<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1996
REGISTRATION NOS. 333-02355, 333-02355-01 AND 333-02355-02
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
AMENDMENT NO. 1 TO
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
incorporation of organization) Classification Code Number) Identification 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>
---------------------
AMENDMENT NO. 1 TO
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
incorporation or organization) Classification Code Number) Identification 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>
---------------------
AMENDMENT NO. 1 TO
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(2)
- ----------------------------------------------------------------------------------------------------------------------------------
Guarantees of First Mortgage Notes due 2003
(including notes evidencing Guarantees)......... -- -- -- (3)
==================================================================================================================================
</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) Paid previously.
(3) No additional consideration will be paid in respect of these Guarantees and
notes.
---------------------
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
------------------------------------------- -------------------------------------------
<C> <S> <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 MAY 22, 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 June and December of each year,
commencing December , 1996. The Notes will mature on June , 2003 and will be
redeemable, in whole or in part, at the option of the Company, on or after June
, 2000 at the redemption prices set forth herein plus accrued interest to the
date of redemption. The Company has applied to list the Notes on the New York
Stock Exchange.
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. There is no
assurance that the Company and the Guarantors (as defined below) will have
adequate resources to fund the purchase of the Notes upon a Change of Control.
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, New CF&I, Inc. and CF&I Steel,
L.P. (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) and the application of the estimated net proceeds therefrom as if such
transactions had occurred on March 31, 1996, the Company and the Guarantors
would have had, in addition to the Notes and excluding intercompany liabilities,
$230.6 million of consolidated liabilities, including $47.8 million of unsecured
consolidated long-term debt (excluding current portion of $6.2 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 and the application of the
estimated net proceeds therefrom as if such transactions had occurred on March
31, 1996, subsidiaries of the Company which are not Guarantors would have had,
excluding liabilities owed to the Company, $11.2 million of consolidated
liabilities, including secured debt of Canadian $3.9 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). The Amended Credit Agreement will initially be guaranteed by the
Guarantors and borrowings under the Amended Credit Agreement 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, and will be secured by the accounts receivable
and inventory of the Company and the Guarantors.
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 $450,000.
---------------------
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
[Photograph of steel coil [Photograph of continuous caster at
produced at CF&I Steel CF&I Steel Division's Pueblo Mill]
Division's rod and bar mill]
Continuous Caster (above) -- CF&I Steel
Division
Only domestic minimill to utilize 100%
continuously
cast rounds.
Rod and Bar Mill (left) -- 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 (right) -- Oregon Steel
Division. Bottom poured cast slab
provides a uniform structure
ideal for hot rolled plate.
Napa Pipe Mill (below) -- Oregon [Photograph of pressure cast steel
Steel Division. Only large slab produced at the Oregon Steel
diameter pipe mill in the western Division's Portland Mill]
United States.
[Photograph of large diameter steel
pipe produced at the Oregon Steel
Division's Napa Pipe Mill]
<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 Guarantors do not intend to provide holders of the Notes
with annual or quarterly reports containing financial statements.
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 documents, filed with the Commission by the Company
(Commission File No. 1-9887), are incorporated in this Prospectus by reference:
(i) 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 and (ii) the Company's
Quarterly Report on Form 10-Q for the three months ended March 31, 1996.
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 and the Guarantors undertake 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 $410 million (excluding capitalized interest) capital improvement
program in late 1993, of which approximately $324 million had been expended as
of March 31, 1996. 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 fourth
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 is expected to reach full production capacity by the end 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 termination
of production at 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.
There is no assurance that these estimated cost savings will be realized or
that capital improvement projects will be fully operational by the dates
anticipated, and actual results will vary from the estimates set
5
<PAGE> 8
forth herein. 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. Furthermore, following completion of capital
improvement projects the Company may continue to experience operational
difficulties and delays before those projects become fully operational. As a
result, there is no assurance that the new rod and bar mill, the Combination
Mill or other capital improvement projects will be fully operational by the
dates anticipated, which would delay the realization of benefits from those
projects. 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 Company believes 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, assuming a public offering price of $16.00 per share for the
Common Stock Offering (in thousands).
<TABLE>
<S> <C>
Sources:
Common Stock Offering(1)...................................................... $ 96,000
Notes Offering(1)............................................................. 235,000
Amended Credit Agreement...................................................... --
--------
Total sources......................................................... $331,000
========
Uses:
Repay borrowings under Old Credit Agreement(2)................................ $295,000
Estimated fees and cash expenses(3)........................................... 14,700
Capital expenditures and other general corporate purposes..................... 21,300
--------
Total uses............................................................ $331,000
========
</TABLE>
- ---------------
(1) Represents gross proceeds.
(2) Estimated outstanding balance upon completion of the Offerings.
(3) Includes (i) estimated underwriting discounts and commissions and related
expenses of the Offerings and (ii) estimated cash payments in the
approximate aggregate amount of $2.6 million to terminate certain interest
rate swap agreements related to the Old Credit Agreement.
6
<PAGE> 9
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 Company believes 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," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" 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 June and December of each year, commencing
December , 1996.
Maturity Date.............. June , 2003.
Optional Redemption........ The Notes will be redeemable, in whole or in part,
at the option of the Company, on or after June ,
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. The occurrence of a Change of
Control could result in an event of default under
other credit facilities and debt instruments of the
Company and its subsidiaries and could entitle the
lenders under such credit facilities and debt
instruments to require the immediate repayment of
the indebtedness thereunder in full. There is no
assurance that the Company and the Guarantors will
have adequate resources to repay or refinance other
indebtedness upon the occurrence of such an event
of default or to fund the purchase of the Notes
upon a Change of Control. See "Description of the
Notes -- Certain Covenants -- Change of Control."
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
7
<PAGE> 10
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 and the application of the
estimated net proceeds therefrom as if such
transactions had occurred on March 31, 1996, the
Company and the Guarantors would have had, in
addition to the Notes and excluding intercompany
liabilities, $230.6 million of consolidated
liabilities, including $47.8 million of unsecured
consolidated long-term debt (excluding current
portion of $6.2 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 accounts
receivable and inventory. Borrowings under the
Amended Credit Agreement 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.
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 and the application of the estimated net
proceeds therefrom as if such transactions had
occurred on March 31, 1996, subsidiaries of the
Company which are not Guarantors would have had,
excluding liabilities owed to the Company, $11.2
million of consolidated liabilities, including
secured debt of Cdn.$3.9 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 a lien on substantially all the
buildings, fixtures and equipment which comprise
the Pueblo Mill, together with 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, (iv) any Excluded Assets
(as defined) or (v) any Excluded Intangibles (as
defined). In that regard, once the Combination Mill
is operational, the existing rolling mill at the
Portland Mill will cease operations and 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
8
<PAGE> 11
other business combinations, in each case subject
to the exceptions and qualifications provided
therein. See "Description of the Notes."
Listing.................... The Company has applied 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>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------------- -------------------
1991 1992(1) 1993(2) 1994(3) 1995(4) 1995 1996
-------- -------- ---------- ---------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND PER TON DATA, RATIOS AND TONNAGE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales................................ $489,357 $397,722 $ 679,823 $ 838,268 $ 710,971 $187,017 $205,489
Gross profit......................... 102,840 81,267 71,587 76,933 72,558 16,739 28,584
Operating income..................... 54,644 37,471 24,860 1,673 24,019 4,841 15,301
Net income (loss)(15)................ 35,465 19,977 14,805 (338) 12,434 1,910 6,518
Net income (loss) per share(5)(15)..... $ 1.89 $ 1.04 $ .75 $ (.02) $ .62 $ .10 $ .33
Cash dividends declared per common
share................................ $ .50 $ .56 $ .56 $ .56 $ .56 $ .14 $ .14
Weighted average common shares and
common share equivalents
outstanding(5)....................... 18,735 19,183 19,822 19,973 20,016 20,005 20,020
BALANCE SHEET DATA:
Working capital...................... $122,780 $ 99,444 $ 139,461 $ 141,480 $ 115,453 $123,087 $104,045
Total assets......................... 323,529 354,252 549,670 665,733 805,266 670,752 824,201
Long-term debt....................... 3,417 -- 76,487 187,935 312,679 195,013 320,660
Total stockholders' equity(15)....... 245,006 257,515 275,242 263,477 266,790 263,654 270,709
OTHER DATA:
Depreciation and amortization........ $ 12,441 $ 16,253 $ 21,375 $ 22,012 $ 24,964 $ 5,116 $ 7,131
Capital expenditures................. $ 38,481 $ 34,281 $ 40,905 $ 128,237 $ 176,885 $ 38,321 $ 36,878
Ratio of earnings to fixed
charges(6)(15)..................... 29.9x 36.8x 4.4x .4x 1.1x 1.1x 2.0x
EBITDA(7)............................ $ 68,676 $ 55,776 $ 44,806 $ 44,777 $ 51,467 $ 10,079 $ 21,668
Net cash provided by operating
activities......................... $ 22,598 $ 48,385 $ 44,545 $ 20,520 $ 53,616 $ 30,724 $ 29,388
Net cash used in investing
activities......................... $(36,411) $(52,960) $ (46,185) $ (128,444) $ (176,261) $(38,805) $(37,709)
Net cash provided by (used in)
financing activities............... $ 26,025 $ (4,892) $ 6,193 $ 104,006 $ 118,082 $ 4,485 $ 9,407
Ratio of EBITDA to interest expense
(including capitalized interest)... 49.1x 175.4x 7.9x 4.0x 2.3x 2.1x 2.9x
Total long-term debt as a percentage
of capitalization(8)(15)........... 1.4% -- 21.7% 41.6% 54.0% 42.5% 54.2%
Tonnage sold:
Oregon Steel Division(9):
Commodity plate.................. 232,900 241,200 278,900 269,400 136,200 42,300 35,500
Specialty plate.................. 111,200 138,500 157,300 154,700 159,700 49,700 46,300
ERW pipe......................... -- 16,100 75,100 94,900 48,400 21,100 23,100
Large diameter pipe.............. 418,600 269,500 248,600 356,300 223,000 32,200 47,300
Semifinished..................... -- -- 18,400 45,400 196,200 57,600 --
-------- -------- ---------- ---------- ---------- -------- --------
Total Oregon Steel Division.... 762,700 665,300 778,300 920,700 763,500 202,900 152,200
-------- -------- ---------- ---------- ---------- -------- --------
CF&I Steel Division(10):
Rail............................. -- -- 186,200 250,500 240,700 78,600 95,100
Rod, bar and wire products....... -- -- 346,100 379,300 271,300 84,700 112,800
Seamless pipe.................... -- -- 85,300 130,000 116,100 28,900 40,700
Semifinished..................... -- -- 7,100 5,800 12,100 -- 7,100
-------- -------- ---------- ---------- ---------- -------- --------
Total CF&I Steel Division...... -- -- 624,700 765,600 640,200 192,200 255,700
-------- -------- ---------- ---------- ---------- -------- --------
Total Company.................. 762,700 665,300 1,403,000 1,686,300 1,403,700 395,100 407,900
======== ======== ========= ========= ========= ======== ========
Average price per ton sold:
Oregon Steel Division.............. $ 642 $ 598 $ 533 $ 542 $ 534 $ 490 $ 610
CF&I Steel Division................ -- -- 424 443 467(11) 456 441
Total Company.................. 642 598 485 497 504(11) 473 504
PRO FORMA DATA(12):
Operating income.............................................................. $ 24,019 $ 15,301
Interest expense (including capitalized interest)(13)......................... $ 31,515 $ 7,804
Net income.................................................................... $ 7,365 $ 6,857
Ratio of earnings to fixed charges(6)......................................... .8x 1.9x
Ratio of EBITDA to interest expense (including capitalized interest)(16)...... 1.6x 2.8x
Total long-term debt as a percentage of capitalization(8)..................... 45.1% 44.0%
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1996
-----------------------------
ACTUAL AS ADJUSTED(14)
-------- ----------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................................................... $ 1,738 $ 42,092
Working capital..................................................................... 104,045 147,794
Total assets........................................................................ 824,201 873,082
Long-term debt (excluding current portion).......................................... 320,660 282,760
Stockholders' equity................................................................ 270,709 359,895
</TABLE>
(Footnotes on following page)
10
<PAGE> 13
(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 non-recurring expenses such as rolling mill closures and
settlements of litigation. EBITDA has been included solely because the
Company uses it as one means of analyzing its ability to service its debt,
the Company's lenders use it for the purpose of analyzing the Company's
performance with respect to its credit agreements and the Company believes
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
production there terminated 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
and March 31, 1996, respectively. The pro forma data does not purport to
represent what the Company's results of operations or financial position
would have been had such transaction occurred on such dates or to project
the Company's results of operations or financial position 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 $16.00 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."
(16) For the purpose of determining the ratio of EBITDA to interest expense
(including capitalized interest), 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 non-recurring expenses such as
rolling mill closures and settlements of litigation. Interest expense
consists of total interest costs, including capitalized interest. The ratio
of EBITDA to interest expense (including capitalized interest) has been
included solely because the Company uses it as one means of analyzing its
ability to service its debt, the Company's lenders use it for the purpose
of analyzing the Company's performance with respect to its credit
agreements and the Company believes that it is used by certain investors as
one measure of a company's historical ability to service its debt.
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 and the first quarter of 1996 would have been approximately
$14.2 million and $3.6 million, respectively, (based on a quarterly dividend
rate of $0.14 per share) and pro forma net income for 1995 and the first quarter
of 1996 would have been approximately $7.4 million and $6.9 million,
respectively.
Although the Company has no plans to alter the frequency or rate of its
dividends, 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 $4.0 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 $10.2 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 March 31, 1996, this covenant would have required the Company to
have a consolidated tangible net worth (as expected to be defined in the Amended
Credit Agreement) of approximately $235.8 million, and at that date the Company
had a consolidated tangible net worth (as defined) of approximately $265.9
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
13
<PAGE> 16
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 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 into production, 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, 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 $103 million (excluding
capitalized interest) for 1996 and 1997, and also
14
<PAGE> 17
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
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;
INSUFFICIENCY OF 1995 PRO FORMA EARNINGS TO COVER PRO FORMA FIXED CHARGES
Upon completion of the Offerings, the Company will have significant amounts
of outstanding indebtedness and interest cost. At March 31, 1996, 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 $476.7 million, total long-term debt (excluding current portion)
of $282.8 million, total assets of $873.1 million and stockholders' equity of
$359.9 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 44.0%. 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 and 1.9 to
1 for the three months ended March 31, 1996. 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
15
<PAGE> 18
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.
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, and a significant reduction in the ratio of the Company's debt to total
capitalization. There is no assurance these improvements or this reduction 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, 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,
16
<PAGE> 19
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.
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 substantial 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 First Quarter 1996 to First
Quarter 1995 -- Interest Expense" and "-- 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 $2.6 million and a related pre-tax charge against income in the
same amount, based on prevailing market interest rates as of March 31, 1996. 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. Although the Company has no
long-term contracts for material amounts of HBI, if the Company were unable to
obtain HBI from its current broker, it believes HBI would be available from
other brokers or directly from producers in quantities comparable to those
obtained in the past from its broker. Although there is no assurance it will be
able to obtain satisfactory quantities of HBI in the future the Company does not
believe the failure to obtain HBI in the future in such quantities would have a
material adverse effect on the Company. 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
17
<PAGE> 20
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.
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 termination of production at 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 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 March 31, 1996, the Company's financial statements reflected
total liabilities of $38.0 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."
18
<PAGE> 21
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 and the
application of the estimated net proceeds therefrom as if all such transactions
had occurred on March 31, 1996, the Company and the Guarantors would have had,
in addition to the Notes and excluding intercompany liabilities, $230.6 million
of consolidated liabilities, including $47.8 million of unsecured consolidated
long-term debt (excluding current portion of $6.2 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 and the application of the estimated net proceeds
therefrom as if such transactions had occurred on March 31, 1996, subsidiaries
of the Company which are not Guarantors would have had, excluding liabilities
owed to the Company, $11.2 million of consolidated liabilities. This debt would
have included Cdn.$3.9 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 will
therefore effectively rank prior to the Guarantees in right of payment to the
extent of 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 and secured by accounts receivable and inventories
of such other subsidiaries. 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 March 31, 1996,
intercompany indebtedness of approximately $198.7 million was owed to the
Company by CF&I. The Company's subsidiaries are separate and distinct legal
entities and,
19
<PAGE> 22
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 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 interests 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, (iv) any Excluded Assets (as defined) or (v) any Excluded
Intangibles (as defined). Excluded Assets include, among other things, (i)
assets encumbered by purchase money liens or securing obligations under
commercial letters of credit, (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) certain motor vehicles and mobile equipment (including mobile
cranes, loaders, forklifts, trailers, backhoes, towmotors and graders) owned by
CF&I, and (vii) all other motor vehicles. Excluded Intangibles include rights
under contracts, agreements, licenses and other instruments that by their
express terms prohibit the assignment thereof or the grant of a security
interest therein. 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 and Excluded
Intangibles) 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,
and approximately 5% of the Company's consolidated total assets and
approximately 8% of the Company's consolidated sales as of and for the three
months ended March 31, 1996. 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 March 31, 1996 was approximately $495.9 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. In that
regard, Excluded Intangibles (which will not constitute part of the Collateral)
may
20
<PAGE> 23
include contracts, agreements, licenses (including software licenses) and other
rights that are material to the Company or the Guarantors or which are necessary
to operate their steelmaking, finishing or other production facilities. The fact
that these contracts, licenses, agreements and other rights are not pledged as
security for the Notes and Guarantees could have a material adverse effect on
the value of the Collateral. 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,
amounts 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 in
the event that action has been taken to enforce the rights of holders of the
Notes with respect to the Collateral and the Trustee has obtained possession and
control of the Collateral, the bank agent may enter upon all or any portion of
the premises of the Company or any of the Guarantors in order to complete the
manufacture of inventory, collect accounts receivable and remove, sell or
otherwise dispose of the Bank Collateral, and may also store Bank Collateral on
the premises of the Company or any of the Guarantors. The right of the bank
agent to enter the premises and use the Collateral as aforesaid could delay
liquidation of the Collateral.
The Mortgage (as defined under "Description of the Notes -- Certain
Definitions") 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.
21
<PAGE> 24
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
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 (such as
the Mortgage which the Company will grant on certain real property and
improvements at the Portland Mill to secure the Notes) 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
22
<PAGE> 25
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, 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."
Under the Indenture, the Company and the Guarantors will generally be
prohibited from creating liens, other than Permitted Liens (as defined under
"Description of the Notes -- Certain Definitions"), on (i) the Collateral or
(ii) any other property unless, in the case of clause (ii), the Notes are also
secured by such liens. See "Description of the Notes -- Certain
Covenants -- Limitations on Liens." The Indenture will further provide that, in
the event of a breach of this covenant that is not remedied for 30 days after
written notice of such breach is given to the Company, the Trustee or the
holders of Notes will be entitled to accelerate the maturity of the Notes. See
"Description of the Notes -- Events of Default." Under certain decisions of the
California Supreme Court, however, to accelerate loans secured by commercial
real property upon a breach of covenants prohibiting the creation of certain
junior liens or leasehold estates, the lender must demonstrate that enforcement
is reasonably necessary to protect against impairment of the lender's security
or to protect against an increased risk of default. Although the foregoing court
decisions may have been preempted, at least in part, by certain federal laws,
the scope of such preemption, if any, is uncertain. Accordingly, a California
court could prevent the Trustee and the holders of Notes from declaring a
default and accelerating the Notes by reason of a breach of this covenant, which
could have a material adverse effect on the ability of holders to enforce the
covenant.
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
23
<PAGE> 26
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 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 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 on the Collateral pledged by such Guarantor.
RISK TO SECURED LENDERS UNDER ENVIRONMENTAL LAWS
The Notes and the Guarantee of CF&I will be secured by liens on real
property. 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 "Risk Factors -- Environmental Matters" and "Business - Environmental
Matters". Under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"), a secured lender, in certain
circumstances, may be held to have an obligation to remediate or may be held
liable for the costs of remediating releases or threatened releases of hazardous
substances at a mortgaged property. There may be similar risks under various
state laws and common law theories. The costs of environmental remediation are
often substantial.
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 obligations 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
24
<PAGE> 27
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 the 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 has applied to list the Notes on the New York Stock
Exchange, there is 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 $16.00 per share) are
estimated to be approximately $90.8 million (approximately $104.5 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 were incurred
principally to fund the capital improvement program. At March 31, 1996, the
Company had $272.9 million outstanding under the Old Credit Agreement with a
weighted average interest rate of 8.3% 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, including expenditures for its capital
improvement program and ongoing maintenance projects, and other general
corporate purposes. See "Prospectus Summary -- Capital Improvement Program,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Capital
Improvement Program." 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 March 31, 1996 and as adjusted to
reflect (i) receipt by the Company of the estimated net proceeds from the
Offerings (assuming a public offering price of $16.00 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>
MARCH 31, 1996
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt (including current portion of long-term debt)....... $ 9,036 $ 9,036
======== =========
Long-term debt (less current portion)
First Mortgage Notes due 2003..................................... $ -- $ 235,000
Old Credit Agreement.............................................. 272,900(1) --
CF&I acquisition debt............................................. 47,760 47,760
Amended Credit Agreement.......................................... -- --
------- ---------
Total long-term debt...................................... 320,660 282,760
------- ---------
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........................................ 150,826 241,566
Retained earnings................................................. 123,101 121,487(3)
Cumulative foreign currency translation adjustment................ (3,412) (3,412)
------- ---------
Total stockholders' equity................................ 270,709 359,895
------- ---------
Total long-term debt and stockholders' equity............. $591,369 $ 642,655
======== =========
</TABLE>
- ---------------
(1) 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 $1.6 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 shown below for the three months ended
March 31, 1995 and 1996 and as of March 31, 1995 and 1996 have been derived from
the unaudited consolidated financial statements of the Company which, in the
opinion of management, include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of such interim periods. 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 and notes
thereto of the Company as of December 31, 1993, 1994 and 1995 and for the three
years ended December 31, 1995 and as of March 31, 1995 and 1996 and for the
three months ended March 31, 1995 and 1996 included and incorporated by
reference herein (the "Oregon Steel Financial Statements"). The results for the
three months ended March 31, 1996 are not necessarily indicative of results that
may be expected for the year ending December 31, 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------- --------------------
1991 1992(1) 1993(2) 1994 1995(3) 1995 1996
-------- -------- -------- --------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales................................ $489,357 $397,722 $679,823 $ 838,268 $ 710,971 $187,017 $205,489
Cost of sales........................ 386,517 316,455 608,236 761,335(4) 638,413 170,278 176,905
Provision for rolling mill
closures........................... -- -- -- 22,134(5) -- -- --
Selling, general and administrative
expenses........................... 28,910 29,785 41,447 50,052 43,123 10,829 11,414
Contributions to employee stock
ownership plan..................... 5,002 3,501 753 738 -- 334 --
Profit participation................. 14,284 10,510 4,527 2,336 5,416 735 1,869
-------- -------- -------- -------- -------- -------- --------
Operating income............... 54,644 37,471 24,860 1,673 24,019 4,841 15,301
Other income (expense):
Interest and dividend income....... 1,872 741 921 1,620(4) 557 68 111
Interest expense................... -- -- (3,988) (3,910) (10,307) (1,883) (3,872)
Other income (expense), net........ (281) 214 (354) 711 1,065 150 (87)
Settlement of litigation........... -- (5,040) 2,750 -- -- -- --
Minority interests(10)............. -- 1,097 (1,996) (3,373) 862 (96) (788)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes(10).................... 56,235 34,483 22,193 (3,279) 16,196 3,080 10,665
Income tax (expense) benefit......... (20,770) (14,506) (7,388) 2,941 (3,762) (1,170) (4,147)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)(10).......... $ 35,465 $ 19,977 $ 14,805 $ (338) $ 12,434 $ 1,910 $ 6,518
======== ======== ======== ======== ======== ======== ========
Net income (loss) per share(6)(10)..... $ 1.89 $ 1.04 $ .75 $ (.02) $ .62 $ .10 $ .33
Cash dividends declared per share...... $ .50 $ .56 $ .56 $ .56 $ .56 $ .14 $ .14
Weighted average common shares and
common share equivalents
outstanding(6)....................... 18,735 19,183 19,822 19,973 20,016 20,005 20,020
BALANCE SHEET DATA:
Working capital...................... $122,780 $ 99,444 $139,461 $ 141,480 $ 115,453 $123,087 $104,045
Total assets......................... 323,529 354,252 549,670 665,733 805,266 670,752 824,201
Long-term debt....................... 3,417 -- 76,487 187,935 312,679 195,013 320,660
Total stockholders' equity(10)....... 245,006 257,515 275,242 263,477 266,790 263,654 270,709
OTHER DATA:
Depreciation and amortization........ $ 12,441 $ 16,253 $ 21,375 $ 22,012 $ 24,964 $ 5,116 $ 7,131
Capital expenditures................. $ 38,481 $ 34,281 $ 40,905 $ 128,237 $ 176,885 $ 38,321 $ 36,878
Ratio of earnings to fixed
charges(7)(10)..................... 29.9x 36.8x 4.4x .4x 1.1x 1.1x 2.0x
EBITDA(8)............................ $ 68,676 $ 55,776 $ 44,806 $ 44,777 $ 51,467 $ 10,079 $ 21,668
Net cash provided by operating
activities......................... $ 22,598 $ 48,385 $ 44,545 $ 20,520 $ 53,616 $ 30,724 $ 29,388
Net cash used in investing
activities......................... $(36,411) $(52,960) $(46,185) $(128,444) $(176,261) $(38,805) $(37,709)
Net cash provided by (used in)
financing activities............... $ 26,025 $ (4,892) $ 6,193 $ 104,006 $ 118,082 $ 4,485 $ 9,407
Ratio of EBITDA to interest expense
(including capitalized
interest)(11)...................... 49.1x 175.4x 7.9x 4.0x 2.3x 2.1x 2.9x
Total long-term debt as a percentage
of capitalization(9)(10)........... 1.4% -- 21.7% 41.6% 54.0% 42.5% 54.2%
</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 non-recurring expenses such as rolling mill closures and
settlements of litigation. EBITDA has been included solely because the
Company uses it as one means of analyzing its ability to service its debt,
the Company's lenders use it for the purpose of analyzing the Company's
performance with respect to its credit agreements and 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."
(11) For the purpose of determining the ratio of EBITDA to interest expense
(including capitalized interest), 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 non-recurring expenses such as
rolling mill closures and settlements of litigation. Interest expense
consists of total interest costs, including capitalized interest. The ratio
of EBITDA to interest expense (including capitalized interest) has been
included solely because the Company uses it as one means of analyzing its
ability to service its debt, the Company's lenders use it for the purpose
of analyzing the Company's performance with respect to its credit
agreements and the Company believes that it is used by certain investors as
one measure of a company's historical ability to service its debt.
28
<PAGE> 31
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL DATA
The following pro forma unaudited condensed consolidated statements of
income for the year ended December 31, 1995 and the three months ended March 31,
1996 give effect to the Refinancing as if it had occurred as of January 1, 1995.
The pro forma unaudited consolidated condensed balance sheet as of March 31,
1996 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 $16.00
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 Oregon Steel 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 THREE MONTHS ENDED MARCH 31, 1996
------------------------------------ ------------------------------------
PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- --------- -------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales.................... $710,971 $ 710,971 $205,489 $ 205,489
Cost of sales............ 638,413 638,413 176,905 176,905
Selling, general and
administrative
expenses.............. 43,123 43,123 11,414 11,414
Profit participation
expense............... 5,416 5,416 1,869 1,869
-------- -------- -------- ---------
Operating income...... 24,019 24,019 15,301 15,301
Interest and dividend
income................ 557 557 111 111
Interest expense......... (10,307) $(8,175)(1) (18,482) (3,872) $ 546(1) (3,326)
Other income, net........ 1,065 1,065 (87) (87)
Minority interests....... 862 862 (788) (788)
-------- -------- -------- ---------
Income before income
taxes............... 16,196 8,021 10,665 11,211
Income tax expense....... 3,762 $(3,106)(2) 656 4,147 $ 207(2) 4,354
-------- -------- -------- ---------
Net income............ $ 12,434 $ 7,365 $ 6,518 $ 6,857
======== ======== ======== =========
OTHER DATA:
Ratio of earnings to
fixed charges(3)...... 1.1x .8x 2.0x 1.9x
EBITDA(4)................ $ 51,467 $ 51,467 $ 21,668 $ 21,668
Ratio of EBITDA to
interest expense
(including capitalized
interest)(13)......... 2.3x 1.6x 2.9x 2.8x
Total long-term debt as a
percentage of
capitalization(5)..... 54.0% 45.1% 54.2% 44.0%
</TABLE>
29
<PAGE> 32
<TABLE>
<CAPTION>
AT MARCH 31, 1996
----------------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Assets:
Cash and cash equivalents......................... $ 1,738 $ 40,354(6) $ 42,092
Trade accounts receivable, net.................... 98,170 98,170
Inventories....................................... 115,201 115,201
Other current assets.............................. 13,078 990(7) 14,068
Property, plant and equipment, net................ 522,008 522,008
Debt issuance costs, net.......................... 2,068 7,537(8) 9,605
Other assets...................................... 71,938 71,938
-------- --------
Total assets.............................. $ 824,201 $ 873,082
======== ========
Liabilities and stockholders' equity:
Accounts payable.................................. $ 82,275 $ 82,275
Other current liabilities......................... 41,867 $ (2,405) (9) 39,462
Long-term debt.................................... 320,660 (37,900)(10) 282,760
Other liabilities................................. 72,243 72,243
-------- --------
Total liabilities......................... 517,045 476,740
-------- --------
Minority interests.................................. 36,447 36,447
-------- --------
Common Stock........................................ 194 60(11) 254
Additional paid-in capital.......................... 150,826 90,740(11) 241,566
Retained earnings................................... 123,101 (1,614)(12) 121,487
Cumulative foreign currency translation
adjustment........................................ (3,412) (3,412)
-------- --------
Total stockholders' equity................ 270,709 359,895
-------- --------
Total liabilities and stockholders'
equity.................................. $ 824,201 $ 873,082
======== ========
</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 uses it as one means of analyzing its ability to
service its debt, the Company's lenders use it for the purpose of analyzing
the Company's performance with respect to its credit agreements and 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 net proceeds of the Offerings of $318.9
million, repayment of $275.3 million outstanding at March 31, 1996 under
the Old Credit Agreement, estimated cash payments of $2.6 million related
to anticipated losses in connection with the termination of certain
interest rate swap agreements related to the Old Credit Agreement and fees
of $625,000 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 March 31,
1996 under the Old Credit Agreement.
(10) Adjustment giving effect to the issuance of the Notes and the payment in
full of amounts outstanding at March 31, 1996 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 $16.00 per share pursuant to the Common
Stock Offering, net of estimated underwriting discount and other issuance
costs of $5.2 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.
(13) For the purpose of determining the ratio of EBITDA to interest expense
(including capitalized interest), 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 non-recurring expenses such as
rolling mill closures and settlements of litigation. Interest expense
consists of total interest costs, including capitalized interest. The ratio
of EBITDA to interest expense (including capitalized interest) has been
included solely because the Company uses it as one means of analyzing its
ability to service its debt, the Company's lenders use it for the purpose
of analyzing the Company's performance with respect to its credit
agreements and the Company believes that it is used by certain investors as
one measure of a company's historical ability to service its debt.
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>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------- -------------------
1993(1) 1994 1995 1995 1996
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales............................ 100.0% 100.0% 100.0%(2) 100.0% 100.0%
Cost of sales.................... 89.4 90.8(3) 89.8(2) 91.0 86.1
----- ----- ----- ----- -----
Gross profit..................... 10.6 9.2 10.2 9.0 13.9
Provision for rolling mill
closure....................... -- 2.6(4) -- -- --
Selling, general and
administrative expenses....... 6.1 6.0 6.1 5.8 5.6
Contributions to employee stock
ownership plan................ .1 .1 -- .2 --
Profit participation expense..... .7 .3 .7 .4 .9
----- ----- ----- ----- -----
Operating income......... 3.7 .2 3.4 2.6 7.4
Interest and dividend income..... .1 .2(3) .1 -- .1
Interest expense................. (.6) (.5) (1.5) (1.0) (1.9)
Other income, net................ -- .1 .2 .1 --
Settlement of litigation......... .4 -- -- -- --
Minority interests(13)........... (.3) (.4) .1 (.1) (.4)
----- ----- ----- ----- -----
Income (loss) before
income taxes(13)....... 3.3 (.4) 2.3 1.6 5.2
Income tax (expense) benefit..... (1.1) .4 (.5) (.6) (2.0)
----- ----- ----- ----- -----
Net income (loss)(13).... 2.2% .0% 1.8% 1.0% 3.2%
===== ===== ===== ===== =====
BALANCE SHEET DATA:
Current ratio(5)................. 2.2:1 2.2:1 2.0:1 2.1:1 1.8:1
Total long-term debt as a
percentage of
capitalization(6)(13)......... 21.7% 41.6% 54.0% 42.5% 54.2%
Net book value per
share(7)(13).................. $14.23 $13.60 $13.74 $13.58 $13.94
</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>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- ---------------------
1993(1) 1994 1995 1995 1996
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Tonnage sold:
Oregon Steel Division(8):
Commodity plate.......... 278,900 269,400 136,200 42,300 35,500
Specialty plate.......... 157,300 154,700 159,700 49,700 46,300
Large diameter pipe...... 248,600 356,300 223,000 32,200 47,300
ERW pipe................. 75,100 94,900 48,400 21,100 23,100
Semifinished............. 18,400 45,400 196,200 57,600 --
--------- --------- --------- -------- --------
Total Oregon Steel
Division.......... 778,300 920,700 763,500 202,900 152,200
--------- --------- --------- -------- --------
CF&I Steel Division(9)
Rail..................... 186,200 250,500 240,700 78,600 95,100
Rod, bar and wire
products............... 346,100 379,300 271,300 84,700 112,800
Seamless OCTG............ 85,300 130,000 116,100 28,900 40,700
Semifinished............. 7,100 5,800 12,100 -- 7,100
--------- --------- --------- -------- --------
Total CF&I Steel
Division.......... 624,700 765,600 640,200 192,200 255,700
--------- --------- --------- -------- --------
Total Company....... 1,403,000 1,686,300 1,403,700 395,100 407,900
========= ========= ========= ======== ========
Sales (in thousands):
Oregon Steel Division....... $415,165 $498,794 $407,968 $ 99,330 $ 92,846
CF&I Steel Division......... 264,658 339,474 303,003 87,687 112,643
--------- --------- --------- -------- --------
Total............... $679,823 $838,268 $710,971(2) $187,017 $205,489
========= ========= ========= ======== ========
Average price per ton sold:
Oregon Steel Division....... $533 $542 $534 490 610
CF&I Steel Division......... 424 443 467(10) 456 441
Company average..... 485 497 504(10) 473 504
Operating income per ton
sold........................ $18 $14(11) $14(10) $ 12 $ 38
Operating margin.............. 3.7% 2.8%(11) 3.4%(12) 2.6% 7.4%
</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
production there terminated 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."
33
<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 payment was 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
34
<PAGE> 37
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.
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 a 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 March 31, 1996, 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 $2.6 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 March 31, 1996
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 FIRST QUARTER 1996 TO FIRST QUARTER 1995
Sales. Sales for the first quarter of 1996 of $205.5 million increased 9.9
percent from sales of $187.0 million in the first quarter of 1995. Shipments
increased 3.2 percent to 407,900 tons in the first quarter of 1996 from 395,100
tons in the corresponding 1995 period. The increase in sales and shipments was
primarily due to increased shipments of rail, OCTG and rod products manufactured
by the CF&I Steel Division, offset in part by a decline in shipments of plate
products and the absence of sales of semifinished products by the Oregon Steel
Division. Selling prices in the first quarter of 1996 averaged $504 per ton
versus $473 per ton in the first quarter of 1995. The increase in average
selling price is due to several factors including increased sales of rail and
OCTG products and the absence of sales of semifinished products which generally
have the lowest selling price of any of the Company's products. Of the $18.5
million sales increase, $12.5 million was the result of higher average selling
prices and $6.0 million was the result of volume increases.
The Company's Oregon Steel Division shipped 152,200 tons of product at an
average selling price of $610 per ton during the first quarter of 1996 compared
to 202,900 tons of product at an average selling price of $490 per ton during
the first quarter of 1995. The decline in shipments, as well as the increase in
average selling price, were primarily due to the absence of sales of
semifinished products during the first quarter of 1996. Welded pipe shipments
from the Napa and Camrose Pipe Mills were 70,400 tons in 1996 compared to 53,300
35
<PAGE> 38
tons in 1995. During the first quarter of 1996, the Oregon Steel Division did
not ship any semifinished products compared to 57,600 tons shipped in the first
quarter of 1995. Shipments of plate products during the first quarter of 1996
were 81,800 tons compared to 92,000 tons in 1995. The 1995 quarter included
15,600 tons of plate shipments from the now closed Fontana Plate Mill. Demand
for the Company's plate products remained strong during the first quarter of
1996 compared to the fourth quarter of 1995.
The CF&I Steel Division shipped 255,700 tons of products at an average
selling price of $441 per ton during the first quarter of 1996 compared to
192,200 tons of product at an average selling price of $456 per ton during the
first quarter of 1995. The CF&I Steel Division experienced strong shipments in
rail and OCTG products during the first quarter of 1996 (95,100 tons and 40,700
tons, respectively) compared to 78,600 tons of rail and 28,900 tons of OCTG in
the first quarter of 1995. Shipments of rail products have generally been the
highest in the first quarter of the year. The decrease in average selling prices
was due in part to the higher proportion of sales represented by lower priced
rod and bar products and lower selling prices for most of the CF&I Steel
Division's products compared to the first quarter of 1995. Shipments of rod and
bar products increased 41 percent to 97,100 tons in the first quarter of 1996
compared to 68,800 tons in 1995.
Gross Profit. Gross profit for the first quarter of 1996 was 13.9 percent,
compared to 9 percent for the first quarter of 1995. Gross profit margins were
positively impacted by increased shipments of rail, OCTG and rod products and
the elimination of sales of semifinished products. In addition, the Company
ceased rolling plate at its Fontana Plate Mill in the fourth quarter of 1994,
and costs were incurred during the first quarter of 1995 for shipping remaining
inventory, winding down of operations and removal of supplies and equipment.
Costs incurred in the first quarter of 1995 in connection with the closure of
the Fontana Plate Mill adversely affected gross profit for that quarter by $1.7
million. Further, the Company estimates that expenses associated with the CF&I
Steel Division's capital improvement program were approximately $3 million in
the first quarter of 1995. These expenses related to the start-up of the CF&I
Steel Division's new rod and bar mill, the conversion from ingot to continuous
casting for the rail mill and improvements to the steelmaking process, including
a new ladle refining furnace, a vacuum degassing unit and caster modifications.
Selling, General and Administrative. Selling, general and administrative
expenses for the three months ended March 31, 1996 increased $585,000 or 5.4
percent from the corresponding period in 1995, but decreased as a percentage of
sales from 5.8 percent in the first quarter of 1995 to 5.6 percent in the first
quarter of 1996. The dollar amount increase was primarily due to increased
shipping expense as a result of increased tons shipped in the first quarter of
1996 compared to the corresponding 1995 period.
Contribution to ESOP and Profit Participation. There was no contribution
to the Company's ESOP during the first quarter of 1996, compared to a
contribution of $334,000 in the first quarter of 1995. Profit participation plan
expense was $1.9 million for the first quarter of 1996 compared to $735,000 for
the first quarter of 1995. The increase in 1996 profit participation plan
expense reflects the increased profitability of the Company in 1996.
Interest Expense. Total interest costs for the three months ended March
31, 1996 were $7.5 million compared to $4.8 million for the corresponding 1995
period. The higher interest cost is primarily the result of the debt incurred to
fund the capital improvement program. Of the $7.5 million of interest cost in
the first quarter of 1996, $3.6 million was capitalized as part of construction
in progress, compared to $2.9 million capitalized in the corresponding 1995
period. 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 income tax rates were 39
percent and 38 percent for the three months ended March 31, 1996 and 1995,
respectively.
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
36
<PAGE> 39
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 termination of production at 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 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 plan expense 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.
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
37
<PAGE> 40
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
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.
38
<PAGE> 41
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.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations for the three months ended March 31, 1996 was
$29.4 million compared to $30.7 million in the corresponding 1995 period. The
major items affecting this $1.3 million decrease were increased accounts
receivable ($20.6 million) and a lower increase in accrued expenses ($4.6
million). These cash uses were partially offset by increased net income ($4.6
million), reduced inventories ($8.7 million), a decrease in the reduction of
accounts payable ($2.7 million) and increased depreciation and amortization ($2
million).
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 March 31, 1996 decreased $11.4 million from December
31, 1995 due to a $8.6 million decrease in current assets, principally
inventory, and a $2.8 million increase in current liabilities, principally
short-term debt.
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.
39
<PAGE> 42
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") plus between
1 and 3 percent, the prime rate plus up to 2 percent or, for the Revolving Loan
only, the federal funds rate plus between 1 and 3 percent. 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 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 March 31, 1996, $196.9 million was outstanding under the Term Loan and
$76.0 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 March 31, 1996, the
outstanding balance on the debt was $54.0 million, of which $47.8 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 March 31, 1996, $12.5
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 March 31, 1996, $2.1
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 March 31, 1996, Camrose had Cdn.$3.9 million outstanding under the
facility.
40
<PAGE> 43
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 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 $74 million on the Combination Mill (of which approximately $11.4
million and $24.2 million, respectively, was expended in the first quarter of
1996), 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 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.
41
<PAGE> 44
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 was
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 $410 million from 1993 through 1997, of which the Company
had expended approxi-
42
<PAGE> 45
mately $324 million as of March 31, 1996. 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 March 31, 1996 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 $410 million (excluding capitalized
interest) capital improvement program at its Pueblo and Portland Mills, of which
the Company had expended approximately $324 million as of March 31, 1996. 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.
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
</TABLE>
43
<PAGE> 46
<TABLE>
<CAPTION>
COST
PROJECT BENEFITS ---------- STATUS
- -------------------------------- ---------------------------------------- (MILLIONS) ------------------
<S> <C> <C> <C>
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 $210* 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* Exploratory phase
- potential cost stabilization
- higher quality end products
----
Total $410
====
</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 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
44
<PAGE> 47
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, the Company may continue to experience difficulties with
this equipment that will adversely affect its production capability and
results of operations. 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 begin start-up operation in the second 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 start-up operation in the
second half of 1996 and is expected to reach full production capacity by
the end 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 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
45
<PAGE> 48
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 termination of production at
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.
There is no assurance that the estimated cost savings will be realized or
that capital improvement projects will be fully operational by the dates
anticipated, 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.
In addition, following completion of capital improvement projects, the
Company may continue to experience operational difficulties and delays before
those projects become fully operational. As a result, there is no assurance that
the new rod and bar mill, the Combination Mill or other capital improvement
projects will be fully operational by the dates anticipated, which would delay
the realization of benefits from those projects.
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, rod and bar mill or other
capital improvement 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
46
<PAGE> 49
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 million 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 $2.6
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 Company believes 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 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.
47
<PAGE> 50
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 (the last full year before the acquisition of
the CF&I Steel Division) 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 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.
48
<PAGE> 51
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.
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
49
<PAGE> 52
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 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.
50
<PAGE> 53
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 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"
51
<PAGE> 54
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, the prior owner generated by-products that are now defined as hazardous
by federal and California regulations. The owner of the Mill Property 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 March 31, 1996, the Company had expended $6.9 million for
remediation and had accrued reserves of $2.6 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
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
52
<PAGE> 55
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 March 31, 1996 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.
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.
53
<PAGE> 56
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.
54
<PAGE> 57
DESCRIPTION OF THE NOTES
The Notes will be issued under an indenture (the "Indenture") between the
Company, the Guarantors and Chemical Bank, as trustee (the "Trustee"). The
following summarizes certain material provisions of the Indenture. The following
summary does not purport to be complete and is subject to, and qualified in its
entirety by reference to, the provisions of the Indenture (the form of which has
been filed as an exhibit 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 June , 2003. Interest on the Notes will accrue
at the rate of % per annum and will be payable semiannually on each June
and December , commencing December
, 1996, to the holders of record of Notes at the close of
business on the May and November 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 June ,
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 June 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
55
<PAGE> 58
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 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 and the
application of the estimated net proceeds therefrom as if all such transactions
had occurred on March 31, 1996, the Company and the Guarantors would have had,
in addition to the Notes and excluding intercompany liabilities, $230.6 million
of consolidated liabilities, including $47.8 million of unsecured consolidated
long-term debt (excluding current portion of $6.2 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 and the application of the estimated net proceeds
therefrom as if such transactions had occurred on March 31, 1996, subsidiaries
of the Company which are not Guarantors would have had, excluding liabilities
owed to the Company, $11.2 million of consolidated liabilities. This debt would
have included Cdn.$3.9 million of borrowings by Camrose outstanding under the
Cdn.$18 million Camrose Credit Facility which is secured by Camrose's assets. In
addition, borrowings and
56
<PAGE> 59
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 will therefore effectively rank prior to the
Guarantees in right of payment to the extent of 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 and secured by
accounts receivable and inventory of such other subsidiaries. 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 March 31, 1996, 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.
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, and approximately 5% of the Company's consolidated total
assets and approximately 8% of the Company's consolidated sales as of and for
the three months ended March 31, 1996. See "Risk Factors -- Certain Limitations
on the Collateral and the Guarantees".
57
<PAGE> 60
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 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 to, any person
or persons, unless at the time of and after giving effect thereto (a) either (i)
if such transaction or series of transactions is a merger, such Guarantor shall
be the surviving person of such merger, 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 (in the case of a merger or consolidation) or on the
Collateral transferred to the Surviving Person (in the case of a transfer of
assets), together with such financing statements as may be required to perfect
any security interests in such Collateral which may be perfected by the filing
of a financing statement under the Uniform Commercial Code of the relevant
states); (b) the Collateral owned by such Guarantor (in the case of a merger or
consolidation) or the Collateral transferred to the Surviving Person (in the
case of a transfer of assets) (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 take such actions as may be necessary to 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, each in form reasonably
satisfactory to the Trustee, each stating that such transaction and any
58
<PAGE> 61
supplemental indenture, amendments, supplements or other instruments or
agreements required by clause (a) or (c) above or by this sentence comply with
the requirements of the Indenture and that all conditions precedent therein
provided for relating to such transaction have been complied with (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
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 with
the same force and effect as if such successor person had been named as a
Guarantor therein (and thereafter, except in the case of a lease, the
predecessor Guarantor shall be released from its obligations thereunder).
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:
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. The Company and the Guarantors will also be
required by the Indenture to secure the Notes with additional real property they
acquire after the Issue Date, together with any improvements thereon, subject to
certain permitted exceptions and encumbrances and other than real property or
improvements described in the following paragraph. 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
59
<PAGE> 62
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, 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 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 Excluded Assets or (v) any Excluded Intangibles, or any
proceeds or products of any of the foregoing. Excluded Assets include, among
other things, (i) assets encumbered by purchase money Liens or securing
obligations under commercial letters of credit, (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) certain motor vehicles and mobile
equipment (including mobile cranes, loaders, forklifts, trailers, backhoes,
towmotors and graders) owned by CF&I, and (vii) all other motor vehicles.
Excluded Intangibles include rights under contracts, agreements, licenses and
other instruments that by their express terms prohibit, or require the consent
of a third party for, the assignment thereof or the grant of a security interest
therein. 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, Excluded Assets and Excluded Intangibles) 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 March 31, 1996 was approximately $495.9 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. In that
regard, Excluded Intangibles (which will not constitute part of the Collateral)
may include contracts, agreements, licenses (including software licenses) and
other rights that are material to the Company or the Guarantors or which are
necessary to operate their steelmaking, finishing or other production
facilities. The fact that these contracts, licenses, agreements and other rights
are not pledged as security for the Notes and Guarantees could have a material
adverse effect on the value of the Collateral. 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, amounts 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
60
<PAGE> 63
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 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 or covenant 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
61
<PAGE> 64
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 Collateral may be subject to delay
pursuant to an Intercreditor Agreement to be entered into with the Bank 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 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) in the event that action has been
taken to enforce the rights of holders of the Notes with respect to the
Collateral and the Trustee has obtained possession and control of the
Collateral, the Bank Agent may enter upon all or any portion of the premises of
the Company or any of the Guarantors in order to collect accounts receivable and
remove, sell or otherwise dispose of the Bank Collateral, and may also store
Bank Collateral on the premises of the Company or any of the Guarantors. 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
62
<PAGE> 65
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.
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
63
<PAGE> 66
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
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 and the procedures of the Depository permit such payments to be made in
immediately available funds.
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 June , 1998, 2 to 1 and (ii) in
the case of Indebtedness incurred on or after June , 1998, 2.5 to 1, (b) such
Indebtedness has no scheduled principal payment prior to the 123rd 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 (other than Indebtedness under, or guarantees of
Indebtedness under, the Old Credit Agreement);
(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 relate 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,
64
<PAGE> 67
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 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
65
<PAGE> 68
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 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 Guarantor
pursuant to this clause (m) to refinance Subordinated Indebtedness, such
Indebtedness (A) has no scheduled principal payment prior to the 123rd 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 Guarantor, 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 Guarantor, as the case may be, and (z) in the case
of Indebtedness incurred by the Company or a Guarantor pursuant to this
clause (m) to refinance Pari Passu Indebtedness, such Indebtedness (A) has
no scheduled principal payment prior to the 123rd 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
66
<PAGE> 69
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 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 123rd 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
67
<PAGE> 70
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 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 or Pari Passu Indebtedness which (x)
has no Stated Maturity earlier than the 123rd 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 of the Company and its
subsidiaries. Following such an event of default, the lenders under the Amended
Credit
68
<PAGE> 71
Agreement or such other credit facilities and debt instruments would have the
right to require the immediate repayment of the indebtedness thereunder in full,
and might have the right to require such repayment prior to the Change of
Control Purchase Date on which the Company would be required to repurchase the
Notes. 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
broader than 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. In addition, failure by the Company to
repurchase all Notes tendered to it on a Change of Control Purchase Date will
constitute an immediate Event of Default under the Indenture, which could result
in the acceleration of other indebtedness pursuant to cross-default clauses in
other credit facilities and debt instruments. 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 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 other
property 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
69
<PAGE> 72
(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, if the
Company so elects, 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 or
amounts deemed to constitute 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
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, Excluded Intangibles, Excluded
Securities 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 the
outstanding Notes that may be purchased with such Excess Proceeds, at a price in
cash equal to 100% of the 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 and amounts which, pursuant to the provisions
described below, are deemed to be 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
70
<PAGE> 73
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 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 property or assets of a Guarantor or other
transactions as a result of which a Guarantor will be released from its
Guarantee as provided in the last paragraph under "-- Guarantees", then,
anything in 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 and (ii) the Net Cash Proceeds of
such transaction shall be allocated between Collateral Proceeds and
Non-Collateral Proceeds as follows: (a) such Net Cash Proceeds shall be
multiplied by a fraction (1) the numerator of which is the Fair Market Value of
the Collateral owned by such Guarantor and (2) the denominator of which is the
Fair Market Value of all property and assets (including Collateral) owned by
such Guarantor, and the resulting amount shall be deemed Collateral Proceeds,
and (b) the remainder of such Net Cash Proceeds shall be deemed Non-Collateral
Proceeds.
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 clause (b) of
this covenant shall not apply to any Capital Stock of CF&I or New CF&I which, on
the Issue Date, was not owned by the Company or a Wholly-Owned Subsidiary of the
Company which is a Guarantor, so long as there is no increase in the percentage
of the outstanding Capital Stock of CF&I or New CF&I which is owned by persons
other than the Company and its Wholly-Owned Subsidiaries which are Guarantors
(it being understood that an increase in the capital account of a limited
partner of CF&I pursuant to the terms of the CF&I Partnership Agreement shall
not be deemed, in and of itself, to be an increase in the percentage of CF&I's
Capital Stock owned by persons other than the Company and its Wholly-Owned
Subsidiaries which are Guarantors).
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
71
<PAGE> 74
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 the Board of
Directors of the Company; provided, however, that this covenant will not
restrict the Company or any of its Subsidiaries from (i) paying dividends or
making other distributions 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 or any of its
Subsidiaries who are not employees of the Company, (iii) making loans or
advances to officers, employees or consultants of the Company and its
Subsidiaries (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
72
<PAGE> 75
Indenture, the Notes, the Guarantees, the Intercreditor Agreement or any
Security Documents, (vii) (A) provisions contained in the Credit Agreement and
in guarantees by CF&I and New CF&I permitted by the Indenture of the Company's
obligations under the Credit Agreement, and in security agreements or similar
documents permitted by the Indenture entered into by the Company, CF&I and New
CF&I pledging Bank Collateral to secure their respective obligations thereunder
(in each case as in effect on the Issue Date but only after giving effect to any
amendments or restatements thereto which are entered into on or prior to the
Issue Date), and provisions in permitted amendments and replacements thereof
which are no less favorable to the holders of the Notes than those contained in
the Credit Agreement or in any such guarantee or security agreement or similar
document as in effect on the Issue Date (after giving effect to any amendments
or restatements thereto entered into on or prior to the Issue Date) and (B)
provisions contained in such additional guarantees of the Company's obligations
under the Credit Agreement permitted by the Indenture and in such additional
security agreements or similar documents permitted by the Indenture pledging
Bank Collateral pursuant to the Credit Agreement which may be entered into after
the Issue Date by other Subsidiaries of the Company (and in permitted amendments
and replacements thereof) which in each case are no less favorable to the
holders of the Notes than the provisions of the guarantees, security agreements
or similar documents, as the case may be, referred to in clause (A) above (as in
effect on the Issue Date but only after giving effect to any amendments or
restatements thereto which are entered into on or prior to the Issue Date);
(viii) provisions contained in other agreements or instruments relating to
Indebtedness in effect on the Issue Date (as in effect on the Issue Date) and
provisions 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 (other than
encumbrances or restrictions existing under or by reason of the Old Credit
Agreement, the Old Pledge Agreements or the Old Security Agreements, except to
the extent that the Old Security Agreements of the Company, New CF&I or CF&I
shall have been amended or restated on or prior to the Issue Date in connection
with the Credit Agreement Amendment and therefore are permitted pursuant to
clause (vii) above); and (ix) encumbrances and restrictions under the CF&I
Partnership 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.
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) after giving pro forma effect to the Indebtedness, if any,
incurred in such Sale-Leaseback Transaction, 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 (b) such Sale and
Lease-Back Transaction complies with the covenant described under
" -- Disposition of Proceeds of Assets Sales" above and the Net Cash Proceeds of
such transaction are applied in accordance with such covenant.
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 become a party to the
Intercreditor Agreement; (ii) to the extent that such new Subsidiary owns (or
thereafter acquires) 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
73
<PAGE> 76
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; 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.
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
(i) in any manner would be adverse to the interests of the holders of the Notes
or the Trustee (it being understood that the admission by CF&I of one or more
additional or substitute limited partners shall not be deemed adverse to the
interests of the holders of the Notes or the Trustee so long as made in
compliance with the other provisions of the Indenture) or (ii) in the case of
the CF&I Partnership Agreement, would increase the amount of cash or other
property distributable to, or the amount of profits allocated to, any limited
partner of CF&I.
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 reports and 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 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, the Company shall be the surviving person of such
merger, 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
74
<PAGE> 77
(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, the Intercreditor Agreement and its Security
Documents remain in full force and effect), and 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
(including, in the case of CF&I, the CF&I Note), the Intercreditor Agreement and
its Security Documents (and the Surviving Entity 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 (in the case of a merger or consolidation) or on the Collateral
transferred to the Surviving Entity (in the case of a transfer of assets),
together with such financing statements as may be required to perfect any
security interests in such Collateral which may be perfected by the filing of a
financing statement under the Uniform Commercial Code of the relevant states);
(b) the Collateral owned by the Company and, in the case of any such transaction
involving such Subsidiary, by such Subsidiary (in the case of a merger or
consolidation) or the Collateral transferred to the Surviving Entity (in the
case of a transfer of assets) shall (1) continue to constitute Collateral under
the Indenture and 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 or the Surviving Entity, as the case may
be, shall take such action as may be necessary to 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, 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 reasonably satisfactory to the Trustee, each stating that such
consolidation, merger, transfer, lease, assignment or other disposition and any
supplemental indenture, amendments, supplements or other instruments or
agreements required by clause (a) or (c) above 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
75
<PAGE> 78
such successor corporation had been named as the Company therein (and
thereafter, except in the case of a lease, the predecessor corporation shall be
released from its obligations thereunder); 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
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
76
<PAGE> 79
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 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
77
<PAGE> 80
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 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 Company may obtain the release of the
Collateral 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 (a)
(but only to the extent that such clause (a) requires the execution and delivery
of documents in order to assume or confirm obligations under the Intercreditor
Agreement, the Security Agreements or the CF&I Note or the filing or recording
of such documents or of financing statements), (b), (c) (d)(2) and (e) of the
third paragraph under "-- Guarantees" and clauses (a) (but only to the extent
that such clause (a) requires the execution and delivery of documents in order
to assume or confirm obligations under the Intercreditor Agreement, the Security
Agreements or the CF&I Note or the filing or recording of such documents or of
financing statements), (b), (c) (d)(2) and (e) of the first paragraph under
"-- Merger, Sale of Assets, Etc." above) (whereupon the Company may obtain the
release of the Collateral as security for the Securities and the Guarantees),
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; (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 clause (vii) of the first paragraph under
"-- Events of Default" is concerned, at any time during the period ending on the
123rd day
78
<PAGE> 81
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 123rd day following
the deposit, the trust funds will not be subject to avoidance or recovery under
any applicable bankruptcy laws; and (vii) the Company shall have satisfied
certain further conditions, including delivery to the Trustee of 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
(whereupon the Company may obtain the release of the Collateral 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 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, the Intercreditor Agreement 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 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
79
<PAGE> 82
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 or covenant
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.
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 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,
80
<PAGE> 83
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,
except as may be otherwise provided in the Intercreditor Agreement, 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 as contemplated by "-- 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 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
81
<PAGE> 84
payment with respect to the Notes, (vi) 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, (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.
"Amended Credit Agreement" means the Old Credit Agreement, as amended and
restated 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
82
<PAGE> 85
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 of a Subsidiary) that is governed by and complies
with the provisions described under "Certain Covenants--Merger, Sale of Assets,
Etc." above or 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 clause
(i) or clause (viii) of the definition of Excluded Assets) or any Bank
Collateral, and (iv) any Restricted Payment made in accordance with the covenant
described under "Certain Covenants -- Limitation on Restricted Payments" or any
Permitted Investment.
"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, (i) with respect to any person other than a
partnership, the board of directors of such person or any duly authorized
committee of such board, and (ii) with respect to any partnership, the board of
directors of a direct corporate general partner (or, if there is no direct
corporate general partner, an indirect corporate general partner) of such
partnership or any duly authorized committee of such board or, if there is no
such direct or indirect corporate general partner, by the appropriate governing
body of any general partner of such partnership.
"Camrose" means Camrose Pipe Company, a general partnership organized under
the laws of the Province of Alberta, Canada, and its successors.
"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.
83
<PAGE> 86
"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.
"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), other than the Company's employee stock ownership plan, 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 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), other than the
Company's employee stock ownership plan, 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.
The term "all or substantially all" as used in clause (b) of this paragraph is
not precisely defined under New York law, the law governing the Indenture. Such
imprecision may create uncertainty as to when a Change of Control has occurred.
"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 established pursuant to
the Indenture.
84
<PAGE> 87
"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 shares of its
Common Stock (including 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 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.
85
<PAGE> 88
"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, the
following (whether or not reflected as an expense on the consolidated income
statement of such person): (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, and further adjusted by including, without
duplication, the aggregate amount of cash dividends or cash distributions
actually received by such person or any of its Subsidiaries from any
Unrestricted Subsidiary of such person.
"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.
"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, and its
successors.
"Credit Agreement" means the Amended Credit Agreement and any successor or
replacement facility entered into in compliance with the Indenture, in each case
including all exhibits and schedules thereto, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with its
terms and the terms of the Indenture.
"Credit Agreement Amendment" means the amendment to and restatement of 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 and restating the Old Credit Agreement to, among other things, reduce
the aggregate principal amount of borrowings which may be outstanding thereunder
at any one time.
86
<PAGE> 89
"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
Indebtedness described in and which complies with, and which Indebtedness is
secured by a Lien on such property permitted under, clause (g) of the definition
of Permitted Liens (but only so long as such purchase money Indebtedness or
Indebtedness incurred solely to refinance, replace or refund such purchase money
Indebtedness in accordance with such clause (g) is outstanding and, in either
such case, 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 (and is not
intended to be 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) 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, (vii) Motor Vehicles (as defined in
the form of Security Agreement attached as an exhibit to the Indenture) and
(viii) any specific item of property subject to a Lien securing the obligations
of the Company or a Subsidiary of the Company in respect of a commercial letter
of credit, but only so long as such letter of credit and Lien comply with, and
are permitted under, clause (t) of the definition of Permitted Liens, and only
so long as such letter of credit is outstanding and such property is subject to
such Lien; 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 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
securing Indebtedness as described in clause (i) of the foregoing sentence, at
such time as the purchase money Indebtedness or Indebtedness incurred to
refinance, replace or refund such purchase money Indebtedness referred to in
such clause (i) shall no longer be outstanding, or at such time as such purchase
money Indebtedness or any such Indebtedness incurred to refinance, replace or
refund such purchase money Indebtedness shall no longer be secured by a Lien on
such property permitted under clause (g) of the definition of Permitted Liens,
and with respect to any property securing a commercial letter of credit
described in clause (viii) of the foregoing sentence, at such time as such
letter of credit shall no longer be outstanding or the obligations of the
Company or any Subsidiary of the Company in respect thereof shall no longer be
secured by a Lien on such property permitted under clause (t) of the definition
of Permitted Liens, then, in each of the foregoing cases, 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 Intangibles" means any right, title or interest of the Company or
any Guarantor in, to or under any contract, agreement or other instrument
entered into with, or any license granted by or to, any person that is not the
Company or a Subsidiary or Unrestricted Subsidiary of the Company and which
contract, agreement, instrument or license by its express terms prohibits the
assignment thereof or the grant of a
87
<PAGE> 90
security interest therein by the Company or such Guarantor, as the case may be,
or by its express terms permits such assignment or grant of a security interest
only with the consent of such person; provided that any such right, title and
interest shall cease to be an Excluded Intangible to the extent that an
appropriate consent to such assignment or pledge has been obtained; and provided
further that Excluded Intangibles shall not include (i) the leasehold interest
in the Company's office space located at 1000 S.W. Broadway, Portland, Oregon or
(ii) any contracts, agreements, licenses or other instruments specifically
identified in any Security Document as being subject to the Lien created by or
granted in such Security Document.
"Excluded Securities" means the Capital Stock of any of the Company's
Subsidiaries or Unrestricted Subsidiaries.
"Fair Market Value" means, with respect to any property or 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,
except for purposes of clause (vi) of the definition of "Event of Default," 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 June , 2003.
"Fontana" means Oregon Steel -- Fontana Division, Inc., a Delaware
corporation and former subsidiary of the Company which was merged into the
Company.
"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 Notes 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, in each case as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms of the Indenture.
"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
88
<PAGE> 91
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 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 (i) where real property is involved, who 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) who does not have a direct or indirect financial
interest in the Company and (iii) who, 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 (it being understood that securities
of the Company acquired in the ordinary course of trading operations shall not
be deemed to give rise to such 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 in any material respect
(as evidenced by an officers' certificate delivered to the Trustee) 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.
89
<PAGE> 92
"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 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.
"Napa" means Napa Pipe Corporation, a Delaware corporation and former
subsidiary of the Company which was merged into the Company.
"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).
90
<PAGE> 93
"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.
"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 Pledge Agreements" mean all pledge agreements entered into by the
Company or any of the its present or former Subsidiaries or Unrestricted
Subsidiaries (including, without limitation, Napa and Fontana) pursuant to the
Old Credit Agreement.
"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.
"Old Security Agreements" mean all mortgages, deeds of trust, security
agreements and similar agreements (other than the Old Pledge Agreements) entered
into by the Company or any of its present or former Subsidiaries or Unrestricted
Subsidiaries (including, without limitation, Napa and Fontana) pursuant to the
Old Credit Agreement.
"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 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 interest rates;
91
<PAGE> 94
(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 in partnerships, joint ventures or other entities
to acquire or develop sources of raw materials used in steelmaking or other
steel-related businesses in an aggregate amount not to exceed $40 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 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) Liens (and replacements, renewals or extensions thereof) securing
Indebtedness the proceeds of which are applied (A) solely to acquire or
construct property or assets (other than the Combination Mill or any part
thereof (including, without limitation, any machinery, equipment or
fixtures constituting a part thereof) or any improvements constructed in
connection therewith) of the Company or any Subsidiary of the Company
acquired or constructed after the Issue Date or (B) solely to refinance,
replace or refund Indebtedness referred to in clause (A) as long as the
principal amount of any such new Indebtedness does not exceed the principal
amount of the Indebtedness so replaced, refinanced or refunded; provided,
however, that (i) no such Lien (including any replacement, renewal or
extension thereof) shall 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 (together with proceeds and products thereof and
any intangibles reasonably related thereto) and the property or assets so
acquired or constructed do not constitute Replacement Assets and are not
acquired or constructed with Net Cash Proceeds from Asset Sales (or with
amounts which, pursuant to the Indenture, are deemed to constitute
Collateral Proceeds), (ii) the Lien securing such Indebtedness either (x)
exists at the time of such acquisition or construction or (y) shall be
created within 180 days of such acquisition or the completion of such
construction, (iii) the principal amount of the Indebtedness referred to in
clause (A) above secured by such Lien does not exceed 100% of the cost of
such acquisition or construction and such
92
<PAGE> 95
Indebtedness and any Indebtedness incurred to refinance, replace or refund
such Indebtedness is incurred in accordance with the Indenture and (iv)
prior to initially granting any such Lien (but not in connection with any
replacements, renewals or extensions thereof), the Company shall provide
the Trustee with an officers' certificate stating that (x) the property and
assets subject to such Lien do not constitute Replacement Assets and were
not acquired or constructed with Net Cash Proceeds from Asset Sales (or
with amounts which, pursuant to the Indenture are deemed to constitute
Collateral Proceeds) and (y) the Collateral could be operated independently
of such property and assets or such property and assets 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 and assets) 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 on Bank Collateral 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 permitted by the Indenture and any
guarantees permitted by the Indenture of the obligations under the Credit
Agreement, and other Liens existing as of the Issue Date (other than (A)
Liens created by or pursuant to the Old Pledge Agreements, (B) Liens
created by or pursuant to the Old Security Agreements (except that, if the
Company, CF&I or New CF&I shall elect, in lieu of entering into a new
security agreement in order to pledge its Bank Collateral as security for
its obligations under the Amended Credit Agreement (in the case of the
Company) or any guarantee permitted by this Indenture of the Company's
obligations under the Amended Credit Agreement (in the case of New CF&I and
CF&I), to amend or restate its Old Security Agreement, then the Liens on
the Bank Collateral created by such amended or restated Old Security
Agreement (after giving effect to such amendment or restatement) shall be
deemed Permitted Liens), and (C) Liens on Excluded Securities and
Intercompany Indebtedness);
(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;
93
<PAGE> 96
(q) any replacement, extension or renewal, in whole or in part, of any
Lien described in the foregoing clauses (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 that is not prohibited by and
does not violate any covenant in 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; and
(t) Liens upon specific items of property securing obligations of the
Company or a Subsidiary of the Company in respect of a commercial letter of
credit issued by a financial institution in favor of the seller or supplier
of such property; provided that (i) such letter of credit is issued to
facilitate the purchase of such property by, and shipment of such property
to, the Company or any Subsidiary of the Company in the ordinary course of
its business, (ii) such letter of credit is payable against delivery to the
relevant financial institution of appropriate documents, (iii) such Lien
and letter of credit (and all obligations of the Company and any
Subsidiaries of the Company in respect thereof) shall be terminated at or
prior to the time that such property is delivered to the premises of the
Company or a Subsidiary of the Company and, in any event, no later than 365
days after the issuance of such letter of credit, (iv) such letter of
credit is not issued in respect of liabilities for borrowed money,
obligations evidenced by bonds, notes, debentures or other instruments,
Capital Leases or guarantees in respect of any of the foregoing, and (v)
such Lien does not extend to or cover any property or assets other than the
specific items of property to be purchased by and shipped to the Company or
a Subsidiary of the Company as aforesaid (together with proceeds of such
property) and the aggregate amount payable by the Company or any of its
Subsidiaries in respect of such letter of credit shall not exceed 100% of
the cost of such property (plus interest, freight, insurance and other
customary expenses).
"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.
"Preferred Stock" means, with respect to any person, any Capital Stock of
such person of any class or series (however designated) that ranks prior, as to
payment of dividends or distributions or as to distributions upon voluntary or
involuntary liquidation, dissolution or winding up, to shares of Capital Stock
of any other class or series or such person. For purposes of this definition,
the term "Capital Stock" shall not include rights, warrants or options.
"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 Maturity Date, or is convertible
into or exchangeable for debt securities at any time prior to the Final Maturity
94
<PAGE> 97
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 (it being understood that this proviso shall not prevent any
such sale or transfer of water rights or water system from constituting an Asset
Sale). 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 equivalents in the
equity interest (however designated) in such person. For purposes of this
definition, any
95
<PAGE> 98
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 amounts deemed,
pursuant to the Indenture, to constitute 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) which constitute
Collateral Proceeds or are deemed pursuant to the Indenture to constitute
Collateral 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, for the satisfaction and discharge
of the Indenture or to pay the purchase price of Notes pursuant to a Change of
Control Offer 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
96
<PAGE> 99
(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 at 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
(it being understood that any increase in the capital account of a limited
partner of CF&I pursuant to the terms of the CF&I Partnership Agreement shall
not, in and of itself, cause such limited partnership interest not to qualify
under this clause (ii)). For purposes of the foregoing definition, neither CF&I
nor New CF&I shall be deemed not to be a Wholly-Owned Subsidiary of the Company
solely by virtue of any sale, transfer or assignment after the Issue Date of any
limited partnership interests or Common Stock referred to in clause (ii) of the
preceding sentence (including, without limitation, by admission of additional
limited partners to CF&I), so long as such sale, transfer or assignment is
otherwise made in compliance with the provisions of the Indenture.
97
<PAGE> 100
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. Copies of the Amended Credit Agreement, the
Indenture and the CF&I acquisition agreement 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 and
related books and records 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 plus up to 2 percent, the federal
funds rate plus up to 2 percent, or LIBOR plus up to 3 percent 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 March 31, 1996, the outstanding principal amount
of this obligation was $54.0 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.
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
98
<PAGE> 101
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 March 31, 1996,
Camrose had Cdn.$3.9 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 March 31, 1996, Camrose's tangible net worth was Cdn.$38.2
million, which would have permitted Camrose to make a maximum distribution of
Cdn.$8.2 million to its partners at that time.
99
<PAGE> 102
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 March 31, 1996 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,
100
<PAGE> 103
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 has applied
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.
101
<PAGE> 104
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 and Schwabe, Williamson & Wyatt,
Portland, Oregon and, as to certain matters of California law, Heller, Ehrman,
White & McAuliffe, San Francisco, California, and, as to certain matters of
Colorado law, Holme Roberts & Owen LLC, Denver, Colorado. Brown & Wood, San
Francisco, California, will act as counsel for the Underwriters.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1993, 1994 and 1995 and for the years then ended, the consolidated financial
statements of New CF&I and Subsidiaries as of December 31, 1993, 1994 and 1995
and for the years then ended and the financial statements of CF&I as of December
31, 1993, 1994 and 1995, for the period March 3, 1993 (date of inception)
through December 31, 1993 and for each of the two years ended December 31, 1995
included in this Prospectus and in the Registration Statement of which this
Prospectus is a part have been 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.
102
<PAGE> 105
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants................................................... F-2
Consolidated Balance Sheets at December 31, 1993, 1994 and 1995 and March 31, 1996
(unaudited)....................................................................... F-3
Consolidated Statements of Income for the years ended December 31, 1993, 1994 and
1995 and the three months ended March 31, 1995 and 1996 (unaudited)............... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1993, 1994 and 1995 and the three months ended March 31, 1996
(unaudited)....................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994
and 1995 and the three months ended March 31, 1995 and 1996 (unaudited)........... F-6
Notes to Consolidated Financial Statements.......................................... F-7
</TABLE>
F-1
<PAGE> 106
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Directors of
Oregon Steel Mills, Inc.
We have audited the accompanying consolidated balance sheets of Oregon Steel
Mills, Inc. and Subsidiaries as of December 31, 1993, 1994 and 1995, 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 Oregon Steel
Mills, Inc. and Subsidiaries as of December 31, 1993, 1994 and 1995, 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 1994
financial statements have been restated to reflect the proceeds from a
subsidiary's issuance of stock as minority interest.
COOPERS & LYBRAND L.L.P.
Portland, Oregon
January 19, 1996
F-2
<PAGE> 107
OREGON STEEL MILLS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
(RESTATED
NOTE 3) MARCH 31,
1993 1994 1995 1996
--------- --------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................ $ 9,623 $ 5,039 $ 644 $ 1,738
Trade accounts receivable, less allowance for doubtful accounts
of $1,906, $2,063, $1,905 and $1,943........................... 71,649 80,203 80,520 98,170
Inventories...................................................... 160,504 160,788 141,310 115,201
Deferred tax asset............................................... 4,804 5,775 9,461 9,856
Other............................................................ 9,203 7,661 4,845 3,222
--------- --------- --------- -----------
Total current assets........................................... 255,783 259,466 236,780 228,187
--------- --------- --------- -----------
Property, plant and equipment:
Land and improvements............................................ 24,466 28,319 28,471 29,428
Buildings........................................................ 35,821 36,943 37,126 37,151
Machinery and equipment.......................................... 240,833 230,019 376,217 385,495
Construction in progress......................................... 34,605 139,842 171,487 194,821
--------- --------- --------- -----------
335,725 435,123 613,301 646,895
Accumulated depreciation......................................... (104,300) (97,027) (118,147) (124,887)
--------- --------- --------- -----------
231,425 338,096 495,154 522,008
--------- --------- --------- -----------
Cost in excess of net assets acquired, net......................... 39,474 42,569 41,555 41,290
Other assets....................................................... 22,988 25,602 31,777 32,716
--------- --------- --------- -----------
$ 549,670 $ 665,733 $ 805,266 $ 824,201
========== ========= ========== ===========
LIABILITIES
Current liabilities:
Current portion of long-term debt................................ $ 4,680 $ 5,302 $ 4,576 $ 6,201
Short-term debt.................................................. 14,225 -- -- 2,835
Accounts payable................................................. 75,419 85,618 85,360 82,275
Accrued expenses................................................. 21,998 27,066 31,391 32,831
--------- --------- --------- -----------
Total current liabilities...................................... 116,322 117,986 121,327 124,142
Long-term debt..................................................... 76,487 187,935 312,679 320,660
Deferred employee benefits......................................... 15,327 17,661 17,044 17,305
Other deferred liabilities......................................... 36,803 36,609 36,331 36,000
Deferred income taxes.............................................. 16,514 10,725 15,470 18,938
--------- --------- --------- -----------
261,453 370,916 502,851 517,045
--------- --------- --------- -----------
Minority interests................................................. 12,975 31,340 35,625 36,447
--------- --------- --------- -----------
Commitments and contingencies (Note 14)
STOCKHOLDERS' EQUITY
Capital stock:
Preferred stock, par value $.01 per share; 1,000 shares
authorized; none issued
Common stock, par value $.01 per share; 30,000 shares authorized;
19,348, 19,377, 19,422 and 19,422 shares issued and
outstanding.................................................... 193 194 194 194
Additional paid-in capital......................................... 149,340 150,090 150,826 150,826
Retained earnings.................................................. 128,924 117,739 119,302 123,101
Minimum pension liability adjustment............................... (297) -- -- --
Cumulative foreign currency translation adjustment................. (2,918) (4,546) (3,532) (3,412)
--------- --------- --------- -----------
275,242 263,477 266,790 270,709
--------- --------- --------- -----------
$ 549,670 $ 665,733 $ 805,266 $ 824,201
========== ========= ========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-3
<PAGE> 108
OREGON STEEL MILLS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AND TONNAGE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------- THREE MONTHS ENDED
(RESTATED MARCH 31,
NOTE 3) --------------------
1993 1994 1995 1995 1996
--------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales.................................. $ 679,823 $ 838,268 $ 710,971 $187,017 $205,489
--------- --------- --------- -------- --------
Costs and expenses:
Cost of sales........................ 608,236 761,335 638,413 170,278 176,905
Provision for rolling mill
closures.......................... -- 22,134 -- -- --
Selling, general and
administrative.................... 41,447 50,052 43,123 10,829 11,414
Contribution to employee stock
ownership plan.................... 753 738 -- 334 --
Profit participation................. 4,527 2,336 5,416 735 1,869
--------- --------- --------- -------- --------
654,963 836,595 686,952 182,176 190,188
--------- --------- ---------
Operating income.................. 24,860 1,673 24,019 4,841 15,301
Other income (expense):
Interest and dividend income......... 921 1,620 557 68 111
Interest expense..................... (3,988) (3,910) (10,307) (1,883) (3,872)
Settlement of litigation............. 2,750 -- -- -- --
Minority interests................... (1,996) (3,373) 862 (96) (788)
Other, net........................... (354) 711 1,065 150 (87)
--------- --------- --------- -------- --------
Income (loss) before income
taxes........................... 22,193 (3,279) 16,196 3,080 10,665
Income tax benefit (expense)........... (7,388) 2,941 (3,762) (1,170) (4,147)
--------- --------- --------- -------- --------
Net income (loss)................. $ 14,805 $ (338) $ 12,434 $ 1,910 $ 6,518
========= ========= ========= ======== ========
Net income (loss) per share............ $ .75 $ (.02) $ .62 $ .10 $ .33
========= ========= ========= ======== ========
Dividends declared per common share.... $ .56 $ .56 $ .56 $ .14 $ .14
========= ========= ========= ======== ========
Weighted average common shares and
common share equivalents
outstanding.......................... 19,822 19,973 20,016 20,005 20,020
Tonnage sold........................... 1,403,000 1,686,300 1,403,700 395,100 407,900
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-4
<PAGE> 109
OREGON STEEL MILLS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
MINIMUM FOREIGN
COMMON STOCK ADDITIONAL PENSION CURRENCY
--------------- PAID-IN RETAINED LIABILITY TRANSLATION
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT ADJUSTMENT TOTAL
------ ------ ---------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1992..... 19,201 $192 $134,101 $124,935 -- $ (1,713) $257,515
Net income...................... 14,805 14,805
Issuance to employee stock
ownership plan................ 147 1 3,499 3,500
Common stock to be issued March
2003 (598,400 shares)......... 11,184 11,184
Warrants to purchase 100,000
shares of common stock for
five years, expiring March 3,
1998.......................... 556 556
Minimum pension liability
adjustment.................... $ (297) (297)
Foreign currency translation
adjustment.................... (1,205) (1,205)
Dividends paid ($.56 per
share)........................ (10,816) (10,816)
------ ---- -------- -------- ------ -------- --------
Balances, December 31, 1993..... 19,348 193 149,340 128,924 (297) (2,918) 275,242
Net loss (restated Note 3)...... (338) (338)
Issuance to employee stock
ownership plan................ 29 1 750 751
Minimum pension liability
adjustment.................... 297 297
Foreign currency translation
adjustment.................... (1,628) (1,628)
Dividends paid ($.56 per
share)........................ (10,847) (10,847)
------ ---- -------- -------- ------ -------- --------
Balances, December 31, 1994
(restated Note 3)............. 19,377 194 150,090 117,739 -- (4,546) 263,477
Net income...................... 12,434 12,434
Issuance to employee stock
ownership plan................ 45 736 736
Foreign currency translation
adjustment.................... 1,014 1,014
Dividends paid ($.56 per
share)........................ (10,871) (10,871)
------ ---- -------- -------- ------ -------- --------
Balances, December 31, 1995..... 19,422 194 150,826 119,302 -- (3,532) 266,790
Net income...................... 6,518 6,518
Foreign currency translation
adjustment.................... 120 120
Dividends paid ($.14 per
share)........................ (2,719) (2,719)
------ ---- -------- -------- ------ -------- --------
Balances, March 31, 1996........ 19,422 $194 $150,826 $123,101 $ -- $ (3,412) $270,709
====== ==== ======== ======== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 110
OREGON STEEL MILLS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------- THREE MONTHS ENDED
(RESTATED MARCH 31,
NOTE 3) --------------------
1993 1994 1995 1995 1996
--------- --------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ 14,805 $ (338) $ 12,434 $ 1,910 $ 6,518
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 21,375 22,012 24,964 5,116 7,131
Provision for rolling mill closures............... -- 22,134 -- -- --
Deferred income taxes............................. 2,269 (5,789) 3,583 1,980 3,818
Minority interests' share of income (loss)........ 905 1,565 (755) 240 823
Other, net........................................ 2,539 936 20 420 170
Changes in current assets and liabilities net of
effect of acquisitions:
Trade accounts receivable....................... (7,980) (9,161) (39) 2,973 (17,611)
Inventories..................................... (19,124) (3,786) 14,989 17,411 26,145
Other........................................... 277 1,538 2,818 (1,554) 2,419
Deferred tax asset.............................. (1,171) (971) (3,686) 1 (395)
Accounts payable and accrued expenses........... 30,650 (7,620) (712) 2,227 370
--------- --------- -------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES............ 44,545 20,520 53,616 30,724 29,388
--------- --------- -------- -------- --------
Cash flows from investing activities:
Additions to property, plant and equipment........... (40,905) (128,237) (176,885) (38,321) (36,878)
Proceeds from disposal of property, plant and
equipment......................................... 2,236 390 850 -- --
Investment in CF&I Steel, L.P........................ (8,039) -- -- -- --
Other, net........................................... 523 (597) (226) (484) (831)
--------- --------- -------- -------- --------
NET CASH USED BY INVESTING ACTIVITIES................ (46,185) (128,444) (176,261) (38,805) (37,709)
--------- --------- -------- -------- --------
Cash flows from financing activities:
Net borrowings under revolving loan agreements....... 20,042 94,047 3,443 (1,590) (3,913)
Proceeds from Senior Credit Facilities............... -- 137,600 125,300 10,000 17,600
Payments on Senior Credit Facilities and other
debt.............................................. (3,033) (133,594) (4,830) (1,165) (1,281)
Dividends paid....................................... (10,816) (10,847) (10,871) (2,713) (2,719)
Proceeds from sale of subsidiary common stock........ -- 16,800 5,040 -- --
Other, net........................................... -- -- -- (47) (280)
--------- --------- -------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES............ 6,193 104,006 118,082 4,485 9,407
--------- --------- -------- -------- --------
Effects of foreign currency exchange rate changes on
cash................................................. (107) (666) 168 179 8
--------- --------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents... 4,446 (4,584) (4,395) (3,417) 1,094
Cash and cash equivalents at beginning of year......... 5,177 9,623 5,039 5,039 644
--------- --------- -------- -------- --------
Cash and cash equivalents at end of year............... $ 9,623 $ 5,039 $ 644 $ 1,622 $ 1,738
========= ========= ======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest.......................................... $ 5,443 $ 10,500 $ 20,087 $ 3,293 $ 6,889
Income taxes...................................... $ 4,017 $ 3,967 $ 1,966 $ -- $ --
</TABLE>
See Notes 7 and 16 for additional supplemental cash flow disclosures.
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 111
OREGON STEEL MILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Oregon Steel Mills, Inc. and subsidiaries ("the Company") manufacture
various specialty and commodity steel products with operations in the United
States and Canada. The principal markets for the Company's products are steel
service centers, steel fabricators, railroads, oil and gas producers and
distributors and other industrial concerns. The Company's products are primarily
marketed in the western United States. The Company also markets products
internationally.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include all wholly-owned and
majority-owned subsidiaries. Affiliates which are 20 percent to 50 percent owned
are accounted for using the equity method. Material wholly-owned and
majority-owned subsidiaries of the Company are Napa Pipe Corporation ("Napa"),
Oregon Steel Mills -- Fontana Division, Inc. ("Fontana"), Camrose Pipe
Corporation ("CPC") which owns a 60 percent interest in Camrose Pipe Company
("Camrose"), and 87 percent owned New CF&I, Inc. ("New CF&I") which owns a 95.2
percent interest in CF&I Steel, L.P. ("CF&I"). All principal intercompany
transactions and account balances have been eliminated. Fontana ceased
production in the fourth quarter of 1994 and closed permanently in the first
quarter of 1995. Napa and Fontana were merged into the Company in February 1996.
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 $1.7 million, $7.4 million and $12.2 million in 1993, 1994 and
1995, 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 improvements are capitalized.
Upon disposal, cost and accumulated depreciation are removed from the accounts
and gains or losses are reflected in income.
F-7
<PAGE> 112
OREGON STEEL MILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Costs in Excess of Net Assets Acquired
The costs in excess of net assets acquired of CF&I and Camrose are being
amortized on a straight-line basis over 40 years. Accumulated amortization was
$765,000, $1.8 million and $2.9 million in 1993, 1994 and 1995, respectively.
Interest Rate Swap Agreements
Interest rate swap cash flow differentials are recognized as interest
expense on an accrual basis.
Taxes on Income
Deferred income taxes reflect the differences between the financial
reporting and tax bases 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.
Foreign Currency Translation
Assets and liabilities of subsidiaries are translated at the rate of
exchange with related unrealized gains or losses on the balance sheet date
reflected in stockholders' equity. Income and expenses are translated at the
average exchange rate for the year.
Net Income (Loss) Per Share
Net income (loss) per share is based upon the weighted average number of
common shares outstanding of 19.8 million in 1993 and 20 million in 1994 and
1995 (including in each case 598,400 shares issuable in 2003 in connection with
the acquisition of CF&I). There were no dilutive common share equivalents
outstanding in any years presented.
Reclassifications
Certain reclassifications have been made in prior years to conform with the
current year presentation.
Interim Information
The financial statements for the three months ended March 31, 1995 and 1996
are unaudited but, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, considered necessary for fair
presentation of the Company's operating results and cash flows for this period.
Results of interim periods are not necessarily indicative of results of the
entire year.
Recent Accounting Pronouncement
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 ("Statement 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.
F-8
<PAGE> 113
OREGON STEEL MILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. SALES OF SUBSIDIARY COMMON STOCK AND RESTATEMENT OF 1994 FINANCIAL STATEMENTS
In August 1994, New CF&I, a then wholly-owned subsidiary of the Company,
sold a 10 percent equity interest in New CF&I to a wholly-owned subsidiary of
Nippon Steel Corporation (together with its subsidiaries "Nippon").
In connection with the sale, the Company and New CF&I entered into a
stockholder's 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 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,
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 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 is offered the opportunity to sell its 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 desires to transfer
its interest in New CF&I to a non-affiliate.
New CF&I received a cash payment of $16.8 million in connection with the
sale and the Company reported a nontaxable gain of approximately $12.3 million
in the third quarter of 1994. In the fourth quarter of 1995, the Company
restated the 1994 financial statements to reflect the proceeds of the sale of
New CF&I common stock of $16.8 million as minority interest. Accordingly, on a
restated basis no gain on the sale of subsidiary stock has been recognized as a
component of net loss for the year ended December 31, 1994 and minority interest
has been increased by $12.4 million and retained earnings has been reduced by a
like amount. The effect of the restatement was to reduce 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.
During the fourth quarter of 1995, the Company sold a 3 percent equity
interest in New CF&I to the Nissho Iwai Group ("Nissho Iwai") for approximately
$5 million cash under substantially the same terms and conditions of the Nippon
transaction.
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.
F-9
<PAGE> 114
OREGON STEEL MILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one business segment in two geographical locations,
the United States and Canada. Geographical area information is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales to unaffiliated customers
United States............................................ $587,247 $728,229 $655,822
Canada................................................... 92,576 110,039 55,149
-------- -------- --------
$679,823 $838,268 $710,971
======== ======== ========
Operating income (loss) by geographic location
United States............................................ $ 19,645 $ (7,186) $ 24,176
Canada................................................... 5,215 8,859 (157)
-------- -------- --------
$ 24,860 $ 1,673 $ 24,019
======== ======== ========
Income (loss) before income taxes by geographic location
United States (restated Note 3).......................... $ 19,192 $ (8,567) $ 16,454
Canada................................................... 3,001 5,288 (258)
-------- -------- --------
$ 22,193 $ (3,279) $ 16,196
======== ======== ========
Identifiable assets by geographic areas
United States............................................ $508,084 $615,816 $763,844
Canada................................................... 41,586 49,917 41,422
-------- -------- --------
$549,670 $665,733 $805,266
======== ======== ========
</TABLE>
Product transfers from the United States locations to the Canadian location
amounted to $5.2 million, $12.8 million and $1.3 million in 1993, 1994 and 1995,
respectively. These inter-area sales are at prices which approximate prices
charged to unaffiliated customers and have been eliminated from consolidated
sales. Export sales from the Company's United States operations were as follows:
<TABLE>
<CAPTION>
1994 1995
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Far East................................................................ $ 80,570 $34,514
Other................................................................... 47,561 39,870
-------- -------
$128,131 $74,384
======== =======
</TABLE>
Export sales from United States operations in 1993 were not material. In
1993, the Company derived 11.8 percent of its sales from one customer.
F-10
<PAGE> 115
OREGON STEEL MILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INVENTORIES
Inventories were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------- MARCH 31,
1993 1994 1995 1996
-------- -------- -------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Raw materials................................. $ 26,242 $ 37,389 $ 31,520 $ 21,338
Semifinished product.......................... 51,759 50,033 51,770 32,811
Finished product.............................. 62,104 50,320 38,111 38,911
Stores and operating supplies................. 20,399 23,046 19,909 22,141
-------- -------- -------- -------
Total inventory..................... $160,504 $160,788 $141,310 $115,201
======== ======== ======== =======
</TABLE>
7. SUPPLEMENTAL CASH FLOW INFORMATION
During the first three months of 1995 and 1996, the Company acquired
property, plant and equipment for $24.2 million and $12.2 million (unaudited),
which were included in accounts payable and accrued expenses at March 31, 1995
and 1996, respectively.
During 1995 the Company acquired property, plant and equipment for $27.4
million which was included in accounts payable and accrued expenses at December
31, 1995. During 1994 the Company (a) acquired property, plant and equipment for
$18.6 million which was included in accounts payable at December 31, 1994, and
(b) accrued accounts payable related to the annual performance purchase price
adjustment at Camrose of $3.6 million (see Note 14).
During 1993 the Company acquired current assets of $69.2 million, property,
plant and equipment and other assets of $80.7 million and assumed current
liabilities of $20.5 million, long-term debt of $67.5 million and other deferred
liabilities of $39.6 million in connection with the acquisition of a 95.2
percent interest in CF&I Steel, L.P.
The Company has recorded as a change to stockholders' equity the issuance
of common stock to the employee stock ownership plan, minimum pension liability
adjustment and foreign currency translation adjustment, which are non-cash
transactions.
8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable includes book overdrafts of $9.6 million at December 31,
1995 and retainage from construction projects of $9.1 million and $9.6 million
at December 31, 1994 and 1995, respectively.
Accrued expenses include accrued vacation of $5.4 million, $6.3 million and
$6.4 million at December 31, 1993, 1994 and 1995, respectively.
F-11
<PAGE> 116
OREGON STEEL MILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. DEBT AND FINANCING ARRANGEMENTS
Debt balances were as follows as of December 31:
<TABLE>
<CAPTION>
1993 1994 1995
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Term loan................................................... $ -- $120,000 $196,900
Revolving loan.............................................. 16,700 10,000 58,400
CF&I term loan.............................................. 64,467 60,073 55,242
Canadian revolving loan..................................... -- 3,164 6,713
-------- -------- --------
Total long-term debt.............................. 81,167 193,237 317,255
Less current maturities..................................... 4,680 5,302 4,576
-------- -------- --------
Noncurrent maturity of long-term debt............. $76,487 $187,935 $312,679
======== ======== ========
</TABLE>
The Company has credit facilities ("Senior Credit Facilities") for
borrowing of up to $297 million from a group of banks ("Lender Banks") to fund
capital expenditures and working capital. The Senior Credit Facilities are
comprised of: (1) a $197 million term loan facility ("Term Loan") which may be
drawn at any time through December 31, 1996; and (2) 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.
At the Company's election, interest on the Senior Credit Facilities 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. As of December 31, 1995, the interest rate of the
Senior Credit Facilities was 8.1 percent. Annual commitment fees are .5 percent
of the unused portions of the Senior Credit Facilities.
The Term Loan is payable in eleven quarterly installments commencing June
30, 1997. If the Term Loan is fully drawn at December 31, 1996, the repayments
will 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 Senior Credit Facilities are collateralized by substantially all of the
Company's consolidated inventory and accounts receivable, except those of
Camrose, and stock of certain subsidiaries. The Senior Credit Facilities are
guaranteed by the principal subsidiaries of the Company.
The Senior Credit Facilities agreement contains covenants, the most
restrictive of which is the minimum interest coverage ratio.
The Senior Credit Facilities were 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 the Company's obtaining other or additional
financing. The amendment to the interest coverage ratio was obtained due to
lower than anticipated earnings and higher than anticipated borrowings on the
Senior Credit Facilities.
The Company has entered into interest rate swap agreements with banks, as
required by the Senior Credit Facilities, to reduce the impact of unfavorable
changes in interest rates on its debt. At December 31, 1995, the Company had
outstanding seven interest rate swap agreements with commercial banks, having a
notional principal amount of $75 million. These agreements effectively change
the Company's interest rate costs on a portion of its Senior Credit Facilities
to an average fixed rate of 9.91 percent, effective until the swap agreements
mature at various dates between November 1997 and March 1998. These rates are
fixed over the indicated terms of the swap agreements except for the effect of
changes in the Company's leverage ratio which could reduce the interest by up to
1.5 percent. While the Company is exposed to credit loss in the event of
F-12
<PAGE> 117
OREGON STEEL MILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
non-performance by the other parties in the interest rate swap agreements, such
non-performance is not anticipated.
Term debt of $67.5 million was incurred by CF&I as part of the purchase
price of certain assets of CF&I Steel Corporation on March 3, 1993. This debt is
without stated collateral and is payable over ten years with interest at 9.5
percent.
Camrose maintains an $18 million (Canadian dollars) revolving credit
facility with a bank, expiring on January 3, 1997. The facility is
collateralized by substantially all of the assets of Camrose. Borrowing under
this facility is limited to an amount equal to specified percentages of
Camrose's eligible trade accounts receivables and inventories. As of December
31, 1995, the interest rate of this facility was 7.6 percent. Annual commitment
fees are .25 percent of the unused portion of this facility.
As of December 31, 1995, principal payments on long-term debt were due as
follows (in thousands):
<TABLE>
<S> <C>
1996...................................................................... $ 4,576
1997...................................................................... 120,288
1998...................................................................... 75,444
1999...................................................................... 85,924
2000...................................................................... 7,861
Balance due in installments through 2003.................................. 23,162
--------
$317,255
========
</TABLE>
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 uncollateralized 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.
10. 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.
Based on quotations from counterparties, the fair value of the Company's
interest rate swap agreements (see Note 9) at December 31, 1995 was $3.7 million
which represents the estimated unrealized loss that would result if the Company
terminated the agreements. The interest rate swap agreements are part of an
interest rate management strategy that is required by the Senior Credit
Facilities.
The fair value approximates the carrying value of the Company's borrowings
under its Senior Credit Facilities and other revolving loan agreements (see Note
9), which have variable market rates of interest.
