<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 10, 1996
REGISTRATION NOS. 333-02355, 333-02355-01 AND 333-02355-02
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
AMENDMENT NO. 2 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 Identification
incorporation of organization) Classification Code Number) No.)
1000 S.W. BROADWAY, SUITE 2200, PORTLAND, OREGON 97205 (503) 223-9228
(Address, including zip code, and telephone number, including area code, of registrant's principal
executive offices)
</TABLE>
---------------------
AMENDMENT NO. 2 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 Identification
incorporation or organization) Classification Code Number) No.)
1000 S.W. BROADWAY, SUITE 2200, PORTLAND, OREGON 97205 (503) 223-9228
(Address, including zip code, and telephone number, including area code, of registrant's principal
executive offices)
</TABLE>
---------------------
AMENDMENT NO. 2 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. / /
---------------------
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.
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<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 JUNE 10, 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 Notes have been approved for listing on the New York
Stock Exchange, subject to official notice of issuance.
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 14 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 $ $
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</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 continuous caster at
CF&I Steel Division's Pueblo Mill]
Continuous Caster (above) -- CF&I Steel Division
Only domestic minimill to utilize 100%
continuously cast rounds.
[Photograph of steel coil
produced at CF&I Steel Rod and Bar Mill (left) -- CF&I Steel Division
Division's rod and bar mill] 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 [Photograph of pressure cast steel
provides a uniform structure slab produced at the Oregon Steel
ideal for hot rolled plate. Division's Portland Mill]
Napa Pipe Mill (below) -- Oregon
Steel Division. Only large
diameter pipe mill in the western
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
RECENT DEVELOPMENTS
On June 7, 1996 the Company announced that a mechanical failure had
resulted in the temporary shutdown of the ladle refining furnace (the "LRF") at
the Pueblo Mill. The LRF is used to refine the chemistry of the molten steel
produced by the electric arc furnaces at the Pueblo Mill. The Company estimates
that repairs to the LRF will take approximately 20 days and that, until the LRF
is returned to full operation, steel production at the Pueblo Mill will be
reduced substantially. There is, however, no assurance that repairs will not
take longer.
This temporary shutdown of the LRF and the reduction in steel production
will increase production costs and adversely affect shipment levels in June and
July 1996. The Company estimates that this temporary shutdown will reduce pretax
results by approximately $3 million, although the actual effect on results of
operations will likely vary from this estimate. The Company has business
interruption insurance and is reviewing its coverage under the policy to
determine whether it is entitled to any insurance recovery in connection with
the LRF shutdown. Although the Company believes there is insurance coverage
(subject to a deductible), there is no assurance that the Company will be
entitled to any recovery under this policy and, in any event, any recovery would
likely occur in a later period.
The estimates regarding the length of time it will take to repair the LRF
and the effect of the temporary shutdown on results of operations are based on a
number of estimates and assumptions and are subject to significant
uncertainties. Accordingly, there is no assurance that the LRF will be repaired
within the estimated time period set forth above or that the effect of the
shutdown on results of operations will not be more adverse than the estimate set
forth above.
The Company's results of operations for the three months ended March 31,
1996 were favorably affected by strong shipments of rail and OCTG products. Rail
sales are expected to decline in the second quarter of 1996, and this decline,
together with the need for further adjustment of the product mix at the Pueblo
Mill, including rod and bar product mix, is expected to adversely affect results
of operations for the second quarter of 1996 compared to the first quarter of
1996.
The combined effect of the matters discussed above is expected to have a
material adverse effect on the Company's results of operations for the second
quarter of 1996 compared to the first quarter of 1996. See "-- Forward-Looking
Statements" below.
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" and in Appendix A
under "Results of Operations" 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 "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business -- Capital
Improvement Program."
7
<PAGE> 10
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
the Amended Credit Agreement (which will permit
borrowings in an aggregate principal amount of up
to $125 million, but under which no borrowings are
expected to be outstanding upon completion of the
Offerings) and under other credit facilities and
debt instruments of the Company and its
subsidiaries (under which borrowings of
approximately $56.8 million in aggregate principal
amount were outstanding as of March 31, 1996) 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 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
8
<PAGE> 11
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 of the Company, New CF&I
and CF&I. 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, excluding certain
assets referred to below. 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, excluding certain
assets referred to below. The collateral for the
Notes and the Guarantees will not include, among
other things, (i) inventory and accounts receivable
and related books and records (most of 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)
(which will include certain real property and
improvements, the rod mill equipment previously
used at the Pueblo Mill, the rolling mill equipment
previously used at the Fontana Plate Mill, assets
encumbered by purchase money liens or securing
commercial letters of credit, motor vehicles and
certain mobile equipment) 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 subsidiar-
9
<PAGE> 12
ies, enter into transactions with affiliates,
create restrictions on the ability of certain
subsidiaries to pay dividends to the Company, enter
into sale-leaseback transactions, and enter into
certain consolidations, mergers or other business
combinations, in each case subject to the
exceptions and qualifications provided therein. See
"Description of the Notes."
Listing.................... The Notes have been approved for listing on the New
York Stock Exchange, subject to official notice of
issuance.
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."
10
<PAGE> 13
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)
11
<PAGE> 14
(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."
12
<PAGE> 15
(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.
13
<PAGE> 16
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." In that
regard, the Company believes that investors may view the Company's ability to
pay dividends at its historic rate as a general measure of its financial
condition. Consequently, a reduction in the dividend rate could make it more
difficult for the Company to raise additional debt or equity capital, and also
could adversely affect the market prices of the Common Stock and the Notes.
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. 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
14
<PAGE> 17
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 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. See
"Prospectus Summary -- Recent Developments" for certain matters which are
expected to adversely affect the Company's results of operations for the second
quarter of 1996 as compared to the first quarter of 1996.
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
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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 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
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of additional indebtedness and, unless its results of operations improve, the
Company will be prohibited by the Indenture from incurring additional
indebtedness other than under the Amended Credit Agreement and subject to
certain additional exceptions. The level of the Company's indebtedness and the
restrictive covenants contained in its debt instruments, including the Notes and
the Amended Credit Agreement, could significantly limit the operating and
financial flexibility of the Company and its ability to respond to competitive
pressures or adverse industry conditions. In addition, this level of
indebtedness and these covenants, as well as the pledge of substantially all of
the assets of the Company and its subsidiaries to collateralize borrowings under
the Notes, the Amended Credit Agreement and the $18 million (in Canadian dollars
("Cdn.$")) credit facility (the "Camrose Credit Facility") maintained by
Camrose, a 60% owned subsidiary which owns the Camrose Pipe Mill, will likely
limit significantly the Company's ability to obtain additional financing or make
the terms of any financing which may be obtained less favorable.
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.
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 these 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. The Company is not required to provide financing to CF&I and,
although no repayments of these loans are expected in 1996, the Company 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 CF&I and the CF&I Steel
Division. 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.
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
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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,
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
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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 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
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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."
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" and which will
include accounts receivable and inventory and books and records related thereto)
owned by the Company, New CF&I and CF&I and may in the future be secured by a
first priority lien on Bank Collateral owned by 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 such 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
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<PAGE> 23
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") (which guarantees will be secured by the Bank
Collateral owned by New CF&I and CF&I and will therefore effectively rank prior
to the Guarantees in right of payment to the extent of such 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
Bank Collateral owned by 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 borrowings of approximately $193.9 million were owed to the Company
by CF&I. The Company's subsidiaries are separate and distinct legal entities
and, except for the Guarantors, have no obligation, contingent or otherwise, to
pay any amounts due on the Notes or to make any funds available therefor. In
addition, dividends, loans and advances from certain subsidiaries of 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 (most of 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
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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 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
or to complete the capital improvement program. 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 collect
accounts receivable and
22
<PAGE> 25
remove, sell or otherwise dispose of the Bank Collateral securing the Amended
Credit Agreement, and may also store such 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.
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 or any guarantor of such indebtedness, 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
23
<PAGE> 26
Trustee or the holders of the Notes against the Company or the Guarantors as
unsecured creditors or otherwise.
The Notes and the Guarantees will be secured by, among other things, real
property and improvements located in California, Oregon and Colorado. The
applicability of the foregoing provisions of California or Oregon law to real
property located in other states is uncertain. A California court could take the
position that legal proceedings brought against the Company or a Guarantor in
Oregon, Colorado or another state could violate the one form of action rule and
anti-deficiency laws of California, with the consequences described above. In
the event that a California court were to take such position, it could have a
material adverse effect on the ability of holders to collect amounts due under
the Notes following an Event of Default under the Indenture.
Under Colorado law, a deed of trust to a public trustee covering real
property (including improvements) located in Colorado (such as the Mortgage
which CF&I will grant on certain real property and improvements at the Pueblo
Mill to secure its Guarantee) may be foreclosed through a sale by the public
trustee only if it secures an "evidence of debt." The Company does not believe
that there has been any definitive judicial interpretation of what constitutes
an "evidence of debt" under the applicable Colorado statute and, as a result, no
assurance can be given that CF&I's Guarantee would be found to constitute such
an "evidence of debt" or that the Mortgage on the real property, buildings,
improvements and fixtures at the Pueblo Mill could be foreclosed through a sale
by a public trustee following an Event of Default under the Indenture. If such
Mortgage cannot be foreclosed through sale by a public trustee, foreclosure must
be made through a judicial foreclosure, which can take considerably longer than
the sale by a public trustee. To seek to address the foregoing concerns, CF&I
will deliver to the Trustee a promissory note (the "CF&I Note") evidencing its
obligations under its Guarantee; however, no assurance can be given that the
CF&I Note would be found to constitute an "evidence of debt" within the meaning
of the applicable Colorado statute.
In addition, under Colorado law, in order to release or to foreclose a deed
of trust to a public trustee which secures an "evidence of debt," the holder of
the debt secured thereby must file with the public trustee, 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. Likewise, under certain
decisions of Oregon courts, to accelerate loans secured by real property upon a
breach of covenants prohibiting the creation of certain junior liens or
leasehold estates, the lender may need to 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 or
Oregon 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.
24
<PAGE> 27
CERTAIN BANKRUPTCY LIMITATIONS
The right of the Trustee to repossess and dispose of the Collateral upon
the occurrence of an Event of Default under the Indenture is likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy case were to
be commenced by or against the Company or its subsidiaries (including any of the
Guarantors) prior to the Trustee having repossessed and disposed of the
Collateral. Under Title 11 of the United States Code (the "Bankruptcy Code"), a
secured creditor such as the Trustee is prohibited from repossessing its
security from a debtor in a bankruptcy case, or from disposing of security
repossessed from such debtor, without bankruptcy court approval. Moreover, the
Bankruptcy Code permits the debtor to continue to retain and to use collateral
even though the debtor is in default under the applicable debt instruments,
provided that the secured creditor is given "adequate protection". The meaning
of the term "adequate protection" may vary according to circumstances, but it is
intended in general to protect the value of the secured creditor's interest in
the collateral and may include cash payments or the granting of additional
security, if and at such times as the court in its discretion determines, for
any diminution in the value of the collateral as a result of the stay of
repossession or disposition or any use of the collateral by the debtor during
the pendency of the bankruptcy case. Generally, adequate protection payments, in
the form of interest or otherwise, are not required to be paid by a debtor to a
secured creditor unless the bankruptcy court determines that the value of the
secured creditor's interest in the collateral is declining during the pendency
of the bankruptcy case. In view of the lack of a precise definition of the term
"adequate protection" and the broad discretionary powers of a bankruptcy court,
it is impossible to predict how long payments under the Notes or the Guarantees
could be delayed following commencement of a bankruptcy case, whether or when
the Trustee could repossess or dispose of the Collateral or whether or to what
extent holders of the Notes would be compensated for any delay in payment or
loss of value of the Collateral through the requirement of "adequate
protection".
FRAUDULENT CONVEYANCE ISSUES
The obligations of each Guarantor under its Guarantee and the grant by each
Guarantor of a lien on certain of its assets to secure its obligations
thereunder may be subject to review under various laws for the protection of
creditors, including, without limitation, laws governing fraudulent conveyances
and transfers. In general, under such laws, if it were found that such
Guarantor, in entering into its Guarantee or granting such lien, had received
less than a reasonably equivalent value therefor and such Guarantor (i) was
insolvent, (ii) was rendered insolvent thereby, (iii) was engaged or about to
engage in a business or transaction for which its remaining unencumbered assets
constituted unreasonably small capital or (iv) intended to incur or believed (or
reasonably should have believed) it would incur debts beyond its ability to pay
as such debts matured, a court could avoid such Guarantor's obligations under
its Guarantee and its grant of the lien on its assets pledged as security for
its Guarantee, and could direct the return of any payments made by such
Guarantor under its Guarantee to such Guarantor or to a fund for the benefit of
its creditors. Moreover, regardless of the factors identified in the foregoing
clauses (i) through (iv), a court could avoid such obligation and such lien, and
direct such repayment, if it found that a Guarantor's Guarantee was entered into
or the lien on its assets was granted with an actual intent to hinder, delay or
defraud its creditors. To the extent that the obligations of any Guarantor under
its Guarantee or the lien on its assets granted by any Guarantor were held to be
unenforceable as a fraudulent conveyance or transfer or for any other reason,
the holders of Notes would cease to have any direct claim in respect of such
Guarantor, and also would cease to have any lien on the assets of such
Guarantor, and would be solely creditors of the Company and any Guarantor whose
obligations under its Guarantee were not avoided or held unenforceable. In an
attempt to avoid this result, the Indenture under which the Notes and the
Guarantees will be issued will contain a savings clause that limits the amount
of each Guarantor's obligations under its Guarantee to the maximum amount as
will result in the 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
25
<PAGE> 28
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
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 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 Notes have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance, 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.
26
<PAGE> 29
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."
27
<PAGE> 30
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.
28
<PAGE> 31
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)
29
<PAGE> 32
- ---------------
(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.
30
<PAGE> 33
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
======== ======== ======== ========
Net income per share..... $ 0.62 $ 0.28 $ 0.33 $ 0.26
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>
31
<PAGE> 34
<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.
32
<PAGE> 35
(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.
33
<PAGE> 36
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)
34
<PAGE> 37
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."
35
<PAGE> 38
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
36
<PAGE> 39
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.
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."
A temporary shutdown of the LRF at the Pueblo Mill as the result of a
mechanical failure and a resulting reduction in steel production will increase
production costs and adversely affect shipment levels in June and July 1996. The
Company estimates that this temporary shutdown will reduce pretax results by
approximately $3 million, although the actual effect on results of operations
will likely vary from this estimate. The Company has business interruption
insurance and is reviewing its coverage under the policy to determine whether it
is entitled to any insurance recovery in connection with the LRF shutdown. There
is no assurance that the effect of the shutdown on results of operations will
not be more adverse than the estimate set forth above. See "Prospectus
Summary -- Recent Developments."
The Company's results of operations for the three months ended March 31,
1996 were favorably affected by strong shipments of rail and OCTG products from
the CF&I Steel Division. Rail sales are expected to decline in the second
quarter of 1996, and this decline, together with the need for further adjustment
of the product mix at the Pueblo Mill, including rod and bar product mix, is
expected to adversely affect the Company's results of operations for the second
quarter of 1996 compared to the first quarter of 1996.
In connection with the Refinancing, the Company anticipates incurring an
estimated pre-tax charge 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."
The combined effect of the matters discussed above is expected to have a
material adverse effect on the Company's results of operations for the second
quarter of 1996 compared to the first quarter of 1996.
The Company believes the information set forth in the above four 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 "Prospectus
Summary -- Recent Developments," "Risk Factors,"
37
<PAGE> 40
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Capital Improvement Program."
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>
Based on annualized production during the quarter ended March 31, 1996 and
the approximate annual tonnage capacities set forth above, the Company estimates
that, during the first quarter of 1996, its melting operations were operating at
approximately 79% of capacity, its welded pipe operations were operating at
approximately 40% of capacity and its finishing operations were operating at
approximately 91% of capacity.
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
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.
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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 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.
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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 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
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property tax refund related to overassessments in prior years of the Portland
and Pueblo Mills, which reduced 1994 cost of sales by $3.5 million and, as
described below, increased 1994 interest income by $1.1 million.
Provision for Rolling Mill Closures. During 1994 the Company recognized a
total pre-tax charge of $22.1 million (before income taxes of $8.4 million)
associated with the closure of the Fontana Plate Mill and to reduce the carrying
value of certain plant, equipment and inventories that are unlikely to be used
following shutdown of the existing plate rolling mill at the Portland Mill upon
completion of the construction of the Combination Mill. Of the $13.7 million
after-tax charge, approximately $13 million was a non-cash charge relating to
the write-off of production supplies and property, plant and equipment. The
decision to permanently close the Fontana Plate Mill was based upon the high
operating costs of the facility, depressed pricing in the international large
diameter pipe market and the lack of significant domestic pipeline activity.
Selling, General and Administrative. Selling, general and administrative
expenses for 1994 increased $8.6 million or 20.7% compared with 1993 but
decreased as a percentage of sales from 6.1% in 1993 to 6.0% in 1994. The dollar
amount increase is primarily a result of the inclusion of CF&I Steel Division
costs (which increased by $4.1 million) for 12 months in 1994, versus 10 months
in 1993 and increased shipping costs ($2.8 million) related to welded pipe
shipments from the Oregon Steel Division.
Contribution to ESOP and Profit Participation. The contribution to the ESOP
was $738,000 in 1994 compared with $753,000 in 1993. Profit participation plan
expense was $2.3 million for 1994 compared with $4.5 million for 1993. These
reductions are the result of the decreased profitability of the Company in 1994
versus 1993.
Interest and Dividend Income. Interest and dividend income on investments
was $1.6 million in 1994 compared with $.9 million in 1993. This increase was
primarily due to $1.1 million of interest earned on the property tax refunds
described above.
Interest Expense. Total interest cost for 1994 was $11.3 million, an
increase of $5.6 million compared to 1993. This increase was primarily related
to interest incurred on debt issued to fund the CF&I Steel Division capital
expenditure program. Of the $11.3 million of interest cost, $7.4 million was
capitalized as part of construction in progress.
Settlement of Litigation. The $2.8 million recovery from settlement of
litigation was received from the Company's excess liability insurance carrier in
the second quarter of 1993 and related to former employee lawsuits which were
settled in the fourth quarter of 1992.
Income Tax Expense. The Company's effective income tax rate for state and
federal taxes was a benefit of 89.7 percent for 1994 compared to an expense of
33.3 percent for 1993. The effective income tax rate for both periods varied
from the combined state and federal statutory rate due to earned state tax
credits and deductible dividends paid on stock held by the ESOP and paid to ESOP
participants. In 1994 a tax provision was recognized for foreign taxes in excess
of the federal statutory rates. Income before income taxes in 1993 included a
$2.8 million insurance recovery related to a 1992 litigation settlement that was
treated as a nontaxable item.
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
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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.
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.
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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.
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
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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.
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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, 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 approximately $324 million as of March 31, 1996. The primary
components of the program completed to date
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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>
PROJECT BENEFITS COST 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>
46
<PAGE> 49
<TABLE>
<CAPTION>
PROJECT BENEFITS COST 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
47
<PAGE> 50
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 inches
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 inches wide and 3/16 inches to 8 inches thick. Wider dimensions used
for gas transmission pipe in diameters greater than 30 inches, 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 inches to 136 inches and in thicknesses from 3/16
inches to 8 inches. 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
48
<PAGE> 51
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
49
<PAGE> 52
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 eight
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.
50
<PAGE> 53
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
---- ----
<S> <C>
Large diameter pipe........41% Rail....................17%
Specialty plate............21% Rod/bar/wire............19%
Commodity plate............36% Large diameter pipe.....16%
ERW........................ 2% ERW..................... 3%
Specialty plate.........12%
Commodity plate.........10%
Semifinished............15%
Seamless pipe........... 8%
</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 inches to 136 inches and in thicknesses from
3/16 inches to 3 inches. 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 inches 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.
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<PAGE> 54
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 inches to 42 inches in outside diameter with wall thickness of up to 1 1/16
inches 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 inches. 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 inches to 16 inches
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
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<PAGE> 55
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 inches
to 9/16 inches. 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 inch 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 inches to 1 3/8
inches 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.
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<PAGE> 56
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 inches outside diameter through 10 3/4 inches 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 so 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.
COMPETITION AND OTHER MARKET FACTORS
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 segments, because these industries are significant markets for
the
54
<PAGE> 57
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.
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.
Oregon Steel Division
The Company's principal domestic competitor in the commodity steel plate
market is Geneva Steel, which is the only integrated steel producer west of the
Mississippi River. The Company believes that Geneva Steel has made significant
investments to increase its capacity with specific focus on the commodity plate
market throughout the entire United States. Other North American competitors
include IPSCO, which is currently operating a steckel mill in Regina,
Saskatchewan, while constructing a greenfield steckel mill operation in Iowa;
Bethlehem Steel, Burns Harbor, Indiana; and to a lesser degree several other
U.S. producers. Principal competitors in the market for specialty steel plate
include Lukens Steel, U.S. Steel Corporation and Algoma Steel Inc.
The commodity steel plate market has continued to face foreign competition
from Korea, Brazil, Canada, China, former Soviet countries and elsewhere.
Foreign competition also exists for the specialty grades with imports from,
among other places, Sweden, the European Economic Community, Brazil, Canada and
former Soviet countries. Significant imports through Texas and California, both
in commodity and specialty products, have had an impact on and continue to
impact the Company's results of operations in the western plate market.
The Company believes that competition in the market for large diameter
steel pipe is based primarily on quality, price and responsiveness to customer
needs. Principal domestic competitors in the large diameter steel pipe market at
this time are Berg Steel Pipe Corporation, located in Florida, and Bethlehem
Steel Corporation, located in Pennsylvania. International competitors consist
primarily of Japanese and European pipe producers. The principal Canadian
competitor is IPSCO, located in Regina, Saskatchewan. Demand for the Company's
pipe in recent years has been primarily a function of new construction of oil
and gas transportation pipelines and to a lesser extent maintenance and
replacement of existing pipelines. Construction of new pipelines depends to some
degree on the level of oil and gas exploration and drilling activity, which has
declined in recent years.
The competition in the market for ERW pipe is based on price, product
quality and responsiveness to customers. The Company believes the need for this
product has a direct correlation to the drilling rig count in the United States
and Canada. Principal competitors in the ERW product in western Canada are IPSCO
located in Regina, Saskatchewan and Prudential Steel Ltd. located in Calgary,
Alberta.
CF&I Steel Division
The Company believes the majority of current rail requirements in the
United States revolves around replacement rail for existing rail lines. The
Company believes imports have been a significant factor in the domestic premium
rail market in recent years. The Company's capital improvement program at the
CF&I Steel Division provided its rail production facilities with continuous cast
steel capability and is expected to
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provide in-line head hardening rail capabilities. Pennsylvania Steel
Technologies is the only other domestic rail producer.
The Company's primary competitors in OCTG include a number of domestic and
foreign manufacturers. Principal domestic competitors include U.S. Steel
Corporation, Lone Star Steel and North Star Steel.
The primary competition in bar products includes a group of minimills that
have a geographical location close to the intermountain market in the United
States.
The Company's market for wire rod is considered to encompass the western
United States. Domestic rod competitors include Georgetown/GST, North Star
Steel, Keystone Steel and Wire and Northwestern Steel & Wire. In addition, two
new or upgraded minimills are expected to commence production of rod and bar
products during 1996.
The Company's market for wire products is considered to be west of the
Mississippi River. The Company's wire production facilities are mainly suited to
products for the agricultural and construction markets. Domestic wire
competitors include Keystone Steel and Wire, Northwestern Steel and Wire, Davis
Wire and Tree Island Steel.
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" 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
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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 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.
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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.
EMPLOYEES
As of December 31, 1995, the Company had 2,640 full-time employees. The
Company's employees at the Portland Mill, the Napa Pipe Mill and corporate
headquarters are not represented by a labor union. At the Pueblo Mill at
December 31, 1995, approximately 1,370 employees worked under collective
bargaining agreements with several unions, principally the United Steelworkers
of America ("USWA"). The USWA contract was negotiated in March 1993 and will
expire in September 1997. The contract provides for scheduled annual cost of
living pay increases during the life of the contract. At December 31, 1995
approximately 80 employees of the Camrose Pipe Mill were members of the Canadian
Autoworkers Union. A contract for these employees was renegotiated in January
1994 and expires on January 31, 1997. The Company believes it has a good
relationship with its employees.
LEGAL PROCEEDINGS
In July 1995 the Oregon Occupational Safety and Health Division ("Oregon
OSHA") cited the Company $1.4 million in penalties for alleged violations of
Oregon occupational safety and health rules. Of the 18 individual citations, 10
were alleged by Oregon OSHA to be willful.
Oregon OSHA claims that a Material Safety Data Sheet ("MSDS") that the
Company had prepared for its glass frit product produced at the Portland Mill
was incomplete in its description of certain metals present in the product.
Oregon OSHA also alleges that certain aspects of the glass plant's lead and
cadmium protection programs were not in complete compliance with applicable OSHA
regulations. The Company has conducted its own investigation of all the alleged
violations and believes no willful violation of the OSHA rules occurred. Oregon
OSHA has pointed out some areas where the Company has not been in complete
technical compliance with certain administrative and recordkeeping rules, and
the Company believes it has promptly corrected those issues. Although the
Company has appealed the citation and believes the final outcome will not have a
material adverse effect on the Company, the Company's appeal may be unsuccessful
and it may be required to pay all or a material portion of the penalties.
The Company is also party to other various claims, disputes, legal actions
and other proceedings involving contracts, employment and various other matters.
In the opinion of management, the outcome of these matters should not have a
material adverse effect on the consolidated financial condition of the Company.
The Company maintains insurance against various risks, including certain
types of product liability, in an aggregate amount of $50 million, which is also
the maximum amount of insurance maintained on a per claim basis. The Company
does not maintain insurance against liability arising out of waste disposal,
other environmental matters or earthquake damage because of the high cost of
such insurance. There is no assurance that insurance currently carried by the
Company, including products liability insurance, will be available in the future
at reasonable rates or at all.
