bar products. The primary components of the capital
improvements at the Pueblo Mill are outlined below.
Steelmaking. The Company has installed a ladle refining furnace and a
vacuum degassing facility and upgraded both continuous casters. By the end
of the first quarter of 1995, ingot casting had been replaced with more
efficient continuous casting methods, which allow the Company to cast
directly into blooms. As a result, the Company estimates that it has
expanded the steelmaking capacity at the Pueblo
43
<PAGE> 46
Mill to approximately 1.2 million tons of hot metal annually from
approximately 900,000 tons of hot metal annually at the time of the
acquisition. These and related improvements have reduced the cost of
production of cast steel, improved product quality and enabled the Pueblo
Mill to produce additional specialty grades of steel including alloy, high
carbon and super clean steels.
Rod and Bar Mill. At the time of the acquisition of the CF&I Steel
Division, the rod and bar mills at the Pueblo Mill were relatively old and
located in separate facilities, which resulted in significant costs as the
Company shifted production between them in response to market conditions.
In the third quarter of 1995, the Company commenced operation of a new
combination rod and bar mill, with a new reheat furnace and a high-speed
rod train, capable of producing commodity and specialty grades of rod and
bar products. Depending on product mix, the new combined facility has a
capacity of approximately 600,000 tons per year. These improvements should
enable the Company to produce a wider range of high margin specialty
products, such as high-carbon rod, merchant bar and other specialty bar
products, and larger rod coil sizes, which the Company believes are
preferred by many of its customers. The Company believes the new mill will
reduce the manufacturing costs for rod and bar, principally as a result of
decreased labor and energy requirements and increased product yields and
manufacturing efficiencies. Although the planned capital improvements at
the Pueblo Mill are substantially complete, the Company experienced
significant delays in bringing the new rod and bar mill technology and
equipment up to production capacity. Although the Company believes these
delays are typical of those encountered when commissioning major pieces of
capital equipment and that the Pueblo Mill is expected to reach full
production capacity by the third quarter of 1996, the Company may continue
to experience difficulties with this equipment that will adversely affect
its production capability and results of operations beyond mid-1996. See
"Risk Factors -- Start-Up Difficulties."
Rail Manufacturing. At the time of the Company's acquisition of the
Pueblo Mill, rails were produced by ingot casting using energy-intensive
processes with significant yield losses as the ingots were reheated,
reduced to blooms and then rolled into rails. Continuous casting has
increased rail yields and decreased rail manufacturing costs. In 1996 the
Company plans to enhance its existing 450,000 tons of annual railmaking
capacity through the addition of equipment capable of producing in-line
head hardened rail. Rail produced using this technology is considered by
many rail customers to be more durable and higher quality rail than that
produced with existing techniques. As a result of these improvements,
expected to be operational in the third quarter of 1996, the Company
believes it will be able to provide a functionally superior, higher margin
product. See "-- Products, Customers and Markets -- CF&I Steel
Division -- Rail."
Capital Improvements at the Oregon Steel Division. Capital improvements at
the Oregon Steel Division consist primarily of the construction of the
Combination Mill.
Combination Mill. The Company is constructing the Combination Mill at
its Portland Mill. The Combination Mill is expected to reduce production
costs for commodity and specialty grades of plate, primarily as a result of
higher product yields and enhanced throughput at the Portland Mill. The
project includes installation of a new reheat furnace, a 4-high rolling
mill with coiling furnaces capable of producing plate up to 136() wide, a
vertical edging mill, a down coiler, on-line accelerated cooling, hot
leveling and plate shearing equipment. Other planned additions include an
extension of the rolling line and the installation of a fully automated
hydraulic gauge control system designed to roll steel plate to exacting
standards. These additions will enable the Company to roll coiled steel
plate in lengths up to 2,100 feet and are expected to decrease end crop,
side trim and crown loss. The Company estimates that these and other
related improvements will increase average finished steel plate yields and
that upon completion annual steel plate rolling capacity of the Portland
Mill will increase to approximately 1.2 million tons from approximately
430,000 tons.
The Combination Mill is expected to begin operation in the second half
of 1996 and to be fully operational in the third quarter of 1997. The
Company believes the Combination Mill will be capable of producing wider
steel plate than any similar mill in the world. The Company also believes
the Combination Mill will increase its manufacturing flexibility and supply
substantially all the Company's
44
<PAGE> 47
plate requirements for large diameter line pipe as well as coiled plate for
applications such as the smaller diameter ERW pipe manufactured at the
Camrose Pipe Mill. The Portland Mill currently produces discrete steel
plate in dimensions up to 102() wide and 3/16() to 8() thick. Wider
dimensions used for gas transmission pipe in diameters greater than 30(),
formerly rolled at the closed Fontana Plate Mill, are now purchased from
other steel producers. The Combination Mill as currently planned would be
capable of producing widths from 48() to 136() and in thicknesses from
3/16() to 8(). In addition, the Combination Mill is being designed to
produce both discrete steel plate and coiled plate in units up to
approximately 40 tons and to produce steel plate for all of the Company's
commodity and specialty markets, including heat treated applications. See
"Risk Factors -- Delay in Completion of Capital Improvement Program."
Raw Materials Ventures. The Company is exploring the possibility of a
project to process iron oxides into HBI, as well as other direct reduction
technologies such as fastmet, romelt and iron carbide. The Company has budgeted
approximately $12 million in 1996 and 1997 for joint ventures or other
arrangements involving one or more of these processes.
Estimated Cost Savings. The Company believes the improvements described
above will significantly reduce production costs at both the CF&I and Oregon
Steel Divisions. The Company estimates that the capital improvements at the
Pueblo Mill, when fully operational, should reduce the average production costs
of making cast steel for use in its finishing operations by approximately $27
per ton and should reduce the average production costs of making rod and bar
products from cast steel by approximately $28 per ton (assuming annual
production of approximately 1,000,000 tons of cast steel and approximately
500,000 tons of rod and bar products), in each case compared to average costs
for the year ended December 31, 1995. In that regard, average manufacturing
costs at the CF&I Steel Division during 1995 were higher than anticipated due to
start-up difficulties related to the new rod and bar mill. At the Oregon Steel
Division, the Company estimates that the Combination Mill and related
improvements, when fully operational and assuming production of approximately
775,000 tons of steel plate and coil product annually, should decrease average
rolling costs by approximately $45 per ton (including estimated savings of
approximately $11 per ton due to the elimination of transportation costs related
to the operations at the Fontana Plate Mill), compared to average plate rolling
costs for the year ended December 31, 1994. The Company believes 1994 results
are more appropriate than 1995 results for calculating the estimated cost
savings at the Oregon Steel Division because of the closure of the Fontana Plate
Mill in the fourth quarter of 1994. Closure of the Fontana Plate Mill, which was
an initial step in the Company's plan to consolidate plate rolling operations at
the Portland Mill, reduced the Company's effective plate rolling capacity in
1995 and thereafter by approximately 50%. The Company anticipates that plate
rolling capacity lost as a result of the Fontana Plate Mill closure will be
restored when the Combination Mill is fully operational, which is scheduled for
the third quarter of 1997.
There is no assurance that the estimated cost savings will be realized, and
actual results will vary from the estimates set forth herein. The estimated cost
savings from the capital improvement program are based on a number of estimates
and assumptions and are subject to significant qualifications, limitations and
uncertainties, many of which are beyond the control of the Company. In
particular, the estimated cost savings per ton assumes that production levels
will increase to approximately 775,000 tons of steel plate and coil product
annually at the Oregon Steel Division and, at the CF&I Steel Division, to
approximately 1,000,000 tons of cast steel and 500,000 tons of rod and bar
annually. Certain of these estimated production levels are at or near the
maximum production capacity for the respective facilities, and there is no
assurance that the facilities will in fact produce at or near their full
capacity. Moreover, a significant portion of the estimated cost savings results
from spreading fixed costs (including depreciation) over a greater number of
estimated tons produced; as a result, average cost savings per ton would be
lower, perhaps substantially, at lower rates of production.
The estimated cost savings also do not take into account, among other
things, estimated increased depreciation expenses resulting from the capital
improvement program. Due in large part, however, to the assumed increase in
production levels as set forth above, depreciation, if taken into account, would
not significantly affect the estimated average cost savings for cast steel, but
would reduce the estimated average cost savings for rod and bar to $27 per ton
and for steel plate and coil product to $35 per ton.
45
<PAGE> 48
Completion of the capital improvement program is subject to a number of
uncertainties, including the continued availability of borrowing under the
Amended Credit Agreement and completion of the design and construction of the
facilities. There is no assurance that the Company will not experience delays or
difficulties with respect to the Combination Mill or other capital expenditure
projects, which could include substantial construction or production
interruptions and the diversion of resources from the Company's other
facilities. Moreover, there is no assurance that the anticipated operating
efficiencies, cost savings, yield improvements or other benefits from the
capital improvement program will be achieved, that sufficient product demand
will exist to sustain the assumed production levels referred to above, that
substantial construction or production interruptions will not be encountered in
implementing the program or that the capital improvements contemplated by the
program can be completed in a timely manner or for the amounts budgeted. Failure
to complete, or a substantial disruption or delay in implementing, the projects
included in the program could have a material adverse effect of the Company. See
"Risk Factors -- Start-Up Difficulties," "-- Funding for the Capital Improvement
Program," "-- Potential Delay in Completion of Capital Improvement Program" and
"-- Uncertainty of Benefits of Capital Improvement Program; Increase in Interest
and Depreciation Expense."
The estimated cost savings attributable to certain major items of equipment
included in the capital improvement program were based in part on information
provided to the Company by suppliers of that equipment. Although the Company
sought, where possible, to verify this information by examination of similar
equipment operated by others and by other means, the estimated cost savings set
forth herein depend in part on the accuracy of the information provided to the
Company. In addition, the estimated benefits of the projects included in the
capital improvement program assume completion and full operation of those
projects.
It is likely that the Company's actual production levels, product mix, wage
rates (which in the case of certain Company employees are subject to mandatory
increases under labor agreements), energy prices and other costs will differ
from those used in calculating the cost savings estimates. Because these costs,
as well as production levels and product mix, will vary over time and will
therefore impact the benefits derived from the capital improvement program, the
estimated cost savings stated herein are not necessarily indicative of the
Company's actual results of operations or financial performance for any period.
The estimated cost savings per ton set forth herein do not purport to predict
actual costs per ton or the Company's results of operations for any period.
The capital improvement program has had and will have other effects on the
Company's results of operations. In particular, the foregoing estimated cost
savings do not reflect the pre-tax charge of approximately $22.1 which the
Company incurred in 1994 in connection with the closure of the Fontana Plate
Mill and the anticipated closure of the existing plate rolling mill at the
Portland Mill. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Comparison of 1994 to 1993 -- Provision for Rolling
Mill Closures." In connection with Refinancing, the Company will terminate
certain interest rate swap agreements related to the Old Credit Agreement, which
will result in an estimated cash payment by the Company of approximately $1.9
million and a related pre-tax charge against income in the same amount, which
also are not reflected in the foregoing estimated cost savings. Likewise, the
Company will have a substantial increase in interest costs due to debt incurred
to finance the program, including the debt incurred in the Notes Offering, which
is not reflected in such estimates. The Company also anticipates that it will
incur start-up and transition costs as projects are initiated, completed and
implemented, none of which are considered in the cost per ton estimates.
The information set forth in the preceding seven paragraphs includes
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and is subject to the safe harbor created by that section. Certain factors
that could cause results to differ materially from those projected in the
forward-looking statements are set forth in those paragraphs and in "Risk
Factors."
PRODUCTS, CUSTOMERS AND MARKETS
OVERVIEW
The Company manufactures and markets one of the broadest lines of specialty
and commodity steel products of any domestic minimill company. Through
acquisitions and capital improvements, the Company has expanded its range of
finished products from plate and welded pipe in 1991 to eight products currently
by
46
<PAGE> 49
adding ERW pipe, rail, rod, bar, wire and seamless pipe. It has also expanded
its primary selling region from the western United States to national and
international markets. The Company believes its current product line will be
extended further with completion of the capital improvement program. Anticipated
product additions include in-line head hardened rail and steel plate in coiled
form. The Company believes the addition of these products will help reduce the
impact of individual product cycles on the Company's overall performance.
The following chart identifies the Company's principal products and the
primary markets for those products.
<TABLE>
<CAPTION>
PRODUCTS MARKETS
--------------------------------- ------------------------------------
<S> <C> <C>
Oregon Steel Division
Commodity and specialty Service centers
steel plate Railcar and barge manufacturers
Heavy equipment manufacturers
Construction
Large diameter steel pipe Oil and gas transmission pipelines
Electric resistance welded pipe Oil and natural gas line pipe
CF&I Steel Division
Rail Rail transportation
Wire rod Durable goods
Capital equipment
Bar products Construction
Durable goods
Capital equipment
Wire products Agriculture
Construction
Seamless pipe Oil and gas producers
Gas transmission
</TABLE>
The following charts depict the percentage of the Company's total tonnage
sold by product category for 1992 and 1995.
<TABLE>
<CAPTION>
1992 1995
---- ----
[Pie Chart] [Pie Chart]
<S> <C>
Commodity plate - 36% Rail - 17%
Specialty plate - 21% Seamless pipe - 8%
ERW - 2% Rod/bar/wire - 19%
Large diameter pipe - 41% Semifinished - 15%
Large diameter pipe - 16%
Commodity plate - 10%
Specialty plate - 12%
ERW - 3%
Total Tonnage sold: 665,300 Total tonnage sold - 1,403,700
</TABLE>
OREGON STEEL DIVISION
Commodity Steel Plate
The Company's commodity grade steel plate is produced at the Portland Mill.
Historically, commodity steel plate products consisted of hot-rolled carbon
plate varying in widths from 48() to 136() and in thicknesses from 3/16() to
3(). As a result of the closure of the Fontana Plate Mill in the fourth quarter
of 1994, the
47
<PAGE> 50
Company is and will only be able to produce steel plate up to 103() wide until
the Combination Mill is completed and operational. Most of the customers for the
Company's commodity steel plate are located in the western United States,
primarily in the Pacific Northwest. The Company's commodity steel plate is
typically sold to steel service centers, fabricators and equipment
manufacturers. Service centers typically resell to other users with or without
additional processing, such as cutting to a specific shape. Frequent end uses of
commodity grade steel plate include the manufacture of railcars, storage tanks,
machinery parts, bridges, barges and ships.
Specialty Steel Plate
The Company's specialty grade steel plate is produced at the Portland Mill.
Specialty steel plate products consist of hot-rolled carbon, heat-treated and
alloy steel plate in a variety of widths and thicknesses. Specialty steel plate
has superior strength and performance characteristics and is typically made to
order for customers seeking varying properties of steel plate, including the
plate's formability, hardness or abrasion resistance, impact resistance or
toughness, strength and ability to be machined or welded. These variations are
achieved by chemically altering the steel through the addition or removal of
specific elements, by temperature control while rolling or by heat treating the
plate.
In 1994 the Company completed expansion of the heat treating production
capacity at its Portland Mill by approximately 50% to 90,000 tons annually. The
heat treating process of quenching and tempering improves the strength and
hardness of steel plate. Quenched and tempered steel is used extensively in the
mining industry, the manufacture of heavy transportation equipment and military
armor. In early 1994 the Company installed at the Portland Mill a hot leveler,
which flattens the steel plate following heat treatment and ensures that the
steel plate will retain its desired shape after cooling. These additions enable
the Company to manufacture a superior grade of hardened plate product.
Customers for specialty steel are located throughout the United States, but
the Company is most competitive west of the Mississippi River, where
transportation costs are less of a factor. Typical customers include steel
service centers and equipment manufacturers. Typical uses include pressure
vessels, construction and mining equipment, machine parts and military armor.
Large Diameter Steel Pipe
The Company manufactures large diameter, double submerged arc-welded
("DSAW") steel pipe at its Napa and Camrose Pipe Mills. Large diameter pipe is
manufactured to demanding specifications and is produced in sizes ranging from
16() to 42() in outside diameter with wall thickness of up to 1 1/16() and in
lengths of up to 80 feet. At the Napa Pipe Mill the Company also offers
customers the option of surface processing the steel pipe, which can include
internal and external coating and full body ultrasonic inspection. This process
allows inspection of the ends, long seam welds and entire pipe body for all
types of steelmaking and pipemaking imperfections and records the results for a
permanent record. The Company's large diameter pipe is used primarily in
pressurized underground or underwater oil and gas transmission pipelines where
quality is critical.
The Company's ability to produce high-quality large diameter pipe was
enhanced by the installation of the vacuum degassing facility at the Portland
Mill in 1993. The vacuum degassing process reduces the hydrogen content of the
final product, which increases its resistance to hydrogen-induced cracking. The
vacuum degassing facility enables the Company to produce some of the highest
quality steel plate and line pipe steels and has been key to the Company's
ability to produce large diameter steel pipe for the international pipe market.
Following the closure of the Fontana Plate Mill in the fourth quarter of 1994,
the Company has been required to purchase steel plate to produce steel pipe in
diameters greater than 30(). These purchases will continue until the Combination
Mill is completed. See "Risk Factors -- Availability of Raw Materials."
Large diameter steel pipe is marketed on a global basis, and sales
generally consist of a small number of large orders from natural gas pipeline
companies, public utilities and oil and gas producing companies. In 1993 the
Company began to market large diameter pipe internationally, and the Company
believes this will continue to be an active market for its pipe products in the
longer term.
48
<PAGE> 51
Electric Resistance Welded Pipe
The Company produces smaller diameter ERW pipe at the Camrose Pipe Mill.
ERW pipe is produced in sizes ranging from approximately 4() to 16() outside
diameter. The pipe is manufactured using coiled steel rolled on a high-frequency
electric resistance weld mill. The principal customers for this product are oil
and gas companies that use it for gathering lines to supply product to feed
larger pipeline systems. The principal customers for ERW pipe produced at the
Camrose Pipe Mill are in the provinces of Alberta and British Columbia, where
most of Canada's natural gas and oil reserves are located. The Company believes
its proximity to these gas fields decreases transportation costs and gives the
Company a competitive advantage. Demand for ERW pipe produced at the Camrose
Pipe Mill is largely dependent on the level of exploration and drilling activity
in the gas fields of western Canada.
CF&I STEEL DIVISION
Rail
The Company produces conventional, premium and head-hardened rail at its
Pueblo Mill. The Pueblo Mill is the sole manufacturer of rail west of the
Mississippi River and one of only two rail manufacturers in the United States.
Rails are manufactured in the five most popular rail weights (115 lb/yard
through 136 lb/yard), in 39 and 80 foot lengths as well as quarter mile welded
strings. The primary customers for the Pueblo Mill's rail are the major western
railroads. Rail is also sold directly to rail contractors, transit districts and
short-line railroads.
As part of its capital improvement program, the Company anticipates
improving its rail manufacturing facilities to include the production of in-line
head-hardened and other premium rail. In-line head-hardened rail will be
produced through proprietary finishing technologies not currently used by the
Company for head-hardened rail production. The Company has licensed one such
technology (known as deep head-hardened or DHH technology) from Nippon in
connection with Nippon's investment in New CF&I. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." In 1995 the
Company produced approximately 41,300 tons of head-hardened product using a more
costly off-line process. Rail produced using the improved in-line technology is
considered by many rail customers to be more durable and of higher quality than
rail produced with existing off-line techniques, and the Company believes, based
on discussions with its rail customers, that head-hardened rail produced using
DHH technology is preferred over head-hardened rail manufactured with other
technologies. The Company believes this capability, once achieved, will enhance
the Company's position in the domestic rail market.
Rod Products
The Company historically produced a narrow range of generally low-carbon
rod products at the Pueblo Mill in diameters ranging primarily from 7/32() to
9/16(). The Company's rod products were sold principally to wire drawers in the
midwestern and western states. Typical end uses include a variety of
construction and agricultural applications such as nails, bailing wire and chain
link and woven wire fencing.
The Company's new rod and bar mill has enabled the Company to increase its
rod product offerings. With the old rod and bar mills, the Company was limited
to a 1,100 pound coil size. With the new rod and bar mill, the Company is able
to produce coils of up to 6,000 pounds, which the Company believes are the
largest in the domestic industry and are generally preferred by customers. The
improved steel quality and finishing capabilities allow the Company to
manufacture rods up to 1() in diameter, and over time the Company expects to
manufacture a variety of high-carbon rod products such as those used for spring
wire, wire rope, tire bead and tire cord.
Bar Products
Historically, most of the bar products sold by the Company have been
various grades of concrete reinforcing bar, ranging from 3/8() to 1 3/8() in
diameter. With the new rod and bar mill, the Company expects to manufacture a
broader assortment of higher margin bar products, including merchant quality bar
for use in
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miscellaneous machinery and equipment and small structural uses and special
quality bar for cold drawing, hand tools and other forged applications. As a
result, the Company expects reinforcing bar products to decline as a percentage
of its total volume of bar products.
Wire Products
The Company draws wire and produces various wire products at its Pueblo
Mill. These are principally low carbon wires for uses such as fencing, bailing
wire and wire nails. As rod production is enhanced with the new rod and bar
mill, the range of wire products may also be increased.
Seamless Pipe
Seamless pipe produced at the Pueblo Mill consists of seamless casing,
coupling stock and standard and line pipe. Seamless pipe casing is used as a
structural retainer for the walls of oil or gas wells. Standard and line pipe
are used to transport liquids and gasses both above and underground. The
Company's seamless pipe mill is equipped to produce the most widely used sizes
of seamless pipe (2 3/8() outside diameter through 10 3/4() outside diameter) in
all standard lengths. The Company's production capability includes both carbon
and high quality, high strength (heat-treated) tubular products. The Company
also sells semi-finished seamless pipe (known as "green tubes") for processing
and finishing by others.
Seamless pipe is sold primarily through distributors to a large number of
oil exploration and production companies. Sales of standard and line pipe are
made both through distributors and directly to oil and gas transmission and
production companies. The market for the Company's seamless pipe is primarily
domestic and is focused in the western and southwestern United States. The
demand for this product is determined in large part by the number and drilling
depths of the oil and gas drilling rigs working in the United States.
RAW MATERIALS
The Company's principal raw material for the Portland and Pueblo Mills is
ferrous scrap metal derived from, among other sources, junked automobiles,
railroad cars and railroad track materials and demolition scrap from obsolete
structures, containers and machines. In addition, HBI can substitute for a
limited portion of the scrap used in minimill steel production, although the
sources and availability of HBI are substantially more limited than those of
scrap. The purchase prices for scrap and HBI are subject to market forces
largely beyond the control of the Company including demand by domestic and
foreign steel producers, freight costs, speculation by scrap brokers and other
conditions. The cost of scrap and HBI to the Company can vary significantly, and
the Company's product prices often cannot be adjusted, especially in the short
term, to recover the costs of increases in scrap and HBI prices. See "Risk
Factors -- Availability and Cost of Raw Materials."
To reduce the effects of scrap price volatility and improve access to high
quality raw materials, the Company is seeking to decrease its dependence on
steel scrap as an input for the production process by utilizing HBI. The Company
has successfully integrated HBI into the production process as a low residual
scrap substitute. The Company typically purchases HBI on a contract basis
(whereas scrap is typically purchased on the spot market), which limits the
effects of price fluctuations experienced in the scrap market. To date, the
Company has purchased substantially all of the HBI it has used from a single
source, but it has no long-term contracts for material amounts of HBI and there
is no assurance it will be able to obtain significant quantities of HBI in the
future. See "Risk Factors -- Availability and Cost of Raw Materials."
The Company is exploring the possibility of a project to process iron
oxides into HBI, as well as other direct reduction technologies, such as
fastmet, romelt and iron carbide. The Company may participate in one or more
joint ventures or other arrangements involving one or more of these processes.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local environmental laws and
regulations concerning, among other things, wastewater, air emissions, toxic use
reduction and hazardous materials disposal. The Portland
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and Pueblo Mills are classified in the same manner as other similar steel mills
in the industry as generating hazardous waste materials because the melting
operation produces dust that contains heavy metals ("EAF" dust). This dust,
which constitutes the largest waste stream generated at these facilities, must
be managed in accordance with applicable laws and regulations.
Portland Mill. In 1993 the Environmental Protection Agency ("EPA")
concluded a site assessment of the Portland Mill. The review ranked the facility
as a medium/low corrective action priority for identified solid waste management
units ("SWMUs"). The Company has remediated the medium priority SWMUs and is
evaluating action, if any, necessary with respect to the low priority SWMUs. The
Company's actions are intended to make the property useable for future
development.
Fontana Plate Mill. The property and building at which the Fontana Plate
Mill is located were leased to the Company. The Fontana Plate Mill was formerly
part of a larger integrated steel plant (the "Mill") operated by California
Steel, Inc. ("CSI") on property (the "Mill Property") surrounding the Fontana
Plate Mill. The Company conducted operations at the Fontana Plate Mill site from
December 1989 to March 1995 and generated hazardous substances under
California's regulations, which were disposed of in compliance with applicable
law. The Company closed the Fontana Plate Mill and has reached a lease
termination agreement with CSI. Prior to the use of the Mill Property by the
Company, CSI generated by-products that are now defined as hazardous by federal
and California regulations. CSI has agreed to indemnify the Company for damages,
including the costs for remediation, suffered by the Company as the result of,
or in connection with, toxic or hazardous substances at the Fontana Plate Mill
site, subject to receipt of a written approval from the County Health Department
of satisfactory performance of site cleanup activities. Hazardous substances
have been detected in the soil and groundwater at a number of specific areas
within the Mill Property on the basis of inspections done by the prior owner and
by the EPA. The testing program carried out by the prior owner and the EPA at
the Mill Property did not include sampling at the Fontana Plate Mill site. The
Company conducted only limited testing at the Fontana Plate Mill site, and there
is no assurance that the levels of hazardous substances in the subsurface soils
and groundwater at the Fontana Plate Mill are within permissible limits.
Napa Pipe Mill. The Company acquired the Napa Pipe Mill in 1987. The prior
owner of the mill disposed of certain waste materials, including spent sandblast
materials, mill scale and welding flux, on-site. As a result of these matters
and other actions prior to the acquisition, certain metals were released into
the ground, and certain petroleum based compounds have seeped into the ground
and groundwater at the Napa Pipe Mill. The prior owner of the mill entered into
a stipulated judgment with the County of Napa which required a site
investigation of the Napa Pipe Mill and remediation (to the satisfaction of
local, regional and state environmental authorities) of soil and groundwater
contamination associated with activities conducted at the site prior to its
acquisition by the Company. As a result of the acquisition of the Napa Pipe
Mill, the Company agreed to comply with the terms and requirements of the
stipulated judgment. Proposed plans for investigating and remediating the soil
and water conditions at the Napa Pipe Mill were submitted to local, regional and
state environmental authorities in 1988. The Company is continuing to negotiate
certain terms of the remediation plans with these environmental authorities. In
addition to local, regional and state environmental authorities, the EPA
conducted an investigation of the Napa Pipe Mill and took soil and water samples
at the site. The Company's proposed plans for investigating the soil and water
conditions at the Napa Pipe Mill were furnished to the EPA in 1988. While
awaiting possible further response from the EPA, the Company is proceeding with
its remediation plans as described above. In 1992 the State of California
Environmental Protection Agency, Department of Toxic Substances Control
completed a site screening and recommended a low priority preliminary
endangerment assessment for the Napa Pipe Mill. The total cost of the remedial
action that may be required to correct existing environmental problems at the
Napa Pipe Mill, including remediation of contaminants in the soil and
groundwater, depends on the eventual requirements of the relevant regulatory
authorities. As of December 31, 1995, the Company had expended $6.8 million for
remediation and had accrued reserves of $2.7 million to cover future costs
arising from environmental issues relating to the site.
Camrose Pipe Mill. The Company owns a 60% interest in the Camrose Pipe Mill
located in Camrose, Alberta, Canada. A preliminary assessment of the property at
the Camrose Pipe Mill indicates the presence of limited subsurface petroleum
contamination as a result of previous operations. The assessment also identifies
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the potential for waste waters to have impacted the site. A voluntary assessment
of the potential sources of the subsurface petroleum contamination was conducted
in 1992. In 1995 the Company determined that some of the contamination was due
to on-site processes and took action necessary to prevent further contamination
of the site. The Company will assess other operations to determine their
potential for causing future contamination of the site.
Pueblo Mill. At December 31, 1995 the Company had accrued a reserve of
$35.4 million for environmental remediation at the Pueblo Mill. This reserve is
based upon a range of estimated remediation costs of $23.1 million to $43.6
million. The Company's estimate of this environmental reserve was based on two
remediation investigations conducted by independent environmental engineering
consultants. The reserve includes costs for Resource Conservation and Recovery
Act facility investigation, corrective measures study, remedial action and
operation and maintenance of the remedial actions taken. The State of Colorado
has issued public notice for the post-closure permit of two historic hazardous
waste units at the Pueblo Mill. As part of the post-closure permit requirements,
CF&I must begin a corrective action program for the 82 solid waste management
units at the facility. In October 1995 CF&I and the State of Colorado Department
of Public Health and Environment finalized a post-closure permit, which contains
a prioritized schedule of corrective actions to be completed and substantially
reflects a straight-line rate of expenditure over 30 years. The State of
Colorado has indicated that the schedule for corrective action could be
accelerated if new data indicated a greater threat to the environment than is
currently known to exist. The Company believes the reserve is adequate to cover
the remediation costs.
The Clean Air Act Amendments of 1990 imposed new responsibilities on many
industrial sources of air emissions, including plants owned by the Company. The
Company cannot determine the exact financial impact of the new law because
Congress is continuing to modify it. The impact will depend on a number of
site-specific factors, including the quality of the air in the geographical area
in which a plant is located, rules to be adopted by each state to implement the
law and future EPA rules specifying the content of state implementation plans.
The Company anticipates that it will be required to make additional
expenditures, and will be required to pay higher fees to governmental agencies,
as a result of the new law and future laws regulating air emissions. In
addition, the monitoring and reporting requirements of the new law have
subjected and will subject all air emissions to increased regulatory scrutiny.
The Company submitted applications for permits under Title V of the Clean Air
Act for the Portland and Pueblo Mills in 1995. The Company has budgeted capital
expenditures to comply with Title V requirements in the amount of $7.5 million
over a three-year period beginning in 1996.
The Company's future expenditures for installation of and improvements to
environmental control facilities, remediation of environmental conditions
existing at its properties and other similar matters are difficult to predict
accurately. Environmental legislation and regulations and related administrative
policies have changed rapidly in recent years. It is likely that the Company
will be subject to increasingly stringent environmental standards in the future
(including those under the Clean Air Act Amendments of 1990, the Clean Water Act
Amendments of 1990 storm water permit program and toxic use reduction programs)
and will be required to make additional expenditures, which could be
significant, relating to environmental matters on an ongoing basis. Furthermore,
although the Company has established certain reserves for environmental
remediation as described above, there is no assurance regarding the cost of
remedial measures that might eventually be required by environmental authorities
or that additional environmental hazards, requiring further remedial
expenditures, might not be asserted by such authorities or private parties.
Accordingly, the costs of remedial measures may exceed the amounts reserved.
There is no assurance that expenditures or proceedings of the nature described
above, or other expenditures or liabilities resulting from hazardous substances
located on the Company's property or used or generated in the conduct of its
business, or resulting from circumstances, actions, proceedings or claims
relating to environmental matters, will not have a material adverse effect on
the Company.
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LEGAL PROCEEDINGS
In July 1995 the Oregon Occupational Safety and Health Division ("Oregon
OSHA") cited the Company $1.4 million in penalties for alleged violations of
Oregon occupational safety and health rules. Of the 18 individual citations, 10
were alleged by Oregon OSHA to be willful.
Oregon OSHA claims that a Material Safety Data Sheet ("MSDS") that the
Company had prepared for its glass frit product produced at the Portland Mill
was incomplete in its description of certain metals present in the product.
Oregon OSHA also alleges that certain aspects of the glass plant's lead and
cadmium protection programs were not in complete compliance with applicable OSHA
regulations. The Company has conducted its own investigation of all the alleged
violations and believes no willful violation of the OSHA rules occurred. Oregon
OSHA has pointed out some areas where the Company has not been in complete
technical compliance with certain administrative and recordkeeping rules, and
the Company believes it has promptly corrected those issues. Although the
Company has appealed the citation and believes the final outcome will not have a
material adverse effect on the Company, the Company's appeal may be unsuccessful
and it may be required to pay all or a material portion of the penalties.
The Company is also party to other various claims, disputes, legal actions
and other proceedings involving contracts, employment and various other matters.
In the opinion of management, the outcome of these matters should not have a
material adverse effect on the consolidated financial condition of the Company.
The Company maintains insurance against various risks, including certain
types of product liability. The Company does not maintain insurance against
liability arising out of waste disposal, other environmental matters or
earthquake damage because of the high cost of such insurance. There is no
assurance that insurance currently carried by the Company, including products
liability insurance, will be available in the future at reasonable rates or at
all.
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DESCRIPTION OF THE NOTES
The Notes will be issued under an indenture (the "Indenture") between the
Company, the Guarantors and , as trustee (the "Trustee"). The
following summary of certain provisions of the Indenture, the Mortgages, the
Security Agreements and the Intercreditor Agreement does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
provisions of the Indenture, the Mortgages, the Security Agreements and the
Intercreditor Agreement (forms of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part), including the
definitions of certain terms contained therein and those terms made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended. The
definitions of certain capitalized terms used in the following summary are set
forth below under "-- Certain Definitions". As used in this "Description of the
Notes", all references to the "Company" shall mean Oregon Steel Mills, Inc.,
excluding, unless otherwise expressly stated or unless the context shall
otherwise require, its subsidiaries.
GENERAL
The Notes will be unsubordinated obligations of the Company limited to
$235,000,000 aggregate principal amount. The Guarantors will, jointly and
severally, guarantee the Company's obligations under the Notes. See
"-- Guarantees". The Notes and the Guarantees will be secured by certain
property and assets as described below under "-- Security". Upon issuance, all
Notes will be represented by one or more fully registered global Notes (the
"Global Notes"). See "-- Depository" below. The Notes (including Global Notes)
will be issued only in fully registered form, without coupons, in denominations
of $1,000 and any integral multiple thereof. Likewise, beneficial interests in
Global Notes may be acquired, or subsequently transferred, only in denominations
of $1,000 and integral multiples thereof.
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on , 2003. Interest on the Notes will
accrue at the rate of % per annum and will be payable semiannually on each
and , commencing , 1996, to the holders of record
of Notes at the close of business on the and immediately
preceding such interest payment date. Interest on the Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the original date of issuance (the "Issue Date"). Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
The Notes will not be entitled to the benefit of any mandatory sinking
fund.
REDEMPTION; REPURCHASE
Optional Redemption. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after , 2000, on not
less than 30 nor more than 60 days' prior notice, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and
unpaid interest, if any, to the redemption date, if redeemed during the 12-month
period beginning of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
------------------------------------------------------------------ ----------
<S> <C>
2000.............................................................. %
2001.............................................................. %
2002 and thereafter............................................... 100%
</TABLE>
Offer to Repurchase upon a Change of Control and Certain Asset Sales. In
addition, as described below, the Company is obligated (a) upon the occurrence
of a Change of Control, to make an offer to purchase all outstanding Notes at a
purchase price of 101% of the principal amount thereof, plus accrued and unpaid
interest to the date of purchase, and (b) to make an offer to purchase Notes
with a portion of the net cash proceeds of certain sales or other dispositions
of assets at a purchase price of 100% of the principal amount
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<PAGE> 57
thereof, plus accrued and unpaid interest to the date of purchase. See
"-- Certain Covenants -- Change of Control" and "-- Disposition of Proceeds of
Asset Sales".