At December 31, 1993, the fair value of the CF&I term loan of $64.5 million
approximated its carrying value. At December 31, 1994, the fair value and
carrying value of the CF&I term loan was $57.9 million and $60.1 million,
respectively. The fair value and carrying value of the CF&I term loan at
December 31, 1995 was $52.6 million and $55.2 million, respectively. 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.
F-13
<PAGE> 118
OREGON STEEL MILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCOME TAXES
The income tax benefit (expense) consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Current:
Federal..................................................... $(5,287) $(3,325) $(2,549)
State....................................................... (984) (479) (125)
Foreign..................................................... (19) (14) (30)
------- ------- -------
(6,290) (3,818) (2,704)
------- ------- -------
Deferred:
Federal..................................................... (124) 5,856 (3,324)
State....................................................... (163) 2,148 1,778
Foreign..................................................... (811) (1,245) 488
------- ------- -------
(1,098) 6,759 (1,058)
------- ------- -------
Income tax benefit (expense).................................. $(7,388) $ 2,941 $(3,762)
======= ======= =======
</TABLE>
F-14
<PAGE> 119
OREGON STEEL MILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred tax assets and liabilities as of
December 31 were as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
(IN THOUSANDS)
Net current deferred tax asset:
Assets
Inventories.............................................. $ 2,268 $ 1,904 $ 3,230
Accrued expenses......................................... 2,840 4,205 4,511
Accounts receivable...................................... 597 697 775
State tax credits........................................ 196 135 100
Provision for rolling mill closures...................... -- 1,906 2,639
------- ------- -------
5,901 8,847 11,255
Liabilities
Other.................................................... 1,097 3,072 1,794
------- ------- -------
Net current deferred tax asset................................ $ 4,804 $ 5,775 $ 9,461
======= ======= =======
Net noncurrent deferred income tax liability:
Assets
Postretirement benefits other than pensions.............. $ 2,009 $ 1,182 $ 1,274
State tax credits........................................ 207 1,588 5,925
Alternative minimum tax credit........................... 1,665 4,264 6,675
Cost in excess of net assets acquired.................... 13,666 13,602 13,626
Water rights............................................. 4,247 4,052 4,052
Provision for rolling mill closures...................... -- 3,543 3,480
Foreign tax credit....................................... -- 1,296 45
Net operating loss carryforward.......................... -- -- 6,322
Other.................................................... 460 3,355 5,317
------- ------- -------
22,254 32,882 46,716
------- ------- -------
Liabilities
Property, plant and equipment............................ 19,493 24,439 42,876
Environmental liability.................................. 13,282 13,070 13,015
Water rights............................................. 4,247 4,247 4,247
Other.................................................... 1,746 1,851 2,048
------- ------- -------
38,768 43,607 62,186
------- ------- -------
Net noncurrent deferred tax liability......................... $16,514 $10,725 $15,470
======= ======= =======
</TABLE>
F-15
<PAGE> 120
OREGON STEEL MILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the statutory tax rate to the effective tax rate on
income before income taxes is as follows:
<TABLE>
<CAPTION>
(RESTATED
NOTE 3)
1993 1994 1995
------- --------- -------
<S> <C> <C> <C>
U.S. statutory income tax rate................................. (35.0%) 35.0% (35.0%)
Federal tax credits............................................ 1.4 16.7 --
Deduction for dividends to ESOP participants................... 2.6 15.6 2.9
States, net.................................................... (6.6) 50.9 13.0
Settlement of litigation....................................... 4.3 -- --
Foreign taxes.................................................. -- (15.4) 1.8
Other, net..................................................... -- (13.1) (5.9)
------ ------- ------
(33.3%) 89.7% (23.2%)
====== ======= ======
</TABLE>
At December 31, 1995, the Company has state tax credits of $6 million
expiring 1997 through 2006 and a federal tax credit of $546,000 expiring 2005
through 2009 which are available to reduce future income taxes payable. 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
$5.4 milion reflecting a reduction in state tax credits earned in 1994.
Federal and state net operating loss carryforwards expire in 2010.
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.
12. EMPLOYEE BENEFIT PLANS
United States Pension Plans
The Company has noncontributory defined benefit retirement plans covering
all of its eligible domestic employees. The plans provide benefits based on
participants' years of service and compensation. The Company funds at least the
minimum annual contribution required by ERISA. Pension cost included the
following components:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year............... $ 3,857 $ 5,076 $ 3,898
Interest cost on projected benefit obligations................ 1,714 2,014 2,304
Actual (return) loss on plan assets........................... (4,002) 398 (5,854)
Net amortization and deferral................................. 2,423 (2,401) 3,275
------- ------- -------
$ 3,992 $ 5,087 $ 3,623
======= ======= =======
</TABLE>
F-16
<PAGE> 121
OREGON STEEL MILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the funded status of the plans and amount
recognized in the Company's consolidated balance sheet as of December 31:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Accumulated benefit obligation, including vested benefits of
$23,589, $25,017 and $34,308................................ $26,543 $26,451 $36,107
======= ======= =======
Projected benefit obligation.................................. $28,413 $28,110 $39,777
Plan assets at fair value..................................... 27,380 26,790 34,283
------- ------- -------
Projected benefit obligation in excess of plan assets......... (1,033) (1,320) (5,494)
Unrecognized net loss (gain).................................. 428 (2,296) 1,891
Unrecognized prior service cost............................... 1,156 1,032 866
Unrecognized net obligation at January 1, 1987 being
recognized over 15 years.................................... 1,271 529 453
Adjustment required to recognize minimum liability............ (297) -- --
------- ------- -------
Pension asset (liability) recognized in consolidated balance
sheet....................................................... $ 1,525 $(2,055) $(2,284)
======= ======= =======
</TABLE>
Plan assets are invested in common stock and bond funds (88 percent),
marketable fixed income securities (3 percent) and insurance company contracts
(9 percent) at December 31, 1995. The plans do not invest in the stock of the
Company.
Canadian Pension Plans
The Company has noncontributory defined benefit retirement plans covering
all of its eligible Camrose employees. The plans provide benefits based on
participants' years of service and compensation.
The Canadian pension plan assets, for Camrose salaried employees, acquired
with the Company's 60 percent interest in Camrose, are held by Stelco, Inc.
("Stelco" whose wholly-owned subsidiary, Stelcam Holdings Inc., owns 40 percent
of Camrose) pending transfer approval by Canadian regulatory authorities.
Pension cost included the following components:
<TABLE>
<CAPTION>
1993 1994 1995
---- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year................ $303 $ 297 $ 245
Interest cost on projected benefit obligations................. 8 408 461
Actual return on plan assets................................... (13) (447) (563)
Net amortization and deferral.................................. (3) (16) (3)
---- ----- -----
$295 $ 242 $ 140
==== ===== =====
</TABLE>
F-17
<PAGE> 122
OREGON STEEL MILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the funded status of the Canadian plans and
amount recognized in the Company's consolidated balance sheet as of December 31:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Accumulated benefit obligation, including vested benefits of
$4,212, $4,045 and $6,270...................................... $4,893 $4,596 $6,610
====== ====== ======
Projected benefit obligation..................................... $5,870 $5,488 $7,222
Plan assets at fair value........................................ 6,337 6,415 8,020
------ ------ ------
Plan assets in excess of projected benefit obligation............ 467 927 798
Unrecognized net loss (gain)..................................... (535) (627) 28
------ ------ ------
Pension asset (liability) recognized in consolidated balance
sheet.......................................................... $ (68) $ 300 $ 826
====== ====== ======
</TABLE>
The following table sets forth the significant actuarial assumptions for
the United States and Canadian pension plans:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate........................................................ 7.3 % 8.5 % 7.5 %
Rate of increase in future compensation levels:
United States plans................................................ 4.5 % 4.5 % 4.0 %
Canadian plan...................................................... 5.0 % 5.0 % 4.0 %
Expected long-term rate of return on plan assets..................... 8.0 % 8.8 % 8.8 %
</TABLE>
These actuarial assumptions are based on estimates of future economic
trends. It is reasonably possible that these estimates may change in the near
term. As a result, the projected benefit obligation may increase or decrease
materially in the near term.
Postretirement Health Care and Life Insurance Benefits
The Company provides certain health care and life insurance benefits for
substantially all of its 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-18
<PAGE> 123
OREGON STEEL MILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the status of the plans as of December 31:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................. $ 8,240 $ 4,557 $ 7,424
Fully eligible plan participants......................... 1,294 2,037 4,829
Other active plan participants........................... 5,050 6,387 5,357
--------- --------- ---------
$ 14,584 $ 12,981 $ 17,610
========= ========= =========
Accumulated postretirement benefit obligation in excess of
plan assets.............................................. $(14,584) $(12,981) $(17,610)
Unrecognized net loss (gain)............................... 34 (2,379) 1,831
Accrued postretirement benefit cost........................ 7,557 8,777 7,672
--------- --------- ---------
Postretirement (liability) asset recognized in consolidated
balance sheet............................................ $ (6,993) $ (6,583) $ (8,107)
========= ========= =========
Net periodic postretirement benefit costs include:
Service cost.......................................... $ 395 $ 457 $ 377
Interest cost benefit obligation...................... 1,017 1,033 1,067
Transition obligation at March 31, 1991 being
amortized over 20 years............................. 410 410 408
Gains................................................. -- (3) (350)
--------- --------- ---------
Net postretirement benefit cost.......................... $ 1,822 $ 1,897 $ 1,502
========= ========= =========
</TABLE>
For measurement purposes, a long-term inflation rate of 5 to 8 percent is
assumed for health care cost trend rates. A one percentage point increase in the
assumed health care cost trend for 1996 would increase the accumulated
postretirement benefit obligation by $532,000; the aggregate service and
interest cost would increase $51,000. The weighted average health care cost
trend rate used in measuring the postretirement benefit expense was 8 percent in
1996 gradually declining to 5 percent in 2002 and remaining at that level
thereafter. The discount rate used in determining the accumulated postretirement
benefit obligation was 7.5 percent. These assumptions are based on estimates of
future economic trends. It is reasonably possible that these estimates may
change in the near term. As a result, the accumulated postretirement obligation
may increase or decrease materially in the near term.
Other Employee Benefit Plans
In 1994 the Company established an unfunded supplemental retirement plan
designed to maintain benefits for all nonunion domestic employees at the plan
formula level. The amount expensed for this plan in 1994 and 1995 was $160,000
and $239,000, respectively.
The Company has an Employee Stock Ownership Plan ("ESOP") noncontributory
qualified stock bonus plan for eligible domestic employees. Contributions to the
plan are made at the discretion of the Board of Directors and are in the form of
newly issued shares of the Company's common stock. Shares are allocated to
eligible employees' accounts based on annual compensation. At December 31, 1995,
the ESOP held approximately 2.3 million shares of Company common stock.
Dividends on shares held by the ESOP are paid to eligible employees.
The Company has discretionary profit participation plans under which it
distributes quarterly 12 percent to 20 percent, depending on operating division,
of its pre-tax profits after adjustments for certain non-operating items such as
interest expense, to eligible employees. Each eligible employee receives a share
of the
F-19
<PAGE> 124
OREGON STEEL MILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
distribution based upon the employee's base compensation compared with the total
base compensation of all eligible employees of the division.
The Company has qualified thrift plans (401K) for eligible domestic
employees under which the Company matches 25 percent of the first 4 percent of
the participant's deferred compensation. Company contribution expense in 1993,
1994 and 1995 was $461,000, $778,000 and $742,000, respectively.
13. RELATED PARTY TRANSACTIONS
Camrose purchases steel coil, plate, and pipe under a steel supply
agreement from Stelco. Transactions under the agreement are at negotiated market
prices. The following table summarizes the transactions between Camrose and
Stelco.
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Sales to Stelco............................................... $ -- $ 2,189 $ 969
Purchases from Stelco......................................... 59,019 72,642 31,017
Accounts payable to Stelco at December 31..................... 6,755 9,053 2,072
</TABLE>
14. COMMITMENTS AND CONTINGENCIES
Environmental
All material environmental remediation liabilities which are probable and
estimatable are recorded in the financial statements based on technologies and
environmental standards at the time of evaluation. 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.
The Company's Napa subsidiary has accrued $2.7 million at December 31, 1995
and $2.6 million at March 31, 1996 (unaudited) for environmental remediation
relating to the Napa, California pipe mill. The Company's estimate of this
environmental liability was based on several remedial investigations and
feasibility studies performed by an independent engineering consultant. The
accrual includes costs for remedial action which is scheduled to be completed in
1998 with sampling, monitoring and maintenance costs continuing through 2024.
In connection with the 1993 acquisition of CF&I, the Company accrued a
liability of $36.7 million for environmental remediation at CF&I's Pueblo,
Colorado steel mill. CF&I believed $36.7 million was the best estimate from a
range of $23.1 to $43.6 million. CF&I'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, CF&I 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 was $35.4
million, of which $34.2 million was classified as noncurrent in other deferred
liabilities in the consolidated balance sheet. At March 31, 1996, CF&I had a
reserve of $35.4 million (unaudited), of which $33.8 million is classified as
noncurrent in other deferred liabilities in the consolidated balance sheet.
F-20
<PAGE> 125
OREGON STEEL MILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Contracts With Key Employees
The Company has employment agreements with certain officers which provide
for severance compensation in the event their employment with the Company is
terminated subsequent to a change in control (as defined) of the Company.
Camrose Acquisition
Under the terms of the 1992 asset purchase agreement for the steel
pipemaking facility and related assets in Camrose, Alberta, Canada, the purchase
price of acquired Camrose assets may be increased or decreased based upon an
annual performance adjustment over a five-year period. The purchase price was
increased by $485,000 and $3.6 million, respectively, in 1993 and 1994.
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 the Company.
Commitments
During 1995 the Company continued construction of various capital
improvement projects at the Company's steel mills in Portland, Oregon and
Pueblo, Colorado. At March 31, 1996 and December 31, 1995, the Company had
commitments for expenditures of approximately $70.6 million (unaudited) and
$53.8 million, respectively, for completion of these projects.
15. CAPITAL STOCK
The Board of Directors has the authority to establish the terms and to
issue shares of preferred stock without any vote or action by the stockholders.
In connection with the March 1993 acquisition of certain assets of CF&I
Steel Corporation, the Company agreed to issue 598,400 shares of its common
stock in March 2003 to specified creditors of CF&I Steel Corporation. In
connection with the acquisition, the Company also agreed to issue five-year
warrants expiring March 3, 1998 to purchase 100,000 shares of the Company's
common stock at $35 per share to CF&I Steel Corporation. At the date of
acquisition, the stock was valued at $11.2 million and the warrants were valued
at $556,000 using the Black-Scholes method.
16. UNUSUAL AND NONRECURRING ITEMS
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
start-up delays of CF&I's rod/bar mill caused by an explosion that occurred
during the third quarter of 1994.
Property Tax Refund
During 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, Oregon and Pueblo, Colorado steel mills. The refunds reduced 1994
cost of sales by $3.5 million and increased interest income by $1.1 million.
F-21
<PAGE> 126
OREGON STEEL MILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Provision for Rolling Mill Closures
During the fourth quarter of 1994, the Company began construction on the
Combination Mill at its Portland, Oregon steel mill. When completed, this mill
will replace the Company's existing plate rolling mill at the Portland, Oregon
steel mill. Accordingly, 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 plant
and equipment and inventories located at the Portland steel mill which are
unlikely to be used following the completion of the Combination Mill.
The Company's Fontana, California plate mill ceased plate 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 charge in 1994 for the
disposal and exit costs of $13.2 million.
The Fontana plate mill is on leased property. The lease was terminated on
January 18, 1995. The agreement provided for, among other stipulations, the
termination of the lease and vacating the premises by March 31, 1995. The
Company agreed to specific actions to restore the premises to a condition
acceptable to the lessor by June 30, 1995, or within 60 days following receipt
of all requirements for closure of the premises from the local county
environmental authorities. The lessor agreed to indemnify the Company against
environmental claims upon written notification by the local authority that the
Company has satisfactorily performed all of the authority's requirements for
closure of the premises. The Company expects to remove the remaining equipment
at the Fontana plate mill by June 30, 1996 and close the premises shortly
thereafter.
F-22
<PAGE> 127
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 the three months ended
March 31, 1995 and 1996, New CF&I shipped 192,200 and 255,700 tons of steel
products, respectively, and generated revenues of $87.7 million and $112.6
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.
A-1
<PAGE> 128
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 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."
MANAGEMENT
CF&I has no independent executive officers, and its business is managed by
its sole general partner, New CF&I, whose executive officers are set forth in
the table below.
<TABLE>
<CAPTION>
Name Position
- ---- --------
<S> <C>
Thomas B. Boklund President and Chief Executive Officer
L. Ray Adams Vice President, Finance and Chief Financial Officer
Joe E. Corvin Senior Vice President, Manufacturing and
Chief Operating Officer
Edward J. Hepp, Jr. Senior Vice President, Commercial
Peter Hyde Vice President and General Manager of CF&I Steel Works
Jim Dionisio Vice President, Sales and Marketing
</TABLE>
Each of Messrs. Boklund, Adams, Corvin and Hepp is an officer of the Company.
Information with respect to the executive officers of the Company is
incorporated by reference into this Prospectus from the Annual Report of the
Company on Form 10-K for the year ended December 31, 1995.
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 and the three months ended
March 31, 1995 and 1996, sales of CF&I were 99.9 percent, 99.0 percent, 99.6
percent and 99.0 percent, respectively, of the consolidated sales of New CF&I.
For the years ended December 31, 1994 and 1995 and the three months ended March
31, 1995 and 1996, cost of sales of CF&I were 100.2 percent, 99.4 percent, 97.6
percent and 99.9 percent, respectively, of the consolidated cost of sales of New
CF&I.
A-2
<PAGE> 129
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>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ---------------------
1994 1995 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales......................................... 100.0% 100.0%(1) 100.0% 100.0%
Cost of sales................................. 92.8(2) 92.1 (1) 93.2 88.3
----- ----- ----- -----
Gross profit.................................. 7.2 7.9 6.8 11.7
Selling, general and administrative
expenses................................... 4.9 5.7 5.0 4.4
Profit participation expense.................. -- .1 -- .2
----- ----- ----- -----
Operating income........................... 2.3 2.1 1.8 7.1
Interest and dividend income.................. .1(2) -- -- --
Interest expense.............................. (1.1) (4.0) (2.0) (4.1)
Other income, net............................. .1 .1 -- --
Minority interests............................ -- .2 .1 (.1)
----- ----- ----- -----
Income (loss) before income taxes.......... 1.4 (1.6) (.1) 2.9
Income tax (expense) benefit.................. (.6) 1.7 -- (1.2)
----- ----- ----- -----
Net income................................. .8% .1% (.1)% 1.7%
===== ===== ===== =====
BALANCE SHEET DATA:
Current ratio(3).............................. 1.5:1 1.6:1 1.7:1 1.7:1
Long-term debt as a percentage of
capitalization(4)(7)....................... 85.8% 90.9% 80.0% 90.6%
</TABLE>
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>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
--------------------- ---------------------
1994 1995 1995 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
TONNAGE SOLD:
Rail.......................................... 250,500 240,700 78,600 95,100
Rod, bar and wire products.................... 379,300 271,300 84,700 112,800
Seamless pipe................................. 130,000 116,100 28,900 40,700
Semifinished.................................. 5,800 12,100 -- 7,100
-------- -------- -------- --------
Total................................. 765,600 640,200 192,200 255,700
======== ======== ======== ========
Sales (thousands)............................... $339,474 $303,003 $ 87,687 $112,643
Average price per ton sold...................... $ 443 $ 467(5) $ 456 $ 441
Operating income per ton sold................... $ 10 $ 10(5) $ 9 $ 31
Operating margin................................ 2.3% 2.1%(6) 1.8% 7.1%
</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.
A-3
<PAGE> 130
(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 First Quarter 1996 to First Quarter 1995
Sales. New CF&I's sales in the first quarter of 1996 of $112.6 million
increased 28.5 percent from sales of $87.7 million in the first quarter of 1995.
Shipments increased 33.0 percent to 255,700 tons in the first quarter of 1996
from 192,200 tons for the corresponding period in 1995. The increase in revenues
and shipments was primarily due to increased shipments of rail, OCTG and rod
products. Historically shipments of rail products have been highest in the first
quarter of the year. Selling prices in the first quarter of 1996 averaged $441
per ton versus $456 per ton for the corresponding period in 1995. The decrease
in average selling price was due in part to a higher proportion of sales
represented by lower priced rod and bar products and lower selling prices for
most of CF&I's products compared to the first quarter of 1996. Shipments of rod
and bar products increased 41 percent to 97,100 tons in the first quarter of
1996 compared to 68,800 tons in the comparable period of 1995. The $25.0 million
sales increase in the first quarter of 1996 was the result of a $28.9 million
volume increase offset in part by a $3.9 million decrease from lower average
selling prices.
Gross Profit. New CF&I's gross profit as a percentage of sales for the
first quarter of 1996 was 11.7 percent compared to 6.8 percent for the first
quarter of 1995. Gross profit margins were positively impacted by increased
shipment of rail, OCTG and rod products offset in part by a decline in average
selling prices. In addition, New CF&I estimates that expenses associated with
the CF&I capital improvement program were approximately $3 million in the first
quarter of 1995. These expenses related to the start-up of its new rod and bar
mill, the conversion from ingot to continuous casting for the rail mill and
improvements to the steelmaking process, including a new ladle refining furnace,
a vacuum degassing unit and caster modifications.
Selling, General and Administrative. New CF&I's selling, general and
administrative expenses for the first quarter of 1996 increased $550,000 or 12.6
percent compared to the first quarter of 1995, and decreased as a percentage of
sales from 5.0 percent in the first quarter of 1995 to 4.4 percent in the first
quarter of 1996. The dollar increase was primarily due to increased shipping
expense as a result of increased tons shipped in the first quarter of 1996
compared to the corresponding 1995 period.
Profit Participation. New CF&I's profit participation plan expense was
$275,000 for the first quarter of 1996 compared to no expense for the
corresponding period in 1995 due to increased profitability in 1996.
Interest Expense. New CF&I's total interest costs for the first quarter of
1996 were $5.2 million, an increase of $1.2 million compared to 1995. This
increase was primarily related to interest on debt incurred to fund the capital
improvement program. Of the $5.2 million of interest costs in the first quarter
of 1996, $600,000 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 42.3 percent for the first quarter of 1996 compared to 15.6
percent for the first quarter of 1995. The effective tax rate
A-4
<PAGE> 131
for the first quarter of 1995 varied from the combined state and federal
statutory rates due to differences in the deductibility of certain miscellaneous
business expenses.
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
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 1994. 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.
A-5
<PAGE> 132
CAPITAL RESOURCES
Since its acquisition by the Company in March 1993, CF&I has required
substantial amounts of cash to fund its operations and capital expenditures.
Borrowing requirements for capital expenditures and other cash needs, both
short-term and long-term, are provided through loans from the Company to CF&I.
As of March 31, 1996, $193.9 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, it is unlikely 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. Failure to
obtain alternative financing would have a material adverse effect on New CF&I
and CF&I. If CF&I were able to obtain the necessary financing, 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.
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 March 31, 1996, the
outstanding balance on the debt was $54.0 million, of which $47.8 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-6
<PAGE> 133
INDEX TO FINANCIAL STATEMENTS OF CERTAIN SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NEW CF&I, INC.
Report of Independent Accountants..................................................... B-2
Consolidated Balance Sheets at December 31, 1993, 1994 and 1995 and March 31, 1996
(unaudited)......................................................................... B-3
Consolidated Statements of Income for the years ended December 31, 1993, 1994 and 1995
and the three months ended March 31, 1995 and 1996 (unaudited)...................... B-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1993, 1994 and 1995 and the three months ended March 31, 1996
(unaudited)......................................................................... B-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and the three months ended March 31, 1995 and 1996 (unaudited)................. B-6
Notes to Consolidated Financial Statements............................................ B-7
CF&I STEEL, L.P.
Report of Independent Accountants..................................................... B-18
Balance Sheets at December 31, 1993, 1994 and 1995 and March 31, 1996 (unaudited)..... B-19
Statements of Operations for the period March 3, 1993 (date of inception) through
December 31, 1993 and for the years ended December 31, 1994 and 1995 and the three
months ended March 31, 1995 and 1996 (unaudited).................................... B-20
Statements of Changes in Partners' Equity for the period March 3, 1993 (date of
inception) through December 31, 1993 and the years ended December 31, 1994 and 1995
and the three months ended March 31, 1996 (unaudited)............................... B-21
Statements of Cash Flows for the period March 3, 1993 (date of inception) through
December 31, 1993 and the years ended December 31, 1994 and 1995 and the three
months ended March 31, 1995 and 1996 (unaudited).................................... B-22
Notes to Financial Statements......................................................... B-23
</TABLE>
B-1
<PAGE> 134
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, 1993, 1994 and 1995, 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, 1993, 1994 and 1995, 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
B-2
<PAGE> 135
NEW CF&I, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
(RESTATED
NOTE 3) MARCH 31,
1993 1994 1995 1996
-------- --------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 5,107 $ 481 $ -- $ 3
Trade accounts receivable, less allowance for
doubtful accounts of $673, $592, $518 and
$504......................................... 43,780 44,195 45,904 62,501
Inventories..................................... 47,160 63,617 70,249 57,468
Deferred tax asset.............................. 1,813 3,019 5,007 5,007
Other........................................... 262 840 1,056 1,250
-------- -------- -------- ----------
Total current assets.................... 98,122 112,152 122,216 126,229
-------- -------- -------- ----------
Property, plant and equipment:
Land and improvements........................... 174 3,558 3,530 3,530
Buildings....................................... 4,981 5,872 5,867 5,867
Machinery and equipment......................... 25,408 42,952 188,726 197,154
Construction in progress........................ 16,548 117,998 31,586 32,464
-------- -------- -------- ----------
47,111 170,380 229,709 239,015
Accumulated depreciation........................ (1,658) (4,047) (11,124) (14,020)
-------- -------- -------- ----------
45,453 166,333 218,585 224,995
-------- -------- -------- ----------
Costs in excess of net assets acquired, net....... 39,630 39,002 37,983 37,727
Other assets...................................... 11,496 11,838 13,484 13,216
-------- -------- -------- ----------
$194,701 $ 329,325 $392,268 $ 402,167
======== ======== ======== ==========
LIABILITIES
Current liabilities:
Current portion of long-term debt............... $ 4,680 $ 5,302 $ 4,576 $ 6,201
Accounts payable................................ 45,574 56,563 53,867 50,639
Accrued expenses................................ 9,208 13,960 16,269 16,594
Short-term debt................................. 10,000 -- -- --
-------- -------- -------- ----------
Total current liabilities............... 69,462 75,825 74,712 73,434
Long-term debt.................................... 59,787 54,771 50,666 47,760
Long-term debt -- Oregon Steel Mills, Inc. ....... -- 112,700 181,750 193,900
Other deferred liabilities........................ 34,843 34,225 34,157 33,825
Deferred employee benefits........................ 4,075 4,689 5,388 5,608
Deferred income taxes............................. 12 1,446 -- 29
-------- -------- -------- ----------
168,179 283,656 346,673 354,556
-------- -------- -------- ----------
Minority interest................................. 1,149 1,084 587 703
-------- -------- -------- ----------
Redeemable common stock, 20, 26 and 26 shares
issued and outstanding.......................... -- 16,800 21,840 21,840
-------- -------- -------- ----------
Commitments and contingencies (Note 13)
STOCKHOLDERS' EQUITY
Capital stock:
Common stock, par value $1 per share, 1,000
shares authorized; 100, 180, 174 and 174
shares issued and outstanding................ 1 1 1 1
Additional paid-in capital........................ 22,241 21,643 16,603 16,603
Retained earnings................................. 3,428 6,141 6,564 8,464
Minimum pension liability adjustment.............. (297) -- -- --
-------- -------- -------- ----------
25,373 27,785 23,168 25,068
-------- -------- -------- ----------
$194,701 $ 329,325 $392,268 $ 402,167
======== ======== ======== ==========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
B-3
<PAGE> 136
NEW CF&I, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS
DECEMBER 31, ENDED MARCH 31,
-------------------------------- -------------------
1993 1994 1995 1995 1996
-------- -------- -------- ------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales..................................... $264,658 $339,474 $303,003 $87,687 $112,643
-------- -------- -------- ------- --------
Costs and expenses:
Cost of sales........................... 241,381 314,966 279,099 81,682 99,478
Selling, general and administrative..... 12,515 16,625 17,159 4,358 4,908
Profit participation.................... 477 -- 449 -- 275
-------- -------- -------- ------- --------
254,373 331,591 296,707 86,040 104,661
-------- -------- -------- ------- --------
Operating income..................... 10,285 7,883 6,296 1,647 7,982
Other income (expense):
Interest and dividend income............ 410 346 48 21 10
Interest expense........................ (5,003) (3,586) (11,923) (1,758) (4,581)
Minority interest....................... (139) 6 497 69 (117)
Other, net.............................. (2) 189 439 (11) --
-------- -------- -------- ------- --------
Income (loss) before income taxes.... 5,551 4,838 (4,643) (32) 3,294
Income tax benefit (expense).............. (2,123) (2,125) 5,066 5 (1,394)
-------- -------- -------- ------- --------
Net income (loss).................... $ 3,428 $ 2,713 $ 423 $ (27) $ 1,900
======== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
B-4
<PAGE> 137
NEW CF&I, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
(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
Net income................................ 1,900 1,900
--- -- -------- ------ ------ -------
Balances, March 31, 1996.................. 174 $1 $ 16,603 $8,464 $ -- $25,068
=== == ======== ====== ====== =======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
B-5
<PAGE> 138
NEW CF&I, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------------- -------------------
1993 1994 1995 1995 1996
-------- --------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................... $ 3,428 $ 2,713 $ 423 $ (27) $ 1,900
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation.......................... 1,679 2,401 7,283 891 2,896
Amortization.......................... 1,010 1,322 1,019 328 255
Deferred income taxes................. (1,801) 228 (4,601) 1,005 1,196
(Gain) loss on disposal of property
plant and equipment................ 2 (189) (438) 11 --
Minority interest..................... (51) (65) (497) (69) 117
Changes in current assets and
liabilities net of effect of
acquisitions:
Trade accounts receivable.......... (3,613) (415) (1,709) 3,002 (16,597)
Inventories........................ (18,633) (16,458) (6,632) 9,493 12,781
Accounts payable................... 21,869 (1,324) (1,194) (5,642) (759)
Accrued expenses................... 7,434 4,214 3,060 1,377 (137)
Other.............................. 228 (578) (215) (1,472) (194)
-------- --------- -------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES.............................. 11,552 (8,151) (3,501) 8,897 1,458
-------- --------- -------- -------- --------
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............................... (15,620) (111,634) (61,406) (18,357) (11,427)
Proceeds from disposal of property, plant
and equipment........................... 2,208 256 807 1 --
Other, net................................. -- (203) (600) (402) (897)
-------- --------- -------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES...... (23,184) (111,581) (61,199) (18,758) (12,324)
-------- --------- -------- -------- --------
Cash flows from financing activities:
Borrowings under revolving loan
agreement............................... 10,000 25,000 -- -- --
Payments under revolving loan agreement.... -- (35,000) -- -- --
Borrowings from Oregon Steel Mills, Inc.... 2,459 142,000 171,050 39,100 50,650
Payments to Oregon Steel Mills, Inc........ -- (29,300) (102,000) (28,500) (38,500)
Payment of long-term debt.................. (3,033) (4,394) (4,831) (1,195) (1,281)
Proceeds from issuance of common stock..... 7,313 16,800 -- -- --
-------- --------- -------- -------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES.............................. 16,739 115,106 64,219 9,405 10,869
-------- --------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents................................ 5,107 (4,626) (481) (456) 3
Cash and cash equivalents at beginning of
period..................................... -- 5,107 481 481 --
-------- --------- -------- -------- --------
Cash and cash equivalents at end of period... $ 5,107 $ 481 $ -- $ 25 $ 3
======== ========= ======== ======== ========
Supplemental disclosures of cash flow
information:
Interest paid.............................. $ 4,997 $ 9,336 $ 16,561 $ 1,358 $ 1,243
======== ========= ======== ======== ========
Income taxes paid to parent company........ $ -- $ 5,193 $ -- $ 10 --
======== ========= ======== ======== ========
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.
B-6
<PAGE> 139
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.
B-7
<PAGE> 140
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 $206,000, $6.6 million and $5.5 million in 1993, 1994 and 1995,
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 $765,000, $1.8 million and
$2.8 million in 1993, 1994 and 1995, 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.
B-8
<PAGE> 141
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.
Interim Information
The financial statements for the three months ended March 31, 1995 and 1996
are unaudited but, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, considered necessary for fair
presentation of the Company's operating results and cash flows for this period.
Results of interim periods are not necessarily indicative of results of the
entire year.
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
B-9
<PAGE> 142
NEW CF&I, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------- MARCH 31,
1993 1994 1995 1996
-------- -------- -------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Raw materials............................ $ 13,140 $ 20,593 $ 16,480 $11,026
Semifinished product..................... 9,245 11,659 25,816 12,522
Finished product......................... 21,345 22,148 20,012 23,404
Stores and operating supplies............ 3,430 9,217 7,941 10,516
-------- -------- -------- -------
Total inventory................ $ 47,160 $ 63,617 $ 70,249 $57,468
======== ======== ======== =======
</TABLE>
6. SUPPLEMENTAL CASH FLOW INFORMATION
During the first three months of 1995 and 1996, the Company acquired
property, plant and equipment for $9.8 million and $13.7 million (unaudited),
respectively, which were included in accounts payable at March 31, 1995 and
1996, respectively. During 1993, 1994 and 1995, the Company acquired property,
plant and equipment for $5.2 million, $17.3 million and $15.8 million,
respectively, which were included in accounts payable at December 31, 1993, 1994
and 1995, 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 $1.3 million, $9.1 million,
and $6.6 million at December 31, 1993, 1994 and 1995, respectively. Accounts
payable also includes amounts owed to OSM at December 31, 1993, 1994 and 1995 of
$7.6 million, $4.1 million and $4.5 million, respectively.
Accrued expenses include accrued vacation of $2.8 million, $3.5 million and
$3.6 million at December 31, 1993, 1994 and 1995, 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.
B-10
<PAGE> 143
NEW CF&I, INC.
NOTES TO CONSOLIDATED 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 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, 1993, 1994 and 1995 approximate fair value since these
agreements carry variable interest rates.
B-11
<PAGE> 144
NEW CF&I, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES
The income tax benefit (expense) consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................. $(3,532) $(1,710) $ 524
State............................................... (392) (187) (59)
------ ------- -------
(3,924) (1,897) 465
------ ------- -------
Deferred:
Federal............................................. 1,580 (798) 1,508
State............................................... 221 570 3,093
------ ------- -------
1,801 (228) 4,601
------ ------- -------
Income tax benefit (expense).......................... $(2,123) $(2,125) $ 5,066
====== ======= =======
</TABLE>
A reconciliation of the statutory tax rate to the effective tax rate on
income before income taxes is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Federal............................................ 35.0% 35.0% (35.0)%
States, net........................................ 5.1 4.6 (68.6)
Other.............................................. (1.8) 4.3 (5.5)
------ ---- ----
38.3% 43.9% (109.1)%
====== ==== ====
</TABLE>
B-12
<PAGE> 145
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>
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current deferred tax asset:
Assets:
Inventories.......................................... $ 519 $ 822 $ 2,473
Accrued expenses..................................... 1,214 2,089 2,449
Accounts receivable.................................. 80 108 85
------- ------- -------
Current deferred tax asset........................... $ 1,813 $ 3,019 $ 5,007
======= ======= =======
Noncurrent deferred tax asset and liability:
Assets:
Costs in excess of net assets acquired............... $13,282 $12,673 $12,341
Water rights......................................... 4,247 4,052 4,052
Net operating loss carryforward...................... -- -- 12,147
State tax credits.................................... -- -- 4,780
Alternative minimum tax.............................. -- 506 991
Other................................................ 452 1,767 3,020
------- ------- -------
17,981 18,998 37,331
------- ------- -------
Liabilities:
Property, plant and equipment........................ 386 2,975 17,566
Environmental liability.............................. 13,282 13,070 13,015
Water rights......................................... 4,247 4,247 4,247
Other................................................ 78 152 1,336
------- ------- -------
17,993 20,444 36,164
------- ------- -------
Net noncurrent deferred tax asset (liability)... $ (12) $(1,446) $ 1,167
======= ======= =======
</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, 1993, 1994 and 1995 the Company included in accounts
payable amounts due to OSM of $3.9 million, $599,000 and $152,000, 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
B-13
<PAGE> 146
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>
1993 1994 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year.......... $2,060 $3,262 $2,754
Interest cost on projected benefit obligations........... -- 201 438
Actual (return) loss on plan assets...................... (63) 70 (955)
Net amortization and deferral............................ 63 (300) 577
------ ------ ------
$2,060 $3,233 $2,814
====== ====== ======
</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>
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Accumulated benefit obligations, including vested
benefits of $2,237, $4,280 and $7,834............... $ 2,420 $ 4,573 $ 8,239
======= ======= =======
Projected benefit obligation........................ $ 2,789 $ 5,192 $ 9,336
Plan assets at fair value........................... 2,123 3,110 6,729
------- ------- -------
Projected benefit obligation in excess of plan
assets........................................... (666) (2,082) (2,607)
Unrecognized net loss............................... 666 59 822
Adjustment required to recognize minimum
liability........................................ (297) -- --
------- ------- -------
Pension liability recognized in consolidated balance
sheet............................................ $ (297) $(2,023) $(1,785)
======= ======= =======
</TABLE>
The following table sets forth the significant actuarial assumptions for
the Company's pension plans:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................. 7.3% 8.5% 7.5%
Rate of increase in future compensation levels............ 4.5% 4.5% 4.0%
Expected long-term rate of return on plan assets.......... 8.0% 8.8% 8.8%
</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.
B-14
<PAGE> 147
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>
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................ $ -- $ 146 $ 1,014
Fully eligible plan participants.................... 595 1,387 3,869
Other active plan participants...................... 4,032 5,080 3,008
------- ------- -------
$ 4,627 $ 6,613 $ 7,891
======= ======= =======
Accumulated postretirement benefit obligation in
excess of plan assets............................... $(4,627) $(6,613) $(7,891)
Unrecognized net loss................................. 557 2,002 2,422
------- ------- -------
Postretirement liability recognized in the
consolidated
balance sheets...................................... $(4,070) $(4,611) $(5,469)
======= ======= =======
Net periodic postretirement benefit costs include:
Service cost........................................ $ 145 $ 197 $ 215
Interest cost....................................... 245 335 561
Amortization of unrecognized net losses............. -- 9 142
------- ------- -------
Net periodic postretirement benefit cost.............. $ 390 $ 541 $ 918
======= ======= =======
</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 7.3 percent, 8.5 percent and 7.5 percent
in 1993, 1994 and 1995, 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 $478,000 in 1993 and $449,000 in 1995.
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 1993, 1994 and 1995 was $148,000, $82,000 and $120,000, 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 1993, 1994 and 1995 was
$280,000, $389,000 and $387,000, 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 1993, 1994 and 1995 were $2.6 million, $3.5 million and $3.6 million,
respectively.
Borrowing requirements for capital expenditures and working capital are
provided through loans from OSM. At December 31, 1994 and 1995, the Company had
notes payable to OSM of $112.7 million and $181.8 million, respectively.
Interest expense for the years ended December 31, 1994 and 1995 was
B-15
<PAGE> 148
NEW CF&I, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$3.1 million and $11.9 million, respectively. Interest payable on the notes as
of December 31, 1994 and 1995 was $682,000 and $1.3 million, 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>
1994 1995
------ -------
(IN THOUSANDS)
<S> <C> <C>
Purchases from Nippon..................................... $2,046 $15,394
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 was $35.4 million, of which $34.2 million was classified as
non-current in other deferred liabilities in the consolidated balance sheet. At
March 31, 1996, the accrued liability is $35.4 million (unaudited), of which
$33.8 million is classified as noncurrent in other deferred liabilities in the
consolidated balance sheet.
Capital Expenditures
During 1996, the Company continued construction of various capital
improvement projects at the Company's steel mill in Pueblo, Colorado. At March
31, 1996 and December 31, 1995, the Company had commitments for expenditures of
approximately $22.0 million (unaudited) and $27.8 million, respectively, 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 the Company.
B-16
<PAGE> 149
NEW CF&I, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
B-17
<PAGE> 150
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, 1993, 1994 and 1995, and the related statements
of operations, changes in partners' equity and cash flows for the period March
3, 1993 (date of inception) through December 31, 1993 and for each of the two
years in the period ended December 31, 1995. 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, 1993, 1994 and 1995, and its results of operations and its cash flows for
the period March 3, 1993 (date of inception) through December 31, 1993 and for
each of the two years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Portland, Oregon
January 19, 1996
B-18
<PAGE> 151
CF&I STEEL, L.P.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------- MARCH 31,
1993 1994 1995 1996
-------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 5,107 $ 481 $ -- $ --
Trade accounts receivable, less allowance
for doubtful accounts of $673, $592, $518
and $504................................. 43,351 43,863 45,533 62,021
Inventories................................. 46,970 63,440 70,087 57,296
Other....................................... 202 793 971 1,052
-------- -------- -------- ---------
Total current assets................ 95,630 108,577 116,591 120,369
-------- -------- -------- ---------
Property, plant and equipment:
Land and improvements....................... 169 3,553 3,525 3,525
Buildings................................... 4,869 5,760 5,760 5,760
Machinery and equipment..................... 22,989 40,297 186,626 195,054
Construction in progress.................... 16,494 117,998 31,586 32,451
-------- -------- -------- ---------
44,521 167,608 227,497 236,790
Accumulated depreciation.................... (1,469) (3,581) (10,569) (13,411)
-------- -------- -------- ---------
43,052 164,027 216,928 223,379
-------- -------- -------- ---------
Costs in excess of net assets acquired, net... 39,630 39,002 37,983 37,727
Other assets.................................. 11,496 11,838 12,317 13,215
-------- -------- -------- ---------
$189,808 $323,444 $383,819 $ 394,690
======== ======== ======== =========
LIABILITIES
Current liabilities:
Current portion of long-term debt........... $ 4,680 $ 5,302 $ 4,576 $ 6,201
Accounts payable............................ 39,424 54,842 55,601 52,917
Accrued expenses............................ 8,467 13,322 15,652 15,624
Short-term debt............................. 10,000 -- -- --
Partner distributions payable............... 3,965 -- -- --
-------- -------- -------- ---------
Total current liabilities........... 66,536 73,466 75,829 72,742
Long-term debt................................ 59,787 54,771 50,666 47,760
Long-term debt -- Oregon Steel Mills, Inc. ... -- 112,700 181,750 193,900
Long-term debt -- New CF&I, Inc. ............. -- 16,800 16,800 16,800
Other deferred liabilities.................... 34,843 34,225 34,157 33,825
Deferred employee benefits.................... 4,076 4,689 5,388 5,608
-------- -------- -------- ---------
165,242 296,651 364,590 372,635
-------- -------- -------- ---------
Commitments and contingencies (Note 11)
PARTNERS' EQUITY
Limited partner............................... 1,135 1,084 587 704
General partner............................... 23,431 25,709 18,642 21,351
-------- -------- -------- ---------
Total partners' equity.............. 24,566 26,793 19,229 22,055
-------- -------- -------- ---------
$189,808 $323,444 $383,819 $ 394,690
======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
B-19
<PAGE> 152
CF&I STEEL, L.P.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD FOR THE THREE
MARCH 3, 1993 FOR THE YEARS MONTHS ENDED
(DATE OF INCEPTION) ENDED DECEMBER 31, MARCH 31,
THROUGH --------------------- --------------------
DECEMBER 31, 1993 1994 1995 1995 1996
------------------- -------- -------- ------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales.......................... $ 264,335 $338,970 $300,060 $87,301 $111,479
-------- -------- -------- ------- --------
Costs and expenses:
Cost of sales................ 241,787 315,518 277,452 79,707 99,388
Selling, general and
administrative............ 12,074 16,108 16,681 6,063 4,038
Profit participation......... 478 -- 449 -- 275
-------- -------- -------- ------- --------
254,339 331,626 294,582 85,770 103,701
-------- -------- -------- ------- --------
Operating income.......... 9,996 7,344 5,478 1,531 7,778
Interest and dividend income... 393 304 35 9 9
Interest expense............... (5,003) (4,076) (13,518) (2,148) (4,961)
Other, net..................... -- 193 441 (11) --
-------- -------- -------- ------- --------
Net income (loss)......... $ 5,386 $ 3,765 $ (7,564) $ (619) $ 2,826
======== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part
of the financial statements.
B-20
<PAGE> 153
CF&I STEEL, L.P.
STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE PERIOD MARCH 3, 1993 (DATE OF INCEPTION) THROUGH
DECEMBER 31, 1993 AND FOR THE YEARS ENDED DECEMBER 31, 1994
AND 1995 AND THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
(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
Net income..................................................... 2,709 117 2,826
------- ------ -------
Balances, March 31, 1996....................................... $21,351 $ 704 $22,055
======= ====== =======
</TABLE>
The accompanying notes are an integral part
of the financial statements.
B-21
<PAGE> 154
CF&I STEEL, L.P.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE PERIOD FOR THE YEARS MONTHS
MARCH 3, 1993 (DATE OF ENDED DECEMBER 31, ENDED MARCH 31,
INCEPTION) THROUGH --------------------- -------------------
DECEMBER 31, 1993 1994 1995 1995 1996
---------------------- --------- --------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................... $ 5,386 $ 3,765 $ (7,564) $ (619) $ 2,826
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation......................... 1,486 2,117 6,999 819 2,842
Amortization......................... 1,010 1,322 1,019 328 255
Gain on disposal of property plant
and equipment..................... -- (193) (440) 11 --
Changes in current assets and
liabilities net of effect of
acquisitions:
Trade accounts receivable......... (3,396) (512) (1,670) 2,967 (16,488)
Inventories....................... (18,634) (16,470) (6,647) 9,487 12,790
Accounts payable.................. 15,964 3,304 2,261 (3,979) (564)
Accrued expenses.................. 6,694 4,117 2,961 1,399 (139)
Other............................. 288 (591) (178) (1,516) (81)
-------- --------- -------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES............................. 8,798 (3,141) (3,259) 8,897 1,441
-------- --------- -------- -------- --------
Cash flows from investing activities:
Additions to property, plant and
equipment.............................. (15,261) (111,442) (61,472) (18,357) (11,412)
Proceeds from disposal of property, plant
and equipment.......................... 4,603 256 510 1 --
Other, net................................ -- (203) (479) (432) (898)
-------- --------- -------- -------- --------
NET CASH USED IN
INVESTING ACTIVITIES................... (10,658) (111,389) (61,441) (18,788) (12,310)
-------- --------- -------- -------- --------
Cash flows from financing activities:
Borrowings under revolving loan
agreement.............................. 10,000 25,000 -- -- --
Payments under revolving loan agreement... -- (35,000) -- -- --
Borrowings from related parties........... -- 158,800 171,050 39,100 50,650
Payments to related parties............... -- (29,300) (102,000) (28,500) (38,500)
Payment of long-term debt................. (3,033) (4,394) (4,831) (1,165) (1,281)
Partner distributions..................... -- (5,202) -- -- --
-------- --------- -------- -------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES............................. 6,967 109,904 64,219 9,435 10,869
-------- --------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents............................... 5,107 (4,626) (481) (456) --
Cash and cash equivalents at beginning of
period.................................... -- 5,107 481 481 --
-------- --------- -------- -------- --------
Cash and cash equivalents at end of
period.................................... $ 5,107 $ 481 $ -- $ 25 $ --
======== ========= ======== ======== ========
Supplemental disclosures of cash flow
information:
Interest paid............................. $ 4,997 $ 9,336 $ 16,561 $ 3,679 $ 5,101
======== ========= ======== ======== ========
</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.
B-22
<PAGE> 155
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
B-23
<PAGE> 156
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 $206,000, $6.6 million and $5.5 million in 1993, 1994 and 1995,
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 $765,000, $1.8 million and
$2.8 million in 1993, 1994 and 1995, 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, 1993, 1994 and 1995 the financial reporting basis of the
Partnership's assets and liabilities exceeded the tax basis by $36.3 million,
$38.9 million and $70.9 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.
Interim Information
The financial statements for the three months ended March 31, 1995 and 1996
are unaudited but, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, considered
B-24
<PAGE> 157
CF&I STEEL, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
necessary for fair presentation of the Partnership's operating results and cash
flows for this period. Results of interim periods are not necessarily indicative
of results of the entire year.
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 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:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------- MARCH 31,
1993 1994 1995 1996
------- ------- ------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Raw materials.............................. $13,140 $20,593 $16,480 $11,026
Semifinished product....................... 9,245 11,659 25,816 12,522
Finished product........................... 21,345 22,148 20,012 23,404
Stores and operating supplies.............. 3,240 9,040 7,779 10,344
------- ------- ------- -------
Total inventory.......................... $46,970 $63,440 $70,087 $57,296
======= ======= ======= =======
</TABLE>
5. SUPPLEMENTAL CASH FLOW INFORMATION
During the three months ended March 31, 1995 and 1996, the Partnership
acquired property, plant and equipment for $9.8 million and $13.7 million
(unaudited), respectively, which were included in accounts payable at March 31,
1995 and 1996, respectively. During 1993, 1994 and 1995, the Partnership
acquired property, plant and equipment for $5.2 million, $17.3 million and $15.8
million, respectively, which were included in accounts payable at December 31,
1993, 1994 and 1995, 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 $1.3 million, $9.1 million and
$6.6 million at December 31, 1993, 1994 and 1995, respectively. Accounts payable
also includes amounts owed to OSM at December 31, 1993, 1994 and 1995 of $7.6
million, $4.1 million and $4.5 million, respectively.
B-25
<PAGE> 158
CF&I STEEL, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Accrued expenses include accrued vacation of $2.5 million, $3.2 million and
$3.3 million at December 31, 1993, 1994 and 1995, 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.
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
B-26
<PAGE> 159
CF&I STEEL, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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, 1993, 1994 and 1995 approximate fair value since these agreements carry
variable interest rates.
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>
1993 1994 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost -- benefits earned during the year.......... $2,060 $3,262 $2,754
Interest cost on projected benefit obligations........... -- 201 438
Actual (return) loss on plan assets...................... (63) 70 (955)
Net amortization and deferral............................ 63 (300) 577
------ ------ ------
$2,060 $3,233 $2,814
====== ====== ======
</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>
1993 1994 1995
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Accumulated benefit obligations, including vested
benefits of $2,237, $4,280 and $7,834................ $ 2,420 $ 4,573 $8,239
======= ======= ======
Projected benefit obligation......................... $ 2,789 $ 5,192 $9,336
Plan assets at fair value............................ 2,123 3,110 6,729
------- ------- ------
Projected benefit obligation in excess of plan
assets............................................ (666) (2,082) (2,607)
Unrecognized net loss................................ 666 59 822
Adjustment required to recognize minimum liability... (297) -- --
------- ------- ------
Pension liability recognized in balance sheet........ $ (297) $(2,023) $(1,785)
======= ======= ======
</TABLE>
The following table sets forth the significant actuarial assumptions for
the Partnership's pension plans:
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- ------
<S> <C> <C> <C>
Discount rate.......................................... 7.3% 8.5% 7.5%
Rate of increase in future compensation levels......... 4.5% 4.5% 4.0%
Expected long-term rate of return on plan assets....... 8.0% 8.8% 8.8%
</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.
B-27
<PAGE> 160
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>
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................................ $ -- $ 146 $ 1,014
Fully eligible plan participants........................ 595 1,387 3,869
Other active plan participants.......................... 4,032 5,080 3,008
------- ------- -------
$ 4,627 $ 6,613 $ 7,891
======= ======= =======
Accumulated postretirement benefit obligation in excess
of plan assets.......................................... $(4,627) $(6,613) $(7,891)
Unrecognized net loss..................................... 557 2,002 2,422
------- ------- -------
Postretirement liability recognized in the balance
sheets.................................................. $(4,070) $(4,611) $(5,469)
======= ======= =======
Net periodic postretirement benefit costs include:
Service cost............................................ $ 145 $ 197 $ 215
Interest cost........................................... 245 335 561
Amortization of unrecognized net losses................. -- 9 142
------- ------- -------
Net periodic postretirement benefit cost.................. $ 390 $ 541 $ 918
======= ======= =======
</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 7.3 percent, 8.5 percent and 7.5 percent
in 1993, 1994 and 1995, 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 $478,000 in 1993 and $449,000 in 1995.
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 1993, 1994 and 1995 was $148,000, $82,000 and $120,000, 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 1993,
1994 and 1995 was $280,000, $389,000 and $387,000, 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 1993, 1994 and 1995 were $2.5 million, $3.4 million and
$3.5 million, respectively.
B-28
<PAGE> 161
CF&I STEEL, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1994 and 1995, the Partnership had notes payable to OSM of
$112.7 million and $181.8 million, respectively. Interest expense on the notes
payable to OSM for the years ended December 31, 1994 and 1995 was $3.1 million
and $11.9 million, respectively. Interest payable on the notes as of December
31, 1994 and 1995 was $682,000 and $1.3 million, respectively.
New CF&I, Inc.
The long-term note payable outstanding to the General Partner was $16.8
million as of December 31, 1994 and 1995. Interest payable on the notes was
$490,000 at December 31, 1994 and $2.0 million at December 31, 1995. Interest
expense on the notes payable to the General Partner for the years ended December
31, 1994 and 1995 was $490,000 and $1.5 million, respectively. In addition, the
Partnership had accounts payable to the General Partner of $496,000, $287,000
and $617,000 as of December 31, 1993, 1994 and 1995.
Cost of sales includes $4 million, $7.2 million and $5 million in 1993,
1994 and 1995, 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>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Purchases from Nippon Steel............................ $ 2,046 $15,394
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
was $35.4 million, of which $34.2 million was classified as non-current in other
deferred liabilities in the consolidated balance sheet. At March 31, 1996, the
accrued
B-29
<PAGE> 162
CF&I STEEL, L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
liability is $35.4 million (unaudited), of which $33.8 million is classified as
noncurrent in other deferred liabilities in the balance sheet.
Capital Expenditures
During 1996, the Partnership continued construction of various capital
improvement projects at the Partnership's steel mill in Pueblo, Colorado. At
March 31, 1996 and December 31, 1995, the Partnership had commitments for
expenditures of approximately $22.0 million (unaudited) and $27.8 million,
respectively, 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 the Partnership.
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.
B-30
<PAGE> 163
Heat Treat Facility (left) -- Oregon Steel Division
Oregon Steel operates the only plate heat treating
line in the western United States.
[Photograph of the Oregon Steel Division's
steel plate heat treating facility at the
Portland Mill]
[Photograph of steel rail produced at the CF&I
Steel Division's Pueblo Mill]
Rail Mill (right) -- CF&I Steel Division
Oregon Steel is the only rail manufacturer
west of the Mississippi River.
[Photograph of seamless steel pipe being
produced at the CF&I Steel Division's
Pueblo Mill]
Seamless Pipe Mill (left) -- CF&I Steel Division
Oregon Steel operates the only seamless pipe
mill west of the Mississippi River.
[Photograph of the interior of the Oregon
Steel Division's Portland Mill]
Plate Mill (right) -- Oregon Steel Division
Oregon Steel operates the only steel plate
minimill in the western United States.
<PAGE> 164
================================================================================
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, ANY GUARANTOR 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 OR ANY GUARANTOR 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....................... 25
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.............................. 42
Description of the Notes.............. 55
Description of Certain Indebtedness... 98
Description of Capital Stock.......... 100
Underwriting.......................... 101
Legal Matters......................... 102
Experts............................... 102
Index to Consolidated Financial
Statements.......................... F-1
Appendix.............................. A-1
Index to Financial Statements of
Certain Subsidiaries................ B-1
</TABLE>
================================================================================
================================================================================
$235,000,000
[OREGON STEEL 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> 165
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................................................... 155,000
Transfer agent and registrar fees......................................... 5,000
Printing and engraving.................................................... 100,000
Miscellaneous............................................................. 44,965
--------
Total........................................................... $450,000
========
</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's Certificate of Incorporation (the
"Certificate") and Bylaws provide for the indemnification by Oregon Steel and
New CF&I 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> 166
Restated Certificate of Oregon Steel and the Certificate of New CF&I 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.
Section 8.7 of the Amended and Restated Agreement of Limited Partnership of
CF&I (the "Partnership Agreement") provides that the general partner of CF&I,
New CF&I, shall be indemnified and held harmless by the partnership from and
against any and all claims, demands, liabilities, costs, damages, expenses and
causes of action of any nature whatsoever (including, without limitation, the
cost of investigating, defending and settling any claims and lawsuits, including
accounting and attorney fees and expenses, at trial and on appeal) arising out
of or incidental to the general partner's management of partnership affairs;
provided, however, that the general partner shall not be entitled to
indemnification if the act or omission of the general partner is found by a
court or arbitrator to have been taken not in good faith or to have constituted
intentional misconduct or knowing violation of law. The indemnification rights
contained in the Partnership Agreement are cumulative of, and in addition to,
any and all other rights, remedies and means of recourse to which the general
partner is entitled, whether pursuant to the Partnership Agreement, at law or in
equity.
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 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 and form of note
evidencing 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)
</TABLE>
II-2
<PAGE> 167
<TABLE>
<S> <C>
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.*
24.2 Power of Attorney of the directors and certain officers of the general
partner of CF&I Steel, L.P.*
24.3 Power of Attorney of the directors and certain officers of Oregon Steel
Mills, Inc.*
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>
- ---------------
* Filed April 8, 1996.
** 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.
II-3
<PAGE> 168
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 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> 169
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Portland,
State of Oregon, on May 22, 1996.
NEW CF&I, INC.
By: THOMAS B. BOKLUND
------------------------------------
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
following capacities effective on May 22, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<S> <C>
THOMAS B. BOKLUND President and Chief Executive Officer
- --------------------------------------------- (Principal Executive Officer)
(Thomas B. Boklund)
L. RAY ADAMS Chief Financial Officer, Vice President of
- --------------------------------------------- Finance and Director (Principal Financial and
(L. Ray Adams) Accounting Officer)
JOE E. CORVIN* Director
- ---------------------------------------------
(Joe E. Corvin)
EDWARD J. HEPP, JR.* Director
- ---------------------------------------------
(Edward J. Hepp, Jr.)
YUTAKA HOKURA* Director
- ---------------------------------------------
(Yutaka Hokura)
*By: L. RAY ADAMS
----------------------------------------
L. Ray Adams
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 170
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Portland,
State of Oregon, on May 22, 1996.
CF&I STEEL, L.P.
By: New CF&I, Inc.
General Partner
By: THOMAS B. BOKLUND
------------------------------------
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
following capacities effective on May 22, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ----------------------------------------------
<S> <C>
THOMAS B. BOKLUND Principal Executive Officer
- ---------------------------------------------
(Thomas B. Boklund)
L. RAY ADAMS Principal Financial and Accounting Officer and
- --------------------------------------------- Director of New CF&I, Inc.
(L. Ray Adams)
JOE E. CORVIN* Director of New CF&I, Inc.
- ---------------------------------------------
(Joe E. Corvin)
EDWARD J. HEPP, JR.* Director of New CF&I, Inc.
- ---------------------------------------------
(Edward J. Hepp, Jr.)
YUTAKA HOKURA* Director of New CF&I, Inc.
- ---------------------------------------------
(Yutaka Hokura)
*By L. RAY ADAMS
-----------------------------------------
L. Ray Adams
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 171
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Portland,
State of Oregon, on May 22, 1996.
OREGON STEEL MILLS, INC.
By: THOMAS B. BOKLUND
----------------------------------
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
following capacities effective on May 22, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------- --------------------------------------------
<S> <C>
THOMAS B. BOKLUND Chairman of the Board and Chief Executive
- -------------------------------------------- Officer (Principal Executive Officer)
(Thomas B. Boklund)
L. RAY ADAMS Chief Financial Officer and Vice President
- -------------------------------------------- of Finance (Principal Financial Officer)
(L. Ray Adams)
CHRISTOPHER D. CASSARD* Corporate Controller (Principal Accounting
- -------------------------------------------- Officer)
(Christopher D. Cassard)
C. LEE EMERSON* Director
- --------------------------------------------
(C. Lee Emerson)
V. NEIL FULTON* Director
- --------------------------------------------
(V. Neil Fulton)
EDWARD C. GENDRON* Director
- --------------------------------------------
(Edward C. Gendron)
ROBERT W. KEENER* Director
- --------------------------------------------
(Robert W. Keener)
RICHARD G. LANDIS* Director
- --------------------------------------------
(Richard G. Landis)
</TABLE>
II-7
<PAGE> 172
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------- --------------------------------------------
<S> <C>
JAMES A. MAGGETTI* Director
- --------------------------------------------
(James A. Maggetti)
JOHN A. SPROUL* Director
- --------------------------------------------
(John A. Sproul)
WILLIAM SWINDELLS* Director
- --------------------------------------------
(William Swindells)
*By L. RAY ADAMS
----------------------------------------
L. Ray Adams
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 173
EXHIBIT 12.1
OREGON STEEL MILLS, INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED PRO FORMA(4)
YEAR ENDED DECEMBER 31, MARCH 31, -----------------------
----------------------------------------------- ----------------- FIRST QUARTER
1991 1992 1993 1994 1995 1995 1996 1995 1996
------- ------- ------- ------- ------- ------- ------- ------- -------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EARNINGS:
Income (loss) before income
taxes (1)................... $56,235 $34,483 $22,193 $(3,279) $16,196 $ 3,080 $10,665 $ 8,021 $11,211
ADJUSTMENTS:
Fixed charges, as below....... 1,895 923 6,654 12,225 22,972 4,905 7,626 31,959 7,963
Capitalized interest.......... (1,399) (318) (1,657) (7,404) (12,221) (2,902) (3,595) (13,033) (4,478)
Minority interest in income of
majority-owned subsidiaries
with fixed charges.......... 1,996 3,379 168 788 788
Minority interest in losses of
majority-owned
subsidiaries................ (1,097) (6) (862) (72) (862)
------- ------- ------- ------- ------- ------- ------- ------- --------
Earnings for computational
purposes (1).................. $56,731 $33,991 $29,186 $ 4,915 $26,085 $ 5,179 $15,484 $26,085 $15,484
======= ======= ======= ======= ======= ======= ======= ======= ========
FIXED CHARGES:
Interest on indebtedness
(2)......................... $ 1,399 $ 318 $ 5,645 $11,314 $22,528 $ 4,785 $ 7,467 $31,515 $ 7,804
Interest portion of rentals
(3)......................... 496 605 1,009 911 444 120 159 444 159
------- ------- ------- ------- ------- ------- ------- ------- --------
Fixed charges for computational
purposes...................... $ 1,895 $ 923 $ 6,654 $12,225 $22,972 $ 4,905 $ 7,626 $31,959 $ 7,963
======= ======= ======= ======= ======= ======= ======= ======= ========
Ratio of earnings to fixed
charges....................... 29.9x 36.8x 4.4x .4x 1.1x 1.1x 2.0x .8x 1.9x
======= ======= ======= ======= ======= ======= ======= ======= ========
</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 $16.00 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> 174
EXHIBIT 12.2
OREGON STEEL MILLS, INC.
COMPUTATION OF RATIOS OF EBITDA TO INTEREST EXPENSE
<TABLE>
<CAPTION>
THREE MONTHS
ENDED PRO FORMA(2)
YEAR ENDED DECEMBER 31, MARCH 31, -----------------------
----------------------------------------------- ----------------- FIRST QUARTER
1991 1992 1993 1994 1995 1995 1996 1995 1996
------- ------- ------- ------- ------- ------- ------- ------- -------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA:
Net income (loss) (1)........ $35,465 $19,977 $14,805 $ (338) $12,434 $ 1,910 $ 6,518 $ 7,365 $ 6,857
Income taxes (benefit)....... 20,770 14,506 7,388 (2,941) 3,762 1,170 4,147 656 4,354
Interest expense............. 3,988 3,910 10,307 1,883 3,872 18,482 3,326
Depreciation and
amortization............... 12,441 16,253 21,375 22,012 24,964 5,116 7,131 24,964 7,131
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 $10,079 $21,668 $51,467 $21,668
======== ======== ======== ======== ======== ======== ======== ======== =============
Interest expense (including
capitalized interest)........ $ 1,399 $ 318 $ 5,645 $11,314 $22,528 $ 4,785 $ 7,467 $31,515 $ 7,804
======== ======== ======== ======== ======== ======== ======== ======== =============
Ratio of EBITDA to interest
expense...................... 49.1x 175.4x 7.9x 4.0x 2.3x 2.1x 2.9x 1.6x 2.8x
======== ======== ======== ======== ======== ======== ======== ======== =============
</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 $16.00 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> 175
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion and incorporation by reference in the
registration statement on Form S-1 and Form S-3, respectively, 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 herein and 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
May 22, 1996
II-11
<PAGE> 176
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
May 22, 1996
II-12
<PAGE> 177
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
May 22, 1996
II-13
<PAGE> 178
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
PAGE
EXHIBIT NO. EXHIBIT NUMBER
- ----------- ------------------------------------------------------------------------ ------------
<S> <C> <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 and form of note
evidencing 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.*...................................................................
24.2 Power of Attorney of the directors and certain officers of the general
partner of CF&I Steel, L.P.*............................................
24.3 Power of Attorney of the directors and certain officers of Oregon Steel
Mills, Inc.*............................................................
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> 179
<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>
- ---------------
* Filed April 8, 1996.
** To be filed by Amendment.
<PAGE> 1
EXHIBIT 1.1
DRAFT 5/20/96
$235,000,000
OREGON STEEL MILLS, INC.
+% First Mortgage Notes due 2003
UNDERWRITING AGREEMENT
+, 1996
SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
SCOTIA CAPITAL MARKETS (USA) INC.
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Oregon Steel Mills, Inc., a Delaware corporation (the "Company"),
proposes, upon the terms and conditions set forth herein, to issue and sell
$235,000,000 aggregate principal amount of its +% First Mortgage Notes due 2003
(the "Notes") to the several Underwriters named in Schedule I hereto (the
"Underwriters"). The Notes will be issued pursuant to the provisions of an
Indenture to be dated as of +, 1996 (the "Indenture") among the Company, New
CF&I, Inc., a Delaware corporation ("New CF&I"), and CF&I Steel, L.P., a
Delaware limited partnership ("CF&I") (New CF&I and CF&I are hereinafter called,
collectively, the "Guarantors"and, individually, a "Guarantor"), and Chemical
Bank, as trustee (the "Trustee"). The Guarantors will jointly and severally
guarantee, among other things, the punctual payment of the principal of,
premium, if any, and interest on the Notes pursuant to the Indenture and
pursuant to guarantees (the "Guarantees", which term includes, unless the
context otherwise requires, the CF&I Note referred to below) to be endorsed on
the Notes. As collateral for the Notes and the Guarantees, (i) the Company will
enter into a Deed of Trust, Assignment of Rents and Leases and Security
Agreement with respect to certain real property, improvements and fixtures
located in the State of Oregon and a Deed of Trust, Assignment of Rents and
Leases and Security Agreement with respect to certain real property,
improvements and fixtures located in the State of California and CF&I will enter
into a Deed of Trust, Assignment of Rents and Leases and Security Agreement with
respect to certain real property, improvements and fixtures located in Pueblo
County, State of Colorado and a separate Deed of Trust, Assignment of Rents and
Leases and Security Agreement with respect to certain real property,
improvements and fixtures located in Fremont County, State of Colorado (each
individually, a "Mortgage" and, collectively, the "Mortgages"), (ii) the
Company, New CF&I and CF&I will each enter into a separate Security Agreement
(each, a "Security Agreement" and, collectively, the "Security Agreements") (the
Mortgages and the Security Agreements are referred to, collectively, as the
"Security Documents" and, individually, as a "Security Document") and (iii) CF&I
will execute a promissory note as additional evidence of its obligations under
its Guarantee (the "CF&I Note"). The Company, the Guarantors, the Trustee and
FIOR (defined below), as agent for the banks (the "Bank Agent") under the
Amended Credit Agreement (defined below), will enter into an Intercreditor
Agreement (the "Intercreditor Agreement") to
<PAGE> 2
set forth certain agreements relating to the collateral securing the Notes and
the Amended Credit Agreement.
The Company is also proposing to issue and sell, concurrently with the
issuance and sale of the Notes, an aggregate of 6,000,000 shares (the "Firm
Shares") of its common stock, par value $.01 per share (the "Common Stock"), and
up to 900,000 additional shares of Common Stock (the "Additional Shares"), to
the underwriters (the "Stock Underwriters") listed on Schedule I to an
Underwriting Agreement of even date herewith between the Company and the Stock
Underwriters (the "Other Agreement"). The Firm Shares and the Additional Shares
are hereinafter sometimes collectively referred to as the "Shares".
In connection with the offering of the Shares and the Notes, the
Company will enter into an Amended and Restated Credit Agreement (the "Amended
Credit Agreement") with First Interstate Bank of Oregon, N.A. ("FIOR"), The Bank
of Nova Scotia ("BNS") and the other lenders named therein (collectively, the
"Lenders") which will be an amendment and restatement of the Old Credit
Agreement (as defined in Section 6(w) hereof). In order to guarantee the
Company's obligations under the Amended Credit Agreement, New CF&I will enter
into an Amended and Restated Guaranty (the "Amended and Restated New CF&I
Guaranty") and CF&I will enter into a guaranty (the "CF&I Bank Guaranty"; the
Amended and Restated New CF&I Guaranty and the CF&I Guaranty are hereafter
called, individually, a "Bank Guaranty" and, collectively, the "Bank
Guaranties"), the Company will enter into a Security Agreement (the "Company's
Bank Security Agreement") and each of New CF&I and CF&I will enter into a
separate Amended and Restated Security Agreement (the "Amended and Restated New
CF&I Security Agreement" and the "Amended and Restated CF&I Security Agreement",
respectively; the Company's Bank Security Agreement, the Amended and Restated
New CF&I Security Agreement and the Amended and Restated CF&I Security Agreement
are hereafter called, individually, a "Bank Security Agreement" and,
collectively, the "Bank Security Agreements") to secure their obligations under
the Amended Credit Agreement and the Bank Guaranties, respectively.
The sale of the Notes to the Underwriters pursuant to this Agreement
and the sale of the Firm Shares to the Stock Underwriters pursuant to the Other
Agreement are each conditioned on (i) the occurrence of the other event and (ii)
and the effectiveness of the Amended Credit Agreement.
The Company and the Guarantors wish to confirm as follows their
agreement with you (the "Representatives") and the other several Underwriters on
whose behalf you are acting, in connection with the several purchases of the
Notes by the Underwriters.
1. Registration Statement and Prospectus. The Company and the
Guarantors have prepared and filed with the Securities and Exchange Commission
(the "Commission") in accordance with the provisions of the Securities Act of
1933, as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-3 and S-1 under
the Act (the "registration statement"), including a prospectus subject to
completion relating to the Notes and the Guarantees. The term "Registration
Statement" as used in this Agreement means the registration statement (including
all financial schedules and exhibits), as amended at the time it becomes
effective, or, if the registration statement became effective prior to the
execution of this Agreement, as amended prior to the execution of this
Agreement, and shall include in any such case the information, if any, deemed to
be a part of such registration statement pursuant to Rule 430A(b) under the Act.
If it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed and must be
declared effective before the offering of the Notes may commence, the term
"Registration Statement" as used in this Agreement means the registration
statement as amended by said post-effective amendment and including the
information, if any, deemed to be a part thereof pursuant to Rule 430A(b) under
the Act. If the Company files a registration statement to register a portion of
the Notes and the
2
<PAGE> 3
Guarantees pursuant to Rule 462(b) under the Act (the "Rule 462(b) Registration
Statement"), then after such filing the term "Registration Statement" shall
include the Rule 462(b) Registration Statement at the time it became effective.
The term "Prospectus" as used in this Agreement means the prospectus in the form
included in the Registration Statement, or, if the prospectus included in the
Registration Statement omits information in reliance on Rule 430A under the Act
and such information is included in a prospectus filed with the Commission
pursuant to Rule 424(b) under the Act, the term "Prospectus" as used in this
Agreement means the prospectus in the form included in the Registration
Statement as supplemented by the addition of the Rule 430A information contained
in the prospectus filed with the Commission pursuant to Rule 424(b). The term
"Prepricing Prospectus" as used in this Agreement means the prospectus subject
to completion in the form included in the registration statement at the time of
the initial filing of the registration statement with the Commission, and as
such prospectus shall have been amended from time to time prior to the date of
the Prospectus. Any reference in this Agreement to the registration statement,
the Registration Statement, a Rule 462(b) Registration Statement, any Prepricing
Prospectus or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the Act, as of the date of the registration statement, the Registration
Statement, such Rule 462(b) Registration Statement, such Prepricing Prospectus
or the Prospectus, as the case may be, and any reference to any amendment or
supplement to the registration statement, the Registration Statement, a Rule
462(b) Registration Statement, any Prepricing Prospectus or the Prospectus shall
be deemed to refer to and include any documents filed after such date under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), which, upon
filing, are incorporated by reference therein, as required by paragraph (b) of
Item 12 of Form S-3. As used herein, the term "Incorporated Documents" means the
documents which at the time are incorporated or are deemed to be incorporated by
reference in the registration statement, the Registration Statement, any
Prepricing Prospectus, the Prospectus, or any amendment or supplement thereto.
2. Agreements to Sell and Purchase. The Company hereby agrees, subject
to all the terms and conditions set forth herein, to issue and sell to each
Underwriter and, upon the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions set forth herein, each Underwriter agrees, severally and not jointly,
to purchase from the Company, at a purchase price of +% of the principal amount
thereof, the principal amount of Notes set forth opposite the name of such
Underwriter in Schedule I hereto (or such principal amount of Notes as increased
as set forth in Section 10 hereof).
The Company and the Guarantors hereby confirm their engagement of Smith
Barney Inc. as, and Smith Barney Inc. hereby confirms its agreement with the
Company and the Guarantors to render services as, a "qualified independent
underwriter" within the meaning of Section 2(o) of Schedule E to the ByLaws of
the National Association of Securities Dealers, Inc. with respect to the
offering and sale of the Notes. Smith Barney Inc., solely in its capacity as
qualified independent underwriter and not otherwise, is referred to herein as
the "QIU".
3. Terms of Public Offering. The Company and the Guarantors have been
advised by you that the Underwriters propose to make a public offering of their
respective portions of the Notes as soon after the Registration Statement and
this Agreement have become effective as in your judgment is advisable and
initially to offer the Notes upon the terms set forth in the Prospectus.
4. Delivery of the Notes and Payment Therefor. Delivery to the
Underwriters of and payment for the Notes shall be made at the office of Smith
Barney Inc., 388 Greenwich Street, New York, New York 10013, at 10:00 A.M., New
York City time, on +, 1996 (the "Closing Time"). The place of closing for the
Notes and the Closing Time may be varied by agreement between you and the
Company.
3
<PAGE> 4
The Notes will be registered in such names and in such denominations as
you shall request prior to 9:30 A.M., New York City time, on the second business
day preceding the Closing Time. The Notes shall be made available to you in New
York City for inspection and packaging not later than 9:30 A.M., New York City
time, on the business day next preceding the Closing Time. The Notes will be
delivered to you at the Closing Time for the accounts of the several
Underwriters against payment of the purchase price therefor by wire transfer of
same-day funds to a bank account designated by the Company or, at your option,
by check payable in same-day funds.
5. Agreements of the Company and the Guarantors. The Company and the
Guarantors agree, jointly and severally, with the several Underwriters as
follows:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the Registration Statement or a post-effective amendment
thereto or the 462(b) Registration Statement, as the case may be, to be declared
effective before the offering of the Notes and Guarantees may commence, the
Company and the Guarantors will endeavor to cause the Registration Statement or
such post-effective amendment or the 462(b) Registration Statement to become
effective as soon as possible and will advise you promptly and, if requested by
you, will confirm such advice in writing, when the Registration Statement or
such post-effective amendment or the 462(b) Registration Statement has become
effective, as the case may be.
(b) The Company and the Guarantors will advise you promptly
and, if requested by you, will confirm such advice in writing: (i) of any
request by the Commission for amendment of or a supplement to the Registration
Statement, any Prepricing Prospectus or the Prospectus or for additional
information; (ii) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or of the suspension of
qualification of the Notes or Guarantees for offering or sale in any
jurisdiction or the initiation of any proceeding for such purpose; and (iii)
within the period of time referred to in paragraph (f) below, of any change in
the Company's or any Guarantor's condition (financial or other), business,
prospects, properties, net worth or results of operations, or of the happening
of any event, which makes any statement of a material fact made in the
Registration Statement or the Prospectus (as then amended or supplemented)
untrue or which requires the making of any additions to or changes in the
Registration Statement or the Prospectus (as then amended or supplemented) in
order to state a material fact required by the Act to be stated therein or
necessary in order to make the statements therein not misleading, or of the
necessity to amend or supplement the Prospectus (as then amended or
supplemented) to comply with the Act or any other law. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company and the Guarantors will make every
reasonable effort to obtain the withdrawal of such order at the earliest
possible time.
(c) The Company and the Guarantors will furnish to you,
without charge (i) three signed copies of the registration statement and any
Rule 462(b) Registration Statement as originally filed with the Commission and
of each amendment thereto, including financial statements and all exhibits to
the registration statement, (ii) such number of conformed copies of the
registration statement and any Rule 462(b) Registration Statement as originally
filed and of each amendment thereto, but without exhibits, as you may reasonably
request, (iii) such number of copies of the Indenture and of the Incorporated
Documents, without exhibits, as you may reasonably request, and (iv) such number
of copies of the exhibits to the Incorporated Documents as you may reasonably
request.
(d) Neither the Company nor any Guarantor will file any
amendment to the Registration Statement (including any filing under Rule 462(b))
or make any amendment or supplement to the Prospectus or, prior to the end of
the period of time referred to in the first sentence in subsection
4
<PAGE> 5
(f) below, file any document which, upon filing becomes an Incorporated
Document, of which you shall not previously have been advised or to which, after
you shall have received a copy of the document proposed to be filed, you shall
reasonably object.
(e) Prior to the execution and delivery of this Agreement, the
Company and the Guarantors have delivered to you, without charge, in such
quantities as you have requested, copies of each form of the Prepricing
Prospectus. The Company and each of the Guarantors consent to the use, in
accordance with the provisions of the Act and with the securities or Blue Sky
laws of the jurisdictions in which the Notes and Guarantees are offered by the
several Underwriters and by dealers, prior to the date of the Prospectus, of
each Prepricing Prospectus so furnished by the Company and the Guarantors.
(f) As soon after the execution and delivery of this Agreement
as possible and thereafter from time to time for such period as in the opinion
of counsel for the Underwriters a prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer, the Company and
the Guarantors will expeditiously deliver to each Underwriter and each dealer,
without charge, as many copies of the Prospectus (and of any amendment or
supplement thereto) as you may request. The Company and each Guarantor consent
to the use of the Prospectus (and of any amendment or supplement thereto) in
accordance with the provisions of the Act and with the securities or Blue Sky
laws of the jurisdictions in which the Notes and Guarantees are offered by the
several Underwriters and by all dealers to whom Notes and Guarantees may be
sold, both in connection with the offering and sale of the Notes and Guarantees
and for such period of time thereafter as the Prospectus is required by the Act
to be delivered in connection with sales by any Underwriter or dealer. If during
such period of time any event shall occur that in the judgment of the Company or
in the opinion of counsel for the Underwriters is required to be set forth in
the Prospectus (as then amended or supplemented) or should be set forth therein
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to supplement or
amend the Prospectus (or to file under the Exchange Act any document which, upon
filing, becomes an Incorporated Document) in order to comply with the Act or any
other law, the Company and the Guarantors will forthwith prepare and, subject to
the provisions of paragraph (d) above, file with the Commission an appropriate
supplement or amendment to the Prospectus (or file such document), and will
expeditiously furnish to the Underwriters and dealers a reasonable number of
copies thereof. In the event that the Company and you, as Representatives of the
several Underwriters, agree that the Prospectus should be amended or
supplemented, the Company and the Guarantors, if requested by you, will promptly
issue a press release announcing or disclosing the matters to be covered by the
proposed amendment or supplement.
(g) The Company and the Guarantors will cooperate with you and
with counsel for the Underwriters in connection with the registration and
qualification of the Notes, the Guarantees and the CF&I Note for offering and
sale by the several Underwriters and by dealers under the securities or Blue Sky
laws of such jurisdictions as you may designate and will file such consents to
service of process or other documents necessary or appropriate in order to
effect such registration or qualification; provided that in no event shall the
Company or any Guarantor be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to service of process in suits, other than those arising out of the
offering or sale of the Notes, the Guarantees or the CF&I Note, in any
jurisdiction where it is not now so subject.
(h) The Company and each of the Guarantors will make generally
available to its security holders a consolidated (or, in the case of CF&I,
unconsolidated) earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as practicable
after the end of such period, which earnings statement shall satisfy the
provisions of Section 11(a) of the Act.
5
<PAGE> 6
(i) So long as any of the Notes are outstanding, the Company
and each Guarantor will furnish to you (i) as soon as available, a copy of each
report of the Company or such Guarantor mailed to stockholders or other
securityholders or filed with the Commission or any national securities exchange
(as defined in the Exchange Act) on which securities of such issuer are listed,
and (ii) from time to time such other information concerning the Company or such
Guarantor as you may reasonably request.
(j) If this Agreement shall terminate or shall be terminated
after execution pursuant to any provisions hereof (otherwise than pursuant to
the second paragraph of Section 10 hereof or by notice given by you terminating
this Agreement pursuant to Section 10 or Section 11 hereof) or if this Agreement
shall be terminated by the Underwriters because of any failure or refusal on the
part of the Company or any Guarantor to comply with the terms or fulfill any of
the conditions of this Agreement, the Company and the Guarantors agree, jointly
and severally, to reimburse the Representatives for all out-of-pocket expenses
(including fees and expenses of counsel for the Underwriters) incurred by you in
connection herewith.
(k) The Company will apply the net proceeds from the sale of
the Notes and the Shares in accordance with the description set forth in the
Prospectus.
(l) If Rule 430A of the Act is employed, the Company and the
Guarantors will timely file the Prospectus pursuant to Rule 424(b) under the Act
and will advise you of the time and manner of such filing.
(m) During the period beginning on the date hereof and
continuing to the Closing Time, the Company will not, without the prior written
consent of the Representatives, directly or indirectly, issue, sell, offer to
sell, solicit any offer to buy, contract to sell, grant any option or warrant to
purchase, or otherwise transfer or dispose of, any Notes or any other debt
securities of the Company or any subsidiary of the Company or any securities
convertible into or exercisable or exchangeable for Notes or any other debt
securities of the Company or any subsidiary, other than the Notes sold pursuant
to this Agreement.
(n) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, neither the Company nor any Guarantor has taken, nor
will it take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in stabilization or manipulation of
the price of the Notes to facilitate the sale or resale of the Notes.
(o) The Company and the Guarantors will use their best efforts
to have the Notes, the Guarantees and the CF&I Note listed, subject to notice of
issuance, on the New York Stock Exchange before the Closing Time.
6. Representations and Warranties of the Company and the Guarantors.
The Company and the Guarantors, jointly and severally, represent and warrant to
each Underwriter that:
(a) Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act. The Commission
has not issued any order preventing or suspending the use of any Prepricing
Prospectus.
(b) The Company and the transactions contemplated by this
Agreement meet the requirements for using Form S-3 under the Act, except that
the Guarantees are required to be registered on Form S-1 under the Act. The
Registration Statement and any Rule 462(b) Registration Statement, each
6
<PAGE> 7
in the form in which it became or becomes effective and also in such form as it
may be when any post-effective amendment thereto shall become effective, and the
Prospectus and any supplement or amendment thereto as of its date and, if
applicable, when filed with the Commission under Rule 424(b) under the Act,
complied and will comply in all material respects with the provisions of the Act
and did not at any such time and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, except that this
representation and warranty does not apply to statements in or omissions from
the Registration Statement, any Rule 462(b) Registration Statement, or the
Prospectus made in reliance upon and in conformity with information relating to
any Underwriter furnished to the Company in writing by or on behalf of such
Underwriter through you expressly for use therein.
(c) The Incorporated Documents heretofore filed, when they
were filed (or, if any amendment with respect to any such document was filed,
when such amendment was filed), conformed in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder (the "Exchange Act Regulations"), any further Incorporated Documents
so filed will, when they are filed, conform in all material respects with the
requirements of the Exchange Act and the Exchange Act Regulations; no such
document when it was filed (or, if an amendment with respect to any such
document was filed, when such amendment was filed), contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading; and no such further document, when it is filed, will contain an
untrue statement of a material fact or will omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading.
(d) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), subsequent to the
respective dates as of which such information is given in the Registration
Statement and the Prospectus (or any amendment or supplement thereto), neither
the Company nor any of its subsidiaries has incurred any liability or
obligation, direct or contingent, or entered into any transaction, whether or
not in the ordinary course of business, that is material to the Company and the
subsidiaries taken as a whole, and there has not been any change in the capital
stock (except for subsequent issuances, if any, pursuant to this Agreement or
pursuant to warrants or reservations referred to in the Prospectus), or material
increase in the short-term debt or long-term debt (other than (i) as a result of
borrowings under the Old Credit Agreement in the ordinary course of business
(which borrowings shall not exceed $300,000,000 at any time outstanding), (ii)
pursuant to intercompany transactions that do not result in an increase in the
Company's consolidated indebtedness or (iii) as a result of long-term debt
becoming classified as short-term debt as the result of the passage of time), of
the Company or any of its subsidiaries, or any material adverse change, or any
development involving or which may reasonably be expected to involve, a
prospective material adverse change, in the condition (financial or other),
business, prospects, properties, net worth or results of operations (A) of the
Company and its subsidiaries taken as a whole or (B) of any Guarantor.
(e) To the Company's or any Guarantor's knowledge, neither the
Company nor any of its subsidiaries nor any employee or agent of the Company or
any of its subsidiaries has made any payment of funds or received or retained
any funds in violation of any law, rule or regulation, which payment, receipt or
retention of funds is of a character required to be disclosed in the Prospectus.
(f) The accountants who certified the financial statements and
supporting schedules included or incorporated in the Registration Statement are
independent public accountants as required by the Act, the Exchange Act, and the
Exchange Act Regulations.
7
<PAGE> 8
(g) The financial statements included or incorporated in the
Registration Statement and the Prospectus present fairly the financial position
of (i) the Company and its consolidated subsidiaries, (ii) New CF&I and its
consolidated subsidiaries and (iii) CF&I as at the dates indicated and the
results of their operations for the periods specified; except as otherwise
stated in the Registration Statement, said financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis; the supporting schedules included in the Registration
Statement present fairly the information required to be stated therein; the pro
forma financial statements and related notes thereto included in the
Registration Statement and the Prospectus present fairly the information shown
therein, have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements and have been properly
compiled on the basis described therein, and the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and circumstances referred to
therein; and the Company's ratios of earnings to fixed charges (actual and, if
any, pro forma) included in the Prospectus under the captions "Prospectus
Summary--Summary Historical and Pro Forma Consolidated Financial Data",
"Selected Historical Consolidated Financial Data" and "Pro Forma Unaudited
Condensed Consolidated Financial Data" and in Exhibit 12.1 to the Registration
Statement have been calculated in compliance with Item 503(d) of Regulation S-K
of the Commission.
(h) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has been no
dividend or distribution of any kind declared, paid or made by the Company on
any class of its capital stock except for regular quarterly dividends on the
Common Stock in amounts per share that are consistent with past practice.
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware with corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and to
enter into and perform its obligations under this Agreement, the Other
Agreement, the Notes, the Indenture, the Intercreditor Agreement, the Security
Documents to which it is a party, the Amended Credit Agreement and its Bank
Security Agreement; and the Company is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to so qualify or
to be in good standing would not have a material adverse effect on the condition
(financial or other), business, prospects, properties, net worth or results of
operations of the Company and its subsidiaries taken as a whole.
(j) Each of Oregon Steel Mills-Fontana Division, Inc., a
Delaware corporation ("Fontana"), and Napa Pipe Corporation, a Delaware
corporation ("Napa"), has been merged into the Company (collectively, the
"Mergers") and a certificate or certificates of ownership and merger for each
such Merger, duly certified by the Secretary of State of the State of Delaware,
have been delivered to you; and, by virtue of such Mergers, the Company has
succeeded to all of the assets, properties, rights and franchises of Napa and
Fontana, including the land, improvements, fixtures, equipment, machinery or
related contract rights of the pipe mill located in Napa, California. The only
subsidiaries of the Company are New CF&I, CF&I, Camrose Pipe Corporation, a
Delaware corporation ("CPC"), Camrose Pipe Company, a general partnership
organized under the laws of the Province of Alberta, Canada ("Camrose"), and the
other subsidiaries of the Company whose names are set forth in clause (A) of the
first sentence of the definition of "Unrestricted Subsidiary" in the Indenture.
New CF&I, CF&I, CPC and Camrose are herein referred to as the "Significant
Subsidiaries". Each Significant Subsidiary has been duly organized and is
validly existing as a corporation or partnership, as the case may be, in good
standing under the laws of the jurisdiction of its organization, has power and
authority as a corporation or partnership, as the case may be, to own, lease and
operate its properties and to conduct its business as described in the
Prospectus
8
<PAGE> 9
and, in the case of each Guarantor, to enter into and perform its obligations
under this Agreement, the Guarantees, the Indenture, the Intercreditor
Agreement, the Security Documents to which it is a party, [the Amended Credit
Agreement], its Bank Guaranty, its Bank Security Agreement and + and, in the
case of CF&I, the CF&I Note; and each Significant Subsidiary is duly qualified
as a foreign corporation or partnership, as the case may be, to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to so qualify or
be in good standing would not have a material adverse effect on the condition
(financial or other), business, prospects, properties, net worth or results of
operations of the Company and its subsidiaries considered as a whole; all of the
issued and outstanding capital stock of each Significant Subsidiary which is a
corporation has been duly authorized and validly issued, is fully paid and
non-assessable and (except for a minority interest in New CF&I described in the
Prospectus) is owned by the Company, directly or through corporate subsidiaries,
free and clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity; and all of the issued and outstanding partnership interests of
each Significant Subsidiary which is a partnership have been duly authorized (if
applicable) and validly issued and are fully paid and non-assessable and (except
for minority partnership interests in such partnership subsidiaries and the
minority interest in New CF&I, all as described in the Prospectus) are owned by
the Company, directly or through corporate subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or other equity.
Except for New CF&I, CF&I, CPC, Camrose, Fontana and Napa, no subsidiaries of
the Company, individually or in the aggregate, accounted for more than 5% of the
Company's consolidated assets as of December 31, 1995 or March 31, 1996 or more
than 3% of the Company's consolidated sales or operating income for the year
then ended or the quarter then ended, respectively.
(k) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus under "Capitalization" (except for
subsequent issuances, if any, pursuant to the other Agreement or pursuant to
warrants or reservations referred to in the Prospectus); the shares of issued
and outstanding Common Stock have been duly authorized and validly issued and
are fully paid and non-assessable; the Shares have been duly authorized for
issuance and sale to the Stock Underwriters pursuant to the Other Agreement and,
when issued and delivered by the Company pursuant to the Other Agreement against
payment of the consideration set forth therein, will be validly issued and fully
paid and non-assessable; the Common Stock conforms in all material respects to
all statements relating thereto contained in the Prospectus; and the issuance of
the Shares is not subject to preemptive or other similar rights.
(l) Neither the Company nor any Significant Subsidiary is in
violation of its charter or by-laws, partnership agreement or other
organizational documents, as the case may be; neither the Company nor any of its
subsidiaries is in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture, mortgage,
loan agreement, credit agreement, note, guarantee, lease or other instrument or
agreement to which the Company or any of its subsidiaries is a party or by which
it or any of them may be bound, or to which any of the property or assets of the
Company or any of its subsidiaries is subject; and the execution, delivery and
performance of this Agreement, the Other Agreement, the Indenture, the Notes,
the Intercreditor Agreement, the Guarantees, the Security Documents, the CF&I
Note, the Amended Credit Agreement, the Bank Guaranties, the Bank Security
Agreements and + and the consummation of the transactions contemplated herein
and therein (including, without limitation, (i) the issuance and sale of the
Shares and the Notes and (ii) the creation and maintenance of the liens and
security interests arising under the Security Documents and the Bank Security
Agreements) have been duly authorized by the Company and the Guarantors and do
not and will not conflict with or constitute a breach of, or default under, or
result in the creation or imposition of any lien, charge or encumbrance (other
than liens created by the Security Documents in favor of the Trustee and liens
created pursuant to the Amended Credit Agreement and the Bank Security
Agreements in favor of the Lenders) upon any property or assets of the Company
or any of its subsidiaries
9
<PAGE> 10
pursuant to, any contract, indenture, mortgage, loan agreement, credit
agreement, note, guarantee, lease or other instrument or agreement to which the
Company or any of its subsidiaries is a party or by which it or any of them may
be bound, or to which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any violation of the
provisions of the charter or by-laws, partnership agreement or other
organizational documents, as the case may be, of the Company or any of its
subsidiaries or any applicable law, administrative regulation or administrative
or court decree.
(m) The Mergers were duly authorized by the Company, Fontana
and Napa, as applicable, and did not conflict with or constitute a breach of, or
default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company, Fontana or Napa pursuant
to, any contract, indenture, mortgage, loan agreement, credit agreement, note,
guarantee, lease or other instrument or agreement to which the Company, Fontana
or Napa is or was a party or by which any of them is or was bound, or to which
any of the property or assets of the Company, Fontana or Napa is or was subject,
except where such conflict, breach or default, singly or in the aggregate, would
not have a material adverse effect on the condition (financial or other),
business, prospects, properties, net worth or result of operations of the
Company and its subsidiaries considered as a whole, nor did the Mergers result
in any violation of the provisions of the charter or by-laws of the Company,
Fontana or Napa or any applicable law, administrative regulation or
administrative or court decree.
(n) No labor dispute with the employees of the Company or any
Significant Subsidiary exists or, to the knowledge of the Company or any
Guarantor, is imminent; and neither the Company nor any Guarantor is aware of
any existing or imminent labor disturbance by the employees of any of the
Company's or any of its subsidiaries' principal suppliers, manufacturers or
contractors which might reasonably be expected to result in any material adverse
change in the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Company and its subsidiaries
considered as a whole.
(o) There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company or any Guarantor, threatened, against or affecting
the Company or any of its subsidiaries (A) which is required to be disclosed in
the Registration Statement (other than as disclosed therein), or (B) which might
result in any material adverse change in the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company and its subsidiaries considered as a whole or of any Guarantor or (C)
which might materially and adversely affect the execution, delivery or
performance of this Agreement, the Other Agreement, the Indenture, the Notes,
the Intercreditor Agreement, the Guarantees, the Security Documents, the CF&I
Note, the Amended Credit Agreement, the Bank Guaranties, the Bank Security
Agreements or +, or the consummation of any of the transactions contemplated
hereby or thereby (including, without limitation, the issuance and sale of the
Shares and the Notes and the creation and maintenance of the liens and security
interests arising under the Security Documents); all pending legal or
governmental proceedings to which the Company or any subsidiary is a party or of
which any of their respective property or assets is the subject which are not
described in the Registration Statement, including ordinary routine litigation
incidental to the business, are, considered in the aggregate, not material; and
there are no contracts or documents of the Company or any of its subsidiaries
which are required to be filed as exhibits to the Registration Statement by the
Act which have not been so filed.
(p) The Company and its subsidiaries own or possess adequate
rights to use, or can acquire on reasonable terms, the material patents, patent
rights, licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names presently
employed by them in
10
<PAGE> 11
connection with the business now operated by them, and neither the Company nor
any of its subsidiaries has received any notice of infringement of or conflict
with asserted rights of others with respect to any of the foregoing which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in any material adverse change in the condition (financial
or other), business, prospects, properties, net worth or results of operations
of the Company and its subsidiaries considered as a whole.