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DESCRIPTION OF THE NOTES
The Notes will be issued under an indenture (the "Indenture") between the
Company, the Guarantors and 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............................................... 100.00%
</TABLE>
Offer to Repurchase upon a Change of Control and Certain Asset Sales. In
addition, as described below, the Company is obligated (a) upon the occurrence
of a Change of Control, to make an offer to purchase all outstanding Notes at a
purchase price of 101% of the principal amount thereof, plus accrued and unpaid
interest to the date of purchase, and (b) to make an offer to purchase Notes
with a portion of the net cash proceeds of certain sales or other dispositions
of assets at a purchase price of 100% of the principal amount
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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 include accounts receivable and inventory and books and records related
thereto) owned by the Company, New CF&I and CF&I and may in the future be
secured by a first priority lien on Bank Collateral owned by 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 such 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
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other obligations under the Company's proposed Amended Credit Agreement will
initially be guaranteed by New CF&I and CF&I (the "Bank Guarantors") (which
guarantees will be secured by the Bank Collateral owned by New CF&I and CF&I and
will therefore effectively rank prior to the Guarantees in right of payment to
the extent of such 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 Bank Collateral owned by 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".
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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
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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
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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 most of which will be pledged, and the remainder of
which may 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
or to complete the capital improvement program. 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
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encumber assets located on property owned by the Company or any Guarantor, such
third parties have or may exercise rights and remedies with respect to the
property subject to such liens that could adversely affect the value of the
Collateral located at such site and the ability of the Trustee or the holders of
the Notes to realize or foreclose on Collateral at such site.
The obligations of each Guarantor under its Guarantee of the Notes, and the
grant by each Guarantor of a lien on certain of its assets to secure its
obligations under its Guarantee, may be subject to review under various laws for
the protection of creditors, including, without limitation, laws governing
fraudulent conveyances and transfers. To the extent that the obligations of any
Guarantor under its Guarantee, or the lien on Collateral granted by any
Guarantor, were held to be unenforceable as a fraudulent conveyance or transfer
or 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
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actions, request that holders of Notes provide an indemnification against the
Trustee's costs, expenses and liabilities, which could include liabilities under
environmental laws. See "Risk Factors -- Risk to Secured Lenders under
Environmental Laws".
The right of the Trustee to repossess and dispose of the Collateral upon
the occurrence of an Event of Default under the Indenture is likely to be
significantly impaired by applicable bankruptcy law if a bankruptcy case were to
be commenced by or against the Company or any of its subsidiaries (including any
Guarantor) prior to the Trustee having repossessed and disposed of the
Collateral, and, in the case of real property Collateral, could also be
significantly impaired by restrictions under state law. See "Risk
Factors -- Certain Bankruptcy Limitations" and "Risk Factors -- Certain
Limitations under State Law". Dispositions of 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 securing the Amended
Credit Agreement, and may also store such 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").
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Purchases of Notes must be made by or through Participants, which will
receive a credit on the records of the Depository. The ownership interest of
each actual purchaser of a Note (the "Beneficial Owner") is in turn to be
recorded on the Participants' or Indirect Participants' records. Beneficial
Owners will not receive written confirmation from the Depository of their
purchase, but Beneficial Owners are expected to receive written confirmations
providing details of the transaction, as well as periodic statements of their
holdings, from the Participant or Indirect Participant through which the
Beneficial Owner entered into the transaction. Ownership of beneficial interests
in Global Notes will be shown on, and the transfer of such ownership interests
will be effected only through, records maintained by the Depository (with
respect to interests of Participants) and on the records of Participants(with
respect to interests of persons held through Participants). The laws of some
states may require that certain purchasers of securities take physical delivery
of such securities in definitive form. Such limits and such laws may impair the
ability to own, transfer or pledge beneficial interests in Global Notes.
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,
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sell or otherwise exercise its rights or remedies with respect to, or to
release, any such Collateral, then no definitive Notes shall be issued until (i)
such requirements to own, deliver or present Notes shall have been satisfied or
(ii) holders of at least a majority in aggregate principal amount of the
outstanding Notes shall have directed the Trustee to issue definitive Notes.
Such definitive Notes shall be registered in such name or names as the
Depository shall instruct the Trustee. It is expected that such instructions may
be based upon directions received by the Depository from Participants with
respect to ownership of beneficial interests in Global Notes.
No service charge will be made for the registration of transfer or exchange
of Notes, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. Principal of,
premium, if any, and interest on definitive Notes (if issued) will be payable
and Notes may be surrendered for registration of transfer or exchange at the
office or agency of the Company maintained for such purpose in The City of New
York, located initially at the corporate trust office of the Trustee. At the
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
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bears interest at fluctuating interest rates and is otherwise permitted to
be incurred under this covenant and (B) the notional principal amount of
any such Interest Rate Protection Obligations does not exceed the principal
amount of the Indebtedness to which such Interest Rate Protection
Obligations relate, provided that, notwithstanding the foregoing provisions
of this clause (B), the Company and its Subsidiaries may also enter into
Interest Rate Protection Obligations relating to Indebtedness which they
anticipate will be incurred so long as (x) the aggregate notional principal
amount of such Interest Rate Protection Obligations does not exceed the
lesser of $50,000,000 and the aggregate principal amount of Indebtedness
they anticipate will be incurred, and (y) such Interest Rate Protection
Obligations are treated as a hedge under GAAP and otherwise comply with the
other provisions of this subparagraph (d);
(e) Indebtedness of a Wholly-Owned Subsidiary owed to and held by the
Company or another Wholly-Owned Subsidiary, in each case which is unsecured
and is not subordinated in right of payment to any Indebtedness of such
Subsidiary, except that (i) any transfer of such Indebtedness by the
Company or a Wholly-Owned Subsidiary (other than to the Company or to a
Wholly-Owned 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;
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(m) (i) Indebtedness of the Company the proceeds of which are used
solely to refinance (whether by amendment, renewal, extension or refunding)
Indebtedness of the Company or any of its Subsidiaries and (ii)
Indebtedness of any Subsidiary of the Company the proceeds of which are
used solely to refinance (whether by amendment, renewal, extension or
refunding) Indebtedness of such Subsidiary, in each case other than (I)
Indebtedness under (or guarantees of Indebtedness under) the Old Credit
Agreement or any other Indebtedness refinanced, redeemed or retired with
the proceeds from sale of the Notes or from the Common Stock Offering and
(II) Indebtedness under clause (c), (d), (e), (f), (g), (h), (i), (j), (k)
or (l) of this covenant; provided, however, that (x) the principal amount
of Indebtedness incurred pursuant to this clause (m) (or, if such
Indebtedness provides for an amount less than the principal amount thereof
to be due and payable upon a declaration of acceleration of the maturity
thereof, the original issue price of such Indebtedness) shall not exceed
the sum of the principal amount of Indebtedness so refinanced, plus the
amount of any premium required to be paid in connection with such
refinancing pursuant to the terms of such Indebtedness or the amount of any
premium 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
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(such payments or Investments described in the preceding clauses (a), (b), (c)
and (d) are collectively referred to as "Restricted Payments"), unless, at the
time of and after giving effect to the proposed Restricted Payment (the amount
of any such Restricted Payment, if other than cash, shall be the Fair Market
Value on the date of such Restricted Payment of the asset(s) proposed to be
transferred by the Company or such Subsidiary, as the case may be, pursuant to
such Restricted Payment), (A) no Default or Event of Default shall have occurred
and be continuing, (B) immediately prior to and after giving effect to such
Restricted Payment, the Company would be able to incur $1.00 of additional
Indebtedness pursuant to the first paragraph of the covenant described under
"-- Limitation on Indebtedness" above (assuming a market rate of interest with
respect to such additional Indebtedness) and (C) the aggregate amount of all
Restricted Payments declared or made from and after the Issue Date would not
exceed the sum of (1) 50% of the aggregate Consolidated Net Income of the
Company accrued on a cumulative basis during the period beginning on the first
day of the fiscal quarter of the Company during which the Issue Date occurs and
ending on the last day of the fiscal quarter of the Company immediately
preceding the date of such proposed Restricted Payment, which period shall be
treated as a single accounting period (or, if such aggregate cumulative
Consolidated Net 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) Indebted-
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ness 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 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,
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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
(which will permit borrowings in an aggregate principal amount of up to $125
million, but under which no borrowings are expected to be outstanding upon
completion of the Offerings) and under other credit facilities and debt
instruments of the Company and its subsidiaries (under which borrowings of
approximately $56.8 million in aggregate principal amount were outstanding as of
March 31, 1996). Following such an event of default, the lenders under the
Amended Credit Agreement or such other credit facilities and debt instruments
would have the right to require the immediate repayment of the indebtedness
thereunder in full, 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, which
could have a material adverse effect on the Company's ability to pay the Change
of Control Purchase Price with respect to the Notes. 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
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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 as provided in the immediately succeeding paragraph.
Any such Net Cash Proceeds shall be applied within 365 days of the related
Asset Sale as follows:
(i) to the extent that such Net Cash Proceeds are derived from
property or assets (including Capital Stock) which do not constitute
Collateral or are not deemed (pursuant to the provisions described below)
to constitute Collateral Proceeds ("Non-Collateral Proceeds"), such
Non-Collateral Proceeds may, at the option of the Company, be applied to
repay Indebtedness outstanding under the Credit Agreement; and
(ii) with respect to any Net Cash Proceeds derived from property or
assets (including Capital Stock) 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 and amounts deemed to be Collateral Proceeds,
together with any such remaining Non-Collateral Proceeds being hereinafter
called, collectively, the "Available Amount"), such 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
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result, the Company and its Subsidiaries will be permitted to sell certain
assets without compliance with the foregoing covenant.
In the event that the Company shall, in any transaction or series of
transactions, sell, assign, convey, transfer, lease or otherwise dispose of
substantially all (but not all) of its properties and assets as an entirety in a
transaction permitted under "-- Merger, Sale of Assets, Etc.", or if the Company
shall cause or permit any of its Subsidiaries to enter into any such transaction
or series of transactions if such transaction or series of transactions, in the
aggregate, would result in a sale, assignment, conveyance, transfer, lease or
other disposition of substantially all (but not all) of the properties and
assets of the Company or of the Company and its Subsidiaries (taken as a whole)
in a transaction permitted under "-- Merger, Sale of Assets, Etc.", the
Surviving Entity shall be deemed to have sold the properties and assets of the
Company and its Subsidiaries not so transferred for purposes of this covenant
and shall comply with the provisions of this covenant with respect to such
deemed sale as if it were an Asset Sale. The Fair Market Value of such
properties and assets of the Company and its Subsidiaries deemed to be sold
shall be deemed to be the Net Cash Proceeds for purposes of the Asset Sale
provisions of the Indenture. In the event that any Guarantor shall, in any
transaction or series of transactions, sell, assign, convey, transfer, lease or
otherwise dispose of substantially all (but not all) of its properties and
assets 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
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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 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
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Company or any Subsidiary of the Company, (iii) customary restrictions on
transfers of property subject to a Lien permitted under the Indenture which
could not materially adversely affect the Company's ability to satisfy its
obligations under the Indenture and the Notes or any Guarantors' ability to
satisfy its obligations under the Indenture and its Guarantee, (iv) any
agreement or other instrument of a person acquired by the Company or any
Subsidiary of the Company (or a Subsidiary of such person) in existence at the
time of such acquisition (but not created in contemplation thereof), which
encumbrance or restriction is not applicable to any person, or the properties or
assets of any person, other than the person, or the properties or assets of the
person, so acquired, (v) provisions contained in agreements or instruments
relating to Indebtedness which prohibit the transfer of all or substantially all
of the assets of the obligor thereunder unless the transferee shall assume the
obligations of the obligor under such agreement or instrument, (vi) provisions
contained in the Indenture, the Notes, the Guarantees, the Intercreditor
Agreement or any Security Documents, (vii) (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
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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
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 and an opinion of counsel, each in a 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
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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
(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
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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 Notes, the
Intercreditor Agreement, and the relevant Security Documents with the same
effect as if 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
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(vii) certain events of bankruptcy, insolvency or reorganization with
respect to the Company or any Subsidiary of the Company shall have
occurred; or
(viii) any Guarantee ceases to be in full force and effect or is
declared null and void, or any Guarantor denies that it has any further
liability under its Guarantee or gives notice to such effect (other than by
reason of the termination of the Indenture or the release of any such
Guarantee in accordance with the Indenture); or
(ix) any of the Security Documents ceases to be in full force and
effect, or any of the Security Documents ceases to give the Trustee (or, in
the case of a Mortgage, ceases to give the Trustee or any other trustee
under such Mortgage) any of the Liens, rights, powers or privileges
purported to be created thereby, or any of the Security Documents is
declared null and void, or the Company or any Guarantor denies that it has
any further liability under any Security Document to which it is a party or
gives notice to such effect (in each case other than by reason of the
termination of the Indenture or any such Security Document in accordance
with its terms or the release of any Guarantor in accordance with the
Indenture).
If an Event of Default (other than as specified in clause (vii) above)
shall occur and be continuing, the Trustee, by written notice to the Company, or
the holders of at least 25% in aggregate principal amount of the Notes then
outstanding, by written notice to the Trustee and the Company, may declare the
principal of, premium, if any, and accrued and unpaid interest on all of the
outstanding Notes due and payable immediately, upon which declaration all
amounts payable in respect of the Notes shall be immediately due and payable. If
an Event of Default specified in clause (vii) above occurs and is continuing,
then the principal of, premium, if any, and accrued and unpaid interest on all
of the outstanding Notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
holder of Notes.
After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the holders of at least a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may rescind
such declaration and its consequences if (a) the Company has paid or deposited
with the Trustee a sum sufficient to pay (i) all sums paid or advanced by the
Trustee under the Indenture, the Intercreditor Agreement, and the Security
Documents and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (ii) all interest on the Notes which has
become due otherwise than by such declaration of acceleration and (to the
fullest extent permitted by law) interest thereon at the rate of interest borne
by the Notes and (iii) the principal of and premium, if any, on any Notes which
have become due otherwise than by such declaration of acceleration and interest
thereon at the rate of interest borne by the Notes; (b) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction; and
(c) all Events of Default, other than the non-payment of principal of, premium,
if any, and interest on the Notes that have become due solely by such
declaration of acceleration, have been cured or waived.
The holders of not less than a majority in aggregate principal amount of
the outstanding Notes may on behalf of the holders of all the Notes waive any
past default under the Indenture, the Intercreditor Agreement, the Notes, the
Guarantees or any Security Document and its consequences, except a default in
the payment of 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,
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however, to a suit instituted by a holder of a Note for the enforcement of the
payment of the principal of, premium, if any, or interest on such Note on or
after the respective due dates expressed in such Note.
During the existence of an Event of Default, the Trustee is required to
exercise such rights and powers vested in it under the Indenture, the
Intercreditor Agreement and the Security Documents and use the same degree of
care and skill in its exercise thereof as a prudent person would exercise under
the circumstances in the conduct of such person's own affairs. Subject to the
provisions of the Indenture relating to the duties of the Trustee, whether or
not an Event of Default shall occur and be continuing, the Trustee under the
Indenture is not under any obligation to exercise any of its rights or powers
under the Indenture, the Intercreditor Agreement or the Security Documents at
the request or direction of any of the holders unless such holders shall have
offered to the Trustee reasonable security or indemnity. Subject to certain
provisions concerning the rights of the Trustee, the holders of not less than a
majority in aggregate principal amount of the outstanding Notes have the right
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee under the Indenture, the Intercreditor Agreement or the Security
Documents.
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee shall mail to each holder of the Notes notice of the
Default or Event of Default within 30 days after obtaining knowledge thereof.
Except in the case of a default 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 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 the first
sentence of the third paragraph under "-- Guarantees," and the penultimate
sentence of the third paragraph under "-- Guarantees" (but only to the extent
that such penultimate sentence requires the execution and delivery of documents
to confirm obligations under the Intercreditor Agreement, the Security Documents
or the CF&I Note), 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 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 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
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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 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.
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Release of Collateral. Upon compliance by the Company with the conditions
set forth below in respect of any Asset Sale, the Trustee will release the
Released Interests (as defined below) from the Lien of the relevant Security
Documents and reconvey the Released Interests to the Company or the relevant
Guarantor, as the case may be. The Company and the Guarantors, as the case may
be, will have the right to obtain a release of items of Collateral (the
"Released Interests") subject to an Asset Sale upon compliance with the
condition that the Company deliver to the Trustee the following:
(a) A notice from the Company requesting the release of Released
Interests, (i) specifically describing the proposed Released
Interests, (ii) specifying the Fair Market Value of such Released
Interests on a date within 60 days of such Company notice (the
"Valuation Date"), (iii) stating that the consideration to be
received is at least equal to the Fair Market Value of the
Released Interests, (iv) stating that the release of such Released
Interests will not impair the value of the remaining Collateral or
interfere with the Trustee's ability to realize such value and
will not impair the maintenance and operation of the remaining
Collateral, (v) confirming the sale of, or an agreement to sell,
such Released Interests in a bona fide sale to a person that is
not an Affiliate of the Company or, in the event that such sale is
to a person that is an Affiliate, confirming that such sale is
made in compliance with the provisions set forth in "-- Certain
Covenants -- Limitation on Transactions with Interested Persons",
(vi) certifying that such Asset Sale complies with the terms and
conditions of the Indenture with respect thereto, including,
without limitation, the provisions set forth in "-- Certain
Covenants -- Disposition of Proceeds of Asset Sales", and (vii) in
the event there is to be a substitution of property for the
Collateral subject to the Asset Sale, specifying the property
intended to be substituted for the Collateral to be disposed of;
(b) An officers' certificate of the Company stating that (i) such sale
covers only the Released Interests (or other property which is not
Collateral) and complies with the terms and conditions of the
Indenture with respect to Asset Sales, (ii) all Collateral
Proceeds (including amounts deemed 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 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.
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The Indenture will also permit the release of Collateral (other than Trust
Moneys) at the request of the Company from time to time; provided that the
aggregate Fair Market Value of any Collateral so released in any single
transaction, or series of related transactions, shall not exceed $250,000 and
the aggregate Fair Market Value of all Collateral so released in any calendar
year shall not exceed $1,000,000.
The Indenture will also permit the release of the Old Plate Mill once the
Combination Mill is operational.
Disposition of Collateral Without Release. Notwithstanding the provisions
of "-- Release of Collateral" above, so long as no Default or Event of Default
shall have occurred and be continuing or would result therefrom, 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, replacing, changing the location
or position of and adding to its structures, machinery, systems, equipment,
fixtures and appurtenances; demolishing, dismantling, tearing down, scrapping or
abandoning any Collateral if, in the good faith opinion of the Board of
Directors of the Company, such demolition, dismantling, tearing down, scrapping
or abandonment is in the best interest of the Company; granting a nonexclusive
license of any intellectual property; and abandoning intellectual property which
has become obsolete and not used in the business.
USE OF TRUST MONEYS
All Trust Moneys (including, without limitation, all Collateral Proceeds,
Net Proceeds and Net Awards required to be deposited with the Trustee) shall be
held by the Trustee as a part of the Collateral securing the Notes and, so long
as no Event of Default shall have occurred and be continuing, may either (i) be
released 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
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affect the rights of any holder of Notes or, in the case of any other change to
the Intercreditor Agreement, that does not adversely affect the rights of any
holder of Notes in any material respect. Other amendments and modifications of
the Indenture, the Security Documents, the Guarantees, the Intercreditor
Agreement or the Notes may be made by the Company, the Guarantors and the
Trustee with the consent of the holders of not less than a majority of the
aggregate principal amount of the outstanding Notes and the holders of not less
than a majority in aggregate principal amount of the outstanding Notes may waive
future compliance by the Company or any Guarantor with any provision of the
Indenture, the Security Documents, the Guarantees, the Intercreditor Agreement
or the Notes; provided, however, that no such modification, amendment or waiver
may, without the consent of the holder of each outstanding Note affected
thereby, (i) reduce the principal amount of, extend the fixed maturity of or
alter the redemption provisions (including, without limitation, the amount of
premium, if any, payable upon redemption) of, the Notes, (ii) change the
currency in which any Notes or any premium or the interest thereon is payable or
make the principal of, premium, if any, or interest on any Note payable in money
other than that stated in the Note, (iii) reduce the percentage in principal
amount of outstanding Notes that must consent to an amendment, supplement or
waiver under the Indenture, the Guarantees, the Security Documents, the Notes or
the Intercreditor Agreement, (iv) impair the right to institute suit for the
enforcement of any payment on or with respect to the Notes, (v) waive a default
in payment with respect to the Notes, (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 an 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.
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"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 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 (including accounts receivable evidenced by chattel paper
and instruments) and inventory, and all books, records, databases and other
information 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, and all proceeds and products therefrom.
"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
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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, 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 the amount of such obligation at any date shall be
the capitalized amount thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means, at any time, (i) any evidence of indebtedness
with a maturity of 180 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality thereof
(provided that the full faith and credit of the United States of America is
pledged in support thereof); (ii) certificates of deposit or acceptances with a
maturity of 180 days or less of any financial institution that is a member of
the Federal Reserve System having combined capital and surplus and undivided
profits of not less than $500,000,000; (iii) certificates of deposit with a
maturity of 180 days or less of any financial institution that is not organized
under the laws of the United States, any state thereof or the District of
Columbia that are rated at least A-2 by S&P or at least P-2 by Moody's or at
least an equivalent rating category of another nationally recognized securities
rating agency; and (iv) repurchase agreements and reverse repurchase agreements
relating to marketable direct obligations issued or unconditionally guaranteed
by the government of the United States of America or issued by any agency
thereof and backed by the full faith and credit of the United States of America,
in each case maturing within 180 days from the date of acquisition.
"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
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to have "beneficial ownership" of all securities that such person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time, upon the happening of an event or otherwise), directly or
indirectly, of more than 30% of the total Voting Stock of the 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.
"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
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Transaction Date and which will continue to be so determined thereafter shall be
deemed to have accrued at a fixed rate per annum equal to the rate of interest
on such Indebtedness in effect on the Transaction Date; and (ii) if interest on
any Indebtedness actually incurred on the Transaction Date may optionally be
determined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Reference Period. If such person or any of its Subsidiaries directly or
indirectly guarantees Indebtedness of a third person, the above clause shall
give effect to the incurrence of such guaranteed Indebtedness as if such person
or such Subsidiary had directly incurred or otherwise assumed such guaranteed
Indebtedness.
"Consolidated Fixed Charges" means, with respect to any person for any
period, the sum of, without duplication, the amounts for such period of (i)
Consolidated Interest Expense and (ii) the product of (a) the aggregate amount
of dividends and other distributions paid or accrued during such period in
respect of Preferred Stock and Redeemable Capital Stock of such person and its
Subsidiaries on a consolidated basis and (b) a fraction, the numerator which is
one and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such person, expressed as a decimal.
"Consolidated Income Tax Expense" means, with respect to any person for any
period, the provision for federal, state, local and foreign income taxes of such
person and its Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any person for any
period, without duplication, the sum of (i) the aggregate amount of cash and
non-cash interest expense of such person and its Subsidiaries paid, accrued
and/or scheduled to be paid or accrued during such period as determined on a
consolidated basis in accordance with GAAP (including, without limitation, 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
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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.
"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, and (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
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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 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 grant
of a security interest 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
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practical effect of which is to assure in any way the payment or performance (or
payment of damages in the event of non-performance) of all or any part of such
obligation, including, without limiting the foregoing, the payment of amounts
drawn down by letters of credit.
"Guarantors" means (i) each of New CF&I and CF&I and (ii) each of the
Company's other Subsidiaries which, after the Issue Date, becomes a Guarantor,
including those who become Guarantors after the Issue Date as required by the
covenant described under "-- Certain Covenants -- Additional Guarantors".
"Indebtedness" means, with respect to any person, without duplication, (a)
all liabilities of such person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities incurred in the ordinary course of business and which are
not overdue by more than 90 days, but including, without limitation, all
obligations, contingent or otherwise, of such person in connection with any
letters of credit, banker's acceptance or other similar credit transaction, (b)
all obligations of such person evidenced by bonds, notes, debentures or other
similar instruments, (c) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to 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.
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"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.
"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
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Asset Sale, (ii) provisions for all taxes payable as a result of such Asset
Sale, (iii) amounts required to be paid to any person (other than the Company or
any Subsidiary of the Company) owning a beneficial interest in the assets
subject to the Asset Sale, (iv) appropriate amounts to be provided by the
Company or any Subsidiary of the Company, as the case may be, as a reserve
required in accordance with GAAP against any liabilities associated with such
Asset Sale and retained by the Company or any Subsidiary of the Company, as the
case may be, after such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as reflected in an officers' certificate delivered to the
Trustee, and (v) repayment of Indebtedness (excluding Indebtedness under the
Credit Agreement) secured by a Lien on the property or assets subject to such
Asset Sale (but only if such Lien is permitted by the Indenture and the relevant
Security Documents and only to the extent such repayment is required by the
terms of such Indebtedness and the aggregate amount of such cash and Cash
Equivalents applied to repay such Indebtedness does not exceed the Fair Market
Value of such property or assets or, if less, the total amount of cash and Cash
Equivalents received for such property and assets in such Asset Sale).
"Net Proceeds" means the insurance proceeds (excluding any liability
insurance proceeds payable to the Trustee for any loss, liability or expense
incurred by it) paid as the result of damage to, or the loss, destruction or
condemnation of, all or any portion of the Collateral, less collection expenses.
"New CF&I" means New CF&I, Inc., a Delaware corporation, and its successors
pursuant to the Indenture.
"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 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;
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(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; (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
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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 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, the Intercreditor Agreement 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
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any Subsidiary of the Company after the Issue Date, and in any such case
not incurred as a result of (or in connection with or in anticipation of)
such person becoming a Subsidiary of the Company or such merger or
consolidation, as the case may be; provided that such Liens do not extend
to or cover any property or assets of the Company or any Subsidiary of the
Company (other than property or assets of the person so acquired); and
provided, further, that the property or assets so acquired do not
constitute Replacement Assets or otherwise constitute a replacement of all
or part of the Collateral;
(p) Liens on assets or property existing at the time of acquisition
thereof by the Company or a Subsidiary of the Company after the Issue Date
and not incurred as a result of (or in connection with or in anticipation
of) such acquisition; provided that such Liens do not extend to or cover
any property or assets of the Company or any Subsidiary of the Company
(other than the property or assets so acquired); and provided, further,
that the property or assets so acquired do not constitute Replacement
Assets or otherwise constitute a replacement of all or part of the
Collateral;
(q) any replacement, extension or renewal, in whole or in part, of any
Lien described in the foregoing clauses (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).
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"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
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.
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"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 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
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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
(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.
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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. The Amended Credit Agreement may in the future be guaranteed
by other subsidiaries of the Company and secured by the accounts receivable and
inventory and related books and records of such other subsidiaries.
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
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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.
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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,
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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 Notes have been
approved for listing on the New York Stock Exchange, subject to official notice
of issuance, 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.
105
<PAGE> 108
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.