Selection and Notice. In the event that less than all of the Notes are to
be redeemed at any time, selection of such Notes for redemption will be made by
the Trustee in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the Notes are
not then listed on a national securities exchange, on a pro rata basis, by lot
or by such method as the Trustee shall deem fair and appropriate; provided,
however, that no Notes shall be redeemed except in a principal amount of $1,000
or an integral multiple of $1,000. Notice of redemption shall be mailed by
first-class mail at least 30 but not more than 60 days before the redemption
date to each holder of Notes to be redeemed at its registered address. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon surrender for
cancellation of the original Note. On and after the redemption date, interest
will cease to accrue on Notes or portions thereof called for redemption, unless
the Company defaults in the payment of the redemption price therefor.
RANKING; HOLDING COMPANY STRUCTURE
The Notes will be unsubordinated obligations of the Company and the
Guarantees will be unsubordinated obligations of the Guarantors. The Notes and
the Guarantees will rank pari passu in right of payment with all existing and
future unsubordinated indebtedness of the Company and the Guarantors,
respectively, except to the extent of any collateral which may be pledged to
secure such other indebtedness. After giving effect to the Offerings, the
Mergers and the application of the estimated net proceeds therefrom as if all
such transactions had occurred on December 31, 1995, the Company and the
Guarantors would have had, in addition to the Notes and excluding intercompany
liabilities, $229 million of consolidated liabilities, including $50.7 million
of unsecured consolidated long-term debt (excluding current portion of $4.6
million).
The Notes will be effectively subordinated to all existing and future
liabilities (whether or not for borrowed money) of the Company to the extent of
any assets serving as collateral for such liabilities, and each Guarantee
likewise will be effectively subordinated to all existing and future liabilities
(whether or not for borrowed money) of the respective Guarantors to the extent
of any assets serving as collateral for such liabilities. In that regard,
borrowings and other obligations under the proposed $125 million Amended Credit
Agreement will be secured by a first priority lien on the Bank Collateral (which
will initially include accounts receivable and inventory and books and records
related thereto of the Company, New CF&I and CF&I and may in the future include
accounts receivable and inventory (and related books and records) of other
subsidiaries), and the Notes and the Guarantees will therefore be effectively
subordinated to indebtedness and other obligations under the Amended Credit
Agreement to the extent of the Bank Collateral. In addition, the Indenture will
permit the Company and the Guarantors to create Liens on certain of their
assets, including Liens securing purchase money indebtedness, and the Notes and
the Guarantees will also be effectively subordinated to such purchase money
indebtedness and other obligations secured by such Liens. See the definition of
"Permitted Liens" under "-- Certain Definitions".
Although the Portland Mill and the Napa Pipe Mill are owned by the Company
directly, the Company conducts substantially all of its other operations through
subsidiaries, effectively subordinating the Notes to all existing and future
liabilities (whether or not for borrowed money) of the Company's subsidiaries
which are not Guarantors. Therefore, the Company's rights and the rights of its
creditors, including holders of the Notes, to participate in the assets of any
subsidiary upon the latter's liquidation or recapitalization will be subject, in
the case of any subsidiary which is not a Guarantor, to the prior claims of such
subsidiary's creditors, except to the extent that the Company itself may be a
creditor with recognized claims against the subsidiary, in which case the claims
of the Company would still be effectively subordinated to any mortgage or other
liens on the assets of such subsidiary and would be subordinated to any
indebtedness of such subsidiary senior to that held by the Company. After giving
effect to the Offerings, the Mergers and the application of the estimated net
proceeds therefrom as if such transactions had occurred on December 31, 1995,
subsidiaries of the Company which are not Guarantors would have had, excluding
liabilities owed to the Company, $16.8 million of consolidated liabilities. This
debt would have included Cdn.$9.2 million of borrowings by Camrose outstand-
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ing under the Cdn.$18 million Camrose Credit Facility which is secured by
Camrose's assets. In addition, borrowings and other obligations under the
Company's proposed Amended Credit Agreement will initially be guaranteed by New
CF&I and CF&I (the "Bank Guarantors"), will be secured by the Bank Collateral
and otherwise will rank pari passu in right of payment with the Guarantees, and
may in the future be guaranteed by other subsidiaries of the Company.
Accordingly, there can be no assurance that, after providing for all prior
claims and for all pari passu claims, there would be sufficient assets available
to satisfy the obligations of the Company and the Guarantors under the Notes and
the Guarantees.
Because the Company conducts substantial operations through its
subsidiaries, the Company is and will be dependent upon the distribution of the
earnings of its subsidiaries, whether in the form of dividends, advances or
payments on account of intercompany obligations, to service its debt
obligations, including the Notes. The Company's subsidiaries are separate and
distinct legal entities and, except for the Guarantors, have no obligation,
contingent or otherwise, to pay any amounts due on the Notes or to make any
funds available therefor. In addition, dividends, loans and advances from
certain subsidiaries to the Company are subject to contractual or other
restrictions, are contingent upon the results of operations of such subsidiaries
and are subject to various business considerations.
Certain of the Company's subsidiaries are not wholly owned. Specifically,
at December 31, 1995, the Pension Benefit Guaranty Corporation (the "PBGC") held
a 4.8% limited partnership interest in CF&I, the subsidiary of the Company which
owns the Pueblo Mill; a subsidiary of Stelco Inc., a Canadian steel producer,
held a 40% general partnership interest in Camrose, the subsidiary of the
Company which owns the Camrose Pipe Mill; and Nippon Steel and Nissho Iwai,
directly or through subsidiaries, held, in the aggregate, 13% of the outstanding
common stock of New CF&I, the subsidiary of the Company through which the
Company holds its general partnership interest in CF&I. As a result, the Company
may owe a fiduciary duty to the holders of minority interests in those
subsidiaries and may therefore be unable to exercise unfettered control over
such subsidiaries. In addition, dividends or other distributions paid or made by
such subsidiaries generally must be paid or made on a pro rata basis to all
holders of equity interests therein, except that the PBGC is entitled to a
priority on certain distributions made by CF&I and, under certain circumstances,
to additional distributions from CF&I. See "Management's Discussion and Analysis
of Financial Conditions and Results of Operations".
GUARANTEES
The Company's obligations under the Notes will be unconditionally
guaranteed, jointly and severally, by the Guarantors. The Guarantees will be
secured in the manner and to the extent summarized below under "-- Security".
The obligations of each Guarantor under its Guarantee will be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of such Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee or pursuant to the
contribution obligations of such other Guarantor under the Indenture, result in
the obligations of such Guarantor under its Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under applicable federal or state
law. See "Risk Factors -- Fraudulent Conveyance Issues".
CF&I and New CF&I will be the initial Guarantors. The Indenture will
provide that any person which becomes a Subsidiary of the Company after the
Issue Date is required to become a Guarantor (unless such Subsidiary is
designated as an Unrestricted Subsidiary). See "-- Certain
Covenants -- Additional Guarantors" and the definition of Unrestricted
Subsidiary under "-- Certain Definitions". However, a number of the Company's
existing subsidiaries (including Camrose) will not be Guarantors. In the
aggregate, the Company's subsidiaries which will not be Guarantors accounted for
approximately 6% of the Company's consolidated total assets and approximately 8%
of the Company's consolidated sales as of and for the year ended December 31,
1995, respectively. See "Risk Factors -- Certain Limitations on the Collateral
and the Guarantees".
The Indenture will provide that, except for a transaction made in
accordance with the provisions described in the immediately following paragraph,
no Guarantor will, in any transaction or series of
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transactions, merge or consolidate with or into, or sell, assign, convey,
transfer, lease or otherwise dispose of all or substantially all of its
properties and assets as an entirety to, any person or persons, unless at the
time of and after giving effect thereto (a) either (i) such Guarantor shall be
the surviving person of such merger or consolidation, or (ii) the person formed
by such consolidation or into which such Guarantor is merged or to which the
properties and assets of such Guarantor are transferred (any such surviving
person or transferee being the "Surviving Person") shall be the Company or a
Wholly-Owned Subsidiary of the Company and shall be a corporation (or if such
Guarantor is CF&I, a corporation or a limited partnership) organized and
existing under the laws of the United States of America, any state thereof or
the District of Columbia and shall expressly assume (except in the case of a
merger into or the transfer of properties and assets to the Company), by a
supplemental indenture executed and delivered to the Trustee in form reasonably
satisfactory to the Trustee, all of the obligations of such Guarantor under its
Guarantee and the Indenture, and shall expressly assume, by amendment,
supplement or other appropriate instrument, executed and delivered to the
Trustee, in form reasonably satisfactory to the Trustee, all of the obligations
of such Guarantor under the Intercreditor Agreement and its Security Documents
and, if such Guarantor is CF&I, all of its obligations under the CF&I Note (and
the Surviving Person shall cause such amendments, supplements or other
instruments to be filed and recorded in such jurisdictions as may be required by
applicable law to preserve and protect the Lien of the Security Documents on the
Collateral owned by such Guarantor, together with such financing statements as
may be required to perfect any security interests in such Collateral); (b) the
Collateral owned by such Guarantor (1) shall continue to constitute Collateral
under the Indenture and the Security Documents, (2) shall be subject to a Lien
in favor of the Trustee (or, in the case of property or assets subject to a
Mortgage, the Trustee or another trustee under such Mortgage) for the benefit of
the holders of the Notes and (3) shall not be subject to any Lien other than
Liens expressly permitted by the Indenture and the Security Documents; (c) the
property and assets of the person which is merged or consolidated with or into
such Guarantor or to which the properties and assets of such Guarantor are
transferred, to the extent that they are property and assets of the types which
would constitute "Trust Property" (as defined in the form of Mortgage attached
as an exhibit to the Indenture) or "Collateral" (as defined in the form of
Security Agreement attached as an exhibit to the Indenture) shall be treated as
After-Acquired Property and such Guarantor or the Surviving Person, as the case
may be, shall cause such property and assets to be made subject to the Lien of
the Security Documents in the manner and to the extent required by the
Indenture; (d) except in the case of a merger into or the transfer of properties
and assets to the Company, (1) immediately before and immediately after giving
effect to such transaction or series of transactions on a pro forma basis
(including, without limitation, any Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction or series of
transactions), no Default or Event of Default shall have occurred and be
continuing and (2) the Company, after giving effect to such transaction or
series of transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), could incur $1.00 of
additional Indebtedness pursuant to the first paragraph of the covenant
described under "-- Certain Covenants -- Limitation on Indebtedness" below
(assuming a market rate of interest with respect to such additional
Indebtedness); and (e) except in the case of a merger into or the transfer of
properties and assets to the Company, immediately after giving effect to such
transaction or series of transactions on a pro forma basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of transactions),
the Consolidated Net Worth of such Guarantor or the Surviving Person, as the
case may be, is at least equal to the Consolidated Net Worth of such Guarantor
immediately before such transaction or series of transactions. In connection
with any consolidation, merger, transfer, lease, assignment or other disposition
subject to the provisions described in this paragraph, the Company shall
deliver, or cause to be delivered, to the Trustee an officers' certificate and
an opinion of counsel, in form reasonably satisfactory to the Trustee, each
stating that such consolidation or merger and the supplemental indenture and
such amendments, supplements or other instruments in respect thereof comply with
the requirements under the Indenture (except that such opinion of counsel need
express no opinion as to the matters referred to in clauses (b)(3), (d) or (e)
above), and the Company and each other Guarantor will be required to confirm, by
supplemental indenture executed and delivered to the Trustee in form reasonably
satisfactory to the Trustee, that its obligations under the Indenture, the
Intercreditor Agreement, its Guarantee and its Security Documents remain in full
force and effect. Upon any consolidation, merger or
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transfer of all or substantially all of the assets of a Guarantor in accordance
with this paragraph in which such Guarantor is not the continuing person, the
successor formed by such consolidation or into which such Guarantor is merged or
to which such transfer is made shall succeed to, and be substituted for, and may
exercise every right and power of, such Guarantor under the Indenture, the
Intercreditor Agreement, its Guarantee and the relevant Security Documents (and
the predecessor Guarantor shall be released from its obligations thereunder)
with the same force and effect as if such successor person had been named as a
Guarantor therein.
Except as provided in the immediately preceding paragraph and under
"-- Certain Covenants" and "-- Merger, Sale of Assets, Etc." below, the Company
is not restricted from selling or otherwise disposing of any Guarantor. The
Indenture will provide that, in the event of a sale or other disposition of all
of the assets of any Guarantor, by way of merger, consolidation or otherwise, or
a sale or other disposition of all of the Capital Stock of any Guarantor (or its
parent) owned by the Company and its Subsidiaries, in each case to a person
which is not the Company or a Subsidiary or Affiliate of the Company and which
is otherwise made in compliance with the Indenture, such Guarantor will be
released from all of its obligations under its Guarantee, the Intercreditor
Agreement, the Indenture and its Security Documents; provided that (i) such
transaction is made in accordance with the provisions described below under
"Certain Covenants -- Disposition of Proceeds of Asset Sales"; and (ii) any such
release shall occur only if (a) all Indebtedness owing by such Guarantor to the
Company or any of its Subsidiaries or Unrestricted Subsidiaries shall have been
paid in full and (b) all obligations of such Guarantor under all of its
guarantees of, and under all of its pledges of assets or other Liens which
secure, Indebtedness of the Company or any of its Subsidiaries or Unrestricted
Subsidiaries shall also terminate. Prior to any transaction which will result in
the release of a Guarantor from its Guarantee pursuant to this paragraph, the
Company will deliver an officers' certificate to the Trustee stating that such
transaction will be effected in accordance with the provisions of this paragraph
in order to obtain the release of such Guarantor.
SECURITY
Pursuant to the Mortgages to be entered into by the Company, the
obligations of the Company under the Notes will be secured by the following
assets owned by the Company, subject to certain permitted exceptions and
encumbrances and other than, among other things, assets described in the
following paragraph: the real property in Portland, Oregon on which the Portland
Mill and related heat treatment facility are located and the real property in
Napa, California on which the Napa Pipe Mill is located, together in each case
with substantially all existing and future buildings, improvements and fixtures
located on such real property and all proceeds therefrom, and the Company's
interest, as tenant, under a lease of office space located at 1000 S.W.
Broadway, Portland, Oregon. Pursuant to the Mortgage to be entered into by CF&I,
the obligations of CF&I under its Guarantee will be secured by the following
assets owned by CF&I, subject to certain permitted exceptions and encumbrances
and other than, among other things, assets described in the following paragraph:
substantially all of the real property in Pueblo County, Colorado on which the
Pueblo Mill and the related rail welding facility are located, together with
substantially all existing and future buildings, improvements and fixtures
located on such real property and all proceeds of the foregoing, and certain
real property in Fremont County, Colorado on which the canal for water to the
Pueblo Mill is located and all proceeds of the foregoing. Pursuant to the
Security Agreement to be entered into by the Company, the obligations of the
Company under the Notes will be secured by the following assets owned by the
Company and, pursuant to the Security Agreements to be entered into by CF&I and
New CF&I, the obligations of each such Guarantor under its Guarantee will be
secured by, among other things, the following assets owned by such Guarantor,
subject to certain permitted exceptions and encumbrances and other than, among
other things, assets described in the following paragraph: (i) substantially all
existing and future machinery and equipment (to the extent it constitutes
personal property), other than motor vehicles and certain mobile equipment
(including mobile cranes, loaders, forklifts, trailers, backhoes, towmotors and
graders), (ii) certain existing and future intangibles (other than those which
by their terms cannot be assigned or pledged without consent unless such consent
has been obtained), and (iii) all proceeds and products of any of the foregoing.
However, the Collateral will not include, among other things, (i) any Bank
Collateral (which includes inventory and accounts receivable and books and
records related thereto and which will be pledged to secure
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the obligations under the Amended Credit Agreement), (ii) any Excluded
Securities (which include the partnership interests in CF&I and the Capital
Stock of each other Subsidiary and each Unrestricted Subsidiary of the Company),
(iii) any Intercompany Indebtedness, (iv) any leases, rents, contracts,
licenses, instruments or intangibles which by their terms cannot be assigned
without consent, or (v) any Excluded Assets. Excluded Assets include, among
other things, (i) assets encumbered by purchase money Liens, (ii) the existing
steel plate rolling mill at the Portland Mill (but only after it has been
replaced by the Combination Mill), (iii) the old rod mill at the Pueblo Mill
(which has been replaced by the new rod and bar mill), (iv) the steel plate
rolling mill at the Fontana Plate Mill (which has been closed and is being
dismantled), (v) approximately 74 acres of real property adjacent to the site of
the Portland Mill (together with all buildings, improvements and fixtures
thereon and all leases, rents and other rights relating to such real property or
to such buildings, improvements or fixtures), (vi) an approximately 450,000
square foot tube mill building at the Pueblo Mill (which building is not being
used by the Company) known as Tube Mill No. 2, approximately 35 acres of land on
which such building and related parking and storage areas are situated, and
related non-exclusive rights or easements for access and utilities, together
with all related fixtures and all proceeds, leases, rents and other rights
relating to such real property, building and fixtures, (vii) certain motor
vehicles and mobile equipment (including mobile cranes, loaders, forklifts,
trailers, backhoes, towmotors and graders) owned by CF&I, and (viii) all other
motor vehicles. With respect to the rights and easements referred to in clause
(vi) of the preceding sentence, such rights and easements will run across real
property at the Pueblo Mill pledged by CF&I as Collateral for its Guarantee, and
the Trustee will not be entitled to terminate such rights and easements in the
event of a foreclosure of the Mortgage granted by CF&I. Furthermore, New CF&I is
a holding company whose only material assets consist of the general partnership
interest in CF&I and the capital stock of Colorado & Wyoming Railway Company, a
subsidiary, none of which will be pledged as collateral for its Guarantee. As a
result, the Guarantee of New CF&I will initially not be secured by any assets
and will only be secured if and to the extent that New CF&I acquires any real
property, buildings, equipment or certain other types of assets (other than Bank
Collateral, Excluded Securities, Intercompany Indebtedness and other Excluded
Assets) in the future. In addition, a number of the Company's subsidiaries
(including Camrose and CPC) will not be Guarantors and the Collateral will not
include any real or personal property of such subsidiaries.
No appraisals of any of the Collateral have been prepared by or on behalf
of the Company in connection with this offering. The consolidated book value
(net of depreciation) of the property, plant and equipment included in the
Collateral as of December 31, 1995 was approximately $468 million. The value of
the Collateral in the event of a liquidation will depend upon market and
economic conditions, the availability of buyers and similar factors.
Accordingly, there can be no assurance that the proceeds of any sale of the
Collateral pursuant to the Indenture and the related Security Documents
following an Event of Default would be sufficient to satisfy, or would not be
substantially less than, payments due on the Notes. See "Risk Factors -- Certain
Limitations on the Collateral and the Guarantees". If the proceeds of any sale
of the Collateral were not sufficient to repay all amounts due on the Notes, the
holders of the Notes (to the extent not repaid from the proceeds of the sale of
the Collateral) would have only an unsecured claim against the remaining assets
of the Company and, subject to the limitations referred to under "Risk
Factors -- Fraudulent Conveyance Issues", the Guarantors. See, also, "Risk
Factors -- Ranking; Holding Company Structure". By its nature, some or all of
the Collateral will be illiquid and may have no readily ascertainable market
value. Likewise, there can be no assurance that the Collateral will be saleable
or, if saleable, that there will not be substantial delays in its liquidation.
To the extent that Liens, rights and easements granted to third parties encumber
assets located on property owned by the Company or any Guarantor, such third
parties have or may exercise rights and remedies with respect to the property
subject to such liens that could adversely affect the value of the Collateral
located at such site and the ability of the Trustee or the holders of the Notes
to realize or foreclose on Collateral at such site.
The obligations of each Guarantor under its Guarantee of the Notes, and the
grant by each Guarantor of a lien on certain of its assets to secure its
obligations under its Guarantee, may be subject to review under various laws for
the protection of creditors, including, without limitation, laws governing
fraudulent conveyances and transfers. To the extent that the obligations of any
Guarantor under its Guarantee, or the lien on Collateral granted by any
Guarantor, were held to be unenforceable as a fraudulent conveyance or transfer
or
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for any other reasons, the holders of Notes would cease to have any direct claim
in respect of such Guarantor and would also cease to have any lien on the assets
of such Guarantor. In an attempt to avoid this result, the Guarantees will
provide that the obligations of each Guarantor thereunder are limited to the
maximum amount as will not constitute a fraudulent conveyance or fraudulent
transfer under applicable law, and such amount could be substantially less than
the obligations on the Notes. In addition, any limitation on the amounts payable
by a Guarantor under its Guarantee pursuant to such provision will result in a
corresponding limitation on the ability of the Trustee to realize upon the
Collateral pledged by such Guarantor. See "Risk Factors -- Fraudulent Conveyance
Issues".
The collateral release provisions of the Indenture permit the release of
Collateral without the substitution of additional collateral under certain
circumstances, including in connection with certain Asset Sales. See
"-- Possession, Use and Release of Collateral" and "-- Trust Moneys". As
described under "--Certain Covenants -- Disposition of Proceeds of Asset Sales",
the Net Cash Proceeds of Asset Sales may be required to be utilized to make an
offer to purchase Notes. To the extent an offer to purchase Notes is not
subscribed to by holders thereof on the basis described under "Certain
Covenants -- Disposition of Proceeds of Asset Sales", the unutilized Net Cash
Proceeds will be retained by the Company, free and clear of the Lien of the
Indenture and the Security Documents. In addition, the term "Asset Sale", as
defined in the Indenture, will exclude certain sales or other dispositions of
assets, including, subject to limited exceptions, sales of Excluded Assets. See
"-- Certain Definitions." As a result, the Company and its Subsidiaries will be
permitted to sell certain assets without compliance with the foregoing
provisions. In addition, the Collateral will be released as security for the
Notes and the Guarantees upon a legal defeasance of the Notes or upon discharge
of the Indenture (see "-- Defeasance or Covenant Defeasance of Indenture" and
"-- Satisfaction and Discharge") and, upon the release of any Guarantor as
described in the last paragraph under "-- Guarantees" above, the Collateral
pledged by such Guarantor will be released as security for its Guarantee. The
Indenture will also permit the release of Collateral (other than Trust Moneys)
at the request of the Company from time to time; provided that the aggregate
Fair Market Value of any Collateral so released in any single transaction, or
series of related transactions, shall not exceed $250,000 and the aggregate Fair
Market Value of all Collateral so released in any calendar year shall not exceed
$1,000,000. The Indenture also will permit the release of Collateral taken by
eminent domain, condemnation or in similar circumstances.
If an Event of Default occurs under the Indenture, the Trustee, on behalf
of the holders of the Notes, in addition to any rights or remedies available to
it under the Indenture, may take such action as it deems advisable to protect
and enforce its rights in the Collateral, including the institution of
foreclosure proceedings. Except as may otherwise be required by applicable law,
the proceeds received by the Trustee from any foreclosure will be applied by the
Trustee first to pay costs and expenses of foreclosure (and related costs and
expenses), fees and other amounts then payable to the Trustee under the
Indenture and the Intercreditor Agreement and amounts due under the Security
Documents, and thereafter to pay the principal of, premium, if any, and interest
on the Notes.
Real property pledged as security to a lender may be subject to known and
unforeseen environmental risks, and these risks may reduce or eliminate the
value of such real property as collateral for the Notes. In that regard, the
Portland Mill and Pueblo Mill are classified in the same manner as other similar
steel mills in the industry as generating hazardous waste materials, and the
Company has been required to undertake certain actions to remediate
environmental conditions at the Portland Mill, the Pueblo Mill and the Napa Pipe
Mill. See "Business -- Environmental Matters". Under the Indenture, the Trustee
may, prior to taking certain actions, request that holders of Notes provide an
indemnification against the Trustee's costs, expenses and liabilities, which
could include liabilities under environmental laws. See "Risk Factors -- Risk to
Secured Lenders under Environmental Laws".
The right of the Trustee to repossess and dispose of the Collateral upon
the occurrence of an Event of Default under the Indenture is likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy case were to
be commenced by or against the Company or any of its subsidiaries (including any
Guarantor) prior to the Trustee having repossessed and disposed of the
Collateral, and, in the case of real property Collateral, could also be
significantly impaired by restrictions under state law. See "Risk
Factors -- Certain Bankruptcy Limitations" and "Risk Factors -- Certain
Limitations under State Law". Dispositions of
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Collateral may be subject to delay pursuant to an Intercreditor Agreement to be
entered into with the agent under the Amended Credit Agreement. See
"-- Intercreditor Agreement".
INTERCREDITOR AGREEMENT
Prior to the consummation of the offering made hereby, the Trustee, on
behalf of the holders of Notes, will enter into an Intercreditor Agreement with
the Company, the Guarantors and the Bank Agent under the Amended Credit
Agreement. The Intercreditor Agreement will provide, among other things, that
(i) the Trustee and the Bank Agent will provide prompt notices to each other
with respect to the acceleration of the Notes or the indebtedness under the
Amended Credit Agreement, as the case may be, and the commencement of any action
to enforce the rights of the holders of Notes, the Trustee, the lenders under
the Amended Credit Agreement or the Bank Agent with respect to the Collateral or
the Bank Collateral, as the case may be; and (ii) following the issuance of a
notice of enforcement, the Bank Agent may enter upon all or any portion of the
premises of the Company or any of its subsidiaries, use the Collateral to the
extent necessary to complete the manufacture of inventory, collect accounts
receivable and remove, sell or otherwise dispose of the Bank Collateral. The
right of the Bank Agent to enter the premises and use the Collateral as
aforesaid could delay liquidation of the Collateral.
DEPOSITORY
Upon issuance, all Notes will be represented by one or more fully
registered Global Notes. Each such Global Note will be deposited with, or on
behalf of, The Depository Trust Company, as depository (the "Depository"), and
registered in the name of the Depository or a nominee thereof. Unless and until
it is exchanged in whole or in part for Notes in definitive form, no Global Note
may be transferred except as a whole by the Depository to a nominee of such
Depository or by a nominee of such Depository to such Depository or to another
nominee of such Depository or by such Depository or any such nominee to a
successor of such Depository or a nominee of such successor.
The Depository has advised the Company as follows: the Depository is a
limited-purpose trust company organized under the Banking Law of the State of
New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depository was created to hold securities of its participants
("Participants") and to facilitate the clearance and settlement of securities
transactions among its Participants in such securities through electronic
book-entry changes in accounts of the Participants, thereby eliminating the need
for physical movement of securities certificates. The Depository's Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations, and certain other organizations. The Depository is owned by a
number of Participants and by the New York Stock Exchange, Inc., the American
Stock Exchange, Inc. and the National Association of Securities Dealers, Inc.
Access to the Depository's book-entry system is also available to others, such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
Purchases of Notes must be made by or through Participants, which will
receive a credit on the records of the Depository. The ownership interest of
each actual purchaser of a Note (the "Beneficial Owner") is in turn to be
recorded on the Participants' or Indirect Participants' records. Beneficial
Owners will not receive written confirmation from the Depository of their
purchase, but Beneficial Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the Participant or Indirect Participant through which the
Beneficial Owner entered into the transaction. Ownership of beneficial interests
in Global Notes will be shown on, and the transfer of such ownership interests
will be effected only through, records maintained by the Depository (with
respect to interests of Participants) and on the records of Participants(with
respect to interests of persons held through Participants). The laws of some
states may require that certain purchasers of securities take physical delivery
of such securities in definitive form. Such limits and such laws may impair the
ability to own, transfer or pledge beneficial interests in Global Notes.
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So long as the Depository, or its nominee, is the registered owner of a
Global Note, the Depository or its nominee, as the case may be, will be
considered the sole owner or holder of the Notes represented by such Global Note
for all purposes under the Indenture. Except as provided below, Beneficial
Owners of a Global Note will not be entitled to have the Notes represented by
such Global Note registered in their names, will not receive or be entitled to
receive physical delivery of the Notes in definitive form and will not be
considered the owners or holders thereof under the Indenture. Accordingly, each
person owning a beneficial interest in a Global Note must rely on the procedures
of the Depository and, if such person is not a Participant, on the procedures of
the Participant through which such person owns its interest, to exercise any
rights of a holder under the Indenture. The Company understands that under
existing industry practices, in the event that the Company requests any action
of holders of Notes or an owner of a beneficial interest in a Global Note
desires to give or take any action which the holder of a Note is entitled to
give or take under the Indenture, the Depository would authorize the
Participants holding the relevant beneficial interests to give or take such
action, and such Participants would authorize Beneficial Owners owning through
such Participants to give or take such action or would otherwise act upon the
instructions of Beneficial Owners. Conveyance of notices and other
communications by the Depository to Participants, by Participants to Indirect
Participants, and by Participants and Indirect Participants to Beneficial Owners
will be governed by arrangements among them, subject to any statutory or
regulatory requirements as may be in effect from time to time.
Payment of the principal of, premium, if any, and interest on Notes
registered in the name of the Depository or its nominee will be made to the
Depository or its nominee, as the case may be, as the holder of the Global Note
or Global Notes representing such Notes. None of the Company, the Trustee or any
other agent of the Company or agent of the Trustee will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests or for supervising or reviewing any
records relating to such beneficial ownership interests. The Company expects
that the Depository, upon receipt of any payment of principal, premium, if any,
or interest in respect of a Global Note will credit the accounts of the
Participants with payment in amounts proportionate to their respective holdings
in principal amount of beneficial interest in such Global Note as shown on the
records of the Depository. The Company also expects that payments by
Participants to Beneficial Owners will be governed by standing customer
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name", and
will be the responsibility of such Participants.
If (x) the Depository is at any time unwilling, unable or ineligible to
continue as Depository and a successor depository is not appointed by the
Company within 60 days after the Company is so informed in writing or becomes
aware of the same, or (y) an Event of Default has occurred and is continuing,
the Global Notes will be exchanged for Notes in definitive form of like tenor
and of an equal aggregate principal amount, in denominations of $1,000 and
integral multiples thereof. However, prior to the issuance of definitive Notes
in exchange for Global Notes pursuant to clause (y) of the preceding sentence,
the Trustee shall promptly consult with local counsel, selected by the Trustee
(and the Company shall pay the fees or disbursements of such counsel), in the
jurisdictions in which any real property (or interests therein), buildings,
improvements or fixtures covered by a Mortgage are located and if any such
counsel shall advise the Trustee that the Trustee will or may be required to
own, deliver or present certificates evidencing the Notes in order to foreclose
upon, sell or otherwise exercise its rights or remedies with respect to, or to
release, any such Collateral, then no definitive Notes shall be issued until (i)
such requirements to own, deliver or present Notes shall have been satisfied or
(ii) holders of at least a majority in aggregate principal amount of the
outstanding Notes shall have directed the Trustee to issue definitive Notes.
Such definitive Notes shall be registered in such name or names as the
Depository shall instruct the Trustee. It is expected that such instructions may
be based upon directions received by the Depository from Participants with
respect to ownership of beneficial interests in Global Notes.
No service charge will be made for the registration of transfer or exchange
of Notes, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. Principal of,
premium, if any, and interest on definitive Notes (if issued) will be payable
and Notes may be surrendered for registration of transfer or exchange at the
office or agency of the Company maintained for such purpose in The City of New
York, located initially at the corporate trust office of the Trustee. At the
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option of the Company, payment of interest on definitive Notes (if issued) may
be made by check mailed to the addresses of the persons entitled thereto as they
appear on the securities register.
Same-Day Settlement and Payment. Settlement for the Notes will be made by
the Underwriters in immediately available funds. All payments of principal of,
premium, if any and interest on the Notes will be made by the Company in
immediately available funds, so long as the Notes are maintained in book-entry
form.
CERTAIN COVENANTS
The Indenture will contain the following covenants, among others:
Limitation on Indebtedness. The Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or in any manner become directly or indirectly liable, contingently or
otherwise, for the payment of (in each case, to "incur") any Indebtedness
(including, without limitation, any Acquired Indebtedness); provided, however,
that the Company or any of its Subsidiaries will be permitted to incur
Indebtedness (including, without limitation, Acquired Indebtedness) if (a) at
the time of such incurrence, and after giving pro forma effect thereto, the
Consolidated Fixed Charge Coverage Ratio of the Company is at least equal to (i)
in the case of Indebtedness incurred prior to , 1998, 2 to 1 and
(ii) in the case of Indebtedness incurred on or after , 1998, 2.5 to
1, (b) such Indebtedness has no scheduled principal payment prior to the 91st
day after the Final Maturity Date and (c) no Default or Event of Default shall
have occurred and shall be continuing at the time of such incurrence or would
result as a consequence of such incurrence.
Notwithstanding the foregoing, the Company and its Subsidiaries may, to the
extent specifically set forth below, incur each and all of the following:
(a) Indebtedness of the Company under the Indenture or evidenced by
the Notes and Indebtedness of any Guarantor evidenced by its Guarantee;
(b) Indebtedness of the Company and its Subsidiaries outstanding on
the Issue Date;
(c) Indebtedness of the Company under the Credit Agreement in an
aggregate principal amount at any one time outstanding not exceeding the
greater of (x) $125,000,000 and (y) the sum of 50% of the amount of
inventory and 80% of the amount of accounts receivable of the Company and
its Subsidiaries determined on a consolidated basis in accordance with
GAAP, less in the case of each of clause (x) and (y) the aggregate amount
of Indebtedness under the Credit Agreement which has been repaid with the
Net Cash Proceeds of Asset Sales; and the guarantee by any Subsidiary of
Indebtedness of the Company incurred in compliance with this subparagraph;
(d) (i) Interest Rate Protection Obligations of the Company covering
Indebtedness of the Company or a Subsidiary of the Company and (ii)
Interest Rate Protection Obligations of any Subsidiary of the Company
covering Indebtedness of such Subsidiary; provided, however, that, in the
case of either clause (i) or (ii), (A) any Indebtedness to which any such
Interest Rate Protection Obligations relates bears interest at fluctuating
interest rates and is otherwise permitted to be incurred under this
covenant and (B) the notional principal amount of any such Interest Rate
Protection Obligations does not exceed the principal amount of the
Indebtedness to which such Interest Rate Protection Obligations relate,
provided that, notwithstanding the foregoing provisions of this clause (B),
the Company and its Subsidiaries may also enter into Interest Rate
Protection Obligations relating to Indebtedness which they anticipate will
be incurred so long as (x) the aggregate notional principal amount of such
Interest Rate Protection Obligations does not exceed the lesser of
$50,000,000 and the aggregate principal amount of Indebtedness they
anticipate will be incurred, and (y) such Interest Rate Protection
Obligations are treated as a hedge under GAAP and otherwise comply with the
other provisions of this subparagraph (d);
(e) Indebtedness of a Wholly-Owned Subsidiary owed to and held by the
Company or another Wholly-Owned Subsidiary, in each case which is unsecured
and is not subordinated in right of payment to any Indebtedness of such
Subsidiary, except that (i) any transfer of such Indebtedness by the
Company or a Wholly-Owned Subsidiary (other than to the Company or to a
Wholly-Owned
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Subsidiary) and (ii) the sale, transfer or other disposition by the Company
or any Subsidiary of the Company of Capital Stock of a Wholly-Owned
Subsidiary which is owed Indebtedness of another Wholly-Owned Subsidiary
such that it ceases to be a Wholly-Owned Subsidiary of the Company shall,
in each case, be an incurrence of Indebtedness by such Subsidiary subject
to the other provisions of this covenant;
(f) Indebtedness of the Company owed to and held by a Wholly-Owned
Subsidiary of the Company which is unsecured and subordinated in right of
payment to the payment and performance of the Company's obligations under
the Indenture and the Notes except that (i) any transfer of such
Indebtedness by a Wholly-Owned Subsidiary of the Company (other than to
another Wholly-Owned Subsidiary of the Company) and (ii) the sale, transfer
or other disposition by the Company or any Subsidiary of the Company of
Capital Stock of a Wholly-Owned Subsidiary which holds Indebtedness of the
Company such that it ceases to be a Wholly-Owned Subsidiary shall, in each
case, be an incurrence of Indebtedness by the Company, subject to the other
provisions of this covenant;
(g) Indebtedness under Currency Agreements; provided that in the case
of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Subsidiaries outstanding other than as a result of fluctuations in foreign
currency exchange rates or by reason of fees, indemnities and compensation
payable thereunder;
(h) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two business days of incurrence;
(i) Indebtedness (including Indebtedness represented by letters of
credit) incurred in respect of bid or performance bonds provided in the
ordinary course of business;
(j) Indebtedness of the Company or any of its Subsidiaries represented
by letters of credit for the account of the Company or such Subsidiary, as
the case may be, in order to provide security for workers' compensation
claims, payment obligations in connection with self-insurance or similar
requirements in the ordinary course of business or which letters of credit
were otherwise issued in the ordinary course of business and not in
connection with or in respect of liabilities for borrowed money,
obligations evidenced by bonds, notes, debentures or other similar
instruments, Capital Leases or guarantees in respect thereof;
(k) Indebtedness of the Company or any Subsidiary of the Company in
addition to that described in clauses (a) through (j) above and (l) below,
in an aggregate principal amount outstanding at any time not exceeding
$30,000,000;
(l) unsecured Indebtedness of CF&I evidenced by any promissory note
which CF&I is required to deliver to one of its limited partners pursuant
to Section 7.1 of the CF&I Partnership Agreement (as in effect on the Issue
Date) or incurred pursuant to Section 7.3-2(ii)(2) of the CF&I Partnership
Agreement (as in effect on the Issue Date) to finance a shortfall in a
required cash distribution to a limited partner of CF&I;
(m) (i) Indebtedness of the Company the proceeds of which are used
solely to refinance (whether by amendment, renewal, extension or refunding)
Indebtedness of the Company or any of its Subsidiaries and (ii)
Indebtedness of any Subsidiary of the Company the proceeds of which are
used solely to refinance (whether by amendment, renewal, extension or
refunding) Indebtedness of such Subsidiary, in each case other than (I)
Indebtedness under (or guarantees of Indebtedness under) the Old Credit
Agreement or any other Indebtedness refinanced, redeemed or retired with
the proceeds from sale of the Notes or from the Common Stock Offering and
(II) Indebtedness under clause (c), (d), (e), (f), (g), (h), (i), (j), (k)
or (l) of this covenant; provided, however, that (x) the principal amount
of Indebtedness incurred pursuant to this clause (m) (or, if such
Indebtedness provides for an amount less than the principal amount thereof
to be due and payable upon a declaration of acceleration of the maturity
thereof, the original issue price of such Indebtedness) shall not exceed
the sum of the principal amount of Indebtedness so refinanced, plus the
amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of such Indebtedness or the amount of any
premium
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reasonably determined by the Board of Directors of the Company as necessary
to accomplish such refinancing by means of a tender offer or privately
negotiated purchase, plus the amount of expenses in connection therewith,
(y) in the case of Indebtedness incurred by the Company or a Subsidiary
pursuant to this clause (m) to refinance Subordinated Indebtedness, such
Indebtedness (A) has no scheduled principal payment prior to the 91st day
after the Final Maturity Date, (B) has an Average Life to Stated Maturity
greater than the remaining Average Life to Stated Maturity of the Notes and
(C) is subordinated to the Notes or to the Guarantee of such Subsidiary, as
the case may be, in the same manner and to the same extent that the
Subordinated Indebtedness being refinanced is subordinated to the Notes or
to the Guarantee of such Subsidiary, as the case may be, and (z) in the
case of Indebtedness incurred by the Company or a Subsidiary pursuant to
this clause (m) to refinance Pari Passu Indebtedness, such Indebtedness (A)
has no scheduled principal payment prior to the 91st day after the Final
Maturity Date, (B) has an Average Life to Stated Maturity greater than the
remaining Average Life to Stated Maturity of the Notes and (C) constitutes
Pari Passu Indebtedness or Subordinated Indebtedness.