(q) No authorization, approval, consent or order of, or
qualification, registration or filing with, any court or governmental authority,
agency or official is necessary in connection with the offering, issuance or
sale of the Shares under the Other Agreement or of the Notes under this
Agreement, or for the execution, delivery or performance by the Company and the
Guarantors of this Agreement, the Other Agreement, the Indenture, the Notes, the
Intercreditor Agreement, the Guarantees, the Security Documents, the CF&I Note,
the Amended Credit Agreement, the Bank Guaranties, the Bank Security Agreements
or + (including without limitation, for the creation and maintenance of the
liens and security interests arising under the Security Documents), except (i)
such as may be required under the Act, state securities or Blue Sky laws, and
the Trustee Indenture Act of 1939, as amended (the "1939 Act"), and (ii) for the
filings described in Section 6(ar) of this Agreement and the filing from time to
time of continuation statements under the Uniform Commercial Code of the States
of California, Colorado and Oregon (the "UCC").
(r) The Company and its subsidiaries possess such
certificates, authorities or permits issued by the appropriate state, federal or
foreign regulatory agencies or bodies necessary to conduct the business now
operated by them, except where the failure to possess any such certificates,
authorities, or permits would not, singly or in the aggregate, have a material
adverse effect on the condition (financial or other), business, prospects,
properties, net worth or result of operations of the Company and its
subsidiaries considered as a whole; and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the revocation
or modification of any such certificate, authority or permit which, singly or in
the aggregate, if the subject of an unfavorable decision, ruling or finding,
would materially and adversely affect the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company and its subsidiaries considered as a whole.
(s) This Agreement has been duly authorized, executed and
delivered by the Company and each of the Guarantors (including, without
limitation, by New CF&I in its capacity as sole general partner of CF&I). New
CF&I is and, at all times since the formation of CF&I, has been the sole general
partner of CF&I.
(t) There are no persons with registration or other similar
rights to have any securities registered pursuant to the Registration Statement
or included in the offering contemplated by this Agreement or the Other
Agreement.
(u) The Company and the Guarantors have complied with, and are
and will be in compliance with, the provisions of that certain Florida act
relating to disclosure of doing business with Cuba, codified as Section 517.075
of the Florida Statutes and the rules and regulations thereunder (collectively,
the "Cuba Act") or are exempt therefrom.
(v) The acquisition by CF&I of the assets of CF&I Steel
Corporation and its subsidiaries pursuant to the Acquisition Agreement (as
defined below) was approved by a Final Order (as defined in the Acquisition
Agreement) and the Final Order, insofar as it relates to the Acquisition
Agreement and transactions contemplated thereby, is not subject to review,
appeal or modification.
11
<PAGE> 12
(w) As used in this Agreement, "Existing Credit Agreements"
means (A) the Company's $300 million Credit Agreement dated as of December 14,
1994 with FIOR, BNS and the other banks party thereto, as amended by Amendment
No. 1 thereto dated as of September 30, 1995 and Waiver and Amendment No. 2
thereto date as of March 22, 1996 (the "Old Credit Agreement"), (B) the Asset
Purchase Agreement dated March 3, 1993 (the "Acquisition Agreement") among CF&I
Steel Corporation, the Company, New CF&I and the other parties thereto, (C)
Camrose's Cdn. $18 million credit facilities established by the Amendment,
Restatement and Establishment of Credit Facilities dated as of October 28, 1994
between Camrose and BNS, as amended on May 9, 1995 (the "Camrose Credit
Agreement"), (D) the Standing Letter of Credit Agreement dated March 15, 1995
(the "BNL Agreement") from the Company to Banca Nazionale de Lavoro ("BNL")
providing for letters of credit in an aggregate principal amount not to exceed
$4,000,000 at any time outstanding, (E) the Company's uncollateralized and
uncommitted revolving line of credit from FIOR in an aggregate amount not to
exceed $15 million, (F) the Optional Advance Note from CPC to the Company dated
December 9, 1994, in the principal amount of $30 million, (G) the Optional
Advance Note from OSM GlassificationTM, Inc. to the Company dated December 9,
1994, in the principal amount of $5 million, and (H) Optional Advance Notes from
CF&I to the Company, executed on the following dates and in the following
principal amounts: (i) February 11, 1994, in the amount of $30 million, (ii) May
17, 1994, in the amount of $30 million, (iii) October 20, 1994, in the amount of
$30 million (iv) December 9, 1994, in the amount of $35 million, (v) March 9,
1995, in the amount of $15 million and (vi) September 13, 1995 in the amount of
$50 million (each of the Optional Advance Notes referred to in clauses (F)
through (H), an "Optional Advance Note" and collectively, the "Optional Advance
Notes") [TO BE UPDATED]; "Old Guaranties" means the Guaranties, each dated as of
December 14, 1994, executed by Napa, Fontana, New CF&I and CPC pursuant to the
Old Credit Agreement; and "Existing Security Agreements" means (A) the Pledge
Agreement dated as of December 14, 1994 (the "Old Pledge Agreement"), executed
by the Company and the Security Agreements, each dated as of December 14, 1994
(the "Old Security Agreements"), executed by the Company, Napa, Fontana, New
CF&I, CF&I and CPC, respectively, securing obligations under the Old Credit
Agreement and the Old Guaranties (the Old Pledge Agreement and the Old Security
Agreements, collectively, the "Old Security Documents") and (B) the General
Security Agreement dated January 12, 1993 executed by Camrose securing its
obligations under the Camrose Credit Agreement, as amended by the Amendment
thereto dated June 27, 1994 (the "Camrose Security Agreement"). Immediately
prior to the Closing Time, the only instruments or agreements pursuant to which
the Company or any of its subsidiaries will have outstanding or will have
guaranteed, or which will provide for the Company or any of its subsidiaries to
incur, issue or guarantee, indebtedness (including indebtedness between the
Company and any of its subsidiaries or between any of the Company's
subsidiaries) for borrowed money or evidenced by bonds, debentures, notes,
drafts, letters of credit, bankers acceptances or other similar instruments or
to issue letters of credit, bankers acceptances or similar instruments, will be
the Existing Credit Agreements and the Old Guaranties, and the only mortgages,
liens, charges, security interests, pledges, assignments or other encumbrances
securing obligations under the Existing Credit Agreements or the Old Guaranties
will be those created pursuant to the Existing Security Agreements; and the
Company has provided to you true, complete and correct copies of all of the
Existing Credit Agreements, Old Guaranties and Existing Security Agreements.
Immediately prior to the Closing Time, the only indebtedness of the Company and
its subsidiaries (including indebtedness between the Company and any of its
subsidiaries or between any of the Company's subsidiaries but excluding trade
payables) will be indebtedness under the Existing Credit Agreements and the Old
Guaranties.
(x) Prior to the Closing Time, the Old Guaranties and the Old
Security Agreements executed by each of Napa and Fontana shall each have been
terminated, all amounts owing thereunder will have been paid, and all mortgages,
loans, liens, charges, security interests, pledges, assignments and other
encumbrances created thereby or in connection therewith, or securing any
obligations thereunder or under
12
<PAGE> 13
the Old Credit Agreement, will have been released and terminated (including,
without limitation, by the filing in appropriate governmental offices of UCC
termination statements.)
(y) At the Closing Time, the Old Pledge Agreement, the Old
Guaranty executed by CPC and the Old Security Agreement executed by CPC will
have been terminated, all amounts owing thereunder will have been paid, and all
mortgages, liens, charges, security interests, pledges, assignments and other
encumbrances created thereby or in connection therewith, or securing any
obligations thereunder or under the Old Credit Agreement, will have been
released and terminated (including, without limitation, by the filing in
appropriate governmental offices of UCC termination statements).
(z) At the Closing Time, the Old Guaranty executed by New CF&I
(the "Old New CF&I Guaranty"), the Old Security Agreement executed by the
Company (the "Old Company Security Agreement") the Old Security Agreement
executed by New CF&I (the "Old New CF&I Security Agreement") and the Old
Security Agreement executed by CF&I (the "Old CF&I Security Agreement") will be
amended and restated; the Old New CF&I Guaranty, as so amended and restated,
will guarantee obligations of the Company arising only under the Amended Credit
Agreement; the only collateral which will be subject to the liens, charges,
security interests, pledges, assignments and other encumbrances created by the
Old Company Security Agreement, Old New CF&I Security Agreement and Old CF&I
Security Agreement, as so amended and restated, will be accounts receivable and
inventory and related books and records of the Company, New CF&I and CF&I,
respectively, and the only obligations secured thereby will be the obligations
of the Company under the Amended Credit Agreement and of New CF&I and CF&I under
the Bank Guaranties guaranteeing the Company's obligations under the Amended
Credit Agreement, and all mortgages, liens, charges, security interests,
pledges, assignments and other encumbrances created by the Old Company Security
Agreement, Old New CF&I Security Agreement and the Old CF&I Security agreement
on any other property or assets will have been released and terminated
(including, without limitation, by the filing in appropriate governmental
offices of UCC termination or amendment statements).
(aa) Each Optional Advance Note has been duly authorized,
executed and delivered by the issuer thereof and is a valid and binding
obligation of the applicable issuer, enforceable in accordance with its terms,
except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general principles of equity. As of the
Closing Time, the Optional Advance Notes of CF&I shall have an aggregate
outstanding principal balance of $+ [TO BE PROVIDED BY THE COMPANY].
(ab) The Amended Credit Agreement has been duly authorized by
the Company and +; at the Closing Time, the Amended Credit Agreement will have
been duly executed and delivered by, and will be a valid and binding agreement
of, the Company and +, enforceable in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general principles of equity and all conditions precedent to the
effectiveness of the Amended Credit Agreement will have been satisfied.
(ac) The Bank Guaranties have been duly authorized by New CF&I
and CF&I, respectively (including, without limitation, by New CF&I in its
capacity as sole general partner of CF&I); at the Closing Time, the Bank
Guaranties will have been duly executed and delivered by, and will be the valid
and binding agreements of, New CF&I and CF&I, respectively, enforceable in
accordance with their terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general principles of
equity.
13
<PAGE> 14
(ad) The Bank Security Agreements have been duly authorized by
the Company, New CF&I and CF&I, respectively (including, without limitation, by
New CF&I in its capacity as sole general partner of CF&I); at the Closing Time,
the Bank Security Agreements will have been duly executed and delivered by, and
will be the valid and binding agreements of, the Company, New CF&I and CF&I,
respectively, enforceable in accordance with their terms, except as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general principles of equity.
(ae) At the Closing Time there will not be any mortgages,
liens, charges, security interests, pledges, assignments or other similar
encumbrances upon any property or assets of the Company or any of its
subsidiaries which secure indebtedness for borrowed money or evidenced by any
bonds, debentures, notes, drafts, letters of credit, bankers acceptances or
other similar instruments in respect of any of the foregoing, or which secure
obligations under any credit agreement, loan agreement, line of credit,
reimbursement agreement, letter of credit, bankers acceptance or other similar
instruments or agreements (whether or not there are borrowings outstanding
thereunder), or which secure any guarantees in respect of any of the foregoing,
except for (i) the pledge of certain assets by Camrose pursuant to the Camrose
Security Agreement to secure its obligations under the Camrose Credit Agreement,
(ii) the pledge by the Company, New CF&I and CF&I of their accounts receivable,
inventory and related books and records to secure their obligations under the
Amended Credit Agreement and the Bank Guaranties and (iii) the liens and
security interests created by the Security Documents in favor of the Trustee and
the holders of the Notes.
(af) The representations and warranties of the Company set
forth in the Other Agreement are true, complete and correct, and such
representations and warranties are hereby incorporated by reference in, and made
a part of, this Agreement as if set forth in full at this place.
(ag) The Pension Benefit Guaranty Corporation, as limited
partner of CF&I, has consented to the Guarantee, the Security Agreement and the
Mortgage to be executed by CF&I in connection with the sale of the Notes and the
Bank Guaranty and the Bank Security Agreement to be executed by CF&I in
connection with the Amended Credit Agreement and such consent as in full force
and effect and has not been withdrawn or limited; and BNL has waived the
negative pledge covenant in the BNL Agreement insofar as it relates to the liens
and security interests created by the Security Documents and the Bank Security
Agreements and such waiver is in full force and effect and has not been
withdrawn or limited.
(ah) The Indenture has been duly authorized by the Company and
each of the Guarantors (including, without limitation, by New CF&I in its
capacity as sole general partner of CF&I); at the Closing Time, the Indenture
will have been duly qualified under the 1939 Act, and will have been duly
executed and delivered by, and will be a valid and binding agreement of, the
Company and each of the Guarantors, enforceable in accordance with its terms,
except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general principles of equity. The Trustee is a
participant in The Depository Trust Company's Fast Automated Securities Transfer
(FAST) system.
(ai) The Notes have been duly authorized by the Company; at
the Closing Time, the Notes will have been duly executed by the Company and
authenticated by the Trustee and, when delivered pursuant to this Agreement
against payment of the consideration set forth herein, will be valid and binding
obligations of the Company, enforceable in accordance with their terms, except
as enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to
14
<PAGE> 15
or affecting creditors' rights generally or by general principles of equity, and
will be entitled to the benefits of the Indenture.
(aj) The Guarantees have been duly authorized by the
Guarantors (including, without limitation, by New CF&I in its capacity as sole
general partner of CF&I); at the Closing Time, the Guarantees will have been
duly executed by the Guarantors and, when the Notes are delivered against
payment therefor pursuant to this Agreement, the Guarantees will have been duly
delivered by, and will be valid and binding obligations of, the Guarantors,
enforceable in accordance with their terms, except as enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
principles of equity.
(ak) Each of the Company and the Guarantors (including,
without limitation, New CF&I in its capacity as sole general partner of CF&I)
has duly authorized the Security Documents to which it is a party; at the
Closing Time, a Mortgage relating to real property, improvements and fixtures
located in Portland, Oregon and a Mortgage relating to real property,
improvements and fixtures located in Napa, California will have been duly
authorized, executed and delivered by, and will be valid and binding agreements
of, the Company, a Mortgage relating to real property, improvements and fixtures
located in Pueblo County, Colorado and a Mortgage relating to real property,
improvements and fixtures located in Fremont County, Colorado will have been
duly authorized, executed and delivered by, and will be valid and binding
agreements of, CF&I and a separate Security Agreement will have been duly
authorized, executed and delivered by, and will be a valid and binding agreement
of, each of the Company, New CF&I and CF&I, each enforceable in accordance with
its terms, except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general principles of equity.
(al) The Intercreditor Agreement has been duly authorized by
the Company and each of the Guarantors (including, without limitation, by New
CF&I in its capacity as sole general partner of CF&I); at the Closing Time, the
Intercreditor Agreement will have been duly executed and delivered by, and will
be a valid and binding agreement of, the Company and each of the Guarantors,
enforceable in accordance with its terms, except as enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
principles of equity.
(am) The CF&I Note has been duly authorized by CF&I
(including, without limitation, by New CF&I in its capacity as sole general
partner of CF&I); at the Closing Time, the CF&I Note will have been duly
executed by CF&I and, when the Notes are delivered against payment therefore
pursuant to this Agreement, the CF&I Note will have been duly delivered by, and
will be a valid and binding obligation of, CF&I, enforceable in accordance with
its terms, except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general principles of equity.
(an) The Notes, the Guarantees, the Indenture, the Security
Documents, the CF&I Note, the Intercreditor Agreement and the Amended Credit
Agreement, the Bank Guaranties, the Bank Security Agreements and + will conform
in all material respects to the respective statements relating thereto contained
in the Prospectus and will be in substantially the respective forms filed or
incorporated by reference as exhibits to the Registration Statement.
(ao) There has been no storage, generation, transportation,
handling, treatment, disposal, discharge, emission, or other release of any kind
of toxic or other wastes or other hazardous substances by, due to, or caused by
the Company or any of its subsidiaries (or, to the best of the Company's or any
15
<PAGE> 16
Guarantor's knowledge, any other entity for whose acts or omissions the Company
or any of its subsidiaries is or may be liable) upon any of the property now or
previously owned or leased by the Company or any of its subsidiaries, or upon
any other property, in violation of any statute or any ordinance, rule,
regulation, order, judgment, decree or permit or which would, under any statute
or any ordinance, rule (including rule of common law), regulation, order,
judgment, decree or permit, give rise to any liability, except for any violation
or liability which would not have, singly or in the aggregate with all such
violations and liabilities, a material adverse effect on the condition
(financial or other), business, prospects, properties, net worth or results of
operations of the Company and its subsidiaries taken as a whole or on the value
of the collateral pledge pursuant to the Security Documents; there has been no
disposal, discharge, emission or other release of any kind onto such property or
into the environment surrounding such property of any toxic or other wastes or
other hazardous substances with respect to which the Company or any of the
Guarantors have knowledge, except for any such disposal, discharge, emission, or
other release of any kind which would not have, singly or in the aggregate with
all such discharges and other releases, a material adverse effect on the
condition (financial or other), business, prospects, properties, net worth or
results of operations of the Company and its subsidiaries taken as a whole.
(ap) The Company and CF&I are vested with good and marketable
fee simple title to the Real Property Collateral (as defined below) other than
the leasehold estate subject to the Mortgaged Lease (as defined in the Mortgage
relating to the real property of the Company located in Oregon) (such leasehold
estate, the "Leasehold Interest") and the Company, New CF&I and CF&I have good
and marketable title to the Personal Property Collateral (as defined below) and
the Other Mortgaged Property (as defined below), in each case free and clear of
all mortgages, liens, charges, security interests, pledges, assignments and
other encumbrances, except those pursuant to or expressly permitted by the
Security Documents; the Mortgaged Lease is in full force and effect, the Company
is in full compliance with the Mortgaged Lease and neither the Company nor any
subsidiary has any notice of any claim of any sort that has been asserted by
anyone adverse to the rights of the Company under the Mortgaged Lease or
affecting or questioning the rights of the Company to the continued possession
of the Leasehold Interest; at the Closing Time, each of the Security Documents
will create the liens, pledges, security interests, assignments and encumbrances
which it purports to create, and the Security Documents and financing statements
under the UCC (duly authorized, executed and delivered by Company and the
Guarantors, as applicable) will have been filed and recorded in such manner and
in such places as are required by applicable law in order to preserve and fully
protect the lien thereof and to perfect the security interest created thereby in
Personal Property Collateral and Other Mortgaged Property as to which a security
interest may be perfected by the filing of a financing statement under the UCC,
and all taxes, fees and other governmental charges due in connection with such
recordings and filings will have been paid; at the Closing Time, the Mortgages
will constitute valid, binding and enforceable first priority deed of trust
liens on the Real Property Collateral in favor of the Trustee, subject only to
liens expressly permitted by the Indenture or the Mortgages; and, at the Closing
Time, the Security Documents will create valid, binding and enforceable first
priority pledges of, liens on and security interests in the Personal Property
Collateral and Other Mortgaged Property in favor of the Trustee and, with
respect to all Personal Property Collateral and Other Mortgaged Property as to
which a security interest may be perfected by the filing of a financing
statement under the UCC, perfected security interests in all such Personal
Property Collateral and Other Mortgaged Property in favor of the Trustee. As
used in this Agreement, "Trust Property" shall have the meaning assigned to it
in the Mortgages; "Real Property Collateral" means the Real Estate (as defined
in the Mortgages) and all other Trust Property as to which a deed of trust lien
may be created under applicable law; "Other Mortgaged Property" means all Trust
Property other than Real Property Collateral; "Fixtures" means all Trust
Property that constitute "fixtures" within the meaning of the Uniform Commercial
Code of the applicable jurisdiction; and "Personal Property Collateral" means
all Collateral (as defined in the Security Agreements).
16
<PAGE> 17
(aq) At the Closing Time, the Company and the Guarantors, as
applicable, (i) will have delivered to the Trustee possession of any portion or
evidence of the Personal Property Collateral (including, without limitation, all
stock certificates, promissory notes and certificates evidencing any capital
stock or indebtedness constituting a part of the Personal Property Collateral)
as to which a security interest therein may be perfected by the delivery of
possession thereof and (ii) will have delivered to the Trustee possession of any
portion or evidence of the Personal Property Collateral, duly endorsed to the
order of the Trustee or accompanied by an instrument of assignment duly endorsed
to the order of the Trustee, of any portion or evidence of the Personal Property
Collateral as to which a security interest therein may be perfected by the
delivery of possession thereof and an endorsement thereto.
(ar) (A) The only filings necessary to create and/or perfect
the pledges, liens, security interests, assignments and other encumbrances which
the Security Documents purport to create, and the places where such filings are
required by applicable law to be made for such creation and/or perfection, are:
(x) with respect to the Real Property Collateral, the respective Mortgages are
required to be filed in [COMPANY COUNSEL TO NAME OFFICES]; (y) with respect to
the Other Mortgaged Property, the respective Mortgages and financing statements
under the UCC are required to be filed in [COMPANY COUNSEL TO NAME OFFICES]; and
(z) with respect to the Personal Property Collateral, financing statements under
the UCC are required to be filed in [COMPANY COUNSEL TO NAME OFFICES]; and (B)
the only filings necessary to terminate or amend (as described in Sections 6(x),
6(y) and 6(z) hereof) the pledges, liens, security interests, assignments and
other encumbrances created pursuant to the Old Credit Agreement and Old Security
Agreements are: [TO BE SUPPLIED BY COMPANY COUNSEL.]
(as) All of the buildings, improvements, machinery, equipment
and fixtures that constitute any part of the Company's or CF&I's, as applicable,
steel mills or finishing facilities (including, without limitation, all electric
arc furnaces, rolling mills, heat treating facilities, pipe mills, rod mills,
bar mills, wire mills, rail mills, pipe coating facilities and warehouses)
located in the States of Oregon, California or Colorado or which are otherwise
used or useful in the Company's and CF&I's steel making or finishing operations
in such states are located on the Real Estate (as defined in the Mortgages); and
the Real Estate also includes all open areas where scrap and other raw materials
and inventory are stored from time to time, and also includes all roads, canals,
railways and other rights and easements that are used or useful in the
operations of such facilities.
(at) The principal place of business of each of the Company
and New CF&I is located in the City of Portland, the State of Oregon. The
principal place of business of CF&I is located in the City of +, County of
Pueblo, the State of Colorado.
(au) Loans in an aggregate principal amount of $+ have been
made by the Company to CF&I and are outstanding, and all such loans are
evidenced by Optional Advance Notes executed by CF&I, which notes are payable on
demand or, if no demand, on December 31, 2002 or, in the case of the Optional
Advance Note dated December 9, 1994, December 31, 2004. CF&I and New CF&I are
entering into this Agreement, the Indenture, the Guarantees, the Intercreditor
Agreement and the Security Documents to which each of them is a party in
consideration of the loans evidenced by such notes and the fact that the Company
has elected not to demand repayment of such notes, as well as the benefits that
they will receive from the transactions contemplated by this Agreement and the
Other Agreement.
7. Indemnification and Contribution. (a) The Company and the Guarantors
agree, jointly and severally, to indemnify and hold harmless each of you and
each other Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
from and against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue
17
<PAGE> 18
statement of a material fact contained in any Prepricing Prospectus or in the
Registration Statement or the Prospectus or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of or are based upon any untrue
statement or omission or alleged untrue statement or omission which has been
made therein or omitted therefrom in reliance upon and in conformity with the
information relating to such Underwriter furnished in writing to the Company by
or on behalf of such Underwriter through you expressly for use in connection
therewith; provided, however, that the indemnification contained in this
paragraph (a) with respect to any Prepricing Prospectus shall not inure to the
benefit of any Underwriter (or to the benefit of any person controlling such
Underwriter) on account of any such loss, claim, damage, liability or expense
arising from the sale of the Notes by such Underwriter to any person if a copy
of the Prospectus shall not have been delivered or sent to such person within
the time required by the Act and the regulations thereunder, and the untrue
statement or alleged untrue statement or omission or alleged omission of a
material fact contained in such Prepricing Prospectus was corrected in the
Prospectus itself (and not in, or by the filing of, an Incorporated Document),
provided that the Company has delivered the Prospectus to the several
Underwriters in requisite quantity on a timely basis to permit such delivery or
sending. The foregoing indemnity agreement shall be in addition to any liability
which the Company or any Guarantor may otherwise have.
(b) If any action, suit or proceeding shall be brought against
any Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company or any Guarantor, such Underwriter
or such controlling person shall promptly notify the Company and the Company
shall assume the defense thereof, including the employment of counsel, and the
Company and the Guarantors shall, jointly and severally, pay all fees and
expenses (including fees and expenses of counsel). Such Underwriter or any such
controlling person shall have the right to employ separate counsel in any such
action, suit or proceeding and to participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Underwriter or
such controlling person unless (i) the Company and the Guarantors have agreed,
jointly and severally, in writing to pay such fees and expenses, (ii) the
Company has failed to assume the defense and employ counsel, or (iii) the named
parties to any such action, suit or proceeding (including any impleaded parties)
include both such Underwriter or such controlling person and the Company or any
of the Guarantors and such Underwriter or such controlling person shall have
been advised by its counsel that representation of such indemnified party and
the Company or such Guarantor by the same counsel would be inappropriate under
applicable standards of professional conduct (whether or not such representation
by the same counsel has been proposed) due to actual or potential differing
interests between them (in which case the Company shall not have the right to
assume the defense of such action, suit or proceeding on behalf of such
Underwriter or such controlling person). It is understood, however, that the
Company and the Guarantors shall, in connection with any one such action, suit
or proceeding or separate but substantially similar or related actions, suits or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be jointly and severally liable for the reasonable fees and
expenses of only one separate firm of attorneys (in addition to one firm serving
as local counsel) at any time for all such Underwriters and controlling persons
not having actual or potential differing interests with you or among themselves,
which firm shall be designated in writing by Smith Barney Inc., and that all
such fees and expenses shall be reimbursed, jointly and severally by the Company
and the Guarantors, as they are incurred. Neither the Company nor any Guarantor
shall be liable for any settlement of any such action, suit or proceeding
effected without the Company's written consent, but if settled with such written
consent, or if there be a final judgment for the plaintiff in any such action,
suit or proceeding, the Company and the Guarantors, jointly and severally, agree
to indemnify and hold harmless each Underwriter and any controlling persons of
such Underwriter, to the extent provided in subsection (a) above, from and
against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
18
<PAGE> 19
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Guarantors, their respective
directors, their respective officers who sign the Registration Statement, and
any person who controls the Company or any Guarantor within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, to the same extent as
the foregoing indemnity from the Company and the Guarantors to each Underwriter,
but only with respect to information relating to such Underwriter furnished in
writing by or on behalf of such Underwriter through you expressly for use in the
Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto. If any action, suit or proceeding shall be
brought against the Company or any Guarantor, any of their respective directors,
any such officer, or any such controlling person based on the Registration
Statement, the Prospectus or any Prepricing Prospectus, or any amendment or
supplement thereto, and in respect of which indemnity may be sought against any
Underwriter pursuant to this subsection (c), such Underwriter shall have the
rights and duties given to the Company and the Guarantors by subsection (b)
above (except that if the Company shall have assumed the defense thereof such
Underwriter shall not be required to do so, but may employ separate counsel
therein and participate in the defense thereof, but the fees and expenses of
such counsel shall be at such Underwriter's expense), and the Company, the
Guarantors, their respective directors, any such officer, and any such
controlling person shall have the rights and duties given to the Underwriters by
subsection (b) above. The foregoing indemnity agreement shall be in addition to
any liability which the Underwriters may otherwise have.
(d) In addition and without limitation to the Company's and
the Guarantors' obligation to indemnify Smith Barney Inc. in its capacity as an
Underwriter and the controlling persons of Smith Barney Inc. (in its capacity as
an Underwriter), the Company and the Guarantors also agree, jointly and
severally, to indemnify and hold harmless the QIU, its directors, its officers
and each person, if any, who controls the QIU within the meaning of either
Section 15 of the Act or Section 20 of the Exchange Act, from and against any
and all losses, claims, damages, liabilities and expenses (including reasonable
costs of investigation) arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any Prepricing
Prospectus or in the Registration Statement or the Prospectus or in any
amendment or supplement thereto, or arising out of or based upon any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading or arising out of or
based upon the QIU's acting as a "qualified independent underwriter" within the
meaning of Schedule E to the By-Laws of the National Association of Securities
Dealers, Inc. in connection with the offering of the Notes. If any action, suit
or proceeding shall be brought against the QIU, any of its officers or directors
or any such controlling person based on the Registration Statement, the
Prospectus or any Prepricing Prospectus, or any amendment or supplement thereto,
or any other matter arising out of or based upon the QIU's acting as such
"qualified independent underwriter", the QIU, its officers and directors and any
such controlling persons shall have the rights and duties given to the
Underwriters by subsection (b) above and the Company and the Guarantors shall
have the rights and duties given to them by subsection (b) above. The foregoing
indemnity agreement shall be in addition to any liability which the Company or
any Guarantor may otherwise have.
(e) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under subsection (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Guarantors on the one hand and the Underwriters on the other
hand from the offering of the Notes, or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Guarantors on the one
hand and the Underwriters on the other in connection with the statements or
omissions that resulted in such losses,
19
<PAGE> 20
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Guarantors on the one hand and the Underwriters on the other shall be deemed to
be in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault of
the Company and the Guarantors on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or any Guarantor on the one hand or by the Underwriters on the other hand and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
(f) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under subsection (d) hereof in respect of
any losses, claims, damages, liabilities or expenses referred to therein, then
an indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
the Guarantors on the one hand and the QIU on the other hand from the offering
of the Notes or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company and the Guarantors on the one hand and the QIU on the other
in connection with the matters which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Guarantors on the one hand
and the QIU on the other shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by the
Company as set forth in the table on the cover page of the Prospectus bear to
total compensation paid to the QIU by the Company for acting as "qualified
independent underwriter" (within the meaning of Schedule E to the By-Laws of the
National Association of Securities Dealers, Inc.) in connection with the
offering of the Notes. To the extent that the matters which resulted in such
losses, claims, damages, liabilities or expenses relate to any untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact, the relative fault of the Company and the Guarantors on the one
hand and the QIU on the other hand shall be determined by reference to, among
other things, whether any such untrue or alleged untrue statement of material
fact or omission or alleged omission to state a material fact relates to
information supplied by the Company or any Guarantor on the one hand or by the
QIU on the other hand and the parties' relative intent, knowledge, access to
information and opportunity to prevent or correct such statement or omission.
(g) The Company, the Guarantors and the Underwriters agree
that it would not be just and equitable if contribution pursuant to subsection
(e) of this Section 7 were determined by a pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation that does not take account of the equitable considerations
referred to in subsection (e) above. The Company, the Guarantors and the QIU
agree that it would not be just and equitable if contribution pursuant to
subsection (f) of this Section 7 were determined by pro rata allocation or by
any other method of allocation that does not take account of the equitable
considerations referred to in subsection (f) above. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
and expenses referred to in subsection (e) or (f) above, as the case may be,
above shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price of the Shares underwritten by it
20
<PAGE> 21
and distributed to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to subsection (e) of this Section 7 are several in proportion to the
principal amount of Notes set forth opposite their names in Schedule I hereto
(or such principal amount of Notes increased as set forth in Section 10 hereof)
and not joint. The obligations of the Company and the Guarantors to contribute
pursuant to subsections (e) and (f) of this Section 7 are joint and several.
(h) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
(i) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 7 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company and the Guarantors set forth in
this Agreement shall remain operative and in full force and effect, regardless
of (i) any investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company or any Guarantor, their respective
directors or officers or any person controlling the Company or any Guarantor, or
the QIU, its officers or directors or any person controlling the QIU, (ii)
acceptance of any Notes and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter or any person
controlling any Underwriter, or to the Company or any Guarantor, their
respective directors or officers or any person controlling the Company or such
Guarantor, or to the QIU, its officers or directors or any person controlling
the QIU, shall be entitled to the benefits of the indemnity, contribution and
reimbursement agreements contained in this Section 7.
8. Conditions of Underwriters' Obligations. The several obligations of
the Underwriters to purchase the Notes hereunder are subject to the following
conditions:
(a) If, at the time this Agreement is executed and delivered,
it is necessary for the registration statement or a post-effective amendment
thereto or the Rule 462(b) Registration Statement to be declared effective
before the offering of the Notes may commence, the registration statement or
such post-effective amendment or the Rule 462(b) Registration Statement, as the
case may be, shall have become effective not later than 12:00 noon, New York
City time, on the date hereof, or at such later date and time as shall be
consented to in writing by you, and all filings, if any, required by Rules 424
and 430A under the Act shall have been timely made; no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been instituted or, to the knowledge of
the Company, any Guarantor or any Underwriter, threatened by the Commission, and
any request of the Commission for additional information (to be included in the
registration statement or the prospectus or otherwise) shall have been complied
with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company or its subsidiaries or any Guarantor not contemplated by the Prospectus,
which in your opinion, as
21
<PAGE> 22
Representatives of the several Underwriters, would materially adversely affect
the market for the Notes, or (ii) any event or development relating to or
involving the Company or its subsidiaries or any Guarantor or any officer or
director of the Company or any Guarantor which makes any statement made in the
Prospectus untrue in any material respect or which, in the opinion of the
Company and its counsel or the Underwriters and their counsel, requires the
making of any addition to or change in the Prospectus in order to state a
material fact required by the Act or any other law to be stated therein or
necessary in order to make the statements therein not misleading, if amending or
supplementing the Prospectus to reflect such event or development would, in your
opinion, as Representatives of the several Underwriters, materially adversely
affect the market for the Notes.
(c) You shall have received at the Closing Time, an opinion of
Stoel Rives LLP, counsel for the Company and the Guarantors, dated as of the
Closing Time and addressed to you, as Representatives of the several
Underwriters, to the effect that:
(i) The Company has been duly incorporated, is in
good standing and has legal corporate existence under the laws
of the State of Delaware.
(ii) The Company has all requisite corporate power
and corporate authority to own, lease and operate its
properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under
this Agreement, the Other Agreement, the Notes, the Indenture,
the Intercreditor Agreement, the Security Documents to which
the Company is a party, the Amended Credit Agreement, the Bank
Security Agreement to which the Company is a party and +.
(iii) The Company is duly qualified as a foreign
corporation to transact business and is in good standing in
the State of California and the State of Oregon.
(iv) The Shares have been duly authorized for
issuance and sale to the Underwriters pursuant to the Other
Agreement by all necessary corporate action on the part of the
Company and, when issued and delivered by the Company pursuant
to the Other Agreement against payment of the consideration
set forth therein, will be validly issued and fully paid and
non-assessable.
(v) The issuance of the Shares is not subject to
preemptive rights or other similar rights arising by operation
of the General Corporation Law of the State of Delaware or
under the certificate of incorporation or by-laws of the
Company.
(vi) New CF&I has been duly incorporated, is in good
standing and has legal corporate existence under the laws of
the State of Delaware and has all requisite corporate power
and corporate authority to own, lease and operate its
properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under
this Agreement, its Guarantee, the Indenture, the
Intercreditor Agreement, the Security Documents to which it is
a party, [the Amended Credit Agreement], the Bank Guaranty to
which it is a party, the Bank Security Agreement to which it
is a party and +; New CF&I is duly qualified as a foreign
corporation to transact business and is in good standing in
the States of Oregon and Colorado.
(vii) CF&I has been duly organized and has legal
existence as a limited partnership in good standing under the
laws of the State of Delaware, has all requisite power and
authority as a limited partnership to own, lease and operate
its properties and
22
<PAGE> 23
to conduct its business as described in the Prospectus and to
enter into and perform its obligations under this Agreement,
its Guarantee, the Indenture, the Intercreditor Agreement, the
Security Documents to which it is a party, the CF&I Note, [the
Amended Credit Agreement], the Bank Guaranty to which it is a
party, and the Bank Security Agreements to which it is a party
and +; CF&I is duly qualified as a foreign partnership to
transact business, and is in good standing, in the States of
Colorado and California.
(viii) This Agreement has been duly authorized,
executed and delivered by the Company and the Guarantors.
(ix) The Registration Statement is effective under
the Act and, to their knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued
under the Act or proceedings therefor initiated or threatened
by the Commission; and any required filing of the Prospectus
pursuant to Rule 424(b) has been made in accordance with Rule
424(b).
(x) The Registration Statement and the Prospectus, as
amended or supplemented if applicable (in each case other than
the financial statements and supporting schedules and other
financial or statistical data included or incorporated by
reference therein and other than the Trustee's statement of
eligibility on Form T-1 (the "Form T- 1")) comply as to form
in all material respects with the requirements of the Act.
(xi) The Common Stock conforms as to legal matters in
all material respects to the description thereof contained in
the Prospectus under the caption "Description of Capital
Stock", and the form of certificate used to evidence the
Common Stock complies with all applicable requirements of the
General Corporation Law of the State of Delaware.
(xii) To their knowledge (A) there are no legal or
governmental proceedings pending or threatened which are
required to be disclosed in the Registration Statement, other
than those disclosed therein, and (B) there are no pending
legal or governmental proceedings to which the Company or any
subsidiary is a party or to which any of their respective
properties or assets is subject which are not described in the
Registration Statement, including ordinary routine litigation
incidental to the business, and which, individually or in the
aggregate, might reasonably be expected to have a material
adverse effect on (1) the consolidated financial position,
stockholders' equity or results of operations of the Company
and its subsidiaries or (2) the consummation of the
transactions contemplated herein or the performance by the
Company and the Guarantors of their respective obligations
hereunder.
(xiii) The information in the Prospectus under the
captions "Risk Factors--Substantial Increase in Dividend
Requirements; Limitations on Payment of Common Stock
Dividends", "Risk Factors--Leverage and Access to Funding;
Compliance with Financial Covenants", "Risk
Factors--Fraudulent Conveyance Issues", "Risk Factors--Certain
Limitations under State Law" (solely to the extent that it
describes statutes, rules, regulations or other laws of the
State of Oregon), "Risk Factors--Risk to Secured Lenders under
Environmental Laws" (solely to the extent it describes
statutes, rules, regulations or other laws of the State of
Oregon), in the + and + paragraphs under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources",
"Business--Environmental Matters", "Description of Capital
Stock", "Description of the Notes" and "Description of Certain
Indebtedness", the information in
23
<PAGE> 24
the Company's Annual Report on Form 10-K/A for the year ended
December 31, 1995 under "Business--Environmental Matters",
"Business--Employees", "Legal Proceedings", "Properties" and
"Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources",
the information in the Company's proxy statement dated March
15, 1996 under "Executive Compensation--Defined Benefit
Retirement Plans" and "Employment Contracts and Termination of
Employment and Change in Control Arrangements", and the
information under Item 14 of Part II of the Registration
Statement on Form S-1 (Item 15 of Part II of the Registration
Statement on Form S-3), to the extent that it describes
statutes, rules, regulations or other laws, or summarizes
provisions of the Company's or New CF&I's articles of
incorporation and by-laws or the Indenture, the Notes, the
Guarantees, the Security Documents, the Intercreditor
Agreement, the CF&I Note, the Acquisition Agreement, the
Camrose Credit Agreement, the Old Credit Agreement, the
Amended Credit Agreement, the Bank Guaranties, the Bank
Security Agreements, CF&I's partnership agreement, or other
credit agreements, guarantees, documents, instruments,
agreements, legal or governmental proceedings, leases or
employee benefit plans, or constitutes matters of law or legal
conclusions, has been reviewed by them and is correct in all
material respects.
(xiv) To their knowledge, there are no contracts,
indentures, mortgages, loan agreements, credit agreements,
notes, guarantees, leases or other instruments or agreements
required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those
described or referred to therein or filed or incorporated by
reference as exhibits thereto.
(xv) No authorization, approval, consent or order of,
or qualification, registration or filing with, any court or
governmental authority, agency or official is required in
connection with the offering, issuance or sale of the Notes or
the Guarantees to the Underwriters under this Agreement and of
the Shares to the Stock Underwriters under the Other Agreement
or for the execution, delivery or performance by the Company
and the Guarantors of this Agreement, the Other Agreement, the
Notes, the Indenture, the Intercreditor Agreement, the
Guarantees, the Security Documents, the CF&I Note, the Amended
Credit Agreement, the Bank Guaranties and the Bank Security
Agreements or + (including, without limitation, for the
creation and maintenance of the liens and security interests
arising under the Security Documents) except (i) such as may
be required under the Act, state securities and Blue Sky laws
and the 1939 Act and (ii) for the filings described in Section
6(ar) of this Agreement and the filing from time to time of
continuation statements under the UCC; and, to their
knowledge, the execution, delivery and performance of this
Agreement, the Other Agreement, the Notes, the Indenture, the
Intercreditor Agreement, the Guarantees, the Security
Documents, the CF&I Note, the Amended Credit Agreement, the
Bank Guaranties and the Bank Security Agreements and +, and
the consummation of the transactions contemplated herein and
therein (including without limitation, (i) the issuance and
sale of the Shares and the Notes and (ii) the creation and
maintenance of the liens and security interests arising under
the Security Documents and the Bank Security Agreements), will
not conflict with or constitute a breach of, or default under,
or result in the creation or imposition of any lien, charge or
encumbrance (other than liens created by the Security Document
in favor of the Trustee and the holders of the Notes and liens
created pursuant to the Amended Credit Agreement and the Bank
Security Agreements in favor of the Lenders) upon any property
or assets of the Company or any of its subsidiaries pursuant
to, any material contract,
24
<PAGE> 25
indenture, mortgage, loan agreement, credit agreement, note,
guarantee, lease or other instrument or agreement (including,
without limitation, the Indenture, the Security Documents, the
Amended Credit Agreement, the Bank Guaranties, the Bank
Security Agreements, the Acquisition Agreement, the Camrose
Credit Agreement, the Camrose Security Agreement, the BNL
Agreement or the Optional Advance Notes, each of which shall
be deemed material for purposes of this clause (xv)) to which
the Company or any of its subsidiaries is a party or by which
it or any of them may be bound, or to which any of the
property or assets of the Company or any of its subsidiaries
is subject, nor will such action result in any violation of
the provisions of the certificate of incorporation or by-laws,
partnership agreement or organizational documents, as the case
may be, of the Company or any of its Significant Subsidiaries,
or any applicable law, administrative regulation or, to their
knowledge, administrative or court decree.
(xvi) Each Incorporated Document filed pursuant to
the Exchange Act (other than the financial statements and
supporting schedules and other financial or statistical data
included therein, as to which no opinion need be rendered)
complies as to form in all material respects with the Exchange
Act and the Exchange Act Regulations.
(xvii) The acquisition by CF&I of the assets of CF&I
Steel Corporation and its subsidiaries pursuant to the
Acquisition Agreement was approved by a Final Order and the
Final Order, insofar as it relates to the Acquisition
Agreement and the transactions contemplated thereby, is not
subject to review, appeal or modification.
(xviii) The Old Guaranties and the Old Security
Agreements executed by Napa, Fontana and CPC, and the Old
Pledge Agreement have each been terminated and all mortgages,
liens, charges, security interests, pledges, assignments or
other encumbrances created by or in connection with the Old
Pledge Agreement or any such Old Security Agreement, or
securing any obligations thereunder, have been released and
terminated (including, without limitation, by the filing in
appropriate governmental offices of UCC termination
statements).
(xix) The Old New CF&I Guaranty, the Old Company
Security Agreement, the Old New CF&I Security Agreement and
the Old CF&I Security Agreement have been amended and restated
and the Old New CF&I Guaranty, as so amended and restated,
guarantees obligations of the Company arising only under the
Amended Credit Agreement and the only collateral which is
subject to the liens and security interests created by the Old
Company Security Agreement, Old New CF&I Security Agreement
and Old CF&I Security Agreement, as so amended and restated,
is accounts receivable and inventory and related books and
records of the Company, New CF&I and CF&I, respectively, and
all mortgages, liens, charges, security interests, pledges,
assignments and other encumbrances created by the Old Company
Security Agreement, Old New CF&I Security Agreement and the
Old CF&I Security agreement on any other property or assets
have been released and terminated (including, without
limitation, by the filing in appropriate governmental offices
of UCC termination or amendment statements).
(xx) The Amended Credit Agreement has been duly
authorized, executed and delivered by, and is a valid and
binding agreement of, the Company and +, enforceable against
the Company and + in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other
25
<PAGE> 26
similar laws relating to or affecting creditors' rights
generally or by general principles of equity, whether such
enforcement is considered in a proceeding in equity or at law.
(xxi) The Bank Guaranties have been duly authorized,
executed and delivered by, and are the valid and binding
agreements of, New CF&I and CF&I, respectively, enforceable
against New CF&I and CF&I, respectively, in accordance with
their terms, except as the enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights
generally or by general principles of equity, whether such
enforcement is considered in a proceeding in equity or at law.
(xxii) The Bank Security Agreements have been duly
authorized, executed and delivered by, and are the valid and
binding agreements of, the Company, New CF&I and CF&I,
respectively, enforceable against the Company, New CF&I and
CF&I, respectively, in accordance with their terms, except as
the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by
general principles of equity, whether such enforcement is
considered in a proceeding in equity or at law.
(xxiii) The Indenture has been duly authorized,
executed and delivered by the Company and the Guarantors and
(assuming the due authorization, execution and delivery
thereof by the Trustee) constitutes a valid and binding
agreement of the Company and the Guarantors, enforceable
against the Company and the Guarantors in accordance with its
terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, fraudulent transfer or other similar laws relating
to or affecting creditors' rights generally or by general
equitable principles.
(xxiv) The Indenture has been qualified under the
1939 Act.
(xxv) The Notes are substantially in the form
contemplated by the Indenture, have been duly authorized by
the Company and, when executed by the Company and
authenticated by the Trustee in the manner provided in the
Indenture (assuming the due authorization, execution and
delivery of the Indenture by the Trustee) and delivered
against payment of the purchase price therefor specified
herein, will constitute valid and binding obligations of the
Company, enforceable against the Company in accordance with
their terms, except as the enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, fraudulent transfer or other similar
laws relating to or affecting creditor's rights generally or
by general equitable principles, and will be entitled to the
benefits of the Indenture.
(xxvi) The Guarantees are substantially in the form
contemplated by the Indenture, have been duly authorized by
the Guarantors and, when the Guarantees are executed by the
Guarantors and when the Notes are executed by the Company and
authenticated by the Trustee in the manner provided in the
Indenture (assuming the due authorization, execution and
delivery of the Indenture by the Trustee) and delivered
against payment of the purchase price therefor as provided
herein, the Guarantees will constitute valid and binding
obligations of the Guarantors, enforceable against the
respective Guarantors in accordance with their terms, except
as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance,
fraudulent transfer or other similar laws relating to or
affecting creditor's
26
<PAGE> 27
rights generally or by general equitable principles, and will
be entitled to the benefits of the Indenture.
(xxvii) The Intercreditor Agreement is substantially
in the form contemplated by the Indenture, has been duly
authorized, executed and delivered by the Company and the
Guarantors and (assuming the due authorization, execution and
delivery thereof by the Trustee and the Bank Agent)
constitutes a valid and binding agreement of the Company and
the Guarantors, enforceable against the Company and the
Guarantors in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, fraudulent
transfer or other similar laws relating to or affecting
creditors' rights generally or by general equitable
principles.
(xxviii) The CF&I Note is substantially in the form
contemplated by the Indenture, has been duly authorized,
executed and delivered by CF&I and constitutes a valid and
binding agreement of CF&I enforceable against it in accordance
with its terms, except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, fraudulent transfer or other similar
laws relating to or affecting creditors' rights generally or
by general equitable principles.
(xxix) The Notes, the Guarantees and the Indenture
conform in all material respects to the description thereof
contained in the Prospectus under "Description of Notes".
(xxx) The Intercreditor Agreement and the Security
Documents conform in all material respects to the respective
statements relating thereto contained in the Prospectus.
(xxxi) Neither Trustee nor any of the Underwriters is
required (a) to be qualified to transact business, file any
designation for service of process, or file any reports or pay
any taxes in the State of Oregon or (b) to comply with any
statutory or regulatory requirement applicable only to
financial institutions chartered or qualified to do business
in the State of Oregon, in each case solely by reason of the
execution, delivery and performance of any of the Security
Documents, including, without limitation, the making and
receipt of payments by the Trustee pursuant thereto and the
exercise by the Trustee of any remedy thereunder. If it were
determined that any such qualification or filing or compliance
were required, the validity of the Security Documents would
not be affected thereby, but if the Trustee were not
qualified, the Trustee would be precluded from enforcing its
rights in the courts of the State of Oregon, until such time
as it is qualified to transact business in the State of
Oregon.
(xxxii) Each of the Mortgages is substantially in the
form contemplated by the Indenture. The Mortgages relating to
the Company's Real Property Collateral in the State of Oregon
(the "Oregon Mortgage") and the State of California (the
"California Mortgage") and the Mortgages relating to CF&I's
Real Property Collateral in Pueblo County, State of Colorado
and in Fremont County, State of Colorado (the "CF&I
Mortgages") have each been duly authorized (including
authorization by New CF&I as general partner of CF&I),
executed and delivered by, and constitute valid and binding
agreements of, the Company and CF&I, as applicable, and are
enforceable against the Company and CF&I, as the case may be,
in accordance with their respective terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization,
27
<PAGE> 28
moratorium, fraudulent conveyance, fraudulent transfer, or
other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(xxxiii) The execution, delivery and performance of
the Security Agreements and the Mortgages by the Company and
the Guarantors, and the creation of the liens and security
interests created thereby (a) do not and will not violate any
existing law or governmental rule or regulation of the State
of Oregon, (b) do not and will not require any license,
permit, authorization or other approval of, any exemption by,
or any registration, recording or filing with, any court,
administrative agency or other governmental authority of the
State of Oregon except for the recording of the Oregon
Mortgage and the filing of certain financing statements under
the UCC and (c) do not require the approval of the
stockholders of the Company, the stockholders of New CF&I or
any general or limited partner of CF&I.
(xxxiv) The Oregon Mortgage is in proper form for
recording in the State of Oregon, complies with all applicable
legal requirements and is in a form sufficient to create a
valid deed of trust lien on the Real Property Collateral
covered by the Oregon Mortgage (the "Oregon Mortgaged
Property").
(xxxv) The Oregon Mortgage creates the pledges,
liens, security interests, assignments and encumbrances which
it purports to create. Upon the recording of the Oregon
Mortgage in the [Office of the County Recorder of + County] in
the State of Oregon, the Oregon Mortgage will result in a
perfected deed of trust lien on the Oregon Mortgaged Property
and, upon the proper filing of the UCC-1 financing statements
attached to the opinion in the [Office of the County Recorder
of + County], such financing statements shall constitute a
"fixture filing" under the Oregon UCC and will create a
perfected security interest in all Fixtures covered by the
Oregon Mortgage and no taxes, fees or other governmental
charges are due in connection with such recording of the
Oregon Mortgage, except for nominal filing or recording fees.
(xxxvi) Each of the Security Agreements is
substantially in the form contemplated by the Indenture. A
Security Agreement has been duly authorized, executed and
delivered by, and constitutes a valid and binding agreement
of, each of the Company, New CF&I and CF&I, each enforceable
against the Company or such Guarantor, as the case may be, in
accordance with its terms, except as the enforcement thereof
may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, fraudulent transfer, or
other similar laws relating to or affecting creditors' rights
generally or by equitable principles. The UCC-1 financing
statements executed by the Company, New CF&I and CF&I pursuant
to the Security Agreements and the Mortgages have been duly
authorized, executed and delivered by the Company, New CF&I
and CF&I, as applicable.
(xxxvii) With respect to the Personal Property
Collateral covered by the Security Agreement to which the
Company is a party (the "Company Security Agreement") and the
Security Agreement to which New CF&I is a party (the "New CF&I
Security Agreement") located in the State of Oregon and with
respect to the Other Mortgaged Property covered by the Oregon
Mortgage, the UCC-1 financing statements attached to such
opinion are in appropriate form for filing in Oregon.
28
<PAGE> 29
(xxxviii) Each of the Company Security Agreement and
the New CF&I Security Agreement creates, in favor of the
Trustee, the pledges, liens, security interests, assignments
and encumbrances which it purports to create and, upon the
proper filing of the UCC-1 financing statements in [Opinion to
include proper offices for filing], the security interests
created by the Company Security Agreement, the New CF&I
Security Agreement and the Oregon Mortgage will be perfected
in the Personal Property Collateral and the Other Mortgaged
Property covered thereby and with respect to which a security
interest may be perfected by the filing of a financing
statement under the UCC of the State of Oregon. No taxes, fees
or other governmental charges are due in connection with the
filing of the UCC-1 financing statements, except for nominal
filing fees.
(xxxix) The courts of the State of Oregon will
enforce those provisions in the Company Security Agreement and
the New CF&I Security Agreement which stipulate that the
validity, construction and enforceability of such documents
will be governed by the laws of the State of New York, except
to the extent that the laws of the State of Oregon shall
govern the perfection and effect of perfection of the security
interests created thereunder in Personal Property Collateral
located in the State of Oregon and the enforceability of said
security interest.
(xl) In connection with the remedies provided in the
Oregon Mortgage, the Company Security Agreement and the New
CF&I Security Agreement:
(a) The exercise at any time and in any
order of any remedies available against the Personal
Property Collateral located in the State of Oregon
will not be affected by, nor will the exercise at any
time of such remedies affect, the exercise of any
remedies relating to the Oregon Mortgaged Property
under the Oregon Mortgage, unless the Notes have been
paid and performed in full.
(b) The exercise at any time and in any
order of any remedies with respect to any security or
collateral located outside of the State of Oregon
securing the Notes or the Guarantees will not affect
or limit the Trustee's ability to foreclose against,
or exercise any other remedies with respect to, the
Trust Property and the Personal Property Collateral
located in the State of Oregon, except to the extent
that the fair value of such security or collateral
located outside the State of Oregon so sold or
disposed of has been appropriately applied to the
payment of the Notes, or unless the Notes have been
paid and performed in full.
(c) There is no "one form of action" or
similar law in the State of Oregon which would limit
the Trustee to choosing only one remedy to enforce
its rights under the Security Documents.
(xli) To such counsel's knowledge, the principal
place of business of each of the Company and New CF&I is
located in the City of Portland, State of Oregon, and the
principal place of business of CF&I is located in Pueblo
County, State of Colorado.
(xlii) The transactions contemplated and the payments
made and to be received under the Notes, the Indenture, the
Guarantees, and the Security Documents do not violate any
usury or other similar laws of the State of Oregon.
29
<PAGE> 30
(xliii) A duly authorized and executed certificate or
certificates of ownership and merger with respect to each of
the Mergers has been duly filed with the Secretary of State of
the State of Delaware and each of the Mergers has become
effective under the General Corporation Law of the State of
Delaware.
Such counsel shall also state that, although counsel has not
undertaken, except as otherwise indicated in their opinion, to determine
independently, and does not assume any responsibility for, the accuracy or
completeness of the statements in the Registration Statement or the Prospectus,
such counsel has participated in the preparation of the Registration Statement
and the Prospectus, including review and discussion of the contents thereof
(including the contents of all Incorporated Documents), and nothing has come to
the attention of such counsel that has caused them to believe that the
Registration Statement, at the time the Registration Statement became effective,
or the Prospectus, as of its date and as of the Closing Time, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
or that any amendment or supplement to the Prospectus, as of its respective date
or as of the Closing Time, contained any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need make no statement with
respect to the financial statements and schedules and other financial and
statistical data included in the Registration Statement or the Prospectus or any
Incorporated Document or with respect to the Form T-1). In the event that a Rule
462(b) Registration Statement is filed and becomes effective on a date different
from that of the original registration statement, such statement shall be
appropriately modified also to cover the Rule 462(b) Registration Statement as
of its effective date.
In rendering their opinion as aforesaid, counsel may rely upon
an opinion or opinions, each dated the Closing Time, of other counsel retained
by them or the Company as to laws of any jurisdiction other than the United
States, the State of Oregon, the General Corporation Law of the State of
Delaware or the Revised Uniform Limited Partnership Act of the State of Delaware
(which, in the case of matters relating to the laws of the States of Colorado or
California, shall be the local counsel referred to in Sections 8(e) and (f)
below) provided that (1) each such local counsel is acceptable to the
Representatives, (2) such reliance is expressly authorized by each opinion so
relied upon and a copy of each such opinion (which also shall state that the
Representatives may rely on such opinion as if it were addressed to them) is
delivered to the Representatives and is in form and substance satisfactory to
them and their counsel, and (3) counsel shall state in their opinion that they
believe that they and the Underwriters are justified in relying thereon. In
rendering their opinion as aforesaid, insofar as any of the documents covered
thereby are governed by the laws of the State of New York, counsel may assume
for purposes of giving the opinion that the laws of the State of New York are
the same as the laws of the State of Oregon.
(d) You shall have received at the Closing Time an opinion of
Schwabe, Williamson and Wyatt, counsel for the Company, dated as of Closing Time
and addressed to you, as Representatives of the several Underwriters, to the
effect that:
(i) The Company is duly qualified as a foreign corporation to
transact business and is in good standing, in each jurisdiction in
which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not
have a material adverse effect on the condition (financial or other),
business, prospects, properties, net worth or results of operations of
the Company and the subsidiaries considered as a whole.
30
<PAGE> 31
(ii) The authorized, issued and outstanding capital stock of
the Company is as set forth under the caption "Capitalization" in the
Prospectus (except for subsequent issuances, if any, pursuant to
warrants, reservations, agreements or employee benefit plans referred
to in the Prospectus); the issued and outstanding shares of Common
Stock have been duly authorized and validly issued and are fully paid
and non-assessable; and, to their knowledge there are no persons with
registration or other similar rights to have any securities registered
pursuant to the Registration Statement or included in the offering
contemplated by this Agreement or the Other Agreement.
(iii) The issuance of the Shares is not subject to preemptive
rights or other similar rights arising (A) by operation of the General
Corporation Law of the State of Delaware or under the certificate of
incorporation or by-laws of the Company or (B) to their knowledge,
otherwise.
(iv) CPC has been duly incorporated, is in good standing and
has legal corporate existence under the laws of the State of Delaware
and has all requisite corporate power and corporate authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectus; each of New CF&I and CPC is duly qualified
as a foreign corporation to transact business and is in good standing
in each jurisdiction in which such qualification is required, whether
by reason of the ownership or leasing of property or the conduct of
business, except where the failure so to qualify or to be in good
standing would not have a material adverse effect on the condition
(financial or other), business, prospects, properties, net worth or
results of operations of the Company and its subsidiaries considered as
a whole; and all of the issued and outstanding capital stock of each of
New CF&I and CPC has been duly authorized and validly issued, is fully
paid and non-assessable and (except for a minority interest in New CF&I
described in the Prospectus) to their knowledge is owned by the
Company, directly, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity.
(v) CF&I is duly qualified as a foreign partnership to
transact business, and is in good standing, in each jurisdiction in
which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not
have a material adverse effect on the condition (financial or other),
business, prospects, properties, net worth or results of operations of
the Company and its subsidiaries considered as a whole; all of the
issued and outstanding partnership interests of CF&I have been duly
authorized (if applicable) and validly issued; and all of the issued
and outstanding partnership interests of Camrose and CF&I (except for
minority partnership interests described in the Registration Statement)
to their knowledge are owned by the Company, through New CF&I and CPC,
respectively, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity.
(vi) The Mergers were duly authorized by the Company, Fontana
and Napa, as applicable, and did not conflict with or constitute a
breach of, or default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the
Company, Fontana or Napa pursuant to, any contract, indenture,
mortgage, loan agreement, credit agreement, note, guarantee, lease or
other instrument or agreement, known to such counsel, to which the
Company, Fontana or Napa is or was, at the time of the Mergers, a party
or by which any of them are or were, at the time of the Mergers, bound,
or to which any of the property or assets of the Company, Fontana or
Napa is or was, at the time of the Mergers, subject, nor did the
Mergers result in any violation of the provisions of the charter or
by-laws of the Company, Fontana or Napa or, to the knowledge of such
counsel, any applicable law, administrative regulation or
administrative or court decree.
31
<PAGE> 32
(e) You shall have received at the Closing Time, an opinion of
Field & Field Perration, special Canadian counsel for the Company, dated as of
the Closing Time and addressed to you, as Representatives of the several
Underwriters, to the effect that:
(i) CPC is registered in the Province of Alberta,
Canada as a valid and subsisting extra-provincial corporation,
is in good standing with respect to corporate filings in the
Province of Alberta, Canada, and is qualified to transact
business in the Province of Alberta, Canada.
(ii) Camrose is a general partnership duly formed
under the laws of the Province of Alberta, Canada; Camrose is
in good standing with respect to partnership filings in the
Province of Alberta, Canada and there is no other jurisdiction
in which the character of the material properties held by it,
or the nature of its business, makes such qualification or
filing necessary; all of the issued and outstanding
partnership interests in Camrose have been duly authorized (if
applicable) and validly issued and, to their knowledge, CPC
owns a 60% general partnership interest in Camrose; and
Camrose has the power and authority as a general partnership
to own, lease and operate its properties and to conduct its
business in the Province of Alberta, Canada, as described in
the Prospectus.
(f) You shall have received at the Closing Time, an opinion of
Holme Roberts & Owen, special Colorado counsel for the Company and the
Guarantors, dated as of the Closing Time and addressed to you, as
Representatives of the several Underwriters, to the effect that:
(i) Assuming that the Indenture has been duly
authorized, executed and delivered by the Company, the
Guarantors and the Trustee, the Indenture constitutes a valid
and binding agreement of the Company and the Guarantors,
enforceable against the Company and the Guarantors in
accordance with its terms, except as the enforcement thereof
may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, fraudulent transfer or
other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(ii) Assuming that the Notes have been duly
authorized by the Company, the Notes, when executed by the
Company and authenticated by the Trustee in the manner
provided in the Indenture and delivered against payment of the
purchase price therefor specified herein, will constitute
valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as
the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance,
fraudulent transfer or other similar laws relating to or
affecting creditor's rights generally or by general equitable
principles, and will be entitled to the benefits of the
Indenture.
(iii) Assuming that the Guarantees have been duly
authorized by the Guarantors, when the Guarantees are executed
by the Guarantors and when the Notes are executed by the
Company and authenticated by the Trustee in the manner
provided in the Indenture and delivered against payment of the
purchase price therefor as provided herein, the Guarantees
will constitute valid and binding obligations of the
respective Guarantors, enforceable against the respective
Guarantors in accordance with their terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization,
32
<PAGE> 33
moratorium, fraudulent conveyance, fraudulent transfer or
other similar laws relating to or affecting creditor's rights
generally or by general equitable principles.
(iv) Assuming that the Intercreditor Agreement has
been duly authorized, executed and delivered by the parties
thereto, the Intercreditor Agreement constitutes a valid and
binding agreement of the Company and the Guarantors,
enforceable against the Company and the Guarantors in
accordance with its terms, except as the enforcement thereof
may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, fraudulent transfer or
other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(v) Assuming that the Company Security Agreement has
been duly authorized, executed and delivered by the Company,
the Company Security Agreement constitutes a valid and binding
agreement of the Company enforceable against the Company in
accordance with its terms, except as the enforcement thereof
may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, fraudulent transfer, or
other similar laws relating to or affecting creditors' rights
generally or by equitable principles.
(vi) Assuming that the New CF&I Security Agreement
has been duly authorized, executed and delivered by New CF&I,
the New CF&I Security Agreement constitutes a valid and
binding agreement of New CF&I enforceable against New CF&I in
accordance with its terms, except as the enforcement thereof
may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, fraudulent transfer, or
other similar laws relating to or affecting creditors' rights
generally or by equitable principles.
(vii) Assuming that the CF&I Note has been duly
authorized, executed and delivered by CF&I, the CF&I Note
constitutes a valid and binding agreement of CF&I enforceable
against it in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, fraudulent
transfer or other similar laws relating to or affecting
creditors' rights generally or by general equitable
principles.
(viii) Assuming that each of the Oregon Mortgage and
the California Mortgage have been duly authorized, executed
and delivered by the Company, each of the Oregon Mortgage and
the California Mortgage constitute a valid and binding
agreement of the Company and are enforceable against the
Company in accordance with their respective terms, except as
the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance,
fraudulent transfer, or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles.
(ix) Each of the Company Security Agreement and the
New CF&I Security Agreement creates the pledges, liens,
security interests, assignments and encumbrances which it
purports to create and creates a valid, binding and
enforceable security interest, in favor of the Trustee, in the
Personal Property Collateral covered thereby.
(x) Neither Trustee nor any of the Underwriters is
required (a) to be qualified to transact business, file any
designation for service of process, or file any reports or pay
any taxes in the State of Colorado or (b) to comply with any
statutory or regulatory
33
<PAGE> 34
requirement applicable only to financial institutions
chartered or qualified to do business in the State of
Colorado, in each case, solely by reason of the execution,
delivery and performance of any of the Security Documents,
including, without limitation, the making and receipt of
payments by the Trustee pursuant thereto and the exercise by
the Trustee of any remedy thereunder. If it were determined
that any such qualification or filing or compliance were
required, the validity of the Security Documents would not be
affected thereby, but if the Trustee were not qualified, the
Trustee would be precluded from enforcing its rights in the
courts of the State of Colorado, until such time as it is
qualified to transact business in the State of Colorado.
(xi) Assuming that the CF&I Mortgages has been duly
authorized by CF&I, the CF&I Mortgages have been duly executed
and delivered by, and are valid and binding agreements of,
CF&I, enforceable against CF&I in accordance with their terms,
except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, fraudulent transfer, or other similar laws
relating to or affecting creditors' rights generally or by
general equitable principles.
(xii) The execution, delivery and performance by CF&I
of the Security Agreement to which it is a party (the "CF&I
Security Agreement") and the CF&I Mortgages, and the creation
of the liens and security interests created thereby (a) do not
and will not violate any existing law or governmental rule or
regulation of the State of Colorado and (b) do not and will
not require any license, permit, authorization or other
approval of, any exemption by, or any registration, recording
or filing with, any court, administrative agency or other
governmental authority of the State of Colorado except for the
recording of the CF&I Mortgages and the filing of certain
financing statements under the UCC.
(xiii) The CF&I Mortgages are in proper form for
recording in the State of Colorado, comply with all applicable
legal requirements and are in a form sufficient to create
valid deed of trust liens on the Real Property Collateral
covered by the CF&I Mortgages (the "Colorado Mortgaged
Property").
(xiv) The CF&I Mortgages create the pledges, liens,
security interests, assignments and encumbrances which they
purport to create. Upon the recording of the CF&I Mortgages in
the [Office of the + of Pueblo County and Fremont County,
respectively] in the State of Colorado, the CF&I Mortgage will
result in a perfected deed of trust lien in the Colorado
Mortgaged Property and, upon the proper filing of the UCC-1
financing statements attached to the opinion in the [Office of
the Pueblo County and Fremont County + of Pueblo County and
Fremont County], such financing statements shall constitute a
"fixture filing" under the Colorado UCC and will create a
perfected security interest in all Fixtures covered by the
CF&I Mortgages and no taxes, fees or other governmental
charges are due in connection with the recording of the CF&I
Mortgages, except for nominal filing or recording fees.
(xv) Assuming that the CF&I Security Agreement has
been duly authorized by CF&I, the CF&I Security Agreement has
been duly executed and delivered by, and constitutes a valid
and binding agreement of, CF&I, enforceable against CF&I in
accordance with its terms, except as the enforcement thereof
may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, fraudulent
34
<PAGE> 35
transfer or other similar laws relating to or affecting
creditors' rights generally or by general equitable
principles.
(xvi) With respect to the Personal Property
Collateral covered by the CF&I Security Agreement located in
the State of Colorado and with respect to the Other Mortgaged
Property covered by the CF&I Mortgages, the UCC-1 financing
statements attached to such opinion are in appropriate form
for filing in Colorado.
(xvii) The CF&I Security Agreement creates in favor
of the Trustee the pledges, liens, security interest,
assignments and encumbrances which it purports to create and,
upon the proper filing of the UCC-1 financing statements in
[Opinion to indicate proper offices for filing], the security
interests created by the CF&I Security Agreement and the CF&I
Mortgages will be perfected in the Personal Property
Collateral and the Other Mortgaged Property covered by the
CF&I Security Agreement and the CF&I Mortgages, respectively,
and with respect to which a security interest may be perfected
by the filing of a financing statement under the UCC of the
State of Colorado. No fees, taxes or other governmental
charges are due in connection with the filing of the UCC-1
financing statements, except for nominal filing fees.
(xviii) The courts of the State of Colorado will
enforce those provisions in the CF&I Security Agreement which
stipulate that the validity, construction and enforceability
of such document will be governed by the laws of the State of
New York, except to the extent that the laws of the State of
Colorado shall govern the perfection and effect of perfection
of the security interests created thereunder in the Personal
Property Collateral of CF&I located in the State of Colorado
and the enforceability of said security interest.
(xix) In connection with the remedies provided in the
CF&I Mortgages and the CF&I Security Agreement:
(a) The exercise at any time and in any
order of any remedies available against the Personal
Property Collateral located in the State of Colorado
will not be affected by, nor will the exercise at any
time of such remedies affect, the exercise of any
remedies relating to the Colorado Mortgaged Property
under the CF&I Mortgages, unless the Notes have been
paid and performed in full.
(b) The exercise of any remedies with
respect to any security or collateral located outside
of the State of Colorado securing the Notes or the
Guarantees will not affect or limit the Trustee's
ability to foreclose against, or exercise any other
remedies with respect to, the Trust Property and the
Personal Property Collateral located in the State of
Colorado, except to the extent that the fair value of
such security or collateral located outside the State
of Colorado so sold or disposed of has been
appropriately applied to the payment of the Notes, or
unless the Notes have been paid and performed in
full.
(c) There is no "one form of action" or
similar law in the State of Colorado which would
limit the Trustee to choosing only one remedy to
enforce its rights under the Security Documents.
(xx) The information in the Prospectus under "Risk
Factors--Certain Limitations under State Law", to the extent
that it describes statutes, rules, regulations or
35
<PAGE> 36
other laws of the State of Colorado, has been reviewed by them
and is correct in all material respects. The laws of the State
of Colorado do not provide for a "Superlien" of the nature
described in the Prospectus under "Risk Factors--Risk to
Secured Lenders under Environmental Laws."
(xxi) The transactions contemplated and the payments
made and to be received under the Notes, the Indenture, the
Guarantees, and the Security Documents do not violate any
usury or other similar laws of the State of Colorado.
In rendering their opinion as aforesaid, counsel shall state
that such opinion is limited to matters arising under the laws of the United
States, the State of New York, the State of Colorado and the Revised Uniform
Limited Partnership Act of the State of Delaware.
(g) You shall have received at the Closing Time, an opinion of
Heller, Ehrman, White & McAuliffe special California counsel to the Company and
the Guarantors, dated as of the Closing Time and addressed to you, as
Representatives of the several Underwriters, to the effect that:
(i) Neither Trustee nor any of the Underwriters is
required (a) to be qualified to transact business, file any
designation for service of process, or file any reports or pay
any taxes in the State of California or (b) to comply with any
statutory or regulatory requirement applicable only to
financial institutions chartered or qualified to do business
in the State of California, in each case solely by reason of
the execution, delivery and performance of any of the Security
Documents, including, without limitation, the making and
receipt of payments by the Trustee pursuant thereto and the
exercise by the Trustee of any remedy thereunder. If it were
determined that any such qualification, filing or compliance
were required, the validity of the Security Documents would
not be affected thereby, but if the Trustee were not
qualified, the Trustee would be precluded from enforcing its
rights in the courts of the State of California, until such
time as it is qualified to transact business in the State of
California.
(ii) Assuming the due authorization of the California
Mortgage, the California Mortgage has been duly executed and
delivered by, and is a valid and binding agreement of, the
Company, enforceable against the Company in accordance with
its terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, fraudulent transfer, or other similar laws
relating to or affecting creditors' rights generally or by
general equitable principles.
(iii) The execution, delivery and performance by the
Company of the Company Security Agreement and the California
Mortgage, and the creation of the liens provided for therein
(a) do not and will not violate any existing law or
governmental rule or regulation of the State of California and
(b) do not and will not require any license, permit,
authorization or other approval of, any exemption by, or any
registration, recording or filing with, any court,
administrative agency or other governmental authority of the
State of California except for the recording of said Mortgage
and the filing of certain financing statements under the UCC.
(iv) The California Mortgage is in proper form for
recording in the State of California, complies with all
applicable legal requirements and is in a form sufficient to
create a valid deed of trust lien on the Real Property
Collateral covered by the California Mortgage (the "California
Mortgaged Property").
36
<PAGE> 37
(v) The California Mortgage creates the pledges,
liens, security interests, assignments and encumbrances which
it purports to create. Upon the recording of the California
Mortgage in the [Office of the County Recorder of Napa County]
in the State of California, the California Mortgage will
result in a perfected deed of trust lien on the California
Mortgaged Property and, upon the proper filing of the UCC-1
financing statements attached to the opinion in the [Office of
the County Recorder of Napa County], such financing statements
shall constitute a "fixture filing" under the California UCC
and will create a perfected security interest in all Fixtures
covered by the California Mortgage and no taxes, fees or other
governmental charges are due in connection with such
recording, except for nominal filing or recording fees.
(vi) Assuming the due authorization of the Company
Security Agreement, the Company Security Agreement has been
duly executed and delivered by, and constitutes a valid and
binding agreement of, the Company, enforceable against the
Company in accordance with its terms, except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, fraudulent
transfer or other similar laws relating to or affecting
creditors' rights generally or by general equitable
principles.
(vii) With respect to all Personal Property
Collateral covered by the Company Security Agreement located
in the State of California and with respect to the Other
Mortgaged Property covered by the California Mortgage, the
UCC-1 financing statements attached to such opinion are in
appropriate form for filing in California and have been duly
executed and delivered by the Company.
(viii) The Company Security Agreement creates, in
favor of the Trustee, the pledges, liens, security interest,
assignments and encumbrances which it purports to create and,
upon the proper filing of UCC-1 financing statements in
[Opinion to indicate proper offices for filing], the security
interests created by the Company Security Agreement and the
California Mortgage will be perfected in the Personal Property
Collateral and the Other Mortgaged Property covered by the
Company Security Agreement and the California Mortgages,
respectively, and with respect to which a security interest
may be perfected by the filing of a financing statement under
the UCC of the State of California. No taxes, fees or other
governmental charges are due in connection with the filing of
the UCC-1 financing statements, except for nominal filing
fees.
(ix) The courts of the State of California will
enforce those provisions in the Company Security Agreement
which stipulate that the validity, construction and
enforceability of such documents will be governed by the laws
of the State of New York, except to the extent that the laws
of the State of California shall govern the perfection and
effect of perfection of the security interests created
thereunder in the Personal Property Collateral of the Company
located in the State of California and the enforceability of
said security interest.
(x) In connection with the remedies provided in the
California Mortgage and the Company Security Agreement, the
exercise at any time and in any order of any remedies
available against the Personal Property Collateral located in
the State of California will not be affected by, nor will the
exercise at any time of such remedies affect, the exercise of
any remedies relating to the Trust Property located in the
State of California under the California Mortgage, unless the
Notes have been paid and performed in full.
37
<PAGE> 38
(xi) The information in the Prospectus under "Risk
Factors--Certain Limitations under State Law" and "Risk
Factors--Risk to Secured Lenders under Environmental Laws", to
the extent that it describes statutes, rules, regulations or
other laws of the State of California, has been reviewed by
them and is correct in all material respects.
(xii) The transactions contemplated and the payments
made and to be received under the Notes, the Indenture, the
Guarantees, and the Security Documents do not violate any
usury or other similar laws of the State of California.
In rendering their opinion as aforesaid, counsel shall state
that such opinion is limited to matters arising under the laws of the United
States, the State of California and the General Corporation Law of the State of
Delaware.
(h) You shall have received at the Closing Time an opinion of
Brown & Wood, counsel for the Underwriters, dated as of the Closing Time and
addressed to you, as Representatives of the several Underwriters, with respect
to the matters referred to in clauses (iv), (v), (viii), (ix), (x) (excluding
the Incorporated Documents), (xxiii), (xxiv), (xxv), (xxvi), (xxvii), (xxviii),
(xxix) and the penultimate paragraph of subsection (c) above and such other
related matters as you may request.
(i) You shall have received letters addressed to you, as
Representatives of the several Underwriters, and dated the date hereof and as of
the Closing Time from Coopers and Lybrand L.L.P., independent certified public
accountants, substantially in the forms heretofore approved by you.
(j) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company or of any of
the Guarantors, shall be contemplated by the Commission at or prior to the
Closing Time; (ii) there shall not have been any change in the capital stock of
the Company (except for subsequent issuances, if any, pursuant to the Other
Agreement or pursuant to warrants or reservations referred to in the Prospectus)
nor any material increase in the consolidated short-term or long-term debt of
the Company and its subsidiaries (other than in the ordinary course of business)
from that set forth or contemplated in the Registration Statement or the
Prospectus; (iii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement and the Prospectus,
except as may otherwise be stated in the Registration Statement and Prospectus,
any material adverse change in the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Company and its
subsidiaries considered as a whole or of any Guarantor; (iv) neither the Company
and its subsidiaries nor any Guarantor shall have any liabilities or
obligations, direct or contingent (whether or not in the ordinary course of
business), that are material to the Company and its subsidiaries, considered as
a whole, or to such Guarantor, as the case may be, other than those reflected in
the Registration Statement or the Prospectus; and (v) all the representations
and warranties of the Company and the Guarantors contained in this Agreement
shall be true and correct on and as of the date hereof and on and as of the
Closing Time as if made on and as of the Closing Time, and you shall have
received a certificate, dated as of the Closing Time and signed on behalf of the
Company by the chief executive officer and the chief financial officer of the
Company and of each of the Guarantors (or such other officers as are acceptable
to you), to the effect set forth in this Section 8(j) and in Section 8(k)
hereof.
(k) Neither the Company nor any of the Guarantors shall have
failed at or prior to the Closing Time to have performed or complied with any of
its agreements herein contained and required to be performed or complied with by
it hereunder at or prior to the Closing Time.
38
<PAGE> 39
(l) The Notes shall be rated + by Moody's Investors Service,
Inc., and + by Standard & Poor's Corporation and, at the Closing Time, you shall
have received evidence, satisfactory to you, of such ratings; and there shall
not have been any announcement by any "nationally recognized statistical rating
organization", as defined for purposes of Rule 436(g) under the Act, that (i) it
is downgrading its rating assigned to the Notes or any other debt securities of
the Company or (ii) it is reviewing its rating assigned to the Notes or any
other debt securities of the Company with a view to possible downgrading, or
with negative implications, or direction not determined.
(m) Prior to commencement of the offering of the Notes, the
Notes, the Guarantees and the CF&I Note shall have been listed, subject to
notice of issuance, on the New York Stock Exchange.
(n) Prior to or concurrently with the delivery of the Notes
hereunder at the Closing Time, the Company shall have issued the Firm Shares and
the Stock Underwriters shall have paid for the Firm Shares pursuant to the Other
Agreement.
(o) Prior to the Closing Time, the Amended Credit Agreement,
the Bank Guaranties and the Bank Security Agreements and all ancillary
instruments and agreements shall have been executed and delivered by the parties
thereto and shall be in form and substance satisfactory to you and the Company
shall have furnished you copies thereof; at or prior to Closing Time, the
instruments and agreements (including, without limitation, UCC termination
statements or amendments to UCC financing statements) providing for the release
and termination of the liens and security interests referred to in Sections
6(x), 6(y) and 6(z) hereof shall have been executed, delivered and filed in the
appropriate governmental offices, and the Company shall have delivered to you
evidence, in form and substance satisfactory to you, of such release,
termination and filing; at the Closing Time, the Amended Credit Agreement shall
be effective; at the Closing Time, the Company shall have furnished to you
evidence, in form and substance satisfactory to you, that the Old Pledge
Agreement, the Old Guaranties executed by Napa, Fontana and CPC and the Old
Security Agreements executed by Napa, Fontana and CPC shall have been terminated
and that all amounts owing thereunder have been paid, and that all mortgages,
liens, charges, security interests, pledges, assignments or other encumbrances
created thereby or in connection therewith, or securing obligations under the
Old Guaranties or the Old Credit Agreement, have been released and terminated
(including, without limitation, by the filing in appropriate governmental
offices of UCC termination statements); and at the Closing Time, the Company
shall have furnished to you evidence, in form and substance satisfactory to you,
that the Old Guaranty executed by New CF&I shall have been amended and restated
and shall guarantee obligations of the Company arising only under the Amended
Credit Agreement and that the Old Security Agreements executed by the Company,
New CF&I and CF&I have been amended and restated and that the only collateral
which is subject to the liens and security interests created thereby, after
giving effect to such amendment and restatement, are accounts receivable and
inventory and related books and records of the Company, New CF&I and CF&I,
respectively, and that the only obligations secured thereby are the obligations
of the Company under the Amended Credit Agreement and of New CF&I and CF&I under
the Bank Guaranties.
(p) At the Closing Time, you shall have received evidence,
satisfactory to you, of the consent of Pension Benefit Guaranty Corporation, as
the limited partner of CF&I, to the Guarantee, the Security Agreement and the
Mortgage executed by CF&I in connection with the Notes and the Bank Guaranty and
the Bank Security Agreement executed by CF&I in connection with the Amended
Credit Agreement and that such consent shall be in full force and effect and
shall not have been withdrawn or limited.
39
<PAGE> 40
(q) At the Closing Time, you shall have received evidence,
satisfactory to you, that BNL has waived the negative pledge covenant in the BNL
Agreement insofar as relates to the liens and security interests created by the
Security Documents and the Bank Security Agreements, and that such waiver shall
be in full force and effect and shall not have been withdrawn or limited.
(r) On or before the Closing Time (or in the case of clause
(ii) below prior to the Closing Time), the Company shall have caused to be
delivered to the Underwriters the following documents and instruments with
regard to the Trust Property:
(i) the Oregon Mortgage, the California Mortgage and
the CF&I Mortgages encumbering the Trust Property of the
Company and CF&I, respectively, each duly executed and
acknowledged by the owner thereof and otherwise in form for
recording in the appropriate recording office of the political
subdivision where such Trust Property is situated, together
with such certificates, affidavits, questionnaires or returns
as shall be required in connection with the recording or
filing thereof and such UCC-1 financing statements and other
similar statements as are contemplated in respect of such
Mortgages, and any other instruments necessary to grant the
interests purported to be granted by such Mortgages under the
laws of any applicable jurisdiction, which Mortgages and
financing statements and other instruments shall be effective
to create a deed of trust Lien (as defined in the Indenture)
on the Real Property Collateral Property subject to no Liens
other than Liens permitted to be outstanding pursuant to such
Mortgages and the Indenture;
(ii) evidence of the recording of the Oregon
Mortgage, CF&I Mortgage and California Mortgage and filing of
any UCC-1 financing statements in such offices where such
recording or filing is necessary or, in the opinion of the
Underwriters, desirable to perfect the liens created or
intended to be created by said Mortgages;
(iii) with respect to the Trust Property of the
Company and CF&I, such consents, approvals, amendments,
supplements, estoppels, tenant subordination agreements,
affidavits of title of the owner or other instruments as shall
reasonably be deemed necessary by the Underwriters in order
for the owner thereof to grant the Lien contemplated by the
Mortgages with respect to such Trust Property;
(iv) with respect to each Mortgage, a policy of title
insurance on ALTA Form Loan Policy or equivalent (or a
commitment to issue such a policy) insuring (or committing to
insure) the Lien of such Mortgage as a valid first deed of
trust Lien on the Real Property Collateral in respect of the
Notes in an aggregate amount not less than the principal
amount of the Notes which policy (or commitment) shall (A) be
issued by a nationally recognized title insurance company
satisfactory to the Underwriters, (B) include such reinsurance
arrangements (with provisions for direct access) as shall be
reasonably acceptable to the Underwriters, (C) have been
supplemented by such endorsements, or, where such endorsements
are not available at commercially reasonable premium costs,
opinion letters of special counsel, architects or other
professionals, which counsel, architects or other
professionals shall be reasonably acceptable to the
Underwriters, as shall be reasonably requested by the
Underwriters (including, without limitation, endorsements or
opinion letters on matters relating to usury, first loss, last
dollar, zoning, non-imputation, public road access, contiguity
(where appropriate), cluster, survey, variable rate and
so-called comprehensive coverage over easements, covenants and
restrictions) and (D) contain only such exceptions to title as
shall be reasonably agreed
40
<PAGE> 41
to by the Underwriters prior to the Closing Time with respect
to such Real Property Collateral;
(v) with respect to the Real Property Collateral of
the Company and CF&I (other than the approximately 14,000
acres in Pueblo County, Colorado adjacent to CF&I's main
plant), a survey complying with the minimum detail
requirements of the American Land Title Association or
otherwise in form and substance satisfactory to the
Underwriters and certified to the Trustee, in its capacity as
collateral agent, and dated (or redated) not earlier than six
months prior to the date of delivery thereof, unless there
shall have occurred any exterior change in the Real Property
Collateral affected thereby during such period, in which event
such survey shall be dated or redated to a date after the
completion of such change, which survey shall locate all
improvements, public streets and recorded easements affecting
such Real Property Collateral or otherwise containing such
information and details as shall be satisfactory to the
Underwriters;
(vi) with respect to the Real Property Collateral of
the Company and CF&I, policies or certificates of insurance as
required by the Mortgages relating thereto, which policies or
certificates shall contain mortgagee endorsements as specified
and required by such Mortgages;
(vii) with respect to the Real Property Collateral of
the Company and CF&I, UCC, judgment and tax lien searches
confirming that the personal property comprising a part of the
Trust Property is subject to no Liens;
(viii) evidence of (A) the payment of all recording
costs and transfer taxes (or checks or wire transfers to the
title company in respect of such amounts) due in respect of
the execution, delivery or recording of such Mortgages, and
(B) payment to the title company of its premium, search and
examination charges, survey costs and any other amounts due in
connection with the issuance of its policies (or commitments);
(ix) with respect to the Real Property Collateral of
the Company and CF&I, copies of all Leases (as defined in the
Mortgages), all of which Leases shall, to the extent not
previously approved in writing by the Underwriters, be
reasonably satisfactory to the Underwriters;
(x) with respect to the Real Property Collateral of
the Company and CF&I, a certificate of the Company and the
Guarantors, signed by the chief financial officer or other
executive officer satisfactory to the Underwriters, certifying
that, as of the date of delivery of such certificate, there is
not outstanding any citation, violation or similar written
notice indicating that such Real Property Collateral contains
conditions which are not in compliance with local codes or
ordinances relating to building, fire, safety, health or other
laws; together with searches of the applicable building, fire,
safety, health and other agencies or departments of the
applicable jurisdiction listing any violations of local codes
or ordinances;
(xi) with respect to the Real Property Collateral of
the Company and CF&I, copies of Included Intangibles (as
defined in the Security Agreements) relating to work on the
Real Property Collateral, assignments thereof by the Company
or the relevant Guarantor, as the case may be, and
acknowledgments of such assignment by the contractor party
thereof;
41
<PAGE> 42
(xii) with respect to the Real Property Collateral of
the Company and CF&I, copies of permanent certificates of
occupancy of the applicable jurisdiction for the Real Property
Collateral permitting use and occupancy of the buildings and
improvements on the Real Property Collateral;
(xiii) with respect to the Real Property Collateral
of the Company and CF&I, environmental assessment reports
concerning environmental conditions at the Real Property
Collateral prepared by a qualified engineering or
environmental consultant; and
(xiv) with respect to the Trust Property of the
Company and CF&I, payoff letters of the holders of any Liens
on the Trust Property which will be paid and discharged from
the proceeds of the Notes.
(s) Prior to the Closing Time, the Company shall have
delivered to the Underwriters and to the Trustee the Security Agreements, duly
executed by the Company and the Guarantors (to the extent each is a party
thereto), together with the evidence of the filing of appropriate UCC-1
financing statements in each of the offices where such filing is necessary or,
in the opinion of the Underwriters, desirable to perfect the liens in the
Personal Property Collateral and Other Mortgaged Property created or intended to
be created thereby. All filing fees and taxes in connection with such filings
shall have been paid and the Underwriters shall have received evidence
satisfactory to them of such filings and payments, including in the case of any
financing statements, the acknowledgement copies of all such financing
statements bearing evidence of filing in each such office.
(t) Prior to the Closing Time, the Company shall have
delivered to the Underwriters, copies of Requests for Information (Form UCC-11
or the equivalent), or equivalent reports or lien search reports listing all
effective financing statements, judgments and tax liens which name any of the
Company or any Guarantor as debtor and which are filed in those jurisdictions in
which any of the Collateral (as defined in the Indenture) is located and the
jurisdictions in which each of the Company and the Guarantors' principal place
of business is located, none of which shall encumber the Collateral covered, or
intended or purported to be covered, by the Security Documents (other than
financing statements relating to indebtedness to be repaid at closing).
(u) Prior to the Closing Time, the Company shall have
delivered to the Trustee the insurance policies or certificates or insurance
required to be so delivered by the Security Agreements, which policies or
certificates shall be endorsed as specified and required by such Security
Agreements.
(v) The Company and the Guarantors shall have furnished or
caused to be furnished to you such further certificates and documents as you
shall have reasonably requested.
All such opinions, certificates, letters and other
documents will be in compliance with the provisions hereof only if they are
satisfactory in form and substance to you and your counsel.
Any certificate or document signed by any officer of
the Company or any Guarantor and delivered to you, as Representatives of the
Underwriters, or to counsel for the Underwriters, shall be deemed a
representation and warranty by the Company and the Guarantors, jointly and
severally, to each Underwriter as to the statements made therein.
9. Expenses. The Company and the Guarantors, jointly and severally,
agree to pay the following costs and expenses and all other costs and expenses
incident to the performance by them of their obligations hereunder: (i) the
preparation, printing (or reproduction), and filing with the Commission of
42
<PAGE> 43
the Registration Statement (including financial statements and exhibits
thereto), each Prepricing Prospectus, the Prospectus, each amendment or
supplement to any of them, the Indenture, the Security Documents and the Form
T-1 (ii) the printing (or reproduction) and delivery (including postage, air
freight charges and charges for counting and packaging) of such copies of the
Registration Statement, each Prepricing Prospectus, the Prospectus, the
Incorporated Documents, and all amendments or supplements to any of them, as may
be reasonably requested for use in connection with the offering and sale of the
Notes; (iii) the preparation, printing (or reproduction), execution and delivery
of the Indenture and the Security Documents, the Intercreditor Agreement and the
preparation, printing, authentication, issuance and delivery of the Notes and
the Guarantees, including any stamp taxes in connection with the original
issuance of the Notes and the Guarantees; (iv) the printing (or reproduction)
and delivery of this Agreement, the preliminary and supplemental Blue Sky
Memoranda and all other agreements or documents printed (or reproduced) and
delivered in connection with the offering of the Notes; (v) the registration of
the Notes under the Exchange Act and the listing of the Notes and the Guarantees
and CF&I Note on the New York Stock Exchange; (vi) the registration or
qualification of the Notes and the Guarantees and CF&I Note for offer and sale
under the securities or Blue Sky laws of the several states as provided in
Section 5(g) hereof (including the reasonable fees, expenses and disbursements
of counsel for the Underwriters relating to the preparation, printing (or
reproduction), and delivery of the preliminary and supplemental Blue Sky
Memoranda and such registration and qualification); (vii) the filing fees and
the reasonable fees and expenses of counsel for the Underwriters in connection
with any filings required to be made with the National Association of Securities
Dealers, Inc.; (viii) the fees and expenses of the Trustee; (ix) the fees and
expenses associated with obtaining ratings for the Notes from nationally
recognized statistical rating organizations; (x) the transportation and other
expenses incurred by or on behalf of Company representatives in connection with
presentations to prospective purchasers of the Notes; (xi) the fees and expenses
associated with the recording or filing of any instrument or agreement referred
to herein; and (xii) the fees and expenses of the Company's accountants and the
fees and expenses of counsel (including local and special counsel) for the
Company.
10. Effective Date of Agreement. This Agreement shall become effective:
(i) upon the execution and delivery hereof by the parties hereto; or (ii) if, at
the time this Agreement is executed and delivered, it is necessary for the
registration statement or a post-effective amendment thereto or a Rule 462(b)
Registration Statement to be declared or become effective before the offering of
the Notes may commence, when notification of the effectiveness of the
registration statement or such post-effective amendment or a Rule 462(b)
Registration Statement, as the case may be, has been released by the Commission.
Until such time as this Agreement shall have become effective, it may be
terminated by the Company by notifying you, or by you, as Representatives of the
several Underwriters, by notifying the Company.
If any one or more of the Underwriters shall fail or refuse to
purchase Notes which it or they are obligated to purchase hereunder at the
Closing Time, and the aggregate principal amount of Notes which such defaulting
Underwriter or Underwriters are obligated but fail or refuse to purchase is not
more than one-tenth of the aggregate principal amount of Notes which the
Underwriters are obligated to purchase at the Closing Time, each non-defaulting
Underwriter shall be obligated, severally, in the proportion which the principal
amount of Notes set forth opposite its name in Schedule I hereto bears to the
aggregate principal amount of Notes set forth opposite the names of all
non-defaulting Underwriters or in such other proportion as you may specify in
accordance with Section 20 of the Master Agreement Among Underwriters of Smith
Barney Inc., to purchase the Notes which such defaulting Underwriter or
Underwriters are obligated, but fail or refuse, to purchase. If any one or more
of the Underwriters shall fail or refuse to purchase Notes which it or they are
obligated to purchase at the Closing Time and the aggregate principal amount of
Notes with respect to which such default occurs is more than one-tenth of the
aggregate principal amount of Notes which the Underwriters are obligated to
purchase at the Closing
43
<PAGE> 44
Time and arrangements satisfactory to you and the Company for the purchase of
such Notes by one or more non-defaulting Underwriters or other party or parties
approved by you and the Company are not made within 36 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Underwriter or the Company or any Guarantor. In any such case
which does not result in termination of this Agreement, either you or the
Company shall have the right to postpone the Closing Time, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any such default of any such
Underwriter under this Agreement. The term "Underwriter" as used in this
Agreement includes, for all purposes of this Agreement, any party not listed in
Schedule I hereto who, with your approval and the approval of the Company,
purchases Notes which a defaulting Underwriter is obligated, but fails or
refuses, to purchase.
Any notice under this Section 10 may be given by telegram,
telecopy or telephone but shall be subsequently confirmed by letter.
11. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company or any Guarantor by notice to the Company if prior to
the Closing Time (i) trading in securities generally on the New York Stock
Exchange, the American Stock Exchange or the Nasdaq National Market shall have
been suspended or materially limited, (ii) a general moratorium on commercial
banking activities in New York or Oregon shall have been declared by either
federal or state authorities, or (iii) there shall have occurred any outbreak or
escalation of hostilities or other international or domestic calamity, crisis or
change in political, financial or economic conditions, the effect of which on
the financial markets of the United States is such as to make it, in your
judgment, impracticable or inadvisable to commence or continue the offering of
the Notes at the offering price to the public set forth on the cover page of the
Prospectus or to enforce contracts for the resale of the Notes by the
Underwriters. Notice of such termination may be given to the Company by
telegram, telecopy or telephone and shall be subsequently confirmed by letter.
12. Information Furnished by the Underwriters. The statements set forth
in the last paragraph on the cover page, the stabilization legend appearing as
the last paragraph under the caption "Incorporation of Certain Documents by
Reference" on page o, and the statements in the first and third paragraphs under
the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus,
constitute the only information furnished by or on behalf of the Underwriters
through you as such information is referred to in Sections 6(b) and 7 hereof.