106
<PAGE> 109
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> 110
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> 111
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> 112
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> 113
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> 114
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> 115
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> 116
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> 117
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> 118
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> 119
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> 120
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> 121
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> 122
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> 123
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> 124
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> 125
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> 126
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> 127
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> 128
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> 129
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> 130
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> 131
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> 132
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
competition and other market factors is set forth under "Business -- Competition
and Other Market Factors;" 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;" information with respect to
employees is set forth under "Business -- Employees;" 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> 133
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> 134
(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.
A temporary shutdown of the ladle refining furnace (the "LRF") at the
Pueblo Mill as the result of a mechanical failure and a resulting reduction in
steel production will increase production costs and adversely affect shipment
levels in June and July 1996. New CF&I estimates that this temporary shutdown
will reduce pretax results by approximately $3 million, although the actual
effect on results of operations will likely vary from this estimate. The Company
has business interruption insurance and is reviewing its coverage under the
policy to determine whether it is entitled to any insurance recovery in
connection with the LRF shutdown. There is no assurance that the effect of the
shutdown on results of operations will not be more adverse than the estimate set
forth above. See "Prospectus Summary -- Recent Developments."
New CF&I's results of operations for the three months ended March 31, 1996
were favorably affected by strong shipments of rail and OCTG products. Rail
sales are expected to decline in the second quarter of 1996, and this decline,
together with the need for further adjustment of the product mix at the Pueblo
Mill, including rod and bar product mix, is expected to further adversely affect
New CF&I's results of operations for the second quarter of 1996 compared with
the first quarter of 1996.
The combined effect of the matters discussed above is expected to have a
material adverse effect on New CF&I's results of operations for the second
quarter of 1996 compared to the first quarter of 1996 and could result in a
pre-tax loss for New CF&I for the second quarter of 1996. See "Forward-Looking
Statements" under "Prospectus Summary."
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.
A-4
<PAGE> 135
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 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.
A-5
<PAGE> 136
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.
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.
A-6
<PAGE> 137
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-7
<PAGE> 138
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> 139
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> 140
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> 141
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> 142
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> 143
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> 144
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> 145
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> 146
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> 147
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> 148
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> 149
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> 150
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> 151
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> 152
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> 153
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> 154
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> 155
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> 156
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> 157
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> 158
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> 159
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> 160
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> 161
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> 162
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> 163
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> 164
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> 165
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> 166
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> 167
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> 168
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.
Plate Mill (right) -- Oregon Steel Division
Oregon Steel operates the only steel plate
minimill in the western United States.
<PAGE> 169
- ------------------------------------------------------
- ------------------------------------------------------
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.......................... 14
Use of Proceeds....................... 27
Capitalization........................ 28
Selected Historical Consolidated
Financial Data...................... 29
Pro Forma Unaudited Condensed
Consolidated Financial Data......... 31
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 34
Business.............................. 45
Description of the Notes.............. 59
Description of Certain Indebtedness... 102
Description of Capital Stock.......... 104
Underwriting.......................... 105
Legal Matters......................... 106
Experts............................... 106
Index to Consolidated Financial
Statements.......................... F-1
Appendix.............................. A-1
Index to Financial Statements of
Certain Subsidiaries................ B-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$235,000,000
LOGO
% FIRST MORTGAGE NOTES DUE 2003
-------------------------
P R O S P E C T U S
, 1996
-------------------------
SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
SCOTIA CAPITAL MARKETS (USA) INC.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 170
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> 171
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> 172
<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).
99.4 Form of Amended and Restated Credit Agreement 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
</TABLE>
- ---------------
* Filed April 8, 1996.
** Filed May 22, 1996.
All supporting schedules have been omitted because they are not required or
the information required to be set forth therein is furnished elsewhere.
II-3
<PAGE> 173
ITEM 17. UNDERTAKINGS
A. Oregon Steel hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of Oregon Steel's annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934, as amended, (the "Exchange Act") (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in this Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
B. The undersigned registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act
of 1933, as amended, (the "Securities Act"), the information omitted from
the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as of the
time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement 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> 174
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 June 7, 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 June 7, 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> 175
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 June 7, 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 June 7, 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> 176
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 June 7, 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 June 7, 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> 177
<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> 178
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> 179
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> 180
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
June 7, 1996
II-11
<PAGE> 181
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
June 7, 1996
II-12
<PAGE> 182
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
June 7, 1996
II-13
<PAGE> 183
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
PAGE
EXHIBIT NO. EXHIBIT NUMBER
- ----------- ------------------------------------------------------------------------ ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement**........................................
3.1 Certificate of Incorporation of New CF&I, Inc.**........................
3.2 Amended and Restated Agreement of Limited Partnership of CF&I Steel,
L.P. dated as of March 3, 1993 by and between New CF&I, Inc. and the
Pension Benefit Guaranty Corporation (incorporated by reference to
exhibit 28.1 to the Current Report on Form 8-K of Oregon Steel Mills,
Inc. dated March 3, 1993)...............................................
3.3 Bylaws of New CF&I, Inc.**..............................................
4.1 Form of Indenture related to the % First Mortgage Notes due 2003
(including a form of Note and form of Guarantee 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> 184
<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)................................................
99.4 Form of Amended and Restated Credit Agreement 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...................
</TABLE>
- ---------------
* Filed April 8, 1996.
** Filed May 22, 1996.
<PAGE> 1
EXHIBIT 5.1
STOEL RIVES LLP
___________________
A T T O R N E Y S
STANDARD INSURANCE CNETER
900 SW FIFTH AVENUE, SUITE 2300
PORTLAND, OREGON 97204-1268
Phone (503) 224-3380 Fax (503) 220-2480
TDD (503) 221-1045
Internet: www/stoel.com
June 10, 1996
Board of Directors
Oregon Steel Mills, Inc.
1000 SW Broadway, Suite 2200
Portland, Oregon 97205
Board of Directors
New CF&I, Inc.
1000 SW Broadway, Suite 2200
Portland, Oregon 97205
General Partner
CF&I Steel, L.P.
1000 SW Broadway, Suite 2200
Portland, Oregon 97205
We have acted as counsel for Oregon Steel Mills, Inc., a Delaware
corporation, (the "Company"), New CF&I, Inc., a Delaware corporation ("New
CF&I") and CF&I Steel, L.P., a Delaware limited partnership ("CF&I"), each in
connection with the preparation and filing of a Registration Statement on Forms
S-3 and S-1 (the "Registration Statement") under the Securities Act of 1933, as
amended, covering $235,000,000 principal amount of First Mortgage Notes due 2003
of the Company (the "Notes"), Guarantees by New CF&I and CF&I of the Notes (the
"Guarantees") and a separate promissory note of CF&I as additional evidence of
its obligations under the Guarantee (the "CF&I Note"). The Notes, the Guarantees
and the CF&I Note will be issued under an Indenture (the "Indenture") to be
entered into by the Company, New CF&I and CF&I and Chemical Bank as Trustee (the
"Trustee") and sold pursuant to the terms of an underwriting agreement to be
executed by and among Smith Barney Inc., PaineWebber Incorporated and Scotia
Capital Markets (USA) Inc. (the "Underwriters") and the Company. We have
reviewed the corporate action of the Company and New CF&I (including in its
capacity as sole general partner of CF&I) in connection with this matter and
have examined the documents, corporate records and other instruments we deemed
necessary for the purpose of this opinion.
<PAGE> 2
Board of Directors, Oregon Steel Mills, Inc.
Board of Directors, New CF&I, Inc.
General Partner, CF&I Steel, L.P.
June 10, 1996
Page 2
Based on the foregoing, it is our opinion that:
(1) The Company is a corporation existing under the laws of the state of
Delaware;
(2) New CF&I is a corporation existing under the laws of the state of
Delaware;
(3) CF&I is a limited partnership existing under the laws of the state of
Delaware;
(4) The Notes have been duly authorized and, when the Indenture has been
duly executed and delivered and the Notes have been duly executed, authenticated
and delivered by or on behalf of the Company, duly authenticated by the Trustee
and duly paid for by the Underwriters, will be legal, valid and binding
obligations of the Company and entitled to the benefits of the Indenture;
(5) The Guarantees have been duly authorized and, when the Indenture has
been duly executed and delivered and the Notes have been duly executed,
authenticated and delivered by or on behalf of the Company, duly authenticated
by the Trustee and duly paid for by the Underwriters, will be legal, valid and
binding obligations of New CF&I and CF&I and entitled to the benefits of the
Indenture; and
(6) The CF&I Note has been duly authorized and, when the Indenture has been
duly executed and delivered and the Notes have been duly executed, authenticated
and delivered by or on behalf of the Company, duly authenticated by the Trustee
and duly paid for by the Underwriters, will be a legal, valid and binding
obligation of CF&I and entitled to the benefits of the Indenture.
In rendering the opinion set forth in paragraphs (4), (5) and (6)
above, we rely with respect to matters of New York law upon an opinion of Holme
Roberts & Owen LLC with respect to such matters.
<PAGE> 3
Board of Directors, Oregon Steel Mills, Inc.
Board of Directors, New CF&I, Inc.
General Partner, CF&I Steel, L.P.
June 10, 1996
Page 3
We consent to the use of our name in the Registration Statement and in
the Prospectus filed as a part thereof and to the filing of this opinion as an
exhibit to the Registration Statement.
Very truly yours,
STOEL RIVES LLP
<PAGE> 1
U.S. $125,000,000
AMENDED AND RESTATED
CREDIT AGREEMENT,
dated as of June__, 1996
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.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
I DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Use of Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
1.3. Cross-References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
1.4. Accounting and Financial Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
II COMMITMENTS, BORROWING PROCEDURES AND NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.1. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.1.1. Revolving Loan Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.1.2. Swingline Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.1.3. Lenders Not Permitted or Required To Make Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.2. Optional Reduction of Commitment Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.3. Borrowing Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.3.1. Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.3.2. Swingline Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.4. Continuation and Conversion Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.5. Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.6. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.1. Repayments and Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.1.1. Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.1.2. Exceeding the Revolving Loan Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.1.3. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.2. Application of Payments and Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.2.1. Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.3. Interest Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.3.1. Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.3.2. Post-Maturity Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.3.3. Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.3.4. Interest Rate Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.4. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.4.1. Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.4.2. Upfront Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.4.3. Agents' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
IV CERTAIN LIBO RATE AND OTHER PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.1. LIBO Rate Lending Unlawful . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
4.2. Deposits Unavailable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.3. Increased LIBO Rate Loan Costs, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
4.4. Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4.5. Increased Capital Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
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4.6. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.7. Payments, Computations, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.8. Sharing of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.9. Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.10. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.11. Actions of Affected Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
V CONDITIONS TO BORROWING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.1. Initial Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.1.1. Resolutions, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.1.2. Delivery of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.1.3. Payment of Outstanding Indebtedness, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.1.4. Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.1.5. Pledge Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.1.6. Security Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.1.7. Receipt of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.1.8. Intercreditor Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.1.9. Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.1.10. Organization Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.1.11. Closing Fees, Expenses, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.2. All Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.2.1. Compliance with Warranties, No Default, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
5.2.2. Borrowing Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.2.3. Satisfactory Legal Form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
VI REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.1. Organization, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.2. Due Authorization, Non-Contravention, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.3. Government Approval, Regulation, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.4. Validity, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.5. Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.6. No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.7. Litigation, Labor Controversies, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.8. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.9. Ownership of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.10. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.11. Pension and Welfare Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.12. Environmental Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.13. Regulations G, U and X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.14. Accuracy of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
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VII COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.1. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.1.1. Financial Information, Reports, Notices, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.1.2. Compliance with Laws, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.1.3. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.1.4. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.1.5. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.1.6. Environmental Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.1.7. Future Guarantors; Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.1.8. Opinion of New Guarantors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.2. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.2.1. Business Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.2.2. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.2.3. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.2.4. Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.2.5. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7.2.6. Restricted Payments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.2.7. Rental Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.2.8. Sale and Leasebacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.2.9. Consolidation, Merger, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.2.10. Asset Dispositions, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.2.11. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.2.12. Negative Pledges, Restrictive Agreements, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
VIII EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.1. Listing of Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.1.1. Non-Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.1.2. Breach of Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.1.3. Non-Performance of Certain Covenants and Obligations . . . . . . . . . . . . . . . . . . . . . . . . 55
8.1.4. Non-Performance of Other Covenants and Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.1.5. Default on Other Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.1.6. Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.1.7. Pension Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.1.8. Control of the Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
8.1.9. Bankruptcy, Insolvency, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
8.1.10. Impairment of Security, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.1.11. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.2. Action if Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
8.3. Action if Other Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
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IX THE AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
9.1. Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
9.2. Funding Reliance, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.3. Exculpation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.4. Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.5. Loans by First Interstate and Scotiabank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.6. Credit Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.7. Copies, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
X MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
10.1. Waivers, Amendments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
10.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
10.3. Payment of Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
10.4. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
10.5. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
10.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
10.7. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
10.8. Execution in Counterparts, Effectiveness, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
10.9. Governing Law; Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.10. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.11. Sale and Transfer of Loans and Notes; Participations in Loans and Notes . . . . . . . . . . . . . . . 65
10.11.1. Assignments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
10.11.2. Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
10.12. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
10.13. Other Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
10.14. Forum Selection and Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
10.15. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
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SCHEDULE 1 - Disclosure Schedule
EXHIBIT A - Form of Revolving Note
EXHIBIT B - Form of Swingline Note
EXHIBIT C - Form of Borrowing Request
EXHIBIT D - Form of Continuation/Conversion Notice
EXHIBIT E - Form of Lender Assignment Agreement
EXHIBIT F - Form of Guaranty
EXHIBIT G - Form of Security Agreement
EXHIBIT H - Form of Opinion of Counsel to the Obligors
EXHIBIT I - Form of Borrowing Base Certificate
EXHIBIT J - Form of Compliance Certificate
EXHIBIT K - Form of Intercreditor Agreement
</TABLE>
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<PAGE> 7
AMENDED AND RESTATED
CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT, dated as of June__, 1996,
among OREGON STEEL MILLS, INC., a Delaware corporation (the "Borrower"), the
various financial institutions as are or may become parties hereto
(collectively, the "Lenders"), FIRST INTERSTATE BANK OF OREGON, N.A. ("First
Interstate"), as administrative agent (the "Administrative Agent") for the
Lenders, THE BANK OF NOVA SCOTIA ("Scotiabank"), as syndication agent for the
Lenders (the "Syndication Agent") and First Interstate and Scotiabank as
managing agents (the "Managing Agents") for the Lenders,
W I T N E S S E T H:
WHEREAS, the Borrower, various financial institutions, First
Interstate, as administrative agent, Scotiabank, as syndication agent and First
Interstate and Scotiabank, as managing agents, have heretofore executed that
certain Credit Agreement dated as of December 14, 1994, as amended by that
certain Amendment No. 1 dated September 30, 1995 and that certain Waiver and
Amendment No. 2 dated March 22, 1996 (as so amended, the "Original Credit
Agreement");
WHEREAS, the Borrower, the Lenders, the Administrative Agent, the
Syndication Agent and the Managing Agents now desire to amend and restate the
Original Credit Agreement in its entirety;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties agree to amend and restate the
Original Credit Agreement in its entirety as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1.
Defined Terms. The following terms (whether or not underscored) when
used in this Agreement, including its preamble and recitals, shall, except where
the context otherwise requires, have the following meanings (such meanings to be
equally applicable to the singular and plural forms thereof):
"Account Debtor" means any Person who is or who may become obligated
under or on account of an Account.
<PAGE> 8
"Accounts" means all accounts, as such term is defined in the
Uniform Commercial Code in effect in the State of New York as of the Effective
Date.
"Administrative Agent" is defined in the preamble and
includes each other Person as shall have subsequently been appointed as the
successor Administrative Agent pursuant to Section 9.4.
"Affiliate" of any Person means any other Person which,
directly or indirectly, controls, is controlled by or is under common control
with such Person (excluding the ESOP or any trustee under, or any committee with
responsibility for administering, the ESOP or any Plan). A Person shall be
deemed to be "controlled by" any other Person if such other Person possesses,
directly or indirectly, power
(a) to vote 15% or more of the securities (on a fully diluted
basis) having ordinary voting power for the election of directors or
managing general partners; or
(b) to direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
"Agent(s)" means, as the context may require, any (or all) of
the Administrative Agent, the Syndication Agent or either Managing Agent.
"Agreement" means, on any date, this Amended and Restated
Credit Agreement as originally in effect on the Effective Date and as thereafter
from time to time amended, supplemented, amended and restated, or otherwise
modified and in effect on such date.
"Alternate Base Rate" means, on any date and with respect to
all Base Rate Loans, a fluctuating rate of interest per annum equal to the
higher of
(a) the rate of interest most recently announced by First
Interstate at its Domestic Office as its prime rate; and
(b) the Federal Funds Rate most recently determined by the
Administrative Agent plus 1/2 of 1%.
The Alternate Base Rate is not necessarily intended to be the lowest rate of
interest determined by First Interstate in connection with extensions of credit.
Changes in the rate of interest on that portion of any Loans maintained as Base
Rate Loans will take effect simultaneously with each change in the Alternate
Base Rate. The Administrative Agent will give notice promptly to the Borrower
and the Lenders of changes in the Alternate Base Rate.
2
<PAGE> 9
"Applicable Margin" means, in the case of any Loan, a rate per
annum determined by reference to the Leverage Ratio as of the last day of the
most recently ended Fiscal Quarter, as follows:
<TABLE>
<CAPTION>
Reserve Swingline
Leverage Adjusted LIBO Base Rate Rate
Ratio Margin Margin Margin
-------- ------------- --------- ---------
<S> <C> <C> <C>
less than 2.0 to 1.0 .75% .0% .75%
2.0 to 1.0 or more but less than 3.0 1.25% .25% 1.25%
to 1.0
3.0 to 1.0 or more but less than 3.5 1.50% .50% 1.50%
to 1.0
3.5 to 1.0 or more but less than 4.0 1.75% .75% 1.75%
to 1.0
4.0 to 1.0 or more but less than 4.5 2.00% 1.00% 2.00%
to 1.0
4.5 to 1.0 or more 2.25% 1.25% 2.25%
</TABLE>
The Applicable Margin shall be based on the Leverage Ratio as set forth in the
most recent Compliance Certificate, and shall be effective from and including
the date the Administrative Agent receives such Compliance Certificate to but
excluding the date on which the Administrative Agent receives the next
Compliance Certificate; provided, however, that if Administrative Agent does not
receive a Compliance Certificate by the date required by Section 7.1.1(c), the
Applicable Margin shall, effective as of such date, increase by one level to but
excluding the date the Administrative Agent receives such Compliance
Certificate. Subject to the foregoing proviso, from the Effective Date until the
date on which the Administrative Agent has received a Compliance Certificate for
the quarter ended June 30, 1996, the Borrower's Reserve Adjusted LIBO Margin,
Base Rate Margin and Swingline Rate Margin will be 2.25%, 1.25% and 2.25%,
respectively.
"Assignee Lender" is defined in Section 10.11.1.
"Authorized Officer" means, relative to any Obligor, those of
its officers (or in the case of a Borrowing Request, any other employee) whose
signatures and incumbency shall have been certified to the Administrative Agent
and the Lenders pursuant to Section 5.1.1 or from time to time after the
Effective Date.
"Bank Group Presentation" means the Borrower's book dated April 18,
1996 entitled "OREGON STEEL MILLS, INC. PRESENTATION TO SENIOR SECURED BANK
GROUP."
3
<PAGE> 10
"Base Rate Loan" means a Loan bearing interest at a fluctuating
rate determined by reference to the Alternate Base Rate.
"Borrower" is defined in the preamble.
"Borrowing" means the Loans of the same type and, in the case
of LIBO Rate Loans, having the same Interest Period made by all Lenders on the
same Business Day and pursuant to the same Borrowing Request.
"Borrowing Base" means, as of any date of determination
thereof, an amount equal to the sum of (x) 80% of the value of all Eligible
Accounts outstanding at such date, plus (y) 50% of the value of all
Eligible Inventory at such date.
"Borrowing Base Certificate" means a certificate duly executed
by an Authorized Officer of the Borrower, substantially in the form of
Exhibit I hereto.
"Borrowing Request" means a loan request and certificate duly
executed by an Authorized Officer of the Borrower, substantially in the form of
Exhibit C hereto.
"Business Day" means
(a) any day which is neither a Saturday or Sunday nor a legal
holiday on which banks are authorized or required to be closed in New
York, New York and Portland, Oregon; and
(b) relative to the making, continuing, prepaying or repaying
of any LIBO Rate Loans, any day which is a Business Day for purposes of
clause (a) above and which is also a day on which dealings in Dollars
are carried on in the interbank eurodollar markets of the Reference
Lenders' LIBO Offices.
"Camrose" means Camrose Pipe Corporation, a Delaware corporation and
wholly-owned Subsidiary of the Borrower.
"Camrose Partnership" means Camrose Pipe Company, a Canadian general
partnership which is 60% owned by Camrose.
"Capitalized Lease Liabilities" means all monetary obligations of the
Borrower or any of its Subsidiaries under any leasing or similar arrangement
which, in accordance with GAAP, would be classified as capitalized leases, and,
for purposes of this Agreement and each other Loan Document, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with GAAP, and the stated maturity thereof shall be the date of the last payment
of rent or any other amount due under such
4
<PAGE> 11
lease prior to the first date upon which such lease may be terminated by the
lessee without payment of a penalty.
"Cash Equivalent Investment" means, at any time:
(a) any obligation, maturing not more than one year after such
time, issued or guaranteed by the United States or Canadian Government;
(b) municipal notes or note funds rated at the time of
purchase, SP-1/A-1 or SP-2/A-2 by Standard & Poor's Ratings Group or
VM1G1 or VM1G2 by Moody's Investors Service, Inc.; municipal bonds or
bond funds rated at the time of purchase, AAA or AA by Standard &
Poor's Ratings Group or Aaa or Aa by Moody's Investors Service, Inc.;
or money market preferred stock rated at the time of purchase, AAA or
AA by Standard & Poor's Ratings Group or aaa or aa by Moody's Investors
Service, Inc.;
(c) commercial paper, maturing not more than nine months from
the date of issue, which is issued by (i) a corporation (other than an
Affiliate of any Obligor) organized under the laws of any state of the
United States or of the District of Columbia and rated at least A-2 by
Standard & Poor's Ratings Group or at least P-2 by Moody's Investors
Service, Inc., or (ii) any Lender (or its holding company); or
(d) any certificate of deposit or bankers acceptance, maturing
not more than one year after such time, which is issued by either (i) a
commercial banking institution that is a member of the Federal Reserve
System and has a combined capital and surplus and undivided profits of
not less than $500,000,000, or (ii) any Lender.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response Compensation
Liability Information System List.
"CF&I Steel, L.P." means CF&I Steel, L.P., a Delaware limited
partnership which is 95.2% owned by New CF&I.
"Change in Control" means (i) the acquisition by any Person (other than
the ESOP), or two or more Persons acting in concert, of beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange Commission
under the Securities Exchange Act of 1934) of 20% or more of the outstanding
shares of voting stock of the Borrower, or (ii) the occurrence of any event or
condition that would require the Borrower to repurchase or redeem any First
Mortgage Notes as a result of any "change in control,"
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<PAGE> 12
"change of control" or similar circumstance under the definitive documentation
for any First Mortgage Notes.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Commitment" means, as the context may require, a Lender's Revolving
Loan Commitment or the Swingline Lender's Swingline Loan Commitment.
"Commitment Amount" means, as the context may require, either the
Revolving Loan Commitment Amount or the Swingline Loan Commitment Amount.
"Commitment Fee Rate" means the percentage determined by reference to
the Leverage Ratio as of the last day of its most recently ended Fiscal Quarter,
as follows:
<TABLE>
<CAPTION>
Leverage Ratio Commitment Fee Rate
-------------- -------------------
<S> <C>
less than 2.0 to 1.0 .25%
2.0 to 1.0 or more but
less than 4.0 to 1.0 .375%
4.0 to 1.0 or more .50%
</TABLE>
"Commitment Termination Date" means, as the context may require, the
Revolving Loan Commitment Termination Date or the Swingline Loan Commitment
Termination Date.
"Commitment Termination Event" means
(a) the occurrence of any Default described in clauses (a)
through (d) of Section 8.1.9; or
(b) the occurrence and continuance of any other Event of
Default and either
(i) the declaration of the Loans to be due and payable
pursuant to Section 8.3, or
(ii) in the absence of such declaration, the giving of
notice by the Administrative Agent, acting at the direction of
the Required Lenders, to the Borrower that the Commitments
have been terminated.
"Compliance Certificate" means a certificate duly executed by an
Authorized Officer of the Borrower, substantially in the form of Exhibit J
hereto.
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<PAGE> 13
"Consolidated Tangible Net Worth" means (i) the book value of the
Borrower and its Subsidiaries' equity plus (ii) the book value of the Borrower
and its Subsidiaries' minority interests minus (iii) the aggregate amount of any
intangible assets of the Borrower and its Subsidiaries, including goodwill,
franchises, licenses, patents, trademarks, tradenames, copyrights, servicemarks
and brandnames.
"Contingent Liability" means any agreement, undertaking or arrangement
by which any Person guarantees, endorses or otherwise becomes or is contingently
liable upon (by direct or indirect agreement, contingent or otherwise, to
provide funds for payment, to supply funds to, or otherwise to invest in, a
debtor, or otherwise to assure a creditor against loss) the indebtedness,
obligation or any other liability of any other Person (other than by
endorsements of instruments in the course of collection), or guarantees the
payment of dividends or other distributions upon the shares of any other Person.
The amount of any Person's obligation under any Contingent Liability shall
(subject to any limitation set forth therein) be calculated in accordance with
GAAP.
"Continuation/Conversion Notice" means a notice of continuation or
conversion and certificate duly executed by an Authorized Officer of the
Borrower, substantially in the form of Exhibit D hereto.
"Controlled Group" means all members of a controlled group of
corporations and all members of a controlled group of trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower, are treated as a single employer under Section 414(b) or 414(c) of the
Code or Section 4001 of ERISA.
"Default" means any Event of Default or any condition, occurrence or
event which, after notice or lapse of time or both, would constitute an Event of
Default.
"Disclosure Schedule" means the Disclosure Schedule attached hereto as
Schedule 1, as it may be amended, supplemented or otherwise modified from time
to time by the Borrower with the written consent of the Managing Agents and the
Required Lenders.
"Dollar" and the sign "$" mean lawful money of the United States.
"Domestic Office" means, relative to any Lender, the office of such
Lender designated as such below its signature hereto or designated in the Lender
Assignment Agreement or such other office of a Lender (or any successor or
assign of such Lender) within the United States as may be designated from time
to time by notice from such Lender, as the case may be, to each other Person
party hereto.