Limitation on Restricted Payments. The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly:
(a) declare or pay any dividend or make any other distribution or
payment on or in respect of Capital Stock of the Company or any of its
Subsidiaries or any payment made to the direct or indirect holders (in
their capacities as such) of Capital Stock of the Company or any of its
Subsidiaries (other than (w) dividends or distributions payable solely in
Capital Stock of the Company (other than Redeemable Capital Stock) or in
options, warrants or other rights to purchase Capital Stock of the Company
(other than Redeemable Capital Stock), (x) the declaration or payment of
dividends or other distributions to the extent declared or paid to the
Company or any Subsidiary of the Company, (y) the declaration or payment of
dividends or other distributions by any Subsidiary of the Company to all
holders of Capital Stock of such Subsidiary on a pro rata basis and (z) the
declaration or payment of distributions by CF&I to holders of its limited
and general partnership interests in accordance with the terms of the CF&I
Partnership Agreement as in effect on the Issue Date),
(b) purchase, redeem, defease or otherwise acquire or retire for value
any Capital Stock of the Company or any of its Subsidiaries (other than any
such Capital Stock owned by a Wholly-Owned Subsidiary of the Company which
is a Guarantor),
(c) make any principal payment on, or purchase, defease, repurchase,
redeem or otherwise acquire or retire for value, prior to any scheduled
maturity, scheduled repayment, scheduled sinking fund payment or other
Stated Maturity, any Subordinated Indebtedness or Pari Passu Indebtedness
(other than any such Indebtedness owned by the Company or a Wholly-Owned
Subsidiary of the Company which is a Guarantor and other than any such Pari
Passu Indebtedness under the Credit Agreement), or
(d) make any Investment (other than any Permitted Investment) in any
person
(such payments or Investments described in the preceding clauses (a), (b), (c)
and (d) are collectively referred to as "Restricted Payments"), unless, at the
time of and after giving effect to the proposed Restricted Payment (the amount
of any such Restricted Payment, if other than cash, shall be the Fair Market
Value on the date of such Restricted Payment of the asset(s) proposed to be
transferred by the Company or such Subsidiary, as the case may be, pursuant to
such Restricted Payment), (A) no Default or Event of Default shall have occurred
and be continuing, (B) immediately prior to and after giving effect to such
Restricted Payment, the Company would be able to incur $1.00 of additional
Indebtedness pursuant to the first paragraph of the covenant described under
"-- Limitation on Indebtedness" above (assuming a market rate of interest with
respect to such additional Indebtedness) and (C) the aggregate amount of all
Restricted Payments declared or made from and after the Issue Date would not
exceed the sum of (1) 50% of the aggregate Consolidated Net Income of the
Company accrued on a cumulative basis during the period beginning on the first
day of the fiscal quarter of the Company during which the Issue Date occurs and
ending on the last day of the fiscal quarter of the Company immediately
preceding the date of such proposed Restricted Payment, which period shall be
treated as a single accounting period (or, if such aggregate cumulative
Consolidated Net
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Income of the Company for such period shall be a deficit, minus 100% of such
deficit) plus (2) the aggregate net cash proceeds received by the Company either
(x) as capital contributions to the Company after the Issue Date from any person
(other than a Subsidiary or an Unrestricted Subsidiary of the Company) or (y)
from the issuance or sale of Capital Stock (excluding Redeemable Capital Stock
and excluding shares of Common Stock (including any shares issued upon exercise
of the underwriters' over-allotment option) issued in the Common Stock Offering,
but including Capital Stock issued upon the conversion of convertible
Indebtedness or from the exercise of options, warrants or rights to purchase
Capital Stock (other than Redeemable Capital Stock)) of the Company to any
person (other than to a Subsidiary or an Unrestricted Subsidiary of the Company)
after the Issue Date plus (3) in the case of the disposition or repayment of any
Investment which was made after the Issue Date and which constituted a
Restricted Payment (excluding any Investment described in clause (v) of the
following paragraph), an amount equal to the lesser of the return of capital
with respect to such Investment and the cost of such Investment, in either case,
less the cost of the disposition of such Investment. For purposes of the
preceding clause (C)(2), the value of the aggregate net proceeds received by the
Company upon the issuance of Capital Stock upon the conversion of convertible
Indebtedness or upon the exercise of options, warrants or rights will be the net
cash proceeds received upon the issuance of such Indebtedness, options, warrants
or rights plus the incremental cash amount received by the Company upon the
conversion or exercise thereof.
None of the foregoing provisions will prohibit (i) the payment of any
dividend within 60 days after the date of its declaration, if at the date of
declaration such payment would be permitted by the foregoing paragraph; (ii) so
long as no Default or Event of Default shall have occurred and be continuing,
the redemption, repurchase or other acquisition or retirement of any shares of
any class of Capital Stock of the Company or any Subsidiary of the Company in
exchange for, or out of the net cash proceeds of, a substantially concurrent (x)
capital contribution to the Company from any person (other than a Subsidiary or
an Unrestricted Subsidiary of the Company) or (y) issue and sale of other shares
of Capital Stock (other than Redeemable Capital Stock and other than shares of
Common Stock (including any shares issued upon exercise of the underwriters'
over-allotment option) issued in the Common Stock Offering) of the Company to
any person (other than to a Subsidiary or an Unrestricted Subsidiary of the
Company); provided, however, that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase or other acquisition or
retirement shall be excluded from clause (C)(2) of the preceding paragraph;
(iii) so long as no Default or Event of Default shall have occurred and be
continuing, any redemption, repurchase or other acquisition or retirement of
Subordinated Indebtedness by exchange for, or out of the net cash proceeds of, a
substantially concurrent (x) capital contribution to the Company from any person
(other than a Subsidiary or an Unrestricted Subsidiary of the Company) or (y)
issue and sale of (1) Capital Stock (other than Redeemable Capital Stock and
other than shares of Common Stock (including any shares issued upon exercise of
the underwriters' over-allotment option) issued in the Common Stock Offering) of
the Company to any person (other than to a Subsidiary or an Unrestricted
Subsidiary of the Company); provided, however, that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase or other
acquisition or retirement shall be excluded from clause (C)(2) of the preceding
paragraph; or (2) Indebtedness of the Company issued to any person (other than a
Subsidiary or an Unrestricted Subsidiary of the Company), so long as such
Indebtedness is Subordinated Indebtedness which (x) has no Stated Maturity
earlier than the 91st day after the Final Maturity Date, (y) has an Average Life
to Stated Maturity equal to or greater than the remaining Average Life to Stated
Maturity of the Notes and (z) is subordinated to the Notes in the same manner
and at least to the same extent as the Subordinated Indebtedness so purchased,
exchanged, redeemed, acquired or retired; (iv) so long as no Default or Event of
Default shall have occurred and be continuing, any redemption, repurchase or
other acquisition or retirement of Pari Passu Indebtedness by exchange for, or
out of the net cash proceeds of, a substantially concurrent (x) capital
contribution to the Company from any person (other than a Subsidiary or an
Unrestricted Subsidiary of the Company) or (y) issue and sale of (1) Capital
Stock (other than Redeemable Capital Stock and other than shares of Common Stock
(including any shares issued upon exercise of the underwriters' over-allotment
option) issued in the Common Stock Offering) of the Company to any person (other
than to a Subsidiary or an Unrestricted Subsidiary of the Company); provided,
however, that the amount of any such net cash proceeds that are utilized for any
such redemption, repurchase or other acquisition or retirement is excluded from
clause
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(C)(2) of the preceding paragraph; or (2) Indebtedness of the Company issued to
any person (other than a Subsidiary or an Unrestricted Subsidiary of the
Company), so long as such Indebtedness is Subordinated Indebtedness or Pari
Passu Indebtedness which (x) has no Stated Maturity earlier than the 91st day
after the Final Maturity Date and (y) has an Average Life to Stated Maturity
equal to or greater than the remaining Average Life to Stated Maturity of the
Notes; (v) Investments constituting Restricted Payments made as a result of the
receipt of non-cash consideration from any Asset Sale made pursuant to and in
compliance with the covenant described under "-- Disposition of Proceeds of
Asset Sales" below; (vi) so long as no Default or Event of Default shall have
occurred and be continuing at the time of any payment pursuant to this clause
(vi) or would result as a consequence thereof, the payment of dividends on the
Company's Common Stock after the Issue Date in an aggregate amount not to exceed
$25,000,000; and (vii) application of the net proceeds from the issuance and
sale of the Notes and from the issuance and sale of Common Stock of the Company
in the Common Stock Offering to repay Indebtedness under the Old Credit
Agreement. In computing the amount of Restricted Payments previously made for
purposes of clause (C) of the preceding paragraph, Restricted Payments made
under the preceding clause (v) shall be included and clauses (i), (ii), (iii),
(iv), (vi) and (vii) shall not be so included.
In addition, none of the foregoing provisions will prohibit the Company or
any of its Subsidiaries from continuing to own any Investment which it owned on
the Issue Date.
Limitation on Liens. The Company will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien of any kind
(other than Permitted Liens) against or upon (i) any item of Collateral (whether
owned on the Issue Date or thereafter acquired) or any proceeds therefrom or
(ii) any other property or assets (including, without limitation, Intercompany
Indebtedness and Capital Stock) of the Company or any of its Subsidiaries
(whether owned on the Issue Date or thereafter acquired) or any proceeds
therefrom, unless, solely in the case of Liens on property or assets referred to
in this clause (ii) or proceeds therefrom (x) in the case of Liens securing
Subordinated Indebtedness, the Notes are secured by a Lien on such property,
assets or proceeds that is senior in priority to such Liens and (y) in all other
cases, the Notes are equally and ratably secured.
Change of Control. Upon the occurrence of a Change of Control, the Company
shall be obligated to make an offer to purchase (a "Change of Control Offer"),
on a business day (the "Change of Control Purchase Date") not more than 60 nor
less than 30 days following the occurrence of the Change of Control, all of the
then outstanding Notes at a purchase price (the "Change of Control Purchase
Price") equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the Change of Control Purchase Date. The Company shall be
required to purchase all Notes properly tendered into the Change of Control
Offer and not withdrawn. The Change of Control Offer is required to remain open
for at least 20 business days and until 5:00 p.m., New York City time, on the
Change of Control Purchase Date.
In order to effect such Change of Control Offer, the Company shall, not
later than the 30th day after the occurrence of the Change of Control, mail to
each holder of Notes notice of the Change of Control Offer, which notice shall
govern the terms of the Change of Control Offer and shall state, among other
things, the procedures that holders of Notes must follow to accept the Change of
Control Offer.
The occurrence of the events constituting a Change of Control under the
Indenture could result in an event of default under the Amended Credit Agreement
and other credit facilities and debt instruments the Company and its
subsidiaries and, thereafter, the lenders under the Amended Credit Agreement or
such other credit facilities and debt instruments would have the right to
require the immediate repayment of the indebtedness thereunder in full. In that
regard, it is anticipated that the Amended Credit Agreement will expressly
provide that the occurrence of a "change of control" (as defined therein) will
constitute an event of default thereunder. The definition of "change of control"
under the Amended Credit Agreement is anticipated to be different from that in
the Indenture. See "Description of Certain Indebtedness". Thus, the lenders
under the Amended Credit Agreement may be entitled to require repayment of the
indebtedness thereunder due to events constituting a "change of control" (as
defined therein) without such events constituting a Change of Control for
purposes of the Indenture. There can be no assurance that the Company and the
Guarantors will have adequate resources to repay or refinance all indebtedness
owing under the Amended Credit Agreement or other indebtedness upon the
occurrence of any "change of control" or other event of default thereunder or
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to fund the purchase of the Notes upon a Change of Control. See "Risk
Factors -- Leverage and Access to Funding; Compliance with Financial Covenants".
The provisions of the Indenture relating to a Change of Control in and of
themselves may not afford holders of the Notes protection in the event of a
highly leveraged transaction, reorganization, restructuring, merger or similar
transaction involving the Company that may adversely affect holders of the Notes
if such transaction is not the type of transaction included within the
definition of a Change of Control. See "-- Certain Definitions". A transaction
involving the Company's management or its affiliates likewise will result in a
Change of Control only if it is the type of transaction specified by such
definition. The existence of the foregoing provisions relating to a Change of
Control may or may not deter a third party from seeking to acquire the Company
in a transaction which constitutes a Change of Control.
The Company shall not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements
applicable to a Change of Control Offer made by the Company and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that a Change of Control occurs and the
Company is required to purchase Notes as described above. To the extent that the
provisions of any applicable securities laws or regulations conflict with the
provisions of this covenant, the Company shall comply with such applicable
securities laws and regulations and shall not be deemed by virtue thereof to
have breached its obligations under this covenant.
Disposition of Proceeds of Asset Sales. The Company will not, and will not
permit any of its Subsidiaries to, make any Asset Sale unless (a) the Company or
such Subsidiary, as the case may be, receives consideration at the time of such
Asset Sale at least equal to the Fair Market Value of the Capital Stock or
assets sold or otherwise disposed of, (b) at least 85% of such consideration
consists of cash or Cash Equivalents, (c) if such Asset Sale involves
Collateral, it shall be in compliance with the provisions described under
"-- Possession, Use and Release of Collateral" and (d) the Company or such
Subsidiary, as the case may be, shall apply such Net Cash Proceeds within 365
days of such Asset Sale as provided in the immediately succeeding paragraph.
Any such Net Cash Proceeds shall be applied within 365 days of the related
Asset Sale as follows:
(i) to the extent that such Net Cash Proceeds are derived from
property or assets (including Capital Stock) which do not constitute
Collateral or are not deemed (pursuant to the provisions described below)
to constitute Collateral Proceeds ("Non-Collateral Proceeds"), such
Non-Collateral Proceeds may, at the option of the Company, be applied to
repay Indebtedness outstanding under the Credit Agreement; and
(ii) with respect to any Net Cash Proceeds derived from property or
assets which constitute Collateral ("Collateral Proceeds") or derived from
a transaction as a result of which a Guarantor is released from its
Guarantee as provided in the last paragraph under "-- Guarantees" and which
(pursuant to the provisions described below) are deemed to be Collateral
Proceeds, and with respect to any Non-Collateral Proceeds remaining after
application as described in subparagraph (i) above (all such Collateral
Proceeds, together with any such remaining Non-Collateral Proceeds being
hereinafter called, collectively, the "Available Amount") shall be applied
to make an investment in properties and assets that replace the properties
and assets that were the subject of such Asset Sale or in properties and
assets that will be used in the business of the Company and its
Subsidiaries existing on the Issue Date or in businesses reasonably related
thereto ("Replacement Assets"); provided that any Replacement Assets
acquired with any such Collateral Proceeds (A) shall be owned by the
Company or a Guarantor and shall not be subject to any Liens except as
expressly permitted by the Indenture and the Security Documents (and the
Company or such Guarantor, as the case may be, shall execute and deliver to
the Trustee such Security Documents or other instruments as shall be
necessary to cause such Replacement Assets to become subject to a Lien in
favor of the Trustee (or, in the case of Replacement Assets subject to a
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Mortgage, the Trustee or another trustee under such Mortgage), for the
benefit of the holders of the Notes, securing its obligations under the
Notes or its Guarantee, as the case may be, and otherwise shall comply with
the provisions of the Indenture applicable to After-Acquired Property); and
(B) shall not include any Bank Collateral or Excluded Assets.
Any portion of the Available Amount that is not used as described in
subparagraph (i) or (ii) above within such 365 day period shall constitute
"Excess Proceeds" subject to disposition as provided below.
When the aggregate amount of Excess Proceeds equals or exceeds $10,000,000,
the Company shall make an offer to purchase (an "Asset Sale Offer"), from all
holders of the Notes, on a date not more than 40 business days thereafter, the
maximum aggregate principal amount (expressed as a multiple of $1,000) of Notes
that may be purchased with such Excess Proceeds, at a price in cash equal to
100% of the outstanding principal amount thereof plus accrued and unpaid
interest, if any, to the purchase date. To the extent that the aggregate
principal amount of Notes tendered pursuant to an Asset Sale Offer is less than
the maximum aggregate principal amount which may be purchased with such Excess
Proceeds, any such remaining Excess Proceeds will be retained by the Company,
free and clear of the Lien of the Indenture and the Security Documents. If the
aggregate principal amount of Notes validly tendered and not withdrawn by
holders thereof exceeds the maximum aggregate principal amount which may be
purchased with such Excess Proceeds, Notes to be purchased will be selected on a
pro rata basis. Upon completion of such Asset Sale Offer, the amount of Excess
Proceeds shall be reset to zero.
All Collateral Proceeds shall, pending their application in accordance with
this covenant or the release thereof in accordance with the provisions described
under "-- Possession, Use and Release of Collateral" and "-- Trust Moneys", be
deposited in the Collateral Account under the Indenture.
The term "Asset Sale," as defined in the Indenture, will exclude certain
sales and other dispositions of assets, including, subject to limited
exceptions, sales of Excluded Assets. See "-- Certain Definitions". As a result,
the Company and its Subsidiaries will be permitted to sell certain assets
without compliance with the foregoing covenant.
In the event that the Company shall, in any transaction or series of
transactions, sell, assign, convey, transfer, lease or otherwise dispose of
substantially all (but not all) of its properties and assets as an entirety in a
transaction permitted under "-- Merger, Sale of Assets, Etc.", or if the Company
shall cause or permit any of its Subsidiaries to enter into any such transaction
or series of transactions if such transaction or series of transactions, in the
aggregate, would result in a sale, assignment, conveyance, transfer, lease or
other disposition of substantially all (but not all) of the properties and
assets of the Company or of the Company and its Subsidiaries (taken as a whole)
in a transaction permitted under "-- Merger, Sale of Assets, Etc.", the
Surviving Entity shall be deemed to have sold the properties and assets of the
Company and its Subsidiaries not so transferred for purposes of this covenant
and shall comply with the provisions of this covenant with respect to such
deemed sale as if it were an Asset Sale. The Fair Market Value of such
properties and assets of the Company and its Subsidiaries deemed to be sold
shall be deemed to be the Net Cash Proceeds for purposes of the Asset Sale
provisions of the Indenture. In the event that any Guarantor shall, in any
transaction or series of transactions, sell, assign, convey, transfer, lease or
otherwise dispose of substantially all (but not all) of its properties and
assets as an entirety in a transaction permitted under the third paragraph under
"-- Guarantees", the Surviving Person shall be deemed to have sold the
properties and assets of such Guarantor not so transferred for purposes of this
covenant and shall comply with the provisions of this covenant with respect to
such deemed sale as if it were an Asset Sale. The Fair Market Value of such
properties and assets of such Guarantor deemed to have been sold shall be deemed
to be the Net Cash Proceeds for purposes of the Asset Sale provisions of the
Indenture.
In the event of a merger or consolidation of a Guarantor, sale of Capital
Stock of a Guarantor, sale of assets of a Guarantor or other transactions as a
result of which such Guarantor will be released from its Guarantee as provided
in the last paragraph under "-- Guarantees", then, anything to the Indenture to
the contrary notwithstanding, (i) such transaction shall be deemed to be an
Asset Sale and shall be subject to and shall only be made in compliance with the
foregoing covenant, (ii) all property and assets (including, without limitation,
cash and Cash Equivalents) received as proceeds from such transaction shall be
deemed proceeds
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from the sale of Collateral, and (iii) the Net Cash Proceeds of such transaction
shall be deemed to be Collateral Proceeds and shall be applied as provided in
subparagraph (ii) of the second paragraph of the foregoing covenant.
If at any time any property or assets, other than Net Cash Proceeds, are
received by the Company or any Guarantor in connection with the disposition of
Collateral in any Asset Sale, including any transaction as a result of which a
Guarantor shall be released from its Guarantee as provided in the last paragraph
under "-- Guarantees", then (except as otherwise expressly permitted by the
Indenture or the Security Documents), such property and assets shall be treated
as After-Acquired Property and the Company or such Guarantor, as the case may
be, shall take such action as shall be necessary to cause such property and
assets to become subject to a Lien in favor of the Trustee and the holders of
the Notes, subject to no prior Liens except as expressly permitted by the
Indenture and the Security Documents.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that an Asset Sale occurs and the
Company is required to purchase Notes as described above. To the extent that the
provisions of any applicable securities laws or regulations conflict with the
provisions of this covenant, the Company shall comply with such applicable
securities laws and regulations and shall not be deemed by virtue thereof to
have breached its obligations under this covenant.
Limitation on Issuances and Sale of Capital Stock by Subsidiaries. The
Company (a) will not permit any of its Subsidiaries to issue any Capital Stock
(other than to the Company or a Wholly-Owned Subsidiary of the Company which is
a Guarantor) and (b) will not permit any person (other than the Company or a
Wholly-Owned Subsidiary of the Company which is a Guarantor) to own any Capital
Stock of any Subsidiary of the Company; provided, however, that this covenant
shall not prohibit the issuance and sale of (x) all, but not less than all, of
the issued and outstanding Capital Stock of any Subsidiary of the Company owned
by the Company and its Subsidiaries in compliance with the other provisions of
the Indenture or (y) directors' qualifying shares or investments by foreign
nationals mandated by applicable law; and provided, further, that this covenant
shall not prohibit any person who owns any Capital Stock of any Subsidiary of
the Company on the Issue Date from continuing to own such Capital Stock so long
as there is no increase in the amount of such Subsidiary's Capital Stock, or the
percentage of such Subsidiary's outstanding Capital Stock, owned by such person.
Limitation on Transactions with Interested Persons. The Company will not,
and will not permit any of its Subsidiaries to, directly or indirectly, enter
into or suffer to exist any transaction or series of related transactions
(including, without limitation, the sale, transfer, disposition, purchase,
exchange or lease of assets, property or services) with, or for the benefit of,
any Affiliate of the Company (other than an Affiliate which is a Subsidiary of
the Company) or any beneficial owner (determined in accordance with the
Indenture) of 5% or more of the outstanding Common Stock of the Company or of
any Subsidiary or Unrestricted Subsidiary of the Company ("Interested Persons"),
unless (a) such transaction or series of related transactions is on terms that
are no less favorable to the Company or such Subsidiary, as the case may be,
than those which could have been obtained in a comparable transaction at such
time from persons who are not Affiliates of the Company or Interested Persons,
(b) with respect to a transaction or series of transactions involving aggregate
payments or value equal to or greater than $5,000,000, the Company has obtained
a written opinion from an Independent Financial Advisor stating that the terms
of such transaction or series of transactions are fair to the Company or its
Subsidiary, as the case may be, from a financial point of view and (c) with
respect to a transaction or series of transactions involving aggregate payments
or value equal to or greater than $2,500,000, the Company shall have delivered
an officers' certificate to the Trustee certifying that such transaction or
series of transactions complies with the preceding clause (a) and, if
applicable, certifying that the opinion referred to in the preceding clause (b)
has been delivered and that such transaction or series of transactions has been
approved by a majority of the Board of Directors of the Company; provided,
however, that this covenant will not restrict the Company from (i) paying
dividends in respect of its Capital Stock permitted under the covenant described
under "-- Limitation on Restricted Payments" above, (ii) paying reasonable and
customary fees to directors of the Company who are not employees of the Company,
(iii) making loans or advances to officers, employees or consultants of the
Company and its Subsidiaries
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(including travel and moving expenses) in the ordinary course of business for
bona fide business purposes of the Company or such Subsidiary not in excess of
$2,000,000 in the aggregate at any one time outstanding, (iv) making
contributions of Common Stock of the Company to the Company's employee stock
ownership plan or (v) making payments in the ordinary course of business to
employees of the Company and its Subsidiaries and Unrestricted Subsidiaries
pursuant to any profit participation plan or other employee compensation
arrangements; and provided, further, that clauses (b) and (c) of this covenant
shall not be applicable with respect to transactions entered into in the
ordinary course of business between the Company or any of its Subsidiaries, on
the one hand, and Camrose, on the other hand, or between CF&I, on the one hand,
and Nippon Steel Corp., Nissho Iwai American Corporation or any of their
respective Affiliates, on the other hand; and provided, further, that this
covenant shall not be applicable to transactions pursuant to the terms of the
New CF&I Stockholders Agreement or the CF&I Partnership Agreement or any similar
agreement or instrument entered into after the Issue Date (provided that, in the
case of any amendment, supplement or modification of the New CF&I Stockholders
Agreement or the CF&I Partnership Agreement entered into after the Issue Date,
or in the case of any similar instrument or agreement entered into after the
Issue Date, the provisions thereof are no less favorable to the Company, New
CF&I and CF&I than those in the New CF&I Stockholders Agreement or the CF&I
Partnership Agreement, as the case may be, as in effect on the Issue Date).
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any Subsidiary
of the Company to (a) pay dividends, in cash or otherwise, or make any other
distributions on or in respect of its Capital Stock or any other interest or
participation in, or measured by, its profits, (b) pay any Indebtedness owed to
the Company or any other Subsidiary of the Company, (c) make loans or advances
to, or any investment in, the Company or any other Subsidiary of the Company,
(d) transfer any of its properties or assets to the Company or any other
Subsidiary of the Company or (e) guarantee any Indebtedness of the Company or
any other Subsidiary of the Company, except for such encumbrances or
restrictions existing under or by reason of (i) applicable law, (ii) customary
non-assignment provisions of any contract or any lease governing a leasehold
interest of the Company or any Subsidiary of the Company, (iii) customary
restrictions on transfers of property subject to a Lien permitted under the
Indenture which could not materially adversely affect the Company's ability to
satisfy its obligations under the Indenture and the Notes or any Guarantors'
ability to satisfy its obligations under the Indenture and its Guarantee, (iv)
any agreement or other instrument of a person acquired by the Company or any
Subsidiary of the Company (or a Subsidiary of such person) in existence at the
time of such acquisition (but not created in contemplation thereof), which
encumbrance or restriction is not applicable to any person, or the properties or
assets of any person, other than the person, or the properties or assets of the
person, so acquired, (v) provisions contained in agreements or instruments
relating to Indebtedness which prohibit the transfer of all or substantially all
of the assets of the obligor thereunder unless the transferee shall assume the
obligations of the obligor under such agreement or instrument, (vi) provisions
contained in the Indenture, the Notes, the Guarantees, the Intercreditor
Agreement or any Security Documents, (vii) provisions contained in the Credit
Agreement, in any guarantees of the Company's obligations under the Credit
Agreement permitted by the Indenture, and in any security agreements or similar
documents pledging Bank Collateral pursuant to the Credit Agreement (in each
case as in effect on the Issue Date) and encumbrances and restrictions in
amendments and permitted replacements thereof which are no less favorable to the
holders of the Notes than those contained in the Credit Agreement or in the
guarantee, security agreement or similar document so amended or replaced; (viii)
provisions contained in other agreements or instruments in effect on the Issue
Date (as in effect on the Issue Date) relating to Indebtedness (other than
Indebtedness (or guarantees of Indebtedness) under the Old Credit Agreement or
under any mortgage, deed of trust, pledge agreement, security agreement or other
instrument or agreement entered into in connection with the Old Credit
Agreement, other than security agreements entered into in connection with the
Old Credit Agreement which are to remain in effect in connection with the
Amended Credit Agreement) and encumbrances and restrictions in amendments and
permitted refinancings or replacements thereof which are no less favorable to
the holders of the Notes than those contained in the agreements or instruments
so amended, refinanced or replaced; and (ix) encumbrances and restrictions under
the CF&I Partnership
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Agreement and the New CF&I Stockholders Agreement (each as in effect on the
Issue Date) and in any amendments thereto which are no less favorable to the
holders of the Notes than those contained in the agreement prior to such
amendment. In addition, in the event that an additional Guarantor shall be added
pursuant to the covenant described below under "-- Additional Guarantors" or
otherwise, then such additional Guarantor may also enter into a guarantee of the
Company's obligations under the Credit Agreement and a security agreement or
similar document pledging its Bank Collateral as security therefor, provided
that such guarantee and security agreement or similar document are no less
favorable to the holders of the Notes than those contained in the guarantees of
the Credit Agreement and related security agreements or similar documents in
effect on the Issue Date.
Limitation on Sale-Leaseback Transactions. The Company will not, and will
not permit any of its Subsidiaries to, enter into any Sale-Leaseback Transaction
with respect to any property of the Company or any of its Subsidiaries.
Notwithstanding the foregoing, the Company and its Subsidiaries may enter into
Sale-Leaseback Transactions with respect to property which does not constitute
Collateral and which property is acquired or constructed after the Issue Date;
provided that (a) the Attributable Value of such Sale-Leaseback Transaction
shall be deemed to be Indebtedness of the Company or such Subsidiary, as the
case may be, and (b) after giving pro forma effect to any such Sale-Leaseback
Transaction and the foregoing clause (a), the Company would be able to incur
$1.00 of additional Indebtedness pursuant to the first paragraph of the covenant
described under "-- Limitation on Indebtedness" above (assuming a market rate of
interest with respect to such additional Indebtedness).
Additional Guarantors. The Indenture will provide that the Company will
not, and will not permit any Subsidiary of the Company to, directly or
indirectly, establish or acquire a new Subsidiary of the Company or such
Subsidiary, as the case may be, unless either (A) such new Subsidiary is
designated as an Unrestricted Subsidiary in accordance with the definition of
the term "Unrestricted Subsidiary" or (B) (i) such new Subsidiary simultaneously
executes and delivers a supplemental indenture pursuant to which such new
Subsidiary becomes a Guarantor and guarantees the obligations of the Company
under the Notes on the same terms as the other Guarantors and also executes and
delivers a written instrument pursuant to which it shall became a party to the
Intercreditor Agreement; (ii) to the extent that such new Subsidiary owns any
property or assets of the types which would constitute "Trust Property" (as such
term is defined in the form of Mortgage attached as an exhibit to the Indenture)
or "Collateral" (as such term is defined in the form of Security Agreement
attached as an exhibit to the Indenture), such new Subsidiary shall execute and
deliver to the Trustee such Security Documents as shall be necessary to cause
such property and assets to become subject to a Lien in favor of the Trustee
(or, in the case of property or assets subject to a Mortgage, the Trustee or
another trustee under such Mortgage), for the benefit of the holders of the
Notes, securing such new Subsidiary's obligations under its Guarantee and
otherwise shall comply with the provisions of the Indenture applicable to
After-Acquired Property as if the property and assets of such new Subsidiary
were After-Acquired Property; and (iii) the Company shall deliver to the Trustee
an officers' certificate, in form reasonably satisfactory to the Trustee,
stating that the Company has complied with this paragraph in connection with the
establishment or acquisition of such new Subsidiary. For purposes of this
covenant, the designation of any Unrestricted Subsidiary as a Subsidiary shall
be deemed to be the establishment of a new Subsidiary. The Indenture will also
provide that the Company will not permit any Unrestricted Subsidiary to own any
Capital Stock of a Guarantor.
Impairment of Security Interests. The Indenture will provide that the
Company will not, and will not permit any of its Subsidiaries to, take or omit
to take any action which action or omission could reasonably be expected to have
the result of adversely affecting or impairing the Lien in favor of the Trustee
(or, in the case of property or assets subject to a Mortgage, the Trustee or
another trustee under such Mortgage) for the benefit of the holders of the
Notes, in the Collateral. The Indenture will further provide that the Company
will not, and will not permit any of its Subsidiaries to, grant to any person
(other than the Trustee (or, in the case of property or assets subject to a
Mortgage, the Trustee or another trustee under such Mortgage) for the benefit of
the holders of the Notes) any interest whatsoever in the Collateral except as
expressly permitted by the Indenture, the Intercreditor Agreement and the
Security Documents.
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Limitation on Amendments to CF&I Agreements. The Indenture will provide
that the Company will not, and will not permit any Subsidiary of the Company to,
enter into or consent to any amendment, supplement, waiver or other modification
of the CF&I Partnership Agreement or the New CF&I Stockholders Agreement which
in any manner would be adverse to the interests of the holders of the Notes or
the Trustee.
Reporting Requirements. The Indenture will provide that the Company will
file with the Commission the annual reports, quarterly reports and other
documents required to be filed with the Commission pursuant to Sections 13 and
15 of the Exchange Act, whether or not the Company has a class of securities
registered under the Exchange Act. The Indenture also will provide that the
Company, at its expense (x) will be required to file with the Trustee and mail
to each holder of Notes within 15 days after it files them with the Commission
(or if any such filing is not permitted under the Exchange Act, 15 days after
the Company would have been required to make such filing) copies of such reports
and documents and (y) so long as any of the Notes are evidenced by Global Notes,
promptly mail copies of such documents to any beneficial owner of Notes upon
written request by such beneficial owner.