13. Miscellaneous. Except as otherwise provided in Sections 5, 10 and
11 hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company or any Guarantor, at the
office of the Company at 1000 S.W. Broadway, Portland, Oregon 97205, Attention:
L. Ray Adams; or (ii) if to you, as Representatives of the several Underwriters,
care of Smith Barney Inc., 388 Greenwich Street, New York, New York 10013,
Attention: Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit of
the several Underwriters, the Company, the Guarantors, the respective directors
and officers of the Company and the Guarantors, the QIU, the directors and
officers of the QIU, and the other controlling persons referred to in Section 7
hereof and their respective successors and assigns, to the extent provided
herein, and no other person shall acquire or have any right under or by virtue
of this Agreement. Neither the term "successor" nor the term "successors and
assigns" as used in this Agreement shall include a purchaser from any
Underwriter of any of the Notes in his status as such purchaser.
44
<PAGE> 45
14. Applicable Law; Counterparts. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which
together constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
15. Joint and Several Obligations. The Company and the Guarantors
hereby acknowledge and agree that their obligations and agreements set forth in
this Agreement are joint and several, whether or not the words "joint and
several" actually appear in the relevant provision of this Agreement.
45
<PAGE> 46
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Guarantors and the several Underwriters.
Very truly yours,
OREGON STEEL MILLS, INC.
By:
--------------------------
Name:
Title:
NEW CF&I, INC.
By:
--------------------------
Name:
Title:
CF&I STEEL, L.P.
By New CF&I, Inc.,
as General Partner
By:
--------------------------
Name:
Title:
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
SCOTIA CAPITAL MARKETS (USA) INC.
As Representatives of the Several Underwriters
By: SMITH BARNEY INC.
By:
-------------------------
Name:
Title:
46
<PAGE> 47
SCHEDULE I
OREGON STEEL MILLS, INC.
<TABLE>
<CAPTION>
Principal Amount
Underwriter of Notes
----------- --------
<S> <C>
Smith Barney Inc................................................... $
PaineWebber Incorporated...........................................
Scotia Capital Markets (USA) Inc................................... ------------
Total....... $235,000,000
============
</TABLE>
47
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
NEW CF&I, INC.
FIRST. The name of this corporation shall be NEW CF&I, INC.
SECOND. Its registered office in the State of Delaware is to be located at
Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New
Castle and its registered agent at such address is The Corporation Trust
Company.
THIRD. The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH. The total number of shares which the corporation shall have
authority to issue is 100 shares of capital stock, and the par value of each
such share is $1.00 per share.
FIFTH: The name and mailing address of the incorporator is as follows:
James R. Moore
Schwabe Williamson & Wyatt
Suites 1600-1950 Pacwest Center
1211 SW Fifth Avenue
Portland, Oregon 97204
SIXTH. The Board of Directors shall have the power to adopt, amend or repeal
the bylaws of the corporation, but the stockholders may make additional bylaws
and may also repeal any bylaw whether adopted by them or otherwise.
SEVENTH. Elections of directors need not be by written ballot except and to
the extent provided in the bylaws of the corporation.
EIGHTH. The corporation shall have the authority to enter into appropriate
agreements with its directors and officers (and with such other employees and
agents as the Board of Directors deems appropriate in its sole and exclusive
discretion) to both indemnify them and advance to them the funds for litigation
expenses to the fullest extent permitted by the laws of the State of Delaware as
the same presently exist or may hereafter be amended, changed, or modified.
NINTH. The corporation shall indemnify its officers and directors, and
advance expenses in connection with such
1 - CERTIFICATE OF INCORPORATION
<PAGE> 2
indemnification, to the full and complete extent permitted in Section 145 of the
General Corporation Law of the State of Delaware.
TENTH. No director shall be personally liable to the corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law (i) for breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the General
Corporation Law of the State of Delaware or (iv) for any transaction from which
the director derived an improper personal benefit. No amendment to or repeal of
this Article TENTH shall apply to or have any effect on the liability or alleged
liability of any director of the corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment.
I, the undersigned, for the purpose of forming a corporation under the laws
of the State of Delaware, do make, file and record this Certificate of
Incorporation, and do certify under penalty of perjury that the acts herein
stated are true, and I have accordingly hereunto set my hand this 27th day of
May, A.D., 1992.
JAMES R. MOORE
--------------
Incorporator
2 - CERTIFICATE OF INCORPORATION
<PAGE> 1
EXHIBIT 3.3
BYLAWS
OF
NEW CF&I, INC.
STOCKHOLDERS
1. Annual Meeting. Unless the Board of Directors or the President of
the corporation selects a different time and date which shall be no later than
the end of the fifth month following the close of the corporation's fiscal year,
the annual meeting shall be held immediately following the annual meeting of
stockholders of Oregon Steel Mills, Inc. The annual meeting shall be for the
purpose of electing a Board of Directors to serve until the next annual meeting
and until their successors are elected and of transacting such other business as
may properly be brought before the meeting.
2. Special Meeting. Special meetings of the stockholders, for any
purpose whatsoever, may be called at any time by the President or by the Board
of Directors, or by one or more stockholders holding not less than one-fifth of
the voting power of the corporation.
3. Place. All meetings of stockholders shall be held at the principal
office of the corporation or at any place, within or without the State of
Delaware, which may be designated by the Board of Directors. Any meeting of
stockholders may be held at such place as shall be stated in a written consent
thereto of all the persons entitled to vote thereat, given either before or
after the meeting and filed with the Secretary of the corporation.
4. Notice. A notice of each annual or special meeting of the
stockholders shall be given in writing by the Secretary or an Assistant
Secretary, or, in the case of such person's neglect or refusal, by any director
or stockholder, and shall specify the place, the day and the hour of the
meeting, and, in the case of special meetings, the purpose or purposes for which
the meeting is called. Notice that action to be taken on any of the following
matters must also be given for any meeting, whether regular or special upon at
least 20 days' notice: sell, lease or exchange all or substantially all of the
corporation's assets or merge or consolidate with another corporation. Notice
shall be given to each person entitled to vote not less than 10 nor more than 60
days before such meeting, either by personal delivery or by sending a copy
thereof by mail or other means of written communication, charges prepaid, to the
person's address appearing on the books of the corporation or supplied by the
person to the corporation for the purpose of notice. If any stockholder has
failed to supply an address, notice is duly given to the stockholder if sent by
mail or other means of written communication addressed to the place where the
principal office of the corporation is situated or if published at least once in
a
<PAGE> 2
newspaper having general circulation in the county in which the principal office
is located. Business transacted at all special meetings shall be confined to the
objects stated in the notice. When a meeting is adjourned for less than 30 days,
it is not necessary to give notice of the time, place or business to be
transacted except by announcement at the time adjournment is taken. When a
meeting is adjourned for 30 days or more, notice of the adjourned meeting shall
be given as in the case of an original meeting.
5. Meeting Without Regular Call and Notice. The transactions at any
meeting of stockholders, however called and noticed, are as valid as though had
at a meeting duly held after regular call and notice if a quorum be present in
person or by proxy and if, either before or after the meeting, each of the
persons entitled to vote, not so present at the meeting in person or by proxy,
signs a written waiver of notice or a consent to the holding of the meeting or
an approval of the minutes thereof.
6. Quorum. The presence in person or by proxy of the persons entitled
to vote a majority of the voting shares at any meeting constitutes a quorum for
the transaction of business. No business may be transacted at a meeting in the
absence of a quorum, except that if a quorum is present at the commencement of a
meeting, business may be transacted until it is adjourned even though the
withdrawal of stockholders leaves less than a quorum present. If a quorum is
present at the commencement of a meeting, the affirmative vote of a majority of
the shares of stock that continue to be represented at the meeting prior to
adjournment shall be the act of the stockholders unless the vote of a larger
number is required by law, the Certificate of Incorporation or the Bylaws.
7. Adjourned Meetings. Any meeting of stockholders, whether or not a
quorum is present, may be adjourned from time to time by the vote of a majority
of the shares represented thereat.
8. Proxies. A proxy, in order to be valid at any meeting, shall have
been executed within three years prior to the meeting, unless the person
executing it specifies therein the length of time for which it is to continue in
force, in which case the proxy shall be valid until the expiration of such time.
A proxy is revoked when an instrument revoking it, or a later dated proxy, is
filed with the Secretary of the corporation. All proxies shall be in writing,
executed by the person entitled to vote or by the person's duly authorized
attorney and delivered to the Secretary of the corporation.
9. Voting. At every meeting of the stockholders, every person in whose
name shares entitled to vote stand on the stock records of the corporation on
the date fixed for closing the books against transfers, or the record date fixed
for the determination of the stockholders entitled to vote at such meeting or,
if there be no such date so fixed, then on the day
2
<PAGE> 3
three days prior to the meeting, shall be entitled to one vote for each of said
shares. Upon the demand of any stockholder made before the voting begins, the
election of directors shall be by ballot.
10. Election Inspectors. One or three election inspectors may be
appointed by the Board of Directors in advance of a stockholders' meeting or at
the meeting by the chairman thereof. If not previously chosen, inspectors shall
be appointed by the chairman at the meeting if requested by one or more
stockholders or proxies. When inspectors are appointed at the request of
stockholders or proxies, the majority of shares present shall determine whether
one or three are to be chosen. The election inspectors shall determine all
questions concerning the existence of a quorum and the right to vote, shall
tabulate and determine the result and shall do all other acts necessary to the
expeditious and impartial conduct of the vote. Upon request of the chairman of
the meeting or of any stockholder or proxy, the inspectors shall make a written
report and certificate of their determination of any matter. If there are three
inspectors the determination, report or certificate of two is effective as if
made by all.
11. List of Stockholders. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
said meeting, arranged in alphabetical order, showing the address of and the
number of shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, either at a place within the city where the meeting is to be
held and which place shall be specified in the notice of the meeting, or, if not
specified, at the place where said meeting is to be held, and the list shall be
produced and kept at the time and place of meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
12. Action Without Meeting. Any action which may be taken at a meeting
of the stockholders may be taken without a meeting if authorized by a writing
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
filed with the Secretary of the corporation.
13. Record Date and Closing of Transfer Books. The Board of Directors
may fix a time in the future as a record date for the determination of the
stockholders entitled to notice of and to vote at any meeting of stockholders or
entitled to receive any dividend or distribution, or any allotment of rights, or
to exercise rights in respect to any change, conversion, or exchange of shares.
Unless the Board of Directors determines otherwise,
3
<PAGE> 4
the record date shall be the close of business four weeks prior to the date of
the meeting or event for the purpose for which it is fixed. If no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to (a) notice of or to vote at a meeting of stockholders shall be at
the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; (b) consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required, shall be the first date on which a signed written consent setting
forth the action taken or proposed to be taken is delivered to the corporation
by delivery to its registered office in Delaware, its principal place of
business, or an officer or agent of the corporation having custody of the book
in which proceedings of meetings of stockholders are recorded; (c) consent to
corporate action in writing without a meeting, when prior action by the Board of
Directors is required, shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action; and (d)
receive payment of any dividend or other distribution or allotment of any rights
or the stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto. In no event shall a record date be fixed
which is more than 60 days nor less than 10 days prior to the date of the
meeting or event for the purpose for which it is fixed. When a record date is so
fixed, only stockholders of record on that date are entitled to notice of and to
vote at the meeting or to receive the dividend, distribution, or allotment of
rights, or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date.
The Board of Directors may close the books of the corporation against transfer
of shares during the whole or any part of a period of not more than 50 days
prior to the date of a stockholder's meeting; the date when the right to any
dividend, distribution, or allotment or rights vest; or the effective date of
any change, conversion, or exchange of shares.
14. Stockholders of Record. The corporation shall be entitled to treat
the holder of record of any share or shares as the holder in fact thereof, and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
15. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate for
4
<PAGE> 5
shares to be lost or destroyed. When authorizing such issue of a new certificate
or certificates, the Board of Directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost or
destroyed certificate or certificates, or the owner's legal representative, to
advertise the same in such manner as it shall require and/or give the
corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate alleged
to have been lost or destroyed.
BOARD OF DIRECTORS
16. Number. The number of directors constituting the entire Board of
Directors shall be not less than one (1) nor more than five (5) as fixed from
time to time by vote of a majority of the entire Board, provided however, that
the number of directors shall not be reduced so as to shorten the term of any
director.
17. Powers. Subject to the limitations contained in the Certificate of
Incorporation and in the statutes as to action to be authorized or approved by
the stockholders, all corporate powers shall be exercised by or under authority
of, and the business and affairs of the corporation shall be controlled by, its
Board of Directors.
18. Election -- Term of Office -- Vacancies -- Newly Created
Directorships. The directors shall be elected by the stockholders at the annual
meeting of the stockholders. Each director shall be elected to serve until the
next annual meeting and until his or her successor shall be elected and
qualified. Vacancies and newly created directorships in the Board of Directors
may be filled by a majority of the directors then in office, although less than
a quorum, or by a sole remaining director, and each director so elected shall
hold office until the director's successor is elected and qualified. The
stockholders may elect a director or directors to fill any vacancy or vacancies
not filled by the directors.
19. Removal. The entire Board of Directors or any individual director
may be removed from office by a vote of stockholders holding a majority of the
outstanding shares entitled to vote at an election of directors. In case the
Board or any one or more directors is so removed, new directors may be elected
by the stockholders at the same meeting. The Board of Directors may declare
vacant the office of a director in either of the following cases: (a) if the
director is declared of unsound mind by an order of court or finally convicted
of a felony; or (b) if within 60 days after written notice of the director's
election, the director does not accept the office either in writing or by
attending a meeting of the Board of Directors and fulfill such other
requirements of qualification, if any, as the Bylaws may from time to time
specify.
5
<PAGE> 6
20. Resignation. Any director may resign at any time, such resignation
to be made in writing and to take effect from the time of its receipt by the
corporation, unless some time be fixed in the resignation, and then from that
time. The acceptance of a resignation shall not be required to make it
effective.
21. Compensation. Directors, as such, shall not receive any stated
salaries for their services, but, by resolution of the Board of Directors, a
fixed sum and expenses of attendance, if any, may be allowed for attendance at
each regular or special meeting of the Board of Directors; provided that nothing
herein contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of the executive committee and other committees may be allowed like compensation
and expenses for attending meetings of the committees.
22. Committees. The Board of Directors may, by resolution or
resolutions passed by a majority of the whole Board of Directors, appoint an
executive committee and other committees, composed of one or more directors, and
may delegate to the executive committee any of the powers and authority of the
Board of Directors in the management of the business and affairs of the
corporation except the power to amend the certificate of incorporation, adopt an
agreement of merger or consolidation, recommend to stockholders the sale, lease
or exchange of all or substantially all of the corporation's property and
assets, recommend to the stockholders a dissolution of the corporation or a
revocation of a dissolution, amend the Bylaws of the corporation, declare
dividends, authorize the issuance of stock or adopt a certificate of ownership
and merger. The executive committee and other committees so appointed shall keep
regular minutes of their proceedings and shall report the same to the Board of
Directors when required.
23. Inspection of Records and Properties. Each director of the
corporation may inspect all books, records, documents and physical properties of
the corporation and its subsidiaries at any reasonable time. Inspections may be
made either by the director or the director's agent and the right to inspect
includes the right to make extracts of the books, records or documents
inspected.
24. Declaration of Dividends. Subject to any applicable provisions of
law or of the Certificate of Incorporation, dividends may be declared by the
Board of Directors in its sole and absolute discretion at any regular or special
meeting. Dividends may be paid in cash or property or in shares of the capital
stock of the corporation.
25. Establishment of Reserves. Before the payment of any dividend, the
Board of Directors, in its sole and absolute discretion, may set aside out of
any funds of the corporation available for dividends such sum or sums as may be
deemed proper
6
<PAGE> 7
as a reserve fund to meet contingencies or may use such funds or any other
corporate property for such corporate purposes as the directors may deem
advisable. The Board of Directors may modify or abolish any such reserve in its
sole and absolute discretion.
26. Regular Meeting. The Board of Directors shall hold a regular
meeting following each annual stockholders' meeting. Other regular meetings of
the Board of Directors may be held at such time as shall from time to time be
determined by the Board of Directors.
27. Special Meetings. Special meetings of the Board of Directors may be
called by the President or, if the President is absent or is unable or refuses
to act, by any Vice President or by any two directors.
28. Place. The Board of Directors may hold its meetings at any place
within or without the State of Delaware designated from time to time by
resolution of the Board or by written consent of all the members of the Board.
In the absence of such designation, meetings shall be held at the principal
office of the corporation. Any regular or special meeting is valid wherever held
if held upon written consent of all of the members of the Board of Directors,
given either before or after the meeting and filed with the Secretary of the
corporation.
29. Notice. Notice of the regular meeting following each annual
stockholders' meeting is hereby dispensed with. Other regular meetings may be
held without notice, provided that notice of any change in the time or place of
any such meeting be sent to all of the directors. Notice of each special meeting
shall be given to each director on not less than two days' written or oral
notice, through any form of written or oral communication. If the address of a
director is not shown on the records and is not readily ascertainable, such
notice shall be addressed to him or her at the place in which the meetings of
the directors are regularly held. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Boad of Directors need be
specified in the notice of such meeting. Notice of the time and place of holding
an adjourned meeting need not be given to the directors absent at the meeting
which was adjourned if the time and place of the adjourned meeting was fixed at
the meeting which was adjourned.
30. Meeting Without Regular Call and Notice. The transactions of any
meeting of the Board of Directors, however called and noticed or wherever held,
are as valid as though had at a meeting duly held after regular call and notice
if a quorum is present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding the
meeting, or an approval of the minutes thereof, which waiver, consent or
approval shall be filed with the corporate records or made a part of the minutes
of the meeting. Neither the business to be transacted at, nor the
7
<PAGE> 8
purpose of, any regular or special meeting of the Board of Directors need be
specified in the waiver of notice of such meeting. Attendance of a director at
any meeting shall constitute a waiver of notice of such meeting, except where a
director attends for the express purpose of objecting to the transaction of any
business on the grounds that the meeting is not lawfully called or noticed.
31. Quorum. At all meetings of the Board of Directors, a majority of
the directors then in office shall be necessary and sufficient to constitute a
quorum for the transaction of business, provided that the number constituting a
quorum shall be neither less than one-third of the authorized number of
directors nor less than two. Every act or decision done or made by a majority of
the directors present at a meeting duly held at which a quorum is present is the
act or decision of the Board of Directors, unless a greater number is required
by law or the Certificate of Incorporation.
32. Adjourned Meeting. In the absence of a quorum a majority of the
directors present may adjourn from time to time but not later than the time
fixed for the next regular meeting of the Board.
33. Action Without Meeting. Any action required or permitted to be
taken by the Board of Directors, or of any committee thereof, may be taken
without a meeting, if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
(a) Meetings by Telephone. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors, or any committee, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
OFFICERS
34. Titles. The officers of the corporation shall be a President, a
Secretary, and a Treasurer, who shall be chosen by the Board of Directors. The
Board of Directors may also choose a Chairman of the Board, additional Vice
Presidents, and one or more Assistant Secretaries and Assistant Treasurers. Any
two or more offices, may be held by the same person.
35. Election -- Term of Office -- Vacancies. The Board of Directors, at
its regular meeting after each annual meeting of stockholders, shall choose its
officers, none of whom except the Chairman of the Board, if any, need be a
member of the Board.
8
<PAGE> 9
The officers of the corporation shall hold office until their successors are
chosen. If the office of any officer becomes vacant for any reason, the vacancy
shall be filled by the Board of Directors. The Board of Directors may appoint,
at such time or times as the business of the corporation may require, such other
officers and agents as it shall deem necessary, who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
36. Removal. Any officer elected or appointed by the Board of Directors
may be removed at any time by the Board of Directors.
37. Resignation. Any officer may resign at any time, such resignation
to be made in writing and to take effect from the time of its receipt by the
corporation, unless some time be fixed in the resignation, and then from that
time. The acceptance of a resignation shall not be required to make it
effective.
38. Salaries. The salaries of all officers of the corporation shall,
and salaries of employees may, be fixed from time to time by the Board of
Directors and may be changed from time to time by it in its discretion.
39. Power to Sign Documents. All checks or demands for money and notes
of the corporation shall be signed by such officer or agent or officers or
agents as may be designated from time to time by the Board of Directors.
40. The President. The President shall be the chief executive officer
of the corporation unless the Board of Directors designates some other officer
to serve in such capacity. The President shall preside at all meetings of the
stockholders and directors, shall be ex officio a member of the executive and
other committees, shall have general and active management of the business of
the corporation, shall see that all orders and resolutions of the Board of
Directors are carried into effect, and shall exercise such other powers and
perform such other duties as shall be determined from time to time by the Board
of Directors. If some officer other than the President is designated as the
chief executive officer, the officer shall have all of the powers conferred upon
the President by these Bylaws to the extent permitted by law, and, in the
absence or disability of such other officer, the President shall perform and
exercise the duties of chief executive officer. The President or any other
officer designated by the Board of Directors at any time is authorized to vote,
grant proxies or consents for, or represent all shares of other corporations
standing in the name of this corporation and may exercise all rights incident to
such shares on behalf of this corporation.
41. The Vice Presidents. The Vice Presidents, in the order of their
seniority, shall, in the absence or disability of the
9
<PAGE> 10
President, perform the duties and exercise the powers of the President, and
shall perform such other duties as the Board of Directors shall prescribe.
42. The Secretary. The Secretary shall have the following powers and
duties:
(a) Record Corporate Proceedings. The Secretary shall attend all
sessions of the Board and all meetings of the stockholders and record all votes
and the minutes of all proceedings in a book to be kept for that purpose at the
principal office of the corporation or at such other place as the Board of
Directors may from time to time determine. The Secretary shall keep at the
principal office for the transaction of the business of the corporation the
original or a copy of the Bylaws as amended or otherwise altered to date,
certified by the Secretary.
(b) Record of Shares. Unless a transfer agent is appointed by the Board
of Directors to keep a share register, the Secretary shall keep at the principal
office of the corporation a share register showing the names of the stockholders
and their addresses, the number and class of shares held by each, the number and
date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
(c) Notices. The Secretary shall give such notices as may be required
by law or the Bylaws.
(d) Additional Powers and Duties. The Secretary shall have the
responsibility for the corporation's reporting to various governmental agencies,
the overall supervision of the corporation's insurance program, and such other
powers and duties as shall be determined by the Board of Directors.
43. Assistant Secretaries. The Assistant Secretaries, in the order of
their seniority, shall in the absence or disability of the Secretary, perform
the duties and exercise the powers of the Secretary, and shall perform such
other duties as the Board of Directors shall prescribe.
44. The Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep adequate and correct accounts of
the corporate properties and business transactions. The Treasurer shall disburse
such funds of the corporation as may be ordered by the Board of Directors,
taking proper vouchers for such disbursements, shall render to the President and
directors, at regular meetings of the Board of Directors or whenever they may
require it, an account of all of his or her transactions as Treasurer and of the
financial condition of the corporation, shall have the responsibility for the
supervision of the corporation's pension, profit sharing and other employee
benefit plans, and shall exercise such other
10
<PAGE> 11
powers and perform such other duties as shall be determined by the Board of
Directors.
45. Assistant Treasurers. The Assistant Treasurers, in the order of
their seniority, shall, in the absence or disability of the Treasurer, perform
the duties and exercise the powers of the Treasurer, and shall perform such
other duties as the Board of Directors shall prescribe.
INDEMNIFICATION
46. Action, Etc., Other Than by or in the Right of the Corporation. The
corporation shall have the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that the person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by the person in connection with such action, suit or proceeding if the
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, with respect to
any criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to
any criminal action or proceeding, that such person had reasonable cause to
believe that such person's conduct was unlawful.
47. Actions, Etc. by or in the Right of the Corporation. The
corporation shall have the power to indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact that the person is or was director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees), actually and reasonably incurred by the person in
connection with the defense or settlement of such action or suit if the 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 except that no
indemnification shall be made in respect to any claim, issue or matter as to
which such person shall have
11
<PAGE> 12
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
48. Right to Indemnification. Notwithstanding the other provisions of
these Bylaws, to the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Bylaws 46 or 47 hereof, or in defense
of any claim, issue or matter therein, he or she shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection therewith.
49. Determination of Right to Indemnification. Any indemnification
under Bylaws 46 and 47 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in Bylaws 46 or 47 hereof. Such determination shall be made (a) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, or (b) if such a quorum is
not obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (c) by the
stockholders.
50. Prepaid Expenses. Expenses (including attorneys' fees) incurred by
an officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he or she is not entitled to be
indemnified by the corporation as authorized in these Bylaws. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon terms and conditions, if any, as the Board of Directors deems
appropriate.
51. Other Rights and Remedies. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other paragraphs of the Bylaws
shall not be deemed exclusive of any rights to which those seeking
indemnification or advancement of expenses may be entitled under any Bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his or her official capacity and as to action in another capacity
while holding such office.
12
<PAGE> 13
52. Insurance. Upon resolution passed by the Board of Directors, the
corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against the person and incurred by the
person in any such capacity, or arising out of the person's status as such,
whether or not the corporation would have the power to indemnify the person
against such liability under the provisions of these Bylaws.
52.1 Constituent Corporations. For the purposes of these Bylaws,
references to the corporation shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under Bylaws 46 to
52 with respect to the resulting or surviving corporation as he or she would
have stood with respect to such constituent corporation if its separate
existence had continued.
52.2 Other Enterprises. For the purpose of these Bylaws, references to
"other enterprises" shall include employee benefit plans and employee stock
ownership plans; references to "fines" shall include any excise or other taxes
assessed on a person with respect to any employee benefit plan or employee stock
ownership plan; references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the corporation
which imposes duties on, or involved services by, such director, officer,
employee or agent with respect to an employee benefit plan or employee stock
ownership plan, its participants or beneficiaries; and a person who acted in
good faith in a manner the person reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan or employee stock
ownership plan shall be deemed to have acted in a manner "not opposed to the
best interests of the corporation" as referred to in these Bylaws.
52.3 Scope of Indemnification. The indemnification and advancement of
expenses provided by, or granted pursuant, these Bylaws shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
13
<PAGE> 14
AMENDMENT OF BYLAWS
53. Amendments. Bylaws may be adopted, amended, or repealed by the vote
or written consent of stockholders entitled to exercise a majority of the voting
power, or, except as otherwise provided by these Bylaws or by law, by the
affirmative vote of a majority of the directors then in office given at any
regular or special meeting of the Board of Directors.
MISCELLANEOUS
54. Facsimile Signature. In addition to the provisions for the use of
facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any officer or officers of the corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
55. Corporate Seal. The Board of Directors may provide a suitable seal,
containing the name of the corporation, which seal shall be under the charge of
the secretary. If and when so directed by the Board of Directors or a committee
thereof, duplicates of the seal may be kept and used by the treasurer or by the
assistant secretary or assistant treasurer.
56. Reliance Upon Books, Reports, and Records. Each director, each
member of any committee designated by the Board of Directors, and each officer
of the corporation shall, in the performance of his or her duties, be fully
protected in relying in good faith upon the books of account or other records of
the corporation, including reports made to the corporation by any of its
officers, by an independent certified public accountant, or by an appraiser
selected with reasonable care.
57. Fiscal Year. The fiscal year of the corporation shall be fixed by
the Board of Directors.
58. Time Periods. In applying any provision of these Bylaws which
requires that an act be done or not done within a specified number of days prior
to an event or that an act be done during a period of a specified number of days
prior to an event, calendar days shall be used, the day of the doing of the act
shall be excluded, and the day of the event shall be included.
14
<PAGE> 1
EXHIBIT 4.1
OREGON STEEL MILLS, INC., as Issuer,
CHEMICAL BANK, as Trustee,
and
NEW CF&I, INC. and
CF&I STEEL, L.P.
as Guarantors
INDENTURE
Dated as of June +, 1996
$235,000,000
% First Mortgage Notes due + 2003
<PAGE> 2
Reconciliation and tie between Trust Indenture Act of 1939
and Indenture dated as of June +, 1996
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
- --------------- ---------
<S> <C>
Section 310 (a)(1) ........................................................................... 7.11
(a)(2) ........................................................................... 7.11
(a)(3) ........................................................................... N.A.
(a)(4) ........................................................................... N.A.
(a)(5) ........................................................................... 7.11
(b) ........................................................................... 7.09; 7.11; 13.02
(c) ........................................................................... N.A.
Section 311 (a) ........................................................................... 7.12
(b) ........................................................................... 7.12
(c) ........................................................................... N.A.
Section 312 (a) ........................................................................... 2.05
(b) ........................................................................... 13.03
(c) ........................................................................... 13.03
Section 313 (a) ........................................................................... 7.07
(b) ........................................................................... 7.07
(c) ........................................................................... 7.07; 13.02
(d) ........................................................................... 7.07
Section 314 (a) ........................................................................... 4.07; 13.02
(b) ........................................................................... 11.02
(c)(1) ........................................................................... 13.04
(c)(2) ........................................................................... 13.04
(c)(3) ........................................................................... N.A.
(d) ........................................................................... 11.02; 11.03;
........................................................................... 11.04; 11.05
(e) ........................................................................... 13.05
Section 315 (a) ........................................................................... 7.01(b)
(b) ........................................................................... 7.05; 13.02
(c) ........................................................................... 7.01(a)
(d) ........................................................................... 7.01(c)
(e) ........................................................................... 6.11
Section 316 (a) (last
sentence) .......................................................................... 2.09
(a)(1)(A) ........................................................................... 6.05
(a)(1)(B) ........................................................................... 6.04
(a)(2) ........................................................................... N.A.
(b) ........................................................................... 6.07
Section 317 (a)(1) ........................................................................... 6.08
(a)(2) ........................................................................... 6.09
(b) ........................................................................... 2.04
Section 318 (a) ........................................................................... 13.01
(c) ........................................................................... 13.01
</TABLE>
- ------------------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
<S> <C>
Section 1.01. Definitions........................................................................ 1
Section 1.02. Incorporation by Reference of Trust Indenture Act.................................. 18
Section 1.03. Rules of Construction.............................................................. 18
ARTICLE TWO
THE SECURITIES
Section 2.01. Forms and Dating................................................................... 18
Section 2.02. Execution and Authentication....................................................... 19
Section 2.03. Registrar and Paying Agent......................................................... 20
Section 2.04. Paying Agent To Hold Money in Trust................................................ 20
Section 2.05. Holder Lists....................................................................... 21
Section 2.06. Registration, Registration of Transfer and Exchange................................ 21
Section 2.07. Replacement Securities............................................................. 22
Section 2.08. Outstanding Securities............................................................. 22
Section 2.09. Treasury Securities................................................................ 23
Section 2.10. Temporary Securities............................................................... 23
Section 2.11. Cancellation....................................................................... 23
Section 2.12. Defaulted Interest................................................................. 23
Section 2.13. CUSIP Number....................................................................... 23
Section 2.14. Deposit of Moneys.................................................................. 23
ARTICLE THREE
REDEMPTION OF SECURITIES
Section 3.01. Notices to the Trustee............................................................. 24
Section 3.02. Selection of Securities To Be Redeemed............................................. 24
Section 3.03. Notice of Redemption............................................................... 24
Section 3.04. Effect of Notice of Redemption..................................................... 25
Section 3.05. Deposit of Redemption Price........................................................ 25
Section 3.06. Securities Redeemed or Purchased in Part........................................... 25
ARTICLE FOUR
COVENANTS
Section 4.01. Payment of Securities.............................................................. 25
Section 4.02. Maintenance of Office or Agency.................................................... 26
Section 4.03. Corporate Existence................................................................ 26
Section 4.04. Payment of Taxes and Other Claims.................................................. 26
</TABLE>
- --------------------
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
i
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 4.05. Maintenance of Properties; Insurance; Books and Records; Compliance with
Law.............................................................................. 26
Section 4.06. Compliance Certificate........................................................... 27
Section 4.07. SEC Reports...................................................................... 27
Section 4.08. Limitation on Indebtedness....................................................... 28
Section 4.09. Limitation on Restricted Payments................................................ 30
Section 4.10. Limitation on Issuances and Sale of Capital Stock by Subsidiaries................ 32
Section 4.11. Limitation on Liens.............................................................. 32
Section 4.12. Change of Control................................................................ 32
Section 4.13. Disposition of Proceeds of Asset Sales........................................... 34
Section 4.14. Limitation on Transactions with Interested Persons............................... 37
Section 4.15. Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries..................................................................... 38
Section 4.16. Limitations on Sale-Leaseback Transactions....................................... 39
Section 4.17. Additional Guarantors; Additional Security Documents............................. 39
Section 4.18. Impairment of Security Interests................................................. 40
Section 4.19. Limitation on Amendments to CF&I Agreements...................................... 40
Section 4.20. Waiver of Stay, Extension or Usury Laws.......................................... 40
ARTICLE FIVE
SUCCESSOR CORPORATION
Section 5.01. When Company May Merge, etc...................................................... 40
Section 5.02. Successor Substituted............................................................ 41
ARTICLE SIX
EVENTS OF DEFAULT AND REMEDIES
Section 6.01. Events of Default................................................................ 42
Section 6.02. Acceleration..................................................................... 43
Section 6.03. Other Remedies................................................................... 44
Section 6.04. Waiver of Past Defaults.......................................................... 44
Section 6.05. Control by Majority.............................................................. 44
Section 6.06. Limitation on Suits.............................................................. 45
Section 6.07. Right of Holders to Receive Payment.............................................. 45
Section 6.08. Collection Suit by Trustee....................................................... 45
Section 6.09. Trustee May File Proofs of Claims................................................ 45
Section 6.10. Priorities....................................................................... 46
Section 6.11. Undertaking for Costs............................................................ 46
Section 6.12. Restoration of Rights and Remedies............................................... 46
</TABLE>
- --------------------
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
ii
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
ARTICLE SEVEN
TRUSTEE
<S> <C>
Section 7.01. Duties............................................................................. 47
Section 7.02. Rights of Trustee.................................................................. 47
Section 7.03. Individual Rights of Trustee....................................................... 48
Section 7.04. Trustee's Disclaimer............................................................... 48
Section 7.05. Notice of Default.................................................................. 48
Section 7.06. Money Held in Trust................................................................ 49
Section 7.07. Reports by Trustee to Holders...................................................... 49
Section 7.08. Compensation and Indemnity......................................................... 49
Section 7.09. Replacement of Trustee............................................................. 50
Section 7.10. Successor Trustee by Merger, etc................................................... 50
Section 7.11. Eligibility........................................................................ 50
Section 7.12 Co-Trustee..........................................................................52
Section 7.13. Preferential Collection of Claims Against Company.................................. 51
ARTICLE EIGHT
SATISFACTION AND DISCHARGE OF INDENTURE
Section 8.01. Termination of the Company's Obligations........................................... 52
Section 8.02. Legal Defeasance and Covenant Defeasance........................................... 53
Section 8.03. Application of Trust Money......................................................... 55
Section 8.04. Repayment to Company or Guarantors................................................. 55
Section 8.05. Reinstatement...................................................................... 56
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.01. Without Consent of Holders......................................................... 56
Section 9.02. With Consent of Holders............................................................ 57
Section 9.03. Compliance with Trust Indenture Act................................................ 58
Section 9.04. Revocation and Effect of Consents.................................................. 58
Section 9.05. Notation on or Exchange of Securities.............................................. 58
Section 9.06. Trustee May Sign Amendments, etc................................................... 58
ARTICLE TEN
GUARANTEE OF SECURITIES
Section 10.01. Guarantee.......................................................................... 59
Section 10.02. Execution and Delivery of Guarantee................................................ 60
Section 10.03. Merger or Consolidation of a Guarantor............................................. 60
Section 10.04. Release of a Guarantor............................................................. 61
Section 10.05. Waiver of Subrogation.............................................................. 62
</TABLE>
- --------------------
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
iii
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 10.06. Limitation of Guarantor's Liability................................................ 62
Section 10.07. Contribution....................................................................... 62
ARTICLE ELEVEN
COLLATERAL AND SECURITY
Section 11.01. Collateral and Security Documents; Additional Collateral........................... 63
Section 11.02. Recording, Registration and Opinions............................................... 65
Section 11.03. Release of Collateral.............................................................. 66
Section 11.04. Possession and Use of Collateral................................................... 66
Section 11.05. Specified Releases of Collateral................................................... 67
Section 11.06. Disposition of Collateral Without Release.......................................... 70
Section 11.07. Form and Sufficiency of Release.................................................... 71
Section 11.08. Purchaser Protected................................................................ 71
Section 11.09. Authorization of Actions To Be Taken by the Trustee Under the Security
Documents.......................................................................... 71
Section 11.10. Authorization of Receipt of Funds by the Trustee Under the Security
Documents.......................................................................... 72
ARTICLE TWELVE
APPLICATION OF TRUST MONEYS
Section 12.01. Collateral Account................................................................. 72
Section 12.02. Withdrawal of Insurance Proceeds and Condemnation Awards........................... 72
Section 12.03. Withdrawal of Net Cash Proceeds to Fund an Asset Sale Offer........................ 74
Section 12.04. Withdrawal of Trust Moneys for Investment in Replacement Assets.................... 74
Section 12.05. Withdrawal of Trust Moneys on Basis of Retirement of Securities.................... 75
Section 12.06. Investment of Trust Moneys......................................................... 76
ARTICLE THIRTEEN
MISCELLANEOUS
Section 13.01. Trust Indenture Act of 1939........................................................ 76
Section 13.02. Notices............................................................................ 76
Section 13.03. Communication by Holders with Other Holders........................................ 77
Section 13.04. Certificate and Opinion as to Conditions Precedent................................. 77
Section 13.05. Statements Required in Certificate or Opinion...................................... 77
Section 13.06. Rules by Trustee, Paying Agent, Registrar.......................................... 78
Section 13.07. Legal Holidays..................................................................... 78
Section 13.08. Governing Law...................................................................... 78
Section 13.09. No Interpretation of Other Agreements.............................................. 78
Section 13.10. No Recourse Against Others......................................................... 78
Section 13.11. Successors......................................................................... 78
Section 13.12. Duplicate Originals................................................................ 78
Section 13.13. Separability....................................................................... 79
</TABLE>
- --------------------
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
iv
<PAGE> 7
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 13.14. Table of Contents, Headings, etc................................................. 79
Section 13.15. True Copy........................................................................ 79
Section 13.16. Benefits of Indenture............................................................ 79
EXHIBIT A Form of Security and Guarantee.............................................................. A-1
EXHIBIT B Form of Security Agreement.................................................................. B-1
EXHIBIT C Form of Mortgage............................................................................ C-1
EXHIBIT D Form of Intercreditor Agreement............................................................. D-1
EXHIBIT E Form of CF&I Note........................................................................... E-1
</TABLE>
- --------------------
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
v
<PAGE> 8
INDENTURE, dated as of June +, 1996, among OREGON STEEL MILLS,
INC., a corporation incorporated under the laws of the State of Delaware ("the
Company"), CHEMICAL BANK, a New York banking corporation, as trustee (the
"Trustee"), and NEW CF&I, INC., a Delaware corporation, and CF&I STEEL, L.P., a
Delaware limited partnership, as guarantors.
Each party hereto agrees as follows for the benefit of each
other party and for the equal and ratable benefit of the Holders of the
Company's +% First Mortgage Notes due 2003 (the "Securities").
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 1.01. 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.
"After-Acquired Property" shall have the meaning set forth in
Section 11.01.
"Agent" means any Registrar or Paying Agent of the Securities.
"Amended Credit Agreement" means the Old Credit Agreement, as
amended and restated by the Credit Agreement Amendment to be entered into prior
to or concurrently with the issuance of the Securities, 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 directors'
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 Section
10.04. 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
of a Subsidiary) that is governed by and complies with the provisions of Article
Five or Section 10.03 (except in each case to the extent provided under Section
4.13), (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 under Section 10.04 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) or clause (viii) of the definition of Excluded
<PAGE> 9
Assets) or any Bank Collateral and (iv) any Restricted Payment made in
accordance with Section 4.09 or any Permitted Investment.
"Asset Sale Offer" shall have the meaning set forth in Section
4.13.
"Asset Sale Offer Price" shall have the meaning set forth in
Section 4.13.
"Asset Sale Purchase Date" shall have the meaning set forth in
Section 4.13.
"Average Life to Stated Maturity" means, with respect to any
Indebtedness, as at any date of determination, the quotient obtained by dividing
(a) the sum of the products of (i) 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 (ii) the amount of each such principal payment by (b)
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" means all accounts receivable and inventory,
and all books and records relating to the accounts receivable and inventory, and
all + 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, or on +, as
collateral under the Credit Agreement or the guarantees entered into pursuant to
the Credit Agreement.
"Bankruptcy Law" means Title 11 of the United States Code and
any similar applicable state of federal law for the relief of debtors generally.
"Board of Directors" means (i) with respect to any person
other than a partnership, the board of directors of such person or any duly
authorized committee of such board, and (ii) with respect to any partnership,
the board of directors of a direct corporate general partner (or, if there is no
direct corporate general partner, an indirect corporate general partner) of such
partnership or any duly authorized committee of such board or, if there is no
such direct or indirect corporate general partner, by the appropriate governing
body of any general partner of such partnership.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company or any Guarantor, as the
case may be, to have been duly adopted by the Board of Directors of the Company
or such Guarantor, as the case may be, and to be in full force and effect on the
date of such certification, and delivered to the Trustee; provided that in the
case of any Guarantor which is a partnership, the copy of such resolution shall
be certified by the Secretary or an Assistant Secretary of a direct or indirect
corporate general partner of such Guarantor or, if there is no such direct or
indirect corporate general partner, by an appropriate signatory of any general
partner of such Guarantor.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in The City of New
York, State of New York are authorized or obligated by law, regulation or
executive order to close.
"Camrose" means Camrose Pipe Company, a general partnership
organized under the laws of the Province of Alberta, Canada, and its successors.
"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.
2
<PAGE> 10
"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 the amount of any 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, (a) 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); (b) 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; (c) 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 (d) 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.
"CF&I" means CF&I Steel, L.P., a Delaware limited partnership
and its successors pursuant to this Indenture.
"CF&I Note" means the promissory note of CF&I, substantially
in the form attached as Exhibit E to this Indenture, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms of this Indenture and such instrument.
"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 this 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), other than the Company's employee
stock ownership plan, 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 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 this
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), other than the Company's employee stock ownership plan, 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.
3
<PAGE> 11
"Change of Control Date" shall have the meaning set forth in
Section 4.12.
"Change of Control Offer" shall have the meaning set forth in
Section 4.12.
"Change of Control Purchase Date" shall have the meaning set
forth in Section 4.12.
"Change of Control Purchase Price" shall have the meaning set
forth in Section 4.12.
"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 established
pursuant to Section 12.01.
"Collateral Proceeds" shall have the meaning set forth in
Section 4.13.
"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
shares of its Common Stock (including shares which may be sold upon exercise of
the underwriters' over-allotment option) to be made concurrently with the
offering of the Securities.
"Company" means the party named as such in this Indenture
until a successor replaces it (or any previous successor) pursuant to this
Indenture, and thereafter means such successor.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by any one of its Chairman, its
Vice-Chairman, its Chief Executive Officer, its President, an Executive Vice
President, a Senior Vice President or a Vice President, and by any one of its
Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and
delivered to the Trustee.
"Consolidated Cash Flow Available for Fixed Charges" means,
with respect to any person for any period, (a) the sum of, without duplication,
the amounts for such period, taken as a single accounting period, of (i)
Consolidated Net Income, (ii) Consolidated Non-cash Charges, (iii) Consolidated
Interest Expense, and (iv) Consolidated Income Tax Expense less (b) 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 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
4
<PAGE> 12
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
(a) Consolidated Interest Expense and (b) the product of (i) 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 (ii) a fraction, the numerator of
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 (a) 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,
the following (whether or not reflected as an expense on the consolidated income
statement of such person): (i) any amortization of debt discount, (ii) the net
cost under Interest Rate Protection Obligations, (iii) the interest portion of
any deferred payment obligation, (iv) all commissions, discounts and other fees
and charges owed with respect to letters of credit and bankers' acceptance
financing, (v) all accrued interest and (vi) all capitalized interest) and (b)
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, (a) all extraordinary gains or losses, (b) 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, (c) 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, (d) any gain or loss realized upon the
termination of any employee pension benefit plan, on an after-tax basis, (e)
gains or losses in respect of any Asset Sales by such person or one of its
Subsidiaries and (f) 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
regulations applicable to that Subsidiary or its stockholders or limited or
general partners, as the case may be, and further adjusted by including, without
duplication, the aggregate amount of cash dividends or cash distributions
actually received by such person or any of its Subsidiaries from any
Unrestricted Subsidiary of such person.
"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
5
<PAGE> 13
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.
"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).
"consolidation" means, with respect to any person, the
consolidation of the accounts of such person and each of its Subsidiaries if and
to the extent the accounts of such person and each of its Subsidiaries would
normally be consolidated with those of such person, all in accordance with GAAP.
The term "consolidated" shall have a meaning correlative to the foregoing.
"control" means, with respect to any specified person, the
power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of Voting Stock, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Corporate Trust Office" means the office of the Trustee at
which at any particular time its corporate trust business shall be principally
administered, which on the date hereof is located in New York, New York.
"covenant defeasance" shall have the meaning set forth in
Section 8.02.
"CPC" means Camrose Pipe Corporation, a Delaware corporation,
and its successors.
"Credit Agreement" means the Amended Credit Agreement and any
successor or replacement facility entered into in compliance with this
Indenture, in each case including all exhibits and schedules thereto, as the
same may be amended, supplemented or otherwise modified from time to time in
accordance with its terms and the terms of this Indenture.
"Credit Agreement Amendment" means the amendment to and
restatement of 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 Securities, amending and restating 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.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar person under any Bankruptcy Law.
"Default" means any event or condition that is, or after
notice or passage of time or both would be, an Event of Default.
"Depositary" means, with respect to Global Securities, the
person designated as Depositary pursuant to Section 2.01 until a successor
Depositary shall have become such pursuant to the applicable provisions of this
Indenture, and thereafter "Depositary" shall mean each person who is then a
Depositary hereunder, and if at any time there is more than one such person,
such persons.
"Event of Default" shall have the meaning set forth under
Section 6.01 herein.
"Excess Proceeds" shall have the meaning set forth in Section
4.13.
6
<PAGE> 14
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excluded Assets" means (i) property acquired or constructed
with Indebtedness described in and which complies with, and which Indebtedness
is secured by a Lien on such property permitted under, clause (g) of the
definition of Permitted Liens (but only so long as such purchase money
Indebtedness or Indebtedness incurred solely to refinance, replace or refund
such purchase money Indebtedness in accordance with such clause (g) is
outstanding and, in either such case, is secured by such Lien), (ii) subject to
the 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 (and is not intended to be 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) 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, (vii) Motor Vehicles
(as defined in the form of Security Agreement attached as Exhibit B hereto),
(viii) any specific item of property subject to a Lien securing obligations of
the Company or Subsidiary of the Company in respect of a commercial letter of
credit, but only so long as such letter of credit and Lien comply with, and are
permitted under, clause (t) of the definition of Permitted Liens and only so
long as such letter of credit is outstanding and such property is subject to
such Lien; 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 and (C) the Company shall
have complied with the provisions of this Indenture relating to the release 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 Securities. With respect to any property
securing Indebtedness as described in clause (i) of the foregoing sentence, at
such time as the purchase money Indebtedness or Indebtedness incurred to
refinance, replace or refund such purchase money Indebtedness referred to in
such clause (i) shall no longer be outstanding, or at such time as such purchase
money Indebtedness or any such Indebtedness incurred to refinance, replace or
refund such purchase money Indebtedness shall no longer be secured by a Lien on
such property permitted under clause (g) of the definition of Permitted Liens,
and with respect to any property securing a commercial letter of credit
described in clause (viii) of the foregoing sentence, at such time as such
letter of credit shall no longer be outstanding or the obligations of the
Company or a Subsidiary of the Company in respect thereof shall no longer be
secured by a Lien on such property permitted under clause (t) of the definition
of Permitted Liens, then, in each of the foregoing cases, to the extent that
such property is of the type which would constitute "Trust Property" (as defined
in the form of Mortgage attached as Exhibit C to this Indenture) (assuming, in
the case of real property or a leasehold interest in real property, that an
appropriate description of such property or leasehold interest were included as
a schedule to such form of Mortgage and assuming, in the case of fixtures,
improvements and other types of Trust Property, that a description of the
related real property or leasehold interest in real property, as the case may
be, were included as a schedule to such form of Mortgage) or "Collateral" (as
defined in the form of Security Agreement attached as Exhibit B to this
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 this Indenture.
"Excluded Intangibles" means any right, title or interest of
the Company or any Guarantor in, to or under any contract, agreement or other
instrument entered into with, or any license granted by or to, any person which
is not the Company or a Subsidiary or Unrestricted Subsidiary of the Company and
which contract, agreement, instrument or license by its express terms prohibits
the assignment thereof or the grant of a security interest therein by the
Company or such Guarantor, as the case may be, or by its express terms permits
such assignment or grant of a security interest only with the consent of such
person; provided that any such right, title and interest shall cease to be an
Excluded Intangible to the extent that an appropriate consent to such assignment
or pledge has been obtained; and provided, further, that Excluded Intangibles
shall not include (i) the leasehold interest in the Company's office space
located at 1000 S.W. Broadway, Portland, Oregon or (ii) any contracts,
agreements, licenses or other instruments specifically identified in any
Security Document as being subject to the Lien created by or granted in such
Security Document.
"Excluded Securities" means the Capital Stock of any of the
Company's Subsidiaries or Unrestricted Subsidiaries.
"Existing Rolling Mill" means the steel plate rolling mill
which has been located at the Company's Portland, Oregon steel mini-mill since
January 1, 1993.
7
<PAGE> 15
"Fair Market Value" means, with respect to any property or
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, except for purposes of Section 6.01(f), 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 the respect to any parcel of real property with a value
in excess of $10,000,000 shall (except for purposes of Section 6.01(f)) be made
by an Independent Appraiser and (ii) as otherwise indicated in this Indenture.
"Final Maturity Date" means June +, 2003.
"Fontana" means Oregon Steel--Fontana Division, Inc., a
Delaware corporation and former subsidiary of the Company which was merged into
the Company.
"Fontana Rolling Mill" means the steel plate rolling equipment
owned by the Company which, on the Issue Date, is 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.
"Global Security" means a Security issued to the Depositary or
its nominee in accordance with Section 2.02 and bearing the legend required by
Section 2.02.
"Guarantee" means, with respect to any Guarantor, its
guarantee of the Securities and certain other obligations pursuant to this
Indenture and its guarantee endorsed on the Securities in substantially the form
attached as Exhibit A to this Indenture and, in the case of CF&I, such term
includes the CF&I Note, in substantially the form attached as Exhibit E to this
Indenture, delivered to the Trustee in connection with CF&I's aforesaid
guarantee, in each case as the same may be amended, supplemented or otherwise
modified from time to time in accordance with the terms of this Indenture.
"guarantee" means, as applied to any obligation, (a) 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 (b) 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 Section 4.17.
"Holder" or "Securityholder" means the person in whose name a
Security is registered on the Registrar's books.
"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 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
8
<PAGE> 16
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 this 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.
"Indenture" means this Indenture, as amended, modified or
supplemented from time to time.
"Independent Appraiser" means a person who in the course of
its business appraises property and (i) where real property is involved, who 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) who does not have a direct or indirect financial
interest in the Company and (iii) who, 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 (a) which does
not, and whose directors, officers and employees or Affiliates do not, have a
direct or indirect financial interest in the Company (it being understood that
securities of the Company acquired in the ordinary course of trading operations
shall not be deemed to give rise to such direct or indirect financial interest
in the Company) and (b) 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 Exhibit D to this Indenture, as the same may be amended,
supplemented or modified from time to time in accordance with its terms or the
terms of this Indenture, and any successor or replacement agreement, the terms
of which are no less favorable to the holders of the Securities in any material
respect (as evidenced by an Officers' Certificate delivered to the Trustee) than
those contained in the original intercreditor agreement as in effect on the
Issue Date.
"interest" means, with respect to any Security, the amount of
all interest accruing on such Security, including all interest accruing
subsequent to the occurrence of any events specified in Sections 6.01(g) or (h)
or which would have accrued but for any such event, whether or not such claims
are allowable under applicable law.
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Securities, as set forth therein.
"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.
9
<PAGE> 17
"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 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.
"Issue Date" means June +, 1996.
"legal defeasance" shall have the meaning set forth in Section
8.02.
"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 Security, the date
on which any principal of such Security becomes due and payable as therein or
herein 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
Exhibit C to this 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 this Indenture and such instrument.
"Napa" means Napa Pipe Corporation, a Delaware corporation and
former subsidiary of the Company which was merged into the Company.
"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 (a)
brokerage commissions and other fees and expenses (including, without
limitation, fees and expenses of legal counsel and investment bankers) related
to such Asset Sale, (b) provisions for all taxes payable as a result of such
Asset Sale, (c) 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, (d) 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
10
<PAGE> 18
and liabilities under any indemnification obligations associated with such Asset
Sale, all as reflected in an Officers' Certificate delivered to the Trustee, and
(e) 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 this 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 a 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 this Indenture.
"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 this
Indenture and such instrument.
"Non-Collateral Proceeds" shall have the meaning set forth in
Section 4.13 hereof.
"Officer" means, with respect to the Company or any Guarantor,
the Chairman, the Chief Executive Officer, the President, any Executive Vice
President, any Senior Vice President, any Vice President, the Treasurer, the
Secretary or the Controller of the Company or such Guarantor, as the case may
be, and, in any instance where this Indenture calls for a second Officer to
attest or countersign or otherwise execute any instrument or document, the term
"Officer" shall also include any Assistant Secretary, Assistant Treasurer or
Assistant Controller; provided that in the case of any Guarantor which is a
partnership, the term "Officer" shall mean any Officer of a direct corporate
general partner (or, if there is no direct corporate general partner, an
indirect corporate general partner) of such partnership or, if there is no such
direct or indirect corporate general partner, any duly authorized signatory of a
general partner of such partnership.
"Officers' Certificate" means with respect to the Company or
any Guarantor, a certificate signed by two Officers or by an Officer and an
Assistant Treasurer or Assistant Secretary of the Company or such Guarantor, as
the case may be, and delivered to the Trustee.
"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 to be used in
connection with the operation of the Combination Mill.
"Old Pledge Agreements" mean all pledge agreements entered
into by the Company or any of its present or former Subsidiaries or Unrestricted
Subsidiaries (including, without limitation, Napa and Fontana) pursuant to the
Old Credit Agreement.
"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.
"Old Security Agreements" mean all mortgages, deeds of trust,
security agreements and similar agreements (other than the Old Pledge
Agreements) entered into by the Company or any of its present or former
11
<PAGE> 19
Subsidiaries or Unrestricted Subsidiaries (including, without limitation, Napa
and Fontana)) pursuant to the Old Credit Agreement.
"Opinion of Counsel" means, with respect to the Company or any
Guarantor, a written opinion from legal counsel who is reasonably acceptable to
the Trustee. The counsel may be an employee of or counsel to the Company or a
Guarantor.
"Pari Passu Indebtedness" means Indebtedness of the Company or
any Guarantor which ranks pari passu in right of payment with the Securities or
the Guarantee of such Guarantor, as the case may be.
"Paying Agent" shall have the meaning set forth in Section
2.03, except that, for the purposes of Section 4.12 and Section 4.13 and
Articles Three and Eight, the Paying Agent shall not be the Company or a
Subsidiary of the Company or any of their respective Affiliates.
"Permitted Investments" means any of the following: (a)
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; (b) Investments in Cash
Equivalents; (c) 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; (d) Investments in the Securities;
(e) 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; (f)
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; (g) Investments in Interest Rate Protection 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 interest rates; (h) 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 (i) Investments in partnerships, joint
ventures or other entities to acquire or develop sources of raw materials used
in steelmaking or other steel-related businesses in an aggregate amount not to
exceed $40 million.
"Permitted Liens" means the following types of Liens:
(a) Liens for taxes, assessments or governmental charges or
claims which are either (i) not yet delinquent or (ii) 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 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,
government contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of
borrowed money);
12
<PAGE> 20
(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 this Indenture;
(g) Liens (and replacements, renewals or extensions thereof)
securing Indebtedness the proceeds of which are applied (A) solely to
acquire or construct property or assets (other than the Combination
Mill or any part thereof (including, without limitation, any machinery,
equipment or fixtures constituting a part thereof) or any improvements
constructed in connection therewith) of the Company or any Subsidiary
of the Company acquired or constructed after the Issue Date or (B)
solely to refinance, replace or refund Indebtedness referred to in
clause (A) so long as the principal amount of any such new Indebtedness
does not exceed the principal amount of the Indebtedness so replaced,
refinanced or refunded; provided, however, that (i) no such Lien
(including any replacement, renewal or extension thereof) shall 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 (together with proceeds and products thereof and any
intangibles reasonably related thereto) and the property or assets so
acquired or constructed do not constitute Replacement Assets and are
not acquired or constructed with Net Cash Proceeds from Asset Sales (or
with amounts which, pursuant to the Indenture, are deemed to constitute
Collateral Proceeds), (ii) the Lien securing such Indebtedness either
(x) exists at the time of such acquisition or construction or (y) shall
be created within 180 days of such acquisition or the completion of
such construction, (iii) the principal amount of the Indebtedness
referred to in clause (A) above secured by such Lien does not exceed
100% of the cost of such acquisition or construction and such
Indebtedness and any Indebtedness incurred to refinance, replace or
refund such Indebtedness is incurred in accordance with this Indenture
and (iv) prior to initially granting any such Lien (but not in
connection with any replacements, renewals or extensions thereof), the
Company shall provide the Trustee with an Officers' Certificate stating
that (x) the property and assets subject to such Lien do not constitute
Replacement Assets and were not acquired or constructed with Net Cash
Proceeds from Asset Sales (or with amounts which, pursuant to this
Indenture are deemed to constitute Collateral Proceeds) and (y) the
Collateral could be operated independently of such property and assets
or such property and assets 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 and assets) 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 on Bank Collateral securing Interest Rate Protection
Agreements and Currency Agreements permitted by this Indenture;
(j) Liens on the Bank Collateral securing Indebtedness and
other obligations under the Credit Agreement permitted by this
Indenture and any guarantees permitted by this Indenture of the
obligations under the Credit Agreement, and other Liens existing as of
the Issue Date (other than (A) Liens created by or pursuant to the Old
Pledge Agreements, (B) Liens created by or pursuant to the Old Security
Agreements (except that, if the Company, CF&I or New CF&I shall elect,
in lieu of entering into a new security
13
<PAGE> 21
agreement in order to pledge its Bank Collateral as security for its
obligations under the Amended Credit Agreement (in the case of the
Company) or any guarantee permitted by this Indenture of the Company's
obligations under the Amended Credit Agreement (in the case of New CF&I
and CF&I), to amend or restate its Old Security Agreement, then the
Liens on the Bank Collateral created by such amended or restated Old
Security Agreement (after giving the effect to such amendment or
restatement) shall be deemed Permitted Liens), and (C) Liens on
Excluded Securities and Intercompany Indebtedness);
(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 Securities or the Guarantees, as the case may be;
(l) Liens securing obligations in respect of this Indenture,
the Securities, 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 other 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 (j), (o) or (p),
provided that (i) 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 (ii) 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 de Lavoro ("BNL") as in effect on the Issue
Date or any amendment to or replacement of such agreement which is not
prohibited by and does not violate any covenant in this 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
14
<PAGE> 22
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 Securities than such agreement as in effect on the Issue Date;
and
(t) Liens upon specific items of property securing obligations of the
Company or a Subsidiary of the Company in respect of a commercial
letter of credit issued by a financial institution in favor of the
seller or supplier of such property; provided that (i) such letter of
credit is issued to facilitate the purchase of such property by, and
shipment of such property to, the Company or any Subsidiary of the
Company in the ordinary course of its business, (ii) such letter of
credit is payable against delivery to the relevant financial
institution of appropriate documents, (iii) such Lien and letter of
credit (and all obligations of the Company and any Subsidiaries of the
Company in respect thereof) shall be terminated at or prior to the time
that such property is delivered to the premises of the Company or a
Subsidiary of the Company and, in any event, no later than 365 days
after the issuance of such letter of credit, (iv) such letter of credit
is not issued in respect of liabilities for borrowed money, obligations
evidenced by bonds, notes, debentures or other instruments, Capital
Leases or guarantees in respect of any of the foregoing, and (v) such
Lien does not extend to or cover any property or assets other than the
specific items of property to be purchased by and shipped to the
Company or a Subsidiary of the Company as aforesaid (together with
proceeds of such property) and the aggregate amount payable by the
Company or any of its Subsidiaries in respect of such letter of credit
shall not exceed 100% of the cost of such property (plus interest,
freight, insurance and customary expenses).
"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.
"Place of Payment" means (i) the Borough of Manhattan, The
City of New York and (ii) such other places where the Company may maintain an
office or agency in accordance with Section 4.02 where Securities may be
presented or surrendered for payment; provided that, for purposes of payment of
interest and principal on any Global Security for which the Depositary is The
Depository Trust Company, the Place of Payment with respect to such Global Note
shall be deemed to be the Borough of Manhattan, The City of New York.
"Predecessor Security" means, with respect to any particular
Security, every previous Security evidencing all or a portion of the same debt
as that evidenced by such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 2.07 hereof
in exchange for a mutilated Security or in lieu of a lost, destroyed or stolen
Security shall be deemed to evidence the same debt as the mutilated, lost,
destroyed or stolen Security.
"Preferred Stock" means, with respect to any person, any
Capital Stock of such person of any class or series (however designated) that
ranks prior, as to payment of dividends or distributions or as to distributions
upon voluntary or involuntary liquidation, dissolution or winding up, to shares
of Capital Stock of any other class or series of such person. For purposes of
this definition, the term "Capital Stock" shall not include rights, warrants, or
options.
"principal" means, with respect to any debt security
(including, without limitation, the Securities), the principal of the security
plus, when applicable, the premium, if any, on the security. The fact that there
may be references in this Indenture to the "principal of and premium, if any,
on" any security (including, without limitation, the Securities) shall not limit
or be construed to limit the effect of the foregoing definition.
"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 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.
"Redemption Date" means, with respect to any Security to be
redeemed, the date fixed by the Company for such redemption pursuant to this
Indenture and the Securities.
"Redemption Price" means, with respect to any Security to be
redeemed, the price fixed for such redemption pursuant to the terms of this
Indenture and the Securities.
"Registrar" shall have the meaning set forth in Section 2.03.
"Replacement Assets" shall have the meaning set forth in
Section 4.13.
"Released Interests" shall have the meaning set forth in
Section 11.05.
15
<PAGE> 23
"Released Trust Moneys" shall have the meaning set forth in
Section 12.04.
"Restricted Payment" shall have the meaning set forth in
Section 4.09.
"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 (it being understood that this proviso
shall not prevent any such sale or transfer of water rights or water system from
constituting an Asset Sale). 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.
"SEC" means the Securities and Exchange Commission, as from
time to time constituted, or if at any time after the execution of this
Indenture such Commission is not existing and performing the applicable duties
now assigned to it, then the body or bodies performing such duties at such time.
"Securities" means the securities that are issued under this
Indenture, as amended or supplemented from time to time pursuant to this
Indenture.
"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 Exhibit B to this 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 this
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 Securities, 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 this Indenture.
"S&P" means Standard & Poor's Corporation, and its successors.
"Specifically Secured Construction Contract" shall mean any
contract, agreement or other obligation in favor of the Company or any Guarantor
relating to the provision by any other person of labor and/or materials in
respect of the alteration, renovation or construction of all or any part of any
buildings, structures or improvements in connection with the Combination Mill.
"Stated Maturity", when used with respect to any Security or
any installment of interest thereon, means the date specified in such Security
as the fixed date on which the principal of such Security 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
Securities or the Guarantee of such Guarantor, as the case may be.
16
<PAGE> 24
"Subsidiary" means, with respect to any person, (a) 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 (b) 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 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 this 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 this Indenture, accompanied by an Officers'
Certificate as to compliance with this 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 Section 4.08 (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 this 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 Section 4.17. A
designation of an Unrestricted Subsidiary as a Subsidiary may not thereafter be
rescinded.
"Surviving Entity" shall have the meaning set forth in Section
5.01.
"Surviving Person" shall have the meaning set forth in Section
10.03.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.
CodeSectionSection77aaa-77bbbb) as in effect on the Issue Date.
"Title Policy" shall have the meaning set forth in Section
11.02(c).
"Trust Moneys" means all cash and Cash Equivalents received by
the Trustee (i) upon the release of Collateral from the Lien of this Indenture
and/or the Security Documents, including all Collateral Proceeds (and amounts
deemed, pursuant to this Indenture, to constitute 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 this Indenture or any of the Security Documents or otherwise; (v)
which constitute Collateral Proceeds or are deemed pursuant to this Indenture to
constitute Collateral Proceeds from any transaction which results in a Guarantor
being released from its Guarantee pursuant to this Indenture; or (vi) for
application as provided in the relevant provisions of this Indenture or any
Security Document or whose disposition is not otherwise specifically provided
for in this Indenture or in any Security Document; provided, however, that Trust
Moneys shall not include any property deposited with the Trustee pursuant to
Section 3.05, Section 4.12 or Article Eight or delivered to or received by the
Trustee pursuant to Section 6.10 hereof.
"Trust Moneys Release Notice" shall have the meaning set forth
in Section 12.04.
"Trust Officer" means any officer in the Corporate Trust
Office of the Trustee or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above-designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of his knowledge of and
familiarity with the particular subject.
"Trustee" means the party named as such in this Indenture
until a successor replaces such party (or any previous successor) in accordance
with the provisions of this Indenture, and thereafter means such successor.
17
<PAGE> 25
"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 Section 4.09 hereof, (ii) whose
properties and assets, to the extent that they secure Indebtedness, secure only
NonRecourse 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 this Indenture. As used above, "Non-Recourse Indebtedness" means
Indebtedness as to which (x) 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 Section 4.09) and (y) 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 (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.
"U.S. Government Obligations" shall have the meaning set forth
in Section 8.02.
"Valuation Date" shall have the meaning set forth in Section
11.05.
"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 at 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
(a) any directors' qualifying shares or investments by foreign nationals
mandated by applicable law shall be disregarded in determining the ownership of
a Subsidiary and (b) 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 (it being understood that any increase in the capital account of a
limited partner of CF&I pursuant to the terms of the CF&I Partnership Agreement
shall not, in and of itself, cause such limited partnership interest not to
qualify under this clause (b)). For purposes of the foregoing definition,
neither CF&I nor New CF&I shall be deemed not to be a Wholly-Owned Subsidiary of
the Company solely by virtue of any sale, transfer or assignment after the Issue
Date of any limited partnership interests or Common Stock referred to in clause
(b) of the preceding sentence (including, without limitation, by admission of
additional limited partners to CF&I), so long as such sale, transfer or
assignment is otherwise made in compliance with the provisions of this
Indenture.
Section 1.02. Incorporation by Reference of Trust Indenture
Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC;
"indenture securities" means the Securities and the
Guarantees;
"indenture security holder" means a Securityholder or Holder;
18
<PAGE> 26
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee; and
"obligor" on the indenture securities means the Company, any
Guarantor or any other obligor on the Securities or the Guarantees, if any.
All other TIA terms used in this Indenture that are defined by
the TIA, defined by TIA reference to another statute or defined by SEC rule and
not otherwise defined herein have the meanings assigned to them therein.
Section 1.03. Rules of Construction.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
1. a term has the meaning assigned to it;
2. words in the singular include the plural, and words in the
plural include the singular;
3. "or" is not exclusive;
4. provisions apply to successive events and transactions;
5. all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
6. the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision; and
7. all references to $ or dollars shall refer to the lawful
currency of the United States of America.
ARTICLE TWO
THE SECURITIES
Section 2.01. Forms and Dating.
The Securities (including Global Securities) and the Trustee's
certificate of authentication thereon shall be in substantially the form of
Exhibit A hereto, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with any applicable law
or with the rules of any securities exchange or as may, consistently herewith,
be determined by the Officers of the Company executing such Securities, as
evidenced by their execution thereof. The Securities shall be issuable only in
registered form without coupons and only in denominations of $1,000 and integral
multiples thereof.
If so provided in a Company Order pursuant to Section 2.02,
the Securities shall be issued under this Indenture in the form of Global
Securities. In such case, The Depository Trust Company shall be the initial
Depositary for such Global Securities. Global Securities will be registered in
the name of the Depositary or a nominee of the Depositary.
The definitive Securities and the Guarantees shall be printed,
typewritten, lithographed or engraved or produced by any combination of these
methods or may be produced in any other manner permitted by the rules
19
<PAGE> 27
of any securities exchange on which the Securities may be listed, all as
determined by the officers executing such Securities, as evidenced by their
execution of such Securities. Each Security shall be dated the date of its
authentication.
The terms and provisions contained in the form of the
Securities and the Guarantees annexed hereto as Exhibit A and, in the case of
the CF&I Note, Exhibit E shall constitute, and are hereby expressly made, a part
of this Indenture and, to the extent applicable, the Company, the Guarantors and
the Trustee, by their execution and delivery of this Indenture, expressly agree
to such terms and provisions and to be bound thereby.
Section 2.02. Execution and Authentication.
One Officer of the Company shall execute the Securities on
behalf of the Company by either manual or facsimile signature under the
Company's seal (which may be a facsimile of the genuine seal), attested by the
manual or facsimile signature of any other Officer of the Company. The Company's
seal (or a facsimile thereof) shall be impressed, affixed, imprinted or
reproduced on the Securities. Typographical and other minor errors and defects
in any such reproduction of the seal or any such signature shall not affect the
validity or enforceability of any Security that has been duly authenticated and
delivered by the Trustee.
If an Officer of the Company whose signature is on a Security
no longer holds that office at the time the Trustee authenticates the Security
or at any time thereafter, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized officer of
the Trustee (so long as Chemical Bank is the Trustee) or an authorized signatory
(in case any other person is serving as Trustee) manually signs the certificate
of authentication on the Security. Such signature shall be conclusive evidence
that the Security has been authenticated under this Indenture.
The Trustee shall authenticate Securities for original issue
in an aggregate principal amount not to exceed $235,000,000 upon receipt of a
Company Order directing the Trustee to authenticate the Securities and
certifying that all conditions precedent to the issuance of the Securities
contained herein have been complied with. The aggregate principal amount of
Securities outstanding at any time may not exceed $235,000,000, except as
provided in Section 2.07.
The Company Order directing the authentication and delivery of
Securities shall specify whether such Securities shall be issued in the form of
definitive Securities or Global Securities. If the Company Order specifies that
the Securities are to be issued in the form of one or more Global Securities,
then the Company shall execute and the Trustee shall, in accordance with this
Section and such Company Order, authenticate and deliver one or more Global
Securities in definitive form that:
(a) shall represent and shall be denominated in an
amount equal to the aggregate principal amount of the
Securities,
(b) shall be registered in the name of the Depositary
or a nominee of such Depositary,
(c) shall, at the instruction of the Company, be
delivered by the Trustee to the Depositary or held by the
Trustee on behalf of the Depositary, and
(d) shall include and bear a legend substantially to
the effect that unless and until it is exchanged in whole or
in part for definitive Securities, such Global Security may
not be transferred except as a whole by the Depositary to a
nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the
Depositary or any such nominee to a successor Depositary or a
nominee of such successor Depositary.
The Depositary must, at the time of its designation and at all
times while it serves as Depositary, be a clearing agency registered under the
Exchange Act and any other applicable statute or regulation.
20
<PAGE> 28
With the prior written approval of the Company, the Trustee
may appoint an authenticating agent acceptable to the Company to authenticate
Securities. Unless limited by the terms of such appointment, an authenticating
agent may authenticate Securities whenever the Trustee may do so. Each reference
in this Indenture to authentication by the Trustee includes authentication by
such agent. Such authenticating agent shall have the same rights as the Trustee
in any dealings hereunder with the Company or with any of the Company's
Affiliates.
Section 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency (which shall
be located in the Borough of Manhattan, The City of New York, State of New York)
where Securities may be presented for registration of transfer or for exchange
(the "Registrar"), an office or agency (which shall be located in the Borough of
Manhattan, The City of New York, State of New York) where Securities may be
presented for payment of principal and interest (the "Paying Agent") and an
office or agency (which shall be located in the Borough of Manhattan, the City
of New York, State of New York) where notices and demands to or upon the Company
and the Guarantors in respect of the Securities, the Guarantees and this
Indenture may be served, and the Company may from time to time designate one or
more other offices or agencies for any such purposes as provided in Section
4.02. The Registrar shall keep a register of the Securities and of their
transfer and exchange. At the option of the Company, interest may be paid by
check mailed to the persons entitled thereto as shown on such register. The
Company may have one or more co-Registrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent. Except as
otherwise expressly provided in this Indenture, the Company or any Affiliate
thereof may act as Paying Agent.
The Company shall enter into an appropriate agency agreement
with any Registrar or Paying Agent not a party to this Indenture, which shall
incorporate the provisions of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such Registrar or Paying Agent. The
Company shall give prompt written notice to the Trustee of the name and address
of any such Registrar or Paying Agent or agent for service of notices and
demand. If the Company fails to maintain a Registrar, Paying Agent or agent for
service of notices and demands, or fails to give the foregoing notice, the
Trustee shall act as such and shall be entitled to appropriate compensation in
accordance with Section 7.08.
Section 2.04. Paying Agent To Hold Money in Trust.
Each Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal of, or interest on, the Securities (whether such money has been
distributed to it by the Company, any Guarantor or any other obligor on the
Securities or the Guarantees), and the Company (or any other obligor on the
Securities or the Guarantees) and the Paying Agent shall notify the Trustee of
any default by the Company (or any other obligor on the Securities or the
Guarantees) in making any such payment. If the Company or an Affiliate of the
Company acts as Paying Agent, it shall segregate the money and hold it as a
separate trust fund. The Company at any time may require a Paying Agent to
distribute all money held by it to the Trustee and account for any funds
disbursed and the Trustee may at any time during the continuance of any Event of
Default, upon written request to a Paying Agent, require such Paying Agent to
pay all money held by it to the Trustee and to account for any funds
distributed. Upon doing so, the Paying Agent (other than an obligor on the
Securities or any Guarantees) shall have no further liability for the money so
paid over to the Trustee.
Section 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Holders and shall otherwise comply with TIA Section 312(a). If the
Trustee is not the Registrar, the Company shall furnish to the Trustee at least
ten Business Days before each Interest Payment Date and at such other times as
the Trustee may request in writing a list in such form and as of such date as
the Trustee may reasonably require of the names and addresses of Holders, which
list may be conclusively relied upon by the Trustee.
21
<PAGE> 29
Section 2.06. Registration, Registration of Transfer and
Exchange.
Subject to the provisions of this Section 2.06, upon surrender
for registration of transfer of any Security at any office or agency of the
Company designated pursuant to Section 4.02, the Company shall execute, and the
Trustee shall authenticate and deliver, in the name of the designated transferee
or transferees, one or more new Securities, of any authorized denominations and
of a like aggregate principal amount, bearing a number not contemporaneously
outstanding with the Guarantees duly endorsed thereon and executed by each
Guarantor.
Notwithstanding any other provision of this Section, unless
and until it is exchanged in whole or in part for definitive Securities, a
Global Security may not be transferred except as a whole by the Depositary to a
nominee of such Depositary or by a nominee of such Depositary to such Depositary
or another nominee of such Depositary or by such Depositary or any such nominee
to a successor Depositary or a nominee of such successor Depositary.
Subject to the provisions of this Section 2.06, at the option
of the Holder, Securities may be exchanged for other Securities, of any
authorized denomination or denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at any office or agency
of the Company designated pursuant to Section 4.02. Whenever any such Securities
are so surrendered for exchange, the Company shall execute, and the Trustee
shall authenticate and deliver, the Securities which the Holder making the
exchange is entitled to receive with the Guarantees duly endorsed thereon and
executed by each Guarantor.
If (i) the Depositary is at any time unwilling, unable or
ineligible to continue as Depositary and a successor Depositary is not appointed
by the Company within 60 days of the date the Company is so informed in writing
or becomes aware of the same, or (ii) an Event of Default has occurred and is
continuing, the Company promptly will execute and deliver to the Trustee
definitive Securities (and the Guarantors will execute and deliver the
Guarantees endorsed thereon), and the Trustee, upon receipt of a Company Order
for the authentication and delivery of such definitive Securities (which the
Company will promptly execute and deliver to the Trustee), will authenticate and
deliver definitive Securities, without charge, in an aggregate principal amount
equal to the principal amount of the Outstanding Global Securities, in exchange
for all such Global Securities. However, prior to the issuance of definitive
Securities in exchange for Global Securities pursuant to clause (ii) 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 Securities 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 Securities
shall be issued until (i) such requirements to own, deliver or present
Securities shall have been satisfied or (ii) holders of at least a majority in
aggregate principal amount of the outstanding Securities shall have directed the
Trustee to issue definitive Securities. Such definitive Securities shall be
registered in such name or names as the Depositary shall instruct the Trustee.
In any exchange provided for in the preceding paragraph, the
Company will execute and the Trustee will authenticate and deliver definitive
Securities in the authorized denominations provided by Section 2.01.
Upon the exchange of a Global Security for definitive
Securities, such Global Security shall be cancelled by the Trustee. Definitive
Securities issued in exchange for Global Securities pursuant to this Section
shall be registered in such names and in such authorized denominations as the
Depositary, pursuant to instructions from its direct or indirect participants or
otherwise, shall instruct the Trustee.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company, evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Registrar
or a co-Registrar) be duly endorsed, or be accompanied by a written
22
<PAGE> 30
instrument of transfer in form satisfactory to the Company and the Registrar or
a co-Registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing.
No service charge shall be made for any registration of
transfer or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Securities, other
than exchanges or transfers pursuant to Sections 2.07, 2.10, 3.06, 4.12, 4.13 or
9.05, or of Global Securities for definitive Securities pursuant to this Section
2.06. The Trustee shall not be required to exchange or register a transfer of
any Security for a period of 15 days immediately preceding the first mailing of
notice of redemption of Securities to be redeemed or of any Security selected,
called or being called for redemption except, in the case of any Security where
notice has been given that such Security is to be redeemed in part, the portion
thereof not to be redeemed.
Section 2.07. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if
the Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security if the Trustee's requirements are met. If required by the
Trustee or the Company, such Holder must provide an indemnity bond or other
indemnity, sufficient in the judgment of both the Company and the Trustee, to
protect the Company, the Trustee or any Paying Agent or Registrar from any loss
which any of them may suffer if a Security is replaced. The Company may charge
such Holder for its reasonable out-of-pocket expenses in replacing a Security,
including reasonable fees and disbursements of counsel. Every replacement
Security is an additional obligation of the Company and the Guarantors.
The provisions of this Section 2.07 are (to the extent
permitted by law) exclusive and shall preclude (to the extent lawful) all other
rights and remedies with respect to the replacement of mutilated, lost,
destroyed or wrongfully taken Securities.
Section 2.08. Outstanding Securities.
Securities outstanding at any time are all the Securities that
have been authenticated by the Trustee except those cancelled by it, those
delivered to it for cancellation and those described in this Section as not
outstanding. A Security does not cease to be outstanding because the Company or
any of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than
a mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
upon surrender of such Security and replacement thereof pursuant to Section
2.07.
If on a Redemption Date or a Maturity Date the Paying Agent
(other than the Company or an Affiliate of the Company) holds cash designated
and set aside for and sufficient to pay all of the principal and interest due on
the Securities payable on that date, and is not prohibited from paying such cash
to the Holders of such Securities pursuant to the terms of this Indenture, then
on and after that date such Securities cease to be outstanding and interest on
them shall cease to accrue.
Section 2.09. Treasury Securities.
In determining whether the Holders of the required principal
amount of Securities have concurred in any direction, waiver or consent,
Securities owned by the Company or any of its Affiliates shall be disregarded,
except that, for the purposes of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent, only Securities
that the Trustee knows or has reason to know are so owned shall be disregarded.
23
<PAGE> 31
Section 2.10. Temporary Securities.
Until definitive Securities are prepared and ready for
delivery, the Company may prepare and the Trustee shall authenticate temporary
Securities. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Securities in
exchange for temporary Securities. Until such exchange, temporary Securities
shall be entitled to the same rights, benefits and privileges as definitive
Securities.
Section 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee
for cancellation. The Registrar and the Paying Agent shall forward to the
Trustee any Securities surrendered to them for transfer, exchange or payment.
The Trustee, or at the direction of the Trustee, the Registrar or the Paying
Agent (other than the Company or an Affiliate of the Company), and no one else,
shall promptly cancel and, at the written direction of the Company, shall
dispose of all Securities surrendered for transfer, exchange, payment or
cancellation. Subject to Section 2.07, the Company may not issue new Securities
to replace Securities that it has paid or delivered to the Trustee for
cancellation. If the Company or any of its Affiliates shall acquire any of the
Securities, such acquisition shall not operate as a redemption or satisfaction
of the Indebtedness represented by such Securities unless and until the same are
surrendered to the Trustee for cancellation pursuant to this Section 2.11.
Section 2.12. Defaulted Interest.
If the Company defaults on a payment of interest on the
Securities, it shall pay the defaulted interest, plus (to the extent permitted
by law) any interest payable on the defaulted interest, in accordance with the
terms hereof, to the persons who are Holders on a subsequent special record
date, which date shall be at least five Business Days prior to the payment date.
The Company shall fix such special record date and payment date in a manner
satisfactory to the Trustee. At least 15 days before such special record date,
the Company shall mail to each Holder a notice that states the special record
date, the payment date and the amount of defaulted interest, and interest
payable on such defaulted interest, if any, to be paid. Notwithstanding the
foregoing provisions of this Section 2.12, defaulted interest may also be paid
at any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange.
Section 2.13. CUSIP Number.
The Company in issuing the Securities may use a "CUSIP" number
(if then generally in use), and if so, the Trustee may use the CUSIP numbers in
notices of redemption or exchange as a convenience to Holders; provided,
however, that any such notice may state that no representation is made as to the
correctness or accuracy of the CUSIP number printed in the notice or on the
Securities, and that reliance may be placed only on the other identification
numbers printed on the Securities. The Company will promptly notify the Trustee
of any change in the CUSIP number.
Section 2.14. Deposit of Moneys.
On or before each Interest Payment Date, Change of Control
Purchase Date, Asset Sale Purchase Date and Maturity Date, the Company shall
deposit or cause to be deposited with the Trustee or Paying Agent in immediately
available funds money sufficient to make cash payments, if any, due on such
Interest Payment Date, Change of Control Purchase Date, Asset Sale Purchase Date
or Maturity Date, as the case may be, in a timely manner which permits the
Paying Agent to remit timely payment to the Holders on such Interest Payment
Date, Change of Control Purchase Date, Asset Sale Purchase Date or Maturity
Date, as the case may be.
24
<PAGE> 32
ARTICLE THREE
REDEMPTION OF SECURITIES
Section 3.01. Notices to the Trustee.
If the Company elects to redeem Securities pursuant to
Paragraph 2(a) of the Securities, it shall notify the Trustee of the Redemption
Date and principal amount of Securities to be redeemed.
The Company shall notify the Trustee by an Officers'
Certificate, stating that such redemption will comply with the provisions hereof
and of the Securities, of any redemption at least 45 days before the Redemption
Date.
Section 3.02. Selection of Securities To Be Redeemed.
In the event that less than all of the Securities are to be
redeemed at any time, selection of the particular Securities or portions thereof
for redemption will be made by the Trustee on a pro rata basis, by lot or by
such method as the Trustee shall deem fair and appropriate; provided, however,
that no Securities shall be redeemed except in a principal amount of $1,000 or
an integral multiple of $1,000.
The Trustee shall promptly notify the Company and the
Registrar in writing of the Securities selected for redemption and, in the case
of any Securities selected for partial redemption, the principal amount thereof
to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Securities shall
relate, in the case of any Security redeemed or to be redeemed only in part, to
the portion of the principal amount of such Security which has been or is to be
redeemed.
Section 3.03. Notice of Redemption.
Notice of redemption shall be given by first-class mail,
postage prepaid, mailed not less than 30 nor more than 60 days prior to the
Redemption Date, to each Holder of Securities to be redeemed, at the address of
such Holder appearing in the list of Holders of Securities maintained by the
Registrar.
All notices of redemption shall identify the Securities to be
redeemed and shall state:
(a) the Redemption Date;
(b) the Redemption Price and the amount of accrued interest,
if any, to be paid;
(c) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue
on and after the Redemption Date, and the only remaining right of the
Holders of such Securities is to receive payment of the Redemption
Price and accrued interest, if any, upon surrender to the Paying Agent
of the Securities redeemed;
(d) if any Security is to be redeemed in part, the portion of
the principal amount (equal to $1,000 or any integral multiple thereof)
of such Security to be redeemed and that on and after the Redemption
Date, upon surrender for cancellation of such original Security to the
Paying Agent, a new Security or Securities in the aggregate principal
amount equal to the unredeemed portion thereof will be issued without
charge to the Holder;
(e) that Securities called for redemption must be surrendered
to the Paying Agent to collect the Redemption Price and the name and
address of the Paying Agent;
25
<PAGE> 33
(f) the CUSIP number, if any, relating to such Securities, but
no representation is made as to the correctness or accuracy of any such
CUSIP numbers; and
(g) the paragraph of the Securities pursuant to which the
Securities are being redeemed.
Notice of redemption of Securities to be redeemed at the
election of the Company shall be given by the Company or, at the Company's
written request, by the Trustee in the name and at the expense of the Company.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed, Securities called for
redemption become due and payable on the Redemption Date and at the Redemption
Price. Upon surrender to the Paying Agent, such Securities called for redemption
shall be paid at the Redemption Price plus accrued interest to the Redemption
Date, but interest installments whose maturity is on or prior to such Redemption
Date will be payable on the relevant Interest Payment Dates to the Holders of
record at the close of business on the relevant record dates referred to in the
Securities.
Section 3.05. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit
with the Paying Agent an amount of money in same day funds sufficient to pay the
Redemption Price of, and accrued interest on, all the Securities or portions
thereof which are to be redeemed on that date, other than Securities or portions
thereof called for redemption on that date which have been delivered by the
Company to the Trustee for cancellation.
If the Company complies with the preceding paragraph, then,
unless the Company defaults in the payment of such Redemption Price plus accrued
interest on the Securities (or portions thereof) called for redemption to the
Redemption Date, interest on the Securities (or portions thereof) to be redeemed
will cease to accrue on and after the applicable Redemption Date, whether or not
such Securities are presented for payment. If any Security (or portion thereof)
called for redemption shall not be so paid upon surrender thereof for
redemption, the principal thereof and, to the extent lawful, accrued interest
thereon shall, until paid, bear interest from the Redemption Date at the
interest rate borne by the Securities.
Section 3.06. Securities Redeemed or Purchased in Part.
Upon surrender to the Paying Agent of a Security which is to
be redeemed in part, the Company shall execute and the Trustee shall
authenticate and deliver to the Holder of such Security without service charge,
a new Security or Securities with a Guarantee duly endorsed thereon and executed
by each Guarantor, of any authorized denomination as requested by such Holder in
aggregate principal amount equal to the unredeemed portion of the principal of
the Security so surrendered.
ARTICLE FOUR
COVENANTS
Section 4.01. Payment of Securities.
The Company will pay, or cause to be paid, the principal of
and interest on the Securities on the dates and in the manner provided in the
Securities and this Indenture. An installment of principal or interest shall be
considered paid on the date due if the Trustee or Paying Agent (other than the
Company, a Subsidiary of the Company or any Affiliate thereof) holds on that
date money, in immediately available funds, designated and set aside for and
sufficient to pay the installment in a timely manner and is not prohibited from
paying such money to the Holders of the Securities pursuant to the terms of this
Indenture.
26
<PAGE> 34
The Company will pay interest on overdue principal at the rate
of interest borne by the Securities and in the manner provided in the Securities
and this Indenture; it shall pay interest on overdue installments of interest at
the same rate and in the same manner, to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Company will maintain in the Borough of Manhattan, The
City of New York, an office or agency where Securities may be surrendered for
registration of transfer or exchange or for presentation for payment and where
notices and demands to or upon the Company and the Guarantors in respect of the
Securities, the Guarantees and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee as set forth in Section
13.02.
The Company may also from time to time designate one or more
other offices or agencies where the Securities may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in the Borough of Manhattan, The City of New York for such purposes. The Company
will give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or agency.
The Company initially appoints the Trustee at its Corporate
Trust Office as Registrar, Paying Agent and agent for service of notices and
demands in connection with the Securities, the Guarantees and this Indenture.
Section 4.03. Corporate Existence.
Subject to Article Five and Section 10.03, the Company shall
do or cause to be done all things necessary to, and will cause each of its
Subsidiaries to, preserve and keep in full force and effect the corporate or
partnership, as the case may be, existence and rights (charter and statutory),
licenses and/or franchises of the Company and each of its Subsidiaries;
provided, however, that the Company or any of its Subsidiaries shall not be
required to preserve any such rights, licenses or franchises if the Board of
Directors of the Company shall reasonably determine that (a) the preservation
thereof is no longer desirable in the conduct of the business of the Company and
its Subsidiaries taken as a whole and (b) the loss thereof is not materially
adverse to either the Company and its Subsidiaries taken as a whole or to the
ability of the Company to otherwise satisfy its obligations hereunder.
Section 4.04. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all taxes, assessments
and governmental charges levied or imposed upon the Company or any of its
Subsidiaries or upon the income, profits or property of the Company or any of
its Subsidiaries, and (b) all lawful claims for labor, materials and supplies
which, if unpaid, might by law become a Lien upon the property of the Company or
any Subsidiary of the Company; provided, however, that, except as otherwise
provided herein or in any Security Document, the Company shall not be required
to pay or discharge or cause to be paid or discharged any such tax, assessment,
charge or claim the amount, applicability or validity of which is being
contested in good faith by appropriate proceedings and for which adequate
provision for the payment thereof has been made or where the failure to effect
such payment or discharge is not adverse in any material respect to either the
Company and its Subsidiaries taken as a whole or to the ability of the Company
to otherwise satisfy its obligations hereunder.
Section 4.05. Maintenance of Properties; Insurance; Books and
Records; Compliance with Law.
(a) The Company shall, and shall cause each of its
Subsidiaries to, cause all properties and assets to be maintained and kept in
good condition, repair and working order (reasonable wear and tear excepted) and
supplied with all necessary equipment, and shall cause to be made all necessary
repairs, renewals, replacements,
27
<PAGE> 35
additions, betterments and improvements thereto, as shall be reasonably
necessary for the proper conduct of its business; provided, however, that
nothing in this Section 4.05(a) shall prevent the Company or any of its
Subsidiaries from discontinuing the operation and maintenance of any of its
properties or assets if such discontinuance is, in the judgment of the Board of
Directors of the Company or such Subsidiary, desirable in the conduct of its
business and if such discontinuance is not materially adverse to either the
Company and its Subsidiaries taken as a whole or the ability of the Company to
otherwise satisfy its obligations hereunder.
(b) The Company shall, and shall cause each of its
Subsidiaries to, maintain with financially sound and reputable insurers such
insurance as may be required by law and such other insurance (other than with
respect to any environmental impairment liability insurance not commercially
available) to such extent and against such hazards and liabilities as is
customarily maintained by companies similarly situated (which may include
self-insurance in the same form as is customarily maintained by companies
similarly situated).
(c) The Company shall, and shall cause each of its
Subsidiaries to, keep proper books of record and account, in which full and
correct entries shall be made of all business and financial transactions of the
Company and each Subsidiary of the Company and reflect on its financial
statements adequate accruals and appropriations to reserves, all in accordance
with GAAP.
(d) The Company shall and shall cause each of its Subsidiaries
to comply with all statutes, laws, ordinances, or government rules and
regulations to which it is subject, non-compliance with which would materially
adversely affect either the Company and its Subsidiaries taken as a whole or the
ability of the Company to otherwise satisfy its obligations hereunder.
(e) Nothing in this Section 4.05 shall be deemed to limit any
obligations of the Company or any Guarantor under any of the Security Documents.
Section 4.06. Compliance Certificate.
(a) The Company will deliver to the Trustee within 60 days
after the end of each of the Company's first three fiscal quarters and within 90
days after the end of the Company's fiscal year an Officers' Certificate stating
whether or not the signers know of any Default or Event of Default under this
Indenture that occurred during such fiscal period. If they do know of such a
Default or Event of Default, the certificate shall describe any such Default or
Event of Default and its status. The first certificate to be delivered pursuant
to this Section 4.06(a) shall be for the first fiscal quarter of the Company
beginning after the Issue Date. The Company and each Guarantor shall also
deliver a certificate to the Trustee at least annually from its principal
executive, financial or accounting officer (which, in the case of any Guarantor
which is a partnership, shall be the principal executive, financial or
accounting officer of a direct corporate general partner (or, if there is no
such direct corporate general partner, of an indirect corporate general partner)
of such partnership or, if there is no such direct or indirect corporate general
partner, by any individual performing similar duties on behalf of such
partnership) as to his or her knowledge of the Company's or such Guarantor's, as
the case may be, compliance with all conditions and covenants under this
Indenture and the Security Agreements, such compliance to be determined without
regard to any period of grace or requirement of notice provided herein or
therein.
(b) The Company shall deliver to the Trustee within 90 days
after the end of each fiscal year a written statement by the Company's
independent certified public accountants stating (i) that their audit
examination has included a review of the terms of this Indenture and the form of
Securities as they relate to accounting matters, and (ii) whether, in connection
with their audit examination, any Default or Event of Default under this
Indenture has come to their attention and, if such a Default or Event of Default
has come to their attention, specifying the nature and period of existence
thereof; provided, however, that, without any restriction as to the scope of the
audit examination, such independent certified public accountants shall not be
liable by reason of any failure to obtain knowledge of any such Default or Event
of Default that would not be disclosed in the course of an audit examination
conducted in accordance with GAAP.
(c) The Company will deliver to the Trustee as soon as
possible, and in any event within 10 days after the Company becomes aware of the
occurrence of any Default or Event of Default, an Officers' Certificate
28
<PAGE> 36
specifying such Default or Event of Default and what action the Company is
taking or proposes to take with respect thereto.
Section 4.07. SEC Reports.
The Company shall file with the SEC the annual reports,
quarterly reports and other documents required to be filed with the SEC 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. In accordance with the
provisions of TIA Section 314(a), the Company, at its expense, shall file with
the Trustee and provide to each Holder, within 15 days after it files them with
the SEC (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 (or copies of such portions of any of the foregoing as the
SEC may by rules and regulations prescribe) which the Company is (or would have
been) required to file with the SEC pursuant to Section 13 or 15 of the Exchange
Act. The Company also shall comply with the other provisions of TIA Section
314(a). In addition, the Company shall cause its annual reports to stockholders
and any quarterly or other financial reports furnished by it to stockholders
generally to be filed with the Trustee and mailed no later than the date such
materials are mailed or made available to the Company's stockholders, to the
Holders at their addresses as set forth in the list of Holders of Securities
maintained by the Registrar. In addition, the Company will cause the Guarantors
to file with the SEC the annual reports, quarterly reports and other documents
required to be filed by them pursuant to Sections 13 and 15 of the Exchange Act
and, at the Company's expense, to file with the Trustee, within 15 days after
filing them with the SEC, copies of such reports and documents which the
Guarantors are required to file with the SEC, and to comply, to the extent
required, with the provisions of TIA Section 314(a). So long as any of the
Securities are evidenced by Global Securities, the Company also agrees to
promptly mail copies of any such reports and documents filed by the Company or
any Guarantor with the Trustee as aforesaid to any beneficial owner of
Securities upon written request by such beneficial owner.