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<PAGE> 14
"EBITDA" means, for any period of four Fiscal Quarters, the Borrower
and its Subsidiaries' earnings before interest expense, taxes, depreciation and
amortization, calculated on a rolling four Fiscal Quarter basis.
"Effective Date" means the date this Agreement becomes effective
pursuant to Section 10.8.
"Eligible Account" means, at the time of any determination thereof, any
Account of the Borrower or any Guarantor as to which each of the following
requirements has been fulfilled to the reasonable satisfaction of the
Administrative Agent:
(a) the Borrower or such Guarantor has lawful and absolute
title to such Account and such Account is, in the Borrower's or such
Guarantor's reasonable judgment, collectible in the ordinary course of
business;
(b) such Account is not subject to a bona fide dispute,
setoff, counterclaim or other claim or defense on the part of any
person (including such Account Debtor) denying liability under such
Account;
(c) such Account is not subject to any Lien in favor of any
Person, except Liens permitted by clause (a), (e), (f), (g), or (h) of
Section 7.2.3;
(d) such Account is a bona fide Account (which, with respect
to an Account arising from a sale of goods, was created as a result of
a sale on an absolute basis and not on a consignment, approval or
sale-and-return basis) of the Borrower or such Guarantor arising in the
ordinary course of the Borrower's or such Guarantor's business, and
which,
(i) in the case of Accounts arising from the sale of
goods, such goods have been shipped or delivered and all other
actions have been taken necessary to create a binding
obligation on the part of the Account Debtor for such Account;
(ii) in the case of Accounts relating to the rendering of
services, such services have been performed or completed and
all other actions have been taken necessary to create a
binding obligation on the part of the Account Debtor for such
Account;
(e) with respect to such Account, the Account Debtor is not
(i) an Affiliate of the Borrower, or
8
<PAGE> 15
(ii) the subject of any reorganization, bankruptcy,
receivership, custodianship, insolvency or other condition
analogous to those described in clauses (a) through (d) of
Section 8.1.9;
(f) such Account is not outstanding more than 90 days past the
original billing date therefor;
(g) such Account is the subject of a first priority perfected
security interest in favor of the Administrative Agent;
(h) such Account is not owing from any Account Debtor from
whom more than 25% of the Accounts owed to the Borrower and the
Guarantors are more than 90 days past the original billing date
therefor;
(i) the Account Debtor thereunder is not the United States or
any department, agency or instrumentality thereof unless the Borrower
assigns its rights to payment of such account to the Administrative
Agent, in form and substance satisfactory to the Administrative Agent,
so as to comply with the Assignment of Claims Act of 1940, as amended;
and
(j) the Account Debtor thereunder is not located outside of
the United States unless payment thereunder is secured by a letter of
credit in form and substance satisfactory to the Administrative Agent.
"Eligible Inventory" means, at the time of any determination thereof,
all Inventory of the Borrower or any Guarantor arising in the ordinary course of
business and as to which each of the following requirements has been fulfilled
to the reasonable satisfaction of the Administrative Agent:
(a) all of such Inventory is located in the United States;
(b) none of such Inventory shall consist of (i) items in the
custody of third parties (other than the Borrower or a Guarantor) for
processing or manufacture, (ii) items in the Borrower's or such
Guarantor's possession but intended by the Borrower or such Guarantor
for return to the suppliers thereof, (iii) items belonging to third
parties (other than the Borrower and the Guarantors) that have been
consigned to the Borrower or such Guarantor or are otherwise in the
Borrower's or such Guarantor's custody or possession, (iv) items in the
Borrower's or such Guarantor's custody and possession on a
sale-on-approval or sale-or-return basis or subject to any other
repurchase or return agreement or
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<PAGE> 16
(v) miscellaneous operating items which are generally categorized by
the Borrower as "stores inventory";
(c) none of such Inventory shall be unsalable, obsolete,
damaged or otherwise unfit for sale or consumption in the normal course
of the business of the Borrower or such Guarantor;
(d) none of such Inventory shall be subject to any Lien in
favor of any Person, except Liens permitted by clause (a), (e), (f),
(g) or (h) of Section 7.2.3; and
(e) all of such Inventory is the subject of a first priority
perfected security interest in favor of the Administrative Agent.
"Environmental Laws" means all applicable federal, state or local
statutes, laws, ordinances, codes, rules, regulations and guidelines (including
consent decrees and administrative orders) relating to protection of the
environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA also refer to any successor sections.
"ESOP" means the employee stock ownership plan for the employees of the
Borrower and certain of its Subsidiaries in effect as of the Effective Date and
any successor to such plan.
"Event of Default" is defined in Section 8.1.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to
(a) the weighted average of the rates on overnight federal
funds transactions with members of the Federal Reserve System arranged
by federal funds brokers, as published for such day (or, if such day is
not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York; or
(b) if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such
transactions received by First Interstate from three federal funds
brokers of recognized standing selected by it.
"First Interstate" is defined in the preamble.
10
<PAGE> 17
"First Mortgage Notes" means those certain first mortgage notes of the
Borrower due 2003, having an aggregate principal amount of $235,000,000 and
bearing interest at the rate of ____% per annum issued by the Borrower on June
__, 1996, and includes the obligations under the Indenture dated as of June __,
1996 among the Borrower, Chemical Bank as Trustee, New CF&I and CF&I Steel,
L.P., the promissory note dated June __, 1996 made by CF&I Steel, L.P. to
Chemical Bank, as Trustee under the Indenture, the guaranties of New CF&I and
CF&I Steel, L.P., Borrower's obligations under the notes, the mortgages, the
security agreements and other documents securing payment of the First Mortgage
Notes, the CF&I note described above and the guaranties executed and delivered
to the trustee pursuant to Section 11.01 of the Indenture.
"Fiscal Quarter" means any quarter of a Fiscal Year.
"Fiscal Year" means any period of twelve consecutive calendar months
ending on December 31; references to a Fiscal Year with a number corresponding
to any calendar year (e.g., the "1995 Fiscal Year") refer to the Fiscal Year
ending on the December 31 occurring during such calendar year.
"F.R.S. Board" means the Board of Governors of the Federal Reserve
System or any successor thereto.
"Funded Debt" means the outstanding principal amount of all
Indebtedness of the Borrower and its Subsidiaries of the nature referred to in
clauses (a) and (b) of the definition of "Indebtedness".
"Funded Debt to Capitalization Ratio" means the ratio of (x) Funded
Debt to (y) the sum of (i) Funded Debt plus (ii) Consolidated Tangible Net
Worth.
"GAAP" is defined in Section 1.4.
"Guaranties" means the Amended and Restated Guaranties executed and
delivered pursuant to Section 5.1.4, substantially in the form of Exhibit F
hereto, as amended, supplemented, restated or otherwise modified from time to
time.
"Guarantors" means CF&I Steel, L.P. and New CF&I and any other
Significant Subsidiary that delivers a Guaranty pursuant to the provisions of
Section 7.1.7 hereof.
"Hazardous Material" means
(a) any "hazardous substance", as defined by CERCLA;
(b) any "hazardous waste", as defined by the Resource
Conservation and Recovery Act, as amended; or
11
<PAGE> 18
(c) any pollutant or contaminant or hazardous, dangerous or
toxic chemical, material or substance within the meaning of any other
applicable federal, state or local law, regulation, ordinance or
requirement (including consent decrees and administrative orders)
relating to or imposing liability or standards of conduct concerning
any hazardous, toxic or dangerous waste, substance or material, all as
amended or hereafter amended.
"Hedging Obligations" means, with respect to any Person, all
liabilities of such Person under interest rate swap agreements, interest rate
cap agreements and interest rate collar agreements, and all other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates, currency exchange rates or commodity prices.
"herein", "hereof", "hereto", "hereunder" and similar terms contained
in this Agreement or any other Loan Document refer to this Agreement or such
other Loan Document, as the case may be, as a whole and not to any particular
Section, paragraph or provision of this Agreement or such other Loan Document.
"Impermissible Qualification" means, relative to the opinion or
certification of any independent public accountant as to any financial statement
of any Obligor, any qualification or exception to such opinion or certification
(a) which is of a "going concern" or similar nature;
(b) which relates to the limited scope of examination of
matters relevant to such financial statement; or
(c) which relates to the treatment or classification of any
item in such financial statement and which, as a condition to its
removal, would require an adjustment to such item the effect of which
would be to cause such Obligor to be in default of any of its
obligations under Section 7.2.4.
"including" means including without limiting the generality of any
description preceding such term.
"Indebtedness" of any Person means, without duplication:
(a) all obligations of such Person for borrowed money and all
obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments;
(b) all obligations of such Person as lessee under leases
which have been or should be, in accordance with GAAP, recorded as
Capitalized Lease Liabilities;
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<PAGE> 19
(c) all obligations, contingent or otherwise, relative to the
face amount of all letters of credit, whether or not drawn, and
banker's acceptances issued for the account of such Person;
(d) all other items which, in accordance with GAAP, would be
included as liabilities on the liability side of the balance sheet of
such Person as of the date at which Indebtedness is to be determined;
(e) whether or not so included as liabilities in accordance
with GAAP, all indebtedness (excluding prepaid interest thereon)
secured by a Lien on property owned or being purchased by such Person
(including indebtedness arising under conditional sales or other title
retention agreements), whether or not such indebtedness shall have been
assumed by such Person or is limited in recourse; provided, however,
that the indebtedness secured by a Lien on the Borrower's or any
Subsidiary's interest in any joint venture permitted by the terms of
Section 7.2.3(i) hereof shall not be considered Indebtedness; and
(f) all Contingent Liabilities of such Person in respect of
any of the foregoing.
For all purposes of this Agreement, (i) Permitted Intercompany Loans shall not
be considered Indebtedness and (ii) the Indebtedness of any Person shall include
the Indebtedness of any partnership or joint venture in which such Person is a
general partner or a joint venturer to the extent that either (x) such Person is
directly obligated for such Indebtedness or (y) that such Indebtedness is a
Contingent Liability of such Person.
"Indemnified Liabilities" is defined in Section 10.4.
"Indemnified Parties" is defined in Section 10.4.
"Intercreditor Agreement" is defined in Section 5.1.7.
"Interest Coverage Ratio" means, for any period of four Fiscal
Quarters, the ratio of (x) the sum of the Borrower and its Subsidiaries' (i)
EBITDA during such period, plus (ii) the non-cash portion of the Borrower's
contribution to its employee stock ownership plan during such period, to (y) the
Borrower and its Subsidiaries' total interest expense (including capitalized
interest) paid in cash during such period.
"Interest Period" means, relative to any LIBO Rate Loans, the period
beginning on (and including) the date on which such LIBO Rate Loan is made or
continued as, or converted into, a LIBO Rate Loan pursuant to Section 2.3 or 2.4
and shall end on (but exclude)
13
<PAGE> 20
the day which numerically corresponds to such date one, two, three or six months
thereafter (or, if such month has no numerically corresponding day, on the last
Business Day of such month), as the Borrower may select in its relevant notice
pursuant to Section 2.3 or 2.4; provided,
however, that
(a) Interest Periods commencing on the same date for Loans
comprising part of the same Borrowing shall be of the same duration;
(b) if such Interest Period would otherwise end on a day which
is not a Business Day, such Interest Period shall end on the next
following Business Day (unless such next following Business Day is the
first Business Day of a calendar month, in which case such Interest
Period shall end on the Business Day next preceding such numerically
corresponding day); and
(c) no Interest Period for any Loan may end later than the
Stated Maturity Date for such Loan.
"Inventory" means all inventory, as such term is defined in the
Uniform Commercial Code in effect in the state of New York as of the Effective
Date.
"Investment" means, relative to any Person,
(a) any loan or advance made by such Person to any other
Person (excluding commission, travel and similar advances to officers
and employees made in the ordinary course of business) other than
Permitted Intercompany Loans;
(b) any Contingent Liability of such Person; and
(c) any ownership or similar interest held by such Person in
any other Person.
The amount of any Investment shall be the original principal or capital amount
thereof less all returns of principal or equity thereon (and without adjustment
by reason of the financial condition of such other Person) and shall, if made by
the transfer or exchange of property other than cash, be deemed to have been
made in an original principal or capital amount equal to the fair market value
of such property at the time of such Investment.
"Lender Assignment Agreement" means a Lender Assignment Agreement
substantially in the form of Exhibit E hereto.
"Lenders" is defined in the preamble.
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<PAGE> 21
"Leverage Ratio" means, as of the end of any Fiscal Quarter of the
Borrower, the ratio of the Borrower and its Subsidiaries' (x) Funded Debt to (y)
EBITDA.
"LIBO Rate" is defined in Section 3.3.1.
"LIBO Rate Loan" means a Loan bearing interest, at all times during an
Interest Period applicable to such Loan, at a fixed rate of interest determined
by reference to the LIBO Rate (Reserve Adjusted).
"LIBO Rate (Reserve Adjusted)" is defined in Section 3.3.1.
"LIBOR Office" means, relative to any Lender, the office of such Lender
designated as such below its signature hereto or designated in the Lender
Assignment Agreement or such other office of a Lender as designated from time to
time by notice from such Lender to the Borrower and the Administrative Agent,
whether or not outside the United States, which shall be making or maintaining
LIBO Rate Loans of such Lender hereunder.
"LIBOR Reserve Percentage" is defined in Section 3.3.1.
"Lien" means any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or otherwise),
charge against or interest in property to secure payment of a debt or
performance of an obligation or other priority or preferential arrangement of
any kind or nature whatsoever.
"Loan" means, as the context may require, a Revolving Loan or a
Swingline Loan of any type.
"Loan Document" means this Agreement, the Notes, the Guaranties, the
Security Agreements, each agreement relating to the Hedging Obligations to which
a Lender is a party (unless otherwise agreed by such Lender), the Intercreditor
Agreement and each other agreement, document or instrument delivered in
connection with this Agreement.
"Managing Agents" is defined in the preamble and includes each other
Person as shall have subsequently been appointed as a successor Managing Agent
pursuant to Section 9.4.
"Material Adverse Effect" means any circumstance or event which is
reasonably likely to (i) have a material adverse effect on the validity or
enforceability of this Agreement, the Notes or any other Loan Document, (ii)
have a material adverse effect on the financial condition, operations, assets,
business or properties of Borrower and its Subsidiaries, taken as a whole, or
(iii) materially impair the ability of the Borrower or any Guarantor to
15
<PAGE> 22
fulfill its respective obligations under this Agreement or any other Loan
Document.
"Material Partnership" means each of the Camrose Partnership, CF&I
Steel, L.P. and any other partnership in which Borrower or any Subsidiary has an
Investment in excess of $10,000,000.
"Monthly Payment Date" means the last day of each calendar month or, if
any such day is not a Business Day, the next succeeding Business Day.
"Net Equity Proceeds" means, with respect to any issuance by the
Borrower or any Subsidiary of any equity securities, the gross consideration
received by or for the issuer minus underwriting and brokerage commissions,
discounts and fees and other professional fees and expenses relating to such
issuance that are payable by the issuer.
"Net First Mortgage Proceeds" means, with respect to the issuance by
the Borrower of the First Mortgage Notes, the gross consideration received by or
for the account of the Borrower minus the underwriting and brokerage
commissions, discounts and fees and other professional fees and expenses
relating to such issuance that are payable by the Borrower.
"Net Income" means the consolidated net income of the Borrower and its
Subsidiaries, determined in accordance with GAAP.
"New CF&I" means New CF&I, Inc., a Delaware corporation and 87%-owned
Subsidiary of the Borrower.
"Note" means, as the context may require, a Revolving Note or the
Swingline Note.
"Obligations" means all obligations (monetary or otherwise) of the
Borrower and each other Obligor arising under or in connection with this
Agreement, the Notes and each other Loan Document.
"Obligor" means, as the context may require, the Borrower, any
Guarantor or any other Person (other than an Agent or any Lender) obligated
under any Loan Document.
"Original Credit Agreement" is defined in the first recital.
"Organic Document" means, relative to any Obligor, its certificate of
incorporation, its by-laws and all shareholder agreements, voting trusts and
similar arrangements applicable to any of its authorized shares of capital
stock.
"Participant" is defined in Section 10.11.2.
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<PAGE> 23
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Pension Plan" means a "pension plan", as such term is defined in
section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a
multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which the
Borrower or any corporation, trade or business that is, along with the Borrower,
a member of a Controlled Group, may have liability, including any liability by
reason of having been a substantial employer within the meaning of section 4063
of ERISA at any time during the preceding five years, or by reason of being
deemed to be a contributing sponsor under section 4069 of ERISA.
"Percentage" means, relative to any Lender, the percentage set forth on
Schedule 2 hereto or set forth in the Lender Assignment Agreement, as such
percentage may be adjusted from time to time pursuant to Lender Assignment
Agreement(s) executed by such Lender and its Assignee Lender(s) and delivered
pursuant to Section 10.11.1.
"Permitted Dispositions" means (x) any sale, transfer, lease or
conveyance by the Borrower or any of its Subsidiaries of any assets that is made
in the ordinary course of its business or (y) any sale, transfer, lease or
conveyance of any of the properties and assets more particularly described on
Item 1.1 ("Permitted Dispositions") of the Disclosure Schedule.
"Permitted Intercompany Loans" means (i) any loans from the Borrower to
any of the Guarantors, (ii) the existing intercompany loan from New CF&I to CF&I
Steel, L.P. or (iii) any loans from any of the Borrower's Subsidiaries to the
Borrower to the extent that such loans are subordinated on terms and conditions
satisfactory to Managing Agents.
"Permitted Receivables Financing" means any sale (or financing) by the
Borrower or its Subsidiaries of Accounts to a receivables purchaser, on terms
satisfactory to the Required Lenders.
"Person" means any natural person, corporation, partnership, firm,
association, trust, government, governmental agency or any other entity, whether
acting in an individual, fiduciary or other capacity.
"Plan" means any Pension Plan or Welfare Plan.
"Quarterly Payment Date" means the last day of each March, June,
September, and December or, if any such day is not a Business Day, the next
succeeding Business Day.
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"Reference Lenders" means First Interstate, Scotiabank and United
States National Bank of Oregon.
"Release" means a "release", as such term is defined in CERCLA.
"Required Lenders" means, at any time, Lenders holding at least 51% of
the then aggregate outstanding principal amount of the Revolving Notes
(including, for such purposes, any participations of the Lenders under Swingline
Loans), or, if no such principal amount is then outstanding, Lenders having at
least 51% of the aggregate Revolving Loan Commitments.
"Resource Conservation and Recovery Act" means the Resource
Conservation and Recovery Act, 42 U.S.C. Section 690, et seq., as in effect from
time to time.
"Restricted Disposition" means any sale, transfer, lease, contribution
or conveyance by the Borrower or any Subsidiary of its assets that is not a
Permitted Disposition.
"Revolving Loan" is defined in Section 2.1.1.
"Revolving Loan Commitment" means, relative to any Lender, such
Lender's obligation to make Revolving Loans pursuant to Section 2.1.1.
"Revolving Loan Commitment Amount" means, on any date, $125,000,000, as
such amount may be reduced from time to time pursuant to Section 2.1.
"Revolving Loan Commitment Termination Date" means the earliest of
(a) June __, 1999;
(b) the date on which the Revolving Loan Commitment Amount is
terminated in full or reduced to zero pursuant to Section 2.2; and
(c) the date on which any Commitment Termination Event occurs.
Upon the occurrence of any event described above, the Revolving Loan Commitments
shall terminate automatically and without any further action.
"Revolving Note" means a promissory note of the Borrower payable to any
Lender, in the form of Exhibit A hereto (as such promissory note may be amended,
endorsed or otherwise modified from time to time), evidencing the aggregate
Indebtedness of the
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Borrower to such Lender resulting from outstanding Revolving Loans, and also
means all other promissory notes accepted from time to time in substitution
therefor or renewal thereof.
"Scotiabank" is defined in the preamble.
"Security Agreements" means the Amended and Restated Security
Agreements executed and delivered pursuant to Section 5.1.5, substantially in
the form of Exhibit G hereto, as amended, supplemented, restated or otherwise
modified from time to time.
"Significant Subsidiary" means each Subsidiary of the Borrower that
(a) as of the Effective Date, is designated with an asterisk
in Item 2 ("Subsidiaries") of the Disclosure Schedule;
(b) accounted for at least 5% of consolidated revenues of the
Borrower and its Subsidiaries or 5% of consolidated earnings of the
Borrower and its Subsidiaries before interest and taxes, in each case
for the four Fiscal Quarters of the Borrower ending on the last day of
the last Fiscal Quarter of the Borrower immediately preceding the date
as of which any such determination is made; or
(c) has assets which represent at least 5% of the consolidated
assets of the Borrower and its Subsidiaries as of the last day of the
last Fiscal Quarter of the Borrower immediately preceding the date as
of which any such determination is made,
all of which, with respect to clauses (b) and (c), shall be as reflected on the
financial statements of the Borrower for the period, or as of the date, in
question.
"Stated Maturity Date" means
(a) in the case of any Revolving Loan, June __, 1999; and
(b) in the case of any Swingline Loan, June __, 1999.
"Subsidiary" means, with respect to any Person, any corporation of
which more than 50% of the outstanding capital stock having ordinary voting
power to elect a majority of the board of directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such Person, by such
Person and one or more other Subsidiaries of such
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Person, or by one or more other Subsidiaries of such Person; provided, however,
that in the case of the Borrower, such term also includes, without limitation,
Camrose Partnership and CF&I Steel, L.P.
"Swingline Lender" means First Interstate.
"Swingline Loan" is defined in Section 2.1.2.
"Swingline Loan Commitment" means the Swingline Lender's obligation to
make Swingline Loans pursuant to Section 2.1.2.
"Swingline Loan Commitment Amount" means, on any date $15,000,000, as
such amount may be reduced from time to time pursuant to Section 2.2.
"Swingline Loan Commitment Termination Date" means the earlier of
(a) the Revolving Loan Commitment Termination Date; or
(b) the date on which the Swingline Loan Commitment Amount is
terminated in full or reduced to zero pursuant to Section 2.2.
Upon the occurrence of any event described above, the Swingline Loan Commitment
shall terminate automatically and without any further action.
"Swingline Note" means the promissory note of the Borrower payable to
the Swingline Lender, in the form of Exhibit B hereto (as such promissory note
may be amended, endorsed or otherwise modified from time to time), evidencing
the aggregate Indebtedness of the Borrower to the Swingline Lender resulting
from outstanding Swingline Loans, and also means all other promissory notes
accepted from time to time in substitution therefor or renewal thereof.
"Syndication Agent" is defined in the preamble and includes each other
Person as shall have subsequently been appointed as the successor Syndication
Agent pursuant to Section 9.4.
"Taxes" is defined in Section 4.6.
"Trustee Guaranty" means a guaranty in favor of the trustee for the
First Mortgage Notes and each holder of a First Mortgage Note from each
Guarantor hereunder and each Significant Subsidiary that hereafter delivers a
Guaranty pursuant to the provisions of Section 7.1.7 hereof and such term
includes that certain promissory note in the principal amount of $235,000,000
executed by CF&I Steel, L.P. in favor of the trustee for the First Mortgage
Notes.
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"type" means, relative to any Loan, the portion thereof, if any, being
maintained as a Base Rate Loan or a LIBO Rate Loan.
"United States" or "U.S." means the United States of America, its fifty
States and the District of Columbia.
"Welfare Plan" means a "welfare plan", as such term is defined in
section 3(1) of ERISA.
SECTION 1.2. Use of Defined Terms. Unless otherwise defined or the
context otherwise requires, terms for which meanings are provided in this
Agreement shall have such meanings when used in the Disclosure Schedule and in
each Note, Borrowing Request, Continuation/Conversion Notice, Loan Document,
notice and other communication delivered from time to time in connection with
this Agreement or any other Loan Document.
SECTION 1.3. Cross-References. Unless otherwise specified, references
in this Agreement and in each other Loan Document to any Article or Section are
references to such Article or Section of this Agreement or such other Loan
Document, as the case may be, and, unless otherwise specified, references in any
Article, Section or definition to any clause are references to such clause of
such Article, Section or definition.
SECTION 1.4. Accounting and Financial Determinations. Unless otherwise
specified, all accounting terms used herein or in any other Loan Document shall
be interpreted, all accounting determinations and computations hereunder or
thereunder (including under Section 7.2.4) shall be made, and all financial
statements required to be delivered hereunder or thereunder shall be prepared in
accordance with, those generally accepted accounting principles ("GAAP") applied
in the preparation of the audited financial statements referred to in Section
6.5.
ARTICLE II
COMMITMENTS, BORROWING PROCEDURES AND NOTES
SECTION 2.1. Commitments. On the terms and subject to the conditions of
this Agreement (including Article V), each Lender severally agrees to make Loans
pursuant to the Commitments described in this Section 2.1.
SECTION 2.1.1. Revolving Loan Commitment. From time to time on any
Business Day occurring prior to the Revolving Loan Commitment Termination Date,
each Lender will make Loans (relative to such Lender, its "Revolving Loans") to
the Borrower equal to such Lender's Percentage of the aggregate amount of the
Borrowing of Revolving Loans requested by the Borrower to be made on such
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day. The Commitment of each Lender described in this Section 2.1.1 is herein
referred to as its "Revolving Loan Commitment". On the terms and subject to the
conditions hereof, the Borrower may from time to time borrow, prepay and
reborrow Revolving Loans.
SECTION 2.1.2. Swingline Commitment. From time to time on any Business
Day occurring prior to the Swingline Loan Commitment Termination Date, the
Swingline Lender will make Swingline Loans to the Borrower in the aggregate
amount of Swingline Loans requested by the Borrower to be made on such date. The
Commitment of the Swingline Lender described in this Section 2.1.2 is herein
referred to as the "Swingline Loan Commitment". On the terms and subject to the
conditions hereof, the Borrower may from time to time, borrow, prepay and
reborrow Swingline Loans. All Swingline Loans shall bear interest at a
fluctuating rate determined by reference to the Federal Funds Rate plus the
Applicable Margin for Swingline Loans. On the date a Swingline Loan is made
hereunder, each Lender absolutely and unconditionally agrees to and does
purchase a participation in an amount equal to its respective Percentage of
Revolving Loans in such Swingline Loan. At the request of the Swingline Lender,
made through the Administrative Agent at any time and from time to time,
including, without limitation, following the occurrence of Event of Default,
each Lender (including the Swingline Lender) absolutely and unconditionally
agrees to fund the Swingline Loans then outstanding by advancing such Lender's
Percentage of the outstanding Swingline Loans to the Administrative Agent for
disbursement to the Swingline Lender. Such advances shall be made no later than
10:00 a.m. (Portland time) on the next following Business Day after a request
therefor is made. Advances made by the Lenders hereunder for purposes of funding
Swingline Loans shall constitute Revolving Loans (and be advanced as Base Rate
Loans) for all purposes hereof. In consideration of the Lenders' agreement to
advance funds for purposes of repaying Swingline Loans and purchasing
participations in Swingline Loans, the Swingline Lender agrees to pay to each
Lender, such Lender's Percentage of the Applicable Margin for Swingline Loans
collected by the Swingline Lender on all outstanding Swingline Loans. Such
payment shall be made by the Swingline Lender to the Administrative Agent, for
the account of the Lenders, monthly in arrears on each Monthly Payment Date.