MERGER, SALE OF ASSETS, ETC.
The Company will not, in any transaction or series of transactions, merge
or consolidate with or into, or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets as an
entirety to, any person or persons, and the Company will not permit any of its
Subsidiaries to enter into any such transaction or series of transactions if
such transaction or series of transactions, in the aggregate, would result in a
sale, assignment, conveyance, transfer, lease or other disposition of all or
substantially all of the properties and assets of the Company or of the Company
and its Subsidiaries, taken as a whole, to any other person or persons, unless
at the time of and after giving effect thereto (a) either (i) if the transaction
or series of transactions is a merger or consolidation, the Company shall be the
surviving person of such merger or consolidation, or (ii) the person formed by
such consolidation or into which the Company or such Subsidiary, as the case may
be, is merged or to which the properties and assets of the Company or such
Subsidiary, as the case may be, are transferred (any such surviving person or
transferee person being the "Surviving Entity") shall be a corporation organized
and existing under the laws of the United States of America, any state thereof
or the District of Columbia and shall expressly assume by a supplemental
indenture, executed and delivered to the Trustee and in form reasonably
satisfactory to the Trustee, all the obligations of the Company under the Notes
and the Indenture (and such supplemental indenture shall also be executed by
each Guarantor and shall further provide that each Guarantor confirms that its
obligations under the Indenture, its Guarantee and its Security Documents remain
in full force and effect), shall expressly assume, by amendment, supplement or
other appropriate instruments executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, all of the obligations of the Company
under the Intercreditor Agreement and its Security Documents and, in the case of
any such transaction involving such Subsidiary, all of the obligations of such
Subsidiary under the Indenture, its Guarantee (if applicable) the Intercreditor
Agreement and its Security Documents (and the Surviving Person shall cause such
amendments, supplements or other instruments to be filed and recorded in such
jurisdictions as may be required by applicable law to preserve and protect the
Lien of the Security Documents on the Collateral owned by the Company and, if
applicable, such Subsidiary, together with such financing statements as may be
required to perfect any security interests in such Collateral); (b) the
Collateral owned by the Company and, in the case of any such transaction
involving such Subsidiary, by such Subsidiary shall (1) continue to constitute
Collateral under the Security Documents, (2) shall be subject to the Lien in
favor of the Trustee (or, in the case of property or assets subject to a
Mortgage, the Trustee or another trustee under such Mortgage) for the benefit of
the holders of the Notes and (3) shall not be subject to any Lien other than
Liens expressly permitted by the Indenture and the Security Documents; (c) the
property and assets of the person which is merged or consolidated with or into
such Company, to the extent that they are property or assets of the types which
would constitute "Trust Property" (as defined in the form of Mortgage attached
as an exhibit to the Indenture) or "Collateral" (as defined in the form of
Security Agreement attached as an exhibit to the Indenture) shall be treated as
After-Acquired Property and the Company shall cause such property and assets to
be made subject to the Lien of the Security Documents in the manner and to the
extent required by the Indenture; (d)(1) immediately before and immediately
after giving effect to such transaction or series of transactions on a pro forma
basis (including, without limitation,
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any Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), no Default or Event of
Default shall have occurred and be continuing and (2) the Company or the
Surviving Entity, as the case may be, after giving effect to such transaction or
series of transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), could incur $1.00 of
additional Indebtedness pursuant to the first paragraph of the covenant
described under "-- Certain Covenants -- Limitation on Indebtedness" above
(assuming a market rate of interest with respect to such additional
Indebtedness); and (e) immediately after giving effect to such transaction or
series of transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), the Consolidated Net
Worth of the Company or the Surviving Entity, as the case may be, is at least
equal to the Consolidated Net Worth of the Company immediately before such
transaction or series of transactions.
In connection with any consolidation, merger, transfer, lease, assignment
or other disposition contemplated hereby, the Company shall deliver, or cause to
be delivered, to the Trustee an officer's certificate and an opinion of counsel,
each in form and substance reasonably satisfactory to the Trustee, each stating
that such consolidation, merger, transfer, lease, assignment or other
disposition and the supplemental indenture in respect thereof comply with the
requirements under the Indenture (except that such opinion of counsel need
express no opinion as to the matters referred to in clause (b)(3), (d) or (e)
above).
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company in accordance with the foregoing, in which the
Company is not the continuing corporation, the successor corporation formed by
such a consolidation or into which the Company is merged or to which such
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture, the Intercreditor
Agreement, and the relevant Security Documents with the same effect as if such
successor corporation had been named as the Company therein; provided, however,
that solely for purposes of computing amounts described in subclause (C) of the
first paragraph of the covenant described under "-- Limitation on Restricted
Payments" above, any such successor person shall only be deemed to have
succeeded to and be substituted for the Company with respect to periods
subsequent to the effective time of such merger, consolidation or transfer of
assets.
EVENTS OF DEFAULT
The following will be "Events of Default" under the Indenture:
(i) default in the payment of the principal of or premium, if any, on
any Note when the same becomes due and payable (upon Stated Maturity,
acceleration, optional redemption, required purchase, scheduled principal
payment or otherwise); or
(ii) default in the payment of an installment of interest on any of
the Notes, when the same becomes due and payable, which default continues
for a period of 30 days; or
(iii) default by the Company or any Guarantor in the performance or
observance of any other term, covenant or agreement contained in the Notes,
any Security Document, the Indenture, the Intercreditor Agreement or any
Guarantee (other than a default specified in clause (i) or (ii) above) and
such default continues for a period of 30 days after written notice of such
default requiring the Company to remedy the same shall have been given (x)
to the Company by the Trustee or (y) to the Company and the Trustee by
holders of at least 25% in aggregate principal amount of the Notes then
outstanding; or
(iv) default or defaults under one or more agreements, instruments,
mortgages, bonds, debentures or other evidences of Indebtedness under which
the Company or any Subsidiary of the Company then has outstanding
Indebtedness in excess of $5,000,000, individually or in the aggregate, and
either (a) such Indebtedness is already due and payable in full or (b) such
default or defaults have resulted in the acceleration of the maturity of
such Indebtedness; or
(v) one or more judgments, orders or decrees of any court or
regulatory or administrative agency of competent jurisdiction for the
payment of money in excess of $5,000,000, either individually or in the
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aggregate, shall be entered against the Company or any Subsidiary of the
Company or any of their respective properties and shall not be discharged
or fully bonded and there shall have been a period of 60 days after the
date on which any period for appeal has expired and during which a stay of
enforcement of such judgment, order or decree shall not be in effect; or
(vi) either (i) any agent or lender under the Credit Agreement or (ii)
any holder of at least $5,000,000 in aggregate principal amount of
Indebtedness of the Company or any of its Subsidiaries shall commence
judicial proceedings to foreclose upon assets of the Company or any of its
Subsidiaries having an aggregate Fair Market Value, individually or in the
aggregate, in excess of $5,000,000 or shall have exercised any right under
applicable law or applicable security documents to take ownership of any
such assets in lieu of foreclosure; or
(vii) certain events of bankruptcy, insolvency or reorganization with
respect to the Company or any Subsidiary of the Company shall have
occurred; or
(viii) any Guarantee ceases to be in full force and effect or is
declared null and void, or any Guarantor denies that it has any further
liability under its Guarantee or gives notice to such effect (other than by
reason of the termination of the Indenture or the release of any such
Guarantee in accordance with the Indenture); or
(ix) any of the Security Documents ceases to be in full force and
effect, or any of the Security Documents ceases to give the Trustee (or, in
the case of a Mortgage, ceases to give the Trustee or any other trustee
under such Mortgage) any of the Liens, rights, powers or privileges
purported to be created thereby, or any of the Security Documents is
declared null and void, or the Company or any Guarantor denies that it has
any further liability under any Security Document to which it is a party or
gives notice to such effect (in each case other than by reason of the
termination of the Indenture or any such Security Document in accordance
with its terms or the release of any Guarantor in accordance with the
Indenture).
If an Event of Default (other than as specified in clause (vii) above)
shall occur and be continuing, the Trustee, by written notice to the Company, or
the holders of at least 25% in aggregate principal amount of the Notes then
outstanding, by written notice to the Trustee and the Company, may declare the
principal of, premium, if any, and accrued and unpaid interest on all of the
outstanding Notes due and payable immediately, upon which declaration all
amounts payable in respect of the Notes shall be immediately due and payable. If
an Event of Default specified in clause (vii) above occurs and is continuing,
then the principal of, premium, if any, and accrued and unpaid interest on all
of the outstanding Notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
holder of Notes.
After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the holders of at least a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may rescind
such declaration and its consequences if (a) the Company has paid or deposited
with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the
Trustee under the Indenture, the Intercreditor Agreement, and the Security
Documents and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (ii) all interest on the Notes which has
become due otherwise than by such declaration of acceleration and (to the
fullest extent permitted by law) interest thereon at the rate of interest borne
by the Notes and (iii) the principal of and premium, if any, on any Notes which
have become due otherwise than by such declaration of acceleration and interest
thereon at the rate of interest borne by the Notes; (b) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction; and
(c) all Events of Default, other than the non-payment of principal of, premium,
if any, and interest on the Notes that have become due solely by such
declaration of acceleration, have been cured or waived.
The holders of not less than a majority in aggregate principal amount of
the outstanding Notes may on behalf of the holders of all the Notes waive any
past default under the Indenture, the Intercreditor Agreement, the Notes, the
Guarantees or any Security Document and its consequences, except a default in
the payment of
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the principal of, premium, if any, or interest on any Note, or in respect of a
covenant or provision which under the Indenture cannot be modified or amended
without the consent of the holder of each Note outstanding.
No holder of any of the Notes has any right to institute any proceeding or
pursue any remedy with respect to the Indenture, the Intercreditor Agreement,
the Notes, the Guarantees or the Security Documents, unless the holder gives
written notice to the Trustee of a continuing Event of Default, the holders of
at least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the Notes and the Indenture, the Trustee has
failed to institute such proceeding within 30 days after receipt of such notice
and the Trustee, within such 30-day period, has not received directions
inconsistent with such written request by holders of at least a majority in
aggregate principal amount of the outstanding Notes. Such limitations do not
apply, however, to a suit instituted by a holder of a Note for the enforcement
of the payment of the principal of, premium, if any, or interest on such Note on
or after the respective due dates expressed in such Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture, the
Intercreditor Agreement and the Security Documents and use the same degree of
care and skill in its exercise thereof as a prudent person would exercise under
the circumstances in the conduct of such person's own affairs. Subject to the
provisions of the Indenture relating to the duties of the Trustee, whether or
not an Event of Default shall occur and be continuing, the Trustee under the
Indenture is not under any obligation to exercise any of its rights or powers
under the Indenture, the Intercreditor Agreement or the Security Documents at
the request or direction of any of the holders unless such holders shall have
offered to the Trustee reasonable security or indemnity. Subject to certain
provisions concerning the rights of the Trustee, the holders of not less than a
majority in aggregate principal amount of the outstanding Notes have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee under the Indenture, the Intercreditor Agreement or the Security
Documents.
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee shall mail to each holder of the Notes notice of the
Default or Event of Default within 30 days after obtaining knowledge thereof.
Except in the case of a Default or an Event of Default in payment of principal
of, premium, if any, or interest on any Notes, the Trustee may withhold the
notice to the holders of such Notes if a committee of its trust officers in good
faith determines that withholding the notice is in the interest of the holders
of the Notes.
The Company is required to furnish to the Trustee annual and quarterly
statements as to the performance by the Company of its obligations under the
Indenture and as to any default in such performance. The Company is also
required to notify the Trustee within ten days of the Company's becoming aware
of any event which is, or after notice or lapse of time or both would become, an
Event of Default.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, terminate the obligations
of the Company and the Guarantors with respect to the outstanding Notes and
Guarantees ("legal defeasance"). Such legal defeasance means that the Company
shall be deemed to have paid and discharged the entire Indebtedness represented
by the outstanding Notes (whereupon the Collateral shall be released as security
for the Notes and the Guarantees), except for, among other things, (i) the
rights of holders of outstanding Notes to receive, solely from the cash and/or
U.S. Government Obligations (as defined in the Indenture) deposited in trust as
described below, payment in respect of the principal of, premium, if any, and
interest on such Notes when such payments are due, (ii) the Company's
obligations to issue temporary Notes, register the transfer or exchange of any
Notes, replace mutilated, destroyed, lost or stolen Notes and maintain an office
or agency for payments in respect of the Notes, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and (iv) the defeasance provisions
of the Indenture. In addition, the Company may, at its option and at any time,
elect to terminate the obligations of the Company and the Guarantors with
respect to certain covenants that are set forth in the Indenture, some of which
are described under "-- Certain Covenants" above (including the covenants
described under "-- Certain Covenants -- Change of Control" and "-- Disposition
of Proceeds of Asset Sales" above and clauses (d)(2) and (e) of the third
paragraph under "-- Guarantees" and clauses
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(d)(2) and (e) of the first paragraph under "-- Merger, Sale of Assets, Etc."
above) and any subsequent failure to comply with such obligations shall not
constitute a Default or Event of Default with respect to the Notes ("covenant
defeasance").
In order to exercise either legal defeasance or covenant defeasance, (i)
the Company must irrevocably deposit with the Trustee (or other qualifying
trustee), in trust, for the benefit of the holders of the Notes, cash in United
States dollars, U.S. Government Obligations, or a combination thereof, in such
amounts as will be sufficient, in the written opinion of a nationally recognized
firm of independent public accountants, to pay the principal of, premium, if
any, and interest on the outstanding Notes when due (except lost, stolen or
destroyed Notes which have been replaced or paid); (ii) the Company shall have
delivered to the Trustee an opinion of counsel to the effect that the holders of
the outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such legal defeasance or covenant defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such legal defeasance or
covenant defeasance had not occurred (in the case of legal defeasance, such
opinion must refer to and be based upon a ruling of the Internal Revenue Service
or a change after the Issue Date in applicable federal income tax laws); (iii)
no Default or Event of Default shall have occurred and be continuing on the date
of such deposit or, insofar as clauses (i), (ii) or (vii) of the first paragraph
under "-- Events of Default" is concerned, at any time during the period ending
on the 91st day after the date of such deposit (it being understood that this
condition shall not be deemed satisfied until the expiration of such period);
(iv) such legal defeasance or covenant defeasance shall not cause the Trustee to
have a conflicting interest with respect to any securities of the Company or any
Guarantor; (v) such legal defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a default under, the Indenture or any
other material agreement or instrument to which the Company or any Guarantor is
a party or by which it is bound; (vi) the Company shall have delivered to the
Trustee an opinion of counsel to the effect that after the 91st day following
the deposit, the trust funds will not be subject to the effect of any applicable
federal bankruptcy laws; and (vii) the Company shall have delivered to the
Trustee an officers' certificate and an opinion of counsel, each stating that
all conditions precedent under the Indenture to either legal defeasance or
covenant defeasance, as the case may be, have been complied with.
SATISFACTION AND DISCHARGE
The Indenture, the Notes, the Guarantees and the Security Documents will be
discharged and will cease to be of further effect (except as to, among other
things, surviving rights or registration of transfer or exchange of the Notes,
as expressly provided for in the Indenture) as to all outstanding Notes (and the
Collateral will be released as security for the Notes and the Guarantees) when
either (a) all the Notes theretofore authenticated and delivered (except lost,
stolen or destroyed Notes which have been replaced or repaid and Notes for whose
payment money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or a Guarantor) have
been delivered to the Trustee for cancellation or (b) (i) all Notes have been
called for redemption or have become due and payable and the Company has
irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of redemption or
maturity, as the case may be, together with irrevocable instructions from the
Company directing the Trustee to apply such funds to the payment thereof at
maturity or redemption, as the case may be; (ii) the Company and the Guarantors
have paid all other sums payable under the Indenture, the Notes, the Guarantees
and the Security Documents by the Company and the Guarantors; (iii) there exists
no Default or Event of Default under the Indenture; and (iv) the Company has
delivered to the Trustee an officers' certificate and an opinion of counsel
stating that all conditions precedent under the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with.
POSSESSION, USE AND RELEASE OF COLLATERAL
Subject to and in accordance with the provisions of the Security Documents
and the Indenture, so long as no Event of Default shall have occurred and be
continuing, the Company and the Guarantors will have the
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right to remain in possession and retain exclusive control of the Collateral
(other than Trust Moneys held by the Trustee and other than as set forth in the
Security Documents and in the Indenture), to operate the Collateral, to alter or
repair the Collateral and to collect, invest and dispose of any income thereon.
Release of Collateral. Upon compliance by the Company with the conditions
set forth below in respect of any Asset Sale, the Trustee will release the
Released Interests (as defined below) from the Lien of the relevant Security
Documents and reconvey the Released Interests to the Company or the relevant
Guarantor, as the case may be. The Company and the Guarantors, as the case may
be, will have the right to obtain a release of items of Collateral (the
"Released Interests") subject to an Asset Sale upon compliance with the
condition that the Company deliver to the Trustee the following:
(a) A notice from the Company requesting the release of Released
Interests, (i) specifically describing the proposed Released
Interests, (ii) specifying the Fair Market Value of such Released
Interests on a date within 60 days of such Company notice (the
"Valuation Date"), (iii) stating that the consideration to be
received is at least equal to the Fair Market Value of the
Released Interests, (iv) stating that the release of such Released
Interests will not impair the value of the remaining Collateral or
interfere with the Trustee's ability to realize such value and
will not impair the maintenance and operation of the remaining
Collateral, (v) confirming the sale of, or an agreement to sell,
such Released Interests in a bona fide sale to a person that is
not an Affiliate of the Company or, in the event that such sale is
to a person that is an Affiliate, confirming that such sale is
made in compliance with the provisions set forth in "-- Certain
Covenants -- Limitation on Transactions with Interested Persons",
(vi) certifying that such Asset Sale complies with the terms and
conditions of the Indenture with respect thereto, including,
without limitation, the provisions set forth in "-- Certain
Covenants -- Disposition of Proceeds of Asset Sales", and (vii) in
the event there is to be a substitution of property for the
Collateral subject to the Asset Sale, specifying the property
intended to be substituted for the Collateral to be disposed of;
(b) An officers' certificate of the Company stating that (i) such sale
covers only the Released Interests (or other property which is not
Collateral) and complies with the terms and conditions of the
Indenture with respect to Asset Sales, (ii) all Net Cash Proceeds
from the sale of any of the Released Interests (and any other
property which is not Collateral) will be applied pursuant to the
provisions of the Indenture in respect of Asset Sales, (iii) there
is no Default or Event of Default in effect or continuing on the
date thereof, the Valuation Date or the date of such Asset Sale,
(iv) the release of the Collateral will not result in a Default or
Event of Default under the Indenture, and (v) all conditions
precedent in the Indenture relating to the release in question
have been complied with; and
(c) All documentation required by the Trust Indenture Act of 1939, as
amended, if any, prior to the release of Collateral by the Trustee
and, in the event that there is to be a substitution of property
for the Collateral subject to the Asset Sale, all documentation
necessary to effect the substitution of such new Collateral and to
subject such new Collateral to the Lien of the relevant Security
Documents.
The Indenture will provide that the Company also shall be entitled, subject
to compliance with the conditions set forth therein, to obtain the release of
Collateral which has been taken by eminent domain, condemnation or in similar
circumstances.
The Indenture will provide that the Company shall be entitled to obtain a
full release of all of the Collateral following legal defeasance of the
Indenture or a discharge of the Indenture as described above under
"-- Defeasance or Covenant Defeasance of Indenture" and "-- Satisfaction and
Discharge", respectively.
The Indenture will provide that, upon the release of any Guarantor from its
obligations under the Indenture and its Guarantees as described in the last
paragraph under "-- Guarantees", such Guarantor shall be entitled to obtain the
release of all of its Collateral.
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The Indenture will also permit the release of Collateral (other than Trust
Moneys) at the request of the Company from time to time; provided that the
aggregate Fair Market Value of any Collateral so released in any single
transaction, or series of related transactions, shall not exceed $250,000 and
the aggregate Fair Market Value of all Collateral so released in any calendar
year shall not exceed $1,000,000.
The Indenture will also permit the release of the Old Plate Mill once the
Combination Mill is operational.
Disposition of Collateral Without Release. Notwithstanding the provisions
of "-- Release of Collateral" above, so long as no Event of Default shall have
occurred and be continuing, the Company and the Guarantors may, among other
things, without any release or consent by the Trustee, conduct ordinary course
activities with respect to Collateral, including selling or otherwise disposing
of, in any transaction or series of related transactions, any property subject
to the Lien of the Security Documents which has become worn out or obsolete and
which either has an aggregate Fair Market Value of $25,000 or less, or which is
replaced by property of substantially equivalent or greater value which becomes
subject to the Lien of the Security Documents (subject to certain exceptions) as
After-Acquired Property; abandoning, terminating, cancelling, releasing or
making alterations in or substitutions of any leases or contracts subject to the
Lien of the Indenture or any of the Security Documents; surrendering or
modifying any franchise, license or permit subject to the Lien of the Indenture
or any of the Security Documents which it may own or under which it may be
operating; altering, repairing, replacing, changing the location or position of
and adding to its structures, machinery, systems, equipment, fixtures and
appurtenances; demolishing, dismantling, tearing down, scrapping or abandoning
any Collateral if, in the good faith opinion of the Board of Directors of the
Company, such demolition, dismantling, tearing down, scrapping or abandonment is
in the best interest of the Company; granting a nonexclusive license of any
intellectual property; and abandoning intellectual property which has become
obsolete and not used in the business.
USE OF TRUST MONEYS
All Trust Moneys (including, without limitation, all Collateral Proceeds,
Net Proceeds and Net Awards required to be deposited with the Trustee) shall be
held by the Trustee as a part of the Collateral securing the Notes and, so long
as no Event of Default shall have occurred and be continuing, may either (i) be
released in accordance with "-- Certain Covenants -- Disposition of Proceeds of
Asset Sales" if such Trust Moneys represent Collateral Proceeds in respect of an
Asset Sale or (ii) at the direction of the Company be applied by the Trustee
from time to time to the payment of the principal of, premium, if any, and
interest on any Notes at Stated Maturity or upon redemption or retirement, or to
the purchase of Notes upon tender or in the open market or otherwise, in each
case in compliance with the Indenture. The Company may also withdraw Trust
Moneys constituting Net Proceeds or Net Awards to repair or replace the relevant
Collateral, subject to certain conditions set forth in the Indenture.
The Trustee shall be entitled to apply any Trust Moneys to cure any Event
of Default. Trust Moneys deposited with the Trustee shall be invested in Cash
Equivalents pursuant to the direction of the Company and, so long as no Default
or Event of Default shall have occurred and be continuing, the Company shall be
entitled to any interest or dividends accrued, earned or paid on such Cash
Equivalents.
AMENDMENTS AND WAIVERS
From time to time, the Company, the Guarantors and the Trustee may, without
the consent of the holders of any outstanding Notes, amend, waive or supplement
the Indenture, the Security Documents, the Guarantees, the Intercreditor
Agreement or the Notes for certain specified purposes, including, among other
things (i) to cure ambiguities, defects or inconsistencies; (ii) to qualify, or
to maintain the qualification of, the Indenture under the Trust Indenture Act of
1939; (iii) to give effect to the release of any Released Interests or any other
release of Collateral permitted by the Indenture or the relevant Security
Documents; (iv) to provide for the assumption of the Company's or any
Guarantor's obligations in the case of a merger, consolidation or sale of all or
substantially all of its assets as provided in the Indenture; (v) to evidence
the pledge of additional or substitute assets or property as Collateral; (vi) to
evidence the release of any Guarantor in accordance with the Indenture, or the
addition of any new Guarantor; or (vii) to make any other change that does not
adversely
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affect the rights of any holder of Notes or, in the case of any other change to
the Intercreditor Agreement, that does not adversely affect the rights of any
holder of Notes in any material respect. Other amendments and modifications of
the Indenture, the Security Documents, the Guarantees, the Intercreditor
Agreement or the Notes may be made by the Company, the Guarantors and the
Trustee with the consent of the holders of not less than a majority of the
aggregate principal amount of the outstanding Notes and the holders of not less
than a majority in aggregate principal amount of the outstanding Notes may waive
future compliance by the Company or any Guarantor with any provision of the
Indenture, the Security Documents, the Guarantees, the Intercreditor Agreement
or the Notes; provided, however, that no such modification, amendment or waiver
may, without the consent of the holder of each outstanding Note affected
thereby, (i) reduce the principal amount of, extend the fixed maturity of or
alter the redemption provisions (including, without limitation, the amount of
premium, if any, payable upon redemption) of, the Notes, (ii) change the
currency in which any Notes or any premium or the interest thereon is payable or
make the principal of, premium, if any, or interest on any Note payable in money
other than that stated in the Note, (iii) reduce the percentage in principal
amount of outstanding Notes that must consent to an amendment, supplement or
waiver under the Indenture, the Guarantees, the Security Documents, the Notes or
the Intercreditor Agreement, (iv) impair the right to institute suit for the
enforcement of any payment on or with respect to the Notes, (v) waive a default
in payment with respect to the Notes, (v) amend, change or modify the
obligations of the Company to make and consummate a Change of Control Offer in
the event of a Change of Control or make and consummate the offer with respect
to any Asset Sale or modify any of the provisions or definitions with respect
thereto, (vii) reduce the rate or change the time for payment of interest on the
Notes, (viii) modify or change any provision of the Indenture affecting the
ranking of the Notes or any Guarantee in a manner adverse to the holders of the
Notes, (ix) release any Guarantor from any of its obligations under its
Guarantee or Security Documents or the Indenture other than in compliance with
the Indenture or (x) directly or indirectly release the Liens created by the
Security Documents on all or substantially all of the Collateral (except as
expressly permitted by the Indenture and the Security Documents).
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee thereunder will perform only such duties as are
specifically set forth in the Indenture. If an Event of Default has occurred and
is continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee thereunder, should it become a creditor of the Company, to obtain
payment of claims in certain cases or to realize on certain property received by
it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions with the Company and its subsidiaries;
provided, however, that if the Trustee acquires any conflicting interest (as
defined in such Act) it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture, the Notes and the Guarantees will be governed by the laws of
the State of New York, without regard to the principles of conflicts of law.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a person (a) assumed in
connection with an Asset Acquisition from such person or (b) existing at the
time such person becomes a Subsidiary of any other person.
"Affiliate" means, with respect to any specified person, any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person.
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"Amended Credit Agreement" means the Old Credit Agreement, as amended by
the Credit Agreement Amendment to be entered into prior to or concurrently with
the issuance of the Notes, as the same may be amended, supplemented or otherwise
modified from time to time and including all exhibits and schedules thereto.
"Asset Acquisition" means (a) an Investment by the Company or any
Subsidiary of the Company in any other person pursuant to which such person
shall become a Subsidiary of the Company, or shall be merged with or into the
Company or any Subsidiary of the Company, (b) the acquisition by the Company or
any Subsidiary of the Company of the assets of any person (other than a
Subsidiary of the Company) which constitute all or substantially all of the
assets of such person or (c) the acquisition by the Company or any Subsidiary of
the Company of any division or line of business of any person (other than a
Subsidiary of the Company).
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease or other disposition (including, without limitation, by merger
or consolidation or sale of shares of Capital Stock of a Subsidiary) to any
person, in one or a series of related transactions, of (a) any Capital Stock of
any Subsidiary of the Company (other than in respect of director's qualifying
shares or investments by foreign nationals mandated by applicable law); (b) all
or substantially all of the properties and assets of any division or line of
business of the Company or any Subsidiary of the Company; or (c) any other
properties or assets of the Company or any Subsidiary of the Company other than
in the ordinary course of business, and also means any transaction which results
in a Guarantor being released from its Guarantee as provided in the fourth
paragraph under "-- Guarantees" above. For the purposes of this definition, the
term "Asset Sale" shall not include (i) any sale, issuance, conveyance,
transfer, lease or other disposition of property or assets (including, without
limitation, by merger or consolidation or sale of shares of Capital Stock of a
Subsidiary) that is governed by the provisions described under "Certain
Covenants--Merger, Sale of Assets, Etc." above or described in the third
paragraph under "Certain Covenants-- Guarantees" above (except in each case to
the extent provided under "-- Certain Covenants -- Disposition of Proceeds of
Asset Sales"), (ii) any sale, transfer or other disposition of property or
assets (including, without limitation, by merger or consolidation or sale of
shares of Capital Stock of a Subsidiary) by the Company or any of its
Subsidiaries in one or a series of related transactions in respect of which the
Company or such Subsidiary receives cash or property with an aggregate Fair
Market Value of $50,000 or less (provided, however, that notwithstanding the
other provisions of this clause (ii), any such transaction which results in a
Guarantor being released from its Guarantee as provided in the fourth paragraph
under "-- Guarantees" above shall nonetheless be deemed to constitute an Asset
Sale), (iii) any sale, transfer or other disposition of Excluded Assets (other
than property or assets of the type referred to in clause (i) of the definition
of Excluded Assets) or any Bank Collateral, (iv) any Restricted Payment made in
accordance with the covenant described under "Certain Covenants -- Limitation on
Restricted Payments" or any Permitted Investment, and (v) any Sale-Leaseback
Transaction made in accordance with the covenant described under "Certain
Covenants -- Limitation on Sale-Leaseback Transactions".
"Attributable Value" means, as to any particular lease under which any
person is at the time liable other than a Capitalized 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 Capitalized Lease
Obligation with a 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
Capitalized Lease Obligation under which any person is at the time liable and at
any date as of which the amount thereof is to be determined, the capitalized
amount thereof that would appear on the face of a balance sheet of such person
in accordance with GAAP.
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"Average Life to Stated Maturity" means, with respect to any Indebtedness,
as at any date of determination, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years (or any fraction thereof) from such
date to the date or dates of each successive scheduled principal payment
(including, without limitation, any sinking fund requirements) of such
Indebtedness multiplied by (b) the amount of each such principal payment by (ii)
the sum of all such principal payments.
"Bank Agent" means the person or any or all of the persons as, from time to
time, may be named as agent or agents for the banks under the Credit Agreement
in accordance with the terms thereof.
"Bank Collateral" will be defined to include, among other things, all
accounts receivable and inventory, and all books and records relating to the
accounts receivable and inventory, of the Company, New CF&I, CF&I and any other
Subsidiary or Unrestricted Subsidiary of the Company that may after the Issue
Date grant a Lien on accounts receivable or inventory or books and records
relating thereto as collateral under the Credit Agreement or the guarantees
entered into pursuant to the Credit Agreement.
"Board of Directors" means, with respect to any person, the board of
directors of such person or any duly authorized committee of such board.
"Camrose" means Camrose Pipe Company, a general partnership organized under
the laws of the Province of Alberta, Canada.
"Capital Stock" means, with respect to any person, any and all shares,
interests (including, without limitation, limited and general partnership
interests and joint venture interests), participations, rights or other
equivalents (however designated) in the equity interest of such person, and any
rights (other than debt securities convertible into or exchangeable for an
equity interest), warrants or options exchangeable for or convertible into an
equity interest in such person.
"Capitalized Lease Obligation" means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) that is required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP.
"Cash Equivalents" means, at any time, (i) any evidence of indebtedness
with a maturity of 180 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (ii) certificates of deposit or acceptances with a
maturity of 180 days or less of any financial institution that is a member of
the Federal Reserve System having combined capital and surplus and undivided
profits of not less than $500,000,000; (iii) certificates of deposit with a
maturity of 180 days or less of any financial institution that is not organized
under the laws of the United States, any state thereof or the District of
Columbia that are rated at least A-2 by S&P or at least P-2 by Moody's or at
least an equivalent rating category of another nationally recognized securities
rating agency; and (iv) repurchase agreements and reverse repurchase agreements
relating to marketable direct obligations issued or unconditionally guaranteed
by the government of the United States of America or issued by any agency
thereof and backed by the full faith and credit of the United States of America,
in each case maturing within 180 days from the date of acquisition; provided
that the terms of such agreements comply with the guidelines set forth in the
Federal Financial Agreements of Depository Institutions With Securities Dealers
and Others, as adopted by the Comptroller of the Currency on October 31, 1985.
"CF&I" means CF&I Steel, L.P., a Delaware limited partnership and its
successors pursuant to the Indenture.
"CF&I Partnership Agreement" means the Amended and Restated Agreement of
Limited Partnership of CF&I Steel, L.P. dated March 3, 1993, as the same may be
amended, supplemented or otherwise modified from time to time in accordance with
the terms of the Indenture and such instrument.
"Change of Control" means the occurrence of any of the following events:
(a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a person shall be deemed
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to have "beneficial ownership" of all securities that such person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time, upon the happening of an event or otherwise), directly or
indirectly, of more than 30% of the total Voting Stock of the Company; (b) the
Company consolidates with, or merges with or into, another person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any person, or any person consolidates with,
or merges with or into, the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (i) the outstanding Voting Stock of the Company is converted
into or exchanged for (1) Voting Stock (other than Redeemable Capital Stock) of
the surviving or transferee corporation or (2) cash, securities and other
property in an amount which could then be paid by the Company as a Restricted
Payment under the Indenture, or a combination thereof, and (ii) immediately
after such transaction no "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) is the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person
shall be deemed to have "beneficial ownership" of all securities that such
person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time, upon the happening of an event or otherwise),
directly or indirectly, of more than 30% of the total Voting Stock of the
surviving or transferee corporation; (c) at any time during any consecutive
two-year period, individuals who at the beginning of such period constituted the
board of directors of the Company (together with any new directors whose
election by such board of directors or whose nomination for election by the
stockholders of the Company was approved by a vote of 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 board of directors of the Company
then in office; or (d) the Company is liquidated or dissolved or adopts a plan
of liquidation.
"Collateral" means, collectively, all of the property and assets that are
from time to time subject to the Lien of the Security Documents.
"Collateral Account" means the collateral account to be established
pursuant to the Indenture.
"Combination Mill" means the Steckel combination steel plate rolling mill
which, on the Issue Date, was being constructed at the Company's Portland,
Oregon steel mill.
"Common Stock" means, with respect to any person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such person's common stock, whether
outstanding at the Issue Date or issued after the Issue Date, and includes,
without limitation, all series and classes of such common stock.
"Common Stock Offering" means the offering by the Company of 6,000,000
shares of its Common Stock (plus up to 900,000 additional shares which may be
sold upon exercise of the underwriters' over-allotment option) to be made
concurrently with the offering of the Notes.
"Consolidated Cash Flow Available for Fixed Charges" means, with respect to
any person for any period, (i) the sum of, without duplication, the amounts for
such period, taken as a single accounting period, of (a) Consolidated Net
Income, (b) Consolidated Non-cash Charges, (c) Consolidated Interest Expense,
and (d) Consolidated Income Tax Expense less (ii) any non-cash items increasing
Consolidated Net Income for such period.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
person, the ratio of the aggregate amount of Consolidated Cash Flow Available
for Fixed Charges of such person for the four full fiscal quarters immediately
preceding the date of the transaction (the "Transaction Date") giving rise to
the need to calculate the Consolidated Fixed Charge Coverage Ratio (such four
full fiscal quarter period being referred to herein as the "Four Quarter
Period") to the aggregate amount of Consolidated Fixed Charges of such person
for the Four Quarter Period. In addition to and without limitation of the
foregoing, for purposes of this definition, "Consolidated Cash Flow Available
for Fixed Charges" and "Consolidated Fixed Charges" shall be calculated after
giving effect on a pro forma basis for the period of such calculation to,
without duplication, (a) the incurrence of any Indebtedness of such person or
any of its Subsidiaries (and the
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application of the net proceeds thereof) during the period commencing on the
first day of the Four Quarter Period to and including the Transaction Date (the
"Reference Period"), including, without limitation, the incurrence of the
Indebtedness giving rise to the need to make such calculation (and the
application of the net proceeds thereof), as if such incurrence (and
application) occurred on the first day of the Reference Period, and (b) any
Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of such
person or one of its Subsidiaries (including any person who becomes a Subsidiary
as a result of the Asset Acquisition) incurring, assuming or otherwise being
liable for Acquired Indebtedness) occurring during the Reference Period, as if
such Asset Sale or Asset Acquisition occurred on the first day of the Reference
Period. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of
determining the denominator (but not the numerator) of this "Consolidated Fixed
Charge Coverage Ratio", (i) interest on outstanding Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the Transaction
Date; and (ii) if interest on any Indebtedness actually incurred on the
Transaction Date may optionally be determined at an interest rate based upon a
factor of a prime or similar rate, a eurocurrency interbank offered rate, or
other rates, then the interest rate in effect on the Transaction Date will be
deemed to have been in effect during the Reference Period. If such person or any
of its Subsidiaries directly or indirectly guarantees Indebtedness of a third
person, the above clause shall give effect to the incurrence of such guaranteed
Indebtedness as if such person or such Subsidiary had directly incurred or
otherwise assumed such guaranteed Indebtedness.