Section 4.08. 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 June +, 1998, 2 to 1 and (ii) in
the case of Indebtedness incurred on or after June +, 1998, 2.5 to 1, (b) such
Indebtedness has no scheduled principal payment prior to the 123rd 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 this Indenture or
evidenced by the Securities and Indebtedness of any Guarantor evidenced
by its Guarantee;
(b) Indebtedness of the Company and its Subsidiaries
outstanding on the Issue Date (other than Indebtedness under, or
guarantees of Indebtedness under, the Old Credit Agreement);
(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;
29
<PAGE> 37
(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 relate bears
interest at fluctuating interest rates and is otherwise permitted to be
incurred under this Section 4.08 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 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 Section 4.08;
(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 this Indenture and the Securities 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 Section 4.08;
(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;
30
<PAGE> 38
(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 the sale of the Securities 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
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 Guarantor pursuant to this clause (m) to refinance
Subordinated Indebtedness, such Indebtedness (A) has no scheduled
principal payment prior to the 123rd 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 Securities and (C) is
subordinated to the Securities or to the Guarantee of such Guarantor,
as the case may be, in the same manner and to the same extent that the
Subordinated Indebtedness being refinanced is subordinated to the
Securities or to the Guarantee of such Guarantor, as the case may be,
and (z) in the case of Indebtedness incurred by the Company or a
Guarantor pursuant to this clause (m) to refinance Pari Passu
Indebtedness, such Indebtedness (A) has no scheduled principal payment
prior to the 123rd 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 Securities and (C) constitutes Pari Passu
Indebtedness or Subordinated Indebtedness.
Section 4.09. 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 (1) 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), (2) the
declaration or payment of dividends or other distributions to the
extent declared or paid to the Company or any Subsidiary of the
Company, (3) 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 (4) 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
31
<PAGE> 39
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), (i) no Default or Event of Default shall have occurred
and be continuing, (ii) 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 Section 4.08 (assuming a market
rate of interest with respect to such additional Indebtedness) and (iii) the
aggregate amount of all Restricted Payments declared or made from and after the
Issue Date would not exceed the sum of (x) 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 Income of the Company for such period shall be a deficit, minus
100% of such deficit) plus (y) the aggregate net cash proceeds received by the
Company either (A) 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 (B) 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 (z) 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 (iii)(y), 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 (iii)(y) 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 (A) 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 (iii)(y) of the
preceding paragraph; or (B) Indebtedness of the Company issued to any person
32
<PAGE> 40
(other than to a Subsidiary or an Unrestricted Subsidiary of the Company) so
long as such Indebtedness is Subordinated Indebtedness which (1) has no Stated
Maturity earlier than the 123rd day after the Final Maturity Date, (2) has an
Average Life to Stated Maturity equal to or greater than the remaining Average
Life to Stated Maturity of the Securities and (3) is subordinated to the
Securities 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 (A) 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 (iii)(y) of the
preceding paragraph; or (B) 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 (1) has no Stated Maturity earlier than the 123rd day after the Final
Maturity Date and (2) has an Average Life to Stated Maturity equal to or greater
than the remaining Average Life to Stated Maturity of the Securities; (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 Section 4.13; (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 Securities 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 (iii) 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.
Section 4.10. 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 (i) 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 this Indenture (including, without
limitation, Sections 4.13 and 10.04) or (ii) directors' qualifying shares or
investments by foreign nationals mandated by applicable law; and provided
further that clause (b) of this Section 4.10 shall not apply to any Capital
Stock of CF&I or New CF&I which, on the Issue Date, was not owned by the Company
or a Wholly-Owned Subsidiary of the Company which is a Guarantor, so long as
there is no increase in the percentage of the outstanding Capital Stock of CF&I
or New CF&I which is owned by persons other than the Company and its
Wholly-Owned Subsidiaries which are Guarantors (it being understood that an
increase in the capital account of a limited partner of CF&I pursuant to the
terms of the CF&I Partnership Agreement shall not be deemed, in and of itself,
to be an increase in the percentage of CF&I's Capital Stock owned by persons
other than the Company and its Wholly-Owned Subsidiaries which are Guarantors).
Section 4.11. 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 (a) any item of Collateral (whether
owned on the Issue Date or thereafter acquired) or any proceeds therefrom or (b)
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
33
<PAGE> 41
property or assets referred to in this clause (b) or proceeds therefrom (i) in
the case of Liens securing Subordinated Indebtedness, the Securities are secured
by a Lien on such property, assets or proceeds that is senior in priority to
such Liens and (ii) in all other cases, the Securities are equally and ratably
secured.
Section 4.12. Change of Control.
Upon the occurrence of a Change of Control (the date of such
occurrence, the "Change of Control Date"), the Company shall 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 Change of
Control Date, all of the then outstanding Securities 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.
Notice of a Change of Control Offer shall be mailed by the
Company not later than the 30th day after the Change of Control Date to the
Holders of Securities at their last registered addresses with a copy to the
Trustee and the Paying Agent, the copy mailed to the Trustee to be accompanied
by an Officers' Certificate stating that a Change of Control has occurred and
that the Company is required to make a Change of Control Offer. The Change of
Control Offer shall remain open from the time of mailing for at least 20
Business Days and until 5:00 p.m., New York City time, on the Change of Control
Purchase Date. The notice, which shall govern the terms of the Change of Control
Offer, shall include such disclosures as are required by law and shall state:
(a) that the Change of Control Offer is being made pursuant to
this Section 4.12 and that all Securities validly tendered into the
Change of Control Offer and not withdrawn will be accepted for payment;
(b) the Change of Control Purchase Price (including the amount
of accrued interest, if any) for each Security, the Change of Control
Purchase Date and the date and time on which the Change of Control
Offer expires;
(c) that any Security not tendered for payment will continue
to accrue interest in accordance with the terms thereof;
(d) that, unless the Company shall default in the payment of
the Change of Control Purchase Price, any Security accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Purchase Date;
(e) that Holders electing to have Securities purchased
pursuant to a Change of Control Offer will be required to surrender
such Securities, with the form entitled "Option of Holder to Elect
Purchase" on the reverse side of the Security duly completed, to the
Paying Agent at the address specified in the notice prior to 5:00 p.m.,
New York City time, on the Change of Control Purchase Date and must
complete any form of letter of transmittal proposed by the Company and
acceptable to the Trustee and the Paying Agent;
(f) that Holders of Securities will be entitled to withdraw
their election if the Paying Agent receives, not later than 5:00 p.m.,
New York City time, on the Change of Control Purchase Date, a facsimile
transmission or letter (which may be delivered by mail, air courier,
hand delivery or otherwise) setting forth the name of the Holder, the
principal amount of Securities the Holder delivered for purchase, the
Security certificate number (if any) and a statement that such Holder
is withdrawing its election to have such Securities purchased;
(g) that Holders whose Securities are purchased only in part
will be issued Securities equal in principal amount to the unpurchased
portion of the Securities surrendered;
(h) the instructions that Holders must follow in order to
tender their Securities; and
(i) information concerning the business of the Company, the
most recent annual and quarterly reports of the Company filed with the
SEC pursuant to the Exchange Act (or, if the Company is not then
34
<PAGE> 42
required to file any such reports with the SEC, the comparable reports
prepared pursuant to Section 4.07), a description of material
developments in the Company's business, information with respect to pro
forma historical financial information after giving effect to such
Change of Control and such other information concerning the
circumstances and relevant facts regarding such Change of Control Offer
as would be material to a Holder of Securities in connection with the
decision of such Holder as to whether or not it should tender
Securities pursuant to the Change of Control Offer.
Notwithstanding the foregoing paragraph, as long as any
Securities are evidenced by Global Securities, (i) Securities may be tendered or
surrendered for payment upon a Change of Control Offer, tendered Securities may
be withdrawn, and letters of transmittal (or electronic messages in lieu
thereof) may be completed and delivered, in accordance with the then current
procedures of the Depositary (and the Company shall appropriately amend the
notice described in the preceding paragraph to incorporate a description of such
procedures) and (ii) the Company shall otherwise comply with the then current
rules and procedures of the Depositary in connection with such Change of Control
Offer.
On the Change of Control Purchase Date, the Company shall (i)
accept for payment Securities or portions thereof validly tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent money, in
immediately available funds, sufficient to pay the Change of Control Purchase
Price of all Securities or portions thereof so tendered and accepted and (iii)
deliver to the Trustee the Securities so accepted together with an Officers'
Certificate setting forth the Securities or portions thereof tendered to and
accepted for payment by the Company. The Paying Agent shall promptly mail or
deliver to the Holders of Securities so accepted payment in an amount equal to
the Change of Control Purchase Price, and the Trustee shall promptly
authenticate and mail or deliver to each such Holder a new Security equal in
principal amount to any unpurchased portion of the Security surrendered. Any
Securities not so accepted shall be promptly mailed or delivered by the Company
to the Holders thereof. The Company will publicly announce the results of the
Change of Control Offer not later than the first Business Day following the
Change of Control Purchase Date. For purposes of this Section 4.12, the Trustee
shall act as Paying Agent.
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 Securities 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 Securities as described above. To the extent
that the provisions of any applicable securities laws or regulations conflict
with the provisions of this Section 4.12, 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 Section 4.12.
Section 4.13. Disposition of Proceeds of Asset Sales.
(a) The Company will not, and will not permit any of its
Subsidiaries to, make any Asset Sale unless (i) 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 other property or
assets sold or otherwise disposed of, (ii) at least 85% of such consideration
consists of cash or Cash Equivalents, (iii) if such Asset Sale involves
Collateral, it shall be in compliance with the provisions of Article Eleven of
this Indenture and (iv) 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 of
this Section 4.13 set forth below) to constitute Collateral Proceeds
("Non-Collateral Proceeds"), such Non-
35
<PAGE> 43
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 Section 10.04 and which
(pursuant to the provisions of this Section 4.13 set forth 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, if the Company
so elects, 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
or amounts deemed to constitute 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 this 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 Mortgage, the Trustee or another
trustee under such Mortgage), for the benefit of the Holders of the
Securities, securing its obligations under the Securities or its
Guarantee, as the case may be, and otherwise shall comply with the
provisions of this Indenture applicable to After-Acquired Property);
and (B) shall not include any Bank Collateral, Excluded Intangibles,
Excluded Securities 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 in paragraph (b) below.
(b) 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 Securities, on a date not more than 40 Business
Days thereafter (the "Asset Sale Purchase Date"), the maximum aggregate
principal amount (expressed as a multiple of $1,000) of the outstanding
Securities that may be purchased with such Excess Proceeds, at a price, payable
in cash, equal to 100% of the principal amount thereof plus accrued and unpaid
interest, if any, to the purchase date (the "Asset Sale Offer Price"). To the
extent that the aggregate principal amount of Securities 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 this Indenture and the
Security Documents. If the aggregate principal amount of Securities validly
tendered and not withdrawn by Holders thereof exceeds the maximum aggregate
principal amount which may be purchased with such Excess Proceeds, Securities to
be purchased will be selected on a pro rata basis (with such adjustments as may
be deemed appropriate by the Company so that only Securities in denominations of
$1,000 or integral multiples of $1,000 shall be acquired). Upon completion of
such Asset Sale Offer, the amount of Excess Proceeds shall be reset to zero.
(c) All Collateral Proceeds and amounts which, pursuant to the
provisions described below, are deemed to be Collateral Proceeds shall, pending
their application in accordance with this Section 4.13 or the release thereof in
accordance with the provisions of this Section 4.13 or Article Twelve hereof, be
deposited as Trust Moneys in the Collateral Account under this Indenture. Such
Collateral Proceeds shall be invested by the Trustee in Cash Equivalents
pursuant to a Company Order given in accordance with Section 12.06 hereof;
provided, however, that in no event shall the Company specify a maturity date
later than the Asset Sale Purchase Date. Such Company Order shall be accompanied
by an Officers' Certificate of the Company setting forth (i) a statement to the
effect that the Company or a Subsidiary of the Company has made an Asset Sale
and (ii) if applicable, the aggregate principal amount of Securities offered to
be purchased and the basis of calculation in determining such aggregate
principal amount.
(d) 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 the terms of Section 5.01 hereof, or
if the Company shall cause or permit
36
<PAGE> 44
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 the terms of Section 5.01 hereof, 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 Section 4.13 and shall
comply with the provisions of this Section 4.13 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 this Section 4.13. 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 in a transaction permitted under Section 10.03, 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 this Indenture.
(e) In the event of a merger or consolidation of a Guarantor,
sale of Capital Stock of a Guarantor, sale of property or assets of a Guarantor
or other transactions as a result of which a Guarantor will be released from its
Guarantee as provided in Section 10.04, then, anything in this 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 terms
of this Section 4.13 and (ii) the Net Cash Proceeds of such transaction shall be
allocated between Collateral Proceeds and Non-Collateral Proceeds as follows:
(A) such Net Cash Proceeds shall be multiplied by a fraction (1) the numerator
of which is the Fair Market Value of the Collateral owned by such Guarantor and
(2) the denominator of which is the Fair Market Value of all property and assets
(including Collateral) owned by such Guarantor, and the resulting amount shall
be deemed Collateral Proceeds, and (B) the remainder of such Net Cash Proceeds
shall be deemed Non-Collateral Proceeds.
(f) Notice of an Asset Sale Offer shall be mailed by the
Company to all Holders of Securities not less than 20 Business Days nor more
than 40 Business Days before the Asset Sale Purchase Date at their last
registered address with a copy to the Trustee and the Paying Agent, the copy
mailed to the Trustee to be accompanied by an Officers' Certificate stating that
an Asset Sale has occurred and that the Company is required to make an Asset
Sale Offer for the principal amount of Securities set forth in such certificate.
The Asset Sale Offer shall remain open from the time of mailing for at least 20
Business Days and until at least 5:00 p.m., New York City time, on the Asset
Sale Purchase Date. The notice, which shall govern the terms of the Asset Sale
Offer, shall include such disclosures as are required by law and shall state:
(i) that the Asset Sale Offer is being made pursuant to this
Section 4.13 and the aggregate principal amount of Securities which the
Company is offering to purchase thereby;
(ii) the Asset Sale Offer Price (including the amount of
accrued interest, if any) for each Security, the Asset Sale Purchase
Date and the date and time on which the Asset Sale Offer expires;
(iii) that any Security not tendered or accepted for payment
will continue to accrue interest in accordance with the terms thereof;
(iv) that, unless the Company shall default in the payment of
the Asset Sale Offer Price, any Security accepted for payment pursuant
to the Asset Sale Offer shall cease to accrue interest after the Asset
Sale Purchase Date;
(v) that Holders electing to have Securities purchased
pursuant to an Asset Sale Offer will be required to surrender such
Securities, with the form entitled "Option of Holder to Elect Purchase"
on the reverse side of the Security duly completed, to the Paying Agent
at the address specified in the notice prior to 5:00 p.m., New York
City time, on the Asset Sale Purchase Date and must complete any form
of letter of transmittal proposed by the Company and acceptable to the
Trustee and the Paying Agent;
37
<PAGE> 45
(vi) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than 5:00 p.m., New York City
time, on the Asset Sale Purchase Date, a facsimile transmission or
letter (which may be delivered by mail, air courier, hand delivery or
otherwise) setting forth the name of the Holder, the principal amount
of Securities the Holder delivered for purchase, the Security
certificate number (if any) and a statement that such Holder is
withdrawing its election to have such Securities purchased;
(vii) that if Securities in an aggregate principal amount in
excess of the maximum aggregate principal amount which may be purchased
with such Excess Proceeds are tendered pursuant to the Asset Sale
Offer, the Company shall purchase Securities on a pro rata basis among
the Holders whose Securities have been tendered (with such adjustments
as may be deemed appropriate by the Company so that only Securities in
denominations of $1,000 or integral multiples of $1,000 shall be
acquired);
(viii) that Holders whose Securities are purchased only in part
will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered;
(ix) the instructions that Holders must follow in order to
tender their Securities; and
(x) information concerning the business of the Company, the
most recent annual and quarterly reports of the Company filed with the
SEC pursuant to the Exchange Act (or, if the Company is not required to
file any such reports with the SEC, the comparable reports prepared
pursuant to Section 4.07), a description of material developments in
the Company's business, information with respect to pro forma
historical financial information after giving effect to such Asset Sale
and Asset Sale Offer and such other information concerning the
circumstances and relevant facts regarding such Asset Sale Offer as
would be material to a Holder of Securities in connection with the
decision of such Holder as to whether or not it should tender
Securities pursuant to the Asset Sale Offer.
Notwithstanding the foregoing paragraph, as long as any
Securities are evidenced by Global Securities, (i) Securities may be tendered or
surrendered for payment upon an Asset Sale Offer, tendered Securities may be
withdrawn, and letters of transmittal (or electronic messages in lieu thereof)
may be completed and delivered, in accordance with the then current procedures
of the Depositary (and the Company shall appropriately amend the notice
described in the preceding paragraph to incorporate a description of such
procedures) and (ii) the Company shall otherwise comply with the then current
rules and procedures of the Depositary in connection with such Asset Sale Offer.
(h) On the Asset Sale Purchase Date, the Company shall (i)
accept for payment, on a pro rata basis (if necessary) as described in
subparagraph (g)(vii) above, Securities or portions thereof tendered pursuant to
the Asset Sale Offer, (ii) deposit with the Paying Agent money, in immediately
available funds, in an amount sufficient to pay the Asset Sale Offer Price of
all Securities or portions thereof so tendered and accepted and (iii) deliver to
the Trustee the Securities so accepted together with an Officers' Certificate
setting forth the Securities or portions thereof tendered to and accepted for
payment by the Company. The Paying Agent shall promptly mail or deliver to
Holders of Securities so accepted payment in an amount equal to the Asset Sale
Offer Price, and the Trustee shall promptly authenticate and mail or deliver to
each such Holder a new Security equal in principal amount to any unpurchased
portion of the Security surrendered. Any Securities not so accepted shall be
promptly mailed or delivered by the Company to the Holders thereof. The Company
will publicly announce the results of the Asset Sale Offer not later than the
first Business Day following the Asset Sale Purchase Date. To the extent that
the aggregate principal amount of Securities tendered pursuant to an Asset Sale
Offer is less than the maximum aggregate principal amount of Securities which
can be purchased with such Excess Proceeds, the Company may, by delivery to the
Trustee of an Officers' Certificate to such effect, retain any such remaining
Excess Proceeds, free and clear of the lien of this Indenture and the Security
Documents. Upon completion of such Asset Sale Offer, the amount of Excess
Proceeds shall be reset to zero. For purposes of this Section 4.13, the Trustee
shall act as Paying Agent.
(i) 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 Securities as described above. To the extent
that the
38
<PAGE> 46
provisions of any applicable securities laws or regulations conflict with the
provisions of this Section 4.13, 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 Section 4.13.
Section 4.14. 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
(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, after the passage of time or upon the happening of an event) 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 the Board of Directors of the Company; provided, however, that this Section
4.14 will not restrict the Company or any of its Subsidiaries from (i) paying
dividends or making other distributions in respect of its Capital Stock
permitted under Section 4.09, (ii) paying reasonable and customary fees to
directors of the Company or any of its Subsidiaries who are not employees of the
Company, (iii) making loans or advances to officers, employees or consultants of
the Company and its Subsidiaries (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 Section 4.14 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 Section 4.14 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).
Section 4.15. 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)
39
<PAGE> 47
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 this Indenture which could not materially adversely affect the
Company's ability to satisfy its obligations under this Indenture and the
Securities or any Guarantors' ability to satisfy its obligations under this
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 this Indenture, the Securities, the
Guarantees, the Intercreditor Agreement or any Security Documents, (vii) (A)
provisions contained in the Credit Agreement and in guarantees by CF&I and New
CF&I permitted by this Indenture of the Company's obligations under the Credit
Agreement, and in security agreements or similar documents permitted by this
Indenture entered into by the Company, CF&I and New CF&I pledging Bank
Collateral to secure their respective obligations thereunder (in each case as in
effect on the Issue Date but only after giving effect to any amendments or
restatements thereto which are entered into on or prior to the Issue Date), and
provisions in permitted amendments and replacements thereof which are no less
favorable to the holders of the Securities than those contained in the Credit
Agreement or in any such guarantee or security agreement or similar document as
in effect on the Issue Date (after giving effect to any amendments or
restatements thereto entered into on or prior to the Issue Date), and (B)
provisions contained in such additional guarantees of the Company's obligations
under the Credit Agreement permitted by this Indenture and in such additional
security agreements or similar documents permitted by this Indenture pledging
Bank Collateral pursuant to the Credit Agreement which may be entered into after
the Issue Date by other Subsidiaries of the Company (and in permitted amendments
and replacements thereof) which in each case are no less favorable to the
holders of the Securities than the provisions of the guarantees, security
agreements or similar documents, as the case may be, referred to in clause (A)
above (as in effect on the Issue Date but only after giving effect to any
amendments or restatements thereto which are entered into on or prior to the
Issue Date); (viii) provisions contained in other agreements or instruments
relating to Indebtedness in effect on the Issue Date (as in effect on the Issue
Date) and provisions in amendments and permitted refinancings or replacements
thereof which are no less favorable to the Holders of the Securities than those
contained in the agreements or instruments so amended, refinanced or replaced
(other than encumbrances or restrictions existing under or by reason of the Old
Credit Agreement, the Old Pledge Agreements or the Old Security Agreements,
except to the extent that the Old Security Agreements of the Company, New CF&I
or CF&I shall have been amended or restated on or prior to the Issue Date in
connection with the Credit Agreement Amendment and therefore are permitted
pursuant to clause (vii) above); and (ix) encumbrances and restrictions under
the CF&I Partnership 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 Securities than those contained in the agreement
prior to such amendment.
Section 4.16. Limitations 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) after giving pro forma effect to the Indebtedness, if any, incurred in such
Sale-Leaseback Transaction, the Company would be able to incur $1.00 of
additional Indebtedness pursuant to the first paragraph of Section 4.08
(assuming a market rate of interest with respect to such additional
Indebtedness) and (b) such Sale-Leaseback Transaction complies with Section 4.13
above and the Net Cash Proceeds of such transaction are applied in accordance
with Section 4.13 above.
Section 4.17. Additional Guarantors; Additional Security
Documents.
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" herein or (B) (i) such new
Subsidiary simultaneously executes and delivers a supplemental
40
<PAGE> 48
indenture pursuant to which such new Subsidiary becomes a Guarantor and
guarantees the obligations of the Company under the Securities on the same terms
as the other Guarantors and also executes and delivers a written instrument
pursuant to which it shall become a party to the Intercreditor Agreement; (ii)
to the extent that such new Subsidiary owns (or thereafter acquires) any
property or assets of the types which would constitute "Trust Property" (as such
term is defined in the form of Mortgage attached as Exhibit C to this Indenture)
(assuming, in the case of real property or a leasehold interest in real
property, that an appropriate description of such property or leasehold interest
were included as a schedule to such form of Mortgage and assuming, in the case
of fixtures, improvements and other types of Trust Property, that a description
of the related real property or leasehold interest in real property, as the case
may be, were included as a schedule to such form of Mortgage) or "Collateral"
(as such term is defined in the form of Security Agreement attached as Exhibit B
to this 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 Securities, securing such new
Subsidiary's obligations under its Guarantee and otherwise shall comply with the
provisions of this Indenture applicable to AfterAcquired Property; and (iii) the
Company shall deliver to the Trustee an Officers' Certificate and an Opinion of
Counsel, each in form reasonably satisfactory to the Trustee, each stating that
the establishment or acquisition of such new Subsidiary complies with this
Indenture and that the supplemental indenture and any Security Documents entered
into by such new Subsidiary comply with this Indenture. For purposes of this
Section 4.17, the designation of any Unrestricted Subsidiary as a Subsidiary
shall be deemed to be the establishment of a new Subsidiary. The Company will
not permit any Unrestricted Subsidiary to own any Capital Stock of a Guarantor.
Section 4.18. Impairment of Security Interests.
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 Securities, in the Collateral.
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 Securities) any interest
whatsoever in the Collateral except as expressly permitted by this Indenture,
the Intercreditor Agreement and the Security Documents.
Section 4.19. Limitation on Amendments to CF&I Agreements.
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 (i) in any manner would be adverse to the interests
of the Holders of the Securities or the Trustee (it being understood that the
admission by CF&I of one or more additional or substitute limited partners shall
not be deemed adverse to the interests of the holders of the Securities or the
Trustee so long as made in compliance with the other provisions of this
Indenture) or (ii) in the case of the CF&I Partnership Agreement, would increase
the amount of cash or other property distributable to, or the amount of profits
allocated to, any limited partner of CF&I.
Section 4.20. Waiver of Stay, Extension or Usury Laws.
The Company and each Guarantor each covenants (to the extent
that it may lawfully do so) that it will not at any time insist upon, or plead,
or in any manner whatsoever claim or take the benefit or advantage of, any stay
or extension law or any usury law or other law which would prohibit or forgive
the Company or such Guarantor, as the case may be, from paying all or any
portion of the principal of or interest on the Securities as contemplated herein
or in the Securities, wherever enacted, now or at any time hereafter in force,
or which may affect the covenants or the performance of this Indenture; and (to
the extent that it may lawfully do so) the Company and each Guarantor each
hereby expressly waives all benefit or advantage of any such law and covenants
that it will not hinder, delay or impede the execution of any power herein
granted to the Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
41
<PAGE> 49
ARTICLE FIVE
SUCCESSOR CORPORATION
Section 5.01. When Company May Merge, 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 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 (i)
either (x) if the transaction or series of transactions is a merger, the Company
shall be the surviving person of such merger, or (y) 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, the due and punctual payment of the principal of
and interest on all the Securities and the due and punctual performance and
observance of every covenant and obligation of this Indenture and the Securities
on the part of the Company to be performed or observed (and such supplemental
indenture shall also be executed by each Guarantor and shall further provide
that each Guarantor confirms that its obligations under this Indenture, its
Guarantee, the Intercreditor Agreement and its Security Documents remain in full
force and effect), and shall expressly assume, by amendment, supplement or other
appropriate instruments executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, the due and punctual performance and
observance of 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 this
Indenture, its Guarantee (including, in the case of CF&I, the CF&I Note), the
Intercreditor Agreement and its Security Documents (and the Surviving Entity
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 (in the case of a merger or
consolidation) or on the Collateral transferred to the Surviving Entity (in the
case of a transfer of assets), together with such financing statements as may be
required to perfect any security interests in such Collateral which may be
perfected by the filing of a financing statement under the Uniform Commercial
Code of the relevant states); (ii) the Collateral owned by the Company and, in
the case of any such transaction involving such Subsidiary, by such Subsidiary
(in the case of a merger or consolidation) or the Collateral transferred to the
Surviving Entity (in the case of a transfer of assets) shall (1) continue to
constitute Collateral under this Indenture and 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 Securities and (3) shall not be
subject to any Lien other than Liens expressly permitted by this Indenture and
the Security Documents; (iii) the property and assets of the person which is
merged or consolidated with or into the Company, to the extent that such
property or assets are of the types which would constitute "Trust Property" (as
defined in the form of Mortgage attached as an Exhibit C to this Indenture)
(assuming, in the case of real property or a leasehold interest in real
property, that an appropriate description of such property or leasehold interest
were included as a schedule to such form of Mortgage and assuming, in the case
of fixtures, improvements and other types of Trust Property, that a description
of the related real property or leasehold interest in real property, as the case
may be, were included as a schedule to such form of Mortgage) or "Collateral"
(as defined in the form of Security Agreement attached as an Exhibit B to this
Indenture) shall be treated as After-Acquired Property and the Company or the
Surviving Entity, as the case may be, shall take such action as may be necessary
to cause such property and assets to be made subject to the Lien of the Security
Documents in the manner and to the extent specified in Section 11.01 (including
delivery of such documents, Officers' Certificates and Opinions of Counsel as
may be required by Section 11.01); (iv) 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), (x) no Default or Event
42
<PAGE> 50
of Default shall have occurred and be continuing and (y) 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 under the terms of the first paragraph of Section 4.08
(assuming a market rate of interest with respect to such additional
Indebtedness); (v) 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; and (vi) the Company shall deliver, or
cause to be delivered, to the Trustee an Officers' Certificate and an Opinion of
Counsel, each in form reasonably satisfactory to the Trustee, each stating that
such consolidation, merger, transfer, lease, assignment or other disposition and
any supplemental indenture, amendments, supplements or other instruments or
agreements required by clause (i) or (iii) above complies with the requirements
of this Indenture and that all conditions precedent herein provided for relating
to such transaction or series of transactions have been complied with (except
that such Opinion of Counsel need express no opinion as to the matters referred
to in clause (ii)(3), (iv) or (v) above).
Section 5.02. Successor Substituted.
Upon any consolidation or merger, or any sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company in accordance with Section 5.01 hereof, in
which the Company is not the continuing corporation, the successor person or
persons formed by such consolidation or into which the Company is merged or the
successor person to which such sale, assignment, conveyance, transfer, lease or
other disposition is made, shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture, the
Intercreditor Agreement, the relevant Security Documents and the Securities with
the same effect as if such successor had been named as the Company herein and
therein (and thereafter, except in the case of a lease, the predecessor
corporation shall be released from all of its obligations hereunder and
thereunder); provided, however, that solely for purposes of computing amounts
described in subclause (iii) of the first paragraph of Section 4.09, 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.
ARTICLE SIX
EVENTS OF DEFAULT AND REMEDIES
Section 6.01. Events of Default.
An "Event of Default" means any of the following events:
(a) default in the payment of the principal of or premium, if
any, on any Security when the same becomes due and payable (upon Stated
Maturity, acceleration, optional redemption, required purchase,
scheduled principal payment or otherwise); or
(b) default in the payment of an installment of interest on
any of the Securities, when the same becomes due and payable, and any
such Default continues for a period of 30 days; or
(c) default by the Company or any Guarantor in the performance
or observance of any term, covenant or agreement contained in the
Securities, any Security Document, this Indenture, the Intercreditor
Agreement or any Guarantee (other than a default specified in clause
(a) or (b) above) and such default continues for a period of 30 days
after written notice of such default requiring the Company to remedy
the same and stating that such notice is a "Notice of Default"
hereunder shall have been given (i) to the Company by the Trustee or
(ii) to the Company and the Trustee by Holders of at least 25% in
aggregate principal amount of the Securities then outstanding; or
43
<PAGE> 51
(d) 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 (i) such Indebtedness is already due
and payable in full or (ii) such default or defaults have resulted in
the acceleration of the maturity of such Indebtedness; or
(e) 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
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
(f) 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
(g) the commencement by the Company or any Subsidiary of the
Company of a voluntary case or proceeding under any Bankruptcy Law or
the consent by the Company or any Subsidiary of the Company to the
entry of an order for relief or similar decree in respect of the
Company or such Subsidiary in an involuntary case or proceeding under
any Bankruptcy Law or the filing by the Company or of any Subsidiary of
the Company of a petition, answer or consent seeking reorganization or
relief under any Bankruptcy Law, or the consent by the Company or any
Subsidiary of the Company to the filing of any such petition or to the
appointment of or taking possession by a Custodian of the Company, any
Subsidiary of the Company, or of any substantial part of the property
of the Company or of any Subsidiary of the Company, or the making by
the Company or any Subsidiary of the Company of an assignment for the
benefit of creditors, or the admission by the Company or any Subsidiary
of the Company in writing that it is bankrupt, insolvent or unable to
pay its debts generally as they become due, or the taking of corporate
action or partnership action, as the case may be, by the Company or any
Subsidiary of the Company in furtherance of any such action; or
(h) the entry by a court having jurisdiction in the premises
of a judgment, decree or order for relief in respect of the Company or
any Subsidiary of the Company in an involuntary case or proceeding
under any applicable Bankruptcy Law, or determining that the Company or
any Subsidiary of the Company is bankrupt or insolvent or that the
Company or any Subsidiary of the Company is entitled to seek
reorganization, arrangement, adjustment or composition of its
indebtedness, or appointing a Custodian of or for the Company, any
Subsidiary of the Company or any substantial part of properties of the
Company or any Subsidiary of the Company, or ordering the winding up or
liquidation of the affairs of the Company or any Subsidiary of the
Company, and any such judgment, order, or decree shall remain unstayed
and in effect for a period of 60 consecutive days; or
(i) 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 any Guarantee, or gives notice to such effect (other
than by reason of the termination of this Indenture or the release of
any such Guarantee in accordance with Section 10.04 hereof); or
(j) 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
44
<PAGE> 52
(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 Section 10.04 hereof).
Subject to the provisions of Sections 7.01 and 7.02, the
Trustee shall not be charged with knowledge of any Default or Event of Default
unless written notice thereof shall have been given to a Trust Officer at the
Corporate Trust Office of the Trustee by the Company, the Paying Agent, any
Holder, any Guarantor or any of their respective agents.
Section 6.02. Acceleration.
If an Event of Default (other than as specified in Section
6.01(g) or (h) 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
Securities 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 Securities to be due and payable immediately, upon
which declaration, all amounts payable in respect of the Securities shall be
immediately due and payable. If an Event of Default specified in Section 6.01(g)
or 6.01(h) occurs and is continuing, then the principal of, premium, if any, and
accrued and unpaid interest on all of the Securities 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 Securities.
After a declaration of acceleration under this 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 Securities, 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 Section 7.08, 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 Securities
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 Securities and (iii) the principal of and premium, if any, on any
Securities which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate of interest borne by the
Securities, (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 Securities
that has become due solely by such declaration of acceleration, have been cured
or waived as provided in Section 6.04.
No such rescission shall affect any subsequent Default or
Event of Default or impair any right subsequent therein.
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of, premium, if any, or interest on the Securities or to
enforce the performance of any provision of the Securities, the Guarantees, the
Security Documents, the Intercreditor Agreement or this Indenture.
All rights of action and claims under this Indenture, the
Security Documents, the Intercreditor Agreement, the Guarantees or the
Securities may be enforced by the Trustee even if it does not possess any of the
Securities or Guarantees or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
Section 6.04. Waiver of Past Defaults.
Subject to the provisions of Section 6.07 and 9.02, the
Holders of not less than a majority in aggregate principal amount of the
outstanding Securities by notice to the Trustee may, on behalf of the Holders of
45
<PAGE> 53
all the Securities, waive any past default under this Indenture, the Securities,
the Guarantees, the Intercreditor Agreement or any Security Documents and its
consequences, except an Event of Default specified in Section 6.01(a) or (b) or
in respect of any covenant or provision hereof or thereof which cannot be
modified or amended without the consent of each Holder so affected pursuant to
Section 9.02. When a default is so waived, it shall be deemed cured and shall
cease to exist.
Section 6.05. Control by Majority.
The Holders of not less than a majority in aggregate principal
amount of the outstanding Securities shall 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 this
Indenture, the Securities, the Guarantees, the Intercreditor Agreement or the
Security Documents; provided, however, that the Trustee may refuse to follow any
direction (a) that conflicts with any rule of law or this Indenture, (b) that
the Trustee determines may be unduly prejudicial to the rights of another
Securityholder, or (c) that may expose the Trustee to personal liability unless
the Trustee has been provided reasonable indemnity against any loss or expense
caused by its following such direction; and provided further that the Trustee
may take any other action deemed proper by the Trustee that is not inconsistent
with such direction.
Section 6.06. Limitation on Suits.
No Holder of any Securities shall have any right to institute
any proceeding or pursue any remedy with respect to this Indenture, the
Intercreditor Agreement, the Securities, the Guarantees or the Security
Documents unless:
(a) the Holder gives written notice to the Trustee of a
continuing Event of Default;
(b) the Holder or Holders of at least 25% in aggregate
principal amount of the outstanding Securities make a written request
to the Trustee to institute such proceeding as Trustee under the
Securities and this Indenture;
(c) such Holder or Holders offer and, if requested, provide to
the Trustee reasonable indemnity against any loss, liability or
expense;
(d) the Trustee does not comply with the request within 30
days after receipt of the request and the offer and, if requested,
provision of indemnity; and
(e) during such 30-day period the Holders of at least a
majority in aggregate principal amount of the outstanding Securities do
not give the Trustee a direction which is inconsistent with the
request.
The foregoing limitations shall not apply to a suit instituted
by a Holder for the enforcement of the payment of principal of, premium, if any,
or interest on, any Securities on or after the respective due dates set forth in
such Securities.
A Holder may not use this Indenture to prejudice the rights of
any other Holders or to obtain priority or preference over such other Holders.
Section 6.07. Right of Holders to Receive Payment.
Notwithstanding any other provision in this Indenture, the
right of any Holder of a Security to receive payment of the principal of,
premium, if any, and interest on such Security, on or after the respective
Stated Maturities expressed in such Security or upon redemption or upon
repurchase pursuant to Section 4.12 or 4.13, or to bring suit for the
enforcement of any such payment on or after its Stated Maturity or the relevant
Redemption Date, Change of Control Purchase Date or Asset Sale Purchase Date, as
the case may be, is absolute and unconditional and shall not be impaired or
affected without the consent of the Holder.
46
<PAGE> 54
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in clause (a) or (b) of
Section 6.01 occurs and is continuing, the Trustee may recover judgment in its
own name and as trustee of an express trust against the Company, any Guarantor
or any other obligor on the Securities or the Guarantees for the whole amount of
principal of, premium, if any, and interest remaining unpaid, together with
interest on overdue principal and premium and, to the extent that payment of
such interest is lawful, on overdue installments of interest, in each case at
the rate per annum borne by the Securities and such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
Section 6.09. Trustee May File Proofs of Claims.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders allowed in any judicial proceedings relative to the Company, the
Guarantors or any other Subsidiary of the Company (or any other obligor upon the
Securities or the Guarantees), their creditors or their property and shall be
entitled and empowered to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same, and any
Custodian in any such judicial proceedings is hereby authorized by each Holder
to make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Holders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel, and any other
amounts due the Trustee under Section 7.08. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article
Six, it shall pay out such money in the following order:
First: to the Trustee for amounts due to it under Section 7.08
and for any amounts due under the Security Documents (other than
payments of interest and principal described in the next two
subclauses);
Second: to Holders for interest accrued on the Securities,
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Securities for interest;
Third: to Holders for principal amounts (including any
premium) owing under the Securities, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal (including any premium); and
Fourth: the balance, if any, to the Company or, to the extent
the Trustee collects any amount from any Guarantor, to such Guarantor.
The Trustee, upon prior written notice to the Company, may fix
a record date and payment date for any payment to Securityholders pursuant to
this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, a court may in its discretion require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defenses made by the party
litigant. This Section 6.11 does not apply to any
47
<PAGE> 55
suit by the Trustee, any suit by a Holder pursuant to Section 6.07, or a suit by
Holders of more than 10% in aggregate principal amount of the outstanding
Securities.
Section 6.12. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture or under any Security Document,
the Intercreditor Agreement, any Security or any Guarantee and such proceeding
has been discontinued or abandoned for any reason, or has been determined
adversely to the Trustee or to such Holder, then and in every such case the
Company, each Guarantor, the Trustee and the Holders shall, subject to any
determination in such proceeding, be restored severally and respectively to
their former positions hereunder and thereunder, and thereafter all rights and
remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
ARTICLE SEVEN
TRUSTEE
Section 7.01. Duties.
(a) In case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture, the Intercreditor Agreement and the Security Documents,
and use the same degree of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of such person's
own affairs.
(b) Except during the continuance of an Event of Default,
(i) the Trustee need perform only such duties as are
specifically set forth in this Indenture, the Intercreditor Agreement
and the Security Documents, and no implied covenants or obligations
shall be read into this Indenture, the Intercreditor Agreement or the
Security Documents against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture, the Intercreditor Agreement or the Security Documents,
as the case may be; but in the case of any such certificates or
opinions which by any provision hereof or thereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a
duty to examine the same to determine whether or not they conform to
the requirements of this Indenture, the Intercreditor Agreement or the
relevant Security Document.
(c) No provision of this Indenture, the Intercreditor
Agreement or any Security Document shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act,
or its own willful misconduct, except that
(i) this paragraph does not limit the effect of paragraph (b)
of this Section 7.01;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 6.05.
(d) No provision of this Indenture, the Intercreditor
Agreement or any Security Document shall require the Trustee to expend or risk
its own funds or otherwise incur any financial liability in the performance of
any of its duties hereunder or thereunder or in the exercise of any of its
rights or powers if it shall have reasonable
48
<PAGE> 56
grounds for believing that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it.
(e) Every provision of this Indenture, the Intercreditor
Agreement and the Security Documents that in any way relates to the Trustee is
subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.
Section 7.02. Rights of Trustee.
Subject to Section 7.01 hereof and the provisions of TIA
Section 315:
(a) the Trustee may rely on any document reasonably believed
by it to be genuine and to have been signed or presented by the proper
person. The Trustee need not investigate any fact or matter stated in
the document;
(b) before the Trustee acts or refrains from acting, it may
consult with counsel and may require an Officers' Certificate or an
Opinion of Counsel, which shall (if applicable) conform to Sections
13.04 and 13.05. The Trustee shall not be liable for any action it
takes or omits to take in good faith in reliance on such certificate or
opinion;
(c) the Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
appointed with due care;
(d) the Trustee shall not be liable for any action taken or
omitted by it in good faith and reasonably believed by it to be
authorized or within the discretion, rights or powers conferred upon it
by this Indenture, the Intercreditor Agreement or the relevant Security
Document other than any liabilities arising out of its own negligence;
(e) the Trustee may consult with counsel of its own choosing
and the advice or opinion of such counsel as to matters of law shall be
full and complete authorization and protection in respect of any action
taken, omitted or suffered by it under this Indenture, the
Intercreditor Agreement or any Security Document, as the case may be,
in good faith and in accordance with the advice or opinion of such
counsel;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, notice, request, direction, consent,
order, bond, debenture, or other paper or document, but the Trustee, in
its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit; and
(g) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture, the
Intercreditor Agreement or any Security Document at the request, order
or direction of any of the Holders pursuant to the provisions of this
Indenture, the Intercreditor Agreement or any Security Document, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby.
Section 7.03. Individual Rights of Trustee.
The Trustee, any Paying Agent, Registrar or any other agent of
the Company, in its individual or any other capacity, may become the owner or
pledgee of Securities and, subject to Sections 7.11 and 7.13 and TIA Sections
310 and 311, may otherwise deal with the Company and its Subsidiaries with the
same rights it would have if it were not the Trustee, Paying Agent, Registrar
or such other agent.
Section 7.04. Trustee's Disclaimer.
The Trustee makes no representations as to the validity or
sufficiency of this Indenture, the Intercreditor Agreement, any Security
Document, the Securities or any Guarantee, it shall not be accountable for the
Company's use or application of the proceeds from the Securities, it shall not
be responsible for the use or
49
<PAGE> 57
application of any money received by any Paying Agent other than the Trustee and
it shall not be responsible for any recital contained herein or any statement in
the Securities other than the Trustee's certificate of authentication. The
Trustee shall not be responsible for perfecting or maintaining the perfection of
any security interest granted to it under any Security Document or for filing,
refiling, recording or rerecording any document, Mortgage, notice or instrument
in any public office at any time or times and shall not be responsible for
seeing to the insurance on or the payment of any taxes with respect to any
property subject to any Security Document.
Section 7.05. Notice of Default.
If a Default or an Event of Default occurs and is continuing
and if it is known to the Trustee, the Trustee shall mail to each Holder notice
of the Default or Event of Default within 30 days after obtaining knowledge
thereof; provided, however, that, except in the case of a default in the payment
of the principal, premium, if any, or interest on any Security, the Trustee
shall be protected in withholding such notice if and so long as the board of
directors, the executive committee of the board of directors or a committee of
the directors of the Trustee and/or Trust Officers in good faith determines that
the withholding of such notice is in the interest of the Holders.
Section 7.06. Money Held in Trust.
All moneys received by the Trustee shall, until used or
applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated from other funds except to the extent
required by this Indenture, the Intercreditor Agreement or any Security Document
or by law. The Trustee shall not be under any liability for interest on any
moneys received by it hereunder or under the Intercreditor Agreement or any
Security Document, except as the Trustee may agree with the Company.
Section 7.07. Reports by Trustee to Holders.
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, the Trustee shall, to the extent that any
of the events described in TIA Section 313(a) shall have occurred within the
previous twelve months, but not otherwise, mail to each Holder a brief report
dated as of such May 15 that complies with TIA Section 313(a). The Trustee also
shall comply with TIA Sections 313(b) and 313(c).
A copy of each report at the time of its mailing to Holders
shall be mailed to the Company and filed with the SEC and each securities
exchange, if any, on which the Securities are listed.
The Company shall notify the Trustee in writing if the
Securities become listed on any securities exchange after the Issue Date.
Section 7.08. Compensation and Indemnity.
The Company and each Guarantor, jointly and severally,
covenant and agree to pay the Trustee from time to time reasonable compensation
for its services. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company and each Guarantor,
jointly and severally, shall reimburse the Trustee upon request for all
reasonable disbursements, expenses and advances incurred or made by it. Such
expenses shall include the reasonable compensation, disbursements and expenses
of the Trustee's agents and counsel.
The Company and each Guarantor, jointly and severally, shall
indemnify the Trustee for, and hold it harmless against, any loss or liability
incurred by it arising out of or in connection with the administration of this
trust and its rights or duties hereunder and under the Intercreditor Agreement
and the Security Documents, including the costs and expenses of defending itself
against any claim or liability in connection with the exercise or performance of
any of its powers or duties under this Indenture, the Intercreditor Agreement or
any Security Document. The Company and the Guarantors need not reimburse any
expense or indemnify against any loss or liability to the extent incurred by the
Trustee through its negligence, bad faith or willful misconduct.
50
<PAGE> 58
To secure the Company's and the Guarantors' payment
obligations in this Section 7.08, the Trustee shall have a Lien prior to the
Securities on all assets held or collected by the Trustee, in its capacity as
Trustee, except assets held in trust to pay principal of, premium, if any, or
interest on particular Securities.
Without prejudice to any other rights available to the Trustee
under applicable law, when the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 6.01(g) or (h) the
expenses and the compensation for the services are intended to constitute
expenses of administration under any Bankruptcy Law.
The Company's and the Guarantors' obligations under this
Section 7.08 and any Lien arising hereunder shall survive the resignation or
removal of any Trustee, the discharge of the Company's and the Guarantors'
obligations pursuant to Article Eight and/or the termination of this Indenture.
Section 7.09. Replacement of Trustee.
The Trustee may resign by so notifying the Company. The
Holders of at least a majority in principal amount of the outstanding Securities
may remove the Trustee by so notifying the Company and the Trustee.
The Company may remove the Trustee if:
a. the Trustee fails to comply with Section 7.11 hereof or
Section 310(b) of the TIA;
b. the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
c. a receiver or other public officer takes charge of the
Trustee or its property; or
d. the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall notify each Holder of
such event and shall promptly appoint a successor Trustee. Within one year after
the successor Trustee takes office, the Holders of at least a majority in
principal amount of the outstanding Securities may appoint a successor Trustee
to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, and the resignation or removal of the retiring Trustee shall
become effective, and the successor Trustee shall have all the rights, powers
and duties of the Trustee under this Indenture, the Security Documents and the
Intercreditor Agreement, and the Company and the Guarantors shall take such
action as shall be necessary so that all Collateral (including all Trust Moneys
and other property in the Collateral Account) shall continue to be subject to
the Lien of the Security Documents 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 Securities. A successor
Trustee shall mail notice of its succession to each Securityholder.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of at least 10% in principal amount of the outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.11 or Section
310(b) of the TIA, any Holder who has been a bona fide Holder of a Security for
at least six months may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this
Section 7.09, the Company's obligations under Section 7.08 shall continue for
the benefit of the retiring Trustee.
51
<PAGE> 59
Section 7.10. Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation or national banking association, the resulting, surviving or
transferee corporation or national banking association without any further act
shall, if such resulting, surviving or transferee corporation or national
banking association is otherwise eligible hereunder, be the successor Trustee.
Section 7.11. Eligibility.
There shall at all times be a Trustee hereunder which shall be
eligible to act as Trustee under TIA Sections 310(a)(1) and 310(a)(5) and
which shall have a combined capital and surplus of at least $100,000,000. If
such corporation publishes reports of condition at least annually, pursuant to
law or to the requirements of federal, state, territorial or District of
Columbia supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, the Trustee shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
Section 7.12. Co-Trustee.
(a) If at any time or times it shall be necessary or prudent
in order to conform to any law of any jurisdiction in which any of the
Collateral shall be located, or the Trustee shall be advised by counsel
satisfactory to it that it is necessary or prudent in the interest of the
Holders, or the Holders of at least 25% in aggregate principal amount of the
outstanding Securities shall in writing so request the Trustee and the Company,
or the Trustee shall deem it desirable for its own protection in the performance
of its duties hereunder, the Trustee, the Company and the Guarantors shall
execute and deliver all instruments and agreements necessary or proper to
constitute another bank or trust company, or one or more persons approved by the
Trustee and the Company, either to act as co-trustee or co-trustees (each a
"co-trustee") of all or any of the Collateral, jointly with the Trustee, or to
act as separate trustee or trustees of any such property. If the Company or the
Guarantors shall not have joined in the execution of such instruments and
agreements within 10 days after the Company receives a written request from the
Trustee to do so, or if an Event of Default has occurred and is continuing, the
Trustee may act under the foregoing provisions of this Section 7.12 without the
concurrence of the Company or any Guarantor. The Company and each of the
Guarantors each hereby appoint the Trustee as its agent and attorney to act for
it under the foregoing provisions of this Section 7.12 in either of such
contingencies.
(b) Every separate trustee and every co-trustee, other than
any successor Trustee appointed pursuant to Section 7.09, shall, to the extent
permitted by law, be appointed and act and be such, subject to the following
provisions and conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Trustee hereunder shall be conferred or imposed and
exercised or performed by the Trustee and such separate trustee or
separate trustees or co-trustee or co-trustees, jointly, as shall be
provided in the instrument appointing such separate trustee or separate
trustees or co-trustee or co-trustees, except to the extent that under
any law of any jurisdiction in which any particular act or acts are to
be performed the Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties and
obligations shall be exercised and performed singly by such separate
trustee or separate trustees or co-trustee or co-trustees, but solely
at the direction of the Trustee;
(ii) no trustee or co-trustee hereunder shall be personally
liable by reason of any act or omission of any other trustee or
co-trustee hereunder; and
(iii) the Company, the Guarantors and the Trustee, at any time
by an instrument in writing executed by them jointly, may accept the
resignation of or remove any such separate trustee or co-trustee and,
in that case by an instrument in writing executed by them jointly, may
appoint a successor to such separate trustee or co-trustee, as the case
may be, anything contained herein to the contrary notwithstanding.
52
<PAGE> 60
If the Company or the Guarantors shall not have joined in the execution
of any such instrument within 10 days after the Company receives a
written request from the Trustee to do so, or if an Event of Default
has occurred and is continuing, the Trustee shall have the power to
accept the resignation of or remove any such separate trustee or
co-trustee and to appoint a successor without the concurrence of the
Company or any Guarantor, the Company and each of the Guarantors each
hereby appointing the Trustee its agent and attorney to act for it in
such connection in such contingency. If the Trustee shall have
appointed a separate trustee or co-trustee as above provided, the
Trustee may at any time, by an instrument in writing, accept the
resignation of or remove any such separate trustee or co-trustee and
the successor to any such separate trustee or co-trustee shall be
appointed by the Company, the Guarantors and the Trustee, or by the
Trustee alone pursuant to this Section 7.12.
Section 7.13. Preferential Collection of Claims Against
Company.
The Trustee shall comply with TIA Section 311(a), excluding
any creditor relationship listed in TIA Section 311(b). If the present or any
future Trustee shall resign or be removed, it shall be subject to TIA Section
311(a) to the extent provided therein.
ARTICLE EIGHT
SATISFACTION AND DISCHARGE OF INDENTURE
Section 8.01. Termination of the Company's Obligations.
The Company may terminate its obligations under the
Securities, its Security Documents and this Indenture, except those obligations
referred to in the penultimate paragraph of this Section 8.01 (whereupon the
obligations of the Guarantors under the Securities, this Indenture, the
Guarantees and their Security Documents except those obligations referred to in
the penultimate paragraph of this Section 8.01, shall also terminate, and the
Company may, by complying with the provisions of Section 11.05(a), obtain the
release of the Collateral as security for the Securities and the Guarantees), if
all Securities previously authenticated and delivered (other than destroyed,
lost or stolen Securities which have been replaced or Securities for whose
payment money has theretofore been deposited with the Trustee or the Paying
Agent in trust or segregated and held in trust by the Company and thereafter
repaid to the Company or a Guarantor, as provided in Section 8.04) have been
delivered to the Trustee for cancellation, the Company and each Guarantor shall
have paid all sums payable by it under this Indenture, the Securities, the
Guarantees, the Intercreditor Agreement and the Security Documents and the
Company shall have delivered an Officers' Certificate and an Opinion of Counsel
stating that all conditions precedent herein provided for the termination of the
Company's and each Guarantor's obligations under the Securities, this Indenture,
the Guarantees and their Security Documents have been complied with, or if:
(a) either (i) pursuant to Article Three, the Company shall
have given notice to the Trustee and mailed a notice of redemption to
each Holder of the redemption of all of the Securities in accordance
with the terms hereof or (ii) all Securities have otherwise become due
and payable hereunder;
(b) the Company shall have irrevocably deposited or caused to
be deposited with the Trustee, under the terms of an irrevocable trust
agreement in form satisfactory to the Trustee, as trust funds in trust
solely for the benefit of the Holders for that purpose, money in U.S.
dollars in such amount as is sufficient, without consideration of
investment or reinvestment of such monies, to pay and discharge the
entire indebtedness on the Securities then outstanding not theretofore
delivered to the Trustee for cancellation for principal, premium, if
any, and interest to maturity or redemption, as the case may be, as
certified in a certificate of a nationally recognized firm of
independent public accountants delivered to the Trustee; provided that
the Trustee shall have been irrevocably instructed by Company Order to
apply such money to the payment of said principal, premium, if any, and
interest with respect to the Securities;
(c) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or shall occur as a result of
such deposit and such deposit will not result in a breach or violation
53
<PAGE> 61
of, or constitute a default under, this Indenture or any other material
instrument to which the Company or any Guarantor is a party or by which
it is bound;
(d) each of the Company and each Guarantor shall have paid all
other sums payable by it under this Indenture, the Securities, the
Guarantees, the Intercreditor Agreement and the Security Documents; and
(e) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for the termination of the
Company's and each Guarantor's obligations under the Securities, this
Indenture, its Guarantees and its Security Documents, as the case may
be, have been complied with.
Notwithstanding the foregoing paragraph, the Company's
obligations under and the other provisions of Sections 2.02, 2.03, 2.04, 2.05,
2.06, 2.07, 2.08, 2.09, 4.01, 4.02, 4.20, 7.07, 7.08 and 7.09 and this Article
Eight of this Indenture and each Guarantor's obligations in respect thereof
under Article Ten shall survive until the Securities are no longer outstanding
pursuant to the last paragraph of Section 2.08. After the Securities are no
longer outstanding, the Company's obligations under and the other provisions of
Sections 7.08, 8.03, 8.04 and 8.05 and each Guarantor's obligations under
Article Ten in respect thereof shall survive.
After such delivery or irrevocable deposit, the Trustee, upon
request, shall acknowledge in writing the discharge of the Company's and each
Guarantor's obligations under the Securities, this Indenture, the Security
Documents and its Guarantee, as the case may be, except for those surviving
obligations specified above.
Section 8.02. Legal Defeasance and Covenant Defeasance.
(a) The Company may, at its option by Board Resolution of the
Board of Directors of the Company, at any time, with respect to the Securities,
elect to have either paragraph (b) or paragraph (c) below be applied to the
outstanding Securities upon compliance with the conditions set forth in
paragraph (d) below.
(b) Upon the Company's exercise under paragraph (a) above of
the option applicable to this paragraph (b), the Company and each Guarantor
shall be deemed to have been released and discharged from their respective
obligations with respect to the outstanding Securities and Guarantees on the
date the conditions set forth below are satisfied (hereinafter, "legal
defeasance") (whereupon the Company may, by complying with the requirements of
Section 11.05(a), obtain the release of the Collateral as security for the
Securities and the Guarantees). For this purpose, such legal defeasance means
that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Securities, which shall thereafter
be deemed to be "outstanding" only for the purposes of paragraph (e) below and
the other Sections of and matters under this Indenture referred to in (i) and
(ii) below, and to have satisfied all its other obligations under such
Securities and this Indenture insofar as such Securities are concerned (and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (i) the rights of Holders of
outstanding Securities to receive solely from the trust fund described in
paragraph (d) below and as more fully set forth in such paragraph, payments in
respect of the principal of, premium, if any, and interest on the Securities
when such payments are due, (ii) the Company's obligations under and the other
provisions of Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 4.02,
4.20, 7.07, 7.08 and 7.09 and each Guarantor's obligations in respect thereof
under Article Ten, (iii) the rights, powers, trusts, duties and immunities of
the Trustee hereunder and (iv) this Article Eight and each Guarantor's
obligations in respect thereof under Article Ten. Subject to compliance with
this Section 8.02, the Company may exercise its option under this paragraph (b)
notwithstanding the prior exercise of its option under paragraph (c) below with
respect to the Securities.
(c) Upon the Company's exercise under paragraph (a) above of
the option applicable to this paragraph (c), the Company shall be released and
discharged from its obligations under any covenant contained in Sections 4.08
through 4.19 and under the provisions set forth in clauses (i) (but only to the
extent that such clause (i) requires the execution and delivery of documents in
order to assume or to confirm obligations under the Intercreditor Agreement, the
Security Documents or the CF&I Note or the filing or recording of such documents
or
54
<PAGE> 62
of financing statements), (ii), (iii), (iv)(y) and (v) of Section 5.01 and each
Guarantor shall be released and discharged from its obligations under clauses
(a) (but only to the extent that such clause (a) requires the execution and
delivery of documents in order to assume or to confirm obligations under the
Intercreditor Agreement, the Security Documents or the CF&I Note or the filing
or recording of such documents or of financing statements), (b), (c), (d)(2) and
(e) of Section 10.03 with respect to the outstanding Securities on and after the
date the conditions set forth below are satisfied (hereinafter, "covenant
defeasance") (whereupon the Company may, by complying with the requirements of
Section 11.05(a), obtain the release of the Collateral as security for the
Securities and the Guarantees), and the Securities shall thereafter be deemed to
be not "outstanding" for the purpose of any direction, waiver, consent or
declaration or act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "outstanding"
for all other purposes hereunder. For this purpose, such covenant defeasance
means that, with respect to the outstanding Securities, the Company and each
Guarantor may omit to comply with and shall have no liability in respect of any
term, condition or limitation set forth in any such covenant, whether directly
or indirectly, by reason of any reference elsewhere herein to any such covenant
or by reason of any reference in any such covenant to any other provision herein
or in any other document and such omission to comply shall not constitute a
Default or an Event of Default, but, except as specified above, the remainder of
this Indenture, the Security Documents, the Guarantees and such Securities shall
be unaffected thereby.
(d) The following shall be the conditions to application of
either paragraph (b) or paragraph (c) above to the outstanding Securities:
(i) the Company shall irrevocably have deposited or
caused to be deposited with the Trustee (or another trustee satisfying
the requirements of Section 7.11 who shall agree to comply with the
provisions of Article Eight applicable to it) as trust funds in trust
for the purpose of making the following payments, specifically pledged
(pursuant to a pledge and security agreement in form reasonably
satisfactory to the Trustee) as security for, and dedicated solely to,
the benefit of the Holders of the Securities, (x) cash, in United
States dollars, or (y) direct non-callable obligations of, or
non-callable obligations guaranteed by, the United States of America
for the payment of which guarantee or obligation the full faith and
credit of the United States is pledged ("U.S. Government Obligations")
maturing as to principal, premium, if any, and interest in such amounts
of cash, in United States dollars, and at such times as are sufficient
without consideration of any reinvestment of such amounts, to pay
principal of, premium, if any, and interest on the outstanding
Securities not later than one day before the due date of any payment,
or (z) a combination thereof, in an amount sufficient (in each case
referred to in (x), (y) or (z)), in the opinion of a nationally
recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and
discharge and which shall be applied by the Trustee (or other
qualifying trustee) to pay and discharge the principal of, premium, if
any, and interest on the outstanding Securities as and when the same
shall become due and payable in accordance with the terms of this
Indenture and of such Securities; provided, however, that the Trustee
(or other qualifying trustee) shall have received an irrevocable
Company Order instructing the Trustee (or other qualifying trustee) to
apply such money or the proceeds of such U.S. Government Obligations to
said payments with respect to the Securities;
(ii) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit or, insofar as
Section 6.01(g) or (h) is concerned, at any time during the period
ending on the 123rd day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until the
expiration of such period);
(iii) 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;
(iv) such legal defeasance or covenant defeasance
shall not result in a breach or violation of, or constitute a default
under, this Indenture or any other material agreement or instrument to
which the Company or any Guarantor is a party or by which it is bound;
(v) in the case of an election under paragraph (b)
above, the Company shall have delivered to the Trustee an Opinion of
Counsel stating that (x) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (y) since
the Issue Date, there has been a
55
<PAGE> 63
change in the applicable Federal income tax law, in either case to the
effect that, and based thereon such opinion shall confirm that, the
Holders of the outstanding Securities will not recognize income, gain
or loss for Federal income tax purposes as a result of such legal
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 had not occurred;
(vi) in the case of an election under paragraph (c)
above, the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that the Holders of the outstanding Securities
will not recognize income, gain or loss for Federal income tax purposes
as a result of such 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 covenant defeasance had not
occurred;
(vii) in the case of an election under either
paragraph (b) or (c) above, an Opinion of Counsel to the effect that
(x) the trust funds will not be subject to any rights of any other
holders of Indebtedness of the Company and (y) after the 123rd day
following the deposit, the trust funds will not be subject to avoidance
or recovery under any applicable Bankruptcy Law and nothing in any such
Bankruptcy Law will prohibit the Trustee from distributing the trust
funds to the Holders;
(viii) the Company shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that all conditions precedent provided for relating to either
the legal defeasance under paragraph (b) above or the covenant
defeasance under paragraph (c) above, as the case may be, have been
complied with;
(ix) if the cash and U.S. Government Obligations
deposited with the Trustee under subparagraph (i) above are sufficient
to pay and discharge the principal of, premium, if any, and interest on
the outstanding Securities provided such Securities are redeemed on a
particular Redemption Date, the Company shall have given the Trustee
irrevocable instructions to redeem such Securities on such date and to
provide notice of such redemption to Holders as provided in this
Indenture;
(x) if the trust funds referred to in subparagraph
(i) of paragraph (d) above shall have been deposited with another
trustee in accordance with the provisions thereof, such other trustee
shall have delivered to the Trustee a certificate (on which
certification the Trustee may conclusively rely) that such other
trustee is holding and will continue to hold and will apply such trust
funds in accordance with the requirements of Sections 8.02 and 8.03;
and
(xi) the Company shall have delivered to the Trustee
an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders over other creditors
of the Company or of defeating, hindering, delaying or defrauding any
other creditors of the Company or others.
(e) All money and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee (or other qualifying trustee,
collectively for purposes of this paragraph (e), the "Trustee") pursuant to
paragraph (d) above in respect of the outstanding Securities shall be held in
trust and applied by the Trustee, in accordance with the provisions of such
Securities and this Indenture, to the payment, either directly or through any
Paying Agent (other than the Company or any Subsidiary or Affiliate of the
Company) as the Trustee may determine, to the Holders of such Securities of all
sums due and to become due thereon in respect of principal, premium and
interest, but such money need not be segregated from other funds except to the
extent required by law.
The Company and the Guarantors, jointly and severally, shall
pay and indemnify the Trustee against any tax, fee or other charge imposed on or
assessed against the U.S. Government Obligations deposited pursuant to paragraph
(d) above or the principal, premium, if any, and interest received in respect
thereof other than any such tax, fee or other charge which by law is for the
account of the Holders of the outstanding Securities.
Anything in this Section 8.02 to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as
56
<PAGE> 64
provided in paragraph (d) above which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee, are in excess of the amount thereof which
would then be required to be deposited to effect an equivalent legal defeasance
or covenant defeasance.
Section 8.03. Application of Trust Money.
The Trustee (or any other qualifying trustee) shall hold in
trust money and U.S. Government Obligations deposited with it pursuant to
Sections 8.01 and 8.02, and shall apply the deposited money and the money from
U.S. Government Obligations in accordance with this Indenture to the payment of
principal of, premium, if any, and interest on the Securities.
Section 8.04. Repayment to Company or Guarantors.
The Trustee and the Paying Agent shall pay to the Company or
any applicable Guarantor, upon receipt by the Trustee or the Paying Agent, as
the case may be, of an Officers' Certificate, any money held by it for the
payment of principal, premium, if any, or interest that remains unclaimed for
two years after payment to the Holders is required; provided, however, that the
Trustee and the Paying Agent before being required to make any payment may, but
need not, at the expense of the Company cause to be published once in a
newspaper of general circulation in The City of New York or mail to each Holder
entitled to such money notice that such money remains unclaimed and that after a
date specified therein, which shall be at least 30 days from the date of such
publication or mailing, any unclaimed balance of such money then remaining will
be repaid to the Company or any applicable Guarantor. After payment to the
Company or any Guarantor, Holders entitled to money must look solely to the
Company for payment as general creditors unless an applicable abandoned property
law designates another person, and all liability of the Trustee or Paying Agent
with respect to such money shall thereupon cease.
Section 8.05. Reinstatement.
If the Trustee (or other qualifying trustee) or Paying Agent
is unable to apply any money or U.S. Government Obligations in accordance with
this Indenture by reason of any legal proceeding or by reason of any order or
judgment of any court or governmental authority enjoining, restraining or
otherwise prohibiting such application, then and only then the Company's and
each Guarantor's obligations under this Indenture, the Guarantees and the
Securities shall be revived and reinstated as though no deposit had been made
pursuant to this Indenture, until such time as the Trustee is permitted to apply
all such money or U.S. Government Obligations in accordance with this Indenture;
provided, however, that if the Company or a Guarantor has made any payment of
principal of, premium, if any, or interest on any Securities because of the
reinstatement of its obligations, the Company or such Guarantor, as the case may
be, shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the money or U.S. Government Obligations held by the
Trustee (or other qualifying trustee) or Paying Agent.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.01. Without Consent of Holders.
The Company and the Guarantors, each when authorized by a
Board Resolution of its Board of Directors, and the Trustee may amend, waive or
supplement this Indenture, the Securities, the Security Documents, the
Intercreditor Agreement or the Guarantees without notice to or consent of any
Holder:
(a) to cure any ambiguity, defect or inconsistency;
(b) to evidence the succession of another person to the
Company in accordance with Article Five hereof or the succession of
another person to a Guarantor in accordance with Section 10.03 hereof,
and
57
<PAGE> 65
the assumption by any such successor of the obligations of the Company
or such Guarantor, as the case may be, as provided herein;
(c) to comply with any requirements of the SEC in order to
effect or maintain the qualification of this Indenture under the TIA;
(d) to give effect to the release of any Released Interests or
any other release of Collateral released in accordance with the terms
of this Indenture or the relevant Security Document (including, without
limitation, pursuant to subsection 8.1 of any Security Agreement);
(e) to evidence or effect the pledge of additional or
substitute assets or property as Collateral (including, without
limitation, pursuant to subsection 8.1 of any Security Agreement);
(f) to evidence the release of any Guarantor in accordance
with Section 10.04 hereof or the addition of any new Guarantor;
(g) to evidence and provide for the acceptance of appointment
hereunder by a separate or successor Trustee with respect to the
Securities and to make such additions or changes as shall be necessary
or appropriate to provide for or facilitate the administration of the
trusts hereunder by more than one trustee pursuant to the requirements
of Section 7.12 hereof; and
(h) to make any other change that does not adversely affect
the rights of any Holder or, in the case of any other change to the
Intercreditor Agreement, that does not adversely affect the rights of
any Holder in any material respect.
Section 9.02. With Consent of Holders.
Subject to Section 6.04, the Company and the Guarantors, each
when authorized by a Board Resolution of its Board of Directors, and the Trustee
may amend or supplement this Indenture, the Securities, the Security Documents,
the Intercreditor Agreement or the Guarantees with the written consent of the
Holders of not less than a majority in aggregate principal amount of the
Securities then outstanding, and the Holders of not less than a majority in
aggregate principal amount of the Securities then outstanding by written notice
to the Trustee may waive future compliance by the Company or any Guarantor with
any provision of this Indenture, the Security Documents, the Guarantees, the
Securities or the Intercreditor Agreement.
Notwithstanding the provisions of this Section 9.02, without
the consent of each Holder affected, an amendment, supplement or waiver,
including a waiver pursuant to Section 6.04, may not:
(a) reduce the percentage in outstanding aggregate principal
amount of Securities the Holders of which must consent to an amendment,
supplement or waiver of any provision of this Indenture, the
Guarantees, the Security Documents, the Securities or the Intercreditor
Agreement;
(b) reduce the rate or change the time for payment of interest
on any Security;
(c) change the currency in which any Security, or any premium
or interest thereon, is payable or make the principal of, premium, if
any, or interest on any Security payable in money other than that
stated in the Security;
(d) reduce the principal amount of or extend the fixed
maturity of any Security or alter the redemption provisions (including,
without limitation, the amount of premium, if any, payable upon
redemption) with respect thereto;
58
<PAGE> 66
(e) waive a default in the payment of the principal of,
premium, if any, or interest on any Security when the same shall become
due and payable, whether upon Stated Maturity, acceleration, optional
redemption, required purchase, scheduled payment or otherwise;
(f) modify this Section 9.02 or Section 6.04 or Section 6.07;
(g) amend, change, or modify the obligation of the Company to
make and consummate a Change of Control Offer in the event of a Change
of Control or to make and consummate an Asset Sale Offer pursuant to
Section 4.13;
(h) modify or change any provision of this Indenture affecting
the ranking of the Securities or any Guarantee in a manner adverse to
the Holders;
(i) impaisr the right to institute suit for the enforcement of
any payment on or with respect to the Securities;
(j) release any Guarantor from any of its obligations under
its Guarantee or Security Documents or this Indenture other than in
compliance with Section 10.04 hereof; or
(k) directly or indirectly release or terminate the Liens
created by this Indenture and the Security Documents as to all or
substantially all of the Collateral, except as expressly permitted
under this Indenture and the Security Documents.
It shall not be necessary for the consent of the Holders under
this Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
9.02 becomes effective, the Company shall mail to the Holder of each Security
affected thereby, with a copy to the Trustee, a notice briefly describing the
amendment, supplement or waiver. Any failure of the Company to mail such notice,
or any defect therein, shall not, however, in any way impair or affect the
validity of any amendment, supplement or waiver.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment of or supplement to this Indenture, any
Guarantee, any Security Document, the Intercreditor Agreement or the Securities
shall comply with the TIA as then in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder of a Security is a continuing consent by such Holder
and every subsequent Holder of that Security or portion of that Security that
evidences the same debt as the consenting Holder's Security, even if notation of
the consent is not made on any Security. However, any such Holder or subsequent
Holder may revoke the consent as to his Security or portion of a Security prior
to such amendment, supplement or waiver becoming effective. Such revocation
shall be effective only if the Trustee receives the notice of revocation before
the date the amendment, supplement or waiver becomes effective. Notwithstanding
the above, nothing in this paragraph shall impair the right of any Holder under
Section 316(b) of the TIA.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then notwithstanding
the second and third sentences of the immediately preceding paragraph, those
persons who were Holders at such record date (or their duly designated proxies),
and only those persons, shall be entitled to consent to such amendment,
supplement or waiver or to revoke any consent previously given, whether or not
such persons continue to be Holders after such record date. Such consent shall
be effective only for actions taken within 90 days after such record date.
59
<PAGE> 67
After an amendment, supplement or waiver becomes effective, it
shall bind every Holder unless it makes a change described in any of clauses (a)
through (k) of the second paragraph of Section 9.02; if it makes such a change,
the amendment, supplement or waiver shall bind only each Holder of a Security
who has consented to it and every subsequent Holder of a Security or portion of
a Security that evidences the same debt as the consenting Holder's Security.
Section 9.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a
Security, the Trustee shall (in accordance with the specific direction, if any,
of the Company) request the Holder of the Security to deliver it to the Trustee.
The Trustee shall (in accordance with the specific direction, if any, of the
Company) place an appropriate notation on the Security and on Securities issued
on registration of transfer or exchange of such Security about the changed terms
and return it to the Holder. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for the Security shall issue and the Trustee
shall authenticate a new Security that reflects the changed terms. Failure to
make the appropriate notation or issue a new Security shall not affect the
validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee May Sign Amendments, etc.
The Trustee shall sign any amendment, supplement or waiver
authorized pursuant to this Article Nine if the amendment, supplement or waiver
does not adversely affect the rights, duties, liabilities or immunities of the
Trustee. If it does, the Trustee may, but need not, sign it. In signing or
refusing to sign such amendment, supplement or waiver, the Trustee shall be
entitled to receive, and shall be fully protected in relying upon, an Officers'
Certificate and an Opinion of Counsel stating that any amendment, supplement or
waiver is authorized or permitted by this Indenture, that it is not inconsistent
herewith and that it will be valid and binding upon the Company and the
Guarantors in accordance with its terms.
ARTICLE TEN
GUARANTEE OF SECURITIES
Section 10.01. Guarantee.
Subject to the provisions of this Article Ten, each Guarantor
hereby, jointly and severally, unconditionally guarantees to each Holder of a
Security authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of this
Indenture, the Securities, the Security Documents or the Intercreditor Agreement
or the obligations of the Company or any other Guarantors to the Holders or the
Trustee hereunder or thereunder, that: (a) the principal of and interest on the
Securities will be duly and punctually paid in full when due, whether at Stated
Maturity, upon acceleration, upon optional redemption, upon required purchase or
otherwise, and interest on the overdue principal and (to the extent permitted by
law) interest, if any, on the Securities and all other obligations of the
Company and the Guarantors to the Holders or the Trustee under this Indenture,
the Securities, the Security Documents and the Intercreditor Agreement
(including fees, expenses, indemnities or other amounts payable thereunder) will
be promptly paid in full or performed, all in accordance with the terms hereof
and thereof; and (b) in case of any extension of time of payment or renewal of
any Securities, the same will be promptly paid in full when due or performed in
accordance with the terms of the extension or renewal, whether at Stated
Maturity, upon acceleration, upon optional redemption, upon required purchase or
otherwise. Failing payment when due of any amount so guaranteed, or failing
performance of any other obligation of the Company to the Holders or the
Trustee, for whatever reason, each Guarantor will be obligated, jointly and
severally, to pay, or to perform or cause the performance of, the same
immediately. An Event of Default under this Indenture or the Securities shall
constitute an event of default under this Guarantee, and shall entitle the
60
<PAGE> 68
Holders of Securities and the Trustee to accelerate the obligations of the
Guarantors hereunder in the same manner and to the same extent as the
obligations of the Company.
Each of the Guarantors hereby agrees (to the maximum extent
permitted by law) that its obligations hereunder shall be unconditional,
irrespective of the validity, regularity or enforceability of the Securities,
the Security Documents, the Intercreditor Agreement or this Indenture, the
absence of any action to enforce the same, any waiver or consent by any Holder
of the Securities with respect to any provisions hereof or thereof, any release
of any other Guarantor or any Collateral, the recovery of any judgment against
the Company, any action to enforce the same, whether or not a Guarantee is
affixed to any particular Security, or any other circumstance which might
otherwise constitute a legal or equitable discharge or defense of a guarantor.
Each of the Guarantors hereby waives (to the maximum extent permitted by law)
the benefit of diligence, presentment, demand of payment, filing of claims with
a court in the event of insolvency or bankruptcy of the Company, any right to
require a proceeding first against the Company, protest, notice and all demands
whatsoever and covenants (to the maximum extent permitted by law) that its
Guarantee will not be discharged except by complete performance of the
obligations contained in the Securities, this Indenture, the Security Documents,
the Intercreditor Agreement and this Guarantee. This Guarantee is a guarantee of
payment and not of collection. If any Holder or the Trustee is required by any
court or otherwise to return to the Company or to any Guarantor, or any
custodian, trustee, liquidator or other similar official acting in relation to
the Company or such Guarantor, any amount paid by the Company or such Guarantor
to the Trustee or such Holder, this Guarantee, to the extent theretofore
discharged, shall be reinstated in full force and effect. Each Guarantor further
agrees (to the fullest extent permitted by law) that, as between it, on the one
hand, and the Holders of Securities and the Trustee, on the other hand, (a) the
maturity of the obligations guaranteed hereby may be accelerated as provided in
Article Six hereof for the purposes of this Guarantee, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
obligations guaranteed hereby, and (b) in the event of any acceleration of such
obligations as provided in Article Six hereof, such obligations (whether or not
due and payable) shall forthwith become due and payable by the Guarantors for
the purpose of this Guarantee.
This Guarantee shall remain in full force and effect and
continue to be effective should any petition be filed by or against the Company
for liquidation or reorganization, should the Company become insolvent or make
an assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of the Company's assets, and shall, to
the fullest extent permitted by law, continue to be effective or be reinstated,
as the case may be, if at any time payment and performance of the Securities
are, pursuant to applicable law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee on the Securities, whether as a
"voidable preference", "fraudulent transfer" or otherwise, all as though such
payment or performance had not been made. In the event that any payment, or any
part thereof, is rescinded, reduced, restored or returned, the Securities shall,
to the fullest extent permitted by law, be reinstated and deemed reduced only by
such amount paid and not so rescinded, reduced, restored or returned.
Section 10.02. Execution and Delivery of Guarantee.
To further evidence the Guarantee set forth in Section 10.01,
each Guarantor hereby agrees that a notation of such Guarantee, substantially in
the form included in Exhibit A hereto, shall be executed on behalf of such
Guarantor by one of its Officers (by manual or facsimile signature) under its
corporate seal (which may be a facsimile of its genuine seal and provided that,
if any Guarantor is a partnership, the corporate seal shall be that of its
direct or indirect corporate general partner executing the Guarantee or, if such
partnership has no direct or indirect corporate general partner, the seal shall
be that of its general partner executing the Guarantee or, if such general
partner has no seal, the seal may be omitted) attested by the manual of
facsimile signature of another of its Officers and shall be endorsed on each
Security authenticated and delivered by the Trustee. Typographical and other
minor defects in any reproduction of any such signature or seal shall not affect
the validity or enforceability of any Guarantee. In addition, the validity and
enforceability of any Guarantee shall not be affected by the fact that a
notation of such Guarantee is not affixed to any particular Security.
Each of the Guarantors hereby agrees that its Guarantee set
forth in Section 10.01 shall remain in full force and effect notwithstanding any
failure to endorse on each Security a notation of such Guarantee.
61
<PAGE> 69
If an Officer of a Guarantor whose signature on a Guarantee no
longer holds that office at the time the Trustee authenticates such Security or
at any time thereafter, such Guarantor's Guarantee of such Security shall be
valid nevertheless.
The delivery of any Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of any Guarantee
set forth in this Indenture on behalf of each Guarantor.
To provide an "original evidence of debt" as required by
Section 38-38-101 and 38-39-102 of the Colorado Revised Statutes (or any
successor statutes thereto), CF&I has, on the Issue Date, executed and delivered
the CF&I Note to the Trustee, which CF&I Note further evidences the Guarantee
set forth in Section 10.01. The parties hereto agree that the Guarantee of CF&I
set forth in this Article Ten and the notation of such Guarantee endorsed on
each Security shall in no way be limited by the CF&I Note. The CF&I Note shall
be executed and attested as provided above in this Section 10.02, but
notwithstanding the foregoing provisions of this Section 10.02, a notation of
the CF&I Note shall not be endorsed on the Securities. Anything herein to the
contrary notwithstanding, CF&I's covenants and agreements and the other
provisions and limitations set forth in this Article Ten applicable to CF&I's
Guarantee shall, unless the context otherwise requires, apply equally to the
CF&I Note and, as a result, the CF&I Note will be entitled to the benefits of
such covenants and agreements and shall be subject to such other provisions and
limitations (including, without limitation, Sections 10.01, 10.05, 10.06 and
10.07). The Trustee shall hold the CF&I Note for the benefit of the Holders.
Upon receipt of a Company Request in connection with any release or partial
release of property subject to any Mortgage executed by CF&I, the Trustee shall
present the Global Security to the relevant public trustee in the State of
Colorado in order to obtain such release or partial release (but the Trustee
shall thereafter retain possession of the Global Securities).
Section 10.03. Merger or Consolidation of a Guarantor.
Except for a transaction made in accordance with the
provisions of Section 10.04, no Guarantor will, 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 to, any person or persons, unless at the time of and after
giving effect thereto (a) either (i) if such transaction or series of
transactions is a merger, such Guarantor shall be the surviving person of such
merger, 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, the due and
punctual payment of all amounts due under the Guarantee of such Guarantor and
the due and punctual performance and observance of all of the other obligations
of such Guarantor under its Guarantee and this 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, the
due and punctual performance and observance of 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 (in the case of a merger or consolidation) or on the
Collateral transferred to the Surviving Person (in the case of a transfer of
assets), together with such financing statements as may be required to perfect
any security interests in such Collateral which may be perfected by the filing
of a financing statement under the Uniform Commercial Code of the relevant
states); (b) the Collateral owned by such Guarantor (in the case of a merger or
consolidation) or the Collateral transferred to the Surviving Person (in the
case of a transfer of assets) (1) shall continue to constitute Collateral under
this 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 Securities and (3) shall not be subject to any Lien other
than Liens expressly permitted by this 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 such property and assets are of types that would
constitute "Trust Property" (as defined in the form
62
<PAGE> 70
of Mortgage attached as an exhibit to this Indenture) (assuming, in the case of
real property or a leasehold interest in real property, that an appropriate
description of such property or leasehold interest were included as a schedule
to such form of Mortgage and assuming, in the case of fixtures, improvements and
other types of Trust Property, that a description of the related real property
or leasehold interest in real property, as the case may be, were included as a
schedule to such form of Mortgage) or "Collateral" (as defined in the form of
Security Agreement attached as an exhibit to this Indenture) shall be treated as
After-Acquired Property and such Guarantor or the Surviving Person, as the case
may be, shall take such actions as may be necessary to cause such property and
assets to be made subject to the Lien of the Security Documents in the manner
specified in Section 11.01 (including delivery of such documents, Officers'
Certificates and Opinions of Counsel as may be required by Section 11.01); (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 Section 4.08 (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 transactions 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, each in form
reasonably satisfactory to the Trustee, each stating that such transaction and
any supplemental indenture, amendments, supplements or other instruments or
agreements required by clause (a) or (c) above or by this sentence comply with
the requirements of this Indenture and that all conditions precedent herein
provided for relating to such transaction have been complied with (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 this Indenture, the Intercreditor Agreement, its Guarantee and its
Security Documents remain in full force and effect. Upon any consolidation,
merger or 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 this
Indenture, the Intercreditor Agreement, its Guarantee and the relevant Security
Documents with the same force and effect as if such successor person had been
named as a Guarantor herein and therein (and therafter, except in the case of a
lease, the predecessor Guarantor shall be released from its obligations
hereunder and thereunder).
Section 10.04. Release of a Guarantor.
(a) 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 an Affiliate of the Company and
which is otherwise made in compliance with this Indenture, such Guarantor will
be released from all of its obligations under its Guarantee, the Intercreditor
Agreement, this Indenture and its Security Documents; provided that (i) such
transaction is made in accordance with the provisions set forth in Section 4.13;
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 Section 10.04 in order to obtain the release of such Guarantor.
63
<PAGE> 71
(b) The Trustee shall deliver an appropriate instrument
evidencing the release of a Guarantor upon receipt of a request of the Company
accompanied by an Officers' Certificate certifying as to the compliance with
this Section 10.04. Any Guarantor not so released will remain liable under its
Guarantee as provided in this Article Ten.
Except as set forth in Articles Four and Five, Section 10.03
and this Section 10.04, nothing contained in this Indenture or in any of the
Securities shall prevent any consolidation or merger of a Guarantor with or into
the Company or another Guarantor.
Section 10.05. Waiver of Subrogation.
Until the date that is 123 days after the later of (x) the
date on which the principal of, premium, if any, and interest on all of the
outstanding Securities shall have been indefeasibly paid to the Holders thereof
and (y) the date on which any and all other amounts owing by the Company or any
of the Guarantors under this Indenture, the Securities, the Guarantees, the CF&I
Note, the Security Documents or the Intercreditor Agreement shall have been
indefeasibly paid to the persons entitled thereto, each Guarantor hereby
irrevocably waives any claim or other rights which it may now or hereafter
acquire against the Company that arise from the existence, payment, performance
or enforcement of such Guarantor's obligations under its Guarantee, the Security
Documents, the Intercreditor Agreement and this Indenture, including, without
limitation, any right of subrogation, reimbursement, exoneration,
indemnification, and any right to participate in any claim or remedy of any
Holder of Securities against the Company, whether or not such claim, remedy or
right arises in equity, or under contract, statute or common law, including,
without limitation, the right to take or receive from the Company, directly or
indirectly, in cash or other property or by set-off or in any other manner,
payment or security on account of such claim or other rights. If any amount
shall be paid to any Guarantor in violation of the preceding sentence and the
Securities shall not have been paid in full, such amount shall have been deemed
to have been paid to such Guarantor for the benefit of, and held in trust for
the benefit of, the Holders of the Securities, and shall forthwith be paid to
the Trustee for the benefit of such Holders to be credited and applied upon the
Securities, whether matured or unmatured, in accordance with the terms of this
Indenture. Each Guarantor acknowledges that it will receive direct and indirect
benefits from the financing arrangements contemplated by this Indenture and that
the waiver set forth in this Section 10.05 is knowingly made in contemplation of
such benefits.
Section 10.06. Limitation of Guarantor's Liability.
Each Guarantor, and by its acceptance hereof, each Holder
hereby confirms that it is the intention of all such parties that the guarantee
by such Guarantor pursuant to its Guarantee (including, in the case of CF&I, the
CF&I Note) not constitute a fraudulent transfer or conveyance for purposes of
any Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform
Fraudulent Transfer Act or any other Federal or state law. To effectuate the
foregoing intention, the Holders and each Guarantor hereby irrevocably agree
that the obligations of such Guarantor under its Guarantee (including, in the
case of CF&I, the CF&I Note) shall be limited to the maximum amount as will,
under applicable law and (to the extent permitted by applicable law) 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 (including, in the case of CF&I, the CF&I Note) or pursuant
to Section 10.07, result in the obligations of such Guarantor under its
Guarantee (including, in the case of CF&I, the CF&I Note) not constituting such
fraudulent transfer or conveyance under applicable law.
Section 10.07. Contribution.
In order to provide for just and equitable contribution among
the Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under its
Guarantee (including, in the case of CF&I, the CF&I Note), such Funding
Guarantor shall be entitled to a contribution from all other Guarantors in a pro
rata amount based on the Adjusted Net Assets of each Guarantor (including the
Funding Guarantor) for all payments, damages and expenses incurred by that
Funding Guarantor in discharging the Company's obligations with respect to the
Securities, this Indenture, the Intercreditor Agreement or any Security Document
or any other Guarantor's obligations with respect to its Guarantee (including,
in the case of CF&I, the CF&I Note). "Adjusted Net Assets" of any Guarantor at
any date shall mean the lesser of the amount by which (x) the fair value of the
property of such Guarantor exceeds the total amount of liabilities, including,
without limitation, the probable liability of such Guarantor with respect to
contingent liabilities (after giving effect to all other fixed and contingent
liabilities incurred or assumed on such date), but excluding liabilities under
its Guarantee (including, in the case of CF&I, the CF&I Note), of such Guarantor
at such date and (y) the present fair
64
<PAGE> 72
salable value of the assets of such Guarantor at such date exceeds the amount
that will be required to pay the probable liability of such Guarantor on its
debts (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date and after giving effect to any collection from
any Subsidiary of such Guarantor in respect of the obligations of such
Subsidiary under the Guarantee), excluding debt in respect of the Guarantee
(including, in the case of CF&I, the CF&I Note), as they become absolute and
matured.
ARTICLE ELEVEN
COLLATERAL AND SECURITY
Section 11.01. Collateral and Security Documents; Additional
Collateral.
(a) In order to secure the due and punctual payment of the
principal of and interest on the Securities when and as the same shall be due
and payable, whether on an Interest Payment Date, at maturity, on any Asset Sale
Purchase Date or Change of Control Purchase Date, or by acceleration, redemption
or otherwise, and interest on the overdue principal of and (to the extent
permitted by law) interest, if any, on the Securities and the performance of all
other obligations of the Company and the Guarantors to the Holders or the
Trustee under this Indenture, the Securities, the Guarantees, the Intercreditor
Agreement and any other documents contemplated hereby, as the case may be, the
Company, the Guarantors and the Trustee have simultaneously with the execution
of this Indenture entered into the Security Documents. The Trustee, the Company
and the Guarantors each hereby agree that the Trustee holds its interest in the
Collateral in trust for the benefit of the Holders pursuant to the terms of the
Security Documents.
(b) Promptly upon (i) the acquisition or receipt by the
Company or any of the Guarantors of property and assets (whether real, personal
or mixed, tangible or intangible, and including, without limitation, property
and assets acquired or received pursuant to a merger or consolidation of any
person or persons with or into the Company or a Guarantor, pursuant to an Asset
Sale, pursuant to a transaction as a result of which a Guarantor is released as
provided in Section 10.04, pursuant to a transaction as a result of which a
person becomes a Guarantor as provided in Section 4.17, or pursuant to Section
12.02 or 12.04 hereof) of the type that constitutes or would constitute "Trust
Property" as defined in the form of Mortgage attached as Exhibit C hereto
(assuming, in the case of real property or a leasehold interest in real
property, that an appropriate description of such property or leasehold interest
were included as a schedule to such form of Mortgage and assuming, in the case
of fixtures, improvements and other types of Trust Property, that a description
of the related real property or leasehold interest in real property, as the case
may be, were included as a schedule to such form of Mortgage), or "Collateral"
as defined in the form of Security Agreement attached hereto as Exhibit B (each
such item of property and each such asset so acquired or received being referred
to herein as "After-Acquired Property"),
(i) the Company or the applicable Guarantor, as the case may
be, and the Trustee will enter into such amendments or supplements to
the Security Documents or additional Mortgages (in each case in
registerable or recordable form), Security Agreements and other
Security Documents, and shall cause such amendments, supplements,
Mortgages, Security Agreements and other Security Documents to be filed
and recorded in all such governmental offices, as shall be necessary in
order to grant and create a valid first priority Lien on and security
interest in such After-Acquired Property 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) (subject to no prior Liens except
as expressly permitted by this Indenture and the Security Documents),
shall cause appropriate financing statements to be filed in such
governmental offices as shall be necessary in order to perfect any
security interest in such After-Acquired Property as to which a
security interest may, under the Uniform Commercial Code of the
applicable jurisdiction, be perfected by the filing of a financing
statement and, if any such After-Acquired Property consists of stock
certificates, promissory notes or other property as to which, under the
relevant Uniform Commercial Code, a security interest may be perfected
by possession, deliver such certificates, promissory notes and other
property, together with stock powers or assignments duly endorsed in
blank, to the Trustee; and
65
<PAGE> 73
(ii) the Company or the applicable Guarantor, as the case may
be, shall also deliver to the Trustee the following:
(x) to the extent such After-Acquired Property
consists of real property or a leasehold interest in real
property, a title insurance policy or an endorsement to an
existing title insurance policy, in the American Land Title
Insurance Loan Policy Extended Coverage form, or its
equivalent, and in an amount at least equal to the purchase
price thereof (or, if such property was not purchased or such
purchase price cannot be determined by the Company, the Fair
Market Value thereof as determined by the Board of Directors
of the Company and set forth in an Officers' Certificate
delivered to the Trustee), in favor of the Trustee insuring
that the Lien of the Security Documents or any additional
Security Documents constitutes a valid and perfected first
priority Lien, subject only to such Liens as are permitted by
this Indenture and the applicable Security Document, on such
real property or leasehold interest in an aggregate amount
equal to the purchase price or the Fair Market Value, as
applicable, of the real property or leasehold interest and
containing such endorsements and other assurances of the type
included in the title insurance policy delivered to the
Trustee on the Issue Date with respect to the real property
Collateral, together with an Officers' Certificate stating
that any Liens or such real property or leasehold interest are
Liens expressly permitted by this Indenture and the applicable
Security Document;
(y) any Opinions of Counsel required pursuant to
Section 11.02(b) below; and
(z) evidence of payment of all filing fees, recording
and registration charges, transfer taxes and other costs and
expenses, including reasonable legal fees and disbursements of
counsel for the Trustee (and any local counsel), that may be
incurred to validly and effectively subject the After-Acquired
Property to the Lien of any applicable Security Document and
perfect such Lien; and
(iii) The Company shall deliver to the Trustee an Opinion of
Counsel and an Officers' Certificate to the effect that the documents
that have been or are therewith delivered to the Trustee pursuant to
this Section 11.01(b) (including any amendments, supplements,
Mortgages, Security Agreements or other Security Documents referred to
in paragraph (i) above) conform to the requirements of this Indenture.
(c) Each Holder, by accepting a Security, agrees to all the
terms and provisions of the Security Documents and the Intercreditor Agreement,
including the additional Security Documents described in paragraph (b) of this
Section 11.01, as the same may be amended or supplemented from time to time
pursuant to the provisions of the Security Documents (including such additional
Security Documents) and the Intercreditor Agreement and this Indenture.
Section 11.02. Recording, Registration and Opinions.
(a) The Company and the Guarantors shall take or cause to be
taken all action required to perfect, maintain, preserve and protect the Lien on
and security interest in the Collateral granted by the Security Documents
(subject only to Liens expressly permitted by this Indenture and the Security
Documents), including without limitation, the filing of financing statements,
continuation statements and any instruments of further assurance, in such manner
and in such places as may be required by law fully to preserve and protect the
rights of the Holders and the Trustee under this Indenture and the Security
Documents to all property comprising the Collateral. The Company and the
Guarantors shall from time to time promptly pay all financing and continuation
statement recording, registration and/or filing fees, charges and taxes relating
to this Indenture and the Security Documents, any amendments thereto and any
other instruments of further assurance required pursuant to the Security
Documents. The Trustee shall not be responsible for any failure to so register,
file or record.
(b) The Company shall furnish to the Trustee, at the time of
execution and delivery of this Indenture, Opinion(s) of Counsel either (i)
substantially to the effect that, in the opinion of such counsel, this Indenture
and the grant of the Liens on and security interests in the Collateral intended
to be made by the Security Documents and all other instruments of further
assurance, including, without limitation, financing statements, have
66
<PAGE> 74
been properly recorded and filed to the extent necessary to record or register
(as the case may be), and if applicable, to perfect the Liens on and security
interests in the Collateral created by the Security Documents, to the extent
that, in the case of perfection of security interests, a security interest may
be perfected by filing under the Uniform Commercial Code of the applicable
jurisdiction, and reciting the details of such action, and stating that as to
the Liens and security interests created pursuant to the Security Documents,
such recordings, registrations and filings are the only recordings,
registrations and filings necessary to give notice thereof and that no
re-recordings, re-registrations or refilings are necessary to maintain such
notice (other than as stated in such opinion), or (ii) to the effect that, in
the opinion of such counsel, no such action is necessary to record or register
such Liens or to perfect such security interests. The Company or the applicable
Guarantor shall furnish to the Trustee, at the time of execution and delivery of
any additional Security Document(s) or any amendments or supplements to existing
Security Documents, Opinion(s) of Counsel either substantially to the effect set
forth in clause (i) of the immediately preceding sentence (but relating only to
such additional Security Documents or any amendments or supplements to existing
Security Documents and the related After-Acquired Property) or to the effect set
forth in clause (ii) thereof, and to the further effect that such additional
Security Documents or amendments or supplements to existing Security Documents,
as the case may be, have been duly authorized, executed and delivered by, and
constitute the valid, binding and enforceable obligations of the Company or the
relevant Guarantor, as the case may be, subject to customary exceptions. In
addition, promptly after execution and delivery of this Indenture, the Company
shall deliver the opinion(s) required by Section 314(b) of the TIA.