SECTION 2.1.3. Lenders Not Permitted or Required To Make Loans. No
Lender shall be permitted or required to make any Revolving Loan if, after
giving effect thereto,
(i) the sum of (x) the aggregate outstanding Swingline Loans
plus (y) the aggregate outstanding principal amount of all Revolving
Loans of all Lenders would exceed the Revolving Loan Commitment Amount,
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(ii) the sum of (x) the aggregate outstanding
Swingline Loans plus (y) the aggregate outstanding principal
amount of all Revolving Loans of all Lenders would exceed the
then-current Borrowing Base, or
(iii) the aggregate outstanding principal amount of
all Swingline Loans and all Revolving Loans of such Lender
would exceed such Lender's Percentage of the Revolving Loan
Commitment Amount.
The Swingline Lender shall not be permitted or required to make any Swingline
Loan, if, after giving effect thereto, the aggregate outstanding principal
amount of:
(i) the sum of (x) the aggregate outstanding
principal amount of all Revolving Loans of all Lenders plus
(y) the aggregate outstanding Swingline Loans would exceed the
Revolving Loan Commitment Amount,
(ii) the sum of (x) the aggregate outstanding
principal amount of all Revolving Loans of all Lenders plus
(y) the aggregate outstanding Swingline Loans would exceed the
Borrowing Base, or
(iii) all Swingline Loans would exceed the Swingline
Loan Commitment Amount.
SECTION 2.2. Optional Reduction of Commitment Amounts. The Borrower
may, from time to time on any Business Day occurring after the time of the
initial Borrowing hereunder, voluntarily reduce the amount of any Commitment
Amount; provided, however, that all such reductions shall require at least one
Business Day's prior notice to the Administrative Agent and be permanent, and
any partial reduction of the Swingline Loan Commitment Amount shall be in a
minimum amount of $1,000,000 and in an integral multiple of $1,000,000 and any
partial reduction of any other Commitment Amount shall be in a minimum amount of
$10,000,000 and in an integral multiple of $1,000,000.
SECTION 2.3. Borrowing Procedure. The Borrower may request Loans to be
made pursuant to this Section 2.3.
SECTION 2.3.1. Revolving Loans. By delivering a Borrowing Request to
the Administrative Agent on or before 9:00 a.m., Portland time, on a Business
Day, the Borrower may from time to time irrevocably request, on not less than
three Business Days' notice in the case of LIBO Rate Loans and on not less than
one Business Day's notice in the case of Base Rate Loans, that a Borrowing of
Revolving Loans be made in a minimum amount of $5,000,000 and an integral
multiple of $1,000,000 or in the unused amount of the Revolving Loan Commitment.
Not later than 10:00
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a.m., Portland time, on the date of receipt, the Administrative Agent shall give
notice to each Lender of the terms of each Borrowing Request for Revolving Loans
submitted by the Borrower. On the terms and subject to the conditions of this
Agreement, each Borrowing shall be comprised of the type of Loans, and shall be
made on the Business Day, specified in such Borrowing Request. On or before
11:00 a.m. (Portland time) on the Business Day specified in the Borrowing
Request each Lender shall deposit with the Administrative Agent same day funds
in an amount equal to such Lender's Percentage of the requested Borrowing. Such
deposit will be made to an account which the Administrative Agent shall specify
from time to time by notice to the Lenders. To the extent funds are received
from the Lenders, the Administrative Agent shall make such funds available to
the Borrower by deposit to the accounts the Borrower shall have specified in its
Borrowing Request. No Lender's obligation to make any Loan shall be affected by
any other Lender's failure to make any Loan.
SECTION 2.3.2. Swingline Loans. By delivering a Borrowing Request to
the Swingline Lender on or before 3:00 p.m., Portland Time, on a Business Day,
the Borrower may from time to time irrevocably request that a Borrowing of
Swingline Loans be made on such date in a minimum amount of $100,000 and an
integral multiple of $100,000 or in the unused amount of the Swingline Loan
Commitment. On the terms and subject to the conditions of this Agreement, each
Borrowing of Swingline Loans shall be made on the Business Day specified in such
Borrowing Request. The Swingline Lender shall make the Swingline Loan available
to the Borrower by deposit to the accounts the Borrower shall have specified in
its Borrowing Request.
SECTION 2.4. Continuation and Conversion Elections. By delivering a
Continuation/Conversion Notice to the Administrative Agent on or before 9:00
a.m., Portland time, on a Business Day, the Borrower may from time to time
irrevocably elect, on not less than three nor more than five Business Days'
notice that all, or any portion in an aggregate minimum amount of $1,000,000 and
an integral multiple of $100,000, of any Revolving Loans be, in the case of Base
Rate Loans, converted into LIBO Rate Loans or, in the case of LIBO Rate Loans,
be converted into a Base Rate Loan or continued as a LIBO Rate Loan (in the
absence of delivery of a Continuation/Conversion Notice with respect to any LIBO
Rate Loan at least three Business Days before the last day of the then current
Interest Period with respect thereto, such LIBO Rate Loan shall, on such last
day, automatically convert to a Base Rate Loan); provided, however, that (i)
each such conversion or continuation shall be pro rated among the applicable
outstanding Loans of all Lenders, and (ii) no portion of the outstanding
principal amount of any Revolving Loans may be continued as, or be converted
into, LIBO Rate Loans when any Default has occurred and is continuing. Not later
than 10:00 a.m., Portland time, on the
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date of receipt, the Administrative Agent shall give notice to each Lender of
the terms of each Continuation/Conversion Notice delivered to it by the
Borrower.
SECTION 2.5. Funding. Each Lender may, if it so elects, fulfill its
obligation to make, continue or convert LIBO Rate Loans hereunder by causing one
of its foreign branches or Affiliates (or an international banking facility
created by such Lender) to make or maintain such LIBO Rate Loan; provided,
however, that such LIBO Rate Loan shall nonetheless be deemed to have been made
and to be held by such Lender, and the obligation of the Borrower to repay such
LIBO Rate Loan shall nevertheless be to such Lender for the account of such
foreign branch, Affiliate or international banking facility. In addition, the
Borrower hereby consents and agrees that, for purposes of any determination to
be made for purposes of Sections 4.1, 4.2, 4.3 or 4.4, it shall be conclusively
assumed that each Lender elected to fund all LIBO Rate Loans by purchasing
Dollar deposits in its LIBOR Office's interbank eurodollar market.
SECTION 2.6. Notes. Each Lender's Loans under a Commitment shall be
evidenced by a Note payable to the order of such Lender in a maximum principal
amount equal to such Lender's Percentage of the original applicable Commitment
Amount. The Borrower hereby irrevocably authorizes each Lender to make (or cause
to be made) appropriate notations on the grid attached to such Lender's Notes
(or on any continuation of such grid), which notations, if made, shall evidence,
inter alia, the date of, the outstanding principal of, and the interest rate and
Interest Period applicable to the Loans evidenced thereby. Such notations shall
be conclusive and binding on the Borrower absent manifest error; provided,
however, that the failure of any Lender to make any such notations shall not
limit or otherwise affect any Obligations of the Borrower or any other Obligor.
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
SECTION 3.1. Repayments and Prepayments. The Borrower shall repay in
full the unpaid principal amount of each Loan upon the Stated Maturity Date
therefor. Prior thereto, payments and prepayments of Loans shall be made as set
forth below:
SECTION 3.1.1. Voluntary Prepayments. From time to time on any Business
Day, the Borrower may make a voluntary prepayment, in whole or in part, of the
outstanding principal amount of any Loans; provided, however, that
(i) any such prepayment shall be applied to such Loans as
shall be specified by the Borrower in a written notice to
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the Administrative Agent, or in the absence of such notice, as the
Administrative Agent shall specify;
(ii) no such prepayment of any LIBO Rate Loan may be made on
any day other than the last day of the Interest Period for such Loan;
(iii) voluntary prepayments of Swingline Loans may be made
with notice from an Authorized Officer of the Borrower to the Swingline
Lender prior to 3:00 p.m. on the date of such payment, and all
voluntary prepayments of Revolving Loans shall require at least one
Business Day's prior written notice to the Administrative Agent; and
(iv) all voluntary partial prepayments of Swingline Loans
shall be in an aggregate minimum amount of $100,000 and an integral
multiple of $100,000; and all voluntary partial prepayments of
Revolving Loans shall be in an aggregate minimum amount of $5,000,000
and an integral multiple of $1,000,000.
SECTION 3.1.2. Exceeding the Revolving Loan Commitment. On each date
when the sum of the aggregate outstanding principal amount of all Revolving
Loans and Swingline Loans exceeds the lesser of (x) the Revolving Loan
Commitment Amount (as it may be reduced from time to time) and (y) the then
effective Borrowing Base amount, the Borrower shall make a mandatory prepayment
of the Revolving Loans or Swingline Loans (or both) in an aggregate amount equal
to such excess.
SECTION 3.1.3. Acceleration. The Borrower shall, immediately upon any
acceleration of the Stated Maturity Date of any Loans pursuant to Section 8.2 or
Section 8.3, repay all Loans, unless, pursuant to Section 8.3, only a portion of
all Loans is so accelerated.
SECTION 3.2. Application of Payments and Prepayments.
SECTION 3.2.1. Voluntary Prepayments. Each prepayment of any Loans made
pursuant to this Section shall be without premium or penalty, except as may be
required by Section 4.4. No voluntary prepayment of principal of any Revolving
Loans shall cause a reduction in the Revolving Loan Commitment Amount, and no
voluntary prepayment of principal of any Swingline Loans shall cause a reduction
in the Swingline Loan Commitment Amount.
SECTION 3.3. Interest Provisions. Interest on the outstanding principal
amount of Loans shall accrue and be payable in accordance with this Section 3.3.
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SECTION 3.3.1. Rates. Pursuant to an appropriately delivered Borrowing
Request or Continuation/Conversion Notice, the Borrower may elect that Base Rate
Loans and LIBO Rate Loans comprising a Borrowing accrue interest at a rate per
annum:
(a) on that portion maintained from time to time as a Base
Rate Loan, equal to the sum of the Alternate Base Rate from time to
time in effect plus the Applicable Margin; and
(b) on that portion maintained as a LIBO Rate Loan, during
each Interest Period applicable thereto, equal to the sum of the LIBO
Rate (Reserve Adjusted) for such Interest Period plus the Applicable
Margin.
All Swingline Loans shall accrue interest at a rate per annum equal to the sum
of Federal Funds Rate from time to time in effect plus the Applicable Margin for
Swingline Loans.
The "LIBO Rate (Reserve Adjusted)" means, relative to any Loan to be
made, continued or maintained as, or converted into, a LIBO Rate Loan for any
Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest
1/16 of 1%) determined pursuant to the following formula:
LIBO Rate = LIBO Rate
-------------------------------
(Reserve Adjusted) 1.00 - LIBOR Reserve Percentage
The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate
Loans will be determined by the Administrative Agent on the basis of the LIBOR
Reserve Percentage in effect on, and the applicable rates furnished to and
received by the Administrative Agent from the Reference Lenders, two Business
Days before the first day of such Interest Period, subject,
however, to the provisions of Section 3.3.4.
"LIBO Rate" means, relative to any Interest Period for LIBO Rate Loans,
the rate of interest equal to the average (rounded upwards, if necessary, to the
nearest 1/16 of 1%) of the rates per annum at which Dollar deposits in
immediately available funds are offered to each Reference Lender's LIBOR Office
in the interbank eurodollar market as at or about 12:00 noon New York time two
Business Days prior to the beginning of such Interest Period for delivery on the
first day of such Interest Period, and in an amount approximately equal to the
amount of each such Reference Lender's LIBO Rate Loan and for a period
approximately equal to such Interest Period.
"LIBOR Reserve Percentage" means, relative to any Interest Period for
LIBO Rate Loans, the reserve percentage (expressed as a decimal) equal to the
maximum aggregate reserve requirements (including all basic, emergency,
supplemental, marginal and other
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reserves and taking into account any transitional adjustments or other scheduled
changes in reserve requirements) specified under regulations issued from time to
time by the F.R.S. Board and then applicable to assets or liabilities consisting
of and including "Eurocurrency Liabilities", as currently defined in Regulation
D of the F.R.S. Board, having a term approximately equal or comparable to such
Interest Period.
All LIBO Rate Loans shall bear interest from and including the first
day of the applicable Interest Period to (but not including) the last day of
such Interest Period at the interest rate determined as applicable to such LIBO
Rate Loan.
SECTION 3.3.2. Post-Maturity Rates. After the date any principal amount
of any Loan is due and payable (whether on the Stated Maturity Date, upon
acceleration or otherwise), or after any other monetary Obligation of the
Borrower shall have become due and payable, the Borrower shall pay, but only to
the extent permitted by law, interest (after as well as before judgment) on such
amounts at a rate per annum equal to the sum of the Alternate Base Rate plus 2%
plus the Applicable Margin for Base Rate Loans then in effect.
SECTION 3.3.3. Payment Dates. Interest accrued on each Loan shall be
payable, without duplication:
(a) on the Stated Maturity Date therefor;
(b) on the date of any payment or prepayment, in whole or in
part, of principal outstanding on such Loan;
(c) with respect to Revolving Loans made as Base Rate Loans,
on each Quarterly Payment Date occurring after the Effective Date, and
with respect to Swingline Loans made as Base Rate Loans, on each
Monthly Payment Date occurring after the Effective Date;
(d) with respect to LIBO Rate Loans, the last day of each
applicable Interest Period (and, if such Interest Period shall exceed
90 days, on the 90th day of such Interest Period); and
(e) on that portion of any Loans the Stated Maturity Date of
which is accelerated pursuant to Section 8.2 or Section 8.3,
immediately upon such acceleration.
Interest accrued on Loans or other monetary Obligations arising under this
Agreement or any other Loan Document after the date such amount is due and
payable (whether on the Stated Maturity Date, upon acceleration or otherwise)
shall be payable upon demand.
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SECTION 3.3.4. Interest Rate Determination. Each Reference Lender
agrees to furnish to the Administrative Agent timely information for the purpose
of determining each LIBO Rate. If any one or more of the Reference Lenders shall
fail timely to furnish such information to the Administrative Agent for any such
interest rate, the Administrative Agent shall determine such interest rate on
the basis of the information furnished by the remaining Reference Lenders.
SECTION 3.4. Fees. The Borrower agrees to pay the fees set forth in
this Section 3.4. All such fees shall be non-refundable.
SECTION 3.4.1. Commitment Fee. The Borrower agrees to pay to the
Administrative Agent for the account of each Lender, for the period (including
any portion thereof when any of its Commitments are suspended by reason of the
Borrower's inability to satisfy any condition of Article V) commencing on the
Effective Date and continuing through the final Commitment Termination Date, a
commitment fee at the Commitment Fee Rate per annum on such Lender's Percentage
of the sum of the average daily unused portion of the Revolving Commitment
Amount; provided, however, that for purposes of determining usage under the
Revolving Commitment, all outstanding Swingline Loans shall be deemed to be
Revolving Loans. Such commitment fees shall be payable by the Borrower in
arrears on each Quarterly Payment Date, commencing with the first such day
following the Effective Date, and on each Commitment Termination Date.
SECTION 3.4.2. Upfront Fee. The Borrower agrees to pay to the
Administrative Agent for the account of each Lender on the Effective Date, an
upfront fee based on such Lender's initial Commitment and based on such Lender's
final allocated Commitment in such amounts as previously agreed by the Borrower
and the Managing Agents.
SECTION 3.4.3. Agents' Fees. The Borrower agrees to pay to the Agents
for their own account, in addition to all other amounts payable by the Borrower
under Sections 3.4.1 and 3.4.2, such other fees as were described in the fee
letters dated February 21, 1996 between the Borrower and First Interstate and
the Borrower and Scotiabank.
ARTICLE IV
CERTAIN LIBO RATE AND OTHER PROVISIONS
SECTION 4.1. LIBO Rate Lending Unlawful. If any Lender shall determine
(which determination shall, upon notice thereof to the Borrower and the Lenders,
be conclusive and binding on the Borrower) that the introduction of or any
change in or in the
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interpretation of any law makes it unlawful, or any central bank or other
governmental authority asserts that it is unlawful, for such Lender to make,
continue or maintain any Loan as, or to convert any Loan into, a LIBO Rate Loan,
the obligations of such Lender to make, continue, maintain or convert any such
Loans shall, upon such determination, forthwith be suspended until such Lender
shall notify the Administrative Agent that the circumstances causing such
suspension no longer exist, and all LIBO Rate Loans of such Lender shall
automatically convert into Base Rate Loans at the end of the then current
Interest Periods with respect thereto or sooner, if required by such law or
assertion.
SECTION 4.2. Deposits Unavailable. If the Administrative Agent shall
have determined that
(a) Dollar deposits in the relevant amount and for the
relevant Interest Period are not available to the Reference Lenders in
their relevant markets; or
(b) by reason of circumstances affecting the Reference
Lenders' relevant markets, adequate means do not exist for ascertaining
the interest rate applicable hereunder to LIBO Rate Loans,
then, upon notice from the Administrative Agent to the Borrower and the Lenders,
the obligations of all Lenders under Section 2.3 and Section 2.4
to make or continue any Loans as, or to convert any Loans into, LIBO Rate Loans
shall forthwith be suspended until the Administrative Agent shall notify the
Borrower and the Lenders that the circumstances causing such suspension no
longer exist.
SECTION 4.3. Increased LIBO Rate Loan Costs, etc. The Borrower agrees
to reimburse each Lender for any increase in the cost to such Lender of, or any
reduction in the amount of any sum receivable by such Lender in respect of,
making, continuing or maintaining (or of its obligation to make, continue or
maintain) any Loans as, or of converting (or of its obligation to convert) any
Loans into, LIBO Rate Loans which results from the introduction of or any change
since the date of this Agreement in any applicable law, governmental rule,
regulation, guideline, order or request (whether or not having the force of
law), or in the interpretation or administration thereof (including, by way of
example, but not limited to, a change in official reserve requirements). Such
Lender shall promptly notify the Administrative Agent and the Borrower in
writing of the occurrence of any such event, such notice to state, in reasonable
detail, the reasons therefor and the additional amount required fully to
compensate such Lender for such increased cost or reduced amount. Such
additional amounts shall be payable by the Borrower directly to such Lender
within five days of its receipt of such notice, and such notice shall, in the
absence of manifest error, be conclusive and binding on the Borrower.
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SECTION 4.4. Funding Losses. In the event any Lender shall incur any
loss or expense (including any loss or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Lender
to make, continue or maintain any portion of the principal amount of any Loan
as, or to convert any portion of the principal amount of any Loan into, a LIBO
Rate Loan) as a result of
(a) any conversion or repayment or prepayment of the principal
amount of any LIBO Rate Loans on a date other than the scheduled last
day of the Interest Period applicable thereto, whether pursuant to
Section 3.1 or otherwise;
(b) any Loans not being made as LIBO Rate Loans in accordance
with the Borrowing Request therefor, except as a result of a Lender's
breach of its Commitments hereunder; or
(c) any Loans not being continued as, or converted into, LIBO
Rate Loans in accordance with the Continuation/Conversion Notice
therefor, except as a result of a Lender's breach of its Commitments
hereunder,
then, upon the written notice of such Lender to the Borrower (with a copy to the
Administrative Agent), the Borrower shall, within five days of its receipt
thereof, pay directly to such Lender such amount as will (in the reasonable
determination of such Lender) reimburse such Lender for such loss or expense.
Such written notice (which shall include calculations in reasonable detail)
shall, in the absence of manifest error, be conclusive and binding on the
Borrower.
SECTION 4.5. Increased Capital Costs. If any change in, or the
introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any law or regulation, directive, guideline, decision or request
(whether or not having the force of law) of any court, central bank, regulator
or other governmental authority affects or would affect the amount of capital
required or expected to be maintained by any Lender or any Person controlling
such Lender, and such Lender determines (in its sole and absolute discretion)
that the rate of return on its or such controlling Person's capital as a
consequence of its Commitments or the Loans made by such Lender is reduced to a
level below that which such Lender or such controlling Person could have
achieved but for the occurrence of any such circumstance, then, in any such case
upon notice from time to time by such Lender to the Borrower and the
Administrative Agent, the Borrower shall immediately pay directly to such Lender
additional amounts sufficient to compensate such Lender or such controlling
Person for such reduction in rate of return. A statement of such Lender as to
any such additional amount or amounts (including calculations thereof in
reasonable detail) shall, in the absence of manifest error, be conclusive and
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binding on the Borrower. In determining such amount, such Lender may use any
method of averaging and attribution that it (in its sole and absolute
discretion) shall deem applicable.
SECTION 4.6. Taxes. All payments by the Borrower of principal of, and
interest on, the Loans and all other amounts payable hereunder shall be made
free and clear of and without deduction for any present or future income,
excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or
other charges of any nature whatsoever imposed by any taxing authority, but
excluding franchise taxes and taxes imposed on or measured by any Lender's net
income or receipts (such non-excluded items being called "Taxes"). In the event
that any withholding or deduction from any payment to be made by the Borrower
hereunder is required in respect of any Taxes pursuant to any applicable law,
rule or regulation, then the Borrower will
(a) pay directly to the relevant authority the full amount
required to be so withheld or deducted;
(b) promptly forward to the Administrative Agent an official
receipt or other documentation satisfactory to the Administrative Agent
evidencing such payment to such authority; and
(c) pay to the Administrative Agent for the account of the
Lenders such additional amount or amounts as is necessary to ensure
that the net amount actually received by each Lender will equal the
full amount such Lender would have received had no such withholding or
deduction been required.
Moreover, if any Taxes are directly asserted against the Administrative Agent or
any Lender with respect to any payment received by the Administrative Agent or
such Lender hereunder, the Administrative Agent or such Lender may pay such
Taxes and the Borrower will promptly pay such additional amounts (including any
penalties, interest or expenses) as is necessary in order that the net amount
received by such person after the payment of such Taxes (including any Taxes on
such additional amount) shall equal the amount such person would have received
had not such Taxes been asserted.
If the Borrower fails to pay any Taxes when due to the appropriate
taxing authority or fails to remit to the Administrative Agent, for the account
of the respective Lenders, the required receipts or other required documentary
evidence, the Borrower shall indemnify the Lenders for any incremental Taxes,
interest or penalties that may become payable by any Lender as a result of any
such failure. For purposes of this Section 4.6, a distribution hereunder
by the Administrative Agent or any Lender to
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or for the account of any Lender shall be deemed a payment by the Borrower.
Upon the request of the Administrative Agent, each Lender that is
organized under the laws of a jurisdiction other than the United States shall,
prior to the due date of any payments under the Notes, execute and deliver to
the Borrower and the Administrative Agent, on or about the first scheduled
payment date in each Fiscal Year, one or more (as the Administrative Agent may
reasonably request) United States Internal Revenue Service Forms 4224 or Forms
1001 or such other forms or documents (or successor forms or documents),
appropriately completed, as may be applicable to establish the extent, if any,
to which a payment to such Lender is exempt from withholding or deduction of
Taxes.
SECTION 4.7. Payments, Computations, etc. All payments by the Borrower
pursuant to Swingline Loans shall be made by the Borrower directly to the
Swingline Lender. Unless otherwise expressly provided, all other payments by the
Borrower pursuant to this Agreement, the Notes or any other Loan Document shall
be made by the Borrower to the Administrative Agent for the pro rata account of
the Lenders entitled to receive such payment. All such payments required to be
made to the Administrative Agent or Swingline Lender shall be made, without
setoff, deduction or counterclaim, not later than 10:00 a.m., Portland time, on
the date due, in same day or immediately available funds, to such account as the
Administrative Agent or Swingline Lender shall specify from time to time by
notice to the Borrower. Funds received after that time shall be deemed to have
been received by the Administrative Agent or Swingline Lender on the next
succeeding Business Day. The Administrative Agent shall promptly remit in same
day funds to each Lender its share, if any, of such payments received by the
Administrative Agent for the account of such Lender. All interest and fees shall
be computed on the basis of the actual number of days (including the first day
but excluding the last day) occurring during the period for which such interest
or fee is payable over a year comprised of 360 days (or, in the case of interest
on a Base Rate Loan, 365 days or, if appropriate, 366 days). Whenever any
payment to be made shall otherwise be due on a day which is not a Business Day,
such payment shall (except as otherwise required by clause (c) of the definition
of the term "Interest Period" with respect to LIBO Rate Loans) be made on the
next succeeding Business Day and such extension of time shall be included in
computing interest and fees, if any, in connection with such payment.
SECTION 4.8. Sharing of Payments. If any Lender shall obtain any
payment or other recovery (whether voluntary, involuntary, by application of
setoff or otherwise) on account of any Loan (other than pursuant to the terms of
Sections 4.3, 4.4 and 4.5) in excess of its pro rata share of payments then or
therewith obtained by all Lenders, such Lender shall purchase from the other
Lenders such
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participations in Loans made by them as shall be necessary to cause such
purchasing Lender to share the excess payment or other recovery ratably with
each of them; provided, however, that if all or any portion of
the excess payment or other recovery is thereafter recovered from such
purchasing Lender, the purchase shall be rescinded and each Lender which has
sold a participation to the purchasing Lender shall repay to the purchasing
Lender the purchase price to the ratable extent of such recovery together with
an amount equal to such selling Lender's ratable share (according to the
proportion of (a) the amount of such selling Lender's required repayment to the
purchasing Lender to (b) the total amount so recovered from the
purchasing Lender) of any interest or other amount paid or payable by the
purchasing Lender in respect of the total amount so recovered. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section may, to the fullest extent permitted by law, exercise
all its rights of payment (including pursuant to Section 4.9) with
respect to such participation as fully as if such Lender were the direct
creditor of the Borrower in the amount of such participation. If under any
applicable bankruptcy, insolvency or other similar law, any Lender receives a
secured claim in lieu of a setoff to which this Section applies, such Lender
shall, to the extent practicable, exercise its rights in respect of such secured
claim in a manner consistent with the rights of the Lenders entitled under this
Section to share in the benefits of any recovery on such secured claim.