"Consolidated Fixed Charges" means, with respect to any person for any
period, the sum of, without duplication, the amounts for such period of (i)
Consolidated Interest Expense and (ii) the product of (a) the aggregate amount
of dividends and other distributions paid or accrued during such period in
respect of Preferred Stock and Redeemable Capital Stock of such person and its
Subsidiaries on a consolidated basis and (b) a fraction, the numerator which is
one and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such person, expressed as a decimal.
"Consolidated Income Tax Expense" means, with respect to any person for any
period, the provision for federal, state, local and foreign income taxes of such
person and its Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any person for any
period, without duplication, the sum of (i) the aggregate amount of cash and
non-cash interest expense of such person and its Subsidiaries paid, accrued
and/or scheduled to be paid or accrued during such period as determined on a
consolidated basis in accordance with GAAP (including, without limitation, (a)
any amortization of debt discount, (b) the net cost under Interest Rate
Protection Obligations, (c) the interest portion of any deferred payment
obligation, (d) all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, (e) all accrued
interest and (f) all capitalized interest) and (ii) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by such person and its Subsidiaries during such period as determined on
a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any person, for any
period, the consolidated net income (or loss) of such person and its
Subsidiaries for such period as determined in accordance with GAAP, adjusted, to
the extent included in calculating such net income, by excluding, without
duplication, (i) all extraordinary gains or losses, (ii) the portion of net
income (but not losses) of such person and its Subsidiaries allocable to
minority interests in unconsolidated persons to the extent that cash dividends
or distributions have not actually been received by such person or one of its
Subsidiaries, (iii) net income (or loss) of any person combined with such person
or one of its Subsidiaries on a "pooling of interests" basis attributable to any
period prior to the date of combination, (iv) any gain or loss realized upon the
termination of any employee pension benefit plan, on an after-tax basis, (v)
gains or losses in respect of any Asset Sales by such person or one of its
Subsidiaries and (vi) the net income of any Subsidiary of such person to the
extent that the declaration of dividends or similar distributions by that
Subsidiary of that income is not at the time permitted, directly or indirectly,
by operation of the terms of its charter or partnership agreement or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders or limited or
general partners, as the case may be.
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"Consolidated Net Worth" means, with respect to any person at any date, the
consolidated stockholders' or partners' equity, as the case may be, of such
person less the amount of such stockholders' or partners' equity, as the case
may be, attributable to Redeemable Capital Stock of such person and its
Subsidiaries, as determined on a consolidated basis in accordance with GAAP.
Notwithstanding the foregoing, any amounts attributable to any Common Stock of
New CF&I which is not Redeemable Capital Stock shall, to the extent such amounts
are not otherwise reflected in the Company's consolidated stockholder's equity,
be included in calculating the Company's Consolidated Net Worth so long as New
CF&I is a consolidated subsidiary of the Company.
"Consolidated Non-cash Charges" means, with respect to any person for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such person and its Subsidiaries reducing Consolidated Net Income of such person
and its Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charges constituting an extraordinary
item or loss or any such charge which required an accrual of or a reserve for
cash charges for any future period).
"CPC" means Camrose Pipe Corporation, a Delaware corporation.
"Credit Agreement" means the Amended Credit Agreement and any successor or
replacement facility entered into in compliance with the Indenture.
"Credit Agreement Amendment" means the amendment to the Old Credit
Agreement entered into by the Company, the Bank Agent and other lenders party
thereto concurrently with or prior to the issuance of the Notes, amending the
Old Credit Agreement to, among other things, reduce the aggregate principal
amount of borrowings which may be outstanding thereunder at any one time.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Subsidiaries against fluctuations in currency values.
"Default" means any event or condition that is, or after notice or passage
of time or both would be, an Event of Default.
"Event of Default" has the meaning set forth under "-- Events of Default"
above.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Assets" means (i) property acquired or constructed with purchase
money Indebtedness described in, and which Indebtedness is secured by a Lien
permitted under, clause (g) of the definition of Permitted Liens (but only so
long as such purchase money Indebtedness is outstanding and is secured by such
Lien), (ii) subject to proviso to this sentence, the Old Plate Mill, (iii) the
Old Rod Mill, (iv) the Fontana Rolling Mill, (v) real property located in
Portland, Oregon owned by the Company on the Issue Date, but only to the extent
such property is not subject to a Mortgage, together with all buildings,
improvements and fixtures thereon and all leases, rents and other rights
relating to such real property, buildings, improvements and fixtures, and all
proceeds of any of the foregoing, (vi) real property located in Pueblo, Colorado
owned by CF&I on the Issue Date, but only to the extent such real property is
not subject to a Mortgage, non-exclusive rights and easements for utilities and
access to such property, and the approximately 450,000 square foot tube mill
building known as Tube Mill No. 2 and related parking and storage areas situated
on such property, together with all related fixtures and all proceeds, leases,
rents and other rights relating to such real property, building and fixtures,
(vii) certain motor vehicles and mobile equipment (including mobile cranes,
loaders, forklifts, trailers, backhoes, towmotors and graders) owned by CF&I on
the Issue Date with an aggregate book value (net of depreciation) not to exceed
$1.5 million and listed on a schedule or exhibit to the Security Agreement
entered into by CF&I, and (viii) Motor Vehicles (as defined in the form of
Security Agreement attached as an exhibit to the Indenture); provided that,
notwithstanding the foregoing, the Old Plate Mill shall not be deemed an
Excluded Asset until such time as (A) construction of the Combination Mill and
all related improvements shall have been completed, (B) the Combination Mill and
all related equipment and facilities shall have been installed, shall be fully
operational and shall be operating, and the Old Plate Mill shall have been
permanently taken out of service, (C) the Company shall have complied with the
provisions of the
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Indenture relating to the release of the Old Plate Mill from the Lien of the
Security Documents and the pledge of the Combination Mill, together with all
related fixtures, improvements, equipment and machinery, as Collateral for the
Notes. With respect to any property referred to in clause (i) of the foregoing
sentence, at such time as the purchase money Indebtedness shall no longer be
outstanding or shall no longer be secured by a Lien permitted under clause (g)
of the definition of Permitted Liens, then, to the extent that such property is
of the type which would constitute "Trust Property" (as defined in the form of
Mortgage attached as an exhibit to the Indenture) or "Collateral" (as defined in
the form of Security Agreement attached as an exhibit to the Indenture), such
property shall be treated as After-Acquired Property and the Company shall, or
shall cause the relevant Guarantor to, cause such property to be made subject to
the Lien of the Security Documents in the manner and to the extent required by
the Indenture.
"Excluded Securities" means the Capital Stock of any of the Company's
Subsidiaries or Unrestricted Subsidiaries.
"Fair Market Value" means, with respect to any assets, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of which is under pressure
or compulsion to complete the transaction. Fair Market Value shall be determined
by the Board of Directors of the Company acting in good faith and shall be
evidenced by a Board Resolution delivered to the Trustee except (i) any
determination of Fair Market Value made with respect to any parcel of real
property with a value in excess of $10,000,000 shall (except for purposes of
clause (vi) of the definition of "Event of Default") be made by an Independent
Appraiser and (ii) as otherwise indicated in the Indenture.
"Final Maturity Date" means , 2003.
"Fontana Rolling Mill" means the steel plate rolling equipment owned by the
Company which, on the Issue Date, was located in Fontana, California.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States of America, which are applicable from time to
time and are consistently applied.
"Guarantee" means, with respect to any Guarantor, its guarantee of the
Notes and certain other obligations pursuant to the Indenture and its guarantee
endorsed on the Securities and, in the case of CF&I, such term includes the
promissory note of CF&I, in substantially the form attached as an exhibit to the
Indenture, delivered to the Trustee in connection with CF&I's aforesaid
guarantee.
"guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Guarantors" means (i) each of New CF&I and CF&I and (ii) each of the
Company's other Subsidiaries which, after the Issue Date, becomes a Guarantor,
including those who become Guarantors after the Issue Date as required by the
covenant described under "-- Certain Covenants -- Additional Guarantors".
"Indebtedness" means, with respect to any person, without duplication, (a)
all liabilities of such person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities incurred in the ordinary course of business and which are
not overdue by more than 90 days, but including, without limitation, all
obligations, contingent or otherwise, of such person in connection with any
letters of credit, banker's acceptance or other similar credit transaction, (b)
all obligations of such person evidenced by bonds, notes, debentures or other
similar instruments, (c) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to
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property acquired by such person (even if the rights and remedies of the seller
or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising in the ordinary course of business, (d) all Capitalized Lease
Obligations of such person, (e) all Indebtedness referred to in the preceding
clauses of other persons and all dividends of other persons, the payment of
which is secured by (or for which the holder of such Indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien upon
property (including, without limitation, accounts and contract rights) owned by
such person, even though such person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of the value of such property or asset or the amount of the
obligation so secured), (f) all guarantees of Indebtedness referred to in this
definition by such person, (g) all Redeemable Capital Stock of such person
valued at the greater of its voluntary or involuntary maximum fixed repurchase
price plus accrued dividends, (h) all net payment obligations under or in
respect of Currency Agreements and Interest Rate Protection Obligations of such
person at the date of determination, and (i) any amendment, supplement,
modification, deferral, renewal, extension or refunding of any liability of the
types referred to in clauses (a) through (h) above. For purposes hereof, the
"maximum fixed repurchase price" of any Redeemable Capital Stock which does not
have a fixed repurchase price shall be calculated in accordance with the terms
of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by, the
fair market value of such Redeemable Capital Stock, such fair market value shall
be determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock.
"Independent Appraiser" means a person who in the course of its business
appraises property and, where real property is involved, who (i) is a member in
good standing of the American Institute of Real Estate Appraisers, recognized
and licensed to do business in the jurisdiction where the applicable real
property is situated, (ii) does not have a direct or indirect financial interest
in the Company and (iii) in the judgment of the Board of Directors of the
Company, is otherwise independent and qualified to perform the tasks for which
it is engaged.
"Independent Financial Advisor" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"Intercompany Indebtedness" means any Indebtedness owed by the Company to
any Subsidiary or Unrestricted Subsidiary of the Company or owed by any
Subsidiary or Unrestricted Subsidiary of the Company to the Company or any other
Subsidiary or Unrestricted Subsidiary of the Company.
"Intercreditor Agreement" means the intercreditor agreement among the
Company, the Guarantors, the Trustee and the Bank Agent, substantially in the
form attached as an exhibit to the Indenture, as the same may be amended,
supplemented or modified from time to time in accordance with its terms or the
terms of the Indenture, and any successor or replacement agreement, the terms of
which are no less favorable to the holders of the Notes than those contained in
the original intercreditor agreement as in effect on the Issue Date.
"Interest Rate Protection Agreement" means any arrangement with any other
person whereby, directly or indirectly, such person is entitled to receive from
time to time periodic payments calculated by applying either a floating or a
fixed rate of interest on a stated notional amount in exchange for periodic
payments made by such person calculated by applying a fixed or a floating rate
of interest on the same notional amount and shall include without limitation,
interest rate swaps, caps, floors, collars and similar agreements.
"Interest Rate Protection Obligations" means the obligations of any person
pursuant to an Interest Rate Protection Agreement.
"Investment" means, with respect to any person, any direct or indirect loan
or other extension of credit or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition by
such person of any
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Capital Stock, bonds, notes, debentures or other securities or evidences of
Indebtedness issued by, any other person. In addition, the Fair Market Value of
the assets of any Subsidiary of the Company at the time that such Subsidiary is
designated as an Unrestricted Subsidiary shall be deemed to be an Investment
made by the Company in such Unrestricted Subsidiary at such time. "Investments"
shall exclude extensions of trade credit by the Company and its Subsidiaries in
the ordinary course of business in accordance with normal trade practices of the
Company or such Subsidiary, as the case may be.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim, preference,
priority or other encumbrance upon or with respect to any property of any kind.
A person shall be deemed to own subject to a Lien any property which such person
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, capital lease or other title retention agreement.
"Maturity Date" means, with respect to any Note, the date on which any
principal of such Note becomes due and payable as therein or in the Indenture
provided, whether at the Stated Maturity with respect to such principal or by
declaration of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Mortgage" means a deed of trust (or mortgage), assignment of rents and
leases and security agreement substantially in the form attached as an exhibit
to the Indenture (including such changes to such form as may be necessary or
desirable to conform to applicable laws or customs regarding property in the
jurisdiction where such instrument is to be recorded), as the same may be
amended, supplemented or otherwise modified from time to time in accordance with
the terms of the Indenture and such instrument.
"Net Award" means all proceeds, awards or payments for any Collateral which
is taken by eminent domain, expropriation or similar governmental actions or
sold pursuant to the exercise by the United States of America or any State,
municipality, province or other governmental authority of any right which it may
have to purchase, or to designate a purchaser or to order a sale of, all or any
part of the Collateral, in each case less collection expenses.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents (except to the extent that such obligations are financed or sold
with recourse to the Company or any Subsidiary of the Company) net of (i)
brokerage commissions and other fees and expenses (including, without
limitation, fees and expenses of legal counsel and investment bankers) related
to such Asset Sale, (ii) provisions for all taxes payable as a result of such
Asset Sale, (iii) amounts required to be paid to any person (other than the
Company or any Subsidiary of the Company) owning a beneficial interest in the
assets subject to the Asset Sale, (iv) appropriate amounts to be provided by the
Company or any Subsidiary of the Company, as the case may be, as a reserve
required in accordance with GAAP against any liabilities associated with such
Asset Sale and retained by the Company or any Subsidiary of the Company, as the
case may be, after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an officers' certificate delivered to the
Trustee, and (v) repayment of Indebtedness (excluding Indebtedness under the
Credit Agreement) secured by a Lien on the property or assets subject to such
Asset Sale (but only if such Lien is permitted by the Indenture and the relevant
Security Documents and only to the extent such repayment is required by the
terms of such Indebtedness and the aggregate amount of such cash and Cash
Equivalents applied to repay such Indebtedness does not exceed the Fair Market
Value of such property or assets or, if less, the total amount of cash and Cash
Equivalents received for such property and assets in such Asset Sale).
"Net Proceeds" means the insurance proceeds (excluding any liability
insurance proceeds payable to the Trustee for any loss, liability or expense
incurred by it) paid as the result of damage to, or the loss, destruction or
condemnation of, all or any portion of the Collateral, less collection expenses.
"New CF&I" means New CF&I, Inc., a Delaware corporation, and its successors
pursuant to the Indenture.
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"New CF&I Stockholders Agreement" means the Restated Stockholders Agreement
dated as of November 16, 1995, among the Company, New CF&I, Nippon Steel
Corporation, NS Finance III, Inc., Nissho Iwai Corporation, and Nissho Iwai
American Corporation, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms of the Indenture and
such instrument.
"Old Credit Agreement" means the Credit Agreement dated as of December 14,
1994 among the Company, First Interstate Bank of Oregon, N.A. and the Bank of
Nova Scotia, as agents, and the banks party thereto, as amended by Amendment No.
1 thereto dated as of September 30, 1995 and Waiver and Amendment No. 2 thereto
dated as of March 22, 1996.
"Old Plate Mill" means the 110 inch steel plate rolling mill equipment
which was operating at the Company's Portland, Oregon steel mill on the Issue
Date, excluding, however, any such equipment which is or is to be used in
connection with the operation of the Combination Mill.
"Old Rod Mill" means the rod mill equipment owned by CF&I which, prior to
the Issue Date, had been replaced by the new rod and bar mill owned by CF&I and
taken out of operation, excluding, however, any such equipment which is or is to
be used in connection with the operation of such new rod and bar mill.
"Pari Passu Indebtedness" means Indebtedness of the Company or any
Guarantor which ranks pari passu in right of payment with the Notes or the
Guarantee of such Guarantor, as the case may be.
"Permitted Investments" means any of the following: (i) Investments in any
Wholly-Owned Subsidiary of the Company which is a Guarantor (including any
person that pursuant to such Investment becomes a Wholly-Owned Subsidiary of the
Company which is a Guarantor) and any person that is merged into or consolidated
with, or transfers or conveys all or substantially all of its assets to, the
Company or any Wholly-Owned Subsidiary of the Company which is a Guarantor at
the time such Investment is made; (ii) Investments in Cash Equivalents; (iii)
Investments in deposits with respect to leases, utilities, bid or performance
bonds, self-insurance or similar requirements provided to third parties in the
ordinary course of business; (iv) Investments in the Notes; (v) Investments in
Currency Agreements on commercially reasonable terms entered into by the Company
or any of its Subsidiaries in the ordinary course of business in connection with
the operations of the business of the Company or its Subsidiaries to hedge
against fluctuations in foreign exchange rates; (vi) Investments in evidences of
Indebtedness, securities or other property received from another person by the
Company or any of its Subsidiaries in connection with any bankruptcy case or by
reason of a composition or readjustment of debt or a reorganization of such
person or as a result of foreclosure, perfection or enforcement of any Lien in
exchange for evidences of Indebtedness, securities or other property of such
person held by the Company or any of its Subsidiaries, or for other liabilities
or obligations of such other person to the Company or any of its Subsidiaries
that were created in accordance with the terms of the Indenture; (vii)
Investments in Interest Rate Protection Agreements on commercially reasonably
terms entered into by the Company or any of its Subsidiaries in the ordinary
course of business in connection with the operations of the business of the
Company or its Subsidiaries to hedge against fluctuations in interest rates;
(viii) the contribution of the Old Rolling Mill (but only at such time as it
constitutes an Excluded Asset) and the Fontana Rolling Mill to a corporation or
other entity in return for an equity interest in such corporation or other
entity; and (ix) Investments made in the ordinary course of business in
partnerships or joint ventures to acquire or develop sources of raw materials
used in steelmaking or businesses reasonably related thereto in an aggregate
amount not to exceed $15 million.
"Permitted Liens" means the following types of Liens:
(a) Liens for taxes, assessments or governmental charges or claims
which are either (a) not yet delinquent or (b) being contested in good
faith by appropriate proceedings diligently conducted and as to which the
Company or any of its Subsidiaries shall have set aside on its books such
reserves as may be required pursuant to GAAP;
(b) Liens of landlords, carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen and other Liens imposed by law incurred in the
ordinary course of business for sums not yet delinquent or
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being contested in good faith by appropriate proceedings diligently
conducted, if such reserve or other appropriate provision, if any, as shall
be required by GAAP shall have been made in respect thereof;
(c) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of governmental insurance, governmental benefits or social security,
or to secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, leases, governmental contracts, performance and
return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money);
(d) Liens arising out of judgments or awards not giving rise to an
Event of Default so long as such Lien is adequately bonded and any
appropriate legal proceedings which may have been duly initiated for the
review of such judgment or award shall not have been finally terminated or
the period within which such proceedings may be initiated shall not have
expired;
(e) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Subsidiaries and which, in the case of any of the foregoing
which are created or incurred after the Issue Date, do not materially
detract from the value of the property subject thereto;
(f) leases and subleases granted by the Company or any Subsidiary of
the Company to others which do not interfere in any material respect with
the ordinary conduct of the business of the Company or any of its
Subsidiaries and which, in the case of any of the foregoing which are
granted after the Issue Date, do not materially detract from the value of
the property subject thereto; and any interest or title of a lessor under
any Capitalized Lease Obligation or operating lease permitted under the
Indenture;
(g) purchase money Liens created solely to finance the acquisition or
construction of property or assets of the Company or any Subsidiary of the
Company acquired or constructed in the ordinary course of business after
the Issue Date; provided, however, that (i) such Liens do not extend to or
cover any property or assets of the Company or any Subsidiary of the
Company other than the property and assets so acquired or constructed and
the property or assets so acquired or constructed do not constitute
Replacement Assets or otherwise constitute a replacement of all or part of
the Collateral, (ii) the Lien securing such Indebtedness either (x) exists
at the time of such acquisition or construction or (y) shall be created
within 90 days of such acquisition or construction, (iii) the principal
amount of the Indebtedness secured by such Lien does not exceed 100% of the
cost of such acquisition or construction and such Indebtedness is incurred
in accordance with the Indenture and (iv) prior to granting any such Lien,
the Company shall provide the Trustee with an officers' certificate stating
that (x) the property subject to such Lien does not constitute Replacement
Assets or otherwise constitute a replacement of all or part of the
Collateral and (y) the Collateral could be operated independently of such
property or such property could be disposed of independently of the
Collateral without interfering with the continued operation and maintenance
of the Collateral and without impairing the value of the Collateral
(without taking into account any incremental increase in the value of the
Collateral attributable to such property) or interfering with the Trustee's
ability to realize such value;
(h) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;
(i) Liens securing Interest Rate Protection Agreements and Currency
Agreements permitted by the Indenture;
(j) Liens on the Bank Collateral securing Indebtedness and other
obligations under the Credit Agreement and any permitted guarantees of the
obligations under the Credit Agreement, and other Liens existing as of the
Issue Date (other than (A) Liens securing Indebtedness and other
obligations under (or guarantees of Indebtedness on other obligations
under) the Old Credit Agreement or any other Indebtedness to be repaid with
the proceeds from the offering of the Notes or from the Common Stock
Offering and (B) Liens on Excluded Securities and Intercompany
Indebtedness);
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(k) Liens in favor of the Company; provided that if such Liens are on
any Collateral, such Liens are either collaterally assigned to the Trustee
or subordinate to the Lien in favor of the Trustee securing the Notes or
the Guarantees, as the case may be;
(l) Liens securing obligations in respect of the Indenture, the Notes,
the Security Documents and the Guarantees;
(m) Liens on the Collateral to the extent permitted or created by the
respective Security Documents or the Intercreditor Agreement;
(n) Liens in favor of the Trustee;
(o) Liens on the assets or property of any person existing at the time
such person becomes a Subsidiary of the Company after the Issue Date or is
merged into or consolidated with the Company or any Subsidiary of the
Company after the Issue Date, and in any such case not incurred as a result
of (or in connection with or in anticipation of) such person becoming a
Subsidiary of the Company or such merger or consolidation, as the case may
be; provided that such Liens do not extend to or cover any property or
assets of the Company or any Subsidiary of the Company (other than property
or assets of the person so acquired); and provided, further, that the
property or assets so acquired do not constitute Replacement Assets or
otherwise constitute a replacement of all or part of the Collateral;
(p) Liens on assets or property existing at the time of acquisition
thereof by the Company or a Subsidiary of the Company after the Issue Date
and not incurred as a result of (or in connection with or in anticipation
of) such acquisition; provided that such Liens do not extend to or cover
any property or assets of the Company or any Subsidiary of the Company
(other than the property or assets so acquired); and provided, further,
that the property or assets so acquired do not constitute Replacement
Assets or otherwise constitute a replacement of all or part of the
Collateral;
(q) any replacement, extension or renewal, in whole or in part, of any
Lien described in the foregoing clauses (g), (j), (o) or (p), provided that
(x) no such replacement, extension or renewal Lien extends to or covers any
property or assets of the Company or any of its Subsidiaries other than the
property or assets covered by the predecessor Lien and (y) to the extent
that any such predecessor Lien secures Indebtedness, the principal amount
of Indebtedness secured by such replacement, extension or renewal Lien
shall not be increased;
(r) restrictions on the sale, assignment, transfer, mortgage, pledge,
hypothecation, encumbrance or change of legal or beneficial ownership with
respect to any Common Stock of New CF&I arising pursuant to the New CF&I
Stockholders Agreement (provided that, in the case of any amendment,
supplement or modification of the New CF&I Stockholders Agreement entered
into after the Issue Date, the restrictions thereunder are no more
restrictive to the Company and New CF&I than those in the New CF&I
Stockholders Agreement as in effect on the Issue Date).
(s) Liens on property (other than Collateral) created by the Standing
Letter of Credit Agreement dated March 15, 1995 from the Company to Banca
Nazionale del Lavoro ("BNL") as in effect on the Issue Date or any
amendment to or replacement of such agreement permitted by the Indenture,
in each case securing Indebtedness or letters of credit in an aggregate
principal amount not to exceed $4,000,000 at any time outstanding, provided
that the Liens arising under any such amendment or replacement encumber
only the same types of property and assets encumbered by the Liens created
by such agreement as in effect on the Issue Date and such amendment or
replacement is otherwise no less favorable to holders of the Notes than
such agreement as in effect on the Issue Date.
"person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust, charitable
foundation, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
"Redeemable Capital Stock" means any shares of any class or series of
Capital Stock that, either by the terms thereof, by the terms of any security
into which it is convertible or exchangeable or by contract or otherwise, is or
upon the happening of an event or passage of time would be, required to be
redeemed prior to the Final Maturity Date or is redeemable at the option of the
holder thereof at any time prior to the Final
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Maturity Date, or is convertible into or exchangeable for debt securities at any
time prior to the Final Maturity Date. Notwithstanding the foregoing, to the
extent that any Common Stock of New CF&I is either (i) subject to the terms of
the New CF&I Stockholders Agreement as in effect on the Issue Date or (ii)
subject to the terms of any similar instrument or agreement (including any
amendment, supplement or restatement to the New CF&I Stockholders Agreement)
which provides for repurchase or redemption of such Common Stock by the Company
or New CF&I on terms no less favorable to the Company and New CF&I than those
set forth in the New CF&I Stockholders Agreement as in effect on the Issue Date,
then such Common Stock of New CF&I shall not be deemed Redeemable Capital Stock
solely by virtue of being subject to the New CF&I Stockholders Agreement or such
other instrument or agreement.
"Sale-Leaseback Transaction" of any person means an arrangement with any
lender or investor or to which such lender or investor is a party providing for
the leasing by such person of any property or asset of such person which has
been or is being sold or transferred by such person after the acquisition
thereof or the completion of construction or commencement of operation thereof
to such lender or investor or to any person to whom funds have been or are to be
advanced by such lender or investor on the security of such property or asset;
provided that the term Sale-Leaseback Transaction shall not include any such
transaction pursuant to which CF&I shall sell or transfer any of the water
rights and related water system owned by it on the Issue Date in conjunction
with an agreement or other arrangement pursuant to which CF&I receives the right
to purchase or receive water represented by any portion of the water rights so
sold or transferred. The Stated Maturity of such arrangement shall be the date
of the last payment of rent or any other amount due under such arrangement prior
to the first date on which such arrangement may be terminated by the lessee
without payment of a penalty.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
"Security Agreement" means a security agreement, substantially in the form
attached as an exhibit to the Indenture (including such changes to such form as
may be necessary or desirable to conform to applicable laws in the jurisdiction
or jurisdictions whose laws are applicable to the Lien created by such
agreement), as the same may be amended, supplemented or otherwise modified from
time to time in accordance with the terms of such instrument or the Indenture.
"Security Documents" means, collectively, (i) the Mortgages executed by the
Company and CF&I, (ii) the Security Agreements executed by the Company, New CF&I
and CF&I, (iii) all other Mortgages or Security Agreements executed after the
Issue Date by the Company or any Guarantor, and (iv) all other mortgages, deeds
of trust, security agreements, pledge agreements, or other similar agreements
evidencing or creating any Lien on Collateral in favor of the Trustee (or, in
the case of mortgages, deeds of trust or similar agreements, in favor of the
Trustee or another trustee thereunder), for the benefit of the holders of the
Notes, in each case as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms of such instrument and
the Indenture.
"S&P" means Standard & Poor's Corporation, and its successors.
"Stated Maturity", when used with respect to any Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable, and when used with respect to any other Indebtedness, means the date
specified in the instrument governing such Indebtedness as the fixed date on
which the principal of such Indebtedness, or any installment of interest
thereon, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Guarantor which is expressly subordinated in right of payment to the Notes or
the Guarantee of such Guarantor, as the case may be.
"Subsidiary" means, with respect to any person, (i) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such person, by one or more Subsidiaries of such person or by such person and
one or more Subsidiaries thereof and (ii) any other person (other than a
corporation), including, without limitation, a joint venture, limited
partnership or general partnership, in which such person, one or more
Subsidiaries thereof or such person and one or more Subsidiaries thereof,
directly or indirectly, at the date of determination thereof, owns more than 50%
of the outstanding shares, interests, participations or other
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<PAGE> 95
equivalents in the equity interest (however designated) in such person. For
purposes of this definition, any directors' qualifying shares or investments by
foreign nationals mandated by applicable law shall be disregarded in determining
the ownership of a Subsidiary. Notwithstanding the foregoing, an Unrestricted
Subsidiary shall not be deemed a Subsidiary of the Company under the Indenture,
other than for purposes of the definition of an Unrestricted Subsidiary, unless
the Company shall have designated an Unrestricted Subsidiary as a "Subsidiary"
by written notice to the Trustee under the Indenture, accompanied by an
officers' certificate as to compliance with the Indenture; provided, however,
that the Company shall not be permitted to designate any Unrestricted Subsidiary
as a Subsidiary unless, after giving pro forma effect to such designation, (i)
the Company would be permitted to incur $1.00 of additional Indebtedness under
the first paragraph of the covenant described above under "-- Certain
Covenants -- Limitation on Indebtedness" (assuming a market rate of interest
with respect to such Indebtedness), (ii) all Indebtedness and Liens of such
Unrestricted Subsidiary would be permitted to be incurred by a Subsidiary of the
Company under the Indenture and (iii) such Unrestricted Subsidiary shall have
entered into a supplemental indenture pursuant to which it shall have become a
Guarantor and complied with the other obligations described under "-- Certain
Covenants -- Additional Guarantors". A designation of an Unrestricted Subsidiary
as a Subsidiary may not thereafter be rescinded.
"Trust Moneys" means all cash and Cash Equivalents received by the Trustee
(i) upon the release of Collateral from the Lien of the Indenture and/or the
Security Documents, including all Collateral Proceeds and all moneys received in
respect of the principal of all purchase money, governmental and other
obligations; (ii) as Net Proceeds and Net Awards (other than any liability
insurance proceeds payable to the Trustee for any loss, liability or expense
incurred by it); (iii) pursuant to the Security Documents; (iv) as proceeds of
any sale or other disposition of all or any part of the Collateral by or on
behalf of the Trustee or any collection, recovery, receipt, appropriation or
other realization of or from all or any part of the Collateral pursuant to the
Indenture or any of the Security Documents or otherwise; (v) as Net Cash
Proceeds from any transaction which results in a Guarantor being released from
its Guarantee pursuant to the Indenture; or (vi) for application as provided in
the relevant provisions of the Indenture or any Security Document or whose
disposition is not otherwise specifically provided for in the Indenture or in
any Security Document; provided, however, that Trust Moneys shall in no event
include any property deposited with the Trustee for any redemption, legal
defeasance or covenant defeasance of Notes or for the satisfaction and discharge
of the Indenture or delivered to or received by the Trustee pursuant to Section
6.10 of the Indenture in connection with an Event of Default.
"Unrestricted Subsidiary" means (A) Camrose, CPC, Oregon Steel Mills
International, Inc., a U.S. Virgin Islands corporation, Oregon Steel de Guayana,
Inc., a Delaware corporation, OSM Glassification, Inc., an Oregon corporation,
Colorado & Wyoming Railway Company, a Delaware corporation, and The Union Ditch
& Water Company, a Colorado corporation and (B) any other Subsidiary of the
Company established or acquired after the Issue Date (i) none of whose
properties or assets were owned by the Company or any of its Subsidiaries prior
to the Issue Date, other than any such assets as are transferred to such
Unrestricted Subsidiary in accordance with the covenant described above under
"-- Certain Covenants -- Limitation on Restricted Payments", (ii) whose
properties and assets, to the extent that they secure Indebtedness, secure only
Non-Recourse Indebtedness, (iii) which has no Indebtedness other than
Non-Recourse Indebtedness, (iv) which is not a Guarantor and does not own,
directly or indirectly, any Capital Stock of a Guarantor and (v) which the
Company designates as an Unrestricted Subsidiary by written notice delivered to
the Trustee at the time such Unrestricted Subsidiary is established or acquired,
accompanied by an officers' certificate to the effect that such designation
complies with the Indenture. As used above, "Non-Recourse Indebtedness" means
Indebtedness as to which (i) neither the Company nor any of its Subsidiaries
(other than the relevant Unrestricted Subsidiary or another Unrestricted
Subsidiary) (1) provides credit support (including any undertaking, agreement or
instrument which would constitute Indebtedness), (2) guarantees or is otherwise
directly or indirectly liable or (3) constitutes the lender (in each case, other
than pursuant to and in compliance with the covenant described above under
"-- Certain Covenants -- Limitation on Restricted Payments") and (ii) no default
with respect to such Indebtedness (including any rights which holders thereof
may have to take enforcement action against the relevant Unrestricted Subsidiary
or its assets) would permit (upon notice, lapse of time or both) any holder of
any other Indebtedness of the Company or its Subsidiaries
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<PAGE> 96
(other than Unrestricted Subsidiaries) to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect a least a majority of the board of directors, managers or
trustees of any person (irrespective of whether or not, at the time, Capital
Stock of any other class or classes shall have, or might have, voting power by
reason of the happening of any contingency).
"Wholly-Owned Subsidiary" means any Subsidiary of the Company of which 100%
of the outstanding Capital Stock is owned by the Company, by one or more
Wholly-Owned Subsidiaries of the Company or by the Company and one or more
Wholly-Owned Subsidiaries of the Company. For purposes of this definition (i)
any directors' qualifying shares or investments by foreign nationals mandated by
applicable law shall be disregarded in determining the ownership of a Subsidiary
and (ii) the limited partnership interests in CF&I and the Common Stock of New
CF&I owned by persons other than the Company and its Subsidiaries on the Issue
Date likewise shall be disregarded in determining ownership of such
Subsidiaries.
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<PAGE> 97
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain terms and provisions of certain debt
instruments to which the Company is or will become a party. This summary does
not purport to be complete and is qualified in its entirety by reference to the
provisions of the Amended Credit Agreement, the Camrose Credit Facility, the
Indenture and the CF&I acquisition agreement, copies of which have been filed or
incorporated by reference as exhibits to the Registration Statement of which
this Prospectus is a part and which are available as described under "Available
Information."
AMENDED CREDIT AGREEMENT
The Offerings are contingent upon the concurrent effectiveness of the
Amended Credit Agreement. The Company has received a commitment letter from the
agent banks for the lenders who are parties to the Old Credit Agreement with
respect to the Amended Credit Agreement. The following is a summary of certain
terms and provisions of the proposed Amended Credit Agreement as set forth in
the bank commitment letter. The effectiveness, however, of the Amended Credit
Agreement is subject to, among other things, the consummation of the Offerings
and the negotiation and execution of definitive documentation, and the final
terms of the Amended Credit Agreement may differ from those set forth below.
The Amended Credit Agreement is expected to be a revolving credit facility
collateralized by substantially all of the accounts receivable and inventory of
the Company, New CF&I and CF&I. The maximum amount of borrowings which may be
outstanding under the Amended Credit Agreement at any time will be limited to an
amount calculated as a specified percentage of eligible accounts receivable and
inventory, provided that the maximum amount of borrowings thereunder may not at
any time exceed $125 million. It is anticipated that the Amended Credit
Agreement will mature in 1999 and will be guaranteed by New CF&I and CF&I.