(c) The Company or the applicable Guarantor shall furnish to
the Trustee, at the time of execution and delivery of this Indenture, with
respect to each Mortgage, (i) a policy of title insurance (or a commitment to
issue such policy) insuring (or committing to insure) the Lien of such Mortgage
as a valid first mortgage Lien, subject only to Liens permitted under this
Indenture or such Mortgage on the real property and fixtures described therein
which policy (or commitment) shall (a) be issued by a reputable title company,
(b) include such reinsurance arrangements, if any (with provisions for direct
access), as shall be customary in the same general area and for transactions of
this type and size, (c) have been supplemented by such endorsements as are
customary in the same general area and for transactions of this type and size
or, where such endorsements are not available at commercially reasonable premium
costs, opinion letters of reputable architects or other reputable professionals
(including endorsements or opinion letters on matters relating to contiguity,
first loss, and so-called comprehensive coverage over covenants and
restrictions, if available) and (d) contain only such exceptions to title as
shall be Permitted Liens (each, a "Title Policy"), (ii) the aggregate amount of
all such policies shall be not less than the principal amount of the Securities
and (iii) an Officers' Certificate stating that such title insurance policies
comply with the requirements of this subsection (c).
(d) The Company shall furnish to the Trustee on September 30
in each year, beginning with September 30, 1996, Opinion(s) of Counsel, dated as
of such date, either (i)(x) stating that, in the opinion of such counsel, action
has been taken with respect to the recording, registration, filing,
re-recording, re-registration and refiling of all supplemental indentures,
financing statements, continuation statements and other documents as is
necessary to maintain the Lien of the Security Documents and reciting with
respect to the Liens on and security interests in the Collateral the details of
such action or referring to prior Opinions of Counsel in which such details are
given, and (y) stating that, based on relevant laws as in effect on the date of
such Opinion of Counsel, all financing statements, continuation statements and
other documents have been executed and filed that are necessary as of such date
and during the succeeding 24 months fully to maintain the Liens and security
interests of the Securityholders and the Trustee hereunder and under the
Security Documents with respect to the Collateral, provided that if there is a
required filing of a continuation statement within such 24 month period and such
continuation statement is not effective if filed at the time of the opinion,
such opinion may so state and in that case the Company shall cause a
continuation statement to be timely filed so as to maintain such Liens and
security interests and shall provide a further Opinion of Counsel to the effect
of this clause (i) upon the filing of the relevant continuation statement; or
(ii) stating that, in the opinion of such counsel, no such action is necessary
to maintain such Liens or security interests.
67
<PAGE> 75
Section 11.03. Release of Collateral.
(a) The Trustee shall not at any time release Collateral from
the Liens created by this Indenture and the Security Documents unless such
release is in accordance with the provisions of this Indenture and the Security
Documents.
(b) Anything herein to the contrary notwithstanding, at any
time when an Event of Default shall have occurred and be continuing, no release
of Collateral pursuant to the provisions of this Indenture or the Security
Documents shall be effective as against the Holders.
(c) The release of any Collateral from the Lien of the
Security Documents shall not be deemed to impair the security under this
Indenture in contravention of the provisions hereof if and to the extent the
Collateral is released pursuant to this Indenture and the Security Documents. To
the extent applicable, the Company shall cause TIA Section 314(d) relating to
the release of property from the Lien of the Security Documents and relating to
the substitution therefor of any property to be subjected to the Lien of the
Security Documents to be complied with. Any certificate or opinion required by
TIA Section 314(d) may be made by an Officer of the Company, except in cases
where TIA Section 314(d) requires that such certificate or opinion be made by an
independent person, which person shall be an independent engineer, appraiser or
other expert selected or approved by the Trustee in the exercise of reasonable
care.
Section 11.04. Possession and Use of Collateral.
Subject to and in accordance with the provisions of this
Indenture and the Security Documents, so long as no Event of Default shall have
occurred and be continuing, the Company and the Guarantors shall have the right
to remain in possession and retain exclusive control of and to exercise all
rights with respect to the Collateral (other than Trust Moneys held by the
Trustee, other than monies or U.S. Government Obligations deposited pursuant to
Article Eight, and other than as set forth in the Security Documents and this
Indenture), to operate, manage, develop, lease, use, consume and enjoy the
Collateral (other than Trust Moneys held by the Trustee, other than moneys and
U.S. Government Obligations deposited pursuant to Article Eight and other than
as set forth in the Security Documents and this Indenture), to alter or repair
any Collateral consisting of machinery or equipment so long as such alterations
and repairs do not diminish the value thereof or impair the Lien of the Security
Documents thereon and to collect, receive, use, invest and dispose of the
reversions, remainders, interest, rents, lease payments, issues, profits,
revenues, proceeds and other income thereof.
Section 11.05. Specified Releases of Collateral.
(a) Satisfaction and Discharge; Defeasance. The Company and
the Guarantors shall be entitled to obtain a full release of all of the
Collateral from the Liens of this Indenture and of the Security Documents upon
compliance with the conditions precedent set forth in Section 8.01 for
satisfaction and discharge of this Indenture or for legal defeasance or covenant
defeasance pursuant to Section 8.02. Upon delivery by the Company to the Trustee
of an Officers' Certificate and an Opinion of Counsel, each to the effect that
such conditions precedent have been complied with (and which may be the same
Officers' Certificate and Opinion of Counsel required by Article Eight),
together with such documentation, if any, as may be required by the TIA
(including, without limitation, Section 314(d) of the TIA) prior to the release
of such Collateral, the Trustee shall forthwith take all necessary action (at
the request of and the expense of the Company) to release and reconvey to the
Company and the applicable Guarantors without recourse all of the Collateral,
and shall deliver such Collateral in its possession to the Company and the
applicable Guarantors including, without limitation, the execution and delivery
of releases and satisfactions wherever required.
(b) Dispositions of Collateral Permitted by Section 4.13. The
Company and the Guarantors, as the case may be, shall be entitled to obtain a
release of, and the Trustee shall release, items of Collateral (the "Released
Interests") subject to an Asset Sale upon compliance with the conditions
precedent that the Company shall have delivered to the Trustee the following:
68
<PAGE> 76
(i) Company Order. A Company Order requesting release of
Released Interests, such Company Order (A) specifically describing the
proposed Released Interests, (B) specifying the Fair Market Value of
such Released Interests on a date within 60 days of the Company Order
(the "Valuation Date"), (C) stating that the consideration to be
received is at least equal to the Fair Market Value of the Released
Interests, (D) stating that the release of such Released Interests will
not impair the value of the remaining Collateral or interfere with or
impede the Trustee's ability to realize the value of the remaining
Collateral and will not impair the maintenance and operation of the
remaining Collateral, (E) 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 such an Affiliate, confirming that such sale is being
made in accordance with Section 4.14, (F) certifying that such Asset
Sale complies with the terms and conditions of this Indenture,
including, without limitation, Section 4.13 hereof and (G) in the event
that 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;
(ii) Officers' Certificate. An Officers' Certificate of the
Company certifying that (A) such sale covers only the Released
Interests and/or property which is not Collateral and complies with the
terms and conditions of this Indenture, including, without limitation,
Section 4.13 hereof, (B) all Collateral Proceeds (including amounts
deemed by this Indenture to be Collateral Proceeds) from the sale of
any of the Released Interests will be deposited in the Collateral
Account, and 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 Section 4.13, (C) there is not and will not be a
Default or Event of Default in effect or continuing on the date
thereof, the Valuation Date or the date of such Asset Sale, (D) the
release of the Collateral will not result in a Default or Event of
Default hereunder and (E) all conditions precedent to such release have
been complied with; and
(iii) Compliance with TIA and Section 11.01. All documentation
required by the TIA (including, without limitation, Section 314(d) of
the TIA), if any, prior to the release of Collateral by the Trustee,
and, in the event there is to be a substitution of property for the
Collateral subject to the Asset Sale, all documentation required by the
TIA to effect the substitution of such new Collateral and to subject
such new Collateral to the Lien of the relevant Security Documents, and
all documents required by Section 11.01 hereof.
(iv) Opinion of Counsel. An Opinion of Counsel stating that
the documents that have been or are therewith delivered to the Trustee
in connection with such release conform to the requirements of this
Indenture and that all conditions precedent herein provided for
relating to such release have been complied with.
Upon compliance by the Company with the conditions precedent
set forth above, the Trustee shall cause to be released and reconveyed to the
Company or the applicable Guarantor the Released Interest without recourse by
executing a release in the form provided by the Company or the applicable
Guarantor.
(c) Eminent Domain, Expropriation and Other Governmental
Takings. The Company and the Guarantors, as the case may be, shall be entitled
to obtain a release of, and the Trustee shall release, items of Collateral taken
by eminent domain or expropriation or sold pursuant to the exercise by the
United States of America or any State, municipality, province or other
governmental authority thereof of any right which it may then have to purchase,
or to designate a purchaser or to order a sale of, all or any part of the
Collateral, upon compliance with the conditions precedent that the Company shall
have delivered to the Trustee the following:
(i) Officers' Certificate. An Officers' Certificate of the
Company certifying that (A) such Collateral has been taken by eminent
domain or expropriation and the amount of the award therefor, or that
such property has been sold pursuant to a right vested in the United
States of America, or a State, municipality, province or other
governmental authority thereof to purchase, or to designate a
purchaser, or order a sale of such Collateral and the amount of the
proceeds of such sale, and (B) all conditions precedent to such release
have been complied with;
69
<PAGE> 77
(ii) Opinion of Counsel. An Opinion of Counsel to the effect
that (A) such property has been lawfully taken by exercise of the right
of eminent domain, or has been sold pursuant to the exercise of a right
vested in the United States of America or a State, municipality,
province or other governmental authority to purchase, or to designate a
purchaser or order a sale of, such property, (B) in the case of any
such taking by eminent domain, the award for such property has become
final or an appeal therefrom is not advisable in the interests of the
Company or the Holders, (C) the documents that have been or are
therewith delivered to the Trustee in connection with such release
conform to the requirements of this Indenture, and (D) all conditions
precedent herein provided relating to such release have been complied
with;
(iii) Eminent Domain or Expropriation Award. Cash equal to the
amount of the award for such property or the proceeds of such sale,
shall be deposited with the Trustee in the Collateral Account and held
as Trust Moneys subject to the disposition thereof pursuant to Article
Twelve hereof; and
(iv) Compliance with TIA. All documentation required by the
TIA (including, without limitation, Section 314(d) of the TIA), if any,
prior to the release of Collateral by the Trustee.
Upon compliance by the Company with the conditions precedent
set forth above, the Trustee shall cause to be released and reconveyed to the
Company or the applicable Guarantor without recourse the aforementioned items of
Collateral by executing a release in the form provided by the Company or the
applicable Guarantor.
(d) Release of Old Plate Mill. The Company shall be entitled
to obtain a release of, and the Trustee shall release, the Old Plate Mill from
the Collateral, upon compliance with the conditions precedent that the Company
shall have delivered to the Trustee the following:
(i) Officers' Certificate. An Officers' Certificate of the
Company requesting release of the Old Plate Mill and certifying that
(A) construction of the Combination Mill and all related improvements
shall have been completed, (B) the Combination Mill and all related
equipment and facilities have been installed, are fully operational and
are operating, and the Old Plate Mill has been permanently taken out of
service, (C) the Combination Mill, together with all related fixtures,
improvements, equipment and machinery, is subject to a Lien in favor of
the Trustee (or, in the case of any of the foregoing subject to a
Mortgage, the Trustee or another trustee under such Mortgage) for the
benefit of the Holders of the Securities, subject to no prior Liens
except as expressly permitted by the Indenture and the Security
Documents (provided that, notwithstanding the foregoing, the
Combination Mill shall not at the time be subject to any Permitted
Liens of the type referred to in clause (g) of the definition of that
term), and, to the extent that any part of the Combination Mill or any
related fixtures, improvements, equipment or machinery constitutes
After-Acquired Property, the Company has otherwise complied with
Section 11.01 hereof in respect thereto, (D) no Default or Event of
Default has occurred and is continuing or will occur as a result of the
release of the Old Plate Mill, (E) the release of the Old Plate Mill
will not interfere with or impede the Trustee's ability to realize the
value of the remaining Collateral and will not impair the maintenance
and operation of the remaining Collateral, (F) the Old Plate Mill
constitutes an Excluded Asset, and (G) all conditions precedent to such
release have been complied with;
(ii) Pledge of Combination Mill Pursuant to Section 11.01. All
documentation required by Section 11.01 relating to the pledge of the
Combination Mill, together with all related fixtures, improvements,
equipment and machinery, as Collateral for the Securities;
(iii) Compliance with TIA. All documentation required by the
TIA (including, without limitation, Section 314(d) of the TIA), if any,
prior to the release of Old Plate Mill by the Trustee; and
(iv) Opinion of Counsel. An Opinion of Counsel stating that
the documents that have been or are therewith delivered to the Trustee
in connection with such release conform to the requirements of this
Indenture and that all conditions precedent herein provided for
relating to such release have been complied with.
70
<PAGE> 78
Upon compliance by the Company with the conditions precedent
set forth above, the Trustee shall cause the Old Plate Mill to be released and
reconveyed to the Company without recourse by executing a release in the form
provided by the Company.
(e) Released Property. So long as no Default or Event of
Default shall have occurred and be continuing or would result therefrom, the
Company (acting on behalf of itself or any Guarantor) shall be entitled to
obtain a release of, and the Trustee shall release, Collateral (other than Trust
Moneys and other than moneys and U.S. Government Obligations deposited pursuant
to Article Eight) specified by the Company ("Released Property") provided (i)
the Fair Market Value of the Released Property in any single transaction, or
series of related transactions, shall not exceed $250,000, and the aggregate
Fair Market Value of all such Released Property (including the Released Property
then proposed to be released) in any calendar year shall not exceed $1,000,000
and (ii) prior to granting such release, the Company shall provide the Trustee
with the following:
(i) Company Order. A Company Order requesting release of
Released Property, such Company Order (A) specifically describing the
proposed Released Property, (B) specifying the Fair Market Value of
such Released Property on a date within 60 days of the Company Order,
(C) stating that the release of such Released Property will not
interfere with or impede the Trustee's ability to realize the value of
the remaining Collateral and will not impair the maintenance and
operation of the remaining Collateral and (D) stating that the Fair
Market Value of such Released Property does not exceed $250,000 and
that the aggregate Fair Market Value of all Released Property
(including the Released Property then proposed to be released) in the
then current calendar year does not exceed $1,000,000;
(ii) Officer's Certificate. An Officers' Certificate
certifying that no Default or Event of Default has occurred and is
continuing or will occur as a result of the release of the Released
Property, and all conditions precedent to such release have been
complied with; and
(iii) Compliance with TIA. All documentation required by the
TIA (including, without limitation, Section 314(d) of the TIA), if any,
prior to the release of the Released Property by the Trustee.
Upon compliance by the Company with the conditions precedent
set forth above, the Trustee shall cause to be released and reconveyed to the
Company without recourse the aforementioned items of Collateral by executing a
release in the form provided by the Company.
(f) Release of Guarantor. In the event that any Guarantor
shall be released from its obligations under its Guarantee, this Indenture and
its Security Documents pursuant to Section 10.04 hereof, such Guarantor shall be
entitled to obtain a release of, and the Trustee shall release, all Collateral
owned by such Guarantor (provided that, if any such Collateral is jointly owned
with another Guarantor or with the Company, such release shall not affect the
Lien on such Collateral granted by such other Guarantor or by the Company
pursuant to the relevant Security Documents), upon compliance with the
conditions precedent that the Company shall have delivered to the Trustee the
following:
(i) Company Order. A Company Order requesting the release of
the Collateral owned by such Guarantor and specifically describing such
Collateral;
(ii) Officers' Certificate. An Officers' Certificate of the
Company certifying that (A) such Guarantor has been released from its
obligations under its Guarantee, this Indenture and its Security
Documents in compliance with Section 10.04 hereof and (B) no Default or
Event of Default has occurred and is continuing or will occur as a
result of the release of such Collateral, and (C) all conditions
precedent to such release have been complied; and
(iii) Compliance with TIA. All documentation if any, required
by the TIA (including, without limitation, Section 314(d) of the TIA)
prior to the release of such Collateral by the Trustee.
(iv) Opinion of Counsel. An Opinion of Counsel stating that
the documents that have been or are therewith delivered to the Trustee
in connection with such release conform to the requirements of this
71
<PAGE> 79
Indenture and that all conditions precedent herein provided for
relating to such release have been complied with.
Upon compliance by the Company with the conditions precedent set forth
above, the Trustee shall cause to be released and reconveyed to the applicable
Guarantor without recourse, the Collateral pledged by such Guarantor by
executing a release in the form provided by the Company (provided that, as set
forth in the first clause of this paragraph, such release shall not affect the
Lien on any such Collateral which may have been granted by any other Guarantor
or by the Company).
Section 11.06. Disposition of Collateral Without Release.
Notwithstanding the provisions of Section 11.05, so long as no Default or Event
of Default shall have occurred and be continuing or would result therefrom, the
Company and the Guarantors may, without any prior release or consent by the
Trustee, conduct ordinary course activities in respect of the Collateral which
do not individually or in the aggregate adversely affect the value of the
Collateral, including selling or otherwise disposing of, in any single
transaction or series of related transactions, any property subject to the Lien
of this Indenture or 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 as After-Acquired
Property; abandoning, terminating, cancelling, releasing or making alterations
in or substitutions of any leases or contracts subject to the Lien of this
Indenture or any of the Security Documents other than any Specifically Secured
Construction Contract; surrendering or modifying any franchise, license or
permit subject to the Lien of this 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, provided, however
that no change in the location of any such Collateral subject to the Lien of any
of the Security Documents shall be made which (1) removes such property into a
jurisdiction in which any instrument required by law to preserve the Lien of any
of the Security Documents on such property, including all necessary financing
statements and continuation statements, has not been recorded, registered or
filed in the manner required by law to preserve the Lien of and security
interest in any of the Security Documents on such property, (2) does not comply
with the terms of this Indenture and the Security Documents or (3) otherwise
impairs the Lien of the Security Documents; demolishing, dismantling, tearing
down or scrapping any Collateral or abandoning any thereof if, in the good faith
opinion of the Board of Directors of the Company (as evidenced by a Board
Resolution delivered to the Trustee if it involves Collateral having a Fair
Market Value in excess of $25,000) such demolition, dismantling, tearing down,
scrapping or abandonment is in the best interests of the Company, will not
interfere with or impede the Trustee's ability to realize the value of the
remaining Collateral and will not impair the maintenance and operation of the
remaining Collateral, and the Fair Market Value and utility of the Collateral as
an entirety, and the security for the Securities, will not thereby be otherwise
impaired; granting a nonexclusive license of any intellectual property; and
abandoning intellectual property which has become obsolete and not used in the
business.
Section 11.07. Form and Sufficiency of Release. In the event
that the Company or any Guarantor has sold, exchanged, or otherwise disposed of
or proposes to sell, exchange or otherwise dispose of any portion of the
Collateral that under the provisions of Section 11.05 or 11.06 may be sold,
exchanged or otherwise disposed of by the Company or any Guarantor, and the
Company or such Guarantor requests the Trustee to furnish a written disclaimer,
release or quitclaim of any interest in such property under this Indenture, the
applicable Guarantee and the Security Documents, upon being satisfied that the
Company or such Guarantor is selling, exchanging or otherwise disposing of the
Collateral in accordance with the provisions of Section 11.05 or 11.06, the
Trustee shall execute, acknowledge and deliver to the Company or such Guarantor
such an instrument in the form provided by the Company, and providing for
release without recourse, promptly after satisfaction of the conditions set
forth herein for delivery of any such release and shall take such other action
as the Company or such Guarantor may reasonably request and is necessary to
effect such release. Notwithstanding the preceding sentence, all purchasers and
grantees of any property or rights purporting to be released herefrom shall be
entitled to rely upon any release executed by the Trustee hereunder as
sufficient for the purpose of this Indenture and as constituting a good and
valid release of the property therein described from the Lien of this Indenture
and of the Security Documents.
72
<PAGE> 80
Section 11.08. Purchaser Protected.
No purchaser or grantee of any property or rights purporting
to be released herefrom shall be bound to ascertain the authority of the Trustee
to execute the release or to inquire as to the existence of any conditions
herein prescribed for the exercise of such authority.
Section 11.09. Authorization of Actions To Be Taken by the
Trustee Under the Security Documents.
Subject to the provisions of the Security Documents and the
Intercreditor Agreement, (a) the Trustee may, in its sole discretion and without
the consent of the Holders, take all actions it deems necessary or appropriate
in order to (i) enforce any of the terms of the Security Documents or the
Intercreditor Agreement and (ii) collect and receive any and all amounts payable
in respect of the obligations of the Company and the Guarantors or the Bank
Agent hereunder or thereunder and (b) the Trustee shall have power to institute
and to maintain such suits and proceedings as it may deem expedient to prevent
any impairment of the Collateral by any act that may be unlawful or in violation
of the Security Documents, the Intercreditor Agreement or this Indenture, and
such suits and proceedings as the Trustee may deem expedient to preserve or
protect its interests and the interests of the Holders in the Collateral
(including the power to institute and maintain suits or proceedings to restrain
the enforcement of or compliance with any legislative or other governmental
enactment, rule or order that may be unconstitutional or otherwise invalid if
the enforcement of, or compliance with, such enactment, rule or order would
impair the security interest thereunder or be prejudicial to the interests of
the Holders or of the Trustee). The Trustee is hereby expressly authorized to
execute, deliver and perform its obligations under the Security Documents and
the Intercreditor Agreement. Except during the continuance of an Event of
Default, the Trustee shall not be required to take any action under the Security
Documents or the Intercreditor Agreement that involves the exercise by it of
discretion. The Trustee may, however, take any such action upon the basis of, at
the election of the Trustee, either an Officers' Certificate or an Opinion of
Counsel, or both, of the Company stating the nature of the proposed action and
that any such action is appropriate, necessary or advisable under the
circumstances, complies with the Indenture, the Intercreditor Agreement and the
Security Documents and does not adversely affect the interests of the Holders;
provided that the foregoing shall not limit the ability of the Trustee to take
action at its discretion in the absence of such an Officers' Certificate or
Opinion of Counsel. Except during the continuance of an Event of Default, the
Trustee may refrain from taking any such action pending receipt of such
Officers' Certificate and/or Opinion of Counsel, if so requested by it, and
shall incur no liability to any person for failure to take any such action
pending receipt thereof. The Trustee shall be fully protected in acting on the
basis of any such Officers' Certificate and/or Opinion of Counsel and shall
incur no liability to any person arising out of any action taken on the basis
thereof.
Section 11.10. Authorization of Receipt of Funds by the
Trustee Under the Security Documents.
The Trustee is authorized to receive any funds for the benefit
of Holders distributed under the Security Documents, to apply such funds as
provided in this Indenture, the Intercreditor Agreement and the Security
Documents, and to make further distributions of such funds to the Holders in
accordance with the provisions of Article Twelve and the other provisions of
this Indenture.
ARTICLE TWELVE
APPLICATION OF TRUST MONEYS
Section 12.01. Collateral Account.
On the Issue Date there shall be established and, at all times
hereafter until this Indenture shall have terminated, there shall be maintained
with the Trustee an account which shall be entitled the "Collateral Account"
(the "Collateral Account"). The Collateral Account shall be established and
maintained by the Trustee at its Corporate Trust Office. All Trust Moneys which
are received by the Trustee shall be deposited in the Collateral Account (except
as may be otherwise provided in the Intercreditor Agreement) and thereafter
shall be held by the Trustee for the benefit of the Holders as a part of the
Collateral and, upon any entry upon or sale or other disposition
73
<PAGE> 81
of the Collateral or any part thereof pursuant to any of the Security Documents,
said Trust Moneys shall be applied in accordance with Section 6.10 and may also
be applied by the Trustee to cure any Event of Default; but prior to any such
entry, sale or other disposition, all or any part of the Trust Moneys may be
withdrawn, and shall be released, paid or applied by the Trustee in accordance
with the terms of this Article.
Section 12.02. Withdrawal of Insurance Proceeds and
Condemnation Awards.
To the extent that any Trust Moneys consist of either (a) Net
Proceeds or (b) Net Awards, such Trust Moneys may be withdrawn by the Company
and shall be paid by the Trustee upon a Company Request delivered to the Trustee
to reimburse the Company or the applicable Guarantor for expenditures made, or
to pay costs incurred, by the Company or such Guarantor in connection with the
repair, rebuilding or replacement of the Collateral destroyed, damaged or taken,
upon receipt by the Trustee of the following:
(a) An Officers' Certificate of the Company, dated not more
then 30 days prior to the date of the application for the withdrawal
and payment of such Trust Moneys setting forth:
(i) that expenditures have been made, or costs
incurred by the Company or such Guarantor, as the case may be,
in a specified amount in connection with certain repairs,
rebuildings and replacements of the Collateral, which shall be
briefly described, and stating the Fair Market Value thereof
to the Company or such Guarantor at the date of the
acquisition thereof by the Company or such Guarantor;
(ii) that no part of such expenditures or costs has
been or is being made the basis for the withdrawal of any
Trust Moneys in any previous or then pending application
pursuant to this Section 12.02;
(iii) that no part of such expenditures or costs has
been paid out of either the proceeds of insurance upon any
part of the Collateral not required to be paid to the Trustee
under the Security Documents or any award for or the proceeds
from any of the Collateral being taken not required to be paid
to the Trustee under Section 11.05(c), as the case may be;
(iv) that there is no outstanding Indebtedness, other
than costs for which payment is being requested, known to the
Company, after due inquiry, for the purchase price or
construction of such repairs, rebuildings or replacements, or
for labor, wages, materials or supplies in connection with the
making thereof, which, if unpaid, might become the subject of
a vendor's, mechanics', laborers', materialmen's, statutory or
other similar Lien upon any such repairs, rebuildings or
replacement, which Lien might, in the opinion of the signers
of such Officers' Certificate, materially impair the security
afforded by such repairs, rebuildings or replacements;
(v) that the property to be repaired, rebuilt or
replaced is necessary or desirable in the conduct of the
Company's or such Guarantor's business;
(vi) whether any part of such repairs, rebuildings or
replacements within six months before the date of acquisition
thereof by the Company has been used or operated by others
than the Company in a business similar to that in which such
property has been or is to be used or operated by the Company,
and whether the fair value to the Company, at the date of such
acquisition of such part of such repairs, rebuildings or
replacement is at least $25,000;
(vii) that the Company or such Guarantor has title to
such repairs, rebuildings and replacements that is
substantially similar to its title to the property destroyed,
damaged or taken and that any Liens upon such repairs,
rebuildings and replacements are expressly permitted by this
Indenture and the applicable Security Documents;
(viii) that no Default or Event of Default shall have
occurred and be continuing; and
74
<PAGE> 82
(ix) that all conditions precedent herein provided
for relating to such withdrawal and payment have been complied
with;
(b) All documentation required under the TIA (including,
without limitation, Section 314(d) of the TIA);
(c) All documentation necessary to subject such repairs,
rebuildings or replacements to a valid first priority Lien and security
interest in favor of the Trustee (or, in the case of property subject
to a Mortgage, the Trustee or another trustee under such Mortgage) for
the benefit of the Holders pursuant to the Security Documents,
including, without limitation, all instruments, agreements,
certificates, Opinions of Counsel and documents required by Section
11.01; and
(d) An Opinion of Counsel substantially stating:
(i) that the instruments that have been or are
therewith delivered to the Trustee conform to the requirements
of this Indenture and the other Security Documents, and that,
upon the basis of such Company Request and the accompanying
documents specified in this Section 12.02, all conditions
precedent herein provided for relating to such withdrawal and
payment have been complied with, and the Trust Moneys whose
withdrawal is then requested may be paid over under this
Section 12.02;
(ii) that the relevant Security Documents create a
valid, binding and enforceable Lien on and security interest
in such repairs, rebuildings and replacements in favor of the
Trustee (or, in the case of property subject to a Mortgage,
the Trustee or another trustee under such Mortgage) in favor
of the Holders and, to the extent that a security interest in
any such property may be perfected under the relevant Uniform
Commercial Code, a perfected security interest in such
property; and
(iii) that all the Company's or such Guarantor's
right, title and interest in and to said repairs, rebuilding
or replacements, or combination thereof are then subject to
the Lien of this Indenture and the relevant Security
Documents.
Upon compliance with the foregoing provisions of this Section 12.02 and
Section 11.01, the Trustee shall, upon Company Request, pay an amount of Trust
Moneys of the character aforesaid equal to the amount of the expenditures or
costs stated in the Officers' Certificate required by clause (i) of paragraph
(a) of this Section 12.02, or the Fair Market Value to the Company or the
applicable Guarantor of such repairs, rebuildings and replacements stated in
such Officers' Certificate (or in an Independent Appraiser's or Independent
Financial Advisor's certificate, if required by the TIA), whichever is less;
provided, however, that notwithstanding the above, so long as no Default or
Event of Default shall have occurred and be continuing, in the event that any
Net Proceeds or Net Awards for such property or proceeds of such sale do not
exceed $25,000 and, in the good faith estimate of the Company, such destruction
or damage resulting in such Net Proceeds or such taking or sale resulting in
such Net Awards does not detrimentally affect the value or use of the applicable
Collateral in any material respect, upon delivery to the Trustee of an Officers'
Certificate of the Company to such effect and compliance with Section 11.01, the
Trustee shall release to the Company or the applicable Guarantor such Net
Proceeds or Net Awards for such property or proceeds of such sale, free of the
Lien hereof and of the Security Documents.
Section 12.03. Withdrawal of Net Cash Proceeds to Fund an
Asset Sale Offer.
To the extent that any Trust Moneys consist of Collateral
Proceeds (or amounts deemed pursuant to this Indenture to be Collateral
Proceeds) received by the Trustee pursuant to the provisions of Section 4.13
hereof and an Asset Sale Offer has been made in accordance therewith, such Trust
Moneys may be withdrawn by the Company and shall be paid by the Trustee to the
Paying Agent for application in accordance with Section 4.13 upon a Company
Order to the Trustee and upon receipt by the Trustee of the following:
75
<PAGE> 83
(a) An Officers' Certificate, of the Company dated not more
than five days prior to the Asset Sale Purchase Date stating:
(i) that no Default or Event of Default shall have
occurred and be continuing;
(ii) (x) that such Trust Moneys constitute Collateral
Proceeds or are deemed, pursuant to Section 4.13, to
constitute Collateral Proceeds, (y) that pursuant to and in
accordance with Section 4.13, the Company has made an Asset
Sale Offer and (z) the amount of Excess Proceeds (to the
extent then determinable) to be applied to the repurchase of
the Securities pursuant to the Asset Sale Offer;
(iii) the Asset Sale Purchase Date; and
(iv) that all conditions precedent and covenants
herein provided for relating to such application of Trust
Moneys have been complied with;
(b) All documentation, if any, required under Section 314(d)
of the TIA; and
(c) An Opinion of Counsel stating that the documents that have
been or are therewith delivered to the Trustee in connection with the
Asset Sale Offer pursuant to this Section 12.03 conform to the
requirements of this Indenture and that all conditions precedent herein
provided for relating to such application of Trust Moneys have been
complied with.
Upon compliance with the foregoing provisions of this Section 12.03,
the Trustee shall apply the Trust Moneys as directed and specified by such
Company Order, subject to Section 4.13.
Section 12.04. Withdrawal of Trust Moneys for Investment in
Replacement Assets.
In the event the Company (or a Subsidiary of the Company if
such Subsidiary has engaged in the Asset Sale) intends to reinvest Collateral
Proceeds (or amounts which, pursuant to Section 4.13, are deemed to constitute
Collateral Proceeds) of an Asset Sale in Replacement Assets (the "Released Trust
Moneys"), such Collateral Proceeds constituting Trust Moneys may be withdrawn by
the Company and shall be paid by the Trustee to the Company (or as otherwise
directed by the Company) for application in accordance with Section 4.13 upon a
Company Order to the Trustee and upon receipt by the Trustee of the following:
(a) a notice signed by the Company (each, a "Trust Moneys
Release Notice"), which shall (i) refer to this Section 12.04, (ii)
contain all documents referred to below, (iii) describe with
particularity the Released Trust Moneys, (iv) describe with
particularity the Replacement Assets to be invested in with respect to
the Released Trust Moneys and (v) be accompanied by a counterpart of
the instruments proposed to give effect to the release fully executed
and acknowledged (if applicable) by all parties thereto other than the
Trustee;
(b) An Officers' Certificate of the Company certifying that
(i) such Trust Moneys constitute Net Cash Proceeds, (ii) the release of
the Released Trust Moneys complies with the terms and conditions of
Section 4.13 of this Indenture, (iii) there is no Default or Event of
Default in effect or continuing on the date thereof, (iv) the release
of the Released Trust Moneys will not result in a Default or Event of
Default hereunder and (v) all conditions precedent to such release have
been complied with;
(c) All documentation required under the TIA (including,
without limitation, Section 314(d) of the TIA);
(d) All documentation necessary to subject such Replacement
Assets to a valid first priority Lien and security interest (subject
only to Liens expressly permitted by this Indenture or the relevant
Security Documents) in favor of the Trustee (or, in the case of
property subject to a Mortgage, the Trustee or another trustee under
such Mortgage) for the benefit of the Holders pursuant to the Security
Documents, including,
76
<PAGE> 84
without limitation, all instruments, agreements, Opinions of Counsel,
certificates and other documents required by Section 11.01; and
(e) An Opinion of Counsel stating:
(i) that the documents that have been or are
therewith delivered to the Trustee in connection with an
investment in Replacement Assets conform to the requirements
of this Indenture and that all conditions precedent herein
provided for relating to such application of Trust Moneys have
been complied with; and
(ii) to the extent that such Replacement Assets were
acquired with Collateral Proceeds (or amounts deemed to
constitute Collateral Proceeds), the relevant Security
Documents create a valid, binding and enforceable Lien on and
security interest in such Replacement Assets in favor of the
Trustee (or, in the case of Replacement Assets subject to a
Mortgage, the Trustee or another trustee under such Mortgage)
for the benefit of the Holders and, to the extent that a
security interest in any such Replacement Assets may be
perfected under the relevant Uniform Commercial Code, a
perfected security interest in such property.
Upon compliance with the foregoing provisions of this
Indenture, the Trustee shall apply the Released Trust Moneys as directed and
specified by the Company, subject to Section 4.13.
Section 12.05. Withdrawal of Trust Moneys on Basis of
Retirement of Securities.
Trust Moneys (other than Collateral Proceeds from an Asset
Sale) may be withdrawn by the Company to be applied to pay the principal of and
interest on the Securities on any Stated Maturity, upon redemption or
retirement, or upon the purchase thereof (including purchase in the open market,
upon tender or otherwise and including, without limitations, pursuant to an
offer to purchase pursuant to Section 4.12 but excluding an offer to purchase
pursuant to Section 4.13, which is governed by Section 12.03) and shall be paid
by the Trustee to the Company (or as otherwise directed by the Company) for
application to such purposes upon a Company Order to the Trustee and upon
receipt by the Trustee of the following:
(a) a Board Resolution of the Company requesting the
withdrawal and payment of a specified amount of Trust Moneys;
(b) an Officers' Certificate of the Company, dated not more
than 5 days prior to date of the application for the withdrawal and
payment of such Trust Moneys, certifying that (i) there is no Default
or Event of Default in effect or continuing on the date thereof and
(ii) all conditions precedent herein provided relating to such
withdrawal and application have been complied with;
(c) an Opinion of Counsel stating that the documents that have
been or are therewith delivered to the Trustee in connection with such
withdrawal conform to the requirements of this Indenture and that all
conditions precedent herein provided relating to such withdrawal have
been complied with; and
(d) all documentation, if any, required by the TIA (including,
without limitation, Section 314(d) of the TIA).
Upon compliance with the foregoing provisions of this Indenture, the
Trustee shall apply the Trust Moneys as directed and specified by such Company
Order in accordance with this Section 12.05.
Section 12.06. Investment of Trust Moneys.
The Trustee shall be entitled to apply any Trust Moneys to
cure any Event of Default. So long as no Default or Event of Default shall have
occurred and is continuing, all or any part of any Trust Moneys held by the
Trustee shall from time to time be invested or reinvested by the Trustee in any
Cash Equivalents pursuant to a Company Order, which shall specify the Cash
Equivalents in which such Trust Moneys shall be invested and
77
<PAGE> 85
shall certify that such investments constitute Cash Equivalents and the Trustee
shall sell any such Cash Equivalent only upon receipt of a Company Order
specifying the particular Cash Equivalent to be sold. So long as no Default or
Event of Default occurs and is continuing, any interest or dividends accrued,
earned or paid on such Cash Equivalents (in excess of any accrued interest or
dividends paid at the time of purchase) that may be received by the Trustee
shall be forthwith paid to the Company. Such Cash Equivalents shall be held by
the Trustee as a part of the Collateral, subject to the same provisions hereof
as the cash used by it to purchase such Cash Equivalents.
The Trustee shall not be liable or responsible for any loss
resulting from such investments or sales except only for its own negligent
action, its own negligent failure to act or its own willful misconduct in
complying with this Section 12.06.
ARTICLE THIRTEEN
MISCELLANEOUS
Section 13.01. Trust Indenture Act of 1939.
This Indenture is subject to the provisions of the TIA that
are required to be a part of this Indenture, and shall, to the extent
applicable, be governed by such provisions.
If any provision of this Indenture modifies or excludes any
provision of the TIA that may be so modified or excluded, the latter provision
shall be deemed to apply to this Indenture as so modified or excluded, as the
case may be.
Section 13.02. Notices.
Any notice or communication shall be sufficiently given if in
writing and delivered in person or by air courier or mailed by first class mail,
postage prepaid, addressed as follows:
If to the Company or any Guarantor to:
Oregon Steel Mills, Inc.
1000 S.W. Broadway, Suite 2200
Portland, Oregon 97205
Attention: Chief Financial Officer
If to the Trustee to:
Chemical Bank
450 West 33rd Street
New York, New York 10001
Attention: Corporate Trustee Administration Department
The parties hereto by notice to the other parties may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed, postage prepaid, to a
Holder, including any notice delivered in connection with TIA Section 310(b),
TIA Section 313(c), TIA Section 314(a) and TIA Section 315(b), shall be mailed
by first class mail to such Holder at the address of such Holder as it appears
on the Securities register maintained by the Registrar and shall be sufficiently
given to such Holder if so mailed within the time prescribed. Copies of any such
communication or notice to a Holder shall also be mailed to the Trustee.
78
<PAGE> 86
Failure to mail a notice or communication to a Securityholder
or any defect in it shall not affect its sufficiency with respect to other
Holders. Except for a notice to the Trustee, which is deemed given only when
received, if a notice or communication is mailed in the manner provided above,
it is duly given, whether or not the addressee receives it.
Section 13.03. Communication by Holders with Other Holders.
Holders may communicate pursuant to TIA Section 312(b) with
other Holders with respect to their rights under this Indenture, the Security
Documents, the Guarantees or the Securities. The Company, the Guarantors, the
Trustee, the Registrar and any other person shall have the protection of TIA
Section 312(c).
Section 13.04. Certificate and Opinion as to Conditions
Precedent.
Upon any request or application by the Company or any
Guarantor to the Trustee to take any action under this Indenture, such obligor
shall furnish to the Trustee:
(a) an Officers' Certificate stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(b) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Section 13.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that the person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statement or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with; provided,
however, that with respect to matters of fact an Opinion of Counsel may
rely on an Officers' Certificate or certificates of public officials or
other appropriate certificates.
Section 13.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a
meeting of Securityholders. The Paying Agent or Registrar may make reasonable
rules for its functions.
Section 13.07. Legal Holidays.
In any case where any Interest Payment Date, Stated Maturity,
Maturity Date, Redemption Date, Change of Control Purchase Date or Asset Sale
Purchase Date of any Security shall not be a Business Day at a Place of Payment,
then (notwithstanding any other provision of this Indenture or any Security),
payment of interest or principal need not be made at such Place of Payment on
such date, but may be made on the next succeeding Business Day at such Place of
Payment with the same force and effect as if made on such Interest Payment Date,
Stated Maturity, Maturity Date, Redemption Date, Change of Control Purchase Date
or Asset Sale Purchase Date, as the case may be, and no interest shall accrue on
the amount so payable for the period from and after such Interest
79
<PAGE> 87
Payment Date, Stated Maturity, Maturity Date, Redemption Date, Change of Control
Purchase Date or Asset Sale Purchase Date, as the case may be, to such next
succeeding Business Day.
Section 13.08. Governing Law.
The laws of the State of New York shall govern this Indenture,
the Guarantees and the Securities without regard to the principles of conflicts
of law. The Trustee, the Company, each Guarantor and the Holders agree (to the
fullest extent permitted by law) to submit to the jurisdiction of the courts of
the State of New York in any action or proceeding arising out of or relating to
this Indenture, the Guarantees or the Securities.
Section 13.09. No Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company or any Guarantor. Any such indenture, loan
or debt agreement may not be used to interpret this Indenture.
Section 13.10. No Recourse Against Others.
A director, officer, employee, stockholder or limited partner,
as such, of the Company or any Guarantor shall not have any liability for any
obligations of the Company under the Securities or this Indenture or for any
obligations of a Guarantor under any Guarantee, the Security Documents, the
Intercreditor Agreement or this Indenture or for any claim based on, in respect
of or by reason of, such obligations or their creation by reason of his, her or
its status as such director, officer, employee, stockholder or limited partner.
Each Holder by accepting a Security waives and releases all such liability.
Section 13.11. Successors.
All agreements of the Company and the Guarantors in this
Indenture, the Securities, the Security Documents, the Intercreditor Agreement
and the Guarantees shall bind their respective successors. All agreements of the
Trustee in this Indenture shall bind its successors.
Section 13.12. Duplicate Originals.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all such executed copies together
represent the same agreement.
Section 13.13. Separability.
In case any provision in this Indenture, any Guarantee or the
Securities shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not (to the maximum extent
permitted by law) in any way be affected or impaired thereby, and a Holder shall
have no claim therefor against any party hereto.
Section 13.14. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
80
<PAGE> 88
Section 13.15. True Copy.
The Company shall, within three Business Days of receipt of a
written request by the Trustee, furnish the Trustee with a true copy of this
Indenture.
Section 13.16. Benefits of Indenture.
Except as provided in this Article Thirteen, nothing in this
Indenture, the Guarantees or in the Securities, express or implied, shall give
to any person, other than the parties hereto and their successors hereunder, and
the Holders, any benefit or any legal or equitable right, remedy or claim under
this Indenture.
81
<PAGE> 89
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
[Seal] OREGON STEEL MILLS, INC.
Attest:____________________ By:______________________________________
Name: Name:
Title: Title:
[Seal] CHEMICAL BANK, as Trustee
Attest: ___________________ By:______________________________________
Name: Name:
Title: Title:
[Seal] NEW CF&I, INC., as a Guarantor
Attest: _____________________ By:______________________________________
Name: Name:
Title: Title:
CF&I STEEL, L.P., as a Guarantor
[Seal] By: NEW CF&I, INC., its General Partner
Attest: ______________________ By:______________________________________
Name: Name:
Title: Title:
82
<PAGE> 90
EXHIBIT A
[LEGEND FOR INCLUSION IN GLOBAL SECURITIES-- THIS SECURITY IS A GLOBAL SECURITY
WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN
THE NAME OF A DEPOSITARY (AS DEFINED IN THE INDENTURE) OR A NOMINEE THEREOF.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN
DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY
SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY.] [LEGEND FOR INCLUSION IF THE DEPOSITORY TRUST COMPANY IS THE
DEPOSITARY-- UNLESS THIS SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION, TO THE COMPANY (AS
DEFINED BELOW) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER
NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITARY), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
OREGON STEEL MILLS, INC.
+ % FIRST MORTGAGE NOTE DUE 2003
No. ______ $__________
Oregon Steel Mills, Inc., a corporation incorporated under the
laws of the State of Delaware (herein called the "Company", which term includes
any successor corporation under the Indenture hereinafter referred to), for
value received, hereby promises to pay to _______________ or registered assigns,
the principal sum of _______________ Dollars on June +, 2003, at the office or
agency of the Company referred to below, and to pay interest thereon on June +
and December + (each, an "Interest Payment Date") in each year, commencing on
June +, 1996, accruing from the most recent Interest Payment Date to which
interest has been paid or duly provided for or, if no interest has been paid or
duly provided for, from +, 1996 at the rate of +% per annum, until the principal
hereof and premium, if any, hereon is paid or duly provided for. Interest shall
be computed on the basis of a 360-day year of twelve 30-day months.
The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will be paid to the person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest, which shall be May + or
November + (whether or not a Business Day), as the case may be, next preceding
such Interest Payment Date (each a "Regular Record Date"). Any such interest not
so punctually paid or duly provided for, together with interest, to the extent
lawful, on such defaulted interest at the rate borne by the Securities, shall
forthwith cease to be payable to the Holder on such Regular Record Date, and may
be paid to the person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a special record date for
the payment of such defaulted interest to be fixed by the Company, notice of
which shall be given to Holders of Securities not less than 15 days prior to
such special record date, or may be paid at any time in any other lawful manner
not inconsistent with the requirements of any securities exchange on which the
Securities may be listed, and upon such notice as may be required by such
exchange, all as more fully provided in such Indenture.
A-1
<PAGE> 91
Payment of the principal of, premium, if any, and interest on
this Security will be made at the office or agency of the Company maintained for
that purpose in the Borough of Manhattan in The City of New York, or at such
other office or agency of the Company as may be maintained for such purpose, in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts; provided, however, that
payment of interest may be made at the option of the Company by check mailed to
the address of the person entitled thereto as such address shall appear on the
Securities register maintained by the Registrar.
Reference is hereby made to the further provisions of this
Security set forth on the reverse of this Security or on the subsequent pages of
this Security, as the case may be.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this Security shall not be entitled to any benefit under the Indenture, or be
valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed under its corporate seal.
Dated: ,
[Seal] OREGON STEEL MILLS, INC.
Attest:________________________ By:____________________________________
Name: Name:
Title: Title:
A-2
<PAGE> 92
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
This is one of the Securities referred to in the within-mentioned Indenture.
CHEMICAL BANK, as Trustee
By:__________________________________
Authorized Officer*
- ---------------------------
* If Chemical Bank is not serving as Trustee the reference to "Authorized
Officer" may be changed to "Authorized Signatory".
A-3
<PAGE> 93
(Reverse of Security)
1. Indenture. This Security is one of a duly authorized issue
of Securities of the Company designated as its +% First Mortgage Notes due 2003,
limited (except as otherwise provided in the Indenture referred to below) in
aggregate principal amount to $235,000,000, issued under an indenture (which
Indenture, together with all indentures supplemental thereto, are hereinafter
called the "Indenture") dated as of June +, 1996, among the Company, Chemical
Bank, as trustee (herein called the "Trustee", which term includes any successor
Trustee under the Indenture), New CF&I, Inc., a Delaware corporation, and CF&I
Steel, L.P., a Delaware limited partnership, to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties, obligations and immunities
thereunder of the Company, the Trustee, the Guarantors and the Holders of the
Securities, and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
All terms used in this Security which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
No reference herein to the Indenture and no provisions of this
Security, the Guarantee or of the Indenture shall alter or impair the obligation
of the Company or any Guarantor, which is absolute and unconditional, to pay the
principal of, premium, if any, and interest on this Security at the times, place
and rate, and in the coin or currency, herein prescribed.
2. Redemption.
(a) Optional Redemption. The Securities are subject to
redemption, at the option of the Company, as a whole or in part, in principal
amounts of $1,000 or any integral multiple of $1,000, at any time on or after
June +, 2000, on not less than 30 nor more than 60 days' prior written notice as
provided in the Indenture, at the following Redemption Prices (expressed as
percentages of the principal amount), if redeemed during the 12-month period
beginning June + of the years indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
- ------------------------------------------------------------- ------------
<S> <C>
2000...................................................... +%
2001...................................................... +%
2002 and thereafter....................................... 100.00%
</TABLE>
, plus, in each case, accrued and unpaid interest to the Redemption Date, all as
provided in the Indenture.
(b) Interest Payments. In the case of any redemption of
Securities, interest installments whose Stated Maturity is on or prior to the
Redemption Date will be payable to the Holders of such Securities, or one or
more Predecessor Securities, of record at the close of business on the relevant
record date referred to on the face hereof. Securities (or portions thereof) for
whose redemption and payment provision is made in accordance with the Indenture
shall cease to bear interest from and after the Redemption Date.
(c) Partial Redemption. In the event of redemption of this
Security in part only, a new Security or Securities for the unredeemed portion
hereof shall be issued in the name of the Holder hereof upon the cancellation
hereof.
3. Guarantees; Collateral. This Security is entitled to
certain Guarantees made for the benefit of the Holders, as set forth in this
Security and in the Indenture. This Security and such Guarantees are also
entitled to the benefits of certain Collateral pledged as security therefor as
provided in the Indenture and the Security Documents.
A-4
<PAGE> 94
4. Offers to Purchase. Sections 4.12 and 4.13 of the Indenture
provide that upon the occurrence of a Change of Control and following certain
Asset Sales, and subject to further conditions and limitations contained
therein, the Company shall make an offer to purchase certain amounts of the
Securities in accordance with the procedures set forth in the Indenture.
5. Defaults and Remedies. If an Event of Default shall occur
and be continuing, the principal of, premium, if any, and interest on all of the
outstanding Securities may be declared due and payable in the manner and with
the effect provided in the Indenture.
6. Defeasance. The Indenture contains provisions (which
provisions apply to this Security) for (i) defeasance at any time of (a) the
entire indebtedness of the Company and the Guarantors under this Security and
(b) certain restrictive covenants, in each case upon compliance by the Company
with certain conditions set forth therein and (ii) the termination of the
Company's and the Guarantors' obligations (subject to certain exceptions) under
the Indenture.
7. Amendments and Waivers. The Indenture permits, with certain
exceptions as therein provided, the amendment and the modification of the rights
and obligations of the Company and the Guarantors and the rights of the Holders
under the Indenture, the Securities, the Guarantees, the Intercreditor
Agreement, and the Security Documents at any time by the Company, the Guarantors
and the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the Securities at the time outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Securities at the time
outstanding, on behalf of the Holders of all the Securities, to waive compliance
by the Company and the Guarantors with certain provisions of, and to waive
certain past defaults under, the Indenture, the Securities, the Guarantees the
Intercreditor Agreement and the Security Documents and their consequences. Any
such consent or waiver by or on behalf of the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Security.
8. Denominations, Transfer and Exchange. The Securities are
issuable only in registered form without coupons in denominations of $1,000 and
any integral multiple thereof. As provided in the Indenture and subject to
certain limitations therein set forth, the Securities are exchangeable for a
like aggregate principal amount of Securities of different authorized
denominations, as requested by the Holder surrendering the same.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Security is registrable on
the Security register of the Company, upon surrender of this Security for
registration of transfer at the office or agency of the Company maintained for
such purpose in the Borough of Manhattan in The City of New York or at such
other office or agency of the Company as may be maintained for such purpose,
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Registrar duly executed by, the Holder
hereof or his attorney duly authorized in writing, and thereupon one or more new
Securities, of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees.
No service charge shall be made for any registration of
transfer or exchange or redemption or repurchase of Securities, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
9. Persons Deemed Owners. Prior to and at the time of due
presentment of this Security for registration of transfer, the Company, the
Guarantors, the Trustee and any agent of the Company, the Guarantors, or the
Trustee may treat the person in whose name this Security is registered as the
owner hereof for all purposes, whether or not this Security shall be overdue,
and neither the Company, the Guarantors, the Trustee nor any agent shall be
affected by notice to the contrary.
A-5
<PAGE> 95
10. Abbreviations. Customary abbreviations may be used in the
name of a Holder or an assignee, such as: TEN COM (= tenants in common), TENANT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
11. Governing Law. This Security shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to conflicts of law principles.
A-6
<PAGE> 96
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company
pursuant to Section 4.12 or 4.13 of the Indenture, check the appropriate box:
Section 4.12 [ ]
Section 4.13 [ ]
If you wish to have a portion of this Security purchased by
the Company pursuant to Section 4.12 or 4.13 of the Indenture, state the amount
(must be $1,000 or an integral multiple of $1,000):
$____________
Date: _______________
Your Signature:__________________________
(Sign exactly as your name
appears on the face of this
Security)
Signature Guarantee:_____________________
A-7
<PAGE> 97
GUARANTEE
For value received, the Guarantors (which term includes the
undersigned and any persons who may subsequently become Guarantors under the
Indenture referred to in the Security upon which this Guarantee is endorsed, and
any of their respective successors under the Indenture) have unconditionally
guaranteed, jointly and severally, (i) the due and punctual payment of the
principal of, premium, if any, and interest on the Securities (whether at Stated
Maturity, upon acceleration, optional redemption, required purchase or
otherwise), the due and punctual payment of interest on any overdue principal
of, premium, if any, and, to the maximum extent permitted by law, interest on
the Securities, and the due and punctual performance of all other obligations of
the Company to the Holders of the Securities and the Trustee under the
Indenture, the Security Documents, the Intercreditor Agreement and the
Securities, all in accordance with and subject to the terms of the Securities,
the Indenture and the Guarantee, and (ii) in case of any extension of time of
payment or renewal of any Securities or any of such other obligations, that the
same will be promptly paid in full when due or performed when due in accordance
with the terms of the extension or renewal. The validity and enforceability of
any Guarantee shall not be affected by the fact that it is not affixed to any
particular Security.
The obligations of the Guarantors to the Holders of Securities
and to the Trustee pursuant to the Guarantee and the Indenture are expressly set
forth in Article Ten of the Indenture and reference is hereby made to the
Indenture for the precise terms of the Guarantee and all of the other provisions
of the Indenture to which the Guarantee relates. All terms used herein which are
defined in the Indenture shall have the meanings assigned to them in the
Indenture.
A director, officer, employee, stockholder or limited partner,
as such, of a Guarantor shall not have any liability for any obligations of such
Guarantor under its Guarantee or the Indenture or for any claim based on, in
respect of or by reason of, such obligations or their creation by reason of his,
her or its status as such director, officer, employee, stockholder or limited
partner.
This Guarantee shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflicts
of law principles.
This Guarantee is subject to release upon the terms set forth
in the Indenture.
[Seal] NEW CF&I, INC.
Attest:_____________________ By: __________________________________________
Name: Name:
Title: Title:
CF&I STEEL, L.P.
[Seal] By: NEW CF&I, INC., its General Partner
Attest:_____________________ By: __________________________________________
Name: Name:
Title: Title:
<PAGE> 98
ASSIGNMENT FORM
If you want to assign this Security, fill in the form below and have your
signature guaranteed:
I or we assign and transfer this Security to
________________________________________________________________________________
(Insert assignee's social security or tax ID number)____________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code) and irrevocably appoint
________________________________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
________________________________________________________________________________
Date: _____________ Your signature:_______________________________
(Sign exactly as your name
appears on the other side of
this Security)
Signature Guarantee:____________________________________________________________
<PAGE> 99
EXHIBIT E
PROMISSORY NOTE
Dated: June +, 1996
FOR VALUE RECEIVED, CF&I Steel, L.P., a Delaware limited
partnership (herein called the "Maker", which term includes any successor under
the Indenture referred to below), hereby promises to pay to Chemical Bank, a New
York banking corporation or to such other person or entity which at the time
shall be trustee under the Indenture referred to below ("Payee", which term
includes any such successor trustee under the Indenture referred to below), as
trustee under that certain Indenture dated as of June +, 1996 among Oregon Steel
Mills, Inc., a Delaware corporation (herein called the "Company", which term
includes any successor under the Indenture), Payee, Maker and New CF&I, Inc.
(which Indenture, together with all indentures supplemental thereto, is
hereinafter called the "Indenture"), or registered assigns, for the ratable
benefit of the Holders (as defined in the Indenture), on or before June +, 2003,
the sum of TWO HUNDRED THIRTY-FIVE MILLION DOLLARS ($235,000,000) plus any and
all other amounts becoming due and payable by Maker under the Indenture and its
Guarantee (as defined in the Indenture), or such lesser amount as shall become
due and payable by Maker under the Indenture and its Guarantee. All amounts
becoming due and payable by Maker under the Indenture and its Guarantee shall
constitute indebtedness evidenced by this Note and shall be due and payable
hereunder as and when due and payable under its Guarantee and the Indenture.
Without limitation to any other provisions of this Note, an Event of Default (as
defined in the Indenture) under the Indenture shall constitute an event of
default under this Note, and shall entitle Payee to accelerate the obligations
of Maker hereunder in the same manner and to the same extent as the obligations
of the Company under the Securities (as defined in the Indenture). Maker further
agrees (to the fullest extent permitted by law) that, as between it, on the one
hand, and Payee, on the other hand, (a) the maturity of the obligations of the
Company under the Securities may be accelerated as provided in Article Six of
the Indenture for the purposes of this Note, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
obligations of the Company under the Securities, and (b) in the event of any
acceleration of such obligations as provided in Article Six of the Indenture,
such obligations (whether or not due and payable) shall forthwith become due and
payable by Maker for the purpose of this Note.
All payments hereunder shall be made in lawful money of the
United States of America in immediately available funds at Payee's offices in
the Borough of Manhattan, The City of New York, or at such other place as Payee
shall have designated to Maker in writing.
This Note is secured by, and is entitled to the benefits of, a
DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES, AND SECURITY AGREEMENT, dated as
of June +, 1996, from Maker to the Public Trustee of Pueblo County for the
benefit of Payee and a Deed of Trust, Assignment of Rents and Leases and
Security Agreement, dated as of June +, 1996, from Maker to the Public Trustee
of Fremont County for the benefit of Payee (as the same may be amended or
supplemented from time to time, collectively, the "Deeds of Trust"). Reference
is made to the Deeds of Trust for a more detailed description of the property
covered thereby and the rights, remedies and obligations of Payee in respect
thereto.
Maker waives presentment, notice of dishonor, notice of
acceleration and protest, and all other notices in connection with the delivery,
acceptance, performance, default or enforcement of the payment of this Note and
assents to any extension of time with respect to any payment due under this
Note, to any substitution or release of collateral and to the addition or
release of any party.
It is not intended hereby to charge interest at a rate in
excess of the maximum rate of interest permitted to be charged to Maker under
applicable law, but if, notwithstanding such intention, interest in excess
E-1
<PAGE> 100
of the maximum rate shall be paid hereunder, the excess shall be retained by
Payee as additional cash collateral for the payment of this Note, unless such
retention is not permitted by law, in which case the interest rate on this Note
shall be adjusted to the maximum rate permitted under applicable law during the
period or periods that the interest rate otherwise provided herein would exceed
such rate.
Maker covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law which would prohibit or forgive Maker from paying all or
any portion of the principal of, premium, if any, or interest on or other
amounts due under this Note as contemplated herein, wherever enacted, now or at
any time hereafter in force, or which may affect the performance of this Note;
and (to the extent that it may lawfully do so) Maker hereby expressly waives all
benefit or advantage of any such law and covenants that it will not hinder,
delay or impede the execution of any power herein granted to Payee, but will
suffer and permit the execution of every such power as though no such law had
been enacted.
The provisions of this Note shall be binding obligations
against Maker, its successors and assigns.
A director, officer, employee or limited partner, as such, of
Maker shall not have any liability for any obligations of Maker under this Note,
its Guarantee or the Indenture or for any claim based on, in respect of or by
reason of, such obligations for their creation by reason of his, her or its
status as such director, officer, employee or limited partner.
Payee shall not be deemed to have waived or amended any of its
rights hereunder unless such waiver or amendment is in writing and signed by
Payee and otherwise complies with the Indenture. No delay or omission on the
part of Payee in exercising any right hereunder shall operate as a waiver of any
such right or any other right. A waiver on any one occasion shall not be
construed as a bar to, or waiver of, the exercise of any right or remedy on any
future occasion.
This Note is the "CF&I Note" referred to in the Indenture and
is subject to, and entitled to the benefits of, the terms of the Indenture
applicable to the CF&I Note, and, anything in this Note to the contrary
notwithstanding, the aggregate amount payable by Maker under this Note shall in
no event exceed the amount specified in Section 10.06 of the Indenture (giving
effect to the provisions of Sections 10.07 of the Indenture).
Maker hereby acknowledges and agrees that this Note shall
constitute the "original evidence of debt" required by Section 38-38-101 and
Section 38-39-102 of the Colorado Revised Statutes, or any successor statutes
thereto, to be filed with the public trustee in connection with a foreclosure or
release of the Deed of Trust.
E-2
<PAGE> 101
This Note is to be governed by and construed according to the
laws of the State of New York without regard to the principles of conflicts of
law.
CF&I STEEL, L.P.,
a Delaware limited partnership
By: NEW CF&I, INC.,
as General Partner
[Seal]
By:_______________________________
Name:
Title:
Attest:___________________________
Name:
Title:
E-3
<PAGE> 1
EXHIBIT 4.2
DRAFT 5/21/96
[FORM OR DEED OF TRUST]
[COLORADO COVER PAGE]
DEED OF TRUST, ASSIGNMENT OF RENTS
AND LEASES AND SECURITY AGREEMENT
from
CF&I Steel, L.P., Grantor
to
The Public Trustee of [PUEBLO] [FREMONT] County, Trustee
for the benefit of
Chemical Bank, as Trustee, Beneficiary
DATED AS OF _______________, 1996
Prepared By, and After Recording Return To:
Brown & Wood
One World Trade Center
New York, New York 10048
Attention: John A. Goodman, Esq.
<PAGE> 2
[CALIFORNIA COVER PAGE]
Recording Requested by,
And When Recorded Return to:
Brown & Wood
One World Trade Center
New York, New York 10048
Attention: John A. Goodman, Esq.
- --------------------------------------------------------------------------------
DEED OF TRUST, ASSIGNMENT OF RENTS
AND LEASES AND SECURITY AGREEMENT
from
Oregon Steel Mills, Inc., Grantor
to
Transnation Title Insurance Company, Trustee
for the benefit of
Chemical Bank, as Trustee, Beneficiary
DATED AS OF _______________, 1996
<PAGE> 3
[OREGON COVER PAGE]
After Recording Return To:
Brown & Wood
One World Trade Center
New York, New York 10048
Attention: John A. Goodman, Esq.
DEED OF TRUST, ASSIGNMENT OF RENTS
AND LEASES AND SECURITY AGREEMENT
from
Oregon Steel Mills, Inc., Grantor
to
Transnation Title Insurance Company, Trustee
for the benefit of
Chemical Bank, as Trustee, Beneficiary
DATED AS OF _______________, 1996
THIS DEED OF TRUST COVERS REAL PROPERTY IN THE CITY OF PORTLAND,
COUNTY OF MULTNOMAH AND STATE OF OREGON WITH THE FOLLOWING TAX
ACCOUNT NUMBERS: ___________________
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
Background...................................................................................................... 1
Granting Clauses................................................................................................ 1
Terms and Conditions............................................................................................ 5
1. Warranty of Title...................................................................................... 5
2. Payment and Performance of Obligations................................................................. 5
3. Requirements........................................................................................... 5
4. Payment of Taxes and Other Impositions................................................................. 6
5. Insurance.............................................................................................. 7
6. Restrictions on Liens, Encumbrances, Sales and Transfers............................................... 10
7. Relationship of Beneficiary, Trustee and Grantor; Grantor Remains
Liable Under Contracts and Leases...................................................................... 10
8. Maintenance; No Alteration; Inspection; Utilities...................................................... 11
9. Condemnation/Eminent Domain............................................................................ 11
10. Leases................................................................................................. 11
11. Further Assurances/Estoppel Certificates............................................................... 13
12. Trustee's and Beneficiary's Right to Perform........................................................... 13
13. Hazardous Material..................................................................................... 13
14. Asbestos............................................................................................... 15
15. Events of Default...................................................................................... 15
16. Remedies............................................................................................... 15
17. Right of Beneficiary to Credit Sale.................................................................... 18
18. Appointment of Receiver................................................................................ 18
19. Extension, Release, etc................................................................................ 18
20. Security Agreement under Uniform Commercial Code....................................................... 19
21. Assignment of Rents.................................................................................... 19
22. Trust Funds............................................................................................ 20
23. Additional Rights...................................................................................... 20
24. Changes in Method of Taxation.......................................................................... 20
25. Notices................................................................................................ 20
26. No Oral Modification................................................................................... 20
27. Partial Invalidity; Limitation on Interest............................................................. 21
28. Waiver of Right of Redemption and Other Rights......................................................... 21
29. Remedies Not Exclusive................................................................................. 21
30. Multiple Security...................................................................................... 22
31. Expenses; Indemnification.............................................................................. 22
32. Successors and Assigns................................................................................. 24
33. No Waivers, etc........................................................................................ 24
34. Governing Law, etc..................................................................................... 24
35. Waiver of Trial by Jury................................................................................ 24
36. Certain Definitions.................................................................................... 24
37. Release Upon Payment and Discharge of Grantor's Obligations............................................ 25
38. Concerning the Trustee................................................................................. 25
39. The Indenture Controls................................................................................. 26
40. Certain Matters Relating to Trust Property Located in the State of California ......................... 26
41. Certain Matters Relating to Trust Property Located in the State of Colorado............................ 28
</TABLE>
i
<PAGE> 5
<TABLE>
<S> <C>
42. Certain Matters Relating to Trust Property Located in the State of Oregon.............................. 30
43. Leasehold Deed Of Trust [For Oregon]................................................................... 31
</TABLE>
Acknowledgments
Schedule A - Description of the Real Estate
Schedule B - The Leased Real Estate and The Mortgaged Lease [FOR OREGON]
Schedule B - The Indenture [FOR COLORADO]
Schedule C - Excluded Motor Vehicles and Mobile Equipment [FOR COLORADO]
Schedule D - Water Rights [FOR COLORADO]
ii
<PAGE> 6
DEED OF TRUST, ASSIGNMENT OF
RENTS AND LEASES AND SECURITY AGREEMENT
THIS DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES AND SECURITY
AGREEMENT, dated as of ____________ ___, 1996 is made by
__________________________ , a ____________________ ("Grantor"), whose address
is ______________, to__________________ , as trustee under this Deed Of Trust
(in such capacity, "Trustee") whose address is ____________________, for the
benefit of Chemical Bank, as trustee under the Indenture defined herein
("Beneficiary"), whose address is 450 West 33rd Street, New York, New York
10001. References to this "Deed Of Trust" shall mean this instrument and any and
all renewals, modifications, amendments, supplements, extensions,
consolidations, substitutions, spreaders and replacements of this instrument.
Background
A. Grantor is the owner of the parcel(s) of real property described on
Schedule A attached together with all of the buildings, improvements, structures
and fixtures now or subsequently located thereon [FOR OREGON, ADD "AND GRANTOR
IS THE TENANT OF AND OWNER OF A LEASEHOLD ESTATE AND LEASEHOLD INTEREST ARISING
UNDER THE LEASE DESCRIBED ON SCHEDULE B IN ALL OR A PORTION OF THE PARCEL(S) OF
REAL PROPERTY AND THE BUILDINGS, IMPROVEMENTS, STRUCTURES AND FIXTURES NOW OR
SUBSEQUENTLY LOCATED THEREON DESCRIBED ON SCHEDULE B PURSUANT TO THE LEASE
DESCRIBED ON SCHEDULE B"].
B. Grantor and Beneficiary are parties to the Indenture dated as of
____________ ___, 1996 between Oregon Steel Mills, Inc., New CF & I, Inc., CF &
I Steel, L.P., and Chemical Bank, as trustee (as the same may be amended,
modified or otherwise supplemented from time to time, the "Indenture";
capitalized terms not defined herein shall have the meanings ascribed thereto in
the Indenture and in addition, the terms "interest", "principal", "guarantee"
and "person" shall have the meanings ascribed thereto in the Indenture [NOTE:
FOR COLORADO, ADD "A TRUE COPY OF WHICH IS ATTACHED AS SCHEDULE B"]) for the
benefit of Holders of ____% First Mortgage Notes due 2003 (the "Securities") in
the aggregate principal amount of $235,000,000 issued by Oregon Steel Mills,
Inc. and guaranteed by New CF & I, Inc. and CF & I Steel, L.P. pursuant to the
Guarantees.
[NOTE: FOR COLORADO ADD:
"C. PURSUANT TO THE INDENTURE, GRANTOR HAS EXECUTED A PROMISSORY NOTE
OF EVEN DATE HEREWITH PAYABLE TO BENEFICIARY IN THE FACE AMOUNT OF $235,000,000
PLUS ANY OTHER AMOUNTS BECOMING DUE AND PAYABLE BY GRANTOR UNDER THE INDENTURE
AND ITS GUARANTEE, OR SUCH LESSER AMOUNT AS SHALL BECOME DUE AND PAYABLE BY
GRANTOR UNDER THE INDENTURE AND ITS GUARANTEE AND MATURING ON ________________,
2003 (AS THE SAME MAY BE AMENDED RENEWED, EXTENDED, RESTATED OR OTHERWISE
MODIFIED FROM TIME TO TIME, THE "CF&I NOTE")."]
[C.][D.] It is a condition precedent to the purchase of the Securities
that Grantor shall have executed and delivered this Deed Of Trust to Beneficiary
for the ratable benefit of the Holders [FOR COLORADO, ADD ", TO SECURE, AMONG
OTHER THINGS, THE CF&I NOTE"].
NOW, THEREFORE, in consideration of the premises and to induce
Beneficiary to enter into the Indenture and to induce the Holders to purchase
the Securities, Grantor hereby agrees with Beneficiary, for the ratable benefit
of the Holders, as follows:
<PAGE> 7
Granting Clauses
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Grantor agrees that to secure repayment of the
unpaid principal of, premium, if any, and interest on the Securities and the
Guarantees and all other obligations and liabilities of Grantor to Beneficiary
and the Holders (including, without limitation, interest accruing after the
maturity of the Securities and interest accruing after the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization or
like proceeding, relating to the Grantor, whether or not a claim for post-filing
or post-petition interest is allowed in such proceeding and interest, to the
extent permitted by law, on the unpaid interest), whether direct or indirect,
absolute or contingent, due or to become due, or now existing or hereafter
incurred, which may arise under, out of, or in connection with, the Indenture,
the Securities, the Guarantees, this Deed Of Trust, the other Security
Documents, the Intercreditor Agreement, or any other document made, delivered or
given in connection therewith, in each case whether on account of principal,
premium, interest, fees, indemnities, costs, expenses or otherwise (including,
without limitation, all fees and disbursements of counsel to Beneficiary and
Trustee that are required to be paid by Trustee or Beneficiary pursuant to the
terms of the Indenture, the Intercreditor Agreement, this Deed Of Trust or any
other Security Document) (all such indebtedness, obligations and liabilities
collectively, the "Obligations"); [NOTE: FOR COLORADO, DELETE THE PRECEDING
SENTENCE AND INSERT "FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND
SUFFICIENCY OF WHICH ARE HEREBY ACKNOWLEDGED, TO SECURE THE PRINCIPAL OF,
PREMIUM IF ANY, AND INTEREST ON, AND ALL OTHER INDEBTEDNESS NOW OR HEREAFTER
EVIDENCED BY, THE CF&I NOTE AND ALL OTHER OBLIGATIONS AND LIABILITIES WHICH
CONSTITUTE INDEBTEDNESS OF, OR OTHER AMOUNTS OWING BY, GRANTOR TO BENEFICIARY OR
ANY OF THE HOLDERS, WHETHER DIRECT OR INDIRECT, ABSOLUTE OR CONTINGENT, DUE OR
TO BECOME DUE, OR NOW EXISTING OR HEREAFTER INCURRED, WHICH MAY ARISE UNDER, OUT
OF, OR IN CONNECTION WITH, THE CF&I NOTE, THIS DEED OF TRUST, THE INDENTURE, THE
INTERCREDITOR AGREEMENT, ANY OTHER SECURITY DOCUMENT OR GRANTOR'S GUARANTEE (ALL
SUCH INDEBTEDNESS, OBLIGATIONS AND LIABILITIES COLLECTIVELY, THE
"OBLIGATIONS");"]
GRANTOR BARGAINS, SELLS, MORTGAGES, WARRANTS, CONVEYS, GRANTS, ASSIGNS,
TRANSFERS AND SETS OVER WITH POWER OF SALE AND BY THESE PRESENTS DOES HEREBY
BARGAIN, SELL, MORTGAGE, WARRANT, CONVEY, GRANT, ASSIGN, TRANSFER AND SET OVER
WITH POWER OF SALE UNTO TRUSTEE FOR THE BENEFIT OF BENEFICIARY FOR THE RATABLE
BENEFIT OF THE HOLDERS AND HEREBY GRANTS TO BENEFICIARY FOR THE RATABLE BENEFIT
OF THE HOLDERS A CONTINUING SECURITY INTEREST IN AND TO ALL OF THE FOLLOWING:
(A) the plot(s), pieces(s) or parcel(s) of real property
described on Schedule A attached hereto and made a part hereof together
with all buildings, foundations, structures, fixtures, additions,
enlargements, extensions, modifications, repairs, replacements and
improvements of every kind or nature now or hereafter located on such
real property (collectively referred to as the "[FOR OREGON, ADD "FEE"]
Improvements"; the [FOR OREGON, ADD "FEE"] Improvements and such real
property are collectively referred to as the "[FOR OREGON, ADD "FEE"]
Real Estate"); [FOR OREGON, ADD "AND THE LEASEHOLD ESTATE AND LEASEHOLD
INTEREST ARISING UNDER THE LEASE DESCRIBED ON SCHEDULE B ATTACHED
HERETO AND MADE A PART HEREOF (THE "MORTGAGED LEASE") IN THE PLOT(S),
PIECES(S) OR PARCEL(S) OF REAL PROPERTY DESCRIBED ON SCHEDULE B
ATTACHED HERETO AND MADE A PART HEREOF TOGETHER WITH ALL BUILDINGS,
STRUCTURES, FIXTURES, AND IMPROVEMENTS OF EVERY KIND OR NATURE NOW OR
HEREAFTER LOCATED ON SUCH REAL PROPERTY (COLLECTIVELY REFERRED TO AS
THE "LEASED IMPROVEMENTS"; THE LEASED IMPROVEMENTS AND SUCH REAL
PROPERTY ARE COLLECTIVELY REFERRED TO AS THE "LEASED REAL ESTATE")
PURSUANT TO THE MORTGAGED LEASE; (THE FEE IMPROVEMENTS AND THE LEASED
IMPROVEMENTS ARE COLLECTIVELY REFERRED TO AS THE "IMPROVEMENTS" AND THE
FEE REAL ESTATE AND LEASED REAL ESTATE ARE COLLECTIVELY REFERRED TO AS
THE "REAL ESTATE");"]
2
<PAGE> 8
(B) all the estate, right, title, claim or demand whatsoever
of Grantor, in possession or expectancy, whether now owned or hereafter
acquired, in and to the Real Estate or any part thereof;
(C) all right, title and interest of Grantor in, to and under
all easements, rights of way, gores of land, streets, ways, alleys,
passages, sewer rights, waters, water courses, water and riparian
rights, development rights, air rights, mineral rights and all estates,
rights, titles, interests, privileges, licenses, tenements,
hereditaments and appurtenances belonging, relating or appertaining to
the Real Estate, whether existing or hereafter acquired, and any
reversions, remainders, rents, issues, profits and revenues thereof and
all land lying in the bed of any street, road or avenue, in front of or
adjoining the Real Estate to the center line thereof, whether existing
or hereafter acquired or hereafter arising; including, without
limitation, all water and water rights, ditches and ditch rights,
reservoirs and storage rights, wells and well rights, springs and
spring rights, groundwater rights (whether tributary, nontributary or
not-nontributary), water contracts, water allotments, water taps,
shares in ditch or reservoir companies, and all other rights of any
kind or nature in or to the use of water, [FOR COLORADO,
ADD: "INCLUDING BUT NOT LIMITED TO, THE RIGHTS AND INTERESTS DESCRIBED
ON SCHEDULE D ATTACHED HERETO,"] together with any and all easements,
rights of way, fixtures, personal property, contract rights, stock
certificates, permits or decrees associated with or used in connection
with any such rights. [FOR COLORADO, ADD: "THE LISTING OF SPECIFIC
WATER RIGHTS ON SCHEDULE D IS NOT INTENDED TO LIMIT THE GENERALITY OF
THE FOREGOING GRANT OR EXCLUDE ANY OTHER WATER RIGHTS WHICH ARE NOT SO
SPECIFICALLY LISTED;"]
(D) all of the fixtures, chattels, business machines,
machinery, apparatus, equipment, furnishings, fittings and articles of
personal property of every kind and nature whatsoever and all
appurtenances and additions thereto and substitutions or replacements
thereof (together with, in each case, attachments, components, parts
and accessories) currently owned or subsequently acquired by Grantor
and now or subsequently attached to, or contained in or used or usable
in any way in connection with any operation or letting of, the Real
Estate, including but without limiting the generality of the foregoing,
all screens, awnings, shades, blinds, curtains, draperies, artwork,
carpets, rugs, storm doors and windows, furniture and furnishings,
heating, electrical, and mechanical equipment, lighting, switchboards,
plumbing, ventilating, air conditioning and air-cooling apparatus,
refrigerating, and incinerating equipment, escalators, elevators,
loading and unloading equipment and systems, stoves, ranges, laundry
equipment, cleaning systems (including window cleaning apparatus),
telephones, communication systems (including satellite dishes and
antennae), televisions, computers, sprinkler systems and other fire
prevention and extinguishing apparatus and materials, security systems,
motors, engines, machinery, pipes, pumps, tanks, conduits, appliances,
fittings and fixtures of every kind and description (all of the
foregoing in this Section (D) being referred to as the "Equipment");
(E) all right, title and interest of Grantor in and to all
substitutes and replacements of, and all additions and improvements to,
the Real Estate and the Equipment, subsequently acquired by or released
to Grantor or constructed, assembled or placed by Grantor on the Real
Estate, immediately upon such acquisition, release, construction,
assembling or placement, including, without limitation, any and all
building materials whether stored at the Real Estate or offsite, and,
in each such case, without any further mortgage, conveyance, assignment
or other act by Grantor;
(F) all right, title and interest (but not the obligations) of
Grantor in, to and under all leases, subleases, underlettings,
concession agreements, management agreements, licenses and other
agreements relating to the use or occupancy of the Real Estate or the
Equipment or any part thereof, now existing or subsequently entered
into by Grantor and whether written or oral and all guarantees of any
of the foregoing (collectively, as any of the foregoing may be amended,
restated, extended,
3
<PAGE> 9
renewed or modified from time to time, the "Leases"), and all rights of
Grantor now existing or hereafter arising in respect of cash and
securities deposited thereunder and the right to receive and collect
the revenues, income, rents, issues and profits thereof, together with
all other rents, royalties, issues, profits, revenue, income and other
benefits arising from the use and enjoyment of the Trust Property (as
defined below) (collectively, the "Rents");
(G) all trade names, trademarks, logos, copyrights, goodwill
and books and records relating to or used in connection with the
operation of the Real Estate or the Equipment or any part thereof; and
all general intangibles related to the operation of the Improvements
now existing or hereafter arising;
(H) all unearned premiums under insurance policies now
existing or subsequently obtained by Grantor relating to the Real
Estate or Equipment and Grantor's interest in and to all proceeds of
any such insurance policies (including title insurance policies)
including the right to collect and receive such proceeds, subject to
the provisions relating to insurance generally set forth below; and all
awards and other compensation, including the interest payable thereon
and the right to collect and receive the same, made to the present or
any subsequent owner of the Real Estate or Equipment for the taking by
eminent domain, condemnation or otherwise, of all or any part of the
Real Estate or any easement or other right therein;
(I) all right, title and interest (but not the obligations) of
Grantor now existing or hereafter arising in and to (i) all contracts
from time to time executed by Grantor or any manager or agent on its
behalf relating to the ownership, construction, maintenance, repair,
operation, occupancy, sale or financing of the Real Estate or the
Equipment or any part thereof and all agreements relating to the
purchase or lease of any portion of the Real Estate or the Equipment or
any property which is adjacent or peripheral to the Real Estate,
together with the right to exercise any options relating to the Real
Estate, the Equipment or any such property and all leases of Equipment,
(ii) all consents, licenses, building permits, certificates of
occupancy and other governmental approvals relating to construction,
completion, occupancy, use or operation of the Real Estate or any part
thereof and (iii) all drawings, plans, specifications and similar or
related items relating to the Real Estate (collectively, as the
foregoing may be amended, restated, extended, renewed or modified from
time to time, the "Contracts");
(J) any and all monies now or subsequently on deposit for the
payment of real estate taxes or special assessments against the Real
Estate or for the payment of premiums on insurance policies covering
the foregoing property or otherwise on deposit with or held by Trustee
as provided in this Deed Of Trust; all capital, operating, reserve or
similar accounts held by or on behalf of Grantor and related to the
operation of the Trust Property, whether now existing or hereafter
arising, and all monies held in any of the foregoing accounts and any
certificates or instruments related to or evidencing such accounts;
(K) (i) all accounts and revenues now existing or hereafter
arising for rental of space in the Improvements or any other facility
on the Trust Property whether or not yet earned by performance and (ii)
all rights to payment from any consumer credit-charge card organization
or entity, including those now existing or hereafter created,
substitutions therefor, proceeds thereof (whether cash or non-cash,
movable or immovable, tangible or intangible) received upon the sale,
exchange, transfer, collection or other disposition or substitution
thereof and any and all of the foregoing and proceeds therefrom; and
4
<PAGE> 10
(L) all proceeds, both cash and noncash, of the foregoing.
All of the foregoing property and rights and interests now owned or
held or subsequently acquired by Grantor and described in the foregoing clauses
(A) through (E) are collectively referred to as the "Premises", and those
described in the foregoing clauses (A) through (L) are collectively referred to
as the "Trust Property". Notwithstanding the foregoing, the Trust Property shall
not include (i) motor vehicles of Grantor consisting of all cars, trucks,
trailers, construction and earth moving equipment and other vehicles covered by
a certificate of title law of any state and all tires and other appurtenances to
any of the foregoing; (ii) [ DEFINITION OF "BANK COLLATERAL" TO BE ADDED]; (iii)
any Excluded Assets, Excluded Securities or Intercompany Indebtedness [FOR
COLORADO ADD: "; AND (IV) CERTAIN MOTOR VEHICLES AND MOBILE EQUIPMENT OF GRANTOR
AS MORE PARTICULARLY DESCRIBED ON SCHEDULE C ATTACHED HERETO AND MADE A PART
HEREOF"].
All of the Trust Property hereinabove described, real, personal and
mixed, whether affixed or annexed to the Real Estate or not and all rights
hereby conveyed and mortgaged are intended so to be as a unit and are hereby
understood, agreed and declared, to the maximum extent permitted by law, to form
a part and parcel of the Real Estate and to be appropriated to the use of the
Real Estate, and shall be for the purposes of this Deed Of Trust deemed to be
real estate and conveyed and mortgaged hereby; provided, however, as to any of
the property aforesaid which does not so form a part and parcel of the Real
Estate or does not constitute a "fixture" (as defined in the Uniform Commercial
Code or other similar law of the State in which the Premises are located (the
"Code")), this Deed Of Trust is hereby deemed to also be a Security Agreement
under the Code for purposes of granting a security interest in such property,
which Grantor hereby grants to Beneficiary, as Secured Party (as defined in the
Code), as more particularly provided below in this Deed Of Trust.
TO HAVE AND TO HOLD the Trust Property and the rights and privileges
hereby mortgaged and conveyed, together with the right to retain possession of
the Trust Property after an Event of Default (as defined below), unto Trustee,
its successors and assigns for the uses and purposes set forth, until the
Obligations are fully paid and performed.
Terms and Conditions
Grantor further represents and warrants to, and covenants and agrees
with, Trustee and Beneficiary as follows:
1. Warranty of Title. Grantor warrants that Grantor has good title to
the Real Estate in fee simple and good title to the rest of the Trust Property,
subject only to the Permitted Liens. [FOR OREGON, ADD "GRANTOR ALSO WARRANTS
THAT GRANTOR HAS GOOD TITLE TO THE LEASEHOLD ESTATE AND LEASEHOLD INTEREST OF
GRANTOR IN THE LEASED REAL ESTATE UNDER AND FOR THE TERM OF YEARS SET FORTH IN
THE MORTGAGED LEASE, SUBJECT ONLY TO THE PERMITTED LIENS.] Grantor shall
warrant, defend and preserve such title and the Lien of this Deed Of Trust
thereon against all claims of all persons and entities. Grantor further warrants
that it has the right to mortgage and convey the Trust Property.
2. Payment and Performance of Obligations. Grantor shall pay the
Obligations at the times and places and in the manner specified in [NOTE: FOR
COLORADO, ADD "THE CF & I NOTE AND"] the Indenture and shall perform all the
Obligations [NOTE: FOR COLORADO, ADD "AS SPECIFIED IN THE CF & I NOTE AND THE
INDENTURE"].
3. Requirements. (a) Grantor shall promptly comply with, or cause to be
complied with, and conform to all present and future laws, statutes, codes,
ordinances, orders, judgments, decrees, rules,
5
<PAGE> 11
regulations and requirements, of each of the United States of America, any State
and any municipality, local government or other political subdivision thereof
and any agency, department, bureau, board, commission or other instrumentality
of any of them, now existing or subsequently created (collectively,
"Governmental Authority") which has jurisdiction over the Trust Property and all
covenants, restrictions and conditions now or later of record which may be
applicable to any of the Trust Property, or to the use, manner of use,
occupancy, possession, operation, maintenance, alteration, repair or
reconstruction of any of the Trust Property. All present and future laws,
statutes, codes, ordinances, orders, judgments, decrees, rules, regulations and
requirements of every Governmental Authority applicable to Grantor or to any of
the Trust Property and all covenants, restrictions, and conditions which now or
later may be applicable to any of the Trust Property are collectively referred
to as the "Legal Requirements".
(b) From and after the date of this Deed Of Trust, Grantor shall not by
act or omission permit any building or other improvement on any premises not
subject to the Lien of this Deed Of Trust to rely on the Premises or any part
thereof or any interest therein to fulfill any Legal Requirement, and Grantor
hereby assigns to Trustee any and all rights to give consent for all or any
portion of the Premises or any interest therein to be so used. Grantor shall not
by act or omission impair the integrity of any of the Real Estate as one or more
legal zoning lots separate and apart from all other premises not owned by
Grantor. Grantor represents that each parcel of the Real Estate constitutes a
legally subdivided lot, in compliance with all subdivision laws and similar
Legal Requirements. Any act or omission by Grantor which would result in a
violation of any of the provisions of this subsection shall be void.
(c) Grantor shall have the right to contest by appropriate legal
proceedings diligently conducted in good faith, without cost or expense to
Beneficiary, the validity or application of any Legal Requirement and to suspend
compliance therewith if permitted under the applicable Legal Requirement,
provided (i) failure to comply therewith shall not subject Beneficiary to any
civil or criminal liability, (ii) such contest shall not (A) subject the Trust
Property to any Lien on the Trust Property the enforcement of which is not
suspended during the prosecution of such contest, (B) affect the priority of the
Lien of this Deed Of Trust, (C) affect the ownership, use or occupancy of the
Trust Property, or (D) subject the Trust Property or any part thereof or any
interest therein to any danger of being sold, forfeited or lost by reason of
such contest by Grantor, (iii) Grantor shall furnish a good and sufficient bond
or surety or otherwise make provision for payment thereof in the amount
necessary to comply with the Legal Requirement, plus any interest, penalty, loss
or injury by reason of such contest or non-compliance with such Legal
Requirement, and (iv) upon a final determination of such proceeding, Grantor
shall take all steps necessary to comply with any requirements arising
therefrom.
4. Payment of Taxes and Other Impositions. (a) Promptly when due,
Grantor shall pay and discharge, or shall cause to be paid and discharged, all
taxes of every kind and nature (including, without limitation, all real and
personal property, income, franchise, withholding, transfer, gains, profits and
gross receipts taxes), all charges for any easement or agreement maintained for
the benefit of any of the Trust Property, all general and special assessments,
levies, permits, inspection and license fees, all water and sewer rents and
charges and all other public charges even if unforeseen or extraordinary,
imposed upon or assessed against or which may become a lien on any of the Trust
Property, or arising in respect of the occupancy, use or possession thereof,
together with any penalties or interest on any of the foregoing (all of the
foregoing are collectively referred to as the "Impositions"). Upon request by
Beneficiary, Grantor shall deliver to Beneficiary (i) original or copies of
receipted bills and cancelled checks evidencing payment of such Imposition if it
is a real estate tax or other public charge and (ii) evidence acceptable to
Beneficiary showing the payment of any other such Imposition. If by law any
Imposition, at Grantor's option, may be paid in installments (whether or not
interest shall accrue on the unpaid balance of such Imposition), Grantor may
elect to pay such Imposition in such installments and shall be responsible for
the payment of such installments with interest, if any.
6
<PAGE> 12
(b) Nothing herein shall affect any right of Beneficiary under this
Deed Of Trust or otherwise, without notice or demand to Grantor, to pay any
Imposition after the date such Imposition shall have become due unless Grantor
shall contest such Imposition in accordance with subsection 4(d) below and
Grantor shall have given prior written notice of such contest as required
thereby, and to add to the Obligations the amount so paid, together with
interest (to the maximum extent permitted by law) from the time of payment at
the rate then borne by the Securities. Any sums paid by Beneficiary in discharge
of any Impositions shall be (i) a Lien on the Premises secured hereby prior to
any right or title to, interest in, or claim upon the Premises subordinate to
the Lien of this Deed Of Trust, and (ii) payable on demand by Grantor to
Beneficiary together with interest (to the maximum extent permitted by law) at
the rate then borne by the Securities.
(c) Grantor shall not claim, demand or be entitled to receive any
credit or credits toward the satisfaction of this Deed Of Trust or on any
interest payable thereon for any taxes assessed against the Trust Property or
any part thereof, and shall not claim any deduction from the taxable value of
the Trust Property by reason of this Deed Of Trust.
(d) Grantor shall have the right before any delinquency occurs to
contest or object to the amount or validity of any Imposition by appropriate
legal proceedings diligently conducted in good faith, without cost or expense to
Beneficiary, but such right shall not be deemed or construed in any way as
relieving, modifying, or extending Grantor's covenant to pay any such Imposition
at the time and in the manner provided in this Section unless (i) Grantor has
given prior written notice to Beneficiary of Grantor's intent so to contest or
object to an Imposition, (ii) the legal proceedings shall operate conclusively
to prevent the sale of the Trust Property, or any part thereof, to satisfy such
Imposition prior to final determination of such proceedings, (iii) Grantor shall
furnish a good and sufficient bond or surety or otherwise make adequate
provision for the payment thereof in the amount of the Impositions which are
being contested plus any interest and penalty which may be imposed thereon and
which could become a Lien against the Real Estate or any part of the Trust
Property, and (iv) any such Lien shall be a Permitted Lien.
(e) Upon written notice to Grantor, Beneficiary after an Event of
Default shall be entitled to require Grantor to pay monthly in advance to
Beneficiary the equivalent of 1/12th of the estimated annual Impositions.
Beneficiary may commingle such funds with its own funds and Grantor shall not be
entitled to interest thereon.
5. Insurance.
(a) Grantor shall maintain or cause to be maintained on all of the
Premises:
(i) property insurance against loss or damage by fire, lightning,
windstorm, tornado, water damage, flood, earthquake and by such other
further risks and hazards as now are or subsequently may be covered by
an "all risks" policy or a fire policy covering "special" causes of
loss;
(ii) comprehensive general liability insurance under a policy
covering all claims for personal injury, bodily injury or death, or
property damage occurring on, in or about the Premises with respect to
injury and property damage in such amounts as would be maintained by a
prudent owner and operator of property similar in use and configuration
to the Premises;
(iii) insurance against rent loss, extra expense or business
interruption (and/or soft costs, in the case of new construction), if
applicable, in such amounts as would be maintained by a prudent owner
and operator of property similar in use and configuration to the
Premises, but not less than one year's gross rent or gross income;
7
<PAGE> 13
(iv) during the course of any construction, alteration or repair of
Improvements:
(A) comprehensive general liability insurance. The
policy shall include coverage for independent contractors and
completed operations. The completed operations coverage shall
stay in effect for two years after construction of any
Improvements has been completed. The policy shall provide
coverage on an occurrence basis against claims for personal
injury, including, without limitation, bodily injury, death or
property damage occurring on, in or about the Premises and the
adjoining streets, sidewalks and passageways, such insurance
to afford protection with respect to personal injury, bodily
injury or death to any one or more persons or damage to
property in such amounts as would be maintained by a prudent
owner and operator of property similar in use and
configuration to the Premises;
(B) workers' compensation insurance (including
employer's liability insurance) for all employees of Grantor
engaged on or with respect to the Premises in such amounts as
required by law;
(C) builder's risk completed value form insurance
against "all risks of physical loss," including collapse,
water damage, flood and earthquake and transit coverage,
during construction or repairs of the Improvements, in
nonreporting form, covering the total value of work performed
and equipment, supplies and materials furnished (with an
appropriate limit for soft costs in the case of construction),
with deductibles in such amounts as would be maintained by a
prudent owner and operator of property similar in use and
configuration to the Premises;
(v) boiler and machinery property insurance covering pressure
vessels, air tanks, boilers, machinery, pressure piping, heating, air
conditioning and elevator equipment and escalator equipment, provided
the Improvements contain equipment of such nature, and insurance
against rent, extra expense, business interruption and soft costs, if
applicable, arising from any such breakdown, all such insurance to be
in such amounts as would be maintained by a prudent owner and operator
of property similar in use and configuration to the Premises;
(vi) if any portion of the Premises are located in an area
identified as a special flood hazard area by the Federal Emergency
Management Agency or other applicable agency, flood insurance in such
amounts as would be maintained by a prudent owner and operator of
property similar in use and configuration to the Premises, but in no
event less than the maximum limit of coverage available under the
National Flood Insurance Act of 1968, as amended; and
(vii) such other insurance in such amounts as would be maintained by
a prudent owner and operator of property similar in use and
configuration to the Premises.
Each insurance policy (other than flood insurance written under the
National Flood Insurance Act of 1968, as amended, in which case to the extent
available) shall (i) provide that it shall not be cancelled, non-renewed or
materially amended without 30 days' prior written notice to Beneficiary, and
(ii) with respect to all property insurance, provide for deductibles in such
amounts as would be maintained by a prudent owner and operator of property
similar in use and configuration to the Premises, contain a "Replacement Cost
Endorsement" without any deduction made for depreciation and with no
co-insurance penalty (or attaching an agreed amount endorsement), with loss
payable solely to Beneficiary (modified, if necessary, to provide that proceeds
in the amount of replacement cost may be retained by Beneficiary without the
obligation to rebuild) as its interest may appear, without contribution, under a
"standard" or "New York", mortgagee clause and be written by financially sound
and reputable insurance companies. Liability insurance policies shall name
Trustee
8
<PAGE> 14
and Beneficiary as additional insureds and contain a waiver of subrogation
against Trustee and Beneficiary; all such policies shall indemnify and hold
Trustee and Beneficiary harmless from all liability claims occurring on, in or
about the Premises and the adjoining streets, sidewalks and passageways.
Notwithstanding the foregoing provision, Grantor shall have no obligation to
indemnify Beneficiary or Trustee for liabilities, claims or damages which result
directly from Beneficiary's or Trustee's or their respective agents' or
employees' willful misconduct or gross negligence or which arise from acts,
omissions or occurrences first occurring after title to the Trust Property is
conveyed to Beneficiary through foreclosure or delivery of a deed in lieu
thereof. Each policy shall expressly provide that any proceeds which are payable
to Beneficiary shall be paid by check payable to the order of Beneficiary only
and requiring the endorsement of Beneficiary only. If any required insurance
shall expire, be withdrawn, become void by breach of any condition thereof by
Grantor or by any lessee of any part of the Trust Property or become void or
unsafe by reason of the failure or impairment of the capital of any insurer,
Grantor shall immediately obtain new or additional insurance complying with the
terms of this Deed Of Trust. Grantor shall not take out any separate or
additional insurance which is contributing in the event of loss unless it is
properly endorsed to Beneficiary and it complies with the terms of this Deed Of
Trust.