SECTION 4.9. Setoff. Each Lender shall, upon the occurrence of any
Default described in clauses (a) through (d) of Section 8.1.9 or any other Event
of Default, have the right to appropriate and apply to the payment of the
Obligations owing to it (whether or not then due), and (as security for such
Obligations) the Borrower hereby grants to each Lender a continuing security
interest in, any and all balances, credits, deposits, accounts or moneys of the
Borrower then or thereafter maintained with such Lender; provided, however, that
any such appropriation and application shall be subject to the provisions of
Section 4.8. Each Lender agrees promptly to notify the Borrower and the
Administrative Agent after any such setoff and application made by such Lender;
provided, however, that the failure to give such notice shall not affect the
validity of such setoff and application. The rights of each Lender under this
Section are in addition to other rights and remedies (including other rights of
setoff under applicable law or otherwise) which such Lender may have.
SECTION 4.10. Use of Proceeds. The Borrower shall apply the proceeds of
each Borrowing for general corporate purposes (including non-hostile
acquisitions) and working capital purposes of the Borrower and its Subsidiaries
other than Camrose and the Camrose Partnership. Without limiting the foregoing,
no proceeds of any Loan will be used to acquire any equity security of a class
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which is registered pursuant to Section 12 of the Securities Exchange Act of
1934 or any "margin stock", as defined in F.R.S. Board Regulation U.
SECTION 4.11. Actions of Affected Lenders. Each Lender agrees to use
reasonable efforts (including reasonable efforts to change the booking office
for its Loans) to avoid or minimize any illegality pursuant to Section 4.1 or
any amounts which might otherwise be payable pursuant to Sections 4.3, 4.5 or
4.6; provided, however, that such efforts shall not cause the imposition on such
Lender of any additional costs or legal or regulatory burdens deemed by such
Lender to be material. In the event that such reasonable efforts are
insufficient to avoid all such illegality pursuant to Section 4.1 or all amounts
that might be payable pursuant to Sections 4.3, 4.5 or 4.6, then the Borrower
shall have the right, but not the obligation, at its own expense, to request
such Lender (the "Affected Lender") to transfer its Commitments hereunder to any
other Lender (which itself is not then an Affected Lender) or financial
institution designated by the Borrower and approved by the Managing Agents
(which approval shall not be unreasonably withheld or delayed), and such Lender
hereby agrees to transfer and assign without recourse (in accordance with and
subject to the restrictions contained in this Agreement) all its interests,
rights and obligations under this Agreement to such assignee; provided, however,
that no Lender shall be obligated to make any such assignment unless (i) such
assignment shall not conflict with any law or any rule, regulation or order of
any governmental authority, (ii) such assignee shall pay to the Affected Lender
in immediately available funds on the date of such assignment the principal of
the Loans made by such Lender hereunder, and (iii) the Borrower shall pay to the
Affected Lender in immediately available funds on the date of such assignment
the interest accrued to the date of such assignment hereunder and all other
amounts accrued for such Lender's account or owed to it hereunder.
ARTICLE V
CONDITIONS TO BORROWING
SECTION 5.1. Initial Borrowing. The obligations of the Lenders to fund
the initial Borrowing shall be subject to the prior or concurrent satisfaction
of each of the conditions precedent set forth in this Section 5.1.
SECTION 5.1.1. Resolutions, etc. The Administrative Agent shall have
received from each Obligor a certificate, dated the date of the initial
Borrowing, of its Secretary or Assistant Secretary as to
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(a) resolutions of its Board of Directors then in full force
and effect authorizing the execution, delivery and performance of this
Agreement, the Notes and each other Loan Document to be executed by it;
and
(b) the incumbency and signatures of those of its officers
authorized to act with respect to this Agreement, the Notes and each
other Loan Document executed by it,
upon which certificate each Lender may conclusively rely until it shall have
received a further certificate of the Secretary of such Obligor canceling or
amending such prior certificate.
SECTION 5.1.2. Delivery of Notes. The Administrative Agent shall have
received, for the account of each Lender, its Notes duly executed and delivered
by the Borrower.
SECTION 5.1.3. Payment of Outstanding Indebtedness, etc. All
Indebtedness identified in Item 7.2.2(b) ("Indebtedness to be Paid") of the
Disclosure Schedule, together with all interest, all prepayment premiums and
other amounts due and payable with respect thereto, shall have been paid in full
(including, to the extent necessary, from proceeds of the initial Borrowing);
and all commitments for such Indebtedness shall have been terminated.
SECTION 5.1.4. Guaranties. The Administrative Agent shall have received
the Guaranties, dated the date hereof, duly executed by the Guarantors.
SECTION 5.1.5. Security Agreements. The Administrative Agent shall have
received executed counterparts of the Security Agreements, dated as of the date
hereof, duly executed by the Borrower and the Guarantors, together with
(a) acknowledgment copies of properly filed Uniform Commercial
Code financing statements (Form UCC-1), dated a date reasonably near to
the date of the initial Borrowing, or such other evidence of filing as
may be acceptable to the Managing Agents, naming the Borrower and each
Guarantor, as the debtors and the Administrative Agent as the secured
party, or other similar instruments or documents, filed under the
Uniform Commercial Code of all jurisdictions as may be necessary or, in
the opinion of the Managing Agents, desirable to perfect the security
interest of the Administrative Agent pursuant to the Security
Agreement;
(b) executed copies of proper Uniform Commercial Code Form
UCC-3 termination statements, if any, necessary to release all Liens
and other rights of any Person in any collateral described in the
Security Agreement previously granted by any Person, together with such
other Uniform
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Commercial Code Form UCC-3 termination statements as the Managing
Agents may reasonably request from such Obligors; and
(c) certified copies of Uniform Commercial Code Requests for
Information or Copies (Form UCC-11), or a similar search report
certified by a party acceptable to the Managing Agents, dated a date
reasonably near to the date of the initial Borrowing, listing all
effective financing statements which name the Borrower and each
Guarantor (under their present names and any previous names) as the
debtor and which are filed in the jurisdictions in which filings were
made pursuant to clause (a) above, together with copies of such
financing statements (none of which (other than those described in
clause (a), if such Form UCC-11 or search report, as the case may be,
is current enough to list such financing statements described in clause
(a)) shall cover any collateral described in the Security Agreement).
SECTION 5.1.6. Receipt of Proceeds. The Borrower shall have received at
least $71,000,000 of Net Equity Proceeds and at least $225,000,000 of Net First
Mortgage Proceeds.
SECTION 5.1.7. Intercreditor Agreement. The Managing Agents shall have
received a fully-executed intercreditor agreement, in substantially the form of
Exhibit K hereto and otherwise reasonably satisfactory to the Managing Agents,
with the trustee for the holders of the First Mortgage Notes (the "Intercreditor
Agreement").
SECTION 5.1.8. Opinion of Counsel. The Administrative Agent shall have
received opinions, dated as of the Effective Date and addressed to the
Administrative Agent and all Lenders, from Schwabe Williamson & Wyatt, counsel
to the Obligors, substantially in the form of Exhibit H hereto.
SECTION 5.1.9. Organization Documents. The Administrative Agent shall
have received from the Borrower and each Guarantor a certificate, dated the date
of the initial Borrowing, of its Secretary or Assistant Secretary as to
(a) the articles or certificate of incorporation of such
Person as in effect on such date, certified by the Secretary of State
of the state of its incorporation as of a recent date (to the extent
such certification is available), and the bylaws of such Person as in
effect on such date, certified by the Secretary or an Assistant
Secretary as of such date; and
(b) a good standing certificate for such Person from the
Secretary of State of the state of its incorporation as of a recent
date (to the extent such certification is available).
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SECTION 5.1.10. Closing Fees, Expenses, etc. The Administrative Agent
shall have received for its own account, or for the account of the Syndication
Agent, the Managing Agents and each Lender, as the case may be, all fees, costs
and expenses due and payable pursuant to Sections 3.4 and 10.3, if then
invoiced.
SECTION 5.2. All Borrowings. The obligation of each Lender to fund any
Loan on the occasion of any Borrowing (including the initial Borrowing) shall be
subject to the satisfaction of each of the conditions precedent set forth in
this Section 5.2.
SECTION 5.2.1. Compliance with Warranties, No Default, etc. Both before
and after giving effect to any Borrowing (but, if any Default of the nature
referred to in Section 8.1.5 shall have occurred with respect to any other
Indebtedness, without giving effect to the application, directly or indirectly,
of the proceeds thereof) the following statements shall be true and correct
(a) the representations and warranties set forth in Article VI
(excluding, however, those contained in Section 6.7) shall be true and
correct with the same effect as if then made (unless stated to relate
solely to an earlier date, in which case such representations and
warranties shall be true and correct as of such earlier date);
(b) except as disclosed by the Borrower to the Administrative
Agent and the Lenders pursuant to Section 6.7
(i) no labor controversy, litigation, arbitration or
governmental investigation or proceeding shall be pending or,
to the knowledge of the Borrower, threatened against the
Borrower or any of its Subsidiaries which might have a
Material Adverse Effect; and
(ii) no development shall have occurred in any labor
controversy, litigation, arbitration or governmental
investigation or proceeding disclosed pursuant to Section 6.7
which might have a Material Adverse Effect; and
(c) no Default shall have then occurred and be continuing, and
neither the Borrower, any other Obligor, nor any of its Subsidiaries
are in material violation of any law or governmental regulation or
court order or decree.
SECTION 5.2.2. Borrowing Request. For all Borrowings of Revolving
Loans, the Administrative Agent shall have received a Borrowing Request for such
Borrowing, and for all Borrowings of Swingline Loans, the Swingline Lender shall
have received a Borrowing Request for such Borrowing. Each of the delivery of a
Borrowing Request and the acceptance by the Borrower of the
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proceeds of such Borrowing shall constitute a representation and warranty by the
Borrower that on the date of such Borrowing (both immediately before and after
giving effect to such Borrowing and the application of the proceeds thereof) the
statements made in Section 5.2.1 are true and correct.
SECTION 5.2.3. Satisfactory Legal Form. All documents executed or
submitted pursuant hereto by or on behalf of the Borrower or any of its
Subsidiaries or any other Obligors shall be satisfactory in form and substance
to the Managing Agents and their counsel; and the Managing Agents and their
counsel shall have received all information, approvals, opinions, documents or
instruments as the Managing Agents or their counsel may reasonably request.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders and the Agents to enter into this
Agreement and to make Loans hereunder, the Borrower represents and warrants unto
the Agents and each Lender as set forth in this Article VI.
SECTION 6.1. Organization, etc. The Borrower and each of its
Subsidiaries is a corporation validly organized and existing and in good
standing under the laws of the state of its incorporation, is duly qualified to
do business and is in good standing as a foreign corporation in each
jurisdiction where the nature of its business requires such qualification
(except where the failure to so qualify shall not have a Material Adverse
Effect), and has full power and authority and holds all requisite governmental
licenses, permits and other approvals to enter into and perform its Obligations
under this Agreement, the Notes and each other Loan Document to which it is a
party and to own and hold under lease its property and to conduct its business
substantially as currently conducted by it.
SECTION 6.2. Due Authorization, Non-Contravention, etc. The execution,
delivery and performance by the Borrower of this Agreement, the Notes and each
other Loan Document executed or to be executed by it, and the execution,
delivery and performance by each other Obligor of each Loan Document executed or
to be executed by it are within the Borrower's and each such Obligor's corporate
powers, have been duly authorized by all necessary corporate action, and do not
(a) contravene the Borrower's or any such Obligor's Organic
Documents;
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(b) contravene any contractual restriction, law or
governmental regulation or court decree or order binding on or
affecting the Borrower or any such Obligor; or
(c) result in, or require the creation or imposition of, any
Lien on any of any Obligor's properties, except for the Liens created
pursuant to the Loan Documents.
SECTION 6.3. Government Approval, Regulation, etc. No authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body or other Person is required for the due execution,
delivery or performance by the Borrower or any other Obligor of this Agreement,
the Notes or any other Loan Document to which it is a party. Neither the
Borrower nor any of its Subsidiaries is an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, or a "holding
company", or a "subsidiary company" of a "holding company", or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company", within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
SECTION 6.4. Validity, etc. This Agreement constitutes, and the Notes
and each other Loan Document executed by the Borrower will, on the due execution
and delivery thereof, constitute, the legal, valid and binding obligations of
the Borrower enforceable in accordance with their respective terms, and each
Loan Document executed pursuant hereto by each other Obligor will, on the due
execution and delivery thereof by such Obligor, be the legal, valid and binding
obligation of such Obligor enforceable in accordance with its terms, all subject
to applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally,
and general principles of equity.
SECTION 6.5. Financial Information. The audited balance sheets of the
Borrower and its Subsidiaries as at December 31, 1995, and the related
statements of earnings and cash flow of the Borrower and its Subsidiaries, and
the unaudited financial statements of the Borrower and its Subsidiaries as at
March 31, 1996, copies of which have been furnished to the Administrative Agent
and each Lender, have been prepared in accordance with GAAP consistently
applied, and present fairly the consolidated financial condition of the
corporations covered thereby as at the dates thereof and the results of their
operations for the periods then ended.
SECTION 6.6. No Material Adverse Change. Since the date of the audited
financial statements described in Section 6.5, except as otherwise disclosed in
Item 6.6 ("Material Developments") of the Disclosure Schedule, there has been no
Material Adverse Effect.
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SECTION 6.7. Litigation, Labor Controversies, etc. There is no pending
or, to the knowledge of the Borrower, threatened litigation, action, proceeding,
or labor controversy affecting the Borrower or any of its Subsidiaries, or any
of their respective properties, businesses, assets or revenues, which may have a
Material Adverse Effect, except as disclosed in Item 6.7 ("Litigation") of the
Disclosure Schedule.
SECTION 6.8. Subsidiaries. The Borrower has no Subsidiaries, except
those Subsidiaries
(a) which are identified in Item 6.8 ("Existing Subsidiaries")
of the Disclosure Schedule; or
(b) which are permitted to have been acquired in accordance
with Section 7.2.5 or 7.2.10.
SECTION 6.9. Ownership of Properties. The Borrower and each of its
Subsidiaries owns good and marketable title to all of its properties and assets,
real and personal, tangible and intangible, of any nature whatsoever (including
patents, trademarks, trade names, service marks and copyrights), free and clear
of all Liens, charges or claims (including infringement claims with respect to
patents, trademarks, copyrights and the like) except as permitted pursuant to
Section 7.2.3.
SECTION 6.10. Taxes. The Borrower and each of its Subsidiaries has
filed all tax returns and reports required by law to have been filed by it and
has paid all taxes and governmental charges thereby shown to be owing, except
any such taxes or charges which are being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with GAAP
shall have been set aside on its books.
SECTION 6.11. Pension and Welfare Plans. During the twelve-consecutive-
month period prior to the date of the execution and delivery of this Agreement
and prior to the date of any Borrowing hereunder, no steps have been taken to
terminate any Pension Plan, and no contribution failure has occurred with
respect to any Pension Plan sufficient to give rise to a Lien under section
302(f) of ERISA. No condition exists or event or transaction has occurred with
respect to any Pension Plan which might result in the incurrence by the Borrower
or any member of the Controlled Group of any material liability, fine or
penalty. Except as disclosed in Item 6.11 ("Employee Benefit Plans") of the
Disclosure Schedule, neither the Borrower nor any member of the Controlled Group
has any contingent liability with respect to any post-retirement benefit under a
Welfare Plan, other than liability for continuation coverage described in Part 6
of Title I of ERISA.
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SECTION 6.12. Environmental Warranties. Except as set forth in Item
6.12 ("Environmental Matters") of the Disclosure Schedule:
(a) all facilities and property (including underlying
groundwater) owned or leased by the Borrower or any of its Subsidiaries
have been, and continue to be, owned or leased by the Borrower and its
Subsidiaries in material compliance with all Environmental Laws;
(b) there have been no past, and there are no pending or
threatened
(i) claims, complaints, notices or requests for
information received by the Borrower or any of its
Subsidiaries with respect to any alleged violation of any
Environmental Law that, singly or in the aggregate, have, or
may reasonably be expected to have, a Material Adverse Effect,
or
(ii) complaints, notices or inquiries to the Borrower or
any of its Subsidiaries regarding potential material liability
under any Environmental Law that, singly or in the aggregate,
have, or may reasonably be expected to have, a Material
Adverse Effect;
(c) there have been no Releases of Hazardous Materials at, on
or under any property now or previously owned or leased by the Borrower
or any of its Subsidiaries that, singly or in the aggregate, have, or
may reasonably be expected to have, a Material Adverse Effect;
(d) the Borrower and its Subsidiaries have been issued and are
in material compliance with all permits, certificates, approvals,
licenses and other authorizations relating to environmental matters and
necessary or desirable for their businesses;
(e) no property now or previously owned or leased by the
Borrower or any of its Subsidiaries is listed or proposed for listing
(with respect to owned property only) on the National Priorities List
pursuant to CERCLA, on the CERCLIS or on any similar state list of
sites requiring investigation or clean-up;
(f) there are no underground storage tanks, active or
abandoned, including petroleum storage tanks, on or under any property
now or previously owned or leased by the Borrower or any of its
Subsidiaries that, singly or in the aggregate, have, or may reasonably
be expected to have, a Material Adverse Effect;
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(g) neither Borrower nor any Subsidiary of the Borrower has
directly transported or directly arranged for the transportation of any
Hazardous Material to any location which is listed or proposed for
listing on the National Priorities List pursuant to CERCLA, on the
CERCLIS or on any similar state list or which is the subject of
federal, state or local enforcement actions or other investigations
which may lead to material claims against the Borrower or such
Subsidiary thereof for any remedial work, damage to natural resources
or personal injury, including claims under CERCLA;
(h) there are no polychlorinated biphenyls or friable asbestos
present at any property now or previously owned or leased by the
Borrower or any Subsidiary of the Borrower that, singly or in the
aggregate, have, or may reasonably be expected to have, a Material
Adverse Effect; and
(i) no conditions exist at, on or under any property now or
previously owned or leased by the Borrower which, with the passage of
time, or the giving of notice or both, would give rise to material
liability under any Environmental Law.
SECTION 6.13. Regulations G, U and X. The Borrower is not engaged in
the business of extending credit for the purpose of purchasing or carrying
margin stock, and no proceeds of any Loans will be used for a purpose which
violates, or would be inconsistent with, F.R.S. Board Regulation G, U or X.
Terms for which meanings are provided in F.R.S. Board Regulation G, U or X or
any regulations substituted therefor, as from time to time in effect, are used
in this Section with such meanings.
SECTION 6.14. Accuracy of Information. All factual information
heretofore or contemporaneously furnished by or on behalf of the Borrower in
writing to the Agents or any Lender for purposes of or in connection with this
Agreement or any transaction contemplated hereby is, and all other such factual
information hereafter furnished by or on behalf of the Borrower to the Agents or
any Lender will be, true and accurate in every material respect on the date as
of which such information is dated or certified and as of the date of execution
and delivery of this Agreement by the Agents and such Lender, and such
information is not, or shall not be, as the case may be, incomplete by omitting
to state any material fact necessary to make such information not misleading.
ARTICLE VII
COVENANTS
SECTION 7.1. Affirmative Covenants. The Borrower agrees with the Agents
and each Lender that, until all Commitments have
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terminated and all Obligations have been paid and performed in full, the
Borrower will perform the obligations set forth in this Section 7.1.
SECTION 7.1.1. Financial Information, Reports, Notices, etc. The
Borrower will furnish, or will cause to be furnished, to the Administrative
Agent for the further distribution to each of the Lenders copies of the
following financial statements, reports, notices and information:
(a) as soon as available and in any event within 50 days after
the end of each of the first three Fiscal Quarters of each Fiscal Year
of the Borrower, consolidated and consolidating balance sheets of the
Borrower and its Subsidiaries as of the end of such Fiscal Quarter and
consolidated and consolidating statements of earnings and consolidated
statements of cash flow of the Borrower and its Subsidiaries for such
Fiscal Quarter and for the period commencing at the end of the previous
Fiscal Year and ending with the end of such Fiscal Quarter, certified
by an Authorized Officer of the Borrower;
(b) as soon as available and in any event within 100 days
after the end of each Fiscal Year of the Borrower, a copy of the annual
audit report for such Fiscal Year for the Borrower and its
Subsidiaries, including therein audited consolidated and unaudited
consolidating balance sheets of the Borrower and its Subsidiaries as of
the end of such Fiscal Year and audited consolidated and unaudited
consolidating statements of earnings and audited consolidated
statements of cash flow of the Borrower and its Subsidiaries for such
Fiscal Year, in each case certified (without any Impermissible
Qualification) in a manner acceptable to the Managing Agents by
independent public accountants acceptable to the Managing Agents,
together with a certificate from such accountants to the effect that,
in making the examination necessary for the signing of such annual
report by such accountants, they have not become aware of any Default
or Event of Default under Article VIII that has occurred and is
continuing, or, if they have become aware of such Default or Event of
Default, describing such Default or Event of Default and the steps, if
any, being taken to cure it;
(c) as soon as available and in any event within 50 days after
the end of each Fiscal Quarter and 100 days after the end of each
Fiscal Year, a Compliance Certificate, executed by an Authorized
Officer of the Borrower, showing (in reasonable detail and with
appropriate calculations and computations in all respects satisfactory
to the Managing Agents) compliance with the financial covenants set
forth in Section 7.2.4;
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(d) as soon as available and in any event within 15 days after
the end of each month, a Borrowing Base Certificate as of the end of
such month;
(e) as soon as possible and in any event within five Business
Days after the occurrence of each Default, a statement of an Authorized
Officer of the Borrower setting forth details of such Default and the
action which the Borrower has taken and proposes to take with respect
thereto;
(f) as soon as possible and in any event within five Business
Days after (x) the occurrence of any material adverse development with
respect to any litigation, action, proceeding, or labor controversy
described in Section 6.7 or (y) the commencement of any material labor
controversy, litigation, action, proceeding of the type described in
Section 6.7, notice thereof and copies of all documentation relating
thereto;
(g) promptly after the same become publicly available, copies
of all reports which the Borrower sends to any of its securityholders,
and all registration statements, Forms 10K, Forms 10Q, Forms 8K and
similar reports which the Borrower or any of its Subsidiaries files
with the Securities and Exchange Commission, any other national
securities exchange or any foreign securities commission or exchange
relating to issuance and sale of securities;
(h) immediately upon becoming aware of the institution of any
steps by the Borrower or any other Person to terminate any Pension
Plan, or the failure to make a required contribution to any Pension
Plan if such failure is sufficient to give rise to a Lien under section
302(f) of ERISA, or the taking of any action with respect to a Pension
Plan which could result in the requirement that the Borrower furnish a
bond or other security to the PBGC or such Pension Plan, or the
occurrence of any event with respect to any Pension Plan which could
result in the incurrence by the Borrower of any material liability,
fine or penalty, or any material increase in the contingent liability
of the Borrower with respect to any post-retirement Welfare Plan
benefit, notice thereof and copies of all documentation relating
thereto;
(i) as soon as possible and in any event within 15 days after
the receipt by the Borrower or any Subsidiary thereof, copies of all
final, written environmental audits prepared by, or at the request of,
the Borrower or its Subsidiaries or affecting any properties of the
Borrower or any of its Subsidiaries;
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(j) as soon as available and in any event within 60 days after
the commencement of each Fiscal Year, a consolidated financial forecast
for the Borrower and its Subsidiaries for such Fiscal Year; and
(k) such other information concerning the condition or
operations, financial or otherwise, of the Borrower or any of its
Subsidiaries as any Lender through the Administrative Agent may from
time to time reasonably request.
SECTION 7.1.2. Compliance with Laws, etc. The Borrower will, and will
cause each of its Significant Subsidiaries to, comply in all material respects
with all applicable laws, rules, regulations and orders, such compliance to
include (without limitation):
(a) the maintenance and preservation of its corporate
existence and, except to the extent that such failure will have a
Material Adverse Effect, qualification as a foreign corporation; and
(b) the payment, before the same become delinquent, of all
taxes, assessments and governmental charges imposed upon it or upon its
property except to the extent being diligently contested in good faith
by appropriate proceedings and for which adequate reserves in
accordance with GAAP shall have been set aside on its books.
SECTION 7.1.3. Maintenance of Properties. The Borrower will, and will
cause each of its Subsidiaries to, maintain, preserve, protect and keep its
properties in good repair, working order and condition, and make necessary and
proper repairs, renewals and replacements so that its business carried on in
connection therewith may be properly conducted at all times unless the Borrower
determines in good faith that the continued maintenance of any of its properties
is no longer economically desirable and except for properties that may be the
subject of Permitted Dispositions.
SECTION 7.1.4. Insurance. The Borrower will, and will cause each of its
Subsidiaries to, maintain or cause to be maintained with responsible insurance
companies insurance with respect to its properties and business (including
business interruption insurance) against such casualties and contingencies and
of such types and in such amounts as is customary in the case of similar
businesses and will, upon request of the Administrative Agent, furnish to the
Administrative Agent at reasonable intervals a certificate of an Authorized
Officer of the Borrower setting forth the nature and extent of all insurance
maintained by the Borrower and its Subsidiaries in accordance with this Section.
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SECTION 7.1.5. Books and Records. The Borrower will, and will cause
each of its Subsidiaries to, keep books and records which accurately reflect all
of its business affairs and transactions and permit the Managing Agents or any
of their respective representatives, at reasonable times and intervals and upon
reasonable notice, to visit all of its offices, to discuss its financial matters
with its officers and independent public accountant (and the Borrower hereby
authorizes such independent public accountant to discuss the Borrower's
financial matters with each Managing Agent or its representatives whether or not
any representative of the Borrower is present) and to examine (and, at the
expense of the Borrower, photocopy extracts from) any of its books or other
corporate records. The Borrower shall pay any fees of such independent public
accountant incurred in connection with any Managing Agent's exercise of its
rights pursuant to this Section.