It is anticipated that the Amended Credit Agreement will contain financial
and other restrictive covenants, including a minimum interest coverage ratio; a
minimum consolidated tangible net worth requirement; a maximum ratio of
long-term debt to total capitalization; and restrictions on liens, dividends,
asset sales, investments, additional indebtedness and mergers and other business
combinations. These covenants, particularly the requirement that the Company
maintain a minimum consolidated tangible net worth, could limit the Company's
ability to pay dividends on the Common Stock. See "Risk Factors -- Substantial
Increase in Dividend Requirements; Limitations on Payment of Common Stock
Dividends." The Amended Credit Agreement will also contain customary events of
default and other provisions, including an event of default due to a "change of
control" (as defined) of the Company. Upon the occurrence of an event of
default, the banks may declare all amounts owing under the Amended Credit
Agreement to be immediately due and payable (except that, upon the occurrence of
an event of default triggered by certain events of bankruptcy, insolvency or
reorganization, borrowings under the Amended Credit Agreement ipso facto will
become due and payable), whereupon the banks may initiate proceedings to realize
on the collateral with respect to the Amended Credit Agreement.
Borrowings under the Amended Credit Agreement are expected to bear interest
at a floating rate based on the prime rate, the federal funds rate or the London
Interbank Borrowing Rate ("LIBOR") plus, in most circumstances, a margin (based
on the Company's leverage ratio) and to provide for payment of certain
commitment and other fees to the banks.
CF&I STEEL DIVISION ACQUISITION DEBT
As part of the purchase price of the Pueblo Mill in March 1993, CF&I agreed
to pay $67.5 million over 10 years. Amounts due pursuant to this obligation are
uncollateralized, bear interest at the annual rate of 9.5% and are not
guaranteed by the Company. At December 31, 1995, the outstanding principal
amount of this obligation was $55.2 million. CF&I is required to make annual
payments (the "Periodic Payments") of principal and interest of approximately
$7.9 million in 1996, approximately $10.6 million in 1997 through 2002 and
approximately $5.3 million in 2003.
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<PAGE> 98
The agreement under which this acquisition debt was incurred contains
customary events of default, including a cross-default provision triggered by
any default in the payment when due or acceleration of any debt of CF&I for
borrowed money aggregating more than $5 million. Upon the occurrence of any
event of default, all Periodic Payments may be declared to be due and payable
immediately. In addition, the agreement contains a covenant prohibiting CF&I
from making distributions to the partners of CF&I, including the Company, if an
event of default thereunder or an event which, with notice or lapse of time or
both, would become an event of default thereunder, shall have occurred and shall
be continuing. Such provision does not prohibit CF&I from repaying debt owed to
the Company.
CAMROSE CREDIT FACILITY
Camrose maintains an Cdn.$18 million revolving credit facility with a bank,
the proceeds of which may be used for working capital and general corporate
purposes. The facility is collateralized by substantially all of the assets of
Camrose, and borrowings under this facility are limited to an amount equal to
specified percentages of Camrose's eligible trade accounts receivable and
inventories. The facility expires on January 3, 1997. Camrose may elect at the
time of borrowing interest based on (i) the bank's Canadian dollar prime rate,
(ii) the bank's U.S. dollar prime rate or (iii) LIBOR. As of December 31, 1995,
Camrose had $6.7 million outstanding under the facility.
The agreement governing the Camrose Credit Facility contains customary
events of default and provides that, upon the occurrence of any event of
default, the bank may demand repayment of all indebtedness and initiate
proceedings to realize on the collateral. Events of default under the agreement
include, among other things, the inability of Camrose or either of the two
general partners which own Camrose (the Company and Stelco) to pay their
respective debts generally or a failure by Camrose or either of its partners to
pay a material amount of their respective indebtedness when due. In addition,
the agreement provides that an event of default shall occur if either partner
incurs additional indebtedness on behalf of Camrose. The agreement contains
covenants which, among other things, require Camrose to maintain a minimum
tangible net worth (as defined) of at least Cdn.$30 million. This covenant could
limit Camrose's ability to make distributions to its partners, including the
Company. As of December 31, 1995, Camrose's tangible net worth was Cdn.$36.6
million, which would have permitted Camrose to make a maximum distribution of
Cdn.$6.6 million to its partners at that time.
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<PAGE> 99
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 30,000,000 shares of
Common Stock, $.01 par value per share, and 1,000,000 shares of Preferred Stock,
$.01 par value per share ("Preferred Stock").
COMMON STOCK
As of December 31, 1995 there were 19,421,614 shares of Common Stock
outstanding, excluding 598,400 shares of Common Stock reserved for issuance on
March 3, 2003 as payment of a portion of the purchase price for the acquisition
of the CF&I Steel Division.
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. There is no
cumulative voting for the election of directors, which means that the holders of
a majority of the shares voted in an election can elect all of the directors of
the class of directors being elected. The Board of Directors is divided into
three classes, with each class currently consisting of three directors. One
class is elected at each annual meeting of stockholders for a term of three
years to succeed those directors whose terms expire at that annual meeting. The
classified structure of the Board could make it more difficult for another
person or entity to gain control of the Company. Subject to any preferences of
outstanding Preferred Stock, holders of Common Stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor, and in the event of a liquidation, dissolution or
winding up of the Company, holders of Common Stock are entitled to share ratably
in all assets remaining after payment or provision for liabilities and amounts
owing in respect to any outstanding Preferred Stock.
Holders of Common Stock have no preemptive rights or rights to convert
their shares of Common Stock into any other securities. All of the outstanding
shares of Common Stock are, and the shares of Common Stock being offered by the
Company hereby will be, fully paid and nonassessable.
In connection with the acquisition of the CF&I Steel Division, the Company
agreed to issue 598,400 shares (subject to adjustment pursuant to anti-dilution
provisions) of Common Stock on March 3, 2003 as payment of a portion of the
purchase price. Also in connection with that acquisition, the Company agreed to
issue warrants to acquire 100,000 shares (subject to adjustment pursuant to
anti-dilution provisions) of Common Stock at an exercise price of $35 per share.
PREFERRED STOCK
No shares of Preferred Stock are outstanding. The Board of Directors has
the authority to issue shares of Preferred Stock from time to time in one or
more series and to fix the number of shares to be included in such a series, the
designations, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions on such series, including
but not limited to dividend rights, dividend rates, conversion rights, voting
rights, rights and terms of redemption (including sinking fund provisions) and
the liquidation preferences thereof, all without any vote or action by the
stockholders. The Board of Directors, without stockholder approval, could issue
shares of Preferred Stock with dividend, voting or conversion rights or other
features which could, among other things, adversely affect the payment of
dividends on, or the voting power or other rights of the holders of, Common
Stock and make it more difficult for another person or entity to gain control of
the Company. The Company has no present plans to issue any shares of Preferred
Stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Generally, Section 203 of the Delaware General Corporation Law prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless (i)
prior to such date, the board of directors of the corporation approved either
the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock outstanding at the
time the transaction commenced,
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<PAGE> 100
excluding for purposes of determining the number of shares outstanding those
shares owned by (A) persons who are both directors and officers and (B) certain
employee stock plans or (iii) on or after such date the business combination is
approved by the board of directors of the corporation and authorized at an
annual or special meeting of stockholders, and not by written consent, by the
affirmative vote of holders of at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is, in general, a person
who together with affiliates and associates owns (or within three years, did
own) 15% or more of the corporation's outstanding voting stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is First Interstate
Bank of Oregon, N.A.
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement, each Underwriter named below has severally agreed to purchase, and
the Company has agreed to sell to such Underwriter, the respective principal
amount of Notes set forth opposite the name of such Underwriter.
<TABLE>
<CAPTION>
PRINCIPAL
NAME AMOUNT
--------------------------------------------------------------- ------------
<S> <C>
Smith Barney Inc. .............................................
PaineWebber Incorporated.......................................
Scotia Capital Markets (USA) Inc. .............................
------------
Total................................................ $235,000,000
===========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Notes are subject to approval
of certain legal matters by counsel and to certain other conditions, including
the concurrent completion of the Common Stock Offering and the effectiveness of
the Amended Credit Agreement. The Underwriters are obligated to take and pay for
all of the Notes offered hereby if any such Notes are taken.
The Underwriters propose to offer part of the Notes directly to the public
at the public offering price set forth on the cover page of this Prospectus and
part of the Notes to certain dealers at a price which represents a concession
not in excess of % of the principal amount of the Notes. The Underwriters may
allow, and such dealers may reallow, a concession not in excess of % of the
principal amount of the Notes to certain other dealers. After the initial public
offering, the public offering price, concession and reallowance may be changed.
As set forth under "Use of Proceeds", the net proceeds from the Offerings
will be used primarily to repay borrowings outstanding under the Old Credit
Agreement. The Bank of Nova Scotia, an affiliate of Scotia Capital Markets (USA)
Inc. (one of the Underwriters for the Notes Offering), is a lender and one of
the agents under the Old Credit Agreement and will be an agent and one of the
lenders under the Amended Credit Agreement. As a result, the Notes Offering is
being made pursuant to Section 44(c)(8) of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc. As required by such rule, Smith
Barney Inc. will act as "qualified independent underwriter" for the Notes
Offering and, in that capacity, is assuming the responsibilities of serving as
"qualified independent underwriter" in pricing the Notes Offering and conducting
due diligence.
The Notes are a new issue of securities with no existing trading market.
See "Risk Factors -- Absence of Public Market". Although the Company intends to
apply to list the Notes on the New York Stock Exchange, there is no assurance
that an active market for the Notes will develop. The Underwriters have advised
the Company that they currently intend to make a market in the Notes. However,
the Underwriters are not obligated to do so and any market making with respect
to the Notes may be discontinued at any time without notice. Accordingly, no
assurance can be given as to the liquidity of, or trading market for, the Notes.
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<PAGE> 101
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the Notes offered hereby will be
passed upon for the Company by Stoel Rives LLP, Portland, Oregon. Brown & Wood,
San Francisco, California, will act as counsel for the Underwriters.
EXPERTS
The consolidated financial statements and financial statement schedule of
the Company included in the Company's Annual Report on Form 10-K (and amendment
thereto on Form 10K/A) as of December 31, 1995, 1994 and 1993 and for the years
then ended and incorporated by reference in this Prospectus and in the
Registration Statement of which this Prospectus is a part, and the consolidated
financial statements of New CF&I and Subsidiaries as of December 31, 1995, 1994
and 1993 and for the years then ended and the financial statements of CF&I as of
December 31, 1995, 1994 and 1993, for the two years ended December 31, 1995 and
for the period March 3, 1993 (date of inception) through December 31, 1993
included in the Appendix to this Prospectus and in the Registration Statement of
which this Prospectus is a part have been incorporated by reference and included
herein and therein in reliance on the reports of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
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APPENDIX
NEW CF&I, INC.
CF&I STEEL, L.P.
INTRODUCTION
As described elsewhere in the Prospectus of which this Appendix is a part,
Oregon Steel Mills, Inc. (the "Company") is offering $235 million aggregate
principal amount of First Mortgage Notes due 2003 (the "Notes"). New CF&I, Inc.
("New CF&I"), a subsidiary of the Company, and CF&I Steel, L.P. ("CF&I"), an
indirect subsidiary of the Company, will unconditionally guarantee, jointly and
severally, the Company's obligations under the Notes. See "Description of the
Notes -- Guarantees" in the Prospectus. This Appendix contains certain
supplementary information, including audited financial statements, with respect
to New CF&I and CF&I. This Appendix should be read in conjunction with, and is
qualified in its entirety by reference to, the information and financial
statements included and incorporated by reference elsewhere in the Prospectus,
including the information appearing under the caption "Risk Factors." As used in
this Appendix, "New CF&I" means New CF&I, Inc. together with, unless the context
otherwise requires, its consolidated subsidiaries; and capitalized terms used
but not defined in this Appendix shall have the meaning given to such terms in
the Prospectus.
GENERAL
To expand the Company's steel product lines and enter new geographic areas,
CF&I, a limited partnership whose sole general partner is New CF&I, purchased
the Pueblo Mill and related assets in March 1993. The Pension Benefit Guaranty
Corporation ("PBGC") is the sole limited partner in CF&I and holds a 4.8% equity
interest in CF&I. The Pueblo Mill has melting and finishing capacity of
approximately 1.2 million tons per year. In 1994 and 1995 New CF&I shipped
765,600 and 640,200 tons of steel products, respectively, and generated revenues
of $339.5 million and $303.0 million, respectively. In August 1994 New CF&I sold
a 10% equity interest in New CF&I to a subsidiary of Nippon Steel Corporation
("Nippon"). In connection with that sale, Nippon agreed to license to the
Company its proprietary technology for producing in-line deep head hardened
("DHH") rail under a separate equipment supply agreement. In November 1995 the
Company sold a 3% equity interest in New CF&I to two subsidiaries of the Nissho
Iwai Group ("Nissho Iwai"), a large Japanese trading company. In connection with
that sale, Nissho Iwai agreed to promote the international sale of certain steel
products produced by the Company. As a result of the purchases of stock in New
CF&I by Nippon and Nissho Iwai, the Company owns 87% of the issued and
outstanding common stock of New CF&I. In connection with those sales, the
Company and New CF&I entered into a stockholders' agreement with Nippon and
Nissho Iwai pursuant to which Nippon and Nissho Iwai were granted a right to
sell all, but not less than all, of their equity interest in New CF&I back to
New CF&I at the then fair market value in certain circumstances. Those
circumstances include, among other things, a change of control, as defined, in
New CF&I, certain changes involving the composition of the board of directors of
New CF&I, and the occurrence of certain other events (which are within the
control of the Company) involving New CF&I or CF&I or its operations. The
Company also agreed not to transfer voting control of New CF&I to a non-
affiliate except in circumstances where Nippon and Nissho Iwai are offered the
opportunity to sell their interest in New CF&I to the transferee at the same per
share price obtained by the Company. The Company also retained a right of first
refusal in the event that Nippon and Nissho Iwai desire to transfer their
interest in New CF&I to a non-affiliate. The equity interests of Nippon and
Nissho Iwai in New CF&I are reflected in the New CF&I balance sheet as
redeemable common stock stated at estimated fair market value. Future increases
or decreases in estimated fair market value will be reflected as corresponding
decreases or increases in stockholders' equity of New CF&I.
BUSINESS
Information with respect to the business of CF&I is set forth in the
Prospectus under the captions "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and
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<PAGE> 103
Results of Operations," "Business," "Description of the Notes" and "Description
of Certain Indebtedness." In particular, information with respect to capital
expenditures at the Pueblo Mill since its acquisition by CF&I in March 1993 is
set forth under "Business -- Capital Improvement Program -- Capital Improvements
at the CF&I Steel Division;" information with respect to products, customers and
markets of CF&I is set forth under "Business -- Products, Customers and
Markets -- Overview" and "-- CF&I Steel Division;" information with respect to
raw materials is set forth under "Business -- Raw Materials;" information with
respect to environmental matters relating to CF&I is set forth under
"Business -- Environmental Matters -- Pueblo Mill;" and information with respect
to indebtedness incurred by CF&I in connection with the acquisition of the
Pueblo Mill is set forth in the Prospectus under "Description of Certain
Indebtedness -- CF&I Steel Division Acquisition Debt."
RESULTS OF OPERATIONS
In addition to its ownership interest in CF&I, New CF&I owns Colorado &
Wyoming Railway Company, a shortline railroad, serving principally the Pueblo
Mill. For the years ended December 31, 1994 and 1995, sales of CF&I were 99.9
percent and 99.0 percent, respectively, of the consolidated sales of New CF&I.
For the years ended December 31, 1994 and 1995, cost of sales of CF&I were 100.2
percent and 99.4 percent, respectively, of the consolidated cost of sales of New
CF&I.
The following table sets forth for New CF&I and its consolidated
subsidiaries, for the periods indicated, the percentages of sales represented by
selected income statement items and information regarding selected balance sheet
data.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-----------------
1994 1995
----- -----
<S> <C> <C>
INCOME STATEMENT DATA:
Sales............................................................ 100.0% 100.0%(1)
Cost of sales.................................................... 92.8(2) 92.1(1)
----- -----
Gross profit..................................................... 7.2 7.9
Selling, general and administrative expenses..................... 4.9 5.7
Profit participation expense..................................... -- .1
----- -----
Operating income.............................................. 2.3 2.1
Interest and dividend income..................................... .1(2) --
Interest expense................................................. (1.1) (4.0)
Other income, net................................................ .1 .1
Minority interests............................................... -- .2
----- -----
Income (loss) before income taxes............................. 1.4 (1.6)
Income tax (expense) benefit..................................... (.6) 1.7
----- -----
Net income.................................................... .8% .1%
===== =====
BALANCE SHEET DATA:
Current ratio(3)................................................. 1.5:1 1.6:1
Long-term debt as a percentage of capitalization(4)(7)........... 85.8% 90.9%
</TABLE>
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<PAGE> 104
The following table sets forth for New CF&I and its consolidated
subsidiaries, for the periods indicated, tonnage sold, sales, average price per
ton sold and other data.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31,
---------------------
1994 1995
-------- --------
<S> <C> <C>
TONNAGE SOLD:
Rail......................................................... 250,500 240,700
Rod, bar and wire products................................... 379,300 271,300
Seamless pipe................................................ 130,000 116,100
Semifinished................................................. 5,800 12,100
-------- --------
Total................................................ 765,600 640,200
======== ========
Sales (thousands).............................................. $339,474 $303,003
Average price per ton sold..................................... $ 443 $ 467(5)
Operating income per ton sold.................................. $ 10 $ 10(5)
Operating margin............................................... 2.3% 2.1%(6)
</TABLE>
- ---------------
(1) Sales for 1995 include approximately $4.0 million of insurance proceeds
received as reimbursement of lost profits resulting from lost production and
delays at CF&I's rod and bar mill caused by an explosion in the third
quarter of 1994. In 1995 revenues of $26.0 million and costs of $26.7
million were capitalized during construction of the rod and bar mill at the
Pueblo Mill prior to placement of the mill in service on August 1, 1995.
(2) In the fourth quarter of 1994, CF&I received property tax refunds totaling
approximately $535,000 related to prior years for the over-assessment of its
Pueblo Mill. This refund reduced 1994 cost of sales and increased 1994
interest income.
(3) Current ratio is defined as the ratio of current assets to current
liabilities.
(4) For purpose of this percentage, long-term debt excludes current portion, and
capitalization is defined as the sum of long-term debt plus stockholders'
equity, excluding redeemable common stock.
(5) Excludes proceeds from the insurance settlement referred to in note (1)
above.
(6) Includes proceeds from the insurance settlement referred to in note (1)
above.
(7) The 1994 amounts have been restated to reflect proceeds from the sale of a
10% equity interest in New CF&I as a minority interest. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations" in the Prospectus and Note 3 to the New
CF&I consolidated financial statements.
Comparison of 1995 to 1994
Sales. New CF&I's sales in 1995 of $303.0 million declined 10.8 percent
from sales of $339.5 million in 1994. For 1995 sales included proceeds from an
insurance settlement of approximately $4.0 million as reimbursement of lost
profits resulting from lost production and start-up delays at the Pueblo Mill
caused by an explosion that occurred in the third quarter of 1994. Tons sold
decreased 16.4 percent to 640,200 tons in 1995 from 765,600 tons in 1994.
Selling prices in 1995 averaged $467 per ton versus $443 per ton in 1994. Of the
$36.5 million sales decrease, $55.6 million was the result of volume decreases,
offset in part by $15.1 million from higher average selling prices and
approximately $4.0 million from the proceeds of the insurance settlement.
The decrease in sales and shipments was primarily the result of reduced rod
and bar shipments. Rod and bar shipments were negatively impacted by
difficulties relating to the start-up of the new combination rod and bar mill
which resulted in production delays and reduced production. See "Risk
Factors -- Start-up Difficulties." In addition, rod and bar costs, net of sales,
were capitalized through July 31, 1995. Thus, New CF&I's income statement for
1995 did not reflect $26.0 million from the sale of 78,700 tons of rod and bar
A-3
<PAGE> 105
mill products, nor did it reflect $26.7 million for the cost of those sales. New
CF&I began recognizing all revenues and costs associated with the new rod and
bar mill in August 1995.
Gross Profit. New CF&I's gross profit as a percentage of sales for 1995
was 7.9 percent, compared to 7.2 percent for 1994. Gross profit margins were
positively impacted by higher selling prices for most products, offset by a 7.5
percent increase in the cost of scrap and other metallics. Gross profit margin,
as in 1994, continued to be negatively affected by high costs and lower volumes
relating to the completion and start-up of a portion of the equipment upgrades
at the rod and bar mill which are part of the capital improvement program at the
Pueblo Mill. Gross profits for 1995 were positively impacted compared to 1994
due to approximately $4.0 million received from CF&I's business interruption
insurance carrier in the second quarter of 1995 for reimbursement of lost
profits.
Selling, General and Administrative. New CF&I's selling, general and
administrative expenses for 1995 increased $534,000 or 3.2 percent compared with
1994, and increased as a percentage of sales from 4.9 percent in 1994 to 5.7
percent in 1995. The increase as a percentage of sales is primarily due to
reduced sales of rod and bar products for the reasons noted above.
Profit Participation. New CF&I's profit participation plan expense was
$449,000 for 1995 compared to no expense for 1994.
Interest and Dividend Income. New CF&I's interest and dividend income on
investments was $48,000 in 1995 compared to $346,000 in 1994. This decrease was
primarily due to a decline in average cash and cash equivalent balances
available for investment.
Interest Expense. New CF&I's total interest costs for 1995 were $17.4
million, an increase of $7.2 million compared to 1994. This increase was
primarily related to interest on debt incurred to fund the capital improvement
program. Of the $17.4 million of interest cost in 1995, $5.5 million was
capitalized as part of construction in progress. As projects in the capital
improvement program are completed, ongoing interest costs will be expensed,
rather than capitalized, which will substantially increase New CF&I's interest
expense.
Income Tax Expense. New CF&I's effective income tax rate for state and
federal taxes was a benefit of 109.1 percent for 1995 compared to an expense of
43.9 percent for 1993. The effective tax rate for 1995 varied from the combined
state and federal statutory rates due to earned state tax credits, including a
net tax benefit of $2.5 million related to enterprise zone credits for eligible
completed capital projects at the Pueblo Mill.
CAPITAL RESOURCES
Borrowing requirements for capital expenditures and other cash needs are
provided through loans from the Company to CF&I. As of December 31, 1995, $181.8
million of aggregate principal amount of these loans was outstanding, all of
which was classified as long-term. The loans are in the form of notes which are
due on demand or, if no demand is made, due in the years 2002 through 2004.
Interest on the principal amount of the loans is based on the prime rate and
payable monthly. Because these loans from the Company to CF&I are due on demand,
the applicable interest rate is effectively subject to renegotiation at any
time, and there is no assurance the interest rate will not be materially
increased in the future. In addition, the Company is not required to provide
financing to CF&I and, although no repayments are expected in 1996, may in any
event demand repayment of these loans at any time. If the Company were to demand
repayment of these loans, there is no assurance that CF&I would be able to
obtain from external sources financing necessary to repay these loans or to fund
its capital expenditures and other cash needs and, if CF&I were able to do so,
it is likely that such financing would be at interest rates and on terms
substantially less favorable to CF&I than those provided by the Company.
In December 1994 the Company entered into an agreement establishing two
credit facilities (the "Old Credit Agreement") for borrowing of up to $297
million from a group of banks to fund capital expenditures and working capital.
The Old Credit Agreement is collateralized, in part, by substantially all of
CF&I's inventory and accounts receivable. CF&I's long-term debt payable to the
Company has been pledged by the Company as collateral under the Old Credit
Agreement. New CF&I has also guaranteed the Old Credit Agreement.
A-4
<PAGE> 106
As described in the Prospectus, it is anticipated that the Company will
enter in an amendment of the Old Credit Agreement in connection with the Notes
Offering (as so amended, the "Amended Credit Agreement"). It is anticipated that
the Amended Credit Agreement will be guaranteed by both CF&I and New CF&I and
collateralized by substantially all of their inventory and accounts receivable
and related books and records. Likewise, it is anticipated that the Notes will
be guaranteed by CF&I and New CF&I and collateralized by certain of their
respective assets (other than inventory and accounts receivable and related
books and records). See "Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Liquidity and Capital Resources" and
"Description of the Notes."
Term debt of $67.5 million was incurred by CF&I as part of the purchase
price of the Pueblo Mill on March 3, 1993. This debt is uncollateralized and is
payable over 10 years with interest at 9.5 percent. As of December 31, 1995, the
outstanding balance on the debt was $55.2 million, of which $50.7 million was
classified as long-term debt.
FACILITIES
The Pueblo Mill is located in Pueblo, Colorado on approximately 570 acres.
The operating facilities principally consist of two electric arc furnaces for
production of all raw steel, a ladle refining furnace and vacuum degassing
system, two 6-strand continuous round casters for producing semifinished steel
and four finishing mills for conversion of semifinished steel to a finished
steel product. These finishing mills consist of a rail mill, a seamless tube
mill, a rod and bar mill and a wire mill. See "Business -- Capital Improvement
Program -- Capital Improvements at the CF&I Steel Division." The executive
offices of New CF&I and CF&I are each located at 1000 S.W. Broadway, Suite 2200,
Portland, Oregon 97205, and the telephone number of each of their executive
offices is (503) 223-9228.
A-5
<PAGE> 107
INDEX TO FINANCIAL STATEMENTS OF CERTAIN SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NEW CF&I, INC.
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheets at December 31, 1995, 1994 and 1993....................... F-3
Consolidated Statements of Income for the years ended December 31, 1995, 1994 and
1993................................................................................ F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1995, 1994 and 1993.................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and
1993................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
CF&I STEEL, L.P.
Report of Independent Accountants..................................................... F-17
Balance Sheets at December 31, 1995, 1994 and 1993.................................... F-18
Statements of Operations for the years ended December 31, 1995 and 1994 and for the
period March 3, 1993 (date of inception) through December 31, 1993.................. F-19
Statements of Changes in Partners' Equity for the years ended December 31, 1995 and
1994 and the period March 3, 1993 (date of inception) through December 31, 1993..... F-20
Statements of Cash Flows for the years ended December 31, 1995 and 1994 and for the
period March 3, 1993 (date of inception) through December 31, 1993.................. F-21
Notes to Financial Statements......................................................... F-22
</TABLE>
F-1
<PAGE> 108
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Directors of New CF&I, Inc.
We have audited the accompanying consolidated balance sheets of New CF&I, Inc.
and Subsidiaries as of December 31, 1995, 1994 and 1993, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of New CF&I, Inc. and
Subsidiaries as of December 31, 1995, 1994 and 1993, and their consolidated
results of operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Note 3 to the consolidated financial statements, the December
31, 1994 balance sheet has been restated to reflect the proceeds from the sale
of stock as redeemable common stock.
COOPERS & LYBRAND L.L.P.
Portland, Oregon
January 19, 1996
F-2
<PAGE> 109
NEW CF&I, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
(RESTATED
NOTE 3)
1995 1994 1993
-------- --------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ -- $ 481 $ 5,107
Trade accounts receivable, less allowance for doubtful
accounts of $518, $592 and $673....................... 45,904 44,195 43,780
Inventories.............................................. 70,249 63,617 47,160
Deferred tax asset....................................... 5,007 3,019 1,813
Other.................................................... 1,056 840 262
-------- -------- --------
Total current assets............................. 122,216 112,152 98,122
-------- -------- --------
Property, plant and equipment:
Land and improvements.................................... 3,530 3,558 174
Buildings................................................ 5,867 5,872 4,981
Machinery and equipment.................................. 188,726 42,952 25,408
Construction in progress................................. 31,586 117,998 16,548
-------- -------- --------
229,709 170,380 47,111
Accumulated depreciation................................. (11,124) (4,047) (1,658)
-------- -------- --------
218,585 166,333 45,453
-------- -------- --------
Costs in excess of net assets acquired, net................ 37,983 39,002 39,630
Other assets............................................... 13,484 11,838 11,496
-------- -------- --------
$392,268 $ 329,325 $194,701
======== ======== ========
LIABILITIES
Current liabilities:
Current portion of long-term debt........................ $ 4,576 $ 5,302 $ 4,680
Accounts payable......................................... 53,867 56,563 45,574
Accrued expenses......................................... 16,269 13,960 9,208
Short-term debt.......................................... -- -- 10,000
-------- -------- --------
Total current liabilities........................ 74,712 75,825 69,462
Long-term debt............................................. 50,666 54,771 59,787
Long-term debt -- Oregon Steel Mills, Inc. ................ 181,750 112,700 --
Other deferred liabilities................................. 34,157 34,225 34,843
Deferred employee benefits................................. 5,388 4,689 4,075
Deferred income taxes...................................... -- 1,446 12
-------- -------- --------
346,673 283,656 168,179
-------- -------- --------
Minority interest.......................................... 587 1,084 1,149
-------- -------- --------
Redeemable common stock, 26 and 20 shares issued and
outstanding.............................................. 21,840 16,800 --
-------- -------- --------
Commitments and contingencies (Note 13)
STOCKHOLDERS' EQUITY
Capital stock:
Common stock, par value $1 per share, 1,000 shares
authorized; 174, 180 and 100 shares issued and
outstanding........................................... 1 1 1
Additional paid-in capital................................. 16,603 21,643 22,241
Retained earnings.......................................... 6,564 6,141 3,428
Minimum pension liability adjustment....................... -- -- (297)
-------- -------- --------
23,168 27,785 25,373
-------- -------- --------
$392,268 $ 329,325 $194,701
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-3
<PAGE> 110
NEW CF&I, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Sales...................................................... $303,003 $339,474 $264,658
-------- -------- --------
Costs and expenses:
Cost of sales............................................ 279,099 314,966 241,381
Selling, general and administrative...................... 17,159 16,625 12,515
Profit participation..................................... 449 -- 477
-------- -------- --------
296,707 331,591 254,373
-------- -------- --------
Operating income...................................... 6,296 7,883 10,285
Other income (expense):
Interest and dividend income............................. 48 346 410
Interest expense......................................... (11,923) (3,586) (5,003)
Minority interest........................................ 497 6 (139)
Other, net............................................... 439 189 (2)
-------- -------- --------
Income (loss) before income taxes..................... (4,643) 4,838 5,551
Income tax benefit (expense)............................... 5,066 (2,125) (2,123)
-------- -------- --------
Net income............................................ $ 423 $ 2,713 $ 3,428
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-4
<PAGE> 111
NEW CF&I, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS EXCEPT SHARES)
<TABLE>
<CAPTION>
MINIMUM
COMMON STOCK ADDITIONAL PENSION
--------------- PAID-IN RETAINED LIABILITY
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT TOTAL
------ ------ ---------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1992
Issuance of common stock.................. 100 $1 $ 22,241 $22,242
Net income................................ $3,428 3,428
Minimum pension liability adjustment...... $ (297) (297)
--- -- ------- ------ ---- -------
Balances, December 31, 1993............... 100 1 22,241 3,428 (297) 25,373
Net income................................ 2,713 2,713
Purchase price adjustment................. (598) (598)
Stock dividend............................ 80
Minimum pension liability adjustment...... 297 297
--- -- ------- ------ ---- -------
Balances, December 31, 1994 (restated Note
3)...................................... 180 1 21,643 6,141 -- 27,785
Net income................................ 423 423
Sale of common stock by Oregon Steel
Mills, Inc.............................. (6) (5,040) (5,040)
--- -- ------- ------ ---- -------
Balances, December 31, 1995............... 174 $1 $ 16,603 $6,564 $ -- $23,168
=== == ======= ====== ==== =======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-5
<PAGE> 112
NEW CF&I, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
-------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 423 $ 2,713 $ 3,428
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation....................................... 7,283 2,401 1,679
Amortization....................................... 1,019 1,322 1,010
Deferred income taxes.............................. (4,601) 228 (1,801)
(Gain) loss on disposal of property plant and
equipment....................................... (438) (189) 2
Minority interest.................................. (497) (65) (51)
Changes in current assets and liabilities net of
effect of acquisitions:
Trade accounts receivable....................... (1,709) (415) (3,613)
Inventories..................................... (6,632) (16,458) (18,633)
Accounts payable................................ (1,194) (1,324) 21,869
Accrued expenses................................ 3,060 4,214 7,434
Other........................................... (215) (578) 228
-------- --------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES..... (3,501) (8,151) 11,552
-------- --------- --------
Cash flows from investing activities:
Acquisition of CF&I Steel, L.P.......................... -- -- (7,313)
Acquisition of The Colorado and Wyoming Railway
Company.............................................. -- -- (2,459)
Additions to property, plant and equipment.............. (61,406) (111,634) (15,620)
Proceeds from disposal of property, plant and
equipment............................................ 807 256 2,208
Other, net.............................................. (600) (203) --
-------- --------- --------
NET CASH USED IN INVESTING ACTIVITIES................... (61,199) (111,581) (23,184)
-------- --------- --------
Cash flows from financing activities:
Borrowings under revolving loan agreement............... -- 25,000 10,000
Payments under revolving loan agreement................. -- (35,000) --
Borrowings from Oregon Steel Mills, Inc................. 171,050 142,000 2,459
Payments to Oregon Steel Mills, Inc..................... (102,000) (29,300) --
Payment of long-term debt............................... (4,831) (4,394) (3,033)
Proceeds from issuance of common stock.................. -- 16,800 7,313
-------- --------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES............... 64,219 115,106 16,739
-------- --------- --------
Net increase (decrease) in cash and cash equivalents...... (481) (4,626) 5,107
Cash and cash equivalents at beginning of period.......... 481 5,107 --
-------- --------- --------
Cash and cash equivalents at end of period................ $ -- $ 481 $ 5,107
======== ========= ========
Supplemental disclosures of cash flow information:
Interest paid........................................... $ 16,561 $ 9,336 $ 4,997
======== ========= ========
Income taxes paid to parent company..................... $ -- $ 5,193 $ --
======== ========= ========
See Notes 1, 3 and 6 for additional supplemental disclosures of cash flow information.
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-6
<PAGE> 113
NEW CF&I, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
New CF&I, Inc. and subsidiaries ("Company") manufacture various specialty
and commodity steel products in Pueblo, Colorado. Principal markets are steel
service centers, steel fabricators, railroads, oil and gas producers and
distributors, and other industrial concerns, primarily in the western United
States. The Company also markets products internationally.
New CF&I, Inc. was incorporated in the State of Delaware on May 5, 1992 as
a wholly-owned subsidiary of Oregon Steel Mills, Inc. ("OSM" and "Parent
Company").
On March 3, 1993, the Company (1) issued 100 shares of common stock to OSM
for $22.2 million (consisting of $7.3 million of cash, $3.1 million of
capitalized direct acquisition costs, 598,400 shares of OSM common stock valued
at $11.2 million to be issued ten years from March 3, 1993, and by the delivery
of warrants to purchase 100,000 shares of OSM's common stock at $35 per share
for five years valued at $556,000) and, (2) as the general partner, then
acquired for $22.2 million a 95.2 percent interest in a newly formed limited
partnership, CF&I Steel, L.P. ("Partnership"). The remaining 4.8 percent
interest was acquired by the Pension Benefit Guaranty Corporation ("Limited
Partner").