(b) Grantor shall deliver to Trustee and Beneficiary a copy of each
insurance policy required to be maintained, or a copy of a certificate of such
insurance, together with a copy of the declaration page for each such policy.
Grantor shall (i) pay as they become due all premiums for such insurance, (ii)
not later than 30 days prior to the expiration of each policy, obtain and
deliver a renewed policy or policies, or duplicate original or originals
thereof, marked "premium paid," or accompanied by other evidence of payment with
standard non-contributory mortgagee clauses in favor of Beneficiary. Within 30
days of the end of each calendar year, Grantor shall cause its insurance
underwriter or broker to certify to Trustee and Beneficiary in writing that all
the requirements of this Deed Of Trust governing insurance have been satisfied.
(c) If Grantor is in default of its obligations to insure or deliver
any such prepaid policy or policies, then Beneficiary, at its option and without
notice, may effect such insurance from year to year, and pay the premium or
premiums therefor, and Grantor shall pay to Beneficiary on demand such premium
or premiums so paid by Beneficiary with interest (to the fullest extent
permitted by law) from the time of payment at the rate then borne by the
Securities and the same shall be deemed to be secured by this Deed Of Trust and
shall be collectible in the same manner as the Obligations secured by this Deed
Of Trust.
(d) Grantor promptly shall comply with and conform to (i) all
provisions of each such insurance policy, and (ii) all requirements of the
insurers applicable to Grantor or to any of the Trust Property or to the use,
manner of use, occupancy, possession, operation, maintenance, alteration or
repair of any of the Trust Property. Grantor shall not use or permit the use of
the Trust Property in any manner which would permit any insurer to cancel any
insurance policy or void coverage required to be maintained by this Deed Of
Trust.
(e) If the Trust Property, or any part thereof, shall be destroyed or
damaged by fire or any other casualty, whether insured or uninsured, or in the
event any claim is made against Grantor for any personal injury, bodily injury
or property damage incurred on or about the Premises, Grantor shall give
immediate notice thereof to Trustee and Beneficiary. If the Trust Property is
damaged by fire or other casualty, Grantor authorizes and empowers Beneficiary,
at Beneficiary's option and in its sole discretion (but without any obligation
to do so), as attorney-in-fact for Grantor, to make proof of loss, to adjust and
compromise any claim under any insurance policy, to appear in and prosecute any
action arising from any policy, to collect and receive insurance proceeds and to
deduct therefrom expenses incurred in the collection process. Each insurance
company concerned is hereby authorized and directed to make payment for such
loss directly to Beneficiary. Beneficiary shall have the right (but not the
obligation) to require Grantor to repair or restore the Trust Property, and
Grantor hereby designates Beneficiary as its attorney-in-fact for the purpose of
making any election (which election Beneficiary shall not be obligated to make)
required or permitted under any insurance policy relating to repair or
restoration. The insurance proceeds or any part thereof received by Beneficiary
shall
9
<PAGE> 15
constitute Trust Moneys which shall be deposited in the Collateral Account
(except as otherwise provided in the Intercreditor Agreement) and applied in
accordance with the Indenture.
(f) In the event of foreclosure or exercise of the power of sale of
this Deed Of Trust or other transfer of title to the Trust Property, all right,
title and interest of Grantor in and to any insurance policies then in force
shall pass to the purchaser or grantee and Grantor hereby appoints Beneficiary
its attorney-in-fact, in Grantor's name, to assign and transfer all such
policies and proceeds to such purchaser or grantee.
(g) Upon written notice to Grantor, Beneficiary after an Event of
Default shall be entitled to require Grantor to pay monthly in advance to
Beneficiary the equivalent of 1/12th of the estimated annual premiums due on
such insurance. Beneficiary may commingle such funds with its own funds and
Grantor shall not be entitled to interest thereon.
(h) Grantor may maintain insurance required under this Deed Of Trust by
means of one or more blanket insurance policies maintained by Grantor; provided,
however, that (i) any such policy shall specify the maximum amount of the total
insurance afforded by such blanket policy that is allocated to the Premises and
the other Trust Property and any sublimits in such blanket policy applicable to
the Premises and the other Trust Property, (ii) each such blanket policy shall
include an endorsement providing that, in the event of a loss resulting from an
insured peril, insurance proceeds shall be allocated to the Trust Property in an
amount equal to the coverages required to be maintained by Grantor as provided
above and (iii) the protection afforded under any such blanket policy shall be
no less than that which would have been afforded under a separate policy or
policies relating only to the Trust Property.
6. Restrictions on Liens, Encumbrances, Sales and Transfers. Except for
the Lien of this Deed Of Trust, and other Permitted Liens, Grantor shall not
create or suffer to exist any Lien on the Trust Property, or any part thereof,
whether superior or subordinate to the Lien of this Deed Of Trust and whether
recourse or non-recourse. Furthermore, except as may be permitted by the
Indenture, Grantor shall not sell, transfer, convey or assign all or any portion
of, or any interest in, the Trust Property.
7. Relationship of Beneficiary, Trustee and Grantor; Grantor Remains
Liable Under Contracts and Leases. (a) Neither Beneficiary nor Trustee shall in
any event be construed for any purpose to be a partner, joint venturer, agent or
associate of Grantor or of any beneficiary, tenant, subtenant, operator,
concessionaire or licensee of Grantor in the conduct of their respective
businesses. Without limiting the foregoing, neither Beneficiary nor Trustee
shall be deemed to be such partner, joint venturer, agent or associate on
account of Trustee or Beneficiary becoming a mortgagee in possession or
exercising any rights pursuant to the Indenture, this Deed Of Trust, any of the
other Security Documents, the Intercreditor Agreement, any other document or
instrument, applicable law, or otherwise.
(b) Notwithstanding anything to the contrary herein, Grantor shall
remain liable under each of the Contracts and Leases to observe and perform all
the conditions and obligations to be observed and performed by Grantor
thereunder, all in accordance with the terms and provisions of each Contract and
Lease. Nothing set forth herein shall relieve Grantor from the performance of
any term, covenant, condition or agreement on Grantor's part to be performed or
observed under or in respect of any Contract or Lease or from any liability to
any person under or in respect of any Contract or Lease. Neither Beneficiary nor
Trustee nor any Holder shall have any obligation or liability under any Contract
or Lease by reason of or arising out of this Deed Of Trust or the receipt by
Beneficiary or any such Holder of any payment relating to such Contract or Lease
pursuant hereto. Neither Beneficiary nor Trustee nor any Holder shall be
obligated in any manner to perform any of the obligations of Grantor under or
pursuant to any Contract or Lease, to make any payment, to make any inquiry as
to the nature or the sufficiency of any payment received by it or as to the
sufficiency of any performance by any party under any Contract or Lease, to
present or file any claim, to take any action to enforce any
10
<PAGE> 16
performance or to collect the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.
8. Maintenance; No Alteration; Inspection; Utilities. (a) Grantor shall
maintain or cause to be maintained all the Improvements in good condition and
repair and shall not commit or suffer any waste of the Improvements. Grantor
shall repair, restore, replace or rebuild promptly any part of the Premises
which may be damaged or destroyed by any casualty whatsoever. The Improvements
shall not be demolished or materially altered, except as permitted by the
Indenture.
(b) Trustee and Beneficiary and any persons authorized by either of
them shall have the right to enter and inspect the Premises and the right to
inspect all work done, labor performed and materials furnished in and about the
Improvements and the right to inspect and make copies of all books, contracts
and records of Grantor relating to the Trust Property.
(c) Grantor shall pay or cause to be paid when due all utility charges
which are incurred for gas, electricity, water or sewer services furnished to
the Premises and all other assessments or charges of a similar nature, whether
public or private, affecting the Premises or any portion thereof, whether or not
such assessments or charges are liens thereon.
9. Condemnation/Eminent Domain. Immediately upon obtaining knowledge of
the institution of any proceedings for the condemnation of the Trust Property,
or any portion thereof, Grantor will notify Trustee and Beneficiary of the
pendency of such proceedings. Grantor authorizes and empowers Beneficiary, at
Beneficiary's option and in Beneficiary's sole discretion (but without any
obligation to do so), as attorney-in-fact for Grantor, to commence, appear in
and prosecute, in Beneficiary's or Grantor's name, any action or proceeding
relating to any condemnation of the Trust Property, or any portion thereof, to
settle or compromise any claim in connection with such condemnation, and to
collect and receive the condemnation award and to deduct therefrom the expenses
incurred in the collection process. If Beneficiary elects not to participate in
such condemnation proceeding, then Grantor shall, at its expense, diligently
prosecute any such proceeding. All awards and proceeds of condemnation shall be
and hereby are assigned to Beneficiary as provided above, and Grantor agrees to
execute any such assignments of all such awards as Beneficiary may request. The
awards and proceeds of condemnation or any part thereof received by Beneficiary
shall constitute Trust Moneys which shall be deposited into the Collateral
Account and applied in accordance with the Indenture.
10. Leases. (a) Grantor shall not (i) execute an assignment or pledge
of any Lease relating to all or any portion of the Trust Property other than in
favor of Trustee and Beneficiary, or (ii) with respect to any Lease, accept any
payment of rent more than 30 days in advance of its due date.
(b) Grantor shall not enter into any Lease of any of the Trust Property
or other agreement or arrangement subsequent to the date hereof with any person
which would (i) involve property that is necessary for Grantor's steel making
operations, plate rolling operations, rail, rod, wire and bar making operations
or any other finishing or related operations of Grantor, or otherwise interfere
in any material respect with the ordinary conduct of the business of Grantor or
(ii) have a material adverse effect on the value or utility of the property
subject thereto. Grantor shall not amend, modify, renew, extend, terminate,
cancel, or accept the surrender of a Lease unless the foregoing action is (i) in
the ordinary conduct of the business of Grantor, (ii) for a reasonable business
purpose of Grantor and (iii) would not have an adverse effect on the value or
utility of the Trust Property or the Lien of this Deed Of Trust thereon.
(c) As to any Lease, Grantor shall:
11
<PAGE> 17
(i) perform all of the material provisions of the Lease on the
part of the lessor thereunder to be performed such that there will be
no material impairment of the value of the Trust Property;
(ii) not engage in any conduct in respect of any Lease which would
materially impair the value of the Trust Property or impair the Lien of
this Deed Of Trust thereon;
(iii) exercise, within five days after a request by Beneficiary,
any right to request from the lessee a certificate with respect to the
status thereof;
(iv) promptly deliver to Beneficiary copies of any notices of
default which Grantor may at any time forward to or receive from the
lessee; and
(v) promptly deliver to Beneficiary, upon its request, a fully
executed counterpart of the Lease.
(d) Grantor shall deliver to Beneficiary, within ten days after a
request by Beneficiary, an Officers' Certificate containing the names of all
lessees and other occupants of the Trust Property, the terms of all Leases and
the spaces occupied and rentals payable thereunder, and a list of all Leases
which are then in default, including the nature and magnitude of the default;
such statement shall be accompanied by credit information with respect to the
lessees and such other information as Beneficiary may reasonably request.
(e) All Leases entered into by Grantor after the date hereof, if any,
and all rights of any lessees thereunder shall be subject and subordinate in all
respects to the Lien and provisions of this Deed Of Trust.
(f) In the event of the enforcement by Trustee or Beneficiary of any
remedy under this Deed Of Trust, the lessee under each Lease shall, if requested
by Beneficiary or any other person succeeding to the interest of Grantor as a
result of such enforcement, attorn to such person and shall recognize such
successor in interest as lessor under the Lease without change in the provisions
thereof; provided, however, that such successor in interest shall not be: (i)
bound by any payment of an installment of rent or additional rent which may have
been made more than 30 days before the due date of such installment; (ii) liable
for any previous act or omission of Grantor (or its predecessors in interest);
(iii) responsible for any monies owing by Grantor to the credit of such lessee
or subject to any credits, offsets, claims, counterclaims, demands or defenses
which the lessee may have against Grantor (or its predecessors in interest);
(iv) bound by any covenant to undertake or complete any construction of the
Premises or any portion thereof; or (v) obligated to make any payment to such
lessee other than any security deposit actually delivered to such successor in
interest. Each lessee or other occupant, upon request by Beneficiary or such
successor in interest, shall execute and deliver an instrument or instruments
confirming such attornment. In addition, Grantor agrees that each Lease entered
into after the date of this Deed Of Trust shall include language to the effect
of subsections (e) and (f) of this Section; provided that (to the fullest extent
permitted by law) the provisions of such subsections shall be self-operative and
any failure of any Lease to include such language shall not impair the binding
effect of such provisions on any lessee under such Lease.
11. Further Assurances/Estoppel Certificates. To further assure
Trustee's and Beneficiary's rights under this Deed Of Trust, Grantor agrees upon
demand of Trustee or Beneficiary to do any act or execute any additional
documents (including, but not limited to, security agreements on any personalty
included or to be included in the Trust Property and a separate assignment of
each Lease in recordable form) as may be required by Trustee or Beneficiary to
confirm the Lien of this Deed Of Trust and all other rights or benefits
conferred on Trustee and Beneficiary. Grantor, within five business days after
request, shall deliver, in form and substance satisfactory to Beneficiary, a
written statement, duly acknowledged, setting forth the amount of the
Obligations, and whether any offsets, claims, counterclaims or defenses exist
against the Obligations and certifying as to such other matters as Beneficiary
shall reasonably request.
12
<PAGE> 18
12. Trustee's and Beneficiary's Right to Perform. If Grantor fails to
perform any of the covenants or agreements of Grantor herein, then Trustee or
Beneficiary, without waiving or releasing Grantor from any obligation or default
under this Deed Of Trust, may, at any time (but shall be under no obligation to)
pay or perform the same, and the amount or cost thereof, with interest (to the
fullest extent permitted by law) at the rate then borne by the Securities, shall
immediately be due from Grantor to Trustee or Beneficiary and the same shall be
secured by this Deed Of Trust and shall be a Lien on the Trust Property prior to
any right, title to, interest in or claim upon the Trust Property attaching
subsequent to the Lien of this Deed Of Trust. No payment or advance of money by
Trustee or Beneficiary under this Section shall be deemed or construed to cure
Grantor's default or waive any right or remedy of Trustee or Beneficiary.
13. Hazardous Material. (a) Grantor represents and warrants to the best
of Grantor's knowledge, that (i) the operations of Grantor are in material
compliance in all material respects with all applicable Hazardous Material Laws
(hereinafter defined), (ii) Grantor has obtained all material permits and
licenses for ownership, operation and maintenance of its business on the Trust
Property and occupancy of the Trust Property as required by any Hazardous
Material Law, (iii) Grantor is in material compliance with all such permits as
they relate to the Trust Property and Grantor's occupancy, operations and
business thereon, and (iv) Grantor is in material compliance with all civil and
administrative orders of any Governmental Authority relating to Hazardous
Materials (hereinafter defined) at or under the Trust Property.
(b) Grantor agrees to comply in all material respects with any
applicable requirements under any Hazardous Material Law and all civil, criminal
or administrative orders relating to the manufacture, generation, handling,
release, discharge, removal and disposal of Hazardous Material on, under or from
the Trust Property (except as provided in subsection 13(f) below) ; the
foregoing compliance shall include but shall not be limited to Grantor paying
the costs of remediation of any Hazardous Material present at, on, or under the
Trust Property as required pursuant to applicable Hazardous Material Law, and
Grantor keeping the Trust Property free of any Lien imposed pursuant to any
Hazardous Material Law (other than Permitted Liens). In the event Grantor fails
to comply with the foregoing covenants, after written notice to Grantor and the
expiration of the cure period permitted under the applicable Hazardous Law,
Beneficiary may (but shall not be obligated to) pay or perform the covenant or
remove any Hazardous Material from the Trust Property and the amount or cost
thereof with interest (to the fullest extent permitted by law) at the rate then
borne by the Securities shall immediately be due from Grantor to Beneficiary and
the same shall be added to the Obligations and be secured by this Deed Of Trust.
(i) After written notice to Grantor, which shall include a reasonably specific
statement of the condition of the Trust Property that Beneficiary reasonably
believes is not in compliance with the foregoing covenants (but Beneficiary
shall have no obligation to give such notice), or (ii) after the occurrence and
during the continuance of an Event of Default, Beneficiary shall have the right
to conduct an environmental audit of the Trust Property at Grantor's expense, at
such times and under such conditions as Beneficiary shall reasonably determine
in the circumstances, and Grantor shall cooperate in the conduct of such
environmental audit. Grantor shall give Beneficiary and its agents and employees
access to Grantor's books and records (except for any attorney-client privileged
documents) and to the Trust Property to remove Hazardous Material which is
present at, on or under the Trust Property in material violation of any
Hazardous Material Law or to permit Beneficiary to comply with all Hazardous
Material Laws.
(c) Grantor agrees to defend, indemnify and hold Trustee and
Beneficiary free and harmless from and against any and all loss, costs, damage
and expense (including attorneys' fees and costs and consequential damages)
Trustee or Beneficiary may sustain by reason of (i) the imposition or recording
of a Lien on the Trust Property by any Governmental Authority pursuant to any
Hazardous Material Law; (ii) claims of any person asserted against Trustee or
Beneficiary regarding Grantor's violation of applicable Hazardous Material Laws
at or on the Trust Property; (iii) costs and expenses (including, without
limitation, attorneys' fees and fees incidental to the securing of repayment of
such costs and expenses) incurred by Trustee or Beneficiary in connection with
the removal of any such Lien or in connection with Trustee's or Beneficiary's or
Grantor's
13
<PAGE> 19
compliance with any Hazardous Material Law at the Trust Property; and (iv) the
assertion against Trustee or Beneficiary by any person of any claim in
connection with any Hazardous Material at, on or under the Trust Property.
Notwithstanding the foregoing provision, Grantor shall have no obligation to
indemnify Beneficiary or Trustee for liabilities, claims or damages which result
directly from Beneficiary's or Trustee's or their respective agents' or
employees' willful misconduct or gross negligence or which arise from acts,
omissions or occurrences first occurring after title to the Trust Property is
conveyed to Beneficiary through foreclosure or delivery of a deed in lieu
thereof.
(d) The foregoing indemnification shall be a recourse
obligation of Grantor and shall survive repayment of the Obligations,
notwithstanding any limitations on recourse which may be contained herein or in
any Security Documents or the delivery of any satisfaction, release or release
deed, discharge or deed of reconveyance, or the assignment of this Deed Of Trust
by Trustee or Beneficiary.
(e) For the purpose of this Deed Of Trust, "Hazardous
Material" means and includes any hazardous, dangerous or toxic material defined
as such in (or for purposes of) any Hazardous Material Law now or hereafter in
effect or enacted. For purposes of this Deed Of Trust, "Hazardous Material Laws"
shall include but not be limited to the Resource Conservation and Recovery Act,
the Comprehensive Environmental Response, Compensation and Liability Act, as
amended, the Toxic Substances Control Act, the Federal Water Pollution Control
Act, the Clean Air Act, and any similar federal, state, local or municipal laws,
rules, statutes and regulations of any Governmental Authority concerning
pollution, the environment or protection of human health, as such laws have been
or may hereafter be amended, and as now or hereafter in effect or enacted.
(f) Grantor shall have the right to contest by appropriate
action or legal proceedings diligently conducted in good faith, without cost or
expense to Beneficiary, the validity or application of any Hazardous Material
Law, or orders or demands to investigate or remove Hazardous Material from the
Trust Property of any Governmental Authority or private person, or the
necessity, scope, or procedures of such investigation or removal, and to suspend
compliance therewith if permitted under the applicable Hazardous Material Law,
provided (i) Grantor shall give written notice to Beneficiary of Grantor's
intent to so contest a Hazardous Material Law, (ii) failure to comply therewith
shall not subject Beneficiary or Trustee to any civil or criminal liability,
(iii) Grantor shall deliver to Beneficiary an Officers' Certificate and, as to
the matters set forth in clauses (A), (B) and (C) below, an Opinion of Counsel
to the effect that such contest shall not (A) subject the Trust Property to any
Lien on the Trust Property the enforcement of which is not suspended during the
prosecution of such contest, (B) affect the priority of the Lien of this Deed Of
Trust, (C) affect the ownership, use or occupancy of the Trust Property, or (D)
subject the Trust Property or any part thereof or any interest therein to any
danger of being sold, forfeited or lost by reason of such contest by Grantor,
(iv) Grantor shall furnish a bond or surety, or set aside on its books reserves
if and to the extent required by GAAP, in the amount necessary to comply with
the Hazardous Material Law, plus any interest, penalty, loss or injury by reason
of such contest or non-compliance with such Hazardous Material Law, and (v) upon
a final determination of such proceeding, Grantor shall take all reasonable
steps necessary to comply with any requirements arising therefrom.
14. Asbestos. Grantor shall not install or permit to be installed in
the Trust Property friable asbestos ("Asbestos") or any substance containing
asbestos and defined as hazardous, dangerous or toxic by any Hazardous Material
Law ("ACM"). If any Asbestos is currently present in the Trust Property Grantor
shall promptly, at Grantor's discretion and expense, remove, contain or maintain
it in accordance with applicable Hazardous Material Law. Grantor shall comply
with all Hazardous Material Laws applicable to removal or maintenance of any
ACM. If Grantor shall fail to comply with the foregoing covenants of this
Section 14 within the period allowed under this Deed Of Trust, Beneficiary may
(but shall not be obligated to) do whatever is reasonably necessary to remove,
contain or maintain the Asbestos or ACM, following written notice to Grantor and
expiration of 30 days after such written notice, and the costs thereof, with
interest (to the fullest
14
<PAGE> 20
extent permitted by law) at the rate then borne by the Securities, shall be
immediately due from Grantor to Trustee or Beneficiary and the same shall be
added to the Obligations and be secured by this Deed Of Trust. Grantor shall,
upon receipt of written notice, give Beneficiary and its agents and employees
access to the books and records of Grantor (except attorney-client privileged
documents) and to the Trust Property to remove, contain or maintain the Asbestos
or ACM or to permit Beneficiary to comply with all Hazardous Material Laws.
Grantor shall defend, indemnify, and save Trustee and Beneficiary harmless from
all loss, costs, damages and expense (including attorneys' fees and costs and
consequential damages) asserted or proven against Trustee or Beneficiary by any
party, as a result of the presence or removal of Asbestos or ACM or compliance
with any Hazardous Material Law. Notwithstanding the foregoing provision,
Grantor shall have no obligation to indemnify Beneficiary or Trustee for
liabilities, claims or damages which result directly from Beneficiary's or
Trustee's or their respective agents' or employees' willful misconduct or gross
negligence or which arise from acts, omissions or occurrences first occurring
after title to the Trust Property is conveyed to Beneficiary through foreclosure
or delivery of a deed in lieu thereof. The foregoing indemnification shall be a
recourse obligation of Grantor and shall survive repayment of the Obligations,
notwithstanding any limitation on recourse which may be contained herein or in
any of the Security Documents or the delivery of any satisfaction, release or
release deed, discharge or deed of reconveyance, or the assignment of this Deed
Of Trust by Trustee or Beneficiary.
15. Events of Default. The term "Event of Default" means the occurrence
of any "Event of Default" as defined in the Indenture.
16. Remedies. (a) If any Event of Default shall have occurred and be
continuing, in addition to any other rights and remedies Beneficiary may have
pursuant to the Indenture or the other Security Documents, or as provided by
law, and without limitation, Beneficiary may declare the Obligations to be
immediately due and payable. In addition, if any Event of Default shall have
occurred and be continuing, Trustee or Beneficiary may immediately take such
lawful action, without notice or demand, as it deems advisable to protect and
enforce its rights against Grantor and in and to the Trust Property, including,
but not limited to, the following actions, each of which may be pursued
concurrently or otherwise, at such time and in such manner as Trustee or
Beneficiary may determine, in its sole discretion, without impairing or
otherwise affecting the other rights and remedies of Trustee or Beneficiary:
(i) (A) institute and maintain an action of mortgage foreclosure
against all or any part of the Trust Property, (B) institute and
maintain an action on the Obligations, (C) sell all or part of the
Trust Property (Grantor expressly granting to Trustee the power of
sale), or (D) take such other action at law or in equity for the
enforcement of this Deed Of Trust or any of the Security Documents as
the law may allow. Trustee or Beneficiary may proceed in any such
action to final judgment and execution thereon for all sums due
hereunder, together with interest thereon (to the fullest extent
permitted by law) at the rate then borne by the Securities and all
costs of suit, including, without limitation, reasonable attorneys'
fees and disbursements. Interest at the rate then borne by the
Securities shall be due (to the fullest extent permitted by law) on any
judgment obtained by Trustee or Beneficiary from the date of judgment
until actual payment is made of the full amount of the judgment.
(ii) Trustee or Beneficiary may each personally, or by its agents,
attorneys and employees and without regard to the adequacy or
inadequacy of the Trust Property or any other collateral serving as
security for the Obligations, enter into and upon the Trust Property
and each and every part thereof and exclude Grantor and its agents and
employees therefrom without liability for trespass, damage or otherwise
(Grantor hereby agreeing to surrender possession of the Trust Property
to Trustee or Beneficiary, as the case may be, upon demand of either of
them at any such time) and use, operate, manage, maintain and control
the Trust Property and every part thereof. Following such entry and
taking of possession, Trustee or Beneficiary shall be entitled, without
limitation, (x) to lease all or any
15
<PAGE> 21
part or parts of the Trust Property for such periods of time and upon
such conditions as Trustee or Beneficiary may, in its discretion, deem
proper, (y) to exercise Grantor's rights as lessor to enforce, cancel
or modify any Lease and (z) generally to execute, do and perform any
other act, deed, matter or thing concerning the Trust Property as
Trustee or Beneficiary shall deem appropriate as fully as Grantor might
do.
(iii) Trustee and Beneficiary shall have the right to institute
partial foreclosure proceedings with respect to the portion of the
Obligations in default, as if under a full foreclosure, and without
declaring the entire secured Obligations due (such proceeding being
hereinafter referred to as a "partial foreclosure"), and provided that
if a partial foreclosure sale is consummated as provided herein, such
sale may be made subject to the continuing Lien of this Deed Of Trust
for the unmatured portion of the secured Obligations, but as to such
unmatured part, this Deed Of Trust, and the Lien hereof, shall remain
in full force and effect just as though no partial foreclosure sale had
been made under the provisions of this Section. Notwithstanding the
filing of any partial foreclosure or entry of a decree of sale therein,
Trustee and Beneficiary may elect at any time prior to a partial
foreclosure sale pursuant to such decree, to discontinue such partial
foreclosure and to accelerate the Obligations secured hereby by reason
of any Event of Default upon which such partial foreclosure was
predicated or by reason of any other Events of Default, and proceed
with full foreclosure proceedings. It is further agreed that one or
more foreclosure sales may be made pursuant to partial foreclosures
without exhausting the right of full or partial foreclosure sale for
any unmatured part of the secured Obligations, it being the purpose to
provide for a partial foreclosure sale of the Obligations secured
hereby without exhausting the power to foreclose for any other part of
the Obligations whether matured at the time or subsequently maturing,
and without exhausting any right of acceleration and full foreclosure.
(iv) Trustee, at the request of Beneficiary, shall have the power to
sell the Trust Property or any part thereof at public auction, in such
manner, at such time and place, upon such terms and conditions, and
upon such public notice as Beneficiary may deem best for the interest
of Beneficiary, and as may be required or permitted by applicable law,
consisting of advertisement in a newspaper of general circulation in
the jurisdiction and for such period as applicable law may require and
at such other times and by such other methods, if any, as may be
required by law to convey the Trust Property in fee simple by trustee's
deed as provided by applicable law to and at the cost of the purchaser,
who shall not be liable to see to the application of the purchase
money. The proceeds or avails of any sale made under or by virtue of
this Section, together with any other sums which then may be held by
Beneficiary under this Deed Of Trust, whether under the provisions of
this Section or otherwise, shall be applied as follows subject to
applicable law:
First: To the payment of the third-party costs and expenses
reasonably incurred in connection with any such sale and to
advances, fees and expenses, including, without limitation,
reasonable fees and expenses of Beneficiary's and Trustee's
legal counsel as applicable, and of any judicial proceedings
wherein the same may be made, and of all expenses, liabilities
and advances reasonably made or incurred by Beneficiary or
Trustee under this Deed Of Trust, together with interest (to
the fullest extent permitted by law) as provided herein on all
such advances made by Beneficiary, and all Impositions, except
any Impositions or other charges subject to which the Trust
Property shall have been sold;
Second: To the payment of the Obligations in accordance with
the Indenture; and
Third: The surplus, if any, to Grantor or to any person
entitled thereto.
16
<PAGE> 22
Beneficiary and any receiver or custodian of the Trust Property or any
part thereof shall be liable to account for only those rents, issues,
proceeds and profits actually received by it. Beneficiary and Trustee,
as applicable, may adjourn from time to time any sale by it to be made
under or by virtue of this Deed Of Trust by announcement at the time
and place appointed for such sale or for such adjourned sale or sales
and, except as otherwise provided by any applicable law, Beneficiary or
Trustee, without further notice or publication, may make such sale at
the time and place to which the same shall be so adjourned. Upon the
completion of any sale or sales ordered by Beneficiary and made by
Trustee under or by virtue of this Section, Beneficiary or Trustee, or
any officer of any court empowered to do so, shall execute and deliver
to the accepted purchaser or purchasers a good and sufficient
instrument, or good and sufficient instruments, granting, conveying,
assigning and transferring all estate, right, title and interest in and
to the property and rights sold. Trustee is hereby irrevocably
appointed the true and lawful attorney-in-fact of Grantor (coupled with
an interest), in its name and stead, to make all necessary conveyances,
assignments, transfers and deliveries of the property and rights so
sold and for that purpose Trustee may execute all necessary instruments
of conveyance, assignment, transfer and delivery, and may substitute
one or more persons with like power, Grantor hereby ratifying and
confirming all that its said attorney-in-fact or such substitute or
substitutes shall lawfully do by virtue hereof. Nevertheless, Grantor,
if so requested by Trustee or Beneficiary, shall ratify and confirm any
such sale or sales by executing and delivering to Beneficiary, or to
such purchaser or purchasers, all such instruments as may be advisable,
in the sole judgment of Beneficiary, for such purpose, and as may be
designated in such request. Any such sale or sales made under or by
virtue of this Section, whether made under the power of sale herein
granted or under or by virtue of judicial proceedings or a judgment or
decree of foreclosure and sale, shall operate to divest all the estate,
right, title, interest, claim and demand whatsoever, whether at law or
in equity of Grantor in and to the property and rights so sold, and
shall, to the fullest extent permitted under law, be a perpetual bar
both at law and in equity against Grantor and against any and all
persons claiming or who may claim the same, or any part thereof, from,
through or under Grantor.
(b) In case of a foreclosure sale or exercise of the power of sale, the
Real Estate may be sold, at Beneficiary's election, in one parcel or in more
than one parcel. Beneficiary is specifically empowered (without being required
to do so, and in its sole and absolute discretion) to cause successive sales of
portions of the Trust Property to be held by Trustee.
(c) In the event of any breach of any of the covenants, agreements,
terms or conditions contained in this Deed Of Trust, Beneficiary shall be
entitled to enjoin such breach and obtain specific performance of any covenant,
agreement, term or condition and Beneficiary shall have the right to invoke any
equitable right or remedy as though other remedies were not provided for in this
Deed Of Trust.
(d) Nothing herein shall in any way limit the provisions of Section
6.02 of the Indenture, including the power of Beneficiary or the Holders to
declare the principal of, premium, if any, and interest on the Securities to be
due and payable.
17. Right of Beneficiary to Credit Sale. Upon the occurrence of any
sale made under this Deed Of Trust, whether made under the power of sale or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale, Beneficiary may bid for and acquire the Trust Property or any part
thereof. In lieu of paying cash therefor, Beneficiary may make settlement for
the purchase price by crediting upon the Obligations or other sums secured by
this Deed Of Trust the net sales price after deducting therefrom the expenses of
sale and the cost of the action and any other sums which Trustee is authorized
to deduct under this Deed Of Trust. In such event, this Deed Of Trust, and
documents evidencing expenditures secured hereby may be presented to the person
or persons conducting the sale in order that the amount so used or applied may
be credited upon the Obligations as having been paid.
17
<PAGE> 23
18. Appointment of Receiver. If an Event of Default occurs and is
continuing, Trustee or Beneficiary as a matter of right and without notice to
Grantor, unless otherwise required by applicable law, and without regard to the
adequacy or inadequacy of the Trust Property or any other collateral as security
for the Obligations or the interest of Grantor therein, shall have the right to
apply to any court having jurisdiction to appoint a receiver or receivers or
other manager of the Trust Property, and Grantor hereby irrevocably consents to
such appointment and waives notice of any application therefor (except as may be
required by law). Any such receiver or receivers shall have all the usual powers
and duties of receivers in like or similar cases and all the powers and duties
of Trustee in case of entry as provided in this Deed Of Trust, including,
without limitation and to the extent permitted by law, the right to enter into
Leases of all or any part of the Trust Property, and shall continue as such and
exercise all such powers until the date of confirmation of sale of the Trust
Property unless such receivership is sooner terminated.
19. Extension, Release, etc. (a) Without affecting the Lien of this
Deed Of Trust upon any portion of the Trust Property not then or theretofore
released as security for the full amount of the Obligations, Beneficiary may,
from time to time and without notice, agree (but only to the extent permitted by
the terms of the Indenture) to (i) release any person liable for the
Obligations, (ii) extend the maturity or alter any of the terms of the
Obligations or any guarantee thereof, (iii) grant other indulgences, (iv)
release or reconvey, or cause to be released or reconveyed, at any time at
Beneficiary's option any parcel, portion or all of the Trust Property, (v) take
or release any other or additional security for any Obligation, or (vi) make
compositions or other arrangements with debtors in relation thereto. If at any
time this Deed Of Trust shall secure less than all of the principal amount of
the Obligations, it is expressly agreed that any repayments of the principal
amount of the Obligations shall not reduce the amount of the Lien of this Deed
Of Trust until the lien amount shall equal the principal amount of the
Obligations outstanding.
(b) No recovery of any judgment by Beneficiary and no levy of an
execution under any judgment upon the Trust Property or upon any other property
of Grantor shall affect the Lien of this Deed Of Trust or any liens, rights,
powers or remedies of Beneficiary hereunder, and such liens, rights, powers and
remedies shall continue unimpaired.
(c) If Trustee or Beneficiary shall have the right to foreclose this
Deed Of Trust, Grantor authorizes Trustee or Beneficiary at its option to
foreclose the Lien of this Deed Of Trust subject to the rights of any tenants of
the Trust Property. The failure to make any such tenants parties defendant to
any such foreclosure proceeding and to foreclose their rights will not (to the
fullest extent permitted by law) be asserted by Grantor as a defense to any
proceeding instituted by Trustee to collect the Obligations or to foreclose the
Lien of this Deed Of Trust.
(d) Unless expressly provided otherwise, in the event that ownership of
this Deed Of Trust and title to the Trust Property or any estate therein shall
become vested in the same person or entity, this Deed Of Trust shall not merge
in such title but shall continue as a valid Lien on the Trust Property for the
amount secured hereby.
20. Security Agreement under Uniform Commercial Code. (a) It is the
intention of the parties hereto that this Deed Of Trust shall constitute a
Security Agreement within the meaning of the Code. If an Event of Default shall
occur and shall be continuing, then in addition to having any other right or
remedy available at law or in equity, Beneficiary shall have the option of
either (i) proceeding under the Code and exercising such rights and remedies as
may be provided to a secured party by the Code with respect to all or any
portion of the Trust Property which is personal property (including, without
limitation, taking possession of and selling such property) or (ii) treating
such property as real property and proceeding with respect to both the real and
personal property constituting the Trust Property in accordance with
Beneficiary's rights, powers and remedies with respect to the real property (in
which event the default provisions of the Code shall not apply). If
18
<PAGE> 24
Beneficiary shall elect to proceed under the Code, then ten days' notice of sale
of the personal property shall be deemed reasonable notice and the reasonable
expenses of retaking, holding, preparing for sale, selling and the like incurred
by Trustee or Beneficiary shall include, but not be limited to, attorneys' fees
and legal expenses. At Trustee's or Beneficiary's request, Grantor shall
assemble the personal property and make it available to Trustee and Beneficiary
at a place designated by Trustee or Beneficiary which is reasonably convenient
to all parties.
(b) Grantor and Beneficiary agree, to the extent permitted by law,
that: (i) all of the goods described within the definition of the word
"Equipment" are or are to become fixtures on the Real Estate; (ii) this Deed Of
Trust upon recording or registration in the real estate records of the proper
office shall constitute a financing statement filed as a "fixture filing" within
the meaning of Sections 9-313 and 9-402 of the Code; (iii) Grantor is the record
owner of the Real Estate; and (iv) the addresses of Grantor and Beneficiary are
as set forth on the first page of this Deed Of Trust.
(c) Grantor, upon request by Trustee or Beneficiary from time to time,
shall execute, acknowledge and deliver to Trustee and Beneficiary one or more
separate security agreements, in form satisfactory to Trustee and Beneficiary,
covering all or any part of the Trust Property and Grantor will further execute,
acknowledge and deliver, or cause to be executed, acknowledged and delivered,
any financing statement, affidavit, continuation statement or certificate or
other document in order to perfect, preserve, maintain, continue the perfection
of or extend the security interest under and the priority of this Deed Of Trust
and such security instrument. Grantor further agrees to pay to Trustee or
Beneficiary on demand all costs and expenses incurred by Trustee or Beneficiary
in connection with the preparation, execution, recording, filing and re-filing
of any such document and all reasonable costs and expenses of any record
searches for financing or continuation statements Trustee or Beneficiary shall
reasonably require. Grantor shall from time to time, on request of Trustee or
Beneficiary, deliver to Trustee and Beneficiary an inventory in reasonable
detail of any of the Trust Property which constitutes personal property. If
Grantor shall fail to furnish any financing or continuation statement within 10
days after request, then pursuant to the provisions of the Code, Grantor hereby
authorizes Trustee or Beneficiary, without the signature of Grantor, to execute
and file any such financing and continuation statements. The filing of any
financing or continuation statements in the records relating to personal
property or chattels shall not be construed as in any way impairing the right of
Trustee or Beneficiary to proceed against any personal property encumbered by
this Deed Of Trust as real property, as set forth above.
21. Assignment of Rents. Grantor hereby assigns to Beneficiary the
Rents as further security for the payment of the Obligations and performance of
the Obligations. Grantor grants to Beneficiary the right to enter the Trust
Property for the purpose of collecting the same and to let the Trust Property or
any part thereof, and to apply the Rents on account of the Obligations. The
foregoing assignment and grant is present and absolute and shall continue in
effect until the Obligations are paid in full, but Trustee and Beneficiary
hereby waive the right to enter the Trust Property for the purpose of collecting
the Rents and Grantor shall be entitled to collect, receive, use and retain the
Rents except upon the occurrence and during the continuance of an Event of
Default; such right of Grantor to collect, receive, use and retain the Rents may
be revoked by Beneficiary upon the occurrence and during the continuance of any
Event of Default by giving written notice of such revocation to Grantor; in the
event such notice is given, Grantor shall pay over to Beneficiary, or to any
receiver appointed to collect the Rents, any lease security deposits, and shall
pay monthly in advance to Beneficiary, or to any such receiver, the fair and
reasonable rental value as determined by Beneficiary for the use and occupancy
of the Trust Property or of such part thereof as may be in the possession of
Grantor or any affiliate of Grantor, and upon default in any such payment
Grantor and any such affiliate will vacate and surrender the possession of the
Trust Property to Trustee or Beneficiary or to such receiver, and in default
thereof may be evicted by summary proceedings or otherwise. Grantor shall not
accept prepayments of installments of Rent to become due for a period of more
than 30 days in advance (except for security deposits and estimated payments of
percentage rent, if any).
19
<PAGE> 25
22. Trust Funds. All lease security deposits of the Real Estate shall
be treated as trust funds not to be commingled with any other funds of Grantor.
Within 10 days after request by Beneficiary, Grantor shall furnish Beneficiary
satisfactory evidence of compliance with this subsection, together with a
statement of all lease security deposits by lessees and copies of all Leases not
previously delivered to Beneficiary, which statement shall be certified by an
Officers' Certificate of Grantor.
23. Additional Rights. Subordinate Liens on the Trust Property shall
only be permitted to the extent permitted by the Indenture and this Deed Of
Trust. The holder of any subordinate Lien on the Trust Property shall have no
right to terminate any Lease whether or not such Lease is subordinate to this
Deed Of Trust nor shall any holder of any subordinate Lien join any tenant under
any Lease in any action to foreclose the lien or modify, interfere with, disturb
or terminate the rights of any tenant under any Lease. By recordation of this
Deed Of Trust all holders of a subordinate Lien are subject to and notified of
this provision, and any action taken by any holder of such Lien contrary to this
provision shall be null and void. Upon the occurrence of any Event of Default,
Beneficiary may, in its sole discretion and without regard to the adequacy of
its security under this Deed Of Trust, apply all or any part of any amounts on
deposit with Trustee or Beneficiary under this Deed Of Trust against all or any
part of the Obligations. Any such application shall not be construed to cure or
waive any Event of Default or invalidate any act taken by Trustee or Beneficiary
on account of such Event of Default. This Section shall not be deemed to be
consent by Trustee or Beneficiary to any subordinated Lien.
24. Changes in Method of Taxation. In the event of the passage after
the date hereof of any law of any Governmental Authority deducting from the
value of the Premises for the purposes of taxation any lien thereon, or changing
in any way the laws for the taxation of mortgages or deeds of trust or debts
secured thereby for federal, state or local purposes, or the manner of
collection of any such taxes, and imposing a tax, either directly or indirectly,
on mortgages or deeds of trust or debts secured thereby, Grantor shall assume as
an Obligation hereunder the payment of any tax so imposed and pay such tax in
full.
25. Notices. All notices, requests, demands and other communications
hereunder shall be given in the manner provided in the Indenture, and if sent to
Trustee, to the address set forth on the first page of this Deed Of Trust.
26. No Oral Modification. This Deed Of Trust may not be changed or
terminated orally. Any agreement made by Grantor and Beneficiary after the date
of this Deed Of Trust relating to this Deed Of Trust shall be superior to the
rights of the holder of any intervening or subordinate lien or encumbrance.
27. Partial Invalidity; Limitation on Interest. (a) In the event any
one or more of the provisions contained in this Deed Of Trust shall for any
reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof, but each shall be construed as if such invalid, illegal or unenforceable
provision had never been included.
(b) It is the intention of the parties to conform strictly to the usury
laws, whether state or federal, that are applicable to the transaction of which
this Deed Of Trust is a part. All agreements between Grantor and Beneficiary,
whether now existing or hereafter arising and whether oral or written, are
hereby expressly limited so that in no contingency or event whatsoever shall the
amount paid or agreed to be paid by Grantor for the use, forbearance or
detention of the money to be loaned or advanced under [NOTE: FOR COLORADO, ADD
"THE CF&I NOTE,"] the Indenture, the Securities, the Guarantees, this Deed Of
Trust, any other Security Document, the Intercreditor Agreement or any other
agreement or instrument relating thereto, or for the payment or performance of
any covenant or obligation contained herein or therein, exceed the maximum
amount permissible under applicable federal or state usury laws. If under any
circumstances whatsoever fulfillment of any such provision, at the time
performance of such provision shall be due, shall involve exceeding the limit of
validity
20
<PAGE> 26
prescribed by law, then the obligation to be fulfilled shall be reduced to the
limit of such validity. If under any circumstances Grantor shall have paid an
amount deemed interest by applicable law, which would exceed the highest lawful
rate, such amount that would be excessive interest under applicable usury laws
shall be applied to the reduction of the principal amount owing in respect of
the Obligations and not to the payment of interest, or if such excessive
interest exceeds the unpaid balance of principal and any other amounts due
thereunder, the excess shall be refunded to Grantor. All sums paid or agreed to
be paid for the use, forbearance or detention of the principal under any
extension of credit or advancement of funds by Beneficiary or any Holder shall,
to the extent permitted by applicable law, and to the extent necessary to
preclude exceeding the limit of validity prescribed by law, be amortized,
prorated, allocated and spread from the date of this Deed Of Trust until payment
in full of the Obligations so that the actual rate of interest on account of
such principal amounts is uniform throughout the term hereof.
28. Waiver of Right of Redemption and Other Rights. (a) Grantor hereby
voluntarily and knowingly releases and waives any and all rights to retain
possession of the Trust Property after the occurrence of an Event of Default and
any and all rights of redemption from sale under any order or decree of
foreclosure (whether full or partial), pursuant to any statutory or common law
or right, on its own behalf, on behalf of all persons claiming or having an
interest (direct or indirectly) by, through or under Grantor and on behalf of
each and every person acquiring any interest in the Trust Property subsequent to
the date hereof, it being the intent hereof that any and all such rights of
redemption of Grantor and all such other persons are and shall be deemed to be
hereby waived to the fullest extent permitted by applicable law. Grantor shall
not invoke or utilize any such law or laws or otherwise hinder, delay, or impede
the execution of any right, power, or remedy herein or otherwise granted or
delegated to Beneficiary or Trustee, but shall permit the execution of every
such right, power, and remedy as though no such law or laws had been made or
enacted.
(b) To the fullest extent permitted by law, Grantor waives the benefit
of all laws now existing or that may subsequently be enacted providing for (i)
any appraisement before sale of any portion of the Trust Property, (ii) any
extension of the time for the enforcement of the collection of the Obligations
or the creation or extension of a period of redemption from any sale made in
collecting the Obligations and (iii) exemption of the Trust Property from
attachment, levy or sale under execution or exemption from civil process. To the
fullest extent Grantor may lawfully do so, Grantor agrees that Grantor will not
at any time insist upon, plead, claim or take the benefit or advantage of any
law now or hereafter in force providing for any appraisement, valuation, stay,
exemption, extension or redemption, or requiring foreclosure of this Deed Of
Trust before exercising any other remedy granted hereunder and Grantor, for
Grantor and its successors and assigns, and for any and all persons ever
claiming any interest in the Trust Property, to the extent permitted by law,
hereby waives and releases all rights of redemption, valuation, appraisement,
stay of execution, notice of election to mature or declare due the Obligations
and marshalling in the event of foreclosure of the liens hereby created.
29. Remedies Not Exclusive. Trustee and Beneficiary shall be entitled
to enforce payment of the Obligations and performance of the Obligations and to
exercise all rights and powers under the Indenture or this Deed Of Trust or
under any of the other Security Documents or other agreement or any laws now or
hereafter in force, notwithstanding some or all of the Obligations may now or
hereafter be otherwise secured, whether by mortgage, security agreement, pledge,
lien, assignment or otherwise. Neither the acceptance of this Deed Of Trust nor
its enforcement, shall prejudice or in any manner affect Trustee's and
Beneficiary's right to realize upon or enforce any other security now or
hereafter held by Trustee or Beneficiary, it being agreed that Trustee and
Beneficiary shall be entitled to enforce this Deed Of Trust and any other
security now or hereafter held by Trustee or Beneficiary in such order and
manner as Trustee or Beneficiary may determine in its absolute discretion. To
the extent permitted by law, no remedy herein conferred upon or reserved is
intended to be exclusive of any other remedy herein, in the Indenture or in any
other Security Document or by law provided or permitted, but each shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute. To the extent permitted
by law, every power or remedy
21
<PAGE> 27
given by this Deed Of Trust, the Indenture or any of the other Security
Documents to Trustee or Beneficiary or to which it may otherwise be entitled,
may be exercised, concurrently or independently, from time to time and as often
as may be deemed expedient by Trustee or Beneficiary. In no event shall Trustee
or Beneficiary, in the exercise of the remedies provided in this Deed Of Trust
(including, without limitation, in connection with the assignment of Rents, or
the appointment of a receiver and the entry of such receiver onto all or any
part of the Trust Property), be deemed a "mortgagee in possession," and Trustee
and Beneficiary shall not in any way be made liable for any act, either of
commission or omission, in connection with the exercise of such remedies.
30. Multiple Security. If (a) the Premises shall consist of one or more
parcels, whether or not contiguous and whether or not located in the same
county, or (b) in addition to this Deed Of Trust, Trustee or Beneficiary shall
now or hereafter hold one or more additional mortgages, liens, deeds of trust or
other security (directly or indirectly) for the Obligations upon other property
in the State in which the Premises are located (whether or not such property is
owned by Grantor or by others) or (c) both the circumstances described in
clauses (a) and (b) shall be true, then to the fullest extent permitted by law,
Trustee or Beneficiary may, at its election, commence or consolidate in a single
foreclosure action all foreclosure proceedings against all such collateral
securing the Obligations (including the Trust Property), which action may be
brought or consolidated in the courts of any county in which any of such
collateral is located. Grantor acknowledges that the right to maintain a
consolidated foreclosure action is a specific inducement to Beneficiary, and
Grantor expressly and irrevocably waives any objections to the commencement or
consolidation of the foreclosure proceedings in a single action and any
objections to the laying of venue or based on the grounds of forum non
conveniens which it may now or hereafter have. Grantor further agrees that if
Trustee or Beneficiary shall be prosecuting one or more foreclosure or other
proceedings against a portion of the Trust Property or against any Collateral
other than the Trust Property, which Collateral directly or indirectly secures
the Obligations, the Securities or the Guarantees, or if Trustee or Beneficiary
shall have obtained a judgment of foreclosure and sale or similar judgment
against such other Collateral, then, whether or not such proceedings are being
maintained or judgments were obtained in or outside the state in which the
Premises are located, Trustee or Beneficiary may commence or continue
foreclosure proceedings and exercise the power of sale or its other remedies
granted in this Deed Of Trust against all or any part of the Trust Property and
Grantor waives any objections to the commencement or continuation of a
foreclosure of this Deed Of Trust or exercise of the power of sale or any other
remedies hereunder based on such other proceedings or judgments, and waives any
right to seek to dismiss, stay, remove, transfer or consolidate either any
action under this Deed Of Trust or such other proceedings on such basis. Neither
the commencement nor continuation of proceedings to foreclose this Deed Of Trust
nor the exercise of the power of sale or any other rights hereunder nor the
recovery of any judgment by Beneficiary or Trustee in any such proceedings shall
prejudice, limit or preclude Beneficiary's or Trustee's right to commence or
continue one or more foreclosure proceedings or exercise of the power of sale or
other proceedings or obtain a judgment against any other Collateral (either in
or outside the State in which the Premises are located) which directly or
indirectly secures the Obligations, the Securities or the Guarantees, and
Grantor expressly waives any objections to the commencement of, continuation of,
or entry of a judgment in such other proceedings or exercise of the power of
sale or any remedies in such proceedings based upon any action or judgment
connected to this Deed Of Trust, and Grantor also waives any right to seek to
dismiss, stay, remove, transfer or consolidate either such other proceedings or
any action under this Deed Of Trust on such basis. It is expressly understood
and agreed that to the fullest extent permitted by law, Trustee or Beneficiary
may, at its election, cause the sale of all Collateral which is the subject of a
single foreclosure action at either a single sale or at multiple sales conducted
simultaneously and take such other measures as are appropriate in order to
effect the agreement of the parties to dispose of and administer all Collateral
securing the Obligations, the Securities or the Guarantees (directly or
indirectly) in the most economical and least time-consuming manner.
31. Expenses; Indemnification. (a) Grantor shall pay or reimburse
Trustee and Beneficiary for all expenses incurred by Trustee or Beneficiary
before and after the date of this Deed Of Trust with respect to any
22
<PAGE> 28
and all transactions contemplated by this Deed Of Trust including without
limitation, the preparation of any document reasonably required hereunder or any
amendment, modification, restatement or supplement to this Deed Of Trust, the
delivery of any consent, non-disturbance agreement or similar document in
connection with this Deed Of Trust or the enforcement of any of Trustee's or
Beneficiary's rights hereunder. Such expenses shall include, without limitation,
all title and conveyancing charges, recording and filing fees and taxes,
mortgage taxes, intangible personal property taxes, escrow fees, revenue and tax
stamp expenses, insurance premiums (including title insurance premiums), title
search and title rundown charges, brokerage commissions, finders' fees,
placement fees, court costs, surveyors', photographers', appraisers',
architects', engineers', consulting professionals', accountants' and attorneys'
fees and disbursements. All such expenses and other amounts together with
interest (to the fullest extent permitted by law) at the rate then borne by the
Securities shall be a Lien on the Trust Property, prior to any right or title
to, interest in or claim upon the Trust Property attaching or accruing
subsequent to the Lien of this Deed Of Trust, and shall be deemed to be secured
by this Deed Of Trust. Grantor acknowledges that from time to time Grantor may
receive statements for such expenses and interest, including without limitation
attorneys' fees and disbursements. Grantor shall pay such statements promptly
upon receipt.
(b) If (i) any action or proceeding shall be commenced by Trustee or
Beneficiary (including but not limited to any action to foreclose this Deed Of
Trust or exercise the power of sale or to collect the Obligations), or any
action or proceeding is commenced to which Trustee or Beneficiary is made a
party, or in which it becomes necessary to defend or uphold the Lien of this
Deed Of Trust (including, without limitation, any proceeding or other action
relating to the bankruptcy, insolvency or reorganization of Grantor), or in
which Trustee or Beneficiary is served with any legal process, discovery notice
or subpoena and (ii) in each of the foregoing instances such action or
proceeding in any manner relates to or arises out of this Deed Of Trust or any
of the Obligations or any of the transactions contemplated by this Deed Of
Trust, then Grantor will immediately reimburse or pay to Trustee or Beneficiary
all of the expenses which have been or may be incurred by Trustee or Beneficiary
with respect to the foregoing (including counsel fees and disbursements),
together with interest (to the fullest extent permitted by law) at the rate then
borne by the Securities, and any such sum and the interest thereon shall be a
Lien on the Trust Property, prior to any right or title to, interest in or claim
upon the Trust Property attaching or accruing subsequent to the Lien of this
Deed Of Trust, and shall be deemed to be secured by this Deed Of Trust. In any
action or proceeding to foreclose this Deed Of Trust or exercise the power of
sale, or to recover or collect the Obligations, the provisions of law respecting
the recovering of costs, disbursements and allowances shall prevail unaffected
by this covenant.
(c) Grantor shall indemnify and hold harmless Beneficiary and Trustee,
and their respective directors, officers, agents and employees and affiliates
from and against any and all claims, damages, losses and liabilities and
expenses (including, without limitation, attorneys' fees and expenses) arising
out of or based upon any matter related to this Deed Of Trust, the Trust
Property or the occupancy, ownership, maintenance or management of the Trust
Property by Grantor, including, without limitation, any claims based on the
alleged acts or omissions of any employee or agent of Grantor. The amounts of
such claims, damages, losses, liabilities and expenses (including, without
limitation attorneys' fees and expenses) together with interest (to the fullest
extent permitted by law) at the rate then borne by the Securities shall be a
Lien on the Trust Property, prior to any right or title to, interest in or claim
upon the Trust Property attaching or accruing subsequent to the Lien of this
Deed Of Trust, and shall be deemed to be secured by this Deed Of Trust. This
indemnification shall be in addition to any other liability which Grantor may
otherwise have to Beneficiary and Trustee. Notwithstanding the foregoing
provision, Grantor shall have no obligation to indemnify Beneficiary or Trustee
for liabilities, claims or damages which result directly from Beneficiary's or
Trustee's or their respective agents' or employees' willful misconduct or gross
negligence or which arise from acts, omissions or occurrences first occurring
after title to the Trust Property is conveyed to Beneficiary through foreclosure
or delivery of a deed in lieu thereof.
23
<PAGE> 29
32. Successors and Assigns. All covenants of Grantor contained in this
Deed Of Trust are imposed solely and exclusively for the benefit of Beneficiary
and Trustee and their respective successors and assigns, and for the benefit of
the Holders from time to time of the Securities, and no other person or entity
shall have standing to require compliance with such covenants or be deemed,
under any circumstances, to be a beneficiary of such covenants, any or all of
which may be freely waived in whole or in part by Beneficiary at any time if in
its sole discretion it deems such waiver advisable and such waiver is permitted
by the Indenture. All such covenants of Grantor shall run with the land and bind
Grantor, the successors and assigns of Grantor (and each of them) and all
subsequent owners, encumbrancers and tenants of the Trust Property, and shall
inure to the benefit of Beneficiary and Trustee, their respective successors and
assigns, and the Holders from time to time of the Securities. The word "Grantor"
shall be construed as if it read "Grantors" whenever the sense of this Deed Of
Trust so requires and if there shall be more than one Grantor, the obligations
of the Grantors shall be joint and several.
33. No Waivers, etc. Any failure by Beneficiary to insist upon the
strict performance by Grantor of any of the terms and provisions of this Deed Of
Trust shall not be deemed to be a waiver of any of the terms and provisions
hereof, and Beneficiary, notwithstanding any such failure, shall have the right
thereafter to insist upon the strict performance by Grantor of any and all of
the terms and provisions of this Deed Of Trust to be performed by Grantor.
34. Governing Law, etc. This Deed Of Trust shall be governed by and
construed in accordance with the laws of the State in which the Premises are
located, except that Grantor expressly acknowledges that by their terms the
Indenture, the Securities and the Guarantees shall be governed and construed in
accordance with the laws of the State of New York, without regard to principles
of conflict of law, and for purposes of consistency, Grantor agrees to the
fullest extent permitted by law that in any in personam proceeding related to
this Deed Of Trust the rights of the parties to this Deed Of Trust shall also be
governed by and construed in accordance with the laws of the State of New York
governing contracts made and to be performed in that State, without regard to
principles of conflict of law.
35. Waiver of Trial by Jury. Grantor, Beneficiary and Trustee each
hereby irrevocably and unconditionally waive, to the fullest extent permitted by
law, trial by jury in any action, claim, suit or proceeding relating to this
Deed Of Trust and for any counterclaim (other than compulsory counterclaims)
brought therein. Grantor hereby waives, to the fullest extent permitted by law,
all rights to interpose any counterclaim (other than compulsory counterclaims)
in any suit brought by Trustee or Beneficiary hereunder and all rights to have
any such suit consolidated with any separate suit, action or proceeding.
36. Certain Definitions. Unless the context clearly indicates a
contrary intent or unless otherwise specifically provided herein, words used in
this Deed Of Trust shall be used interchangeably in singular or plural form and
the word "Grantor" shall mean "each Grantor or any subsequent owner or owners of
the Trust Property or any part thereof or interest therein," the word "Trustee"
shall mean "Trustee or any successor to the Trustee under this Deed Of Trust or
pursuant to law," the word "Beneficiary" shall mean "Beneficiary or any trustee
under the Indenture as successor to Beneficiary," and the words "Trust Property"
shall include any portion of the Trust Property or interest therein. Whenever
the context may require, any pronouns used herein shall include the
corresponding masculine, feminine or neuter forms, and the singular form of
nouns and pronouns shall include the plural and vice versa. The table of
contents and captions in this Deed Of Trust are for convenience of reference
only and in no way limit or amplify the provisions hereof.
37. Release Upon Payment and Discharge of Grantor's Obligations.
Trustee and Beneficiary shall release this Deed Of Trust and the Lien hereof by
proper instrument upon payment and discharge of all Obligations secured hereby
(including payment of reasonable expenses incurred by Trustee or Beneficiary in
connection with the execution of such release) and upon full and complete
performance of all of the Obligations.
24
<PAGE> 30
38. Concerning the Trustee. (a) Certain Rights. Trustee shall be under
no duty to take any action hereunder except as expressly required hereunder or
by law, or to perform any act which would involve Trustee in any expense or
liability or to institute or defend any suit in respect hereof, unless properly
indemnified to Trustee's reasonable satisfaction. Trustee, by acceptance of this
Deed Of Trust, covenants to perform and fulfill the trusts herein created. With
the approval of Beneficiary, Trustee shall have the right to take any and all of
the following actions: (i) to select, employ, and consult with counsel (who may
be, but need not be, counsel for Beneficiary) upon any matters arising
hereunder, including the preparation, execution, and interpretation of this Deed
Of Trust, and shall be fully protected in relying as to legal matters on the
advice of counsel, (ii) to execute any of the trusts and powers hereof and to
perform any duty hereunder either directly or through its, agents or attorneys,
(iii) to select and employ, in and about the execution of its duties hereunder,
suitable accountants, engineers and other experts, agents and attorneys-in-fact,
either corporate or individual, not regularly in the employ of Trustee (and
Trustee shall not be answerable for any act, default, negligence, or misconduct
of any such accountant, engineer or other expert, agent or attorney-in-fact, if
selected with reasonable care, or for any error of judgment or act done by
Trustee in good faith, or be otherwise responsible or accountable under any
circumstances whatsoever, except for Trustee's negligence or bad faith), and
(iv) any and all other lawful action that Beneficiary may instruct Trustee to
take to protect or enforce Beneficiary's rights hereunder. Trustee shall not be
personally liable in case of entry by Trustee, or anyone entering by virtue of
the powers herein granted to Trustee, upon the Trust Property for debts
contracted for or liability or damages incurred in the management or operation
of the Trust Property. Trustee shall have the right to rely on any instrument,
document, or signature authorizing or supporting any action taken or proposed to
be taken by Trustee hereunder, believed by Trustee in good faith to be genuine.
Trustee shall be entitled to reimbursement for expenses incurred by Trustee in
the performance of Trustee's duties hereunder and to reasonable compensation for
such of Trustee's services hereunder as shall be rendered. Grantor will, from
time to time, pay the compensation due to Trustee hereunder and reimburse
Trustee for, and save Trustee harmless against, any and all liability and
expenses which may be incurred by Trustee in the performance of Trustee's
duties. Beneficiary shall have no responsibility for compensating Trustee,
reimbursing its expenses or providing it with indemnification.
(b) Retention of Money. All moneys received by Trustee shall,
until used or applied as herein provided, be held in trust for the purposes for
which they were received, and shall be segregated from any other moneys of
Trustee.
(c) Successor Trustees. Trustee may resign by the giving of
notice of such resignation in writing to Beneficiary. If Trustee shall die,
resign, or become disqualified from acting in the execution of this trust, or
if, for any reason, Beneficiary, in Beneficiary's sole discretion and with or
without cause, shall prefer to appoint a substitute trustee or multiple
substitute trustees, or successive substitute trustees or successive multiple
substitute trustees, to act instead of the aforenamed Trustee, Beneficiary shall
have full power to appoint a substitute trustee (or, if preferred, multiple
substitute trustees) in succession who shall succeed (and if multiple substitute
trustees are appointed, each of such multiple substitute trustees shall succeed)
to all the estates, rights, powers, and duties of the aforenamed Trustee. Such
appointment may be executed by any authorized agent of Beneficiary, and if such
Beneficiary be a corporation and such appointment be executed on its behalf by
any officer of such corporation, such appointment shall be conclusively presumed
to be executed with authority and shall be valid and sufficient without proof of
any action by the board of directors or any superior officer of the corporation.
Grantor hereby ratifies and confirms any and all acts which the aforenamed
Trustee, or its successor or successors in this trust, shall do lawfully by
virtue hereof. If multiple substitute trustees are appointed, each of such
multiple substitute trustees shall be empowered and authorized to act alone
without the necessity of the joinder of the other multiple substitute trustees,
whenever any action or undertaking of such substitute trustees is requested or
required under or pursuant to this Deed Of Trust or applicable law. Any prior
election to act jointly or severally shall not prevent either or both of such
multiple substitute Trustees from subsequently executing, jointly or severally,
any or all of the provisions hereof.
25
<PAGE> 31
(d) Perfection of Appointment. Should any deed, conveyance, or
instrument of any nature be required from Grantor by any Trustee or substitute
Trustee to more fully and certainly vest in and confirm to the Trustee or
substitute Trustee such estates, rights, powers, and duties, then, upon request
by the Trustee or substitute Trustee, any and all such deeds, conveyances and
instruments shall be made, executed, acknowledged, and delivered and shall be
caused to be recorded and/or filed by Grantor.
(e) Succession Instruments. Any substitute Trustee appointed
pursuant to any of the provisions hereof and applicable law shall, without any
further act, deed, or conveyance, become vested with all the estates,
properties, rights, powers, and trusts of its or his predecessor in the rights
hereunder with like effect as if originally named as Trustee herein; but
nevertheless, upon the written request of Beneficiary or of the substitute
Trustee, the Trustee ceasing to act shall execute and deliver any instrument
transferring to such substitute Trustee, upon the trusts herein expressed, all
the estates, properties, rights, powers, and trusts of the Trustee so ceasing to
act, and shall duly assign, transfer and deliver any of the property and moneys
held by such Trustee to the substitute Trustee so appointed in the Trustee's
place.
(f) No Representation by Trustee or Beneficiary. By accepting
or approving anything required to be observed, performed, or fulfilled or to be
given to Trustee or Beneficiary pursuant to this Deed Of Trust, neither Trustee
nor Beneficiary shall be deemed to have warranted, consented to, or affirmed the
sufficiency, legality, effectiveness, or legal effect of the same, or of any
term, provision, or condition thereof, and such acceptance or approval thereof
shall not be or constitute any warranty or affirmation with respect thereto by
Trustee or Beneficiary.
39. The Indenture Controls. This Deed Of Trust is made pursuant to the
Indenture and is subject to the terms of the Indenture. In the event of a
conflict between the terms of the Indenture and the terms of this Deed Of Trust,
the terms of the Indenture shall control [FOR OREGON, ADD: "EXCEPT AS PROVIDED
IN SUBSECTION 43(C) OF THIS DEED OF TRUST"].
40. Certain Matters Relating to Trust Property Located in the State of
California . With respect to the Trust Property which is located in the State of
California, notwithstanding anything contained herein to the contrary:
(a) Fixtures. Portions of the Trust Property are goods that
are or are to become fixtures relating to the Trust Property, and Grantor
covenants and agrees that the filing of this Deed Of Trust in the real estate
records of the county where the Trust Property is located shall also operate
from the time of filing as a fixture filing in accordance with Sections 9313 and
9402 of the California Uniform Commercial Code.
(b) Not Residential Property. No portion of the proceeds of
the Obligations shall be used by Grantor to purchase real property containing
four (4) or fewer residential units or on which four (4) or fewer residential
units are to be constructed.
(c) Not A Dwelling. No portion of the Trust Property is or
will be a "dwelling" within the meaning of Section 10240.1 or Section 10240.2 of
the California Business and Professions Code.
(d) Default. At any time after the occurrence and during the
continuance of an Event of Default, Beneficiary may deliver to Trustee a written
declaration of default and demand for sale, and a written notice of default and
election to cause Grantor's interest in the Trust Property or any portion
thereof to be sold, which notice Trustee or Beneficiary shall cause to be duly
filed for record in the Official Records of the County in which the Trust
Property is located.
26
<PAGE> 32
(e) Power of Sale.
(i) Should Beneficiary elect to foreclose by exercise of the
power of sale herein contained, Beneficiary shall notify Trustee and
shall deposit with Trustee this Deed Of Trust and such other documents
relating to the Obligations secured hereby as Trustee may require and
such receipts and evidence of expenditures made and secured hereby as
Trustee may require.
(ii) Upon receipt of such notice from Beneficiary, Trustee shall
cause to be recorded, published and delivered to Grantor such Notice of
Default and Election to Sell as may then be required by law and by this
Deed Of Trust. Trustee shall, without demand on Grantor, after lapse of
such time as may then be required by law and after recordation of such
Notice of Default and after Notice of Sale having been given as
required by law, sell the Trust Property at the time and place of sale
fixed by it in said Notice of Sale, either as a whole, or in separate
lots or parcels or items as Trustee shall deem expedient, and in such
order as it may determine, at public auction to the highest bidder for
cash in lawful money of the United States payable at the time of sale.
Trustee shall deliver to such purchaser or purchasers thereof its good
and sufficient deed or deeds conveying the property so sold, but
without any covenant or warranty, express or implied. The recitals in
such deed of any matters or facts shall be conclusive proof of the
truthfulness thereof. Any person, including, without limitation,
Trustee or Beneficiary, may purchase at such sale and Grantor hereby
covenants to warrant and defend the title of such purchaser or
purchasers.
(iii) After deducting all costs, fees and expenses of Trustee and
Beneficiary and of this Deed Of Trust, including costs of evidence of
title and attorneys' fees of Trustee or Beneficiary in connection with
the sale, Trustee shall apply the proceeds of sale to payment of all
sums expended under the terms hereof not then repaid, with accrued
interest (to the fullest extent permitted by law) at the rate in effect
under the Securities, all other sums then secured hereby and the
remainder, if any, to the person or persons legally entitled thereto.
(iv) Trustee may postpone the sale of all or any portion of the
Trust Property by public announcement at the time and place of such
sale, and from time to time thereafter may postpone such sale by public
announcement at the time fixed by the preceding postponement or
subsequently noticed sale, and without further notice make such sale at
the time fixed by the last postponement, or may, in its discretion,
give a new notice of sale.
(v) Grantor hereby expressly waives any right which it may have
to direct the order in which any of the Trust Property shall be sold in
the event of any sale or sales pursuant hereto.
(f) Rescission of Notice of Default. Beneficiary, from time to
time before any Trustee's sale as provided above, may rescind any Notice of
Default and Election to Sell or Notice of Sale by executing and delivering to
Trustee a written notice of such rescission, which notice, when recorded, shall
also constitute a cancellation of any prior declaration of default and demand
for sale. The exercise by Beneficiary of such right of rescission shall not
constitute a waiver of any Event of Default then existing or subsequently
occurring, or impair the right of Beneficiary to execute and deliver to Trustee,
as above provided, other declarations or notices of default or demand for sale
of the Trust Property to satisfy the Obligations secured hereby, and shall not
otherwise affect any provision, covenant or condition of this Deed Of Trust or
any of the rights, obligations or remedies of Trustee or Beneficiary hereunder.
(g) Copies of Notice of Default and Notice of Sale. Grantor
hereby requests that copies of any Notice of Default and Election to Sell and
any Notice of Sale be sent to Grantor by first class mail, postage prepaid, or
as otherwise provided by law, to the following address: _____________________.
27
<PAGE> 33
41. Certain Matters Relating to Trust Property Located in the State of
Colorado. With respect to the Trust Property which is located in the State of
Colorado, notwithstanding anything contained herein to the contrary:
(a) Public Trustee. Trustee named herein is the Public Trustee of
[PUEBLO] [FREMONT] County, Colorado, who is a public official of such county
created pursuant to C.R.S. Section 38-37-101. Therefore, certain provisions of
this Deed Of Trust, including those relating to the removal and substitution of
Trustee, the fees to be charged by Trustee, the powers and rights of Trustee,
and procedural requirements to be followed by Trustee are each subject to
applicable provisions of Colorado law.
(b) Power of Sale. Upon the occurrence and during the continuance of an
Event of Default, Beneficiary may take such action, without notice or demand, as
it deems advisable to protect and enforce its rights against Grantor and in and
to the Trust Property or any part thereof or interest therein, including, but
not limited to, the following actions, at such time and in such order as
Beneficiary may determine without impairing or otherwise affecting the other
rights and remedies of Beneficiary:
(i) Declare an Event of Default hereunder and elect to advertise
the Trust Property for sale and demand such sale. Then upon
Beneficiary's filing notice of such election and demand for sale with
Trustee (who shall upon receipt of such notice of election and demand
for sale cause a copy of the same to be recorded in the office of the
Clerk and Recorder of the County of [PUEBLO] [FREMONT], Colorado), it
shall and may be lawful for said Trustee to sell and dispose of the
Trust Property (en masse or in separate parcels, as Beneficiary may
designate) and all the right, title, and interest of Grantor, its
successors and assigns therein, at public auction at the main entrance
to the County Building in and for said County of [PUEBLO] [FREMONT],
Colorado, or on the Trust Property, or any part thereof, or such other
place as may be authorized or permitted by law, all as may be specified
in the notice of such sale, for the highest and best price the same
will bring in cash, four weeks public notice having been previously
given of the time and place of such sale, by advertisement weekly in
some newspaper of general circulation at that time published in the
County of [PUEBLO] [FREMONT], Colorado. A copy of such notice of sale
shall be given to Grantor at its address given herein, and to such
person or persons appearing to have acquired a subsequent record
interest in the Trust Property at the address given in the recorded
instrument evidencing such interest, any such notice to be given in
accordance with applicable law. Trustee shall then make and give to the
purchaser or purchasers of such Trust Property at such sale a
certificate or certificates in writing describing such Trust Property
purchased, and the sum or sums paid therefor, and the time when the
purchaser or purchasers (or other persons entitled thereto) shall be
entitled to a deed or deeds therefor, unless the same shall be redeemed
as provided by law, and said Trustee shall, upon demand by the person
or persons holding the said certificate or certificates of purchase,
when said demand is made, or upon demand by the person entitled to a
deed to and for the Trust Property purchased, at the time such demand
is made (the time for redemption having expired) make and execute to
such person or persons a deed or deeds to the said Trust Property
purchased, which said deed or deeds shall be in the ordinary form of a
conveyance, and shall be signed, acknowledged, and delivered by
Trustee, as grantor, and shall convey and quitclaim to such person or
persons entitled to such deed, as grantee, the said Trust Property
purchased as aforesaid, and all the right, title, interest, benefit,
and equity of redemption of Grantor, its successors and assigns
therein, and shall refer to the power of sale herein contained, and to
the sale or sales made by virtue thereof.
In case of an assignment of such certificate or certificates
of purchase or in the case of redemption of such Trust Property by a
subsequent encumbrancer, such assignment or redemption shall also be
referred to in such deed or deeds, but the notice of sale need not be
set out in such deed or deeds. Trustee shall, out of the proceeds or
avails of such sale, after first paying and retaining all fees,
28
<PAGE> 34
charges, and costs of making said sale, apply the remaining proceeds of
the sale first to Beneficiary for the payment of all moneys advanced by
Beneficiary for insurance, repairs, appraisals, maintenance, inspection
and testing fees, receivers' and management fees, leasing and sales
commissions, advertising costs and expenses, taxes and assessments,
environmental audits, environmental studies and reports, environmental
tests and remediation costs, surveys, engineering studies and reports,
engineering fees and expenses, soils tests, space planning costs and
expenses, contractors' fees, expert witness fees and expenses, copying
charges, costs for title searches and examinations, title insurance
premiums and expenses, filing and recording fees, all costs, fees and
expenses incurred by Beneficiary to maintain, preserve and protect the
Trust Property, legal fees, and any other costs or fees authorized in
the Indenture, this Deed Of Trust or by statute, with interest thereon
(to the fullest extent permitted by law) from the date incurred until
paid, and then to Beneficiary for the payment of the Obligations in
such manner and order of priority as the Indenture shall provide,
rendering the surplus, if any, unto Grantor or its successor or assigns
or to any person entitled thereto. Such sale or sales and said deed or
deeds so made shall be a perpetual bar, both in law and equity, against
Grantor and its successors and assigns, and all other persons claiming
the said Trust Property, or any part thereof, by, through, from, or
under Grantor. The holder of this Deed Of Trust may purchase the Trust
Property or any part thereof. It shall not be obligatory upon the
purchaser or purchasers at any such sale to see to the application of
the purchase money.
(ii) Pay any sums in any form or manner deemed expedient by
Beneficiary to protect the security of this instrument or to cure any
Event of Default; make any payment herein authorized to be made
according to any bill, statement, or estimate furnished or procured
from the appropriate public officer or other party claiming payment
without inquiry into the accuracy or validity thereof, and the receipt
of any such public officer or party in the hands of Beneficiary shall
be conclusive proof of the right of Beneficiary to make such payment
(whether or not the validity or amount thereof be ultimately determined
as false or incorrect), and Beneficiary shall have no liability for
payments so made. All amounts so paid, with interest thereon (to the
fullest extent permitted by law) from the date incurred until paid
shall be added to and become a part of the Obligations and be
immediately due and payable to Beneficiary.
(iii) Declare the Obligations, including all monies advanced by
Beneficiary under the terms hereof, to be due and payable.
(c) Colorado Law Controls. Nothing herein dealing with foreclosure
procedures or specifying particular actions to be taken by Beneficiary or by
Trustee shall be deemed to contradict or add to the requirements and procedures
(now or hereafter existing) of Colorado law applicable to this Deed Of Trust at
the time of foreclosure, and any such conflict or inconsistency shall be
resolved in favor of Colorado law.
(d) Remedies Not Exclusive. The recitation of the foregoing power of
sale by the Public Trustee shall not be deemed to be a waiver of, and shall not
preclude or impair Beneficiary from exercising, any other rights and remedies
available under this Deed Of Trust, the Indenture, the Securities, the
Guarantees, the Intercreditor Agreement, the other Security Documents, any other
agreement or instrument or applicable law. All such rights and remedies are
cumulative to the extent permitted by applicable law.
(e) Colorado Statutes Sections 38-38-101 and 38-39-102. Grantor hereby
acknowledges and agrees that the CF & I Note shall constitute the "original
evidence of debt" required by Section 38-38-101 and Section 38-39-102 of the
Colorado Statutes, or any successor statutes thereto, to be filed with the
Public Trustee in connection with a foreclosure or release of this Deed Of
Trust.
29
<PAGE> 35
42. Certain Matters Relating to Trust Property Located in the State of
Oregon. With respect to the Trust Property which is located in the State of
Oregon, notwithstanding anything contained herein to the contrary:
(a) Advertisement and Sale; Foreclosure. Following recording of a
notice of default and at least 120 days before the date of the Trustee's sale,
notice either by personal service pursuant to ORCP 7D(2), (3), or by both first
class and certified mail, return receipt requested, shall be given to Grantor,
any successor in interest having a recorded interest or known interest in the
Trust Property, any person with a lien or interest of record subsequent to this
Deed Of Trust, any person with an interest in the Trust Property known to
Beneficiary, and persons having a recorded request for notice. At least 120 days
before such sale, occupants shall be personally served with notice pursuant to
ORCP 7D(2), (3). Notice shall also be published for four successive weeks ending
more than 20 days prior to sale. On or before the date of sale, affidavits of
mailing, service and publication of notice shall be recorded. The contents of
the notice shall be in accordance with applicable law and procedure. Trustee may
postpone the sale to a date or dates not more than 180 days after the initial
sale date under ORS 86.755(2).
(b) Effect of Sale. Sale pursuant to advertisement and sale shall
terminate the interest of all persons given notice or claiming through those
given notice. Grantor waives the right of redemption on Grantor's behalf and
Grantor's successors and assigns to the fullest extent permitted by law.
(c) Not Residential Property. The Trust Property is not residential
property improved by four or fewer residential units, one of which is occupied
as a principal residence of Grantor, Grantor's spouse or Grantor's minor
children.
(d) Notice under ORS 746.201. In compliance with ORS 746.201, this Deed
Of Trust contains the following warning, which Grantor acknowledges:
WARNING
UNLESS YOU (OREGON STEEL MILLS, INC.) PROVIDE US (BENEFICIARY) WITH
EVIDENCE OF THE INSURANCE COVERAGE AS REQUIRED BY OUR CONTRACT OR LOAN
AGREEMENT, WE MAY PURCHASE INSURANCE AT YOUR EXPENSE TO PROTECT OUR INTEREST.
THIS INSURANCE MAY, BUT NEED NOT, ALSO PROTECT YOUR INTEREST. IF THE COLLATERAL
BECOMES DAMAGED, THE COVERAGE WE PURCHASE MAY NOT PAY ANY CLAIM YOU MAKE OR ANY
CLAIM MADE AGAINST YOU. YOU MAY LATER CANCEL THIS COVERAGE BY PROVIDING EVIDENCE
THAT YOU HAVE OBTAINED PROPERTY COVERAGE ELSEWHERE.
YOU ARE RESPONSIBLE FOR THE COST OF ANY INSURANCE PURCHASED BY US. THE
COST OF THIS INSURANCE MAY BE ADDED TO YOUR CONTRACT OR LOAN BALANCE. IF THE
COST IS ADDED TO YOUR CONTRACT OR LOAN BALANCE, THE INTEREST RATE ON THE
UNDERLYING CONTRACT OR LOAN WILL APPLY TO THIS ADDED AMOUNT. THE EFFECTIVE DATE
OF COVERAGE MAY BE THE DATE YOUR PRIOR COVERAGE LAPSED OR THE DATE YOU FAILED TO
PROVIDE PROOF OF COVERAGE.
THE COVERAGE WE PROVIDE MAY BE CONSIDERABLY MORE EXPENSIVE THAN
INSURANCE YOU CAN OBTAIN ON YOUR OWN AND MAY NOT SATISFY ANY NEED FOR PROPERTY
DAMAGE COVERAGE OR ANY MANDATORY LIABILITY INSURANCE REQUIREMENTS IMPOSED BY
APPLICABLE LAW.
30
<PAGE> 36
(e) Successor Trustees. Subsection 38(c) of this Deed Of Trust shall be
modified by the following provisions:
The appointment of a successor trustee shall be in writing and shall be
recorded pursuant to ORS 86.790(3). When the appointment of the successor
trustee is recorded in the mortgage records of the county or counties in which
the Deed Of Trust is recorded, the successor trustee shall be vested with all
the powers of the original Trustee.
(f) Attorneys' Fees. Whenever this Deed Of Trust, the Indenture, the
Securities, the Guarantees, the Intercreditor Agreement or the other Security
Documents provide that Grantor shall pay Beneficiary's or Trustee's attorneys'
fees and expenses or that Beneficiary or Trustee shall be paid, reimbursed for
or collect attorneys' fees and expenses, such provisions shall be deemed to mean
that Grantor agrees to pay and Beneficiary and Trustee shall be paid, reimbursed
for, and collect all of Beneficiary's and Trustee's reasonable attorneys' fees
and expenses relating to the interpretation or enforcement of this Deed Of
Trust, the Indenture, the Securities, the Guarantees, the Intercreditor
Agreement or the other Security Documents even though no suit or action is
instituted, including, but not limited by, those fees and expenses permitted or
defined by statutory law, and including without limitation all fees and expenses
incurred during or in preparation for litigation, at trial, on appeal, on
petition for review, and in any other proceeding, including any arbitration or
bankruptcy case or proceeding, and with respect to issues peculiar to
bankruptcy.
(g) Notice Under ORS 30.930. In compliance with ORS 30.930, this Deed
Of Trust contains the following notice:
THIS INSTRUMENT WILL NOT ALLOW USE OF THE PROPERTY DESCRIBED IN THIS
INSTRUMENT IN VIOLATION OF APPLICABLE LAND USE LAWS AND REGULATIONS. BEFORE
SIGNING OR ACCEPTING THIS INSTRUMENT, THE PERSON ACQUIRING FEE TITLE TO THE
PROPERTY SHOULD CHECK WITH THE APPROPRIATE CITY OR COUNTY PLANNING DEPARTMENT TO
VERIFY APPROVED USES AND TO DETERMINE ANY LIMITS ON LAWSUITS AGAINST FARMING OR
FOREST PRACTICES AS DEFINED IN ORS 30.930.
[FOR OREGON, ADD:
"43. LEASEHOLD DEED OF TRUST. (A) THIS DEED OF TRUST CONSTITUTES AN
ENCUMBRANCE ON THE MORTGAGED LEASE AND THE INTEREST AND LEASEHOLD ESTATE OF
GRANTOR IN THE LEASED REAL ESTATE PURSUANT TO THE MORTGAGED LEASE.
(b) GRANTOR HEREBY REPRESENTS, COVENANTS AND WARRANTS THAT:
(i) THE MORTGAGED LEASE IS IN FULL FORCE AND EFFECT AND
UNMODIFIED, EXCEPT AS SET FORTH ON SCHEDULE B HERETO.
(ii) ALL RENTS (INCLUDING ADDITIONAL RENTS AND OTHER AMOUNTS
AND CHARGES) SPECIFIED IN THE MORTGAGED LEASE AND ALL SERVICES OR OTHER
CONSIDERATION TO BE PROVIDED OR PAID UNDER THE MORTGAGED LEASE HAVE
BEEN PAID OR PROVIDED TO THE EXTENT THEY WERE PAYABLE OR REQUIRED PRIOR
TO THE DATE HEREOF.
(iii) THERE ARE NO EXISTING DEFAULTS UNDER THE PROVISIONS OF
THE MORTGAGED LEASE OR IN THE PERFORMANCE OF ANY OF THE TERMS,
COVENANTS OR CONDITIONS THEREOF ON THE PART OF GRANTOR TO BE OBSERVED
AND PERFORMED BEYOND ANY APPLICABLE GRACE PERIOD.
31
<PAGE> 37
(iv) GRANTOR HAS NOT ASSIGNED OR SUBLET THE MORTGAGED LEASE OR
THE LEASED REAL ESTATE OR ANY PART THEREOF.
(c) GRANTOR SHALL KEEP AND PERFORM, OR CAUSE TO BE KEPT AND PERFORMED,
ALL THE MATERIAL TERMS, COVENANTS AND CONDITIONS CONTAINED IN THE MORTGAGED
LEASE BY GRANTOR THEREIN TO BE KEPT AND PERFORMED. NOTWITHSTANDING THE
PROVISIONS OF THIS SECTION 43 TO THE CONTRARY, ANY BREACH OF THE MORTGAGED LEASE
BY GRANTOR OR THE OCCURRENCE OF A DEFAULT UNDER THE MORTGAGED LEASE, OR
FORFEITURE OF THE MORTGAGED LEASE DUE TO DEFAULT BY GRANTOR THEREUNDER, OR OTHER
TERMINATION OR AMENDMENT OF THE MORTGAGED LEASE, OR ANY BREACH OF ANY OF THE
TERMS OF SUBSECTION 43(c) OR 43(d) OF THE DEED OF TRUST SHALL NOT BE AN EVENT OF
DEFAULT UNDER THIS DEED OF TRUST OR UNDER THE INDENTURE.
(d) GRANTOR SHALL GIVE BENEFICIARY PROMPT NOTICE OF ANY ALTERATION OR
MODIFICATION OF ANY MATERIAL TERMS OF THE MORTGAGED LEASE OR OF ANY
CANCELLATION, SURRENDER OR TERMINATION OF THE MORTGAGED LEASE. GRANTOR SHALL
GIVE BENEFICIARY PROMPT NOTICE OF ANY RECEIPT BY GRANTOR OF ANY NOTICE OF
DEFAULT FROM THE LESSOR UNDER THE MORTGAGED LEASE. GRANTOR SHALL FURNISH TO
BENEFICIARY ANY AND ALL INFORMATION WHICH IT MAY REASONABLY REQUEST CONCERNING
THE PERFORMANCE BY GRANTOR OF THE TERMS, COVENANTS AND CONDITIONS OF THE
MORTGAGED LEASE, AND GRANTOR SHALL PERMIT BENEFICIARY OR ITS REPRESENTATIVE AT
ALL REASONABLE TIMES TO INVESTIGATE OR EXAMINE SUCH PERFORMANCE. GRANTOR WILL
PROMPTLY DEPOSIT WITH BENEFICIARY AN ORIGINAL EXECUTED COPY OF THE MORTGAGED
LEASE OR A COPY CERTIFIED BY GRANTOR AS TRUE, COMPLETE AND CORRECT AND ANY AND
ALL DOCUMENTARY EVIDENCE RECEIVED BY IT SHOWING COMPLIANCE BY GRANTOR WITH THE
TERMS, COVENANTS AND CONDITIONS OF THE MORTGAGED LEASE. GRANTOR WILL ALSO
PROMPTLY DELIVER TO BENEFICIARY AN EXACT COPY OF ANY MATERIAL NOTICE,
COMMUNICATION, PLAN, SPECIFICATION OR OTHER INSTRUMENT OR DOCUMENT RECEIVED OR
GIVEN BY IT MATERIALLY AFFECTING THE MORTGAGED LEASE OR THE LEASED REAL ESTATE
OR MATERIALLY AFFECTING THE ESTATE OF THE LESSOR OR GRANTOR IN OR UNDER THE
MORTGAGED LEASE OR THE LEASED REAL ESTATE.
(e) UNLESS BENEFICIARY SHALL OTHERWISE IN WRITING CONSENT, THE
LEASEHOLD ESTATE IN THE LEASED REAL ESTATE, HEREINBEFORE DESCRIBED, SHALL NOT
MERGE INTO THE FEE ESTATE BUT SHALL ALWAYS BE KEPT SEPARATE AND DISTINCT,
NOTWITHSTANDING THE UNION OF SAID ESTATES EITHER IN THE LESSOR OR IN GRANTOR OR
IN ANY SUBLESSEE OR IN A THIRD PARTY, BY PURCHASE OR OTHERWISE; AND GRANTOR
FURTHER COVENANTS AND AGREES THAT, IN CASE IT SHALL ACQUIRE THE FEE ESTATE OR
ANY OTHER ESTATE, TITLE OR INTEREST IN THE LEASED REAL ESTATE COVERED BY THE
MORTGAGED LEASE INCLUDING, WITHOUT LIMITATION, PURSUANT TO THE PURCHASE OPTION
OR RIGHT OF FIRST REFUSAL, IF ANY, SET FORTH IN THE MORTGAGED LEASE, THIS DEED
OF TRUST SHALL ATTACH TO AND BE A LIEN UPON SUCH OTHER ESTATE SO ACQUIRED, AND
SUCH OTHER ESTATE SO ACQUIRED BY GRANTOR SHALL BE CONSIDERED AS MORTGAGED,
ASSIGNED OR CONVEYED TO BENEFICIARY AND THE LIEN HEREOF SPREAD TO COVER AND
ENCUMBER SUCH ESTATE WITH THE SAME FORCE AND EFFECT AS THOUGH SPECIFICALLY
HEREIN MORTGAGED, ASSIGNED OR CONVEYED, AND SPREAD.
(f) IF AT ANY TIME GRANTOR, ANYONE CLAIMING BY, THROUGH OR UNDER
GRANTOR OR A TRUSTEE IN BANKRUPTCY SHALL HAVE THE RIGHT TO REJECT THE MORTGAGED
LEASE PURSUANT TO SECTION 365 OF THE BANKRUPTCY CODE OF THE UNITED STATES, OR A
SUCCESSOR OR OTHER APPLICABLE STATUTE, THEN BENEFICIARY SHALL HAVE THE EXCLUSIVE
RIGHT TO EXERCISE SAID RIGHT AND GRANTOR HEREBY ASSIGNS SAID RIGHT TO
BENEFICIARY. IF AT ANY TIME THE LESSOR UNDER THE MORTGAGED LEASE, ANYONE HOLDING
BY, THROUGH OR UNDER THE LESSOR UNDER THE MORTGAGED LEASE OR A TRUSTEE IN
BANKRUPTCY SHALL ELECT TO REJECT THE MORTGAGED LEASE PURSUANT TO SUCH SECTION
365, OR A SUCCESSOR OR OTHER APPLICABLE STATUTE, THEREBY GIVING TO GRANTOR THE
RIGHT TO ELECT TO TREAT THE MORTGAGED LEASE AS TERMINATED PURSUANT TO SUCH
SECTION 365, OR A SUCCESSOR OR OTHER APPLICABLE STATUTE, THEN BENEFICIARY SHALL
HAVE THE EXCLUSIVE RIGHT TO EXERCISE SAID RIGHT AND GRANTOR HEREBY ASSIGNS SAID
RIGHT TO BENEFICIARY. GRANTOR HEREBY ASSIGNS, TRANSFERS AND SETS OVER TO
BENEFICIARY ALL OF GRANTOR'S CLAIMS AND RIGHTS TO THE PAYMENT OF DAMAGES ARISING
FROM ANY REJECTION BY THE LESSOR OF THE MORTGAGED LEASE UNDER THE BANKRUPTCY
CODE. BENEFICIARY IS HEREBY IRREVOCABLY APPOINTED AS GRANTOR'S ATTORNEY-IN-
32
<PAGE> 38
FACT, COUPLED WITH AN INTEREST, WITH EXCLUSIVE POWER TO FILE AND PROSECUTE, TO
THE EXCLUSION OF GRANTOR, ANY PROOFS OF CLAIM, COMPLAINTS, MOTIONS,
APPLICATIONS, NOTICES AND OTHER DOCUMENTS, IN ANY CASE IN RESPECT OF THE
MORTGAGED LEASE OR THE LESSOR OF THE MORTGAGED LEASE UNDER THE BANKRUPTCY CODE.
GRANTOR MAY MAKE ANY COMPROMISE OR SETTLEMENT IN CONNECTION WITH SUCH
PROCEEDINGS (SUBJECT TO BENEFICIARY'S REASONABLE APPROVAL); PROVIDED, HOWEVER,
THAT BENEFICIARY SHALL BE AUTHORIZED AND ENTITLED TO COMPROMISE OR SETTLE ANY
SUCH PROCEEDING IF SUCH COMPROMISE OR SETTLEMENT IS MADE AFTER THE OCCURRENCE
AND DURING THE CONTINUANCE OF ANY EVENT DEFAULT. GRANTOR SHALL PROMPTLY EXECUTE
AND DELIVER TO BENEFICIARY ANY AND ALL INSTRUMENTS REASONABLY REQUIRED IN
CONNECTION WITH ANY SUCH PROCEEDING AFTER REQUEST THEREFOR BY BENEFICIARY.
33
<PAGE> 39
This Deed Of Trust has been duly executed by Grantor on the date first
above written.
ATTEST:
By: By:
-------------------------------- -----------------------------------
Name: Name:
--------------------------- ------------------------------
Title: Title:
-------------------------- -----------------------------
34
<PAGE> 40
[Colorado Acknowledgment]
STATE OF ___________)
) ss.
COUNTY OF __________)
The foregoing instrument was acknowledged before me this __day of
____________, 1996, by _____________________ as ___________________________ of
New CF&I, Inc., a Delaware corporation, as general partner of CF&I Steel, L.P.,
a Delaware limited partnership.
Witness my hand and official seal.
(Notary Seal) ---------------------------------------------
Notary Public
My commission expires:
---------------------
35
<PAGE> 41
[California Acknowledgment]
STATE OF ___________)
) ss.
COUNTY OF __________)
On the ____ day of ________, 1996, before me, _____________________,
Notary Public, personally appeared ___________________________, [ ] personally
known to me to be - OR - [ ] proved to me on the basis of satisfactory evidence
to be the person(s)whose name(s) is/are subscribed to the within instrument, and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on the
instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
Signature: ______________________ (Seal)
Notary Public
My commission expires:
---------------------
CAPACITY CLAIMED BY SIGNER: THIS CERTIFICATE MUST BE
ATTACHED TO THE DOCUMENT
DESCRIBED BELOW:
[X] Corporate Officer
Title or Type of Document:
DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES
AND SECURITY AGREEMENT
36
<PAGE> 42
[Oregon Acknowledgment]
STATE OF ___________)
) ss.
COUNTY OF __________)
This instrument was acknowledged before me on __________, 1996, by
_____________________, as ____________________ of Oregon Steel Mills, Inc., a
Delaware corporation.
---------------------------------
[SEAL] Notary Public for
----------------
My commission expires:
-----------
37
<PAGE> 43
Schedule A
Description of the Real Estate
[Attach Legal Description of all Parcels]
38
<PAGE> 44
[FOR COLORADO, ADD
SCHEDULE B
THE INDENTURE]
[FOR OREGON, ADD
SCHEDULE B
THE LEASED REAL ESTATE AND
THE MORTGAGED LEASE]
39
<PAGE> 45
[FOR COLORADO, ADD
SCHEDULE C
EXCLUDED MOTOR VEHICLES AND MOBILE EQUIPMENT
SCHEDULE D
WATER RIGHTS]
40
<PAGE> 1
EXHIBIT 4.3
DRAFT 5/20/96
[Form of Security Agreement]
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of June +, 1996, made by +, a +,
having an office at + (the "Grantor", which term includes its successors
pursuant to the Indenture referred to below), in favor of Chemical Bank, a New
York banking corporation, having an office at 450 West 33rd Street, New York,
New York 10001, as trustee (in such capacity and together with any successors in
such capacity, the "Trustee") pursuant to the Indenture (as hereinafter
defined).