SECTION 7.1.6. Environmental Covenant. The Borrower will, and will
cause each of its Subsidiaries to,
(a) use and operate all of its facilities and properties in
material compliance with all Environmental Laws, keep all necessary
permits, approvals, certificates, licenses and other authorizations
relating to environmental matters in effect (except for permits
associated with properties that have been the subject of a Permitted
Disposition) and remain in material compliance therewith, and handle
all Hazardous Materials in material compliance with all applicable
Environmental Laws;
(b) immediately notify the Administrative Agent and provide
copies upon receipt of all material adverse written claims, complaints,
notices or inquiries relating to the condition of its facilities and
properties or compliance with Environmental Laws, and shall promptly
cure and have dismissed with prejudice to the satisfaction of the
Administrative Agent any actions and proceedings relating to compliance
with Environmental Laws, except for those being diligently contested in
good faith and by appropriate proceedings and for which adequate
reserves in accordance with GAAP shall have been set aside on its
books; and
(c) provide such information and certifications which the
Administrative Agent may reasonably request from time to time to
evidence compliance with this Section 7.1.6.
SECTION 7.1.7. Future Guarantors; Further Assurances. The Borrower may,
in its discretion and with the prior written approval of the Managing Agents,
from time to time cause any of its Significant Subsidiaries that is not already
a Guarantor to execute and deliver a Guaranty and Security Agreement and to
provide
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opinions and documentation of the type set forth in Section 5.1.1 and Section
7.1.8 as to such Guarantor.
SECTION 7.1.8. Opinion of New Guarantors. The Borrower shall cause to
be delivered within 30 days after a Significant Subsidiary becomes a Guarantor
favorable opinions of counsel confirming, among other things, that (i) such
Guarantor's obligations under its Guaranty and Security Agreement are legal,
valid, binding and enforceable against such Guarantor and (ii) no government
approvals, consents, registrations or filings are required by such Guarantor
except as have been obtained.
SECTION 7.2. Negative Covenants. The Borrower agrees with the Agents
and each Lender that, until all Commitments have terminated and all Obligations
have been paid and performed in full, the Borrower will perform the obligations
set forth in this Section 7.2.
SECTION 7.2.1. Business Activities. The Borrower will not, and will not
permit any of its Subsidiaries to, engage in any business activity, except in
the business of manufacturing specialty and commodity steel products and such
activities as may be incidental or related thereto.
SECTION 7.2.2. Indebtedness. The Borrower will not, and will not permit
any of its Subsidiaries to, create, incur, assume or suffer to exist or
otherwise become or be liable in respect of any Indebtedness, other than,
without duplication, the following:
(a) Indebtedness in respect of the Loans and other
Obligations;
(b) until the date of the initial Borrowing, Indebtedness
identified in Item 7.2.2(b) ("Indebtedness to be Paid") of the
Disclosure Schedule;
(c) Indebtedness existing as of the Effective Date which is
identified in Item 7.2.2(c) ("Ongoing Indebtedness") of the Disclosure
Schedule;
(d) Indebtedness in respect of the Borrower's obligations
under the First Mortgage Notes (and any refundings or refinancings
thereof that are on terms no less favorable to the Borrower and the
Lenders) and the guaranties by the Guarantors of the Borrower's
obligations thereunder;
(e) unsecured Indebtedness incurred in the ordinary course of
business (including open accounts extended by suppliers on normal trade
terms in connection with purchases of goods and services, but excluding
Indebtedness incurred through the borrowing of money or Contingent
Liabilities)
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including, without limitation, accrued expenses, taxes payable, accrued
environmental liabilities, deferred employment benefits and deferred
income taxes, to the extent incurred in the ordinary course of
business;
(f) Indebtedness in respect of Capitalized Lease Liabilities
for assets contemplated by the Borrower's capital expenditure plan set
forth in the Bank Group Presentation;
(g) Indebtedness in an aggregate principal amount not to
exceed $30,000,000, relative to letters of credit issued for the
account of the Borrower and its Subsidiaries;
(h) Indebtedness of the Borrower and its Subsidiaries in an
aggregate principal amount not to exceed $5,000,000 in respect of the
deferred purchase price of capital assets acquired by the Borrower and
its Subsidiaries exclusive of all capital expenditures and Investments
projected to be made by the Borrower in the Bank Group Presentation;
(i) the obligations of the Borrower and its Subsidiaries in
connection with a Permitted Receivables Financing;
(j) Indebtedness of Subsidiaries of the Borrower and
guaranties by such Subsidiaries of Indebtedness of joint ventures in
which such Subsidiaries are a joint venturer so long as neither the
Borrower nor any Significant Subsidiary has any liability or Contingent
Liability for any such Indebtedness or guarantee;
(k) any Hedging Obligations of the Borrower or any Subsidiary;
and
(l) other unsecured Indebtedness of the Borrower and its
Subsidiaries in an aggregate amount not to exceed $15,000,000;
provided, however, that no Indebtedness otherwise permitted by clauses (e), (f),
(g), (h), (i), (j) or (l) shall be permitted if, after giving effect to the
incurrence thereof, any Default shall have occurred and be continuing.
SECTION 7.2.3. Liens. The Borrower will not, and will not permit any of
its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any
of its property, revenues or assets, whether now owned or hereafter acquired,
except:
(a) Liens securing payment of the Obligations, granted
pursuant to any Loan Document;
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(b) Liens securing payment of Indebtedness of the type permitted and
described in clauses (b) and (c) of Section 7.2.2;
(c) Liens granted prior to the Effective Date to secure payment of
Indebtedness of the type permitted and described in clause (d) of Section
7.2.2;
(d) Liens securing payment of the First Mortgage Notes on any or all of
the property of the Borrower and the Guarantors other than that pledged to
the Lenders pursuant to the terms of the Security Agreement;
(e) Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or
being diligently contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with GAAP shall have been set aside
on its books;
(f) Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not overdue
or being diligently contested in good faith by appropriate proceedings and
for which adequate reserves in accordance with GAAP shall have been set
aside on its books;
(g) Liens incurred in the ordinary course of business in connection
with worker's compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure performance of tenders,
statutory obligations, leases and contracts (other than for borrowed money)
entered into in the ordinary course of business or to secure obligations on
surety or appeal bonds;
(h) judgment Liens in existence less than 30 days after the entry
thereof or with respect to which execution has been stayed or the payment
of which is covered in full (subject to a customary deductible) by
insurance maintained with responsible insurance companies; and
(i) Liens on the Borrower's or any Subsidiary's joint venture interest
in favor of the lenders to such joint venture and securing such joint
venture's obligations to such lender.
SECTION 7.2.4. Financial Condition. The Borrower will not permit to occur
any of the events set forth below:
(a) Its Consolidated Tangible Net Worth at any time to be less than (i)
$232,500,000 plus (ii) 50% of Net Income (without giving effect to any
losses) for each Fiscal Quarter
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beginning on or after January 1, 1996 plus (iii) 100% of the Net Equity
Proceeds from any equity offering by the Borrower or any of its
Subsidiaries after January 1, 1996.
(b) Its Interest Coverage Ratio, tested on a rolling four quarter
basis, to be less than the specified ratio as of the end of any of the
following Fiscal Quarters:
<TABLE>
<CAPTION>
Fiscal Quarter Minimum Interest Coverage Ratio
-------------- -------------------------------
<S> <C>
June 30, 1996 1.50 to 1.0
September 30, 1996 1.50 to 1.0
December 31, 1996 1.50 to 1.0
March 31, 1997 1.75 to 1.0
June 30, 1997 1.75 to 1.0
September 30, 1997 2.00 to 1.0
December 31, 1997 2.00 to 1.0
March 31, 1998 2.25 to 1.0
June 30, 1998 and thereafter 2.50 to 1.0
</TABLE>
(c) Its Funded Debt to Capitalization Ratio to exceed .55 to 1.00 as of
the end of any Fiscal Quarter.
SECTION 7.2.5. Investments. The Borrower will not, and will not permit any
of its Subsidiaries to, make, incur, assume or suffer to exist any Investment in
any other Person, except:
(a) Investments identified in Item 7.2.5(a) ("Ongoing Investments") of
the Disclosure Schedule;
(b) Cash Equivalent Investments;
(c) without duplication, Investments permitted as Indebtedness pursuant
to Section 7.2.2 or as contemplated by the Borrower's capital expenditure
plan set forth in the Bank Group Presentation; provided that no such
Investments may be made in Camrose or the Camrose Partnership;
(d) Investments in Camrose or the Camrose Partnership in an aggregate
amount at any time not to exceed $5,000,000;
(e) in the ordinary course of business, Investments by the Borrower in
any of its Subsidiaries other than Camrose or the Camrose Partnership, or
by any such Subsidiary in any of its Subsidiaries or any other Subsidiary
other than Camrose or the Camrose Partnership, by way of contributions to
capital or loans or advances; and
(f) other Investments in an aggregate amount at any time not to exceed
$15,000,000 minus any losses on such Investments;
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provided, however, that
(g) any Investment which when made complies with the requirements of
the definition of the term "Cash Equivalent Investment" may continue to be
held notwithstanding that such Investment if made thereafter would not
comply with such requirements; and
(h) no Investment otherwise permitted by clause (e) or (f) shall be
permitted to be made if, immediately before or after giving effect thereto,
any Default shall have occurred and be continuing.
SECTION 7.2.6. Restricted Payments, etc. On and at all times after the
Effective Date the Borrower will not declare, pay or make any dividend or
distribution (in cash, property or obligations) on any shares of any class of
capital stock (now or hereafter outstanding) of the Borrower or on any warrants,
options or other rights with respect to any shares of any class of capital stock
(now or hereafter outstanding) of the Borrower (other than dividends or
distributions payable in its common stock or warrants to purchase its common
stock or splitups or reclassifications of its stock into additional or other
shares of its common stock) or apply, or permit any of its Subsidiaries to
apply, any of its funds, property or assets to the purchase, redemption, sinking
fund or other retirement of, or agree or permit any of its Subsidiaries to
purchase or redeem, any shares of any class of capital stock (now or hereafter
outstanding) of the Borrower, or warrants, options or other rights with respect
to any shares of any class of capital stock (now or hereafter outstanding) of
the Borrower, if either before or after giving effect to any of such actions,
there shall exist a Default or an Event of Default.
SECTION 7.2.7. Rental Obligations. The Borrower will not, and will not
permit any of its Subsidiaries to, enter into at any time any arrangement which
does not create a Capitalized Lease Liability and which involves the leasing by
the Borrower or any of its Subsidiaries from any lessor of any real or personal
property (or any interest therein), except arrangements which, together with all
other such arrangements which shall then be in effect, will not require the
payment of an aggregate amount of rentals by the Borrower and its Subsidiaries
in excess of (excluding escalations resulting from a rise in the consumer price
or similar index) $4,000,000 for any Fiscal Year or $15,000,000 during the
remaining term of this Agreement; provided, however, that any calculation made
for purposes of this Section shall exclude any amounts required to be expended
for maintenance and repairs, insurance, taxes, assessments, and other similar
charges.
SECTION 7.2.8. Sale and Leasebacks. The Borrower will not, and will not
permit any of its Subsidiaries to, enter into any
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transaction by which the Borrower or any of its Subsidiaries, directly or
indirectly, becomes liable as a lessee or as a guarantor or other surety with
respect to any lease, whether an operating lease or a capital lease of any
property (whether real or personal or mixed) whether now owned or hereafter
acquired (i) which the Borrower or any of its Subsidiaries has sold or
transferred or is to sell or transfer to any other Person, or (ii) which the
Borrower or any of its Subsidiaries intends to use for substantially the same
purpose as any other property which has been or is to be sold or transferred by
the Borrower or any such Subsidiary to any person in connection with such lease.
SECTION 7.2.9. Consolidation, Merger, etc. The Borrower will not, and will
not permit any of its Subsidiaries to, liquidate or dissolve, consolidate with,
or merge into or with, any other corporation, or purchase or otherwise acquire
all or substantially all of the assets of any Person (or of any division
thereof) except
(a) the Borrower or any Subsidiary may make Permitted Dispositions;
(b) any Subsidiary may liquidate or dissolve voluntarily into, and may
merge with and into, the Borrower or any other Subsidiary so long as, after
giving effect thereto, the Borrower or a Guarantor, if a party to such
merger, is the surviving corporation, and the assets or stock of any
Subsidiary may be purchased or otherwise acquired by the Borrower or any
other Subsidiary; and
(c) so long as no Default has occurred and is continuing or would occur
after giving effect thereto, the Borrower or any of its Subsidiaries may
purchase all or substantially all of the assets of any Person, or acquire
such Person by merger, in connection with alternative metallics ventures
contemplated by the Bank Group Presentation or if permitted as a capital
expenditure as contemplated by the Bank Group Presentation; provided,
however, that after giving effect to any such merger the Borrower or its
Subsidiary party thereto is the surviving corporation.
SECTION 7.2.10. Asset Dispositions, etc. The Borrower will not, and will
not permit any of its Subsidiaries to, sell, transfer, lease, contribute or
otherwise convey, or grant options, warrants or other rights with respect to,
any or all of its assets (including the capital stock of Subsidiaries) to any
Person, unless (a) such sale, transfer, lease, contribution or conveyance is a
Permitted Disposition, (b) such sale is a Restricted Disposition and the net
proceeds from such sale together with the net proceeds of all other Restricted
Dispositions since the Effective Date does not exceed $40,000,000 in the
aggregate or (c) such sale is a Permitted Receivables Financing.
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SECTION 7.2.11. Transactions with Affiliates. The Borrower will not, and
will not permit any of its Subsidiaries to, enter into, or cause, suffer or
permit to exist any arrangement or contract with any of its other Affiliates
unless such arrangement or contract is fair and equitable to the Borrower or
such Subsidiary and is an arrangement or contract of the kind which would be
entered into by a prudent Person in the position of the Borrower or such
Subsidiary with a Person which is not one of its Affiliates.
SECTION 7.2.12. Negative Pledges, Restrictive Agreements, etc. The Borrower
will not, and will not permit any of its Subsidiaries to, enter into any
agreement (excluding this Agreement and any other Loan Document) prohibiting
(a) the creation or assumption of any Lien in favor of the
Administrative Agent upon its Accounts and Inventory, whether now owned or
hereafter acquired or the ability of the Borrower or any other Obligor to
amend or otherwise modify this Agreement or any other Loan Document; or
(b) the ability of any Subsidiary to make any payments, directly or
indirectly, to the Borrower by way of dividends, advances, repayments of
loans or advances, reimbursements of management and other intercompany
charges, expenses and accruals or other returns on investments, or any
other agreement or arrangement which restricts the ability of any such
Subsidiary to make any payment, directly or indirectly, to the Borrower.
SECTION 7.2.13. Interest Rate Protection. The Borrower may arrange and
continue in effect interest rate protection on commercially standard terms and
conditions so long as the Borrower's payment obligations thereunder do not
continue beyond the Stated Maturity Date.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. Listing of Events of Default. Each of the following events or
occurrences described in this Section 8.1 shall constitute an "Event of Default"
(unless waived pursuant to the provisions of Section 10.1).
SECTION 8.1.1. Non-Payment of Obligations. The Borrower shall default in
the payment or mandatory prepayment when due of any principal of or interest on
any Loan, or the Borrower shall default (and such default shall continue
unremedied for a period of
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five days) in the payment when due of any commitment fee or of any other
Obligation.
SECTION 8.1.2. Breach of Warranty. Any representation or warranty of the
Borrower or any other Obligor made or deemed to be made hereunder or in any
other Loan Document executed by it or any other writing or certificate furnished
by or on behalf of the Borrower or any other Obligor to any Agent or any Lender
for the purposes of or in connection with this Agreement or any such other Loan
Document (including any certificates delivered pursuant to Article V) is or
shall be incorrect when made in any material respect.
SECTION 8.1.3. Non-Performance of Certain Covenants and Obligations. The
Borrower shall default in the due performance and observance of any of its
obligations under Section 7.2.
SECTION 8.1.4. Non-Performance of Other Covenants and Obligations. Any
Obligor shall default in the due performance and observance of any other
agreement contained herein or in any other Loan Document executed by it, and
such default shall continue unremedied for a period of 30 days after notice
thereof shall have been given to the Borrower by the Administrative Agent or any
Lender.
SECTION 8.1.5. Default on Other Indebtedness. A default shall occur in the
payment when due (subject to any applicable grace period), whether by
acceleration or otherwise, of any Indebtedness (other than Indebtedness
described in Section 8.1.1) of the Borrower or any of its Subsidiaries having a
principal amount, individually or in the aggregate, in excess of $5,000,000, or
a default shall occur in the performance or observance of any obligation or
condition with respect to such Indebtedness if the effect of such default is to
accelerate the maturity of any such Indebtedness or such default shall continue
unremedied for any applicable period of time sufficient to permit the holder or
holders of such Indebtedness, or any trustee or agent for such holders, to cause
such Indebtedness to become due and payable prior to its expressed maturity.
SECTION 8.1.6. Judgments. Any judgment or order for the payment of money in
excess of $5,000,000 shall be rendered against the Borrower or any of its
Subsidiaries and either
(a) enforcement proceedings shall have been commenced by any creditor
upon such judgment or order; or
(b) there shall be any period of 30 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect.
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SECTION 8.1.7. Pension Plans. Any of the following events shall occur with
respect to any Pension Plan
(a) the institution of any steps by the Borrower, any member of its
Controlled Group or any other Person to terminate a Pension Plan if, as a
result of such termination, the Borrower or any such member could be
required to make a contribution to such Pension Plan, or could reasonably
expect to incur a liability or obligation to such Pension Plan, in excess
of $5,000,000; or
(b) a contribution failure occurs with respect to any Pension Plan
sufficient to give rise to a Lien under section 302(f) of ERISA.
SECTION 8.1.8. Control of the Borrower. Any Change in Control shall occur.
SECTION 8.1.9. Bankruptcy, Insolvency, etc. The Borrower, any of its
Subsidiaries or any Material Partnership shall
(a) become insolvent or generally fail to pay, or admit in writing its
inability or unwillingness to pay, debts as they become due;
(b) apply for, consent to, or acquiesce in, the appointment of a
trustee, receiver, sequestrator or other custodian for the Borrower, any of
its Subsidiaries or any Material Partnership or any property of any
thereof, or make a general assignment for the benefit of creditors;
(c) in the absence of such application, consent or acquiescence, permit
or suffer to exist the appointment of a trustee, receiver, sequestrator or
other custodian for the Borrower, any of its Subsidiaries or any Material
Partnership or for a substantial part of the property of any thereof, and
such trustee, receiver, sequestrator or other custodian shall not be
discharged within 60 days, provided that the Borrower, each Subsidiary and
each Material Partnership hereby expressly authorizes the Administrative
Agent and each Lender to appear in any court conducting any relevant
proceeding during such 60-day period to preserve, protect and defend their
rights under the Loan Documents;
(d) permit or suffer to exist the commencement of any bankruptcy,
reorganization, debt arrangement or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution, winding up or liquidation
proceeding, in respect of the Borrower, any of its Subsidiaries or any
Material Partnership, and, if any such case or proceeding is not commenced
by the Borrower, such Subsidiary or such Material
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Partnership, such case or proceeding shall be consented to or acquiesced in
by the Borrower, such Subsidiary or such Material Partnership or shall
result in the entry of an order for relief or shall remain for 60 days
undismissed, provided that the Borrower, each Subsidiary and each Material
Partnership hereby expressly authorizes the Administrative Agent and each
Lender to appear in any court conducting any such case or proceeding during
such 60-day period to preserve, protect and defend their rights under the
Loan Documents; or
(e) take any corporate action authorizing, or in furtherance of, any of
the foregoing.
SECTION 8.1.10. Impairment of Security, etc. Any Loan Document, or any Lien
granted thereunder, shall (except in accordance with its terms), in whole or in
part, terminate, cease to be effective or cease to be the legally valid, binding
and enforceable obligation of any Obligor party thereto; the Borrower, any other
Obligor or any other party shall, directly or indirectly, contest in any manner
such effectiveness, validity, binding nature or enforceability; or any Lien
securing any Obligation shall, in whole or in part, cease to be a perfected
first priority Lien.
SECTION 8.1.11. Environmental Matters. Any claims shall be made under any
Environmental Laws that, singly or in the aggregate, have, or may reasonably be
expected to have, upon the final resolution thereof a Material Adverse Effect,
net of any reserves.
SECTION 8.2. Action if Bankruptcy. If any Event of Default described in
clauses (a) through (d) of Section 8.1.9 shall occur, the Commitments (if not
theretofore terminated) shall automatically terminate and the outstanding
principal amount of all outstanding Loans and all other Obligations shall
automatically be and become immediately due and payable, without notice or
demand.
SECTION 8.3. Action if Other Event of Default. If any Event of Default
(other than any Event of Default described in clauses (a) through (d) of Section
8.1.9 shall occur for any reason, whether voluntary or involuntary, and be
continuing, the Administrative Agent, upon the direction of the Required
Lenders, shall by notice to the Borrower declare all or any portion of the
outstanding principal amount of the Loans and other Obligations to be due and
payable and/or the Commitments (if not theretofore terminated) to be terminated,
whereupon the full unpaid amount of such Loans and other Obligations which shall
be so declared due and payable shall be and become immediately due and payable,
without further notice, demand or presentment, and/or, as the case may be, the
Commitments shall terminate.
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ARTICLE IX
THE AGENTS
SECTION 9.1. Actions. Each Lender hereby appoints First Interstate as its
Administrative Agent under and for purposes of this Agreement, the Notes and
each other Loan Document; each Lender hereby appoints Scotiabank as the
Syndication Agent for the purposes of syndicating the credit facilities provided
hereunder; and each Lender hereby appoints First Interstate and Scotiabank as
its Managing Agents under and for purposes of this Agreement. Each Lender
authorizes the Administrative Agent to act on behalf of such Lender under this
Agreement, the Notes and each other Loan Document and, in the absence of other
written instructions from the Required Lenders received from time to time by the
Administrative Agent (with respect to which the Administrative Agent agrees that
it will comply, except as otherwise provided in this Section or as otherwise
advised by counsel), to exercise such powers hereunder and thereunder as are
specifically delegated to or required of the Administrative Agent by the terms
hereof and thereof, together with such powers as may be reasonably incidental
thereto. Notwithstanding any provision to the contrary contained elsewhere in
this Agreement or in any other Loan Document, the Agents shall not have any
duties or responsibilities, except those expressly set forth herein, nor shall
the Agents have or be deemed to have any fiduciary relationship with any Lender,
and no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or any other Loan Document or
otherwise exist against the Agents. Each Lender hereby indemnifies (which
indemnity shall survive any termination of this Agreement) each Agent, pro rata
according to such Lender's Percentage, from and against any and all liabilities,
obligations, losses, damages, claims, costs or expenses of any kind or nature
whatsoever which may at any time be imposed on, incurred by, or asserted
against, such Agent in any way relating to or arising out of this Agreement, the
Notes and any other Loan Document, including reasonable attorneys' fees, and as
to which such Agent is not reimbursed by the Borrower; provided, however, that
no Lender shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, claims, costs or expenses which are determined by
a court of competent jurisdiction in a final proceeding to have resulted solely
from an Agent's gross negligence or wilful misconduct. No Agent shall be
required to take any action hereunder, under the Notes or under any other Loan
Document, or to prosecute or defend any suit in respect of this Agreement, the
Notes or any other Loan Document, unless it is indemnified hereunder to its
satisfaction. If any indemnity in favor of an Agent shall be or become, in such
Agent's determination, inadequate, such Agent may call for additional
indemnification from the Lenders and cease to do the acts indemnified against
hereunder until such additional indemnity is given.
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SECTION 9.2. Funding Reliance, etc. Unless the Administrative Agent shall
have been notified by telephone, confirmed in writing, by any Lender by 5:00
p.m., Portland time, on the day prior to a Borrowing that such Lender will not
make available the amount which would constitute its Percentage of such
Borrowing on the date specified therefor, the Administrative Agent may assume
that such Lender has made such amount available to the Administrative Agent and,
in reliance upon such assumption, make available to the Borrower a corresponding
amount. If and to the extent that such Lender shall not have made such amount
available to the Administrative Agent, such Lender shall repay the
Administrative Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date the Administrative Agent made such
amount available to the Borrower to the date such amount is repaid to the
Administrative Agent, at the interest rate applicable at the time to Loans
comprising such Borrowing. If a Lender shall fail to repay the Administrative
Agent all amounts owing under the preceding sentence, the Borrower shall
forthwith on demand repay all such amounts together with interest thereon
through the date such amount is repaid to the Administrative Agent.
SECTION 9.3. Exculpation. Neither any Agent nor any of its respective
directors, officers, employees or agents shall be liable to any Lender for any
action taken or omitted to be taken by it under this Agreement or any other Loan
Document, or in connection herewith or therewith, except for its own wilful
misconduct or gross negligence, nor responsible for any recitals or warranties
herein or therein, nor for the effectiveness, enforceability, validity or due
execution of this Agreement or any other Loan Document, nor for the creation,
perfection or priority of any Liens purported to be created by any of the Loan
Documents, or the validity, genuineness, enforceability, existence, value or
sufficiency of any collateral security, nor to make any inquiry respecting the
performance by the Borrower of its obligations hereunder or under any other Loan
Document. Any such inquiry which may be made by any Agent shall not obligate it
to make any further inquiry or to take any action. Each Agent shall be entitled
to rely upon advice of counsel concerning legal matters and upon any notice,
consent, certificate, statement or writing which such Agent believes to be
genuine and to have been presented by a proper Person.
SECTION 9.4. Successor. If any Agent shall be guilty of gross negligence or
willful misconduct, the Required Lenders may, upon 10 days' prior written notice
to the Borrower and such Agent, remove such Agent. Any Agent may resign as such
at any time upon at least 30 days' prior written notice to the Borrower and all
Lenders. If any Agent at any time shall resign or be removed, the Required
Lenders may appoint another Lender as a successor Agent which shall thereupon
become an Agent hereunder. If no successor
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Agent shall have been so appointed by the Required Lenders, and shall have
accepted such appointment, within 30 days after the retiring Agent's giving
written notice of resignation or within 10 days after the Required Lenders shall
have delivered a removal notice, then the retiring or removed Agent may, on
behalf of the Lenders, appoint a successor Agent, which shall be one of the
Lenders or a commercial banking institution organized under the laws of the U.S.
(or any State thereof) or a U.S. branch or agency of a commercial banking
institution, and having a combined capital and surplus of at least $500,000,000.
Upon the acceptance of any appointment as an Agent hereunder by a successor
Agent, such successor Agent shall be entitled to receive from the retiring Agent
such documents of transfer and assignment as such successor Agent may reasonably
request, and shall thereupon succeed to and become vested with all rights,
powers, privileges and duties of the retiring Agent, and the retiring Agent
shall be discharged from its duties and obligations under this Agreement. After
any retiring Agent's resignation hereunder as an Agent, the provisions of
(a) this Article IX shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was an Agent under this Agreement;
and
(b) Section 10.3 and Section 10.4 shall continue to inure to its
benefit.