Concurrent with the formation of the Partnership and the acquisition of the
general partnership interest by the Company, the Partnership purchased from CF&I
Steel Corporation substantially all of the assets of its steelmaking,
fabricating, metals and railroad business ("Business"). The formation and the
acquisition of the Partnership on March 3, 1993, by the Company was the
initiation of the Company's operations. Assets acquired and liabilities assumed
on March 3, 1993, are as follows (in thousands):
<TABLE>
<S> <C>
Trade accounts receivable, net.................................... $ 38,967
Inventories....................................................... 28,527
Other current assets.............................................. 490
Property, plant and equipment..................................... 28,518
Cost in excess of net assets acquired and other assets............ 52,136
Accounts payable and accrued liabilities.......................... (18,500)
Environmental liabilities......................................... (36,716)
Long-term debt, including current portion......................... (67,500)
Deferred employee benefits........................................ (3,680)
-------
$ 22,242
=======
</TABLE>
Concurrent with the formation of the Partnership, the Colorado & Wyoming
Railway Company, a wholly-owned subsidiary of the Company, purchased the assets,
excluding cash on hand, and short-term investments of The Colorado and Wyoming
Railway Company, a wholly-owned subsidiary of CF&I Steel Corporation for
approximately $2.5 million.
During 1994, the Company entered into and completed arbitration related to
the valuation of acquired inventories that resulted in a $598,000 decrease in
the purchase price paid by the Company. This purchase price adjustment has been
recorded as a decrease in additional paid-in capital and a reduction of cost of
inventories which are included in cost of sales.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the Colorado & Wyoming
Railway Company, a wholly-owned subsidiary, and a 95.2 percent interest in the
Partnership. All principal intercompany transactions and account balances have
been eliminated.
F-7
<PAGE> 114
NEW CF&I, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and Cash Equivalents
Cash and cash equivalents include short-term securities which have an
original maturity date of 90 days or less.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and trade receivables. The Company places its cash in high credit quality
investments and limits the amount of credit exposure by any one financial
institution. At times, temporary cash investments may be in excess of the
Federal Deposit Insurance Corporation insurance limit. Management believes that
risk of loss on the Company's trade receivables is reduced by ongoing credit
evaluation of customer financial condition and requirements for collateral, such
as letters of credit and bank guarantees.
Inventories
Inventories are stated at the lower of average cost or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, including interest during
construction of $5.5 million, $6.6 million and $206,000 in 1995, 1994 and 1993,
respectively. Depreciation is determined utilizing principally the straight-line
method over the estimated useful lives of the assets. Maintenance and repairs
are expensed as incurred and costs of improvement are capitalized. Upon
disposal, cost and accumulated depreciation are removed from the accounts, and
gains or losses are reflected in income.
During 1995, the Company capitalized approximately $741,000 of net
preoperational product costs related to the new rod and bar mill. The Company
began recognizing revenues and costs associated with the new rod and bar mill in
August of 1995.
Costs in Excess of Net Assets Acquired
The cost in excess of net assets acquired is amortized on a straight-line
basis over 40 years. Accumulated amortization was $2.8 million, $1.8 million and
$765,000 in 1995, 1994 and 1993, respectively. The Company periodically reviews
costs in excess of net assets acquired to assess recoverability. Impairments
would be recognized in operating results if a permanent diminution in value were
to occur.
Other Assets
Included in other assets are water rights of approximately $11.2 million.
These water rights include the rights to divert and use certain amounts of water
from various river systems for either industrial or agricultural use.
Taxes on Income
Deferred income taxes reflect the differences between the financial
reporting and tax basis of assets and liabilities at year end based on enacted
tax laws and statutory tax rates. Tax credits are recognized as a reduction of
income tax expense in the year the credit arises. Valuation allowances reduce
deferred tax assets to the amount expected to be realized. Income taxes are
allocated in accordance with a tax allocation agreement between OSM and its
subsidiary companies which provides for taxes on a separate return basis. A
consolidated tax return is filed by OSM.
F-8
<PAGE> 115
NEW CF&I, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
State tax credits are accounted for using the flow-through method whereby
the credits reduce income taxes currently payable and the provision for income
taxes in the period earned. To the extent such credits are not currently
utilized on a separate return basis, deferred tax assets are recognized.
Redeemable Common Stock
Redeemable common stock is stated at estimated fair market value. Future
increases or decreases in estimated fair market value will be reflected as
corresponding decreases or increases in stockholders' equity.
Major Customers
In 1995 and 1994, no customer accounted for more than 10 percent of net
sales. In 1993, the Company derived 10.2 percent of its net sales from one
customer, and this customer accounted for approximately 11 percent of trade
accounts receivable at December 31, 1993.
Recent Accounting Pronouncement
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ", that requires
recognition of impairment losses on long-lived assets. Statement No. 121 also
prescribes the accounting for long-lived assets that are expected to be disposed
of in future periods. The Company will adopt Statement No. 121 in the first
quarter of 1996 and, based on estimates as of December 31, 1995, believes the
effect of adoption, if any, will not have a material effect on the financial
statements of the Company.
3. SALES OF REDEEMABLE COMMON STOCK AND RESTATEMENT
In June 1994, the Board of Directors approved an increase in the Company's
authorized $1 par value common stock from 100 to 1,000 shares and declared an 80
percent stock dividend increasing OSM's holding of the Company's common stock to
180 shares. In August 1994, the Company sold additional common stock (10 percent
equity interest in the Company) to Nippon Steel Corporation ("Nippon").
In connection with the sale, the Company and OSM entered into a
stockholders' agreement with Nippon pursuant to which Nippon was granted a right
to sell all, but not less than all, of its 10 percent equity interest in New
CF&I back to the Company at the then fair market value in certain circumstances.
Those circumstances include, among other things, a change of control, as
defined, in New CF&I and certain changes involving the composition of the board
of directors of the Company, and the occurrence of certain other events which
are within the control of the Company and OSM. OSM also agreed not to transfer
voting control of the Company to a non-affiliate except in circumstances where
Nippon is offered the opportunity to sell its interest in the Company to the
transferee at the same per share price obtained by OSM. The Company has also
retained a right of first refusal in the event that Nippon desires to transfer
its interest in the Company to a non-affiliate.
In 1994 the Company received cash proceeds of $16.8 million from the sale
which was reflected as an increase in stockholders' equity. During the fourth
quarter of 1995, the Company changed its accounting for the sale of the equity
interest to Nippon and has restated the 1994 balance sheet to reflect the
proceeds of the sale as redeemable common stock. Accordingly, redeemable common
stock has been increased and additional paid-in capital reduced by $16.8
million. The effect of the restatement had no effect on 1994 net income.
During the fourth quarter of 1995, OSM sold a 3 percent equity interest in
the Company to the Nissho Iwai Group ("Nissho Iwai") for approximately $5
million cash under substantially the same terms and conditions of the Nippon
transaction. The sale to Nissho Iwai has been reflected as an increase in
redeemable common stock and a decrease to additional paid-in capital.
F-9
<PAGE> 116
NEW CF&I, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
5. INVENTORIES
Inventories were as follows as of December 31:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials......................................... $ 16,480 $ 20,593 $ 13,140
Semifinished product.................................. 25,816 11,659 9,245
Finished product...................................... 20,012 22,148 21,345
Stores and operating supplies......................... 7,941 9,217 3,430
------- ------- -------
Total inventory............................. $ 70,249 $ 63,617 $ 47,160
======= ======= =======
</TABLE>
6. SUPPLEMENTAL CASH FLOW INFORMATION
During 1995, 1994 and 1993, the Company acquired property, plant and
equipment for $15.8 million, $17.3 million and $5.2 million, respectively, which
were included in accounts payable at December 31, 1995, 1994 and 1993,
respectively.
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable includes book overdrafts of $6.4 million at December 31,
1995, and retainage from construction projects of $6.6 million, $9.1 million,
and $1.3 million at December 31, 1995, 1994 and 1993, respectively. Accounts
payable also includes amounts owed to OSM at December 31, 1995, 1994 and 1993 of
$4.5 million, $4.1 million and $7.6 million, respectively.
Accrued expenses include accrued vacation of $3.6 million, $3.5 million and
$2.8 million at December 31, 1995, 1994 and 1993, respectively.
8. DEBT AND FINANCING ARRANGEMENTS
The long-term debt is without stated collateral and is payable over ten
years with interest at 9.5 percent.
As of December 31, 1995, principal payments on long-term debt are due as
follows (in thousands):
<TABLE>
<S> <C>
1996........................................... $ 4,576
1997........................................... 5,950
1998........................................... 6,529
1999........................................... 7,164
2000........................................... 7,861
Balance due in installments through 2003....... 23,162
-------
$ 55,242
=======
</TABLE>
F-10
<PAGE> 117
NEW CF&I, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1994, the Company paid all advances outstanding under its bank
revolving credit facility and canceled the credit agreement. The weighted
average interest rate on short-term debt at December 31, 1993 was approximately
4.9 percent.
Long-Term Debt -- Oregon Steel Mills, Inc.
Borrowing requirements for capital expenditures and working capital are
provided through loans from OSM to the Partnership. The loans are in the form of
notes which are due on demand or, if no demand, due in the years 2002 through
2004, but are not expected to be repaid in 1996. Interest on the principal
amount of the loans is based on prime rate (8.5 percent at December 31, 1995)
and due on a monthly basis. See Note 12.
In December 1994, OSM entered into an agreement establishing two credit
facilities ("Old Credit Agreement") for borrowings up to $297 million from a
group of banks to fund expenditures and working capital.
The Old Credit Agreement is collateralized, in part, by substantially all
of the Company's inventory and accounts receivable. OSM has pledged its note
receivable from the Partnership and the Company's common stock as collateral
under the Old Credit Agreement. The Company and principal subsidiaries of OSM
have also guaranteed the Old Credit Agreement.
The Old Credit Agreement was amended as of September 30, 1995 and as of
December 31, 1995 to modify the interest coverage ratio and certain other
covenants, and to facilitate OSM's obtaining other or additional financing
alternatives. The amendments to the interest coverage ratio were obtained due to
lower than anticipated earnings, and higher than anticipated borrowings on the
Old Credit Agreement.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
The carrying amounts of cash and cash equivalents approximate fair value because
of the short maturity of these instruments.
The fair value and carrying value of the Company's term loan at December
31, 1995 was $52.6 million and $55.2 million, respectively. At December 31,
1994, the fair value and carrying value of the Company's term loan was $57.9
million and $60.1 million, respectively. At December 31, 1993, the fair value of
the Company's term loan of $64.5 million approximated its carrying value. The
fair value is estimated by discounting the future payments with an interest rate
which approximates the market rate for obligations of similar size, term and
security.
The carrying value of the loans from OSM and the revolving loan agreement
at December 31, 1995, 1994 and 1993 approximate fair value since these
agreements carry variable interest rates.
F-11
<PAGE> 118
NEW CF&I, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES
The income tax benefit (expense) consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.............................................. $ 524 $(1,710) $(3,532)
State................................................ (59) (187) (392)
------ ------- -------
465 (1,897) (3,924)
------ ------- -------
Deferred:
Federal.............................................. 1,508 (798) 1,580
State................................................ 3,093 570 221
------ ------- -------
4,601 (228) 1,801
------ ------- -------
Income tax benefit (expense)........................... $5,066 $(2,125) $(2,123)
====== ======= =======
</TABLE>
A reconciliation of the statutory tax rate to the effective tax rate on
income before income taxes is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ---- ----
<S> <C> <C> <C>
Federal................................................ (35.0)% 35.0% 35.0%
States, net............................................ (68.6) 4.6 5.1
Other.................................................. (5.5) 4.3 (1.8)
------ ---- ----
(109.1)% 43.9% 38.3%
====== ==== ====
</TABLE>
F-12
<PAGE> 119
NEW CF&I, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred tax assets and liabilities as of
December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current deferred tax asset:
Assets:
Inventories.......................................... $ 2,473 $ 822 $ 519
Accrued expenses..................................... 2,449 2,089 1,214
Accounts receivable.................................. 85 108 80
------- ------- -------
Current deferred tax asset........................... $ 5,007 $ 3,019 $ 1,813
======= ======= =======
Noncurrent deferred tax asset and liability:
Assets:
Costs in excess of net assets acquired............... $12,341 $12,673 $13,282
Water rights......................................... 4,052 4,052 4,247
Net operating loss carryforward...................... 12,147 -- --
State tax credits.................................... 4,780 -- --
Alternative minimum tax.............................. 991 506 --
Other................................................ 3,020 1,767 452
------- ------- -------
37,331 18,998 17,981
------- ------- -------
Liabilities:
Property, plant and equipment........................ 17,566 2,975 386
Environmental liability.............................. 13,015 13,070 13,282
Water rights......................................... 4,247 4,247 4,247
Other................................................ 1,336 152 78
------- ------- -------
36,164 20,444 17,993
------- ------- -------
Net noncurrent deferred tax asset (liability)... $ 1,167 $(1,446) $ (12)
======= ======= =======
</TABLE>
At December 31, 1995, the Company had state tax credits of $4.8 million,
related to enterprise zone credits for eligible completed capital projects,
expiring 2001 through 2002 which are available to reduce future income taxes
payable. Federal and state net operating loss carryforwards expire in 2010.
At December 31, 1995, 1994 and 1993 the Company included in accounts
payable amounts due to OSM of $152,000, $599,000 and $3.9 million, respectively,
related to income taxes.
The deferred tax asset for state tax credits and a related valuation
allowance previously recorded as of December 31, 1994 have been retroactively
reduced by $605,000, reflecting a reduction in state tax credits earned in 1994.
No valuation allowance has been established for deferred tax assets as
management believes it is more likely than not that future taxable income will
be sufficient to realize the benefit of net operating loss and state tax credit
carryforwards.
11. EMPLOYEE BENEFIT PLANS
Pension Plans
The Company has noncontributory defined benefit plans covering all of the
eligible employees of the Company. The plans provide benefits based on
participants' years of service and compensation. The Company
F-13
<PAGE> 120
NEW CF&I, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
funds at least the minimum annual contribution required by ERISA. Pension cost
included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year.......... $2,754 $3,262 $2,060
Interest cost on projected benefit obligations........... 438 201 --
Actual (return) loss on plan assets...................... (955) 70 (63)
Net amortization and deferral............................ 577 (300) 63
------ ------ ------
$2,814 $3,233 $2,060
====== ====== ======
</TABLE>
The following table sets forth the funded status of the plans and the
amount recognized in the Company's consolidated balance sheet as of December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Accumulated benefit obligations, including vested
benefits of $7,834, $4,280 and $2,237................ $ 8,239 $ 4,573 $2,420
======= ======= ======
Projected benefit obligation......................... $ 9,336 $ 5,192 $2,789
Plan assets at fair value............................ 6,729 3,110 2,123
------- ------- ------
Projected benefit obligation in excess of plan
assets............................................ (2,607) (2,082) (666)
Unrecognized net loss................................ 822 59 666
Adjustment required to recognize minimum liability... -- -- (297)
------- ------- ------
Pension liability recognized in consolidated balance
sheet............................................. $(1,785) $(2,023) $ (297)
======= ======= ======
</TABLE>
The following table sets forth the significant actuarial assumptions for
the Company's pension plans:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................. 7.5% 8.5% 7.3%
Rate of increase in future compensation levels............ 4.0% 4.5% 4.5%
Expected long-term rate of return on plan assets.......... 8.8% 8.8% 8.0%
</TABLE>
Plan assets are invested in common stock and bond funds at December 31,
1995. The plans do not invest in the stock of OSM or the Company.
Postretirement Health Care and Life Insurance Benefits
The Company provides certain health care and life insurance benefits for
substantially all of the retired employees. Employees are generally eligible for
benefits upon retirement and completion of a specified number of years of
service. The benefit plans are unfunded.
F-14
<PAGE> 121
NEW CF&I, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the status of the plans as of December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................ $ 1,014 $ 146 $ --
Fully eligible plan participants.................... 3,869 1,387 595
Other active plan participants...................... 3,008 5,080 4,032
------- ------- -------
$ 7,891 $ 6,613 $ 4,627
======= ======= =======
Accumulated postretirement benefit obligation in
excess of plan assets............................... $(7,891) $(6,613) $(4,627)
Unrecognized net loss................................. 2,422 2,002 557
------- ------- -------
Postretirement liability recognized in the
consolidated
balance sheets...................................... $(5,469) $(4,611) $(4,070)
======= ======= =======
Net periodic postretirement benefit costs include:
Service cost........................................ $ 215 $ 197 $ 145
Interest cost....................................... 561 335 245
Amortization of unrecognized net losses............. 142 9 --
------- ------- -------
Net periodic postretirement benefit cost.............. $ 918 $ 541 $ 390
======= ======= =======
</TABLE>
The obligations and costs for the retiree medical plan are not dependent on
changes in the cost of medical care. Retirees are covered under plans providing
fixed dollar benefits. The discount rate used in determining the accumulated
postretirement benefit obligation was 7.5 percent, 8.5 percent and 7.3 percent
in 1995, 1994 and 1993, respectively.
Profit Participation Plan
The Company has a profit participation plan under which it distributes
quarterly 12 percent of its operating income after adjustments for certain
non-operating items such as interest expense to eligible employees. Each
eligible employee receives a share of the distribution based upon the level of
the eligible employee's base compensation compared with the total base
compensation of all eligible employees of the Company. Expense under the plan
was $449,000 in 1995 and $478,000 in 1993.
The Company has also agreed to distribute quarterly 3.2 percent of its
defined profits to a Voluntary Employee Beneficiary Association ("VEBA") which
is comprised of retired employees of CF&I Steel Corporation. Expense under the
plan in 1995, 1994 and 1993 was $120,000, $82,000 and $148,000, respectively.
Thrift Plans
The Company has qualified thrift plans (401k) for eligible employees under
which the Company matches 25 percent of the first 4 percent of the participant's
deferred compensation. Company contribution expense in 1995, 1994 and 1993 was
$387,000, $389,000 and $280,000, respectively.
12. RELATED PARTY TRANSACTIONS
Oregon Steel Mills, Inc.
The Company pays administrative fees to OSM for services it provides and
reimburses OSM for costs incurred on behalf of the Company. OSM administrative
fees in 1995, 1994 and 1993 were $3.6 million, $3.5 million and $2.6 million,
respectively.
Borrowing requirements for capital expenditures and working capital are
provided through loans from OSM. At December 31, 1995 and 1994, the Company had
notes payable to OSM of $181.8 million and $112.7 million, respectively.
Interest expense for the years ended December 31, 1995 and 1994 was
F-15
<PAGE> 122
NEW CF&I, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$11.9 million and $3.1 million, respectively. Interest payable on the notes as
of December 31, 1995 and 1994 was $1.3 million and $682,000, respectively.
Nippon Steel Corporation
In 1994 the Partnership entered into an equipment supply agreement for
purchase of deep head-hardened ("DHH") rail equipment from Nippon. The
Partnership has made progress payments on the DHH rail equipment and paid
certain license and technical fees.
<TABLE>
<CAPTION>
1995 1994
------- ------
(IN THOUSANDS)
<S> <C> <C>
Purchases from Nippon..................................... $15,394 $2,046
Accounts payable to Nippon at December 31................. $ 2,252 --
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
Environmental
All material environmental remediation liabilities which are probable and
estimable are recorded in the financial statements based on current technologies
and current environmental standards. Adjustments are made when additional
information is available that may require different remediation methods or
periods, and ultimately affect the total cost. The best estimate of the probable
loss within a range is recorded. If there is no best estimate, the low end of
the range is recorded, and the range is disclosed.
In connection with the 1993 formation of the Partnership and the
acquisition of the Partnership interest by the Company, the Company accrued a
liability of $36.7 million for environmental remediation at the Pueblo, Colorado
steel mill. The Company believed $36.7 million was the best estimate from a
range of $23.1 to $43.6 million. The Company's estimate of this liability was
based on two separate remediation investigations conducted by independent
environmental engineering consultants. The accrual includes costs for the
Resource Conservation and Recovery Act facility investigation, a corrective
measures study, remedial action, and operation and maintenance associated with
the proposed remedial actions. In October 1995, the Partnership and the Colorado
Department of Public Health and Environment finalized a ten-year post-closure
permit. The permit contains a prioritized schedule for corrective actions to be
completed which is substantially reflective of a straight-line rate of
expenditure over 30 years. The State of Colorado stated that the schedule for
corrective action could be accelerated if new data indicated a greater threat to
the environment than is currently known to exist. At December 31, 1995, the
accrued liability is $35.4 million, of which $34.2 million is classified as
noncurrent in other deferred liabilities in the consolidated balance sheet.
Capital Expenditures
During 1995, the Company continued construction of various capital
improvement projects at the Company's steel mill in Pueblo, Colorado. At
December 31, 1995, the Company had commitments for expenditures of approximately
$27.8 million for completion of these projects.
Other Contingencies
The Company, in the regular course of business, is involved in
investigations and claims by various regulatory agencies. The Company is also
engaged in various legal proceedings and claims incidental to its normal
business activities. Management of the Company does not believe that the
ultimate resolution of these investigations, claims and legal proceedings will
have a material effect on its financial position.
14. PROCEEDS FROM INSURANCE SETTLEMENT
Sales for 1995 include approximately $4 million of insurance proceeds
received as reimbursement of lost profits resulting from lost production and
delays at the Company's new rod and bar mill caused by an explosion that
occurred during the third quarter of 1994.
F-16
<PAGE> 123
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of CF&I Steel, L.P.
We have audited the accompanying balance sheets of CF&I Steel, L.P.
(Partnership) as of December 31, 1995, 1994 and 1993, and the related statements
of operations, changes in partners' equity and cash flows for each of the two
years in the period ended December 31, 1995 and for the period March 3, 1993
(date of inception) through December 31, 1993. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CF&I Steel, L.P. as of December
31, 1995, 1994 and 1993, and its results of operations and its cash flows for
each of the two years in the period ended December 31, 1995 and for the period
March 3, 1993 (date of inception) through December 31, 1993 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Portland, Oregon
January 19, 1996
F-17
<PAGE> 124
CF&I STEEL, L.P.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ -- $ 481 $ 5,107
Trade accounts receivable, less allowance for doubtful
accounts of $518, $592 and $673....................... 45,533 43,863 43,351
Inventories.............................................. 70,087 63,440 46,970
Other.................................................... 971 793 202
-------- -------- --------
Total current assets............................. 116,591 108,577 95,630
-------- -------- --------
Property, plant and equipment:
Land and improvements.................................... 3,525 3,553 169
Buildings................................................ 5,760 5,760 4,869
Machinery and equipment.................................. 186,626 40,297 22,989
Construction in progress................................. 31,586 117,998 16,494
-------- -------- --------
227,497 167,608 44,521
Accumulated depreciation................................. (10,569) (3,581) (1,469)
-------- -------- --------
216,928 164,027 43,052
-------- -------- --------
Costs in excess of net assets acquired, net................ 37,983 39,002 39,630
Other assets............................................... 12,317 11,838 11,496
-------- -------- --------
$383,819 $323,444 $189,808
======== ======== ========
LIABILITIES
Current liabilities:
Current portion of long-term debt........................ $ 4,576 $ 5,302 $ 4,680
Accounts payable......................................... 55,601 54,842 39,424
Accrued expenses......................................... 15,652 13,322 8,467
Short-term debt.......................................... -- -- 10,000
Partner distributions payable............................ -- -- 3,965
-------- -------- --------
Total current liabilities........................ 75,829 73,466 66,536
Long-term debt............................................. 50,666 54,771 59,787
Long-term debt -- Oregon Steel Mills, Inc. ................ 181,750 112,700 --
Long-term debt -- New CF&I, Inc. .......................... 16,800 16,800 --
Other deferred liabilities................................. 34,157 34,225 34,843
Deferred employee benefits................................. 5,388 4,689 4,076
-------- -------- --------
364,590 296,651 165,242
-------- -------- --------
Commitments and contingencies (Note 11)
PARTNERS' EQUITY
Limited partner............................................ 587 1,084 1,135
General partner............................................ 18,642 25,709 23,431
-------- -------- --------
Total partners' equity........................... 19,229 26,793 24,566
-------- -------- --------
$383,819 $323,444 $189,808
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
F-18
<PAGE> 125
CF&I STEEL, L.P.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEARS MARCH 3, 1993
ENDED DECEMBER 31, (DATE OF INCEPTION)
--------------------- THROUGH
1995 1994 DECEMBER 31, 1993
-------- -------- -------------------
<S> <C> <C> <C>
Sales................................................ $300,060 $338,970 $ 264,335
-------- -------- --------
Costs and expenses:
Cost of sales...................................... 277,452 315,518 241,787
Selling, general and administrative................ 16,681 16,108 12,074
Profit participation............................... 449 -- 478
-------- -------- --------
294,582 331,626 254,339
-------- -------- --------
Operating income................................ 5,478 7,344 9,996
Interest and dividend income......................... 35 304 393
Interest expense..................................... (13,518) (4,076) (5,003)
Other, net........................................... 441 193 --
-------- -------- --------
Net income (loss)............................... $ (7,564) $ 3,765 $ 5,386
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
F-19
<PAGE> 126
CF&I STEEL, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 AND FOR THE PERIOD
MARCH 3, 1993 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNER TOTAL
------- ------- -------
<S> <C> <C> <C>
Initial capital contributions at March 3, 1993................. $22,242 $ 1,200 $23,442
Net income..................................................... 5,247 139 5,386
Partner distributions.......................................... (3,775) (190) (3,965)
Minimum pension liability adjustment........................... (283) (14) (297)
------- ------ -------
Balances, December 31, 1993.................................... 23,431 1,135 24,566
Net income (loss).............................................. 3,771 (6) 3,765
Partner distributions.......................................... (1,178) (59) (1,237)
Minimum pension liability adjustment........................... 283 14 297
Purchase price adjustment...................................... (598) -- (598)
------- ------ -------
Balances, December 31, 1994.................................... 25,709 1,084 26,793
Net loss....................................................... (7,067) (497) (7,564)
------- ------ -------
Balances, December 31, 1995.................................... $18,642 $ 587 $19,229
======= ====== =======
</TABLE>
The accompanying notes are an integral part
of the financial statements.
F-20
<PAGE> 127
CF&I STEEL, L.P.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS FOR THE PERIOD
ENDED DECEMBER 31, MARCH 3, 1993 (DATE OF
---------------------- INCEPTION) THROUGH
1995 1994 DECEMBER 31, 1993
-------- --------- ----------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ (7,564) $ 3,765 $ 5,386
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation.............................. 6,999 2,117 1,486
Amortization.............................. 1,019 1,322 1,010
Gain on disposal of property plant and
equipment.............................. (440) (193) --
Changes in current assets and liabilities
net of effect of acquisitions:
Trade accounts receivable.............. (1,670) (512) (3,396)
Inventories............................ (6,647) (16,470) (18,634)
Accounts payable....................... 2,261 3,304 15,964
Accrued expenses....................... 2,961 4,117 6,694
Other.................................. (178) (591) 288
-------- --------- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES.................................. (3,259) (3,141) 8,798
-------- --------- --------
Cash flows from investing activities:
Additions to property, plant and equipment..... (61,472) (111,442) (15,261)
Proceeds from disposal of property, plant and
equipment................................... 510 256 4,603
Other, net..................................... (479) (203) --
-------- --------- --------
NET CASH USED IN
INVESTING ACTIVITIES........................ (61,441) (111,389) (10,658)
-------- --------- --------
Cash flows from financing activities:
Borrowings under revolving loan agreement...... -- 25,000 10,000
Payments under revolving loan agreement........ -- (35,000) --
Borrowings from related parties................ 171,050 158,800 --
Payments to related parties.................... (102,000) (29,300) --
Payment of long-term debt...................... (4,831) (4,394) (3,033)
Partner distributions.......................... -- (5,202) --
-------- --------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES...... 64,219 109,904 6,967
-------- --------- --------
Net increase (decrease) in cash and cash
equivalents.................................... (481) (4,626) 5,107
Cash and cash equivalents at beginning of
period......................................... 481 5,107 --
-------- --------- --------
Cash and cash equivalents at end of period....... $ -- $ 481 $ 5,107
======== ========= ========
Supplemental disclosures of cash flow
information:
Interest paid.................................. $ 16,561 $ 9,336 $ 4,997
======== ========= ========
</TABLE>
See Notes 1 and 5 for additional supplemental disclosures of cash flow
information.
The accompanying notes are an integral part
of the financial statements.
F-21
<PAGE> 128
CF&I STEEL, L.P.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
CF&I Steel, L.P. ("Partnership") manufactures various specialty and
commodity steel products in Pueblo, Colorado. Principal markets are steel
service centers, steel fabricators, railroads, oil and gas producers and
distributors, and other industrial concerns, primarily in the western United
States. The Partnership also markets products internationally.
On March 3, 1993, the inception date of the Partnership's operations, New
CF&I, Inc. ("General Partner" or "Company"), a then wholly-owned subsidiary of
Oregon Steel Mills, Inc. ("OSM"), (1) issued 100 shares of common stock to OSM
for $22.2 million (consisting of $7.3 million of cash, $3.1 million of
capitalized direct acquisition costs, 598,400 shares of OSM common stock valued
at $11.2 million to be issued ten years from March 3, 1993, and by the delivery
of warrants to purchase 100,000 shares of OSM's common stock at $35 per share
for five years valued at $556,000) and, (2) as the general partner, then
acquired for $22.2 million a 95.2 percent interest in a newly formed limited
partnership, CF&I Steel, L.P. The remaining 4.8 percent interest was acquired by
the Pension Benefit Guaranty Corporation ("Limited Partner") with a capital
contribution of an asset valued at $1.2 million.
Concurrent with the formation of the Partnership, the Partnership purchased
from CF&I Steel Corporation substantially all of the assets of its steelmaking,
fabricating, metals and railroad business ("Business"). The formation and the
acquisition of the Partnership on March 3, 1993 by the Company was the
initiation of the Partnership's operations. Assets acquired and liabilities
assumed on March 3, 1993 are as follows (in thousands):
<TABLE>
<S> <C>
Trade accounts receivable, net.................................... $ 38,967
Inventories....................................................... 28,527
Other current assets.............................................. 490
Property, plant and equipment..................................... 28,518
Cost in excess of net assets acquired and other assets............ 52,136
Accounts payable and accrued liabilities.......................... (18,500)
Environmental liabilities......................................... (36,716)
Long-term debt, including current portion......................... (67,500)
Deferred employee benefits........................................ (3,680)
--------
$ 22,242
========
</TABLE>
Profits and losses of the Partnership are allocated 95.2 percent to the
General Partner and 4.8 percent to the Limited Partner, subject to certain
adjustments as defined in the partnership agreement.
During 1994, the Company entered into and completed arbitration related to
the valuation of acquired inventories that resulted in a $598,000 decrease in
the purchase price paid by the Company. This purchase price adjustment has been
recorded as a decrease in the Company's equity and a reduction of cost of
inventories which are included in cost of sales.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents include short-term securities which have an
original maturity date of 90 days or less.
Concentrations of Credit Risk
Financial instruments that potentially subject the Partnership to
concentrations of credit risk consist principally of cash and cash equivalents
and trade receivables. The Partnership places its cash in high credit
F-22
<PAGE> 129
CF&I STEEL, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
quality investments and limits the amount of credit exposure by any one
financial institution. At times, temporary cash investments may be in excess of
the Federal Deposit Insurance Corporation insurance limit. Management believes
that risk of loss on the Partnership's trade receivables is reduced by ongoing
credit evaluation of customer financial condition and requirements for
collateral, such as letters of credit and bank guarantees.
Inventories
Inventories are stated at the lower of average cost or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, including interest during
construction of $5.5 million, $6.6 million and $206,000 in 1995, 1994 and 1993,
respectively. Depreciation is determined utilizing principally the straight-line
method over the estimated useful lives of the assets. Maintenance and repairs
are expensed as incurred and costs of improvement are capitalized. Upon
disposal, cost and accumulated depreciation are removed from the accounts, and
gains or losses are reflected in income.
During 1995, the Partnership capitalized approximately $741,000 of net
preoperational product costs related to the new rod and bar mill. The
Partnership began recognizing revenues and costs associated with the new rod and
bar mill in August of 1995.
Costs in Excess of Net Assets Acquired
The cost in excess of net assets acquired is amortized on a straight-line
basis over 40 years. Accumulated amortization was $2.8 million, $1.8 million and
$765,000 in 1995, 1994 and 1993, respectively. The Partnership periodically
reviews costs in excess of net assets acquired to assess recoverability.
Impairments would be recognized in operating results if a permanent diminution
in value were to occur.
Other Assets
Included in other assets are water rights of approximately $11.2 million.
These water rights include the rights to divert and use certain amounts of water
from various river systems for either industrial or agricultural use.
Taxes on Income
The financial statements reflect no provision or liability for federal or
state income taxes. Taxable income or loss of the Partnership is allocated to
the partners.
At December 31, 1995, 1994 and 1993 the financial reporting basis of the
Partnership's assets and liabilities exceeded the tax basis by $70.9 million,
$38.9 million and $36.3 million, respectively.
Major Customers
In 1995 and 1994, no customer accounted for more than 10 percent of net
sales. In 1993, the Partnership derived 10.2 percent of its net sales from one
customer and this customer accounted for approximately 11 percent of trade
accounts receivable at December 31, 1993.
Recent Accounting Pronouncement
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", that requires
recognition of impairment losses on long-lived assets. Statement No. 121 also
F-23
<PAGE> 130
CF&I STEEL, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
prescribes the accounting for long-lived assets that are expected to be disposed
of in future periods. The Partnership will adopt Statement No. 121 in the first
quarter of 1996 and, based on estimates as of December 31, 1995, believes the
effect of adoption, if any, will not have a material effect on the financial
statements of the Partnership.
3. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
4. INVENTORIES
Inventories were as follows as of December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials......................................... $16,480 $20,593 $13,140
Semifinished product.................................. 25,816 11,659 9,245
Finished product...................................... 20,012 22,148 21,345
Stores and operating supplies......................... 7,779 9,040 3,240
------- ------- -------
Total inventory..................................... $70,087 $63,440 $46,970
======= ======= =======
</TABLE>
5. SUPPLEMENTAL CASH FLOW INFORMATION
During 1995, 1994 and 1993, the Partnership acquired property, plant and
equipment for $15.8 million, $17.3 million and $5.2 million, respectively, which
were included in accounts payable at December 31, 1995, 1994 and 1993,
respectively.
As of December 31, 1993, approximately $4 million was accrued for partner
distributions payable.
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable includes book overdrafts of $6.2 million at December 31,
1995 and retainage from construction projects of $6.6 million, $9.1 million and
$1.3 million at December 31, 1995, 1994 and 1993, respectively. Accounts payable
also includes amounts owed to OSM at December 31, 1995, 1994 and 1993 of $4.5
million, $4.1 million and $7.6 million, respectively.
Accrued expenses include accrued vacation of $3.3 million, $3.2 million and
$2.5 million at December 31, 1995, 1994 and 1993, respectively.
7. DEBT AND FINANCING ARRANGEMENTS
The long-term debt is without stated collateral and is payable over ten
years with interest at 9.5 percent.
F-24
<PAGE> 131
CF&I STEEL, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
As of December 31, 1995, principal payments on long-term debt are due as
follows (in thousands):
<TABLE>
<S> <C>
1996............................................... $ 4,576
1997............................................... 5,950
1998............................................... 6,529
1999............................................... 7,164
2000............................................... 7,861
Balance due in installments through 2003........... 23,162
-------
$55,242
=======
</TABLE>
In December 1994, the Partnership paid all advances outstanding under its
bank revolving credit facility and canceled the credit agreement. The weighted
average interest rate on short-term debt at December 31, 1993 was approximately
4.9 percent.
Long-Term Debt -- Related Parties
Borrowing requirements for capital expenditures and working capital are
provided through loans from OSM and the General Partner. The loans are in the
form of notes which are due on demand or, if no demand, due in the years 2002
through 2004, but are not expected to be repaid in 1996. Interest on the
principal amount of the loans is based on prime rate (8.5 percent at December
31, 1995) and due on a monthly basis. See Note 10.
In December 1994, OSM entered into an agreement establishing two credit
facilities ("Old Credit Agreement") for borrowings up to $297 million from a
group of banks to fund expenditures and working capital.
The Old Credit Agreement is collateralized, in part, by substantially all
of the Partnership's inventory and accounts receivable. The General Partner and
OSM have pledged their notes receivable from the Partnership as collateral under
the Old Credit Agreement. The General Partner and principal subsidiaries of OSM
have guaranteed the Old Credit Agreement.