R E C I T A L S :
A. Grantor and Trustee are, contemporaneously with the
execution and delivery of this Agreement, entering into a certain indenture
dated as of June +, 1996 among Oregon Steel Mills, Inc., New CF&I, Inc., CF&I
Steel, L.P. and Trustee (as the same may be amended, modified or otherwise
supplemented from time to time, the "Indenture") pursuant to which Oregon Steel
Mills, Inc. is issuing its +% First Mortgage Notes due 2003 (the "Securities")
in the aggregate principal amount of $235,000,000.
B. Grantor is the owner of the Collateral (as hereinafter
defined).
C. It is a condition precedent to the purchase of the
Securities that Grantor shall have executed and delivered this Security
Agreement to Trustee for the ratable benefit of the registered holders from time
to time of the Securities (the "Holders"). This Agreement is given by Grantor in
favor of Trustee for its benefit and the ratable benefit of the Holders
(collectively, the "Secured Parties") to secure the payment and performance of
the Obligations (as hereinafter defined).
A G R E E M E N T :
NOW, THEREFORE, in consideration of the foregoing premises and
in order to induce Trustee to enter into the Indenture and to induce the Holders
to purchase the Securities and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Grantor and Trustee
hereby agree, for the ratable benefit of the Holders as follows:
SECTION 1.1. Definitions. (a) Capitalized terms used herein
and defined in the recitals to this Agreement or in the paragraph preceding such
recitals shall have the respective meanings set forth in such recitals or in
such paragraph, as the case may be. Capitalized terms used herein but not
otherwise defined shall have the meanings assigned to
<PAGE> 2
such terms in the Indenture. In addition, the terms "guarantee", "interest",
"principal" and "person" as used herein shall have the meanings assigned to such
terms in the Indenture.
(b) The following terms which are defined in the Uniform
Commercial Code in effect in the State of New York on the date hereof are used
herein as so defined: Chattel Paper, Documents, Farm Products, Fixtures, General
Intangibles, Instruments and Proceeds.
(c) The following terms shall have the following meanings:
"Agreement": this Security Agreement, as the same may be
amended, supplemented or otherwise modified from time to time.
"Banks": the banks and other lenders party to the Credit
Agreement from time to time.
"Bank Collateral": [accounts receivable, inventory and related
books and records] and +.
"Collateral": as defined in Section 2 hereof.
"Contracts": any and all contracts and agreements (other than
contracts and agreements which are Excluded Intangibles), as such may
be amended, modified or otherwise supplemented from time to time,
including, without limitation, (a) all rights to receive moneys due and
to become due to Grantor thereunder or in connection therewith, (b) all
rights to damages arising out of or for breach or default in respect
thereof and (c) all rights to perform and exercise all remedies
thereunder.
"Copyrights": (a) all copyrights in all works, whether
published or unpublished, registered or unregistered, including,
without limitation, the copyrights in the works listed on Exhibit A,
all registrations and recordings thereof, and all applications in
connection therewith, including, without limitation, registrations,
recordings and applications in the United States Copyright Office or in
any other country, and (b) all renewals thereof.
"Copyright License": any and all agreements, written or oral,
(other than Excluded Intangibles) providing for the grant by or to
Grantor of any right to reproduce, copy, publish or otherwise use any
copyright, including without limitation, any of the agreements referred
to on Exhibit A.
"Default Rate": as defined in subsection 6.15 hereof.
"Equipment": as defined in the Uniform Commercial Code in
effect in the State of New York on the date hereof, including, without
limitation, all machinery, apparatus, equipment, office machinery,
furniture, electric arc furnaces, heat treating machinery, rolling
mills, pipe mills, rod mills, bar mills, rail mills, pipe coating
2
<PAGE> 3
machinery, furnaces, conveyors, tools, manufacturing equipment and all
other equipment of any kind or nature, wherever located, and all
modifications, alterations, repairs, substitutions, additions and
accessions thereto and all replacements and all parts therefor, other
than Motor Vehicles [INCLUDE IN CF&I STEEL, L.P.'S SECURITY
AGREEMENT--and equipment listed on Exhibit H hereto (but only to the
extent that, in the case of equipment listed on Exhibit H hereto, the
aggregate book value (net of depreciation) of such equipment on the
Issue Date does not exceed $1.5 million)].
"Excluded Intangibles": any right, title or interest of
Grantor in, to or under any contract, agreement or other instrument
entered into with, or any license granted by or to, any person which is
not Oregon Steel Mills, Inc., a Delaware corporation ("OSM", which term
includes its successors under the Indenture), or a Subsidiary or
Unrestricted Subsidiary of OSM and which contract, agreement,
instrument or license by its express terms prohibits the assignment
thereof or the grant of a security interest therein by Grantor or by
its express terms permits such assignment or grant of a security
interest only with the consent of such person; provided that any such
right, title and interest shall cease to be an Excluded Intangible to
the extent that an appropriate consent to such assignment or pledge has
been obtained; and provided, further, that Excluded Intangibles shall
not include (i) any Included Intangibles [or] [INCLUDE IN OREGON STEEL
MILLS, INC.'S SECURITY AGREEMENT-- (ii) the leasehold interest in
Grantor's office space located at 1000 S.W. Broadway, Portland,
Oregon].
"Governmental Authority": any nation or government, any state,
municipality or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Included Intangibles": all contracts, agreements, licenses,
leases, instruments and other documents identified on Exhibit D hereto,
which contracts, licenses, leases, instruments and documents are hereby
expressly made subject to the Lien and security interest created by
this Agreement.
"Intellectual Property": Copyrights, Patents, Trademarks,
Trade Secrets and Licenses, collectively.
"Licenses": means Copyright Licenses, Patent Licenses and
Trademark Licenses, collectively.
"Material Adverse Effect": a material adverse effect on (a)
the business, operations, property, condition (financial or otherwise)
or prospects of Grantor or (b) the validity or enforceability of (i)
this Agreement, any of the Securities, the Indenture, any of the
Guarantees or any other Security Document or (ii) the rights or
remedies of the Trustee (or any other trustee) hereunder or thereunder.
"Motor Vehicles": all cars, trucks, trailers, construction and
earth moving equipment and other vehicles and mobile equipment covered
by a certificate of title
3
<PAGE> 4
law of any state and all tires, accessions, additions and other
appurtenances to, substitutions for and replacements of any of the
foregoing; provided that any substitutions or replacements constitute
Motor Vehicles as defined in this sentence.
"Obligations": as defined in Section 3 hereof.
"Patents": (a) all letters patent of the United States or any
other country and all reissues, continuations, continuations-in-part,
divisions and extensions thereof, including, without limitation, any
thereof referred to on Exhibit B, and (b) all applications for letters
patent of the United States or any other country and all divisions,
continuations and continuations-in-part thereof, including, without
limitation, any thereof referred to on Exhibit B.
"Patent License": any and all agreements, whether written or
oral, (other than Excluded Intangibles) providing for the grant by or
to Grantor of any right to manufacture, use or sell any invention
covered by a Patent, including, without limitation, any thereof
referred to on Exhibit B.
"Trademarks": (a) all registered and unregistered trademarks,
trade names, corporate names, company names, business names, fictitious
business names, trade styles, service marks, logos, slogans and other
source or business identifiers, and the goodwill associated therewith,
all registrations and recordings thereof, and all applications in
connection therewith, whether in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any
State thereof or any other country or any political subdivision
thereof, or otherwise, including, without limitation, any thereof
referred to on Exhibit C, and (b) all renewals thereof.
"Trademark License": any and all agreements, written or oral,
(other than Excluded Intangibles) providing for the grant by or to
Grantor of any right to use any Trademark, including, without
limitation, any thereof referred to on Exhibit C.
"Trade Secret": means any proprietary technology, process or
system which is within the possession of Grantor, including, without
limitation, manufacturing processes or methods, all formulae,
processes, procedures, compounds, drawings, designs, blueprints,
surveys, reports, manuals, and operating standards relating to or used
in the operation of Grantor's business.
"UCC": the Uniform Commercial Code as from time to time in
effect in the State of New York.
"Works": any work which is or may be subject to copyright
protection pursuant to Title 17 of the U.S. Code.
SECTION 1.2. Other Definitional Provisions. (a) The words
"hereof", "herein", "hereto" and "hereunder" and words of similar import when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of
4
<PAGE> 5
this Agreement, and Section, subsection and Exhibit references are to this
Agreement unless otherwise specified.
(b) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. Grant of Security Interest. As security for the
prompt and complete payment and performance when due (whether at Stated
Maturity, upon redemption or required repurchase, by acceleration or otherwise)
of all the Obligations, Grantor hereby grants, pledges, assigns and transfers to
Trustee, for its individual benefit and the ratable benefit of the Holders, a
continuing security interest in and lien on all of the right, title and interest
of Grantor in, to and under the following property, wherever located, whether
now owned or at any time hereafter acquired by Grantor, whether now existing or
hereafter coming into existence, or in which Grantor now has or at any time in
the future may acquire any right, title or interest (collectively, the
"Collateral"):
(a) all Chattel Paper;
(b) the Collateral Account and all Trust Moneys, other moneys,
securities, certificates, items and other property on deposit
therein;
(c) all Contracts;
(d) all Copyrights;
(e) all Copyright Licenses;
(f) all Documents;
(g) all Equipment;
(h) all Fixtures;
(i) all General Intangibles;
(j) all Included Intangibles;
(k) all Instruments;
(l) all Patents;
(m) all Patent Licenses;
(n) all Trade Secrets;
(o) all Trademarks;
5
<PAGE> 6
(p) all Trademark Licenses;
(q) to the extent not otherwise included in the foregoing (i) all
other rights to the payment of money, including rents and
other sums payable to Grantor under leases, rental agreements
and other Chattel Paper and insurance proceeds; (ii) all
books, ledgers, files, correspondence, credit files, records,
invoices, bills of lading, and other documents relating to any
of the foregoing, including, without limitation, all tapes,
cards, disks, computer software, computer runs, and other
papers and documents in the possession or control of Grantor
or any computer bureau from time to time acting for Grantor;
and (iii) all accessions and additions to, parts and
appurtenances of, substitutions for and replacements of any of
the foregoing; and
(r) to the extent not otherwise included in the foregoing, all
Proceeds and products of any and all of the foregoing and all
collateral security and guarantees given by any person with
respect to any of the foregoing, and in any event, including,
without limitation, any and all (i) proceeds of any insurance
(including, without limitation, all Net Proceeds), indemnity,
warranty or guarantee payable to Trustee or to Grantor from
time to time with respect to any of the Collateral, (ii)
payments (in any form whatsoever and including, without
limitation, all Net Awards) made or due and payable to Grantor
from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or
any part of the Collateral by any Governmental Authority (or
any person acting under color of a Governmental Authority),
(iii) products of the Collateral, and (iv) other amounts from
time to time paid or payable under or in connection with any
of the Collateral.
Notwithstanding the foregoing, the Collateral shall not
include (i) any Bank Collateral, (ii) any Excluded Securities, (iii) any
Intercompany Indebtedness, (iv) any Excluded Assets, (v) any Excluded
Intangibles or (vi) Proceeds or products arising out of the property described
in the foregoing items (i) through (v) including rights to payment of money,
Chattel Paper and insurance proceeds payable thereon except to the extent that
any such Proceeds or products (including money and Chattel Paper) constitute or
are deemed to constitute Collateral Proceeds.
SECTION 3. Obligations. This Agreement secures, and the
Collateral is collateral and security for, the payment and performance in full
when due (whether at Stated Maturity, upon redemption or required repurchase, by
acceleration or otherwise) of the principal of, premium, if any, and interest
on, and any and all other amounts which may at any time be or become payable by
Grantor under, [TO BE REVISED APPROPRIATELY:] [the Securities] [the Guarantees]
and any and all other obligations and liabilities of Grantor to Trustee, any
other trustee under any Mortgage, and the Holders (including, without
limitation, any and all amounts which may at any time be or become due and
payable and any and all interest accruing after the maturity of the Securities
and interest accruing after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
Grantor, whether or not a claim for post-filing or post-petition
6
<PAGE> 7
interest is allowed in such proceeding and interest, to the extent permitted by
law, on the unpaid interest), whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred, which
may arise under, out of, or in connection with, the Indenture, the Securities,
the Guarantees, this Agreement, the other Security Documents, the Intercreditor
Agreement or any other document made, delivered or given in connection
therewith, in each case whether on account of principal, premium, interest,
fees, indemnities, costs, expenses or otherwise (including, without limitation,
all fees and disbursements of counsel to Trustee or to the Holders that are
required to be paid by Grantor, Trustee, the trustee under any Mortgage or by
any Secured Party pursuant to the terms of the Indenture, the Securities, the
Guarantees, this Agreement, any other Security Document, the Intercreditor
Agreement or any other document entered into by Grantor in connection with any
of the foregoing) (collectively, the "Obligations").
SECTION 4. No Release. Nothing set forth in this Agreement
shall relieve Grantor from the performance of any term, covenant, condition or
agreement on Grantor's part to be performed or observed under or in respect of
any of the Collateral or from any liability to any person under or in respect of
any Collateral or shall impose any obligation on Trustee (or any other trustee
under any Mortgage) or any Holder to perform or observe any such term, covenant,
condition or agreement on Grantor's part to be so performed or observed or shall
impose any liability on Trustee (or any other trustee under any Mortgage) or any
Holder for any act or omission on the part of Grantor relating thereto or for
any breach of any representation or warranty on the part of Grantor contained in
this Agreement, or under or in respect of the Collateral or made in connection
herewith or therewith.
SECTION 5. Maintenance of Perfected Security Interests;
Further Documentation.
5.1. Grantor agrees that Grantor shall maintain the security
interests created by this Agreement as perfected security interests having at
least the priority described in subsection 6.2 and shall defend such security
interests against the claims and demands of all persons whomsoever.
5.2. Grantor agrees that at any time and from time to time, at
the sole cost and expense of Grantor, Grantor shall immediately execute, deliver
and, where applicable, file all further instruments and documents, including,
without limitation, all financing, continuation or amendment statements under
the Uniform Commercial Code in effect in any applicable jurisdiction with
respect to the security interests created hereby, and take all further action
that may be necessary or that Trustee may reasonably request, for the purpose of
obtaining, maintaining or preserving the full benefits of this Agreement and of
the rights and powers herein granted or for the purpose of creating, preserving,
perfecting or otherwise protecting the liens and security interests created
hereby. Without limiting Grantor's obligation to make such filings, Grantor
hereby authorizes Trustee (subject to the following sentence) to take all action
(including, without limitation, the filing of any Uniform Commercial Code
financing statements or continuation statements or amendments thereto without
the signature of Grantor as set forth in subsection 16.4 hereof) which Trustee
may deem necessary or desirable to perfect or otherwise protect the liens and
security interests
7
<PAGE> 8
created hereunder and to obtain the benefits of this Agreement. Subject to the
Trustee's obligations under the Indenture during the continuance of an Event of
Default, the Trustee shall not be responsible for perfecting or maintaining the
perfection of any security interest granted to it under this Agreement or for
filing, refiling, recording or rerecording any document, financing statement,
notice or instrument in any public office at any time or times and shall not be
responsible for seeing to the insurance on or the payment of any taxes with
respect to any property subject to this Agreement.
SECTION 6. Representations, Warranties and Covenants. Grantor
hereby represents and warrants to, and covenants and agrees with, Trustee (for
the benefit of the Trustee and the ratable benefit of the Holders) as follows:
6.1. Title; No Other Liens. Grantor is as of the date hereof,
and, as to Collateral acquired by it from time to time after the date hereof,
Grantor will be, the owner of each item of Collateral (or in the case of
Collateral held by Grantor as lessee under a lease, Grantor has and will have a
valid and subsisting leasehold interest in such Collateral), in each case free
and clear from any and all Liens, claims or other right, title or interest of
any person other than Permitted Liens. No financing statement or other public
notice with respect to all or any part of the Collateral is on file or of record
in any public office except (i) financing statements related to Permitted Liens
and (ii) financing statements which have been filed in favor of the Secured
Parties pursuant to this Agreement.
6.2. Perfected First Priority Liens. The security interests
granted pursuant to this Agreement (a) constitute perfected security interests
in the Collateral in favor of the Secured Parties, as collateral security for
the Obligations and (b) are prior to all other Liens on the Collateral in
existence on the date hereof except for Permitted Liens.
6.3. Necessary Filings. The filings, registrations and
recordings described on Exhibit E hereto constitute the only filings,
registrations and recordings necessary or appropriate to create, preserve,
protect and perfect the security interests granted by Grantor to Trustee
pursuant to this Agreement in respect of the Collateral. All such filings,
registrations and recordings have been accomplished as of the date hereof (other
than filings with the United States Patent and Trademark Office and the United
States Copyright Office, each of which shall be made as soon as possible after
the execution hereof but in any event within 30 days after the date hereof).
6.4. Other Financing Statements. Grantor shall not execute or
authorize to be filed in any public office any financing statement (or similar
statement or instrument of registration under the law of any jurisdiction)
relating to the Collateral, except financing statements filed or to be filed in
respect of Permitted Liens.
6.5. Chief Executive Office; Location of Collateral and
Records. Grantor's chief executive office is located at the address set forth on
Exhibit F. Grantor represents and warrants that it has no place of business,
offices where Grantor's books of account and records are kept, or places where
the Collateral is used, stored or located, except (i) as set forth on Exhibit F
hereto, (ii) that as set forth in subsection 6.9 hereof, Equipment is kept at
8
<PAGE> 9
the locations set forth on Exhibit G hereto and (iii) that certain Equipment may
temporarily be in the possession of third parties for the purpose of such third
parties providing ordinary repair and maintenance thereof. Grantor further
covenants that, except for Collateral delivered to Trustee or an agent for
Trustee, or Equipment listed in Exhibit G and kept at the locations listed in
Exhibit G, Grantor will not store, use or locate any of the Collateral at any
place other than as set forth on Exhibit F, except that Equipment may
temporarily be in the possession of third parties for the purpose of such third
parties providing ordinary repair and maintenance thereof. Grantor represents
and warrants that it currently uses no business or trade names, except as set
forth on Exhibit F hereto.
6.6. Changes in Locations, Name, etc. Grantor shall not:
(a) change the location of its chief executive office from
that specified in Exhibit F, (b) change its name, identity or corporate or
partnership, as the case may be, structure or (c) change the location where it
maintains its books and records from the addresses set forth on Exhibit F,
unless (i) it shall have given Trustee not less than 45 days' prior written
notice of its intention so to do, clearly describing such new location or name
and providing such other information in connection therewith as Trustee may
reasonably request and (ii) with respect to such new location or name, Grantor
shall have taken all action which is necessary or appropriate or which is
reasonably requested by Trustee to maintain the perfection and proof of the
security interest of Trustee for the benefit of the Secured Parties in the
Collateral intended to be granted hereby and shall have delivered to the Trustee
an Officers' Certificate as to compliance with this clause (ii).
6.7. Delivery of Instruments and Chattel Paper. If any amount
payable under or in connection with any of the Collateral shall be or become
evidenced by any Instrument or Chattel Paper, such Instrument or Chattel Paper
shall be immediately delivered to Trustee, duly indorsed in a manner
satisfactory to Trustee, to be held as Collateral pursuant to this Agreement.
6.8. Inspections. Grantor shall permit representatives of
Trustee, upon reasonable notice, at any time during normal business hours to
inspect and make abstracts from its books and records pertaining to the
Collateral, and permit representatives of Trustee to be present at Grantor's
place of business to receive copies of all communications and remittances
relating to the Collateral, all in such manner as Trustee may reasonably
require.
6.9. Location of Equipment. Except for Equipment which may
temporarily be in the possession of third parties for the purpose of such third
parties providing ordinary repair and maintenance thereof, all Equipment held on
the date hereof by Grantor is located at one of the locations shown on Exhibit G
hereto. All Equipment now held or subsequently acquired shall be kept at one or
more of the locations shown on Exhibit G hereto, or such new location as Grantor
may establish if (a) it shall have given to Trustee at least 45 days' prior
written notice of its intention to do so, clearly describing such new location
and providing such other information in connection therewith as Trustee may
reasonably request, and (b) with respect to such new location, Grantor shall
have taken all action which is necessary or appropriate or which is reasonably
requested by Trustee to maintain the
9
<PAGE> 10
perfection and proof of the security interest of Trustee for the benefit of the
Secured Parties in the Collateral intended to be granted hereby and shall have
delivered to the Trustee an Officers' Certificate as to compliance with this
clause (b).
6.10. Farm Products. None of the Collateral constitutes or
will constitute Farm Products, or is or will be the Proceeds of Farm Products.
6.11. Authorization, Enforceability. Grantor has the requisite
power, authority and legal right to grant a security interest in all the
Collateral pursuant to this Agreement, and this Agreement has been duly
authorized, executed and delivered by, and constitutes the legal, valid and
binding obligation of, Grantor, enforceable against Grantor in accordance with
its terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally or by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
6.12. No Consents. Except for the filings, registrations and
recordings contemplated in subsection 6.3, no consent of any person (including,
without limitation, any stockholders or limited or general partners or creditors
of Grantor) and no consent, authorization, approval, or other action by, and no
notice to or filing with, any Governmental Authority or regulatory body or other
person is required either (a) for the grant by Grantor of a security interest in
the Collateral pursuant to this Agreement or for the authorization, execution,
delivery or performance of this Agreement by Grantor, (b) except as may be
provided in the Intercreditor Agreement and any amendment or supplement thereto,
for the exercise by Trustee of the rights provided for in this Agreement or (c)
for the exercise by Trustee of the remedies in respect of the Collateral
pursuant to this Agreement.
6.13. Collateral. All information set forth herein (including,
without limitation, the information set forth in the Exhibits annexed hereto)
relating to the Collateral is accurate and complete in all material respects.
6.14. Ownership of Collateral. Except as may otherwise be
permitted by the Indenture, Grantor at all times will be the sole legal and
beneficial owner of the Collateral.
6.15. Insurance. Grantor shall maintain at all times and at
its sole expense, with financially sound and reputable insurance companies,
insurance policies (a) insuring the Equipment against loss by fire, explosion,
theft and such other casualties as from time to time would be insured against by
a prudent operator of similar property and (b) insuring Trustee and the Holders
against liability for personal injury and property damage relating to such
Equipment, such policies to be in such form and amounts and having such coverage
as from time to time would be maintained by a prudent operator of similar
property. Each policy or certificates with respect to such insurance shall be
endorsed for the benefit of Trustee (including, without limitation, by naming
Trustee as an additional named insured or loss payee as its interest may appear)
and such policy or certificate shall be retained by Grantor, or at the request
of Trustee, delivered to Trustee. Each such policy shall state that it cannot be
cancelled without 30 days' prior written notice to Trustee. At least 30 days
10
<PAGE> 11
prior to the expiration of any such policy of insurance, Grantor shall obtain an
extension or renewal policy or an insurance certificate evidencing renewal or
extension of such policy and shall give Trustee written notice thereof. If
Grantor shall fail to insure such Collateral in accordance with the provisions
hereof or if Grantor shall fail to so endorse and deposit, or to extend or
renew, any such insurance policies or certificates with respect thereto, Trustee
shall have the right (but shall be under no obligation), to advance funds to
procure or renew or extend such insurance (after providing Grantor with at least
five Business Days' notice of its intent to advance such funds) and Grantor
agrees to reimburse Trustee for any and all costs and expenses thereof, with
interest on all such funds from the date advanced at the rate per annum (the
"Default Rate") equal to the rate then payable under the Securities plus two
percent. Within five Business Days after making any such advance, Trustee shall
endeavor to give Grantor written notice of the amount and purpose of such
advance; provided, however, that failure to give such notice will not relieve
Grantor of its obligations to make such reimbursement to Trustee. Unless an
Event of Default under the Indenture shall have occurred and shall be
continuing, Grantor may determine whether to file a claim for repair or
replacement costs or a claim for actual cash value under the relevant insurance
policy. Any proceeds of insurance in respect of the Collateral are hereby
assigned to Trustee. In case of any loss or damage to any of the Collateral, and
subject to the applicable provisions, if any, of the Intercreditor Agreement,
all proceeds of insurance maintained by Grantor shall be paid to Trustee as
Trust Moneys pursuant to the Indenture and shall be subject to retention and
disbursement by Trustee in accordance with the terms of the Indenture. The
provisions of this subsection 6.15 shall not be deemed to limit the Grantor's
obligations to maintain insurance (or any related obligations) pursuant to any
Mortgage or other Security Document.
6.16. Representations Regarding Contracts.
(a) Each Contract is in full force and effect and constitutes
a valid and legally enforceable obligation of Grantor and, to the best
of Grantor's knowledge, the other parties thereto, except as the
enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles (whether considered in a proceeding in equity or
at law).
(b) Neither Grantor nor (to the best of Grantor's knowledge)
any other party to any Contract is in default or is likely to become in
default in the performance or observance of any of the terms thereof.
(c) The Grantor has fully performed all its material
obligations under each Contract.
(d) The right, title and interest of Grantor in, to and under
each Contract are not, to the best of Grantor's knowledge, subject to
any defense, offset, counterclaim or claim which would materially
adversely affect the value of such Contract as Collateral, nor have any
of the foregoing been asserted or alleged against Grantor as to any
Contract.
11
<PAGE> 12
(e) No amount payable to Grantor under or in connection with
any Contract is evidenced by any Instrument or Chattel Paper which has
not been delivered to Trustee.
6.17. Covenants Regarding Contracts.
(a) Grantor will perform and comply in all material respects
with all its obligations under the Contracts.
(b) Grantor will not amend, modify, terminate or waive any
provision of any Contract in any manner which could reasonably be
expected to materially adversely affect the value of such Contract as
Collateral; provided, that the Company may replace a Contract (the
"Initial Contract") so long as (1) the contract entered into to replace
the Initial Contract (the "Replacement Contract") is subject to the
security interest created by this Agreement and (2) the Replacement
Contract is on no less favorable terms to the Company then the Initial
Contract.
(c) Grantor will not fail to exercise promptly and diligently
each and every material right which it may have under each Contract;
provided the Grantor may amend, modify, terminate or waive rights
subject to subsection 6.17(b) above.
(d) Grantor will not fail to deliver to Trustee a copy of each
material demand, notice or document received by it relating in any way
to any Contract.
(e) In any suit, proceeding or action brought by Trustee or
any Holder under any Contract, Grantor will save, indemnify and keep
Trustee and such Holder harmless from and against any and all expenses,
losses, claims, liabilities and damages, as incurred, suffered by
reason of any defense, setoff, counterclaim, recoupment or reduction or
liability whatsoever of the obligor thereunder, arising out of a breach
by Grantor of any obligation thereunder or arising out of any other
agreement, indebtedness or liability at any time owing to or in favor
of such obligor or its successors from Grantor.
6.18. Further Actions and Identification of Collateral.
Grantor shall, at its sole cost and expense, make, execute, endorse,
acknowledge, file and/or deliver to Trustee from time to time such lists,
descriptions and designations of the Collateral, copies of warehouse receipts,
receipts in the nature of warehouse receipts, bills of lading, documents of
title, vouchers, invoices and schedules relating to the Collateral, as Trustee
may reasonably request, all in reasonable detail.
6.19. Notation on Books and Records. Grantor shall keep full
and accurate books and records relating to the Collateral, and stamp or
otherwise mark such books and records in such manner as may be necessary or as
Trustee may reasonably require in order to reflect the security interests
granted by this Agreement.
12
<PAGE> 13
6.20. Notices. Grantor will advise Trustee promptly, in
reasonable detail, at its address for notices provided for in the Indenture of:
(a) any Lien (other than security interests created hereby or
Permitted Liens) on any of the Collateral; and
(b) of the occurrence of any other event which could
reasonably be expected to have a Material Adverse Effect on the
aggregate value of the Collateral or on the security interests created
hereby.
6.21. Copyrights, Patents and Trademarks.
(a) (i) Exhibit A includes all Copyrights and Copyright
Licenses owned by Grantor in its own name on the date hereof; (ii)
Exhibit B includes all Patents and Patent Licenses owned by Grantor in
its own name on the date hereof; (iii) Exhibit C includes all
Trademarks and Trademark Licenses owned by Grantor in its own name on
the date hereof; (iv) to the best of Grantor's knowledge, each
Copyright, Patent and Trademark is on the date hereof valid,
subsisting, unexpired, enforceable and has not been abandoned; (v)
except as set forth in any of Exhibit A, Exhibit B or Exhibit C, none
of such Copyrights, Patents and Trademarks is on the date hereof the
subject of any licensing or franchise agreement; (vi) no holding,
decision or judgment has been rendered by any Governmental Authority
which would limit, cancel or question the validity of any Copyright,
Patent or Trademark in any respect that could reasonably be expected to
have a Material Adverse Effect; and (vii) no action or proceeding is
pending on the date hereof (1) seeking to limit, cancel or question the
validity of any Copyright, Patent or Trademark, or (2) which, if
adversely determined, would have a Material Adverse Effect on the value
of any Copyright, Patent or Trademark.
(b) Grantor (either itself or through licensees) will (i)
continue to use each material Trademark on each and every trademark
class of goods or services applicable to its current line as reflected
in its current catalogs, brochures and price lists in order to maintain
such Trademark in full force free from any claim of abandonment for
non-use, (ii) maintain as in the past the quality of products and
services offered under such Trademark, (iii) employ each material
Trademark with the appropriate notice of registration, (iv) not adopt
or use any mark which is confusingly similar or a colorable imitation
of such Trademark unless Trustee, for the ratable benefit of the
Holders, shall obtain a perfected security interest in such mark
pursuant to this Agreement, and (v) not (and not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any act
whereby such Trademark may become invalidated.
(c) Grantor will not do any act, or omit to do any act,
whereby any Patent may become abandoned or dedicated if such
abandonment would have a Material Adverse Effect.
13
<PAGE> 14
(d) Grantor will notify Trustee immediately if it knows, or
has reason to know, that any application or registration relating to
any material Patent or Trademark may become abandoned or dedicated, or
of any adverse determination or development (including, without
limitation, the institution of, or any such determination or
development in, any proceeding in the United States Patent and
Trademark Office or any court or tribunal in any country) regarding
Grantor's ownership of any Patent or Trademark material to the business
of Grantor or its right to register the same or to keep and maintain
the same and of any action Grantor is taking in respect of such event.
(e) Whenever Grantor, either by itself or through any agent,
employee, licensee or designee, shall file an application for the
registration of any Patent or Trademark with the United States Patent
and Trademark Office or any similar office or agency in any other
country or any political subdivision thereof, Grantor shall report such
filing to Trustee within five Business Days after the last day of the
fiscal quarter in which such filing occurs. Grantor shall execute and
deliver any and all agreements, instruments, documents, and papers as
may be necessary or appropriate or as Trustee may reasonably request to
evidence Trustee's and the Holders' security interest in any Patent or
Trademark and the goodwill and general intangibles of Grantor relating
thereto or represented thereby and shall deliver to Trustee an
Officers' Certificate as to compliance with this subparagraph (e).
(f) Grantor will take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United
States Patent and Trademark Office, or any similar office or agency in
any other country or any political subdivision thereof, to maintain and
pursue each application (and to obtain the relevant registration) and
to maintain each registration of the Patents and Trademarks material to
the business of Grantor, including, without limitation, filing of
applications for renewal, affidavits of use and affidavits of
incontestability and, as to Patents, the payment of maintenance fees,
except where the failure to take such action would not have a Material
Adverse Effect.
(g) In the event that any Patent or Trademark is infringed,
misappropriated or diluted by a third party, Grantor shall (i) take
such actions as Grantor shall reasonably deem appropriate under the
circumstances to protect such Patent or Trademark and (ii) if such
Patent or Trademark is of material economic value, promptly notify
Trustee after it learns thereof and sue for infringement,
misappropriation or dilution, to seek injunctive relief where
appropriate and to recover any and all damages for such infringement,
misappropriation or dilution.
(h) Grantor (either itself or through licensees) will (i)
employ the appropriate notice of copyright for each published Work
subject to copyright protection to the extent necessary to protect the
Copyright relating to such Work and (ii) not (and not permit any
licensee or sublicensee thereof to) do any act or knowingly omit to do
any act whereby any material Copyright may become
14
<PAGE> 15
invalidated, except where the failure to take any such action would not
have a Material Adverse Effect.
(i) Grantor will not (either itself or through licensees) do
any act, or omit to do any act, whereby any material Copyright may
become injected into the public domain, except where the failure to
take any such action would not have a Material Adverse Effect.
(j) Grantor will notify Trustee immediately if it knows, or
has reason to know, that any Copyright may become injected into the
public domain or of any adverse determination or development
(including, without limitation, the institution of, or any such
determination or development in, any proceeding in any court or
tribunal in any country) regarding Grantor's ownership of any such
Copyright or its validity and of any action Grantor is taking in
respect of such event.
(k) Whenever Grantor, either by itself or through any agent,
employee licensee or designee, shall file an application for the
registration of any Copyright with the United States Copyright Office
or any similar office in any other country or political subdivision
thereof, Grantor shall report such filing to Trustee within five
Business Days after the last day of the fiscal quarter in which such
filing occurs. Grantor shall execute and deliver any and all
agreements, instruments, documents and papers as shall be necessary or
appropriate or as Trustee reasonably may request to evidence Trustee's
and the Holders' security interest in such Copyright and shall deliver
to Trustee an Officers' Certificate as to compliance with this
subparagraph (k).
(l) Grantor will take all reasonable and necessary steps, as
it shall deem appropriate under the circumstances, in accordance with
its reasonable business judgment, to maintain and pursue each
application (and to obtain the relevant registration) and to maintain
to the extent permitted by law each registration of each material
Copyright owned by Grantor including, without limitation, filing of
applications for renewal, where necessary.
(m) Grantor will promptly notify Trustee of any material
infringement of any Copyright owned by it of which it becomes aware and
will take such actions as it shall reasonably deem appropriate under
the circumstances to protect such Copyright, including, where
appropriate in its reasonable business judgment, the bringing of suit
or the settling of actual or potential suits for infringement, seeking
injunctive relief and seeking to recover any and all damages for such
infringement.
6.22. Fair Labor Standards Act. Any goods now or hereafter
produced by Grantor or any of its subsidiaries included in the Collateral have
been and will be produced in compliance with the requirements of the Fair Labor
Standards Act, as amended.
6.23. After-Acquired Intellectual Property. If Grantor shall
(a) obtain any rights to any new invention (whether or not patentable),
know-how, trade secret, design,
15
<PAGE> 16
process, procedure, formula, diagnostic test, service mark, trademark, trademark
registration, trade name, copyright or license or (b) become entitled to the
benefit of any patent, service mark or trademark application, trademark,
trademark registration, license renewal, copyright renewal or extension, or
patent for any reissue, division, continuation, renewal extension, or
continuation-in-part of any patent or any improvement on any patent, the
provisions of this Agreement shall automatically apply thereto and any item
enumerated in clause (i) or (ii) of this sentence shall automatically constitute
Collateral and shall be subject to the assignment, lien and security interest
created hereby without further action by any party. Grantor promptly shall (x)
give to Trustee written notice of its acquisition of or entitlement to any of
the rights set forth in clauses (i) and (ii) of the immediately preceding
sentence and (y) confirm the attachment of the lien and security interest
created hereby to any of such rights by execution of an appropriate instrument
delivered to Trustee, including an amendment to Exhibits A, B and/or C annexed
hereto to include any such rights.
SECTION 7. Special Provisions Relating to Contracts.
7.1. Grantor Remains Liable under Contracts. Anything herein
to the contrary notwithstanding, Grantor shall remain liable under each of the
Contracts to observe and perform all the conditions and obligations to be
observed and performed by it thereunder, all in accordance with the terms and
provisions of each Contract. Neither Trustee (nor any other trustee under any
Mortgage) nor any Holder shall have any obligation or liability under any
Contract by reason of or arising out of this Agreement or the receipt by Trustee
(or any such other trustee) or any such Holder of any payment relating to such
Contract pursuant hereto, nor shall Trustee (or any such other trustee) or any
Holder be obligated in any manner to perform any of the obligations of Grantor
under or pursuant to any Contract, to make any payment, to make any inquiry as
to the nature or the sufficiency of any payment received by it or as to the
sufficiency of any performance by any party under any Contract, to present or
file any claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.
7.2. Communication with Contracting Parties. Trustee in its
own name or in the name of others may communicate with parties to the Contracts
to verify with them to Trustee's satisfaction the existence, amount and terms of
any Contracts. Unless an Event of Default shall have occurred and shall be
continuing, before communicating with parties to the Contracts as provided in
the prior sentence, Trustee shall first request Grantor to so communicate with
the other parties to the Contract on Trustee's behalf; provided, if either (1)
Grantor does not so contact such parties within three business days from
Trustee's request or (2) Trustee does not receive verification to Trustee's
satisfaction of the existence, amount and terms of any Contract within 15 days
of its request to Grantor, then Trustee may contact the parties to the Contracts
directly.
16
<PAGE> 17
SECTION 8. Special Provisions Relating to Intellectual
Property.
8.1. Modifications. Grantor and Trustee may modify this
Agreement, without the consent of Holders, by amending Exhibits A, B and/or C
annexed hereto to include any future Intellectual Property of Grantor in
accordance with subsection 6.23 or to reflect any disposition of Intellectual
Property made in compliance with the provisions of this Agreement and the
Indenture.
8.2. Applications. Except in the ordinary course of business
consistent with prudent business practice, and as may otherwise be permitted by
the Indenture, Grantor shall not abandon any registration of any Intellectual
Property or any right to file an application with respect to Intellectual
Property or any pending application without the prior written consent of
Trustee.
8.3. Restriction on Licensing Intellectual Property. Grantor
shall not license the Intellectual Property or any portion thereof, or amend or
permit the amendment of any of the Licenses in either case in a manner that
adversely affects the right to receive any material amount of payments
thereunder, or, except as otherwise permitted under the Indenture, in any manner
adverse to the interests of Trustee in the Intellectual Property without the
consent of Trustee.
8.4. Grant of License. For the purpose of enabling Trustee to
exercise rights and remedies under Section 11 hereof at such time as Trustee
shall be lawfully entitled to exercise such rights and remedies, and for no
other purpose, Grantor hereby grants to Trustee, to the extent assignable, an
irrevocable, non-exclusive license (exercisable without payment of royalty or
other compensation to Grantor) to use, assign, license or sublicense any of the
Intellectual Property now owned or hereafter acquired by Grantor, wherever the
same may be located, including in such license reasonable access to all media in
which any of the licensed items may be recorded or stored and to all computer
programs used for the compilation or printout thereof.
8.5. Use of Intellectual Property Prior to Event of Default.
Subject to subsection 8.3 but notwithstanding any other provision herein to the
contrary, so long as no Event of Default shall have occurred and be continuing,
Grantor will be permitted to exploit, use, enjoy, protect, license, sublicense,
assign, sell, dispose of or take other actions with respect to the Intellectual
Property in the ordinary course of the business of Grantor. In furtherance of
the foregoing, unless an Event of Default shall have occurred and be continuing
Trustee shall from time to time, upon the request of Grantor, execute and
deliver any instruments, certificates or other documents, in the form so
requested, which Grantor shall have certified are appropriate (in its judgment)
to allow Grantor to take any action permitted above (including relinquishment of
the license provided as to any specific Intellectual Property). Further, upon
the payment in full of all of the Obligations or earlier expiration of this
Agreement or release of the Collateral, Trustee shall grant back to Grantor
without recourse the license granted pursuant to subsection 8.4 immediately
above. The exercise of rights and remedies under subsection 8.4 hereof by
Trustee shall not terminate
17
<PAGE> 18
the rights of the holders of any licenses or sublicenses theretofore granted by
Grantor in accordance with the first sentence of this subsection 8.5.
SECTION 9. Transfers and Other Liens. Except as permitted by
the Indenture, Grantor shall not sell, convey, assign or otherwise dispose of,
or grant any option with respect to, any of the Collateral. Grantor shall not
create or permit to exist any Lien upon or with respect to any of the Collateral
other than Permitted Liens.
SECTION 10. Reasonable Care. Beyond the duties set forth in
subsection 16.3 and the exercise of reasonable care in custody thereof, Trustee
shall have no duty as to the collection of any Collateral in its possession or
control or in the possession or control of any agent or nominee of Trustee, or
any income thereon or as to the preservation of rights against prior parties or
any other rights pertaining thereto. Trustee shall be deemed to have exercised
reasonable care in the custody and preservation of the Collateral in its
possession if such Collateral is accorded treatment substantially equivalent to
that which Trustee, in its individual capacity, accords its own property, it
being understood that Trustee shall not have responsibility for (i) ascertaining
or taking action with respect to calls, conversions, exchanges, maturities,
tenders or other matters relating to any Collateral, whether or not Trustee or
any other Secured Party has or is deemed to have knowledge of such matters, or
(ii) taking any necessary steps to preserve rights against any person with
respect to any Collateral.
SECTION 11. Remedies Upon Event of Default.
11.1. Notice to Obligors and Contract Parties. Upon the
request of Trustee at any time after the occurrence and during the continuance
of an Event of Default, Grantor shall notify parties to the Contracts and
account debtors in respect of any General Intangibles that such Collateral has
been assigned to Trustee for the ratable benefit of the Holders and that
payments in respect thereof shall be made directly to Trustee.
11.2. Proceeds to be Turned Over to Trustee. If an Event of
Default shall occur and be continuing all Proceeds received by Grantor
consisting of cash, checks and other near-cash items shall be held by Grantor in
trust for Trustee and the Holders, segregated from other funds of Grantor, and
shall, forthwith upon receipt by Grantor, be turned over to Trustee in the exact
form received by Grantor (duly indorsed by Grantor to Trustee, if required) and
held by Trustee in the Collateral Account, which shall be maintained under the
sole dominion and control of Trustee. All Proceeds while held by Trustee in the
Collateral Account (or by Grantor in trust for Trustee and the Holders) shall
continue to be held as collateral security for all the Obligations and shall not
constitute payment thereof until applied as provided in Section 12.
11.3. Obtaining Possession of the Collateral. If an Event of
Default shall have occurred and be continuing, then and in every such case,
Trustee may, but shall not be obligated to, in addition to any other action
permitted by law (and not limited in any manner to the remedies contained in the
Securities and the Indenture) take one or more of the following actions:
18
<PAGE> 19
(a) personally, or by agents or attorneys, immediately take
possession of the Collateral or any part thereof, from Grantor or any
other person who then has possession of any part thereof with or
without notice or process of law, and for that purpose may enter upon
Grantor's premises where any of the Collateral is located and remove
such Collateral and use in connection with such removal any and all
services, supplies, aids and other facilities of Grantor;
(b) sell, assign or otherwise liquidate, or direct Grantor to
sell, assign or otherwise liquidate, any or all investments made in
whole or in part with the Collateral or any part thereof, and take
possession of the proceeds of any such sale, assignment or liquidation;
and
(c) take possession of the Collateral or any part thereof, by
directing Grantor in writing to deliver the same to Trustee at any
place or places which Trustee shall reasonably select, in which event
Grantor shall at its own expense: (x) forthwith cause the same to be
moved to the place or places so designated by Trustee and there
delivered to Trustee; (y) store and keep any Collateral so delivered to
Trustee at such place or places pending further action by Trustee and
(z) while the Collateral shall be so stored and kept, provide such
guards and maintenance services as shall be reasonably necessary to
protect the same and to preserve and maintain them in good condition.
Grantor's obligation to deliver the Collateral is of the essence of
this Agreement. Upon application to a court of equity having
jurisdiction, Trustee shall, to the extent permitted by law, be
entitled to a decree requiring specific performance by Grantor of such
obligation.
11.4. Remedies Under UCC. In addition to the rights and
remedies provided in this Agreement or otherwise available to it, Trustee shall
have all the rights and remedies of a secured party under the UCC or under the
Uniform Commercial Code of any other relevant jurisdiction.
11.5. Additional Non-UCC Remedies. Upon the occurrence and
during the continuance of an Event of Default, Trustee, without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon
Grantor or any other person (all and each of which demands, defenses,
advertisements and notices are, to the extent permitted by law, hereby waived),
may in such circumstances forthwith collect, receive, appropriate and realize
upon the Collateral, or any part thereof, and/or may forthwith sell, lease,
assign, give option or options to purchase, or otherwise dispose of and deliver
the Collateral or any part thereof (or contract to do any of the foregoing), in
one or more parcels at public or private sale or sales, at any exchange,
broker's board or office of Trustee or elsewhere upon such terms and conditions
as Trustee may deem advisable and at such prices as it may elect, for cash or on
credit or for future delivery without assumption of any credit risk. Trustee or
any Holder shall have the right, to the extent permitted by law, upon any such
public sale or sales or upon any such private sale or sales, to purchase the
whole or any part of the Collateral so sold, free of any right or equity of
redemption in Grantor, which right or equity is, to the extent permitted by law,
hereby waived or released. Grantor further agrees, at Trustee's
19
<PAGE> 20
request, to assemble the Collateral and make it available to Trustee at places
which Trustee shall reasonably select, whether at Grantor's premises or
elsewhere. Trustee shall apply the net proceeds of any action taken by it
pursuant to this subsection, after deducting all reasonable costs and expenses
of every kind incurred in connection therewith or incidental to the care or
safekeeping of any of the Collateral or in any way relating to the Collateral or
the rights of Trustee and the Holders hereunder, including, without limitation,
reasonable attorneys' fees and disbursements, as provided in Section 12 hereof,
and only after such application and after the payment by Trustee of any other
amount required by any provision of law, including, without limitation, Section
9-504(1)(c) of the UCC, need Trustee account for the surplus, if any, to
Grantor. To the extent permitted by applicable law, Grantor waives all claims,
damages and demands it may acquire against Trustee (or any other trustee under
any Mortgage) or any Holder arising out of the exercise by them of any rights
hereunder. If any notice of proposed sale or other disposition of Collateral
shall be required by law, such notice shall, to the extent permitted by law, be
deemed reasonable and proper if given at least 10 days before such sale or other
disposition.
11.6. Certain Sales of Collateral. Grantor recognizes that, by
reason of certain prohibitions contained in law, rules, regulations or orders of
any Governmental Authority, Trustee may be compelled, with respect to any sale
of all or any part of the Collateral, to limit purchasers to those who meet the
requirements of such Governmental Authority. Grantor acknowledges that any such
sales may be at prices and on terms less favorable to Trustee than those
obtainable through a public sale without such restrictions, and, notwithstanding
such circumstances, agrees that any such restricted sale shall be deemed to have
been made in a commercially reasonable manner.
11.7. Certain Remedies in Respect of Intellectual Property. If
an Event of Default shall have occurred and shall be continuing, in addition to
the other rights and remedies provided for herein or otherwise available to it,
Trustee may license or sublicense (whether general, special or otherwise, and
whether on an exclusive or non-exclusive basis) all or any portions of the
Intellectual Property throughout the world for such term or terms, on such
conditions and in such manner as Trustee shall determine. Upon request by
Trustee, Grantor shall execute and deliver to Trustee any powers of attorney, in
form and substance satisfactory to Trustee, for the implementation of any
assignment, license, sublicense, grant of option, sale or other disposition of
any Intellectual Property. In the event of any sale, assignment, or other
disposition of any of the Intellectual Property, the goodwill connected with and
symbolized by the Intellectual Property subject to such disposition shall be
included, and Grantor shall supply to Trustee or its designee, for inclusion in
such sale, assignment or other disposition, all Intellectual Property relating
to such Intellectual Property.
11.8. Specific Performance. In addition to any of the other
rights and remedies hereunder, Trustee shall have the right to institute a
proceeding seeking specific performance in connection with any of the agreements
or obligations hereunder.
SECTION 12. Application of Proceeds. The net proceeds received
by Trustee in respect of any sale of, collection from or other realization upon
all or any part of the Collateral pursuant to the exercise by Trustee of its
remedies provided in Section 11
20
<PAGE> 21
hereof shall be applied (after deduction of amounts permitted or required
pursuant to Section 11), together with any other sums then held by Trustee
pursuant to this Agreement, promptly by Trustee in the manner set forth in the
Indenture.
SECTION 13. Expenses. Grantor will upon demand pay to Trustee
the amount of any and all reasonable expenses, including the fees and expenses
of its counsel and the fees and expenses of any experts and agents which Trustee
may incur in connection with (a) the collection of the Obligations, (b) the
enforcement and administration of this Agreement, (c) the custody or
preservation of, or the sale of, collection from, or other realization upon, any
of the Collateral, (d) the exercise or enforcement of any of the rights of
Trustee or any Secured Party hereunder, (e) the failure by Grantor to perform or
observe any of the provisions hereof, (f) the filing or recording of financing
statements and other documents (including all taxes in connection therewith) in
public offices, (g) the payment or discharge of any taxes, insurance premiums or
encumbrances, (h) defending or prosecuting any actions or proceedings arising
out of or related to the transactions to which this Agreement relates, or (i)
otherwise protecting, maintaining or preserving the Collateral, or the
enforcing, foreclosing, retaking, holding, storing, processing, selling or
otherwise realizing upon the Collateral and Trustee's security interest therein,
whether through judicial proceedings or otherwise. All amounts payable by
Grantor under this Section 13 shall be due upon demand and shall be part of the
Obligations. Grantor's obligations under this Section 13 shall survive the
termination of this Agreement and the discharge of Grantor's other obligations
hereunder.
SECTION 14. Amendments in Writing; No Waiver, Cumulative
Remedies.
14.1. Subject to the provisions of Article Nine of the
Indenture, none of the terms or provisions of this Agreement may be waived,
amended, supplemented or otherwise modified except by a written instrument
executed by Grantor and Trustee, provided that any provision of this Agreement
imposing obligations on Grantor may be waived by Trustee in a written instrument
executed solely by Trustee.
14.2. To the maximum extent permitted by law, (a) no failure
on the part of Trustee to exercise, no course of dealing with respect to, and no
delay on the part of Trustee in exercising, any right, power, privilege or
remedy hereunder shall operate as a waiver thereof or constitute an acquiescence
to any Default or Event of Default; nor (b) shall any single or partial exercise
of any such right, power, privilege or remedy hereunder preclude any other or
future exercise thereof or the exercise of any other right, power or remedy. A
waiver by Trustee or any Holder of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which Trustee or
such Holder would otherwise have on any future occasion. To the maximum extent
permitted by law, the remedies herein provided are cumulative and are not
exclusive of any remedies provided by law.
14.3. In the event Trustee shall have instituted any
proceeding to enforce any right, power or remedy under this Agreement by
foreclosure, sale, entry or otherwise, and such proceeding shall have been
discontinued or abandoned for any reason or shall have been
21
<PAGE> 22
determined adversely to Trustee, then and in every such case, Grantor, Trustee
and each Holder shall be restored to their respective former positions and
rights hereunder with respect to the Collateral, and all rights, remedies and
powers of Trustee and the Secured Parties shall continue as if no such
proceeding had been instituted.
SECTION 15. Appointment as Trustee. The actions of Trustee
hereunder are subject to the provisions of the Indenture. Trustee shall have the
right hereunder to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking action (including,
without limitation, the release or substitution of Collateral), in accordance
with this Agreement and the Indenture. Trustee may resign and a successor
Trustee may be appointed in the manner provided in the Indenture. Upon the
acceptance of any appointment as Trustee by a successor Trustee, that successor
Trustee shall thereupon succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Trustee under this Agreement, and
the retiring Trustee shall thereupon be discharged from its duties and
obligations under this Agreement. After any retiring Trustee's resignation, the
provisions of this Agreement shall inure to its benefit as to any actions taken
or omitted to be taken by it under this Agreement while it was Trustee.
SECTION 16. Trustee Appointed Attorney-in-Fact; Trustee May
Perform.
16.1. Trustee Appointed as Attorney-in-Fact. Grantor hereby
irrevocably constitutes and appoints Trustee and any officer or agent thereof,
with full power of substitution, as its true and lawful attorneys-in-fact with
full irrevocable power and authority in the place and stead of Grantor and in
the name of Grantor or in its own name, for the purpose of carrying out the
terms of this Agreement to take any and all appropriate action and to execute
any and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Agreement, and, without limiting the generality
of the foregoing, Grantor hereby gives Trustee and any officer or agent of
Trustee the power and right, on behalf of Grantor, without notice to or assent
by Grantor, to do any or all of the following:
(a) in the name of Grantor or its own name, or otherwise, take
possession of and indorse and collect any checks, drafts, notes, acceptances or
other instruments for the payment of moneys due under any Contract or with
respect to any other Collateral and file any claim or take any other action or
proceeding in any court of law or equity or otherwise deemed appropriate by the
Trustee for the purpose of collecting any and all such moneys due under any
Contract or with respect to any other Collateral whenever payable;
(b) in the case of any Copyright, Patent or Trademark, execute
and deliver any and all agreements, instruments, documents and papers as Trustee
may request to evidence Trustee's and the Holders' security interest in such
Copyright, Patent or Trademark and the goodwill and general intangibles of
Grantor relating thereto or represented thereby;
(c) pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, effect any repairs or any insurance called
for by the terms of this Agreement and pay all or any part of the premiums
therefor and the costs thereof;
22
<PAGE> 23
(d) execute, in connection with any sale provided for in
subsections 11.3, 11.4 or 11.5 or any other sale of Collateral pursuant to this
Agreement, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral; and
(e) (i) direct any party liable for any payment under any of
the Collateral to make payment of any and all moneys due or to become due
thereunder directly to Trustee or as Trustee shall direct; (ii) ask or demand
for, collect, receive payment of and receipt for, any and all moneys, claims and
other amounts due or to become due at any time in respect of or arising out of
any Collateral; (iii) sign and indorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications, notices and other documents in connection with any
of the Collateral; (iv) commence and prosecute any suits, actions or proceedings
at law or in equity in any court of competent jurisdiction to collect the
Collateral or any thereof and to enforce any other right in respect of any
Collateral; (v) defend any suit, action or proceeding brought against Grantor
with respect to any Collateral; (vi) settle, compromise or adjust any such suit,
action or proceeding and, in connection therewith, to give such discharges or
releases as Trustee may deem appropriate; (vii) assign, license or sublicense
any Copyright, Patent or Trademark (along with the goodwill of the business to
which any such Copyright, Patent or Trademark pertains), throughout the world
for such term or terms, on such conditions, and in such manner, as Trustee shall
determine; and (viii) generally, sell, transfer, pledge and make any agreement
with respect to or otherwise deal with any of the Collateral as fully and
completely as through Trustee were the absolute owner thereof for all purposes,
and do, at Trustee's option and Grantor's expense, at any time, or from time to
time, all acts and things which Trustee deems necessary to protect, preserve or
realize upon the Collateral and Trustee's and the Holders' security interests
therein and to effect the intent of this Agreement, all as fully and effectively
as Grantor might do.
(f) The foregoing grant of authority is a power of attorney
coupled with an interest and such appointment shall be irrevocable until this
Agreement is terminated and the security interests created hereby are released.
Grantor hereby ratifies all that such attorneys shall lawfully do or cause to be
done by virtue and in accordance with the terms hereof.
(g) Anything in this subsection to the contrary
notwithstanding, Trustee agrees that it will not exercise any rights under the
power of attorney provided for in this subsection unless an Event of Default
shall have occurred and be continuing.
16.2. Trustee May Perform. If Grantor shall fail to do any act
or thing that it has covenanted to do hereunder or if any warranty on the part
of Grantor contained herein shall be breached, Trustee or any Secured Party may
(but shall not be obligated to), after providing Grantor with at least five
Business Days' notice, do the same or cause it to be done or remedy any such
breach, and may expend funds for such purpose. Any and all amounts so expended
by Trustee or such Secured Party shall be paid by Grantor promptly upon demand
therefor, with interest at the Default Rate during the period from and including
the date on which such funds were so expended to the date of repayment.
Grantor's
23
<PAGE> 24
obligations under this subsection 16.2 shall survive the termination of this
Agreement and the discharge of Grantor's other obligations under this Agreement.
16.3. Duty of Trustee. Trustee's sole duty with respect to the
custody, safekeeping and physical preservation of the Collateral in its
possession, under Section 9-207 of the UCC, Section 10 hereof or otherwise,
shall be to deal with it in the same manner as Trustee deals with similar
property for its own account. Neither Trustee, any Holder nor any of their
respective officers, directors, employees or agents shall be liable for failure
to demand, collect or realize upon any of the Collateral or for any delay in
doing so or shall be under any obligation to sell or otherwise dispose of any
Collateral upon the request of Grantor or any other person or to take any other
action whatsoever with regard to the Collateral or any part thereof. The powers
conferred on Trustee and the Holders hereunder are solely to protect Trustee's
and the Holders' interests in the Collateral and shall not impose any duty upon
Trustee or any Holder to exercise any such powers. Trustee and the Holders shall
be accountable only for amounts that they actually receive as a result of the
exercise of such powers, and neither they nor any of their offices, directors,
employees or agents shall be responsible to Grantor for any act or failure to
act hereunder, except for their own gross negligence or willful misconduct.
16.4. Execution of Financing Statements. Pursuant to Section
9-402(2)(e) of the UCC, Grantor authorizes Trustee (subject to the last sentence
of subsection 5.2) to file financing statements and continuation statements with
respect to the Collateral without the signature of Grantor in such form and in
such filing offices as Trustee determines appropriate to perfect the security
interests of Trustee under this Agreement. A carbon, photographic or other
reproduction of this Agreement shall be sufficient as a financing statement for
filing in any jurisdiction.
16.5. Authority of Trustee. Grantor acknowledges that the
rights and responsibilities of Grantor under this Agreement with respect to any
action taken by Trustee or the exercise or non-exercise by Trustee of any
option, voting right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Agreement shall, as between Trustee
and the Holders, be governed by the Indenture and by such other agreements with
respect thereto as may exist from time to time among them, but, as between
Trustee and Grantor, Trustee shall be conclusively presumed to be acting as
agent for the Holders with full and valid authority so to act or refrain from
acting, and Grantor shall be under no obligation, or entitlement, to make any
inquiry respecting such authority.
SECTION 17. Notices. All notices, requests, demands and other
communication shall be given in the manner set forth in the Indenture.
SECTION 18. Continuing Security Interest; Assignment. This
Agreement shall create a continuing security interest in the Collateral and
shall (a) be binding upon Grantor, its successors and assigns, and (b) inure,
together with the rights and remedies of Trustee hereunder, to the benefit of
Trustee (and, to the extent provided herein, any other trustee under a Mortgage)
and the other Secured Parties and each of their respective successors,
transferees and assigns; and no other persons (including, without limitation,
any
24
<PAGE> 25
other creditors of Grantor) shall have any interest herein or any right or
benefit with respect hereto. Without limiting the generality of the foregoing
clause (b), any Secured Party may assign or otherwise transfer any Security or
Guarantee held by it secured by this Agreement to any other person, and such
other person shall thereupon become vested with all the benefits in respect
thereof granted to such Secured Party, herein or otherwise, subject however, to
the provisions of the Indenture.
SECTION 19. Release of Collateral. Reference is hereby made to
Article 11 of the Indenture for provisions which discuss the release of the
Collateral from the Liens created by this Agreement.
SECTION 20. Termination. When all Obligations have been paid
in full, this Agreement shall terminate (except as to those provisions which it
is provided herein shall survive such termination) and Trustee shall forthwith
cause to be assigned, transferred and delivered, against receipt but without any
recourse, warranty or representation whatsoever, any remaining Collateral and
money received in respect thereof, to or on the order of Grantor and to be
released and canceled all licenses and rights referred to in subsection 8.4
hereof; provided, however, that any licenses or sublicenses granted by Trustee
pursuant to subsection 11.7 shall continue to be in full force and effect in
accordance with their terms. Trustee shall also execute and deliver to Grantor
upon such termination such Uniform Commercial Code termination statements and
such other documentation as shall be reasonably requested by Grantor to effect
the termination and release of the security interests in the Collateral.
SECTION 21. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS, EXCEPT TO
THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER,
OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR PROPERTY ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
SECTION 22. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST GRANTOR WITH RESPECT TO THIS AGREEMENT
MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE
STATE OF NEW YORK AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT GRANTOR, TO
THE EXTENT PERMITTED BY LAW, ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH THIS AGREEMENT. GRANTOR DESIGNATES AND APPOINTS CT
CORPORATION SYSTEM, WITH AN ADDRESS AT 1633 BROADWAY, NEW YORK, NEW YORK 10019
AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY GRANTOR IRREVOCABLY
AGREEING IN WRITING TO SO SERVE, AS ITS AGENT
25
<PAGE> 26
TO RECEIVE ON ITS BEHALF IN NEW YORK, NEW YORK, SERVICE OF ALL PROCESS IN ANY
SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY
GRANTOR TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. A COPY OF SUCH
PROCESS SO SERVED SHALL BE MAILED BY REGISTERED OR CERTIFIED MAIL TO GRANTOR AT
ITS ADDRESS PROVIDED FOR IN SECTION 17 HEREOF EXCEPT THAT UNLESS OTHERWISE
PROVIDED BY APPLICABLE LAW, ANY FAILURE TO MAIL SUCH COPY SHALL NOT AFFECT THE
VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT APPOINTED BY GRANTOR REFUSES TO
RECEIVE AND FORWARD SUCH SERVICE, GRANTOR HEREBY AGREES THAT SERVICE UPON IT BY
MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING HEREIN SHALL AFFECT THE RIGHT
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT
OF TRUSTEE OR ANY HOLDER TO BRING PROCEEDINGS AGAINST GRANTOR IN THE COURTS OF
ANY OTHER JURISDICTION.
SECTION 23. Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 24. Other Security. To the extent that the Obligations
are now or hereafter secured by property other than the Collateral or by the
guarantee, endorsement or property of any other person, then Trustee shall have
the right in its sole discretion to pursue, relinquish, subordinate, modify or
take any other action with respect thereto, without in any way modifying or
affecting any of Trustee's or any Holder's rights and remedies hereunder.
SECTION 25. Execution in Counterparts. This Agreement and any
amendments, waivers, consents or supplements hereto may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original,
but all such counterparts together shall constitute one and the same agreement.
SECTION 26. Headings. The Section and subsection headings used
in this Agreement are for convenience of reference only and shall not affect the
construction of this Agreement.
SECTION 27. Obligations Absolute. All obligations of Grantor
hereunder shall be absolute and unconditional irrespective of:
(a) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of Grantor;
26
<PAGE> 27
(b) any lack of validity or enforceability of the Indenture,
the Guarantees, the Securities, any other Security Document, the Intercreditor
Agreement or any other agreement or instrument relating thereto;
(c) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to any departure from the Indenture, the Guarantees,
the Securities, any other Security Document, the Intercreditor Agreement or any
other agreement or instrument relating thereto (except to the extent specified
in such change, amendment or waiver);
(d) any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to any departure
from any guarantee, for all or any of the Obligations;
(e) any exercise or non-exercise, or any waiver of any right,
remedy, power or privilege under or in respect of this Agreement, the Indenture,
the Guarantees, the Securities, any other Security Document, the Intercreditor
Agreement or any other agreement or instrument relating thereto, except as
specifically set forth in a waiver granted pursuant to the provisions of the
Indenture; or
(f) any other circumstances which might otherwise constitute a
defense available to, or a discharge of, a guarantor or a surety.
SECTION 28. Limitation on Interest Payable. It is the
intention of the parties to conform strictly to the usury laws, whether state or
federal, that are applicable to the transaction of which this Agreement is a
part. All agreements between Grantor and Trustee, whether now existing or
hereafter arising and whether oral or written, are hereby expressly limited so
that in no contingency or event whatsoever shall the amount paid or agreed to be
paid by Grantor for the use, forbearance or detention of the money to be loaned
or advanced under the Indenture, the Securities, the Guarantees, this Agreement,
any other Security Document, the Intercreditor Agreement or any other agreement
or instrument relating thereto, or for the payment or performance of any
covenant or obligation contained herein or therein, exceed the maximum amount
permissible under applicable federal or state usury laws. If under any
circumstances whatsoever fulfillment of any such provision, at the time
performance of such provision shall be due, shall involve exceeding the limit of
validity prescribed by law, then the obligation to be fulfilled shall be reduced
to the limit of such validity. If under any circumstances Grantor shall have
paid an amount deemed interest by applicable law, which would exceed the highest
lawful rate, such amount that would be excessive interest under applicable usury
laws shall be applied to the reduction of the principal amount owing in respect
of the Obligations and not to the payment of interest, or if such excessive
interest exceeds the unpaid balance of principal and any other amounts due
hereunder, the excess shall be refunded to Grantor. All sums paid or agreed to
be paid for the use, forbearance or detention of the principal under any
extension of credit or advancement of funds by Trustee or any Holder, shall, to
the extent permitted by applicable law, and to the extent necessary to preclude
exceeding the limit of validity prescribed by law, be amortized, prorated,
allocated and spread from the date of this Agreement until
27
<PAGE> 28
payment in full of the Obligations so that the actual rate of interest on
account of such principal amounts is uniform throughout the term hereof.
[THE FOLLOWING SECTION IS TO BE INCLUDED IN SECURITY AGREEMENTS TO BE
EXECUTED BY OREGON STEEL MILLS, INC. AND NEW CF&I, INC.:]
SECTION 29. Notice under ORS 746.201. In compliance with ORS 746.201,
this Agreement contains the following warning, which Grantor acknowledges:
WARNING
UNLESS YOU ([OREGON STEEL MILLS, INC.] [NEW CF&I, INC.]) PROVIDE US
(BENEFICIARY) WITH EVIDENCE OF THE INSURANCE COVERAGE AS REQUIRED BY OUR
CONTRACT OR LOAN AGREEMENT, WE MAY PURCHASE INSURANCE AT YOUR EXPENSE TO PROTECT
OUR INTEREST. THIS INSURANCE MAY, BUT NEED NOT, ALSO PROTECT YOUR INTEREST. IF
THE COLLATERAL BECOMES DAMAGED, THE COVERAGE WE PURCHASE MAY NOT PAY ANY CLAIM
YOU MAKE OR ANY CLAIM MADE AGAINST YOU. YOU MAY LATER CANCEL THIS COVERAGE BY
PROVIDING EVIDENCE THAT YOU HAVE OBTAINED PROPERTY COVERAGE ELSEWHERE.
YOU ARE RESPONSIBLE FOR THE COST OF ANY INSURANCE PURCHASED BY US. THE
COST OF THIS INSURANCE MAY BE ADDED TO YOUR CONTRACT OR LOAN BALANCE. IF THE
COST IS ADDED TO YOUR CONTRACT OR LOAN BALANCE, THE INTEREST RATE ON THE
UNDERLYING CONTRACT OR LOAN WILL APPLY TO THIS ADDED AMOUNT. THE EFFECTIVE DATE
OF COVERAGE MAY BE THE DATE YOUR PRIOR COVERAGE LAPSED OR THE DATE YOU FAILED TO
PROVIDE PROOF OF COVERAGE.
THE COVERAGE WE PROVIDE MAY BE CONSIDERABLY MORE EXPENSIVE THAN
INSURANCE YOU CAN OBTAIN ON YOUR OWN AND MAY NOT SATISFY ANY NEED FOR PROPERTY
DAMAGE COVERAGE OR ANY MANDATORY LIABILITY INSURANCE REQUIREMENTS IMPOSED BY
APPLICABLE LAW.
28
<PAGE> 29
IN WITNESS WHEREOF, Grantor and Trustee have caused this Agreement to
be executed and delivered by their duly authorized officers as of the date first
above written.
+,
as Grantor
By:
-----------------------
Name:
Title:
CHEMICAL BANK,
as Trustee
By:
-----------------------
Name:
Title:
29
<PAGE> 30
EXHIBIT A
COPYRIGHTS, COPYRIGHT REGISTRATIONS AND
APPLICATIONS FOR COPYRIGHT REGISTRATIONS
Title Date Filed Registration No. Effective Date
- --------------------------------------------------------------------------------
COPYRIGHT LICENSES
Title Date Filed Registration No. Effective Date
- --------------------------------------------------------------------------------
A-1
<PAGE> 31
EXHIBIT B
PATENTS AND PATENT APPLICATIONS
File Patent Country Registration No. Date
---- ------ ------- ---------------- ----
PATENT LICENSES
File Patent Country Registration No. Date
---- ------ ------- ---------------- ----
B-1
<PAGE> 32
EXHIBIT C
TRADE NAMES, TRADEMARKS, SERVICE MARKS,
TRADEMARK AND SERVICE MARK REGISTRATIONS AND
APPLICATIONS FOR TRADEMARK AND SERVICE MARK REGISTRATIONS
Application (A)
Registration (R) Registration
Mark or Series No. (S) or Filing Date
- --------------------------------------------------------------------------------
TRADE NAME, TRADEMARK AND SERVICE MARK LICENSES
Application (A)
Registration (R) Registration
Mark or Series No. (S) or Filing Date
- --------------------------------------------------------------------------------
C-1
<PAGE> 33
EXHIBIT D
INCLUDED INTANGIBLES
D-1
<PAGE> 34
EXHIBIT E
TYPE OF COLLATERAL WHAT TO FILE FILING LOCATION
- ------------------ ------------ ---------------
E-1
<PAGE> 35
EXHIBIT F
PLACE OF CHIEF EXECUTIVE OFFICE AND RECORDS
Chief Executive Office of Grantor: __________________________
Other Places Where Books, Records or
Collateral (Other than Equipment listed on Exhibit G)
are Kept: ________________________________
Other Business or Trade Names
Used by Grantor: _________________________________________
F-1
<PAGE> 36
EXHIBIT G
LOCATION OF EQUIPMENT
G-1
<PAGE> 37
[TO BE INCLUDED IN CF&I STEEL, L.P.'S SECURITY AGREEMENT]
EXHIBIT H
EXCLUDED EQUIPMENT
<PAGE> 1
EXHIBIT 4.4
DRAFT 5/20/96
INTERCREDITOR AGREEMENT
INTERCREDITOR AGREEMENT, dated as of June +, 1996 (this
"Agreement"), among Oregon Steel Mills, Inc., a Delaware corporation (the
"Company", which term includes any successor under the Indenture or the Credit
Agreement hereinafter referred to), New CF&I, Inc., a Delaware corporation ("New
CF&I"), and CF&I Steel, L.P., a Delaware limited partnership (CF&I") (New CF&I
and CF&I are hereinafter called, individually, a "Guarantor" and, collectively,
the "Guarantors", which terms include their respective successors, if any, under
the Indenture or the Credit Agreement), Chemical Bank, a New York banking
corporation, as Trustee (as defined in the recitals hereto), and First
Interstate Bank of Oregon, N.A., a national banking association, as Bank Agent
(as defined in the recitals hereto).
R E C I T A L S :
1. Pursuant to an Indenture dated as of June +, 1996 (as amended,
modified and supplemented and in effect from time to time, the "Indenture"),
between the Company, the Guarantors and Chemical Bank, a New York banking
corporation, as trustee under the Indenture (in such capacity, the "Trustee",
which term includes any successors in such capacity), the Company is
concurrently with the execution and delivery of this Intercreditor Agreement
issuing its +% First Mortgage Notes due 2003 (the "Notes").
2. Pursuant to the Indenture, the Company and the Guarantors have
entered into, and the Company, the Guarantors and any other persons (as defined
in the Indenture) who may become guarantors under the Indenture may in the
future enter into, certain Security Documents (as defined in the Indenture) to
provide collateral for the Notes and the Guarantees (as defined in the
Indenture) and the Trustee may take certain actions under the Security Documents
with respect to the collateral pledged thereunder (such collateral whether now
existing or hereafter arising as granted in the Indenture and the Security
Documents (whether such Security Documents now exist or are hereinafter entered
into) being collectively referred to herein as the "Note Collateral").
3. The Company has heretofore entered into an Amended and Restated
Credit Agreement dated as of June +, 1996 among First Interstate Bank of Oregon,
N.A., as administrative agent (in such capacity, the "Bank Agent", which term
includes any successors in such capacity), The Bank of Nova Scotia, as
syndication agent, and the banks and other lenders party thereto
<PAGE> 2
(the "Banks") (as the same may be amended, modified or supplemented and in
effect from time to time, the "Credit Agreement").
4. Pursuant to the Credit Agreement, the Company and the Guarantors
have entered into certain Amended and Restated Security Agreements, and any
other persons who may become guarantors under the Credit Agreement may in the
future enter into, certain Security Agreements (collectively, the "Bank Security
Agreements") to secure obligations under the Credit Agreement and the Guaranties
(as defined in the Credit Agreement), and the Bank Agent may take certain
actions under the Bank Security Agreements with respect to the collateral
pledged thereunder (such collateral whether now existing or hereafter arising as
granted in the Bank Security Agreements (whether such Bank Security Agreements
now exist or may hereafter be entered into), being collectively referred to
herein as the "Bank Collateral").
5. The Trustee has been authorized and directed to enter into this
Agreement pursuant to the Indenture.
6. The Bank Agent has been authorized and directed to enter into
this Agreement pursuant to the Credit Agreement.
7. The Company, the Guarantors, the Bank Agent and the Trustee
desire to execute and deliver this Agreement to set forth certain agreements
between them in respect of their respective rights and the respective rights of
the Banks and the Bank Agent with respect to certain of the Bank Collateral and
the Trustee and the holders of the Notes with respect to certain of the Note
Collateral.
A G R E E M E N T :
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, receipt of which is hereby acknowledged, the parties
hereto hereby agree as follows:
Section 1. Notices. (a) In the event that amounts owing on the Notes
shall be declared due and payable pursuant to the Indenture prior to their
stated maturity or the Trustee has taken any other action to enforce the rights
of the holders of the Notes or the Trustee with respect to the Note Collateral,
the Trustee shall promptly deliver to the Bank Agent a notice, which notice
shall describe such acceleration or such actions, as the case may be, with
reasonable specificity.
(b) In the event that amounts owing under the Credit Agreement shall be
declared due and payable prior to their stated maturity in accordance with the
terms thereof or any action has been taken to enforce the rights of the Banks or
the Bank Agent
2
<PAGE> 3
with respect to the Bank Collateral, the Bank Agent shall promptly deliver to
the Trustee a notice, which notice shall describe such acceleration or such
actions, as the case may be, with reasonable specificity.
Section 2. Entry Upon Premises by Bank Agent. In the event that any
action has been taken to enforce the rights of the holders of the Notes or the
Trustee with respect to the Note Collateral and the Trustee has obtained
possession and control of any or all of the Note Collateral pursuant to the
Security Documents, upon reasonable notice to the Trustee by the Bank Agent, the
Trustee shall, to the extent permitted by applicable law, permit the Bank Agent,
its employees, agents, advisers and representatives, at the Bank Agent's sole
cost, expense, liability and risk, to enter upon the Note Collateral for
purposes of (i) assembling the Bank Collateral located on such Note Collateral,
(ii) selling any or all of the Bank Collateral located on such Note Collateral,
whether in bulk, in lots or to retail customers in the ordinary course of
business or otherwise, (iii) removing any or all of the Bank Collateral located
on such Note Collateral, and/or (iv) taking reasonable actions to protect,
secure, and otherwise enforce the rights of the Bank Agent in and to the Bank
Collateral. If the Bank Agent elects to enter upon the Note Collateral as
aforesaid, all actions taken by the Bank Agent or its employees, agents,
advisors and representatives pursuant to this Section 2 shall be taken in an
efficient and workmanlike manner and in accordance with applicable law. The Bank
Agent shall compensate the Trustee for any damage to the Note Collateral caused
by such assembling, selling, removing, protecting and/or securing of such Bank
Collateral, and shall pay the Trustee in cash (which may be paid by check or
wire transfer), within 15 days after demand, for all the direct costs and
incremental costs of the Trustee, the Company or any of its subsidiaries related
to the provision and supervision of such access to the Note Collateral and the
assembling, selling, removing, protecting and/or securing the Bank Collateral,
including but not limited to wage, maintenance, utility, insurance and selling,
general and administrative expenses attributable or allocated to the foregoing,
in each case calculated in a manner consistent with the historical practices of
the Company. Upon fifteen business days' notice from the Trustee requesting that
the Bank Collateral be removed from the Note Collateral, the Bank Agent shall at
its sole cost, expense, liability and risk either remove the Bank Collateral
from the Note Collateral, or pay the Trustee reasonable storage costs as
provided in such notice, but such payment shall only be required, if after such
fifteen business day period expires no stay or other order prohibiting the Bank
Agent's removal of such Bank Collateral has been entered by a court of competent
jurisdiction; provided that such payment shall thereafter be required if such
stay or order is vacated or otherwise terminates. It is hereby understood that
the payment of storage costs to the Trustee
3
<PAGE> 4
hereunder is intended to compensate the Trustee, the Company or its subsidiaries
for their actual out of pocket costs, and the term "reasonable storage costs"
shall include only the actual out of pocket costs incurred by the Trustee in
connection with the storage of the Bank Collateral on the site of the Note
Collateral. Anything in this Agreement to the contrary notwithstanding, the
right of the Bank Agent, its employees, agents, advisers and representatives to
enter upon the Note Collateral pursuant to this Section 2 shall terminate 60
days after the Bank Agent's receipt of notice from the Trustee to remove the
Bank Collateral unless a stay or other order prohibiting the Bank Agent's
removal of such Bank Collateral has been entered by a court of competent
jurisdiction.
Section 3. Books and Records. (a) If the Trustee has obtained
possession or control of any or all of the Note Collateral, the Bank Agent may
use any Books and Records (as defined below) that are in the Trustee's
possession and which constitute Note Collateral and which pertain to any Bank
Collateral, to deal with or dispose of any such Bank Collateral. To the extent
that any such Books and Records constitute Note Collateral, the Trustee hereby
grants (to the extent it may lawfully do so) to the Bank Agent an irrevocable
license to use any and all such Books and Records solely for the purpose of
realizing upon the Bank Collateral. Such license shall be worldwide and neither
the Company, any Guarantor or the Trustee shall be entitled to any payment or
other compensation in respect of such license from the Bank Agent or any
sub-licensee, assignee or other transferee of such license. The Bank Agent shall
have the right to sell, assign or otherwise transfer such license, and to grant
sub-licenses, to one or more persons.
(b) If the Bank Agent has obtained or intends to take possession or
control of any Books and Records constituting part of the Bank Collateral, the
Bank Agent shall, prior to removing any such Books and Records from their
original location, provide copies thereof to the Trustee (including, in the case
of any Books and Records stored in electronic form, electronic copies thereof),
and, to the extent that any such Books and Records constitute Bank Collateral,
the Bank Agent hereby grants (to the extent it may lawfully do so) to the
Trustee an irrevocable and exclusive (save with respect to the Bank Agent)
license to use any and all such Books and Records for whatever purpose. Such
license shall be worldwide and neither the Company, any Guarantor, the Bank
Agent or any Bank shall be entitled to any payment or other compensation in
respect of such license from the Trustee or any sub-licensee, assignee or other
transferee of such license. The Trustee shall have the right to sell, assign or
otherwise transfer such license, and to grant sub-licenses, to one or more
persons. Without limitation to the foregoing, as promptly as practicable after
the sale or other disposition of the accounts receivable and inventory which
constitute Bank
4
<PAGE> 5
Collateral, the Bank Agent shall assign and transfer to the Trustee (or to any
person or persons designated by the Trustee) all of the Bank Agent's right,
title and interest in and to any and all Books and Records constituting part of
the Bank Collateral, and shall deliver to the Trustee (or such person or
persons) all such Books and Records in the Bank Agent's possession. The Bank
Agent hereby further agrees that it will enter into such instruments and
agreements and take such other actions as the Trustee shall reasonably request
in order to effectuate the provisions of this Section 3(b).
(c) As used herein, the term "Books and Records" means all books, records,
writings, data bases, information or other similar property (including any of
the foregoing in electronic form).
(d) Without limitation to the foregoing provisions of this Section 3, in
the event that in the exercise of their respective rights, the Trustee or the
Bank Agent shall receive possession or control of any Books and Records which
contain information relating to any of the property of the Company or any of its
subsidiaries in which the other party has been granted a security interest or
lien, such party shall notify the other party hereto that it has received such
Books and Records and shall, as promptly as practicable thereafter, deliver to
the other party such Books and Records.
Section 4. Notice of Sale or Assignment. The Trustee shall promptly
notify the Bank Agent of the sale, assignment lease, or other disposition by the
Trustee of any portion of the Note Collateral if any part of the Bank Collateral
is located in or upon any portion of the Note Collateral sold, leased, assigned
or otherwise disposed of.
Section 5. Sale or Assignment of Note Collateral. The Trustee shall
have the right to sell, assign, lease or otherwise dispose of all or any portion
of the Note Collateral and all or any portion of the Trustee's rights under this
Agreement. If the Trustee sells, assigns, leases or otherwise disposes of all or
any portion of the Note Collateral containing any Bank Collateral, the Trustee
shall require the purchaser or assignee thereof to agree with the Bank Agent or
for the benefit of the Bank Agent that it has acquired that portion of the Note
Collateral subject to the Bank Agent's rights hereunder by delivering an
acknowledgment to that effect to the Bank Agent; provided, however, that if the
Bank Agent is no longer entitled to access to the Note Collateral pursuant to
Section 2 hereof, then the purchaser or assignee of the Note Collateral shall
not be so required to agree.
Section 6. Payments to be Held in Trust. If the
Bank Agent shall receive any payment on account of the Company's
5
<PAGE> 6
obligations under the Notes or the Note Collateral, or if the Trustee shall
receive any payment on account of the Company's obligations under the Credit
Agreement or the Bank Collateral, such payments shall be held by the Bank Agent
or the Trustee, as the case may be, in trust for the benefit of, and shall be
immediately paid over and delivered to, the other party for application to the
Company's obligations under the Notes or the Credit Agreement, respectively.
Section 7. Information. The Bank Agent and the Trustee agree to use
their reasonable commercial efforts to cooperate with each other in connection
with the matters contemplated by this Agreement.
Section 8. Acknowledgement of Respective Security Interests; Lien
Priorities. Notwithstanding, to the extent permitted by law, the date, manner or
order of perfection of the security interests and liens granted to the Bank
Agent or the Trustee, and, to the extent permitted by law, notwithstanding any
provisions of the Uniform Commercial Code of any state or any applicable law or
decision or the Bank Security Agreements or the Security Documents or whether
either the Bank Agent or the Trustee holds possession of all or any part of the
Note Collateral or the Bank Collateral, the following, as between the Bank Agent
and the Trustee, shall, to the extent permitted by law, be the relative priority
of the security interests and liens of the Bank Agent and the Trustee:
(a) The Bank Agent shall have a first and prior security interest in
all Bank Collateral and the Trustee shall have no security interest therein or
lien thereon; and
(b) The Trustee shall have a first and prior security interest in
and/or mortgage lien upon all Note Collateral and the Bank Agent shall have no
security interest therein or lien thereon.
Section 9. Successors and Assigns. (a) The Bank Agent and the
Trustee will cause any of their respective successors in such capacities to
become a party to this Agreement and to assume the obligations of the Bank Agent
or the Trustee, as the case may be, hereunder. Upon so assuming all of such
obligations of the Bank Agent or the Trustee, as the case may be, such party
shall succeed to and be substituted for the Bank Agent or the Trustee, as the
case may be, under this Agreement.
(b) The Company and the Guarantors jointly and severally agree that
they will cause their respective successors, if any, under the Indenture and the
Credit Agreement to become parties to this Agreement and to assume the
obligations of the Company or the relevant Guarantor, as the case may be,
hereunder and upon so assuming all such obligations of the Company or the
6
<PAGE> 7
relevant Guarantor, as the case may be, such successors shall succeed to and be
substituted for the Company or such Guarantor, as the case may be, under this
Agreement; provided that the Company or such Guarantor shall not be released
from its obligations under this Agreement if it is not released from its
obligations under the Indenture. The Company and the Guarantors jointly and
severally agree that they will cause any other person who, after the date
hereof, shall become a guarantor under the Indenture or the Credit Agreement to
become a "Guarantor" under this Agreement and to assume the obligations of a
Guarantor hereunder.
(c) In the event that any person is hereafter required to become a
party to this Agreement pursuant to this Section 10, such person shall execute
an amendment to this Agreement wherein such person shall agree to become a party
to and to assume the obligations of the Bank Agent, the Trustee, the Company or
a Guarantor, as the case may be, hereunder, and all other parties to this
Agreement agree to enter into such amendment. Except as provided in the
preceding sentence, this Agreement shall not be amended, supplemented or
modified without the written consent of the Bank Agent and the Trustee nor may
any provision of this Agreement be waived except by written waiver of the party
to be charged therewith.
Section 10. Notices. Any notice of communication shall be
sufficiently given, if in writing and delivered in person (receipt acknowledged)
or by telecopier or overnight courier guaranteeing next day delivery, addressed
as follows (or to such other address as any party hereto may hereafter specify
by notice to the other parties hereto):
If to the Company or any Guarantor:
Oregon Steel Mills, Inc.
1000 S.W. Broadway, Suite 2200
Portland, Oregon 97205
Attention: Chief Financial Officer
Telecopier:
If to the Trustee:
Chemical Bank
Corporate Trustee Administration Department
450 West 33rd Street, 15th Floor
New York, New York 10001
Telecopier: (212) 946-7799/8567
7
<PAGE> 8
If to the Bank Agent:
First Interstate Bank of Oregon, N.A.
1300 S.W. Fifth Avenue, T19
Portland, Oregon 97201
Attention:
Telecopier:
Section 11. Further Assurances. The parties hereto will use all
reasonable efforts to execute such certificates and other documents and to take
such other actions as may be reasonably necessary to consummate the transactions
contemplated hereby.
Section 12. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall not invalidate the
remaining provisions hereof, and any such prohibition or unenforceability in any
such jurisdiction shall not invalidate or render unenforceable such provision in
any other jurisdiction.
Section 13. No Personal Liability. No stockholder, limited partner,
officer, director, employee or incorporator, past, present or future, of the
Company or any Guarantor, as such, shall have any personal liability under this
Agreement or for any claim based on, in respect of or by reason of this
Agreement, by reason of his, her or its status as such stockholder, limited
partner, officer, director, employee or incorporator.
Section 14. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute a single agreement.
Section 15. Acknowledgment by Company and Guarantors. The Company
and the Guarantors jointly and severally (a) acknowledge receipt of a copy of
this Agreement, (b) agree to cooperate with the other parties hereto by taking
all actions as are contemplated by this Agreement, (c) acknowledge that they
have no rights hereunder, and (d) agree not to assert any provision hereof as a
defense to, or otherwise assert any provision hereof in connection with, any
action, suit or proceeding relating to the Indenture, the Guarantees, the
Security Documents, the Note Collateral, the Credit Agreement, the Guaranties,
any Bank Security Agreement or any Bank Collateral, nor to assert any such
provision as a counterclaim or basis for set-off or recoupment against any party
hereto, any holder of Notes or any Bank.
Section 16. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the
8
<PAGE> 9
State of New York applicable to contracts made and performed wholly in the State
of New York.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this
Intercreditor Agreement to be executed by their respective duly authorized
signatories as of the day and year first written above.
CHEMICAL BANK,
as Trustee
By:
---------------------------------
Name:
Title:
FIRST INTERSTATE BANK OF
OREGON, N.A.,
as Bank Agent
By:
---------------------------------
Name:
Title:
OREGON STEEL MILLS, INC.
By:
---------------------------------
Name:
Title:
NEW CF&I, INC.
By:
---------------------------------
Name:
Title:
CF&I STEEL, L.P.
By New CF&I, Inc.,
as General Partner
By:
---------------------------------
Name:
Title:
10
<PAGE> 1
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
-------------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF
A TRUSTEE PURSUANT TO SECTION 305(b)(2)
-------
--------------------------------
CHEMICAL BANK
(Exact name of trustee as specified in its charter)
NEW YORK 13-4994650
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
270 PARK AVENUE
NEW YORK, NEW YORK 10017
(Address of principal executive offices) (Zip Code)
William H. McDavid
General Counsel
270 Park Avenue
New York, New York 10017
Tel: (212) 270-2611
(Name, address and telephone number of agent for service)
--------------------------------
OREGON STEEL MILLS, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 94-0506370
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
1000 S.W. BROADWAY
SUITE 2200
PORTLAND, OREGON 97205
(Address of principal executive offices) (Zip Code)
--------------------------------
NEW CF&I, INC.
(Exact name of guarantor as specified in its charter)
DELAWARE 93-1086900
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
1000 S.W. BROADWAY
SUITE 2200
PORTLAND, OREGON 97205
(Address of principal executive offices) (Zip Code)
--------------------------------
CF&I STEEL, L.P.
(Exact name of guarantor as specified in its charter)
DELAWARE 93-1103440
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
1000 S.W. BROADWAY
SUITE 2200
PORTLAND, OREGON 97205
(Address of principal executive offices) (Zip Code)
--------------------------------
% FIRST MORTGAGE NOTES DUE 2003
(Title of the indenture securities)
<PAGE> 2
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, State House, Albany, New York
12110.
Board of Governors of the Federal Reserve System, Washington, D.C.,
20551
Federal Reserve Bank of New York, District No. 2, 33 Liberty Street,
New York, N.Y.
Federal Deposit Insurance Corporation, Washington, D.C., 20429
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor and/or guarantor are affiliates of the trustee,
describe each such affiliation.
None.
-2-
<PAGE> 3
Item 16. List of Exhibits
List below all exhibits filed as a part of this Statement of
Eligibility.
1. A copy of the Articles of Association of the Trustee as now in
effect, including the Organization Certificate and the Certificates of
Amendment dated February 17, 1969, August 31, 1977, December 31, 1980,
September 9, 1982, February 28, 1985 and December 2, 1991 (see Exhibit 1 to
Form T-1 filed in connection with Registration Statement No. 33-50010, which is
incorporated by reference).
2. A copy of the Certificate of Authority of the Trustee to Commence
Business (see Exhibit 2 to Form T-1 filed in connection with Registration
Statement No. 33-50010, which is incorporated by reference).
3. None, authorization to exercise corporate trust powers being
contained in the documents identified above as Exhibits 1 and 2.
4. A copy of the existing By-Laws of the Trustee (see Exhibit 4 to
Form T-1 filed in connection with Registration Statement No. 33-84460, which is
incorporated by reference).
5. Not applicable.
6. The consent of the Trustee required by Section 321(b) of the Act
(see Exhibit 6 to Form T-1 filed in connection with Registration Statement No.
33-50010, which is incorporated by reference).
7. A copy of the latest report of condition of the Trustee,
published pursuant to law or the requirements of its supervising or examining
authority.
8. Not applicable.
9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, Chemical Bank, a corporation organized and existing under the laws of
the State of New York, has duly caused this statement of eligibility to be
signed on its behalf by the undersigned, thereunto duly authorized, all in the
City of New York and State of New York, on the 7TH day of MAY, 1996.
CHEMICAL BANK
By /s/ Patricia A. Kelly
-------------------------------------
Patricia A. Kelly
Vice President
-3-
<PAGE> 4
Exhibit 7 to Form T-1
Bank Call Notice
RESERVE DISTRICT NO. 2
CONSOLIDATED REPORT OF CONDITION OF
Chemical Bank
of 270 Park Avenue, New York, New York 10017
and Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System,
at the close of business December 31, 1995, in accordance
with a call made by the Federal Reserve Bank of this District
pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
ASSETS IN MILLIONS
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and
currency and coin .............................. $ 6,390
Interest-bearing balances ...................... 2,544
Securities:
Held to maturity securities ......................... 3,807
Available for sale securities ....................... 26,522
Federal Funds sold and securities purchased under
agreements to resell in domestic offices of the
bank and of its Edge and Agreement subsidiaries,
and in IBF's:
Federal funds sold ............................. 750
Securities purchased under agreements to resell 259
Loans and lease financing receivables:
Loans and leases, net of unearned income ... $ 72,938
Less: Allowance for loan and lease losses .. 1,917
Less: Allocated transfer risk reserve ...... 104
--------
Loans and leases, net of unearned income,
allowance, and reserve ......................... 70,917
Trading Assets ...................................... 27,963
Premises and fixed assets (including capitalized
leases) ........................................ 1,355
Other real estate owned ............................. 21
Investments in unconsolidated subsidiaries and
associated companies ........................... 171
Customer's liability to this bank on acceptances
outstanding .................................... 1,166
Intangible assets ................................... 433
Other assets ........................................ 4,822
--------
TOTAL ASSETS ........................................ $147,120
========
</TABLE>
- 4 -
<PAGE> 5
LIABILITIES
<TABLE>
<S> <C>
Deposits
In domestic offices ................................... $ 47,524
Noninterest-bearing ......................$17,041
Interest-bearing ......................... 30,483
-------
In foreign offices, Edge and Agreement subsidiaries,
and IBF's ............................................. 37,690
Noninterest-bearing .................... $ 147
Interest-bearing ....................... 37,543
-------
Federal funds purchased and securities sold under agreements
to repurchase in domestic offices of the bank and
of its Edge and Agreement subsidiaries, and in IBF's
Federal funds purchased ............................... 9,384
Securities sold under agreements to repurchase ........ 2,166
Demand notes issued to the U.S. Treasury ................... 741
Trading liabilities ........................................ 21,847
Other Borrowed money:
With original maturity of one year or less ............ 9,669
With original maturity of more than one year .......... 146
Mortgage indebtedness and obligations under capitalized
leases ................................................ 14
Bank's liability on acceptances executed and outstanding ... 1,180
Subordinated notes and debentures .......................... 3,411
Other liabilities .......................................... 5,290
TOTAL LIABILITIES .......................................... 139,062
---------
EQUITY CAPITAL
Common stock ............................................... 620
Surplus .................................................... 4,665
Undivided profits and capital reserves ..................... 3,055
Net unrealized holding gains (Losses)
on available-for-sale securities ........................... (290)
Cumulative foreign currency translation adjustments ........ 8
TOTAL EQUITY CAPITAL ....................................... 8,058
---------
TOTAL LIABILITIES, LIMITED-LIFE PREFERRED
STOCK AND EQUITY CAPITAL .............................. $ 147,120
=========
</TABLE>
I, Joseph L. Sclafani, S.V.P. & Controller of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the appropriate Federal regulatory authority and is true
to the best of my knowledge and belief.
JOSEPH L. SCLAFANI
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us, and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and is true and correct.
WALTER V. SHIPLEY )
EDWARD D. MILLER ) DIRECTORS
WILLIAM B. HARRISON )
- 5 -
<TABLE> <S> <C>
<ARTICLE> 5
<CIK>0001008915
<NAME>NEW CF&I
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 0 3
<SECURITIES> 0 0
<RECEIVABLES> 46,422 63,005
<ALLOWANCES> 518 504
<INVENTORY> 70,249 57,468
<CURRENT-ASSETS> 122,216 126,229
<PP&E> 229,709 239,015
<DEPRECIATION> 11,124 14,020
<TOTAL-ASSETS> 392,268 402,167
<CURRENT-LIABILITIES> 74,712 73,434
<BONDS> 0 0
0 0
0 0
<COMMON> 1 1
<OTHER-SE> 23,167 25,067
<TOTAL-LIABILITY-AND-EQUITY> 392,268 402,167
<SALES> 303,003 112,643
<TOTAL-REVENUES> 303,003 112,643
<CGS> 279,099 99,478
<TOTAL-COSTS> 279,099 99,478
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 11,923 4,581
<INCOME-PRETAX> (4,643) 3,294
<INCOME-TAX> (5,066) 1,394
<INCOME-CONTINUING> 423 1,900
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 423 1,900
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CIK>00010008914
<NAME>CF&I STEEL
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 46,051 62,525
<ALLOWANCES> 518 504
<INVENTORY> 70,087 57,296
<CURRENT-ASSETS> 116,591 120,369
<PP&E> 227,497 236,790
<DEPRECIATION> 10,569 13,411
<TOTAL-ASSETS> 383,819 394,690
<CURRENT-LIABILITIES> 75,829 72,742
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 19,229 22,055
<TOTAL-LIABILITY-AND-EQUITY> 383,819 394,690
<SALES> 300,060 111,479
<TOTAL-REVENUES> 300,060 111,479
<CGS> 277,452 99,388
<TOTAL-COSTS> 277,452 99,388
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 13,518 4,961
<INCOME-PRETAX> (7,564) 2,826
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,564) 2,826
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,564) 2,826
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