The Old Credit Agreement was amended as of September 30, 1995 and as of
December 31, 1995 to modify the interest coverage ratio and certain other
covenants, and to facilitate OSM's obtaining other or additional financing
alternatives. The amendments to the interest coverage ratio were obtained due to
lower than anticipated earnings, and higher than anticipated borrowings on the
Old Credit Agreement.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
The carrying amounts of cash and cash equivalents approximate fair value because
of the short maturity of these instruments.
The fair value and carrying value of the Partnership's term loan at
December 31, 1995 was $52.6 million and $55.2 million, respectively. At December
31, 1994, the fair value and carrying value of the Partnership's term loan was
$57.9 million and $60.1 million, respectively. At December 31, 1993, the fair
value of the Partnership's term loan of $64.5 million approximated its carrying
value. The fair value is estimated by discounting the future payments with an
interest rate which approximates the market rate for obligations of similar
size, term and security. The carrying value of the loans from OSM and the
General Partner and the revolving loan agreement at December 31, 1995, 1994 and
1993 approximate fair value since these agreements carry variable interest
rates.
F-25
<PAGE> 132
CF&I STEEL, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
9. EMPLOYEE BENEFIT PLANS
Pension Plans
The Partnership has noncontributory defined benefit plans covering all of
the eligible employees. The plans provide benefits based on participants' years
of service and compensation. The Partnership funds at least the minimum annual
contribution required by ERISA. Pension cost included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year.......... $2,754 $3,262 $2,060
Interest cost on projected benefit obligations........... 438 201 --
Actual (return) loss on plan assets...................... (955) 70 (63)
Net amortization and deferral............................ 577 (300) 63
------ ------ ------
$2,814 $3,233 $2,060
====== ====== ======
</TABLE>
The following table sets forth the funded status of the plans and the
amount recognized in the Partnership's balance sheet as of December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Accumulated benefit obligations, including vested
benefits of $7,834, $4,280 and $2,237................ $ 8,239 $ 4,573 $2,420
======= ======= ======
Projected benefit obligation......................... $ 9,336 $ 5,192 $2,789
Plan assets at fair value............................ 6,729 3,110 2,123
------- ------- ------
Projected benefit obligation in excess of plan
assets............................................ (2,607) (2,082) (666)
Unrecognized net loss................................ 822 59 666
Adjustment required to recognize minimum liability... -- -- (297)
------- ------- ------
Pension liability recognized in balance sheet........ $(1,785) $(2,023) $ (297)
======= ======= ======
</TABLE>
The following table sets forth the significant actuarial assumptions for
the Partnership's pension plans:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Discount rate.......................................... 7.5% 8.5% 7.3%
Rate of increase in future compensation levels......... 4.0% 4.5% 4.5%
Expected long-term rate of return on plan assets....... 8.8% 8.8% 8.0%
</TABLE>
Plan assets are invested in common stock and bond funds at December 31,
1995. The plans do not invest in the stock of OSM or the General Partner.
Postretirement Health Care and Life Insurance Benefits
The Partnership provides certain health care and life insurance benefits
for substantially all of the retired employees. Employees are generally eligible
for benefits upon retirement and completion of a specified number of years of
service. The benefit plans are unfunded.
F-26
<PAGE> 133
CF&I STEEL, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the status of the plans as of December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................ $ 1,014 $ 146 $ --
Fully eligible plan participants........................ 3,869 1,387 595
Other active plan participants.......................... 3,008 5,080 4,032
------- ------- -------
$ 7,891 $ 6,613 $ 4,627
======= ======= =======
Accumulated postretirement benefit obligation in excess
of plan assets.......................................... $(7,891) $(6,613) $(4,627)
Unrecognized net loss..................................... 2,422 2,002 557
------- ------- -------
Postretirement liability recognized in the balance
sheets.................................................. $(5,469) $(4,611) $(4,070)
======= ======= =======
Net periodic postretirement benefit costs include:
Service cost............................................ $ 215 $ 197 $ 145
Interest cost........................................... 561 335 245
Amortization of unrecognized net losses................. 142 9 --
------- ------- -------
Net periodic postretirement benefit cost.................. $ 918 $ 541 $ 390
======= ======= =======
</TABLE>
The obligations and costs for the retiree medical plan are not dependent on
changes in the cost of medical care. Retirees are covered under plans providing
fixed dollar benefits. The discount rate used in determining the accumulated
postretirement benefit obligation was 7.5 percent, 8.5 percent and 7.3 percent
in 1995, 1994 and 1993, respectively.
Profit Participation Plan
The Partnership has a profit participation plan under which it distributes
quarterly 12 percent of its operating income after adjustments for certain
non-operating items such as interest expense to eligible employees. Each
eligible employee receives a share of the distribution based upon the level of
the eligible employee's base compensation compared with the total base
compensation of all eligible employees of the Partnership. Expense under the
plan was $449,000 in 1995 and $478,000 in 1993.
The Partnership has agreed to distribute quarterly 3.2 percent of its
defined profits to a Voluntary Employee Beneficiary Association ("VEBA") which
is comprised of retired employees of CF&I Steel Corporation. Expense under the
plan in 1995, 1994 and 1993 was $120,000, $82,000 and $148,000, respectively.
Thrift Plans
The Partnership has qualified thrift plans (401k) for eligible employees
under which the Company matches 25 percent of the first 4 percent of the
participant's deferred compensation. Partnership contribution expense in 1995,
1994 and 1993 was $387,000, $389,000 and $280,000, respectively.
10. RELATED PARTY TRANSACTIONS
Oregon Steel Mills, Inc.
The Partnership pays administrative fees to OSM for services it provides
and reimburses OSM for costs incurred on behalf of the Company. OSM
administrative fees in 1995, 1994 and 1993 were $3.5 million, $3.4 million and
$2.5 million, respectively.
F-27
<PAGE> 134
CF&I STEEL, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995 and 1994, the Partnership had notes payable to OSM of
$181.8 million and $112.7 million, respectively. Interest expense on the notes
payable to OSM for the years ended December 31, 1995 and 1994 was $11.9 million
and $3.1 million, respectively. Interest payable on the notes as of December 31,
1995 and 1994 was $1.3 million and $682,000, respectively.
New CF&I, Inc.
The long-term note payable outstanding to the General Partner was $16.8
million as of December 31, 1995 and 1994. Interest payable on the notes was $2.0
million at December 31, 1995 and $490,000 at December 31, 1994. Interest expense
on the notes payable to the General Partner for the years ended December 31,
1995 and 1994 was $1.5 million and $490,000, respectively. In addition, the
Partnership had accounts payable to the General Partner of $617,000, $287,000
and $496,000 as of December 31, 1995, 1994 and 1993.
Cost of sales includes $5 million, $7.2 million and $4 million in 1995,
1994 and 1993, respectively, of costs related to transportation services
provided by a subsidiary of the General Partner.
Nippon Steel Corporation
In August 1994, Nippon Steel Corporation (together with its parent and
subsidiaries "Nippon Steel") purchased 10 percent ownership in the General
Partner. In 1994 the Partnership entered into an equipment supply agreement for
purchase of deep head-hardened ("DHH") rail equipment from Nippon Steel. The
Partnership has made progress payments on the DHH rail equipment and paid
certain license and technical fees.
<TABLE>
<CAPTION>
1995 1994
------- ------
(IN THOUSANDS)
<S> <C> <C>
Purchases from Nippon Steel............................. $15,394 $2,046
Accounts payable to Nippon Steel at December 31......... $ 2,252 --
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
Environmental
All material environmental remediation liabilities which are probable and
estimable are recorded in the financial statements based on current technologies
and current environmental standards. Adjustments are made when additional
information is available that may require different remediation methods or
periods, and ultimately affect the total cost. The best estimate of the probable
loss within a range is recorded. If there is no best estimate, the low end of
the range is recorded, and the range is disclosed.
In connection with the 1993 formation of the Partnership and the
acquisition of the Partnership interest by the General Partner, the Partnership
accrued a liability of $36.7 million for environmental remediation at the
Pueblo, Colorado steel mill. The Partnership believed $36.7 million was the best
estimate from a range of $23.1 to $43.6 million. The estimate of this liability
was based on two separate remediation investigations conducted by independent
environmental engineering consultants. The accrual includes costs for the
Resource Conservation and Recovery Act facility investigation, a corrective
measures study, remedial action, and operation and maintenance associated with
the proposed remedial actions. In October 1995, the Partnership and the Colorado
Department of Public Health and Environment finalized a post-closure permit. The
permit contains a prioritized schedule for corrective actions to be completed
which is substantially reflective of a straight-line rate of expenditure over 30
years. The State of Colorado stated that the schedule for corrective action
could be accelerated if new data indicated a greater threat to the environment
than is currently known to exist. At December 31, 1995, the accrued liability is
$35.4 million, of which $34.2 million is classified as noncurrent in other
deferred liabilities in the balance sheet.
F-28
<PAGE> 135
CF&I STEEL, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Capital Expenditures
During 1995, the Partnership continued construction of various capital
improvement projects at the Partnership's steel mill in Pueblo, Colorado. At
December 31, 1995, the Partnership had commitments for expenditures of
approximately $27.8 million for completion of these projects.
Other Contingencies
The Partnership, in the regular course of business, is involved in
investigations and claims by various regulatory agencies. The Partnership is
also engaged in various legal proceedings and claims incidental to its normal
business activities. Management of the Partnership does not believe that the
ultimate resolution of these investigations, claims and legal proceedings will
have a material effect on its financial position.
12. PROCEEDS FROM INSURANCE SETTLEMENT
Sales for 1995 include approximately $4 million of insurance proceeds
received as reimbursement of lost profits resulting from lost production and
delays at the Partnership's new rod and bar mill caused by an explosion that
occurred during the third quarter of 1994.
F-29
<PAGE> 136
Heat Treat Facility -- Oregon Steel Division
Oregon Steel operates the only plate
heat treating line in the western
United States.
Rail Mill -- CF&I Steel Division
Oregon Steel is the only rail
manufacturer
west of the Mississippi River.
Seamless Pipe Mill -- CF&I Steel
Division
Oregon Steel operates the only
seamless pipe mill west of the
Mississippi River.
Plate Mill -- Oregon Steel Division
Oregon Steel operates the only
steel plate minimill in the western
United States.
<PAGE> 137
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Incorporation of Certain Documents by
Reference........................... 3
Prospectus Summary.................... 4
Risk Factors.......................... 13
Use of Proceeds....................... 24
Capitalization........................ 26
Selected Historical Consolidated
Financial Data...................... 27
Pro Forma Unaudited Condensed
Consolidated Financial Data......... 29
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 32
Business.............................. 41
Description of the Notes.............. 54
Description of Certain Indebtedness... 95
Description of Capital Stock.......... 97
Underwriting.......................... 98
Legal Matters......................... 99
Experts............................... 99
Appendix.............................. A-1
Index to Financial Statements of
Certain Subsidiaries................ F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$235,000,000
LOGO
% FIRST MORTGAGE NOTES DUE 2003
-------------------------
P R O S P E C T U S
, 1996
-------------------------
SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
SCOTIA CAPITAL MARKETS (USA) INC.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 138
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13 TO FORM S-1, ITEM 14 TO FORM S-3. OTHER EXPENSES OF ISSUANCE AND
DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by registrant in connection with
the sale of the Notes being registered. All amounts are estimates except the
registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee.......................................................... $ 81,035
NASD filing fee........................................................... 24,000
Blue Sky fees and expenses, including legal fees.......................... 15,000
Accounting fees and expenses.............................................. 25,000
Legal fees and expenses................................................... 105,000
Transfer agent and registrar fees......................................... 5,000
Printing and engraving.................................................... 100,000
Miscellaneous............................................................. 44,965
--------
Total........................................................... $400,000
========
</TABLE>
ITEM 14 TO FORM S-1, ITEM 15 TO FORM S-3. INDEMNIFICATION OF DIRECTORS AND
OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"GCL") provides, in summary, that a corporation may indemnify a director,
officer, employee or agent of a corporation (i) in the case of third-party
claims, against certain expenses incurred by such person in connection with any
action, suit or proceeding brought or threatened against such person by reason
of the fact that he or she is or was a director, officer, employee or agent of
the corporation, if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and (ii) in the case of actions by or in the right of the
corporation, against certain expenses incurred by such person in connection with
the defense or settlement of such an action, if such person acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation; provided, however, that, in the case of
actions by or in the right of the corporation, if such person is adjudged to be
liable to the corporation, no indemnification can be made unless a court
determines that such person is fairly and reasonably entitled to
indemnification. Indemnification also is authorized with respect to any criminal
action or proceeding where, in addition to the criteria stated under (i) above,
a director, officer, employee or agent had no reasonable cause to believe that
his or her conduct was unlawful. Section 145 of the GCL furthermore provides
that a corporation must indemnify a director, officer, employee or agent of the
corporation to the extent that he or she is successful on the merits or
otherwise in defending any of the actions, suits or proceedings described above.
Oregon Steel's Restated Certificate of Incorporation (the "Restated
Certificate") and Bylaws and New CF&I Inc.'s Certificate of Incorporation (the
"Certificate") and Bylaws provide for the indemnification by Oregon Steel and
New CF&I, Inc. of their respective directors, officers, employees and agents to
the fullest extent permitted by Section 145 of the Delaware GCL. Additionally,
Section 145 of the Delaware GCL permits a corporation to purchase and maintain
insurance on behalf of its directors, officers, employees and agents against any
liability asserted against such persons and incurred by such persons, or arising
out of such persons' status as such. Oregon Steel maintains an insurance policy
covering its directors and officers against such liability. Oregon Steel also
has entered into indemnification agreements with certain executive officers.
Section 102 of the Delaware GCL provides that a corporation, in its
Certificate of Incorporation, may eliminate the personal liability of its
directors to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, other than liability for (1) any breach of the
director's duty of loyalty to the corporation or its stockholders, (2) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (3) any transaction from which the director derived an
improper personal benefit and (4) unlawful payment of dividends or unlawful
stock purchases or redemptions. The
II-1
<PAGE> 139
Restated Certificate of Oregon Steel and the Certificate of New CF&I, Inc. each
provides for the elimination, to the fullest extent permitted by law, of
personal liability of its directors for monetary damages for breach of fiduciary
duty as a director. Reference is made to the Restated Certificate of Oregon
Steel and the Certificate of New CF&I, Inc. filed as Exhibits 4.1 and 3(i)(a),
respectively.
ITEM 15 TO FORM S-1. RECENT SALES OF UNREGISTERED SECURITIES
Since March 31, 1993, neither CF&I nor New CF&I has sold any securities
that have not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), except as set forth in the paragraph below.
In August 1994 New CF&I, Inc. issued and sold 20 shares of its Common Stock
to NS Finance III, Inc., a wholly owned subsidiary of Nippon Steel U.S.A., Inc.
at a price of $840,000 per share. This issuance and sale was made pursuant to
Section 4(2) of the Securities Act as a transaction not involving a public
offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of New CF&I, Inc.*
3.2 Amended and Restated Agreement of Limited Partnership of CF&I Steel, L.P.
dated as of March 3, 1993 by and between New CF&I, Inc. and the Pension
Benefit Guaranty Corporation (incorporated by reference to exhibit 28.1
to the Current Report on Form 8-K of Oregon Steel Mills, Inc. dated March
3, 1993)
3.3 Bylaws of New CF&I, Inc.*
4.1 Form of Indenture related to the % First Mortgage Notes due 2003
(including a form of Note and form of Guarantee)*
4.2 Form of Deed of Trust, Assignment of Rents and Leases and Security
Agreement*
4.3 Form of Security Agreement*
4.4 Form of Intercreditor Agreement*
5.1 Opinion of Stoel Rives LLP*
10.1 Asset Purchase Agreement dated as of March 3, 1993 among CF&I Steel
Corporation, Denver Metals Company, Albuquerque Metals Company, CF&I
Fabricators of Colorado, Inc., CF&I Fabricators of Utah, Inc., Pueblo
Railroad Service Company, Pueblo Metals Company, Colorado & Utah Land
Company, The Colorado and Wyoming Railway Company, William J. Westmark as
trustee for the estate of The Colorado and Wyoming Railway Company, CF&I
Steel, L.P., New CF&I, Inc. and Oregon Steel Mills, Inc. (incorporated by
reference to exhibit 2.1 to the Current Report on Form 8-K of Oregon
Steel Mills, Inc. dated March 3, 1993)
12.1 Statement re computation of ratios of earnings to fixed charges (actual
and pro forma) (included on page II-9)
12.2 Statement re computation of ratios of EBITDA to interest expense
(including capitalized interest) (actual and pro forma) (included on page
II-10)
23.1 Consent of Coopers & Lybrand L.L.P. (Oregon Steel Mills, Inc.) (included
on page II-11)
23.2 Consent of Coopers & Lybrand L.L.P. (New CF&I, Inc.) (included on page
II-12)
23.3 Consent of Coopers & Lybrand L.L.P. (CF&I Steel, L.P.) (included on page
II-13)
23.4 Consent of Stoel Rives LLP (included in Exhibit 5.1)
24.1 Power of Attorney of the directors and certain officers of New CF&I, Inc.
(included on page II-5 of the Registration Statement)
24.2 Power of Attorney of the directors and certain officers of the general
partner of CF&I Steel, L.P. (included on page II-6 of the Registration
Statement)
</TABLE>
II-2
<PAGE> 140
<TABLE>
<S> <C>
24.3 Power of Attorney of the directors and certain officers of Oregon Steel
Mills, Inc. (included on page II-7 of the Registration Statement)
25.1 Statement of eligibility of trustee*
27.1 Financial Data Schedule of New CF&I, Inc.*
27.2 Financial Data Schedule of CF&I Steel, L.P.*
99.1 Credit Agreement dated December 14, 1994 among Oregon Steel Mills, Inc.
as the Borrower, Certain Commercial Lending Institutions as the Lenders,
First Interstate Bank of Oregon, N.A. as the Administrative Agent for the
Lenders, The Bank of Nova Scotia as the Syndication Agent for the Lenders
and First Interstate Bank of Oregon, N.A. and The Bank of Nova Scotia as
the Managing Agents for the Lenders, as amended (incorporated by
reference to exhibit 10.12 to the Annual Report on Form 10-K of Oregon
Steel Mills, Inc. for the year ended December 31, 1994)
99.2 Amendment dated as of September 30, 1995 to the Credit Agreement dated
December 14, 1994 among Oregon Steel Mills, Inc. as the Borrower, Certain
Commercial Lending Institutions as the Lenders, First Interstate Bank of
Oregon, N.A. as the Administrative Agent for the Lenders, The Bank of
Nova Scotia as the Syndication Agent for the Lenders and First Interstate
Bank of Oregon, N.A. and The Bank of Nova Scotia as the Managing Agents
for the Lenders, as amended (incorporated by reference to exhibit 10.0 to
the Quarterly Report on Form 10-Q of Oregon Steel Mills, Inc. for the
quarter ended September 30, 1995)
99.3 Waiver and Amendment No. 2 to the Credit Agreement dated December 14,
1994 among Oregon Steel Mills, Inc., as the Borrower, Certain Commercial
Lending Institutions, as the Lenders, First Interstate Bank of Oregon,
N.A., as the Administrative Agent for the Lenders, The Bank of Nova
Scotia, as the Syndication Agent for the Lenders and First Interstate
Bank of Oregon, N.A. and The Bank of Nova Scotia, as the Managing Agent
for the Lenders (incorporated by reference to exhibit 10.13 to the Annual
Report on Form 10-K of Oregon Steel Mills, Inc. for the year ended
December 31, 1995).
</TABLE>
- ---------------
* To be filed by Amendment.
All supporting schedules have been omitted because they are not required or
the information required to be set forth therein is furnished elsewhere.
ITEM 17. UNDERTAKINGS
A. Oregon Steel hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of Oregon Steel's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934, as amended, (the "Exchange Act") (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in this Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
B. The undersigned registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, (the "Securities Act"), the information omitted from
the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as of the
time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement
II-3
<PAGE> 141
relating to the securities offered therein, and the offering of such
securities at the time shall be deemed to be the initial bona fide offering
thereof.
C. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrants pursuant to the foregoing provisions, or otherwise, each registrant
has been advised that in the opinion of the Securities and Exchange 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 a 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, each 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.
II-4
<PAGE> 142
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Portland, State of
Oregon, on April 8, 1996.
NEW CF&I, INC.
By: THOMAS B. BOKLUND
------------------------------------
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Thomas B. Boklund and L. Ray
Adams, and each of them (with full power to each of them to act alone), his true
and lawful attorneys-in-fact and agents for him and on his behalf and in his
name, place and stead, and in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration statement
and any registration statement for the same offering that is to be effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933 (and any
amendments thereto), and to file the same, with exhibits and any and all other
documents filed with respect thereto, with the Securities and Exchange
Commission (or any other governmental or regulatory authority), granting unto
said attorneys, and each of them, full power and authority to do and to perform
each and every act and thing requisite and necessary to be done in and about the
premises in order to effectuate the same as fully to all intents and purposes as
he himself might or could do if personally present, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the following
capacities effective on April 8, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<S> <C>
President and Chief Executive Officer
THOMAS B. BOKLUND (Principal Executive Officer)
- ---------------------------------------------
(Thomas B. Boklund)
Chief Financial Officer, Vice President of
L. RAY ADAMS Finance and Director (Principal Financial and
- --------------------------------------------- Accounting Officer)
(L. Ray Adams)
Director
JOE E. CORVIN
- ---------------------------------------------
(Joe E. Corvin)
Director
EDWARD J. HEPP, JR.
- ---------------------------------------------
(Edward J. Hepp, Jr.)
Director
YUTAKA HOKURA
- ---------------------------------------------
(Yutaka Hokura)
</TABLE>
II-5
<PAGE> 143
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Portland, State of
Oregon, on April 8, 1996.
CF&I STEEL, L.P.
By: New CF&I, Inc.
General Partner
By: THOMAS B. BOKLUND
------------------------------------
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Thomas B. Boklund and L. Ray
Adams, and each of them (with full power to each of them to act alone), his true
and lawful attorneys-in-fact and agents for him and on his behalf and in his
name, place and stead, and in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration statement
and any registration statement for the same offering that is to be effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933 (and any
amendments thereto), and to file the same, with exhibits and any and all other
documents filed with respect thereto, with the Securities and Exchange
Commission (or any other governmental or regulatory authority), granting unto
said attorneys, and each of them, full power and authority to do and to perform
each and every act and thing requisite and necessary to be done in and about the
premises in order to effectuate the same as fully to all intents and purposes as
he himself might or could do if personally present, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the following
capacities effective on April 8, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<S> <C>
Principal Executive Officer
THOMAS B. BOKLUND
- ---------------------------------------------
(Thomas B. Boklund)
Principal Financial and Accounting Officer and
L. RAY ADAMS Director of New CF&I, Inc.
- ---------------------------------------------
(L. Ray Adams)
Director of New CF&I, Inc.
JOE E. CORVIN
- ---------------------------------------------
(Joe E. Corvin)
Director of New CF&I, Inc.
EDWARD J. HEPP, JR.
- ---------------------------------------------
(Edward J. Hepp, Jr.)
Director of New CF&I, Inc.
YUTAKA HOKURA
- ---------------------------------------------
(Yutaka Hokura)
</TABLE>
II-6
<PAGE> 144
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Portland, State of Oregon, on April 8, 1996.
OREGON STEEL MILLS, INC.
By: THOMAS B. BOKLUND
----------------------------------
Chairman and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Thomas B. Boklund and L. Ray
Adams, and each of them (with full power to each of them to act alone), his true
and lawful attorneys-in-fact and agents for him and on his behalf and in his
name, place and stead, and in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration statement
and any registration statement for the same offering that is to be effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933 (and any
amendments thereto), and to file the same, with exhibits and any and all other
documents filed with respect thereto, with the Securities and Exchange
Commission (or any other governmental or regulatory authority), granting unto
said attorneys, and each of them, full power and authority to do and to perform
each and every act and thing requisite and necessary to be done in and about the
premises in order to effectuate the same as fully to all intents and purposes as
he himself might or could do if personally present, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the following
capacities effective on April 8, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------- --------------------------------------------
<S> <C>
Chairman of the Board and Chief Executive
THOMAS B. BOKLUND Officer (Principal Executive Officer)
- --------------------------------------------
(Thomas B. Boklund)
Chief Financial Officer and Vice President
L. RAY ADAMS of Finance (Principal Financial Officer)
- --------------------------------------------
(L. Ray Adams)
Corporate Controller (Principal Accounting
CHRISTOPHER D. CASSARD Officer)
- --------------------------------------------
(Christopher D. Cassard)
Director
C. LEE EMERSON
- --------------------------------------------
(C. Lee Emerson)
V. NEIL FULTON Director
- --------------------------------------------
(V. Neil Fulton)
</TABLE>
II-7
<PAGE> 145
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------- --------------------------------------------
<S> <C>
EDWARD C. GENDRON Director
- --------------------------------------------
(Edward C. Gendron)
Director
ROBERT W. KEENER
- --------------------------------------------
(Robert W. Keener)
Director
RICHARD G. LANDIS
- --------------------------------------------
(Richard G. Landis)
Director
JAMES A. MAGGETTI
- --------------------------------------------
(James A. Maggetti)
Director
JOHN A. SPROUL
- --------------------------------------------
(John A. Sproul)
Director
WILLIAM SWINDELLS
- --------------------------------------------
(William Swindells)
</TABLE>
II-8
<PAGE> 146
EXHIBIT 12.1
OREGON STEEL MILLS, INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------- PRO
1991 1992 1993 1994 1995 FORMA(4)
------- ------- ------- ------- ------- -------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Income (loss) before income taxes (1)........... $56,235 $34,483 $22,193 $(3,279) $16,196 $ 8,029
ADJUSTMENTS:
Fixed charges, as below......................... 1,895 923 6,654 12,225 22,972 31,951
Capitalized interest............................ (1,399) (318) (1,657) (7,404) (12,221) (13,033)
Minority interest in income of majority-owned
subsidiaries with fixed charges.............. 1,996 3,379
Minority interest in losses of majority-owned
subsidiaries................................. (1,097) (6) (862) (862)
------- ------- ------- ------- ------- -------
Earnings for computational purposes (1)........... $56,731 $33,991 $29,186 $ 4,915 $26,085 $26,085
======= ======= ======= ======= ======= =======
FIXED CHARGES:
Interest on indebtedness (2).................... $ 1,399 $ 318 $ 5,645 $11,314 $22,528 $31,507
Interest portion of rentals (3)................. 496 605 1,009 911 444 444
------- ------- ------- ------- ------- -------
Fixed charges for computational purposes.......... $ 1,895 $ 923 $ 6,654 $12,225 $22,972 $31,951
======= ======= ======= ======= ======= =======
Ratio of earnings to fixed charges................ 29.9x 36.8x 4.4x .4x 1.1x .8x
======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) The 1994 amounts have been restated to reflect the proceeds from a
subsidiary's issuance of stock as minority interest.
(2) Interest on indebtedness charges include amortization of debt issue costs.
(3) Interest portion of rentals is assumed to equal one-third of operating lease
and rental expense for the year.
(4) The pro forma ratio reflects the issuance of the 10% First Mortgage Notes
and the issuance of 6,000,000 shares Common Stock at $14.00 per share with
the use of proceeds to repay amounts outstanding under the Old Credit
Agreement, the cost to terminate certain interest rate swap agreements and
the fees related to the establishment of the Amended Credit Agreement, none
of which was drawn down for pro forma purposes. The receipt of proceeds and
repayment of the amounts outstanding under the Old Credit Agreement are
assumed for this purpose to have occurred as of January 1, 1995.
II-9
<PAGE> 147
EXHIBIT 12.2
OREGON STEEL MILLS, INC.
COMPUTATION OF RATIOS OF EBITDA TO INTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------- PRO
1991 1992 1993 1994 1995 FORMA(2)
------- ------- ------- ------- ------- -------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
EBITDA:
Net income (loss) (1)........................... $35,465 $19,977 $14,805 $ (338) $12,434 $ 7,370
Income taxes (benefit).......................... 20,770 14,506 7,388 (2,941) 3,762 659
Interest expense................................ 3,988 3,910 10,307 18,474
Depreciation and amortization................... 12,441 16,253 21,375 22,012 24,964 24,964
Settlement of litigation........................ 5,040 (2,750)
Provision for rolling mill closures............. 22,134
------- ------- ------- ------- ------- -------
EBITDA for computational purposes (1)............. $68,676 $55,776 $44,806 $44,777 $51,467 $51,467
======= ======= ======= ======= ======= =======
Interest expense (including capitalized
interest)....................................... $ 1,399 $ 318 $ 5,645 $11,314 $22,528 $31,507
======= ======= ======= ======= ======= =======
Ratio of EBITDA to interest expense............... 49.1x 175.4x 7.9x 4.0x 2.3x 1.6x
======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) The 1994 amounts have been restated to reflect the proceeds from a
subsidiary's issuance of stock as minority interest.
(2) The pro forma ratio reflects the issuance of the 10% First Mortgage Notes
and the issuance of 6,000,000 shares Common Stock at $14.00 per share with
the use of proceeds to repay amounts outstanding under the Old Credit
Agreement, the cost to terminate certain interest rate swap agreements and
the fees related to the establishment of the Amended Credit Agreement, none
of which was drawn down for pro forma purposes. The receipt of proceeds and
repayment of the amounts outstanding under the Old Credit Agreement are
assumed for this purpose to have occurred as of January 1, 1995.
II-10
<PAGE> 148
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
on Form S-3 of our report, which has an explanatory paragraph with regard to
restatement of the 1994 financial statements, dated January 19, 1996, on our
audits of the consolidated financial statements and financial statement schedule
of Oregon Steel Mills, Inc. and Subsidiaries as of December 31, 1995, 1994 and
1993 and for the years then ended, which report is included in the Annual Report
on Form 10-K (and amendment thereto on Form 10-K/A) for the year ended December
31, 1995. We also consent to the reference to our firm under the caption
"Experts."
COOPERS & LYBRAND L.L.P.
Portland, Oregon
April 8, 1996
II-11
<PAGE> 149
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report, which has an explanatory paragraph with regard to restatement of the
December 31, 1994 balance sheet, dated January 19, 1996, on our audits of the
consolidated financial statements of New CF&I, Inc. and Subsidiaries. We also
consent to the reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Portland, Oregon
April 8, 1996
II-12
<PAGE> 150
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated January 19, 1996, on our audits of the financial statements of
CF&I Steel, L.P. We also consent to the reference to our firm under the caption
"Experts."
COOPERS & LYBRAND L.L.P.
Portland, Oregon
April 8, 1996
II-13
<PAGE> 151
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
PAGE
EXHIBIT NO. EXHIBIT NUMBER
- ----------- ------------------------------------------------------------------------ ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement*.........................................
3.1 Certificate of Incorporation of New CF&I, Inc.*.........................
3.2 Amended and Restated Agreement of Limited Partnership of CF&I Steel,
L.P. dated as of March 3, 1993 by and between New CF&I, Inc. and the
Pension Benefit Guaranty Corporation (incorporated by reference to
exhibit 28.1 to the Current Report on Form 8-K of Oregon Steel Mills,
Inc. dated March 3, 1993)...............................................
3.3 Bylaws of New CF&I, Inc.*...............................................
4.1 Form of Indenture related to the % First Mortgage Notes due 2003
(including a form of Note and form of Guarantee)*.......................
4.2 Form of Deed of Trust, Assignment of Rents and Leases and Security
Agreement*..............................................................
4.3 Form of Security Agreement*.............................................
4.4 Form of Intercreditor Agreement*........................................
5.1 Opinion of Stoel Rives LLP*.............................................
10.1 Asset Purchase Agreement dated as of March 3, 1993 among CF&I Steel
Corporation, Denver Metals Company, Albuquerque Metals Company, CF&I
Fabricators of Colorado, Inc., CF&I Fabricators of Utah, Inc., Pueblo
Railroad Service Company, Pueblo Metals Company, Colorado & Utah Land
Company, The Colorado and Wyoming Railway Company, William J. Westmark
as trustee for the estate of The Colorado and Wyoming Railway Company,
CF&I Steel, L.P., New CF&I, Inc. and Oregon Steel Mills, Inc.
(incorporated by reference to exhibit 2.1 to the Current Report on Form
8-K of Oregon Steel Mills, Inc. dated March 3, 1993)....................
12.1 Statement re computation of ratios of earnings to fixed charges (actual
and pro forma) (included on page II-9)..................................
12.2 Statement re computation of ratios of EBITDA to interest expense
(including capitalized interest) (actual and pro forma) (included on
page II-10).............................................................
23.1 Consent of Coopers & Lybrand L.L.P. (Oregon Steel Mills, Inc.) (included
on
page II-11).............................................................
23.2 Consent of Coopers & Lybrand L.L.P. (New CF&I, Inc.) (included on page
II-12)..................................................................
23.3 Consent of Coopers & Lybrand L.L.P. (CF&I Steel, L.P.) (included on page
II-13)..................................................................
23.4 Consent of Stoel Rives LLP (included in Exhibit 5.1)....................
24.1 Power of Attorney of the directors and certain officers of New CF&I,
Inc. (included on page II-5 of the Registration Statement)..............
24.2 Power of Attorney of the directors and certain officers of the general
partner of CF&I Steel, L.P. (included on page II-6 of the Registration
Statement)..............................................................
24.3 Power of Attorney of the directors and certain officers of Oregon Steel
Mills, Inc. (included on page II-7 of the Registration Statement).......
25.1 Statement of eligibility of trustee*....................................
27.1 Financial Data Schedule of New CF&I, Inc.*..............................
27.2 Financial Data Schedule of CF&I Steel, L.P.*............................
99.1 Credit Agreement dated December 14, 1994 among Oregon Steel Mills, Inc.
as the Borrower, Certain Commercial Lending Institutions as the Lenders,
First Interstate Bank of Oregon, N.A. as the Administrative Agent for
the Lenders, The Bank of Nova Scotia as the Syndication Agent for the
Lenders and First Interstate Bank of Oregon, N.A. and The Bank of Nova
Scotia as the Managing Agents for the Lenders, as amended (incorporated
by reference to exhibit 10.12 to the Annual Report on Form 10-K of
Oregon Steel Mills, Inc. for the year ended December 31, 1994)..........
</TABLE>
<PAGE> 152
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
PAGE
EXHIBIT NO. EXHIBIT NUMBER
- ----------- ------------------------------------------------------------------------ ------------
<C> <S> <C>
99.2 Amendment dated as of September 30, 1995 to the Credit Agreement dated
December 14, 1994 among Oregon Steel Mills, Inc. as the Borrower,
Certain Commercial Lending Institutions as the Lenders, First Interstate
Bank of Oregon, N.A. as the Administrative Agent for the Lenders, The
Bank of Nova Scotia as the Syndication Agent for the Lenders and First
Interstate Bank of Oregon, N.A. and The Bank of Nova Scotia as the
Managing Agents for the Lenders, as amended (incorporated by reference
to exhibit 10.0 to the Quarterly Report on Form 10-Q of Oregon Steel
Mills, Inc. for the quarter ended September 30, 1995)...................
99.3 Waiver and Amendment No. 2 to the Credit Agreement dated December 14,
1994 among Oregon Steel Mills, Inc., as the Borrower, Certain Commercial
Lending Institutions, as the Lenders, First Interstate Bank of Oregon,
N.A., as the Administrative Agent for the Lenders, The Bank of Nova
Scotia, as the Syndication Agent for the Lenders and First Interstate
Bank of Oregon, N.A. and The Bank of Nova Scotia, as the Managing Agents
for the Lenders (incorporated by reference to exhibit 10.13 to the
Annual Report on Form 10-K of Oregon Steel Mills, Inc. for the year
ended December 31, 1995)................................................
</TABLE>
- ---------------
* To be filed by Amendment.