SECTION 9.5. Loans by First Interstate and Scotiabank. First Interstate and
Scotiabank shall each have the same rights and powers with respect to (x) the
Loans made by each of them or any of their Affiliates, and (y) the Notes held by
each of them or any of their Affiliates as any other Lender and may exercise the
same as if they were not an Agent. First Interstate and Scotiabank and their
Affiliates may accept deposits from, lend money to, and generally engage in any
kind of business with the Borrower or any Subsidiary or Affiliate of the
Borrower as if First Interstate and Scotiabank were not Agents hereunder.
SECTION 9.6. Credit Decisions. Each Lender acknowledges that it has,
independently of the Agents and each other Lender, and based on such Lender's
review of the financial information of the Borrower, this Agreement, the other
Loan Documents (the terms and provisions of which being satisfactory to such
Lender) and such other documents, information and investigations as such Lender
has deemed appropriate, made its own credit decision to extend its Commitments.
Each Lender also acknowledges that it will, independently of the Agents and each
other Lender, and based on such other documents, information and investigations
as it shall deem appropriate at any time, continue to make its own credit
decisions as to exercising or not exercising from time to time any rights and
privileges available to it under this Agreement or any other Loan Document.
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SECTION 9.7. Copies, etc. The Administrative Agent shall give prompt notice
to each Lender of each notice or request required or permitted to be given to
the Administrative Agent by the Borrower pursuant to the terms of this Agreement
(unless concurrently delivered to the Lenders by the Borrower). The
Administrative Agent will distribute to each Lender each document or instrument
received for its account and copies of all other communications received by the
Administrative Agent from the Borrower for distribution to the Lenders by the
Administrative Agent in accordance with the terms of this Agreement.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. Waivers, Amendments, etc. The provisions of this Agreement
and of each other Loan Document (other than agreements relating to the Hedging
Obligations which may be amended, modified or waived solely with the consent of
the Borrower and Lender party thereto) may from time to time be amended,
modified or waived, if such amendment, modification or waiver is in writing and
consented to by the Borrower and the Required Lenders; provided, however, that
no such amendment, modification or waiver which would:
(a) modify any requirement hereunder that any particular action be
taken by all the Lenders or by the Required Lenders shall be effective
unless consented to by each Lender;
(b) modify this Section 10.1, change the definition of "Required
Lenders", increase any Commitment Amount or the Percentage of any Lender,
reduce any fees described in Article III or extend the date for any such
fees, release all or substantially all collateral security, release any
Guarantor or extend any Commitment Termination Date shall be made without
the consent of each Lender and each holder of a Note; provided, however
that the release by the Lenders of their security interest in the
Borrower's and Guarantor's Accounts in connection with a Permitted
Receivables Financing will require the approval of only the Required
Lenders;
(c) extend the due date for, or reduce the amount of, any scheduled
repayment or prepayment of principal of or interest on any Loan (or reduce
the principal amount of or rate of interest on any Loan) shall be made
without the consent of the holder of that Note evidencing such Loan; or
(d) affect adversely the interests, rights or obligations of any Agent
qua an Agent shall be made without consent of such Agent.
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Notwithstanding the foregoing, the Administrative Agent shall not release any
collateral security unless it has received the prior written consent of the
Required Lenders except (i) for releases in connection with the sale or transfer
of collateral by an Obligor in the ordinary course of its business or (ii) as
provided in the following sentence. The Lenders acknowledge and agree that
unless an Event of Default shall have occurred and be continuing, upon the
request of the Borrower, a Guarantor that is not a Significant Subsidiary shall
be released from its obligations under any Guaranty or Security Agreement
delivered by it. No failure or delay on the part of any Agent, any Lender or the
holder of any Note in exercising any power or right under this Agreement or any
other Loan Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power or right preclude any other or further
exercise thereof or the exercise of any other power or right. No notice to or
demand on the Borrower in any case shall entitle it to any notice or demand in
similar or other circumstances. No waiver or approval by any Agent, any Lender
or the holder of any Note under this Agreement or any other Loan Document shall,
except as may be otherwise stated in such waiver or approval, be applicable to
subsequent transactions. No waiver or approval hereunder shall require any
similar or dissimilar waiver or approval thereafter to be granted hereunder.
SECTION 10.2. Notices. All notices and other communications provided to any
party hereto under this Agreement or any other Loan Document shall be in writing
or by facsimile and addressed, delivered or transmitted to such party at its
address, facsimile number set forth below its signature hereto or set forth in
the Lender Assignment Agreement or at such other address or facsimile number as
may be designated by such party in a notice to the other parties. Any notice, if
mailed and properly addressed with postage prepaid or if properly addressed and
sent by pre-paid courier service, shall be deemed given when received; any
notice, if transmitted by facsimile, shall be deemed given when received.
SECTION 10.3. Payment of Costs and Expenses. The Borrower agrees to pay on
demand all expenses of the Agents (including the fees and out-of-pocket expenses
of counsel to the Agents and of local counsel, if any, who may be retained by
counsel to the Agents) in connection with
(a) the negotiation, preparation, execution and delivery of this
Agreement and of each other Loan Document, including schedules and
exhibits, and any amendments, waivers, consents, supplements or other
modifications to this Agreement or any other Loan Document as may from time
to time hereafter be required, whether or not the transactions contemplated
hereby are consummated, and
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(b) the filing, recording, refiling or rerecording of the Security
Agreement and/or any Uniform Commercial Code financing statements relating
thereto and all amendments, supplements and modifications to any thereof
and any and all other documents or instruments of further assurance
required to be filed or recorded or refiled or rerecorded by the terms
hereof or the Security Agreement, and
(c) the preparation and review of the form of any document or
instrument relevant to this Agreement or any other Loan Document.
The Borrower further agrees to pay, and to save the Agents and the Lenders
harmless from all liability for, any stamp or other taxes which may be payable
in connection with the execution or delivery of this Agreement, the borrowings
hereunder, or the issuance of the Notes or any other Loan Documents. The
Borrower also agrees to reimburse the Agents and each Lender upon demand for all
reasonable out-of-pocket expenses (including attorneys' fees and legal expenses
(including all allocated costs of any Lender's in-house counsel)) incurred by
the Agents or such Lender in connection with (x) the negotiation of any
restructuring or "work-out", whether or not consummated, of any Obligations and
(y) the enforcement of any Obligations (including, without limitation, any
expenses incurred by the Managing Agents, the Administrative Agent or any Lender
pursuant to the Intercreditor Agreement).
SECTION 10.4. Indemnification. In consideration of the execution and
delivery of this Agreement by each Lender and the extension of the Commitments,
the Borrower hereby indemnifies, exonerates and holds the Agents and each Lender
and each of their respective officers, directors, employees, agents and
Affiliates (collectively, the "Indemnified Parties") free and harmless from and
against any and all actions, causes of action, suits, losses, costs, liabilities
and damages, and expenses incurred in connection therewith (irrespective of
whether any such Indemnified Party is a party to the action for which
indemnification hereunder is sought), including reasonable attorneys' fees and
disbursements (collectively, the "Indemnified Liabilities"), incurred by the
Indemnified Parties or any of them as a result of, or arising out of, or
relating to
(a) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of any Loan;
(b) the entering into and performance of this Agreement and any other
Loan Document by any of the Indemnified Parties (including any action
brought by or on behalf of the Borrower as the result of any determination
by the Required Lenders pursuant to Article V not to fund any Borrowing);
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(c) any investigation, litigation or proceeding related to any
environmental cleanup, audit, compliance or other matter relating to the
protection of the environment or the Release by the Borrower or any of its
Subsidiaries of any Hazardous Material; or
(d) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or releases from, any real
property owned or operated by the Borrower or any Subsidiary thereof of any
Hazardous Material (including any losses, liabilities, damages, injuries,
costs, expenses or claims asserted or arising under any Environmental Law),
regardless of whether caused by, or within the control of, the Borrower or
such Subsidiary,
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's gross
negligence or wilful misconduct. If and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Borrower hereby agrees to
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.
SECTION 10.5. Survival. The obligations of the Borrower under Sections 4.3,
4.4, 4.5, 4.6, 10.3 and 10.4, and the obligations of the Lenders under Section
9.1, shall in each case survive any termination of this Agreement, the payment
in full of all Obligations and the termination of all Commitments. The
representations and warranties made by each Obligor in this Agreement and in
each other Loan Document shall survive the execution and delivery of this
Agreement and each such other Loan Document.
SECTION 10.6. Severability. Any provision of this Agreement or any other
Loan Document which is prohibited or unenforceable in any jurisdiction shall, as
to such provision and such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Agreement or such Loan Document or affecting the validity or enforceability
of such provision in any other jurisdiction.
SECTION 10.7. Headings. The various headings of this Agreement and of each
other Loan Document are inserted for convenience only and shall not affect the
meaning or interpretation of this Agreement or such other Loan Document or any
provisions hereof or thereof.
SECTION 10.8. Execution in Counterparts, Effectiveness, etc. This Agreement
may be executed by the parties hereto in several counterparts, each of which
shall be executed by the Borrower and the Agents and be deemed to be an original
and all of which shall
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constitute together but one and the same agreement. This Agreement shall become
effective when counterparts hereof executed on behalf of the Borrower and each
Lender (or notice thereof satisfactory to the Administrative Agent) shall have
been received by the Administrative Agent and notice thereof shall have been
given by the Administrative Agent to the Borrower and each Lender.
SECTION 10.9. Governing Law; Entire Agreement. THIS AGREEMENT, THE NOTES
AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER
AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. This Agreement, the
Notes and the other Loan Documents constitute the entire understanding among the
parties hereto with respect to the subject matter hereof and supersede any prior
agreements, written or oral, with respect thereto.
SECTION 10.10. Successors and Assigns. Except as herein provided, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns; provided, however, that:
(a) the Borrower may not assign or transfer its rights or obligations
hereunder without the prior written consent of the Administrative Agent and
all Lenders; and
(b) the rights of sale, assignment and transfer of the Lenders are
subject to Section 10.11.
SECTION 10.11. Sale and Transfer of Loans and Notes; Participations in
Loans and Notes. Each Lender may assign, or sell participations in, its Loans
and Commitments to one or more other Persons in accordance with this Section
10.11.
SECTION 10.11.1. Assignments. Any Lender,
(a) with the written consents of the Borrower and the Administrative
Agent (which consents shall not be unreasonably delayed or withheld and
which consent, in the case of the Borrower, shall be deemed to have been
given in the absence of a written notice delivered by the Borrower to the
Administrative Agent, on or before the fifth Business Day after receipt by
the Borrower of such Lender's request for consent, stating, in reasonable
detail, the reasons why the Borrower proposes to withhold such consent) may
at any time assign and delegate to one or more commercial banks or other
financial institutions, and
(b) with notice to the Borrower and the Administrative Agent, but
without the consent of the Borrower or the Administrative Agent, may assign
and delegate to any of its Affiliates or to any other Lender
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(each Person described in either of the foregoing clauses as being the Person to
whom such assignment and delegation is to be made, being hereinafter referred to
as an "Assignee Lender"), all or any fraction of such Lender's total Loans and
Commitments (which assignment and delegation shall be of a constant, and not a
varying, percentage of all the assigning Lender's Loans and Commitments) in a
minimum aggregate amount of $5,000,000; provided, however, that after giving
effect to such assignment, the assignor Lender's remaining aggregate Commitment
shall be at least $5,000,000; and provided, further, that, the Borrower, each
other Obligor and the Agents shall be entitled to continue to deal solely and
directly with such Lender in connection with the interests so assigned and
delegated to an Assignee Lender until
(c) written notice of such assignment and delegation, together with
payment instructions, addresses and related information with respect to
such Assignee Lender, shall have been given to the Borrower and the
Administrative Agent by such Lender and such Assignee Lender,
(d) such Assignee Lender shall have executed and delivered to the
Borrower and the Administrative Agent a Lender Assignment Agreement,
accepted by the Administrative Agent, and
(e) the processing fees described below shall have been paid.
From and after the date that the Administrative Agent accepts such Lender
Assignment Agreement, (x) the Assignee Lender thereunder shall be deemed
automatically to have become a party hereto and to the extent that rights and
obligations hereunder have been assigned and delegated to such Assignee Lender
in connection with such Lender Assignment Agreement, shall have the rights and
obligations of a Lender hereunder and under the other Loan Documents, and (y)
the assignor Lender, to the extent that rights and obligations hereunder have
been assigned and delegated by it in connection with such Lender Assignment
Agreement, shall be released from its obligations hereunder and under the other
Loan Documents. Within five Business Days after its receipt of notice that the
Administrative Agent has received an executed Lender Assignment Agreement, the
Borrower shall execute and deliver to the Administrative Agent (for delivery to
the relevant Assignee Lender) new Notes evidencing such Assignee Lender's
assigned Loans and Commitments and, if the assignor Lender has retained Loans
and Commitments hereunder, replacement Notes in the principal amount of the
Loans and Commitments retained by the assignor Lender hereunder (such Notes to
be in exchange for, but not in payment of, those Notes then held by such
assignor Lender). Each such Note shall be dated the date of the predecessor
Notes. The assignor Lender shall mark the predecessor Notes "exchanged" and
deliver them to the
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Borrower. Accrued interest on that part of the predecessor Notes evidenced by
the new Notes, and accrued fees, shall be paid as provided in the Lender
Assignment Agreement. Accrued interest on that part of the predecessor Notes
evidenced by the replacement Notes shall be paid to the assignor Lender. Accrued
interest and accrued fees shall be paid at the same time or times provided in
the predecessor Notes and in this Agreement. Such assignor Lender or such
Assignee Lender must also pay a processing fee to the Administrative Agent upon
delivery of any Lender Assignment Agreement in the amount of $2,500. Any
attempted assignment and delegation not made in accordance with this Section
10.11.1 shall be null and void. In addition to the foregoing, and
notwithstanding any other provision hereof, any Lender may at any time assign
any or all of its rights hereunder or its Notes to any Federal Reserve Bank.
SECTION 10.11.2. Participations. Any Lender may at any time sell to one or
more commercial banks or other Persons (each of such commercial banks and other
Persons being herein called a "Participant") participating interests in any of
the Loans, Commitments, or other interests of such Lender hereunder; provided,
however, that
(a) no participation contemplated in this Section 10.11 shall relieve
such Lender from its Commitments or its other obligations hereunder or
under any other Loan Document,
(b) such Lender shall remain solely responsible for the performance of
its Commitments and such other obligations,
(c) the Borrower and each other Obligor and the Agents shall continue
to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement and each of the other
Loan Documents,
(d) no Participant, unless such Participant is an Affiliate of such
Lender, or is itself a Lender, shall be entitled to require such Lender to
take or refrain from taking any action hereunder or under any other Loan
Document, except that such Lender may agree with any Participant that such
Lender will not, without such Participant's consent, take any actions of
the type described in clause (b) or (c) of Section 10.1, and
(e) the Borrower shall not be required to pay any amount under Section
4.6 that is greater than the amount which it would have been required to
pay had no participating interest been sold.
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The Borrower acknowledges and agrees that each Participant, for purposes of
Sections 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 10.3 and 10.4, shall be considered a
Lender.
SECTION 10.12. Confidentiality. The Lenders shall hold all non-public
information (which has been identified as such by the Borrower) obtained
pursuant to the requirements of this Agreement in accordance with their
customary procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices and in any event may make
disclosure to any of their employees, examiners, Affiliates, outside auditors,
counsel and other professional advisors in connection with this Agreement or as
reasonably required by any bona fide transferee, participant or assignee or as
required or requested by any governmental agency or representative thereof or
pursuant to legal process; provided, however, that
(a) unless prohibited by applicable law or court order, each Lender
shall notify the Borrower of any request by any governmental agency or
representative thereof (other than any such request in connection with an
examination of the financial condition of such Lender by such governmental
agency) for disclosure of any such non-public information prior to
disclosure of such information;
(b) prior to any such disclosure pursuant to this Section 10.12, each
Lender shall require any such bona fide transferee, participant and
assignee receiving a disclosure of non-public information to agree in
writing
(i) to be bound by this Section 10.12;
(ii) to require such Person to require any other Person to whom
such Person discloses such non-public information to be similarly bound
by this Section 10.12; and
(c) except as may be required by an order of a court of competent
jurisdiction and to the extent set forth therein, no Lender shall be
obligated or required to return any materials furnished by the Borrower or
any Subsidiary.
SECTION 10.13. Other Transactions. Nothing contained herein shall preclude
any Agent or any other Lender from engaging in any transaction, in addition to
those contemplated by this Agreement or any other Loan Document, with the
Borrower or any of its Affiliates in which the Borrower or such Affiliate is not
restricted hereby from engaging with any other Person.
SECTION 10.14. Forum Selection and Consent to Jurisdiction. ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
68
<PAGE> 75
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
THE AGENTS, THE LENDERS OR THE BORROWER SHALL BE BROUGHT AND MAINTAINED
EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT
ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE
BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION
WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER HEREBY
EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE
OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH SUCH LITIGATION. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE
OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR
WITHOUT THE STATE OF NEW YORK. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE
OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN
ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR
HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF FROM ANY
LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS
PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS
OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 10.15. Waiver of Jury Trial. THE AGENTS, THE LENDERS AND THE
BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY
MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF THE AGENTS, THE LENDERS OR THE BORROWER. THE
BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT
CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN
DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT AND EACH
SUCH OTHER LOAN DOCUMENT.
69
<PAGE> 76
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
OREGON STEEL MILLS, INC.
By:____________________________________________
Title:______________________________________
Address: P.O. Box 5368
Portland, Oregon 97228
Facsimile No.: (503) 240-5232
Attention: Mr. Jeff Stewart
Treasurer
FIRST INTERSTATE BANK OF OREGON, N.A., as
Administrative Agent and Managing Agent
By:____________________________________________
Title:______________________________________
Address: 1300 S.W. Fifth Avenue, T19
Portland, Oregon 97201
Facsimile No.: (503) 220-4896
Attention: Patrik Norris
THE BANK OF NOVA SCOTIA, as Syndication Agent
and Managing Agent
By:____________________________________________
Title:______________________________________
Address: 888 S.W. Fifth Avenue
Suite 750
Portland, Oregon 97204
Facsimile No.: (503) 222-5502
Attention: Daryl Hogge
70
<PAGE> 77
PERCENTAGE LENDERS
---------- -------
18% FIRST INTERSTATE BANK OF OREGON N.A.
By:_____________________________________
Title:_______________________________
Domestic
Office: 1300 S.W. Fifth Avenue, T19
Portland, Oregon 97201
Facsimile No.: (503) 220-4896
Attention: Patrik Norris
LIBOR
Office: 1300 S.W. Fifth Avenue, T19
Portland, Oregon 97201
Facsimile No.: (503) 220-4896
Attention: Patrik Norris
71
<PAGE> 78
18% THE BANK OF NOVA SCOTIA
By:______________________________________
Title:________________________________
Domestic
Office: 888 S.W. Fifth Avenue,
Suite 750
Portland, Oregon 97204
Facsimile No.: (503) 222-5502
Attention: Daryl Hogge
LIBOR
Office: 888 S.W. Fifth Avenue
Suite 750
Portland, Oregon 97204
Facsimile No.: (503) 222-5502
Attention: Daryl Hogge
72
<PAGE> 79
12% UNITED STATES NATIONAL BANK OF OREGON
By:______________________________________
Title:________________________________
Office: 555 S.W. 5th Ave., PL-7
Portland, OR 97204
Facsimile No.: (503) 275-4600
Attention: Loretta Frazier
LIBOR
Office: 555 S.W. 5th Ave., PL-7
Portland, OR 97204
Facsimile No.: (503) 275-4600
Attention: Loretta Frazier
73
<PAGE> 80
12% KEY BANK OF WASHINGTON
By:______________________________________
Title:________________________________
Domestic
Office: 700 Fifth Avenue, 48th Floor
Seattle, Washington 98104
Facsimile No.: (206) 684-6035
Attention: John Brock
LIBOR
Office: 17900 Pacific Highway South
Suite 301
Seattle, Washington 98188
Facsimile No.: (800) 297-5495
Attention: Vickie Heineck
74
<PAGE> 81
12% THE FIRST NATIONAL BANK OF CHICAGO
By:_____________________________________
Title: Senior Vice President
Domestic
Office: 777 South Figueroa Street
40th Floor
Los Angeles, California 90017
Facsimile No.: (213) 683-4949
Attention: L.G. Buebe
LIBOR
Office: One First National Plaza
10th Floor, Suite 0634
Chicago, Illinois 60670
Facsimile No.: (312) 732-4840
Attention: Stewart Klein
75
<PAGE> 82
8% THE BANK OF TOKYO - MITSUBISHI LTD.,
PORTLAND BRANCH
By:_____________________________________
Title:_______________________________
Domestic
Office: 2300 Pacwest Center
1211 S.W. Fifth Avenue
Portland, Oregon 97204
Facsimile No.: (503) 227-5372
Attention: Mr. Hiro Nakazawa
LIBOR
Office: 2300 Pacwest Center
1211 S.W. Fifth Avenue
Portland, Oregon 97204
Facsimile No.: (503) 227-5372
Attention: Mr. Hiro Nakazawa
76
<PAGE> 83
8% PNC BANK, NATIONAL ASSOCIATION
By:_______________________________________
Title:_________________________________
Domestic
Office: 249 Fifth Avenue
PI-POPP-02-2
Pittsburgh, PA 15222
Facsimile No.: (412) 762-8746
Attention: Denise Simeone
LIBOR
Office: 249 Fifth Avenue
PI-POPP-02-2
Pittsburgh, PA 15222
Facsimile No.: (412) 762-8746
Attention: Denise Simeone
77
<PAGE> 84
8% NATIONSBANK OF TEXAS, N.A.
By:_______________________________________
Title:_________________________________
Domestic
Office: 901 Main Street
Dallas, Texas 75202
Facsimile No.: (214) 508-0944
Attention: Kay Hibbs
LIBOR
Office: 901 Main Street
Dallas, Texas 75202
Facsimile No.: (214) 508-0944
Attention: Kay Hibbs
78
<PAGE> 85
4% UNION BANK OF CALIFORNIA, N.A.
By:_______________________________________
Title:_________________________________
Domestic
Office: 400 California Street
17th Floor
San Francisco, CA 94104
Facsimile No.: (415) 765-3146
Attention: Norma Sarto
LIBOR
Office: 400 California Street
17th Floor
San Francisco, CA 94104
Facsimile No.: (415) 765-3146
Attention: Norma Sarto
79
<PAGE> 86
SCHEDULE I
DISCLOSURE SCHEDULE
ITEM 6.6 Material Developments.
ITEM 6.7 Litigation.
Description of Proceeding Action or Claim Sought
------------------------- ----------------------
ITEM 6.8 Existing Subsidiaries.
State of Ownership Business
Name Incorporation % Description
---- ------------- --------- -----------
ITEM 6.11 Employee Benefit Plans.
ITEM 6.12 Environmental Matters.
ITEM 7.2.2(a) Ongoing Investments.
80
<PAGE> 87
ITEM 7.2.2(b) Indebtedness to be Paid.
Creditor Outstanding Principal Amount
-------- ----------------------------
Term Notes under
Original Credit
Agreement $
-----------------
ITEM 7.2.2(c) Ongoing Indebtedness.
Debtor Creditor Outstanding Principal Amount
- ------ -------- ----------------------------
81
<PAGE> 88
EXHIBIT A
REVOLVING NOTE
$___________ ____________, 1996
FOR VALUE RECEIVED, the undersigned, OREGON STEEL MILLS, INC., a Delaware
corporation (the " Borrower"), promises to pay to the order of
______________________ (the "Lender") on the Revolving Loan Commitment
Termination Date (as such term is defined in the hereinafter-described Credit
Agreement) the principal sum of __________________ DOLLARS ($___________) or, if
less, the aggregate unpaid principal amount of all Revolving Loans shown on the
schedule attached hereto (and any continuation thereof) or in the records of the
Lender made by the Lender pursuant to that certain Amended and Restated Credit
Agreement, dated as of even date herewith (together with all amendments and
other modifications, if any, from time to time thereafter made thereto, the
"Credit Agreement"), among the Borrower, FIRST INTERSTATE BANK OF OREGON, N.A.
("First Interstate"), as Administrative Agent, THE BANK OF NOVA SCOTIA
("Scotiabank"), as Syndication Agent, First Interstate and Scotiabank, as
Managing Agents, and the various financial institutions (including the Lender)
as are, or may from time to time become, parties thereto.
The Borrower also promises to pay interest on the unpaid principal amount
hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made in lawful money of
the United States of America in same day or immediately available funds to the
account designated by the Administrative Agent pursuant to the Credit Agreement.
This Note is one of the Revolving Notes referred to in, and evidences
Indebtedness incurred under, the Credit Agreement, to which reference is made
for a description of the security for this Note and for a statement of the terms
and conditions on which the Borrower is permitted and required to make
prepayments and repayments of principal of the Indebtedness evidenced by this
Note and on which such Indebtedness may be declared to be immediately due and
payable. Unless otherwise defined, terms used herein have the meanings provided
in the Credit Agreement.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest and notice of dishonor.
<PAGE> 89
THIS NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK AND SHALL BE DEEMED TO
BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW
YORK.
OREGON STEEL MILLS, INC.
By___________________________
Title:
2
<PAGE> 90
REVOLVING LOANS AND PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
Amount of Amount of Unpaid
Revolving Principal Principal
Loan Made Repaid Balance
--------------------- ------------------- --------------------
Interest
Base LIBO Period (if Base LIBO Base LIBO Notation
Date Rate Rate applicable) Rate Rate Rate Rate Total Made By
- ---- ---- ---- ----------- ---- ---- ---- ---- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
3
<PAGE> 91
EXHIBIT B
SWINGLINE NOTE
$15,000,000 __________, 1996
FOR VALUE RECEIVED, the undersigned, OREGON STEEL MILLS, INC., a Delaware
corporation (the " Borrower"), promises to pay to the order of FIRST INTERSTATE
BANK OF OREGON, N.A. ("First Interstate") on the Swingline Loan Commitment
Termination Date (as such term is defined in the hereinafter-described Credit
Agreement) the principal sum of FIFTEEN MILLION DOLLARS ($15,000,000) or, if
less, the aggregate unpaid principal amount of all Swingline Loans shown on the
schedule attached hereto (and any continuation thereof) or in the records of
First Interstate made by First Interstate as Swingline Lender pursuant to that
certain Amended and Restated Credit Agreement, dated as of even date herewith
(together with all amendments and other modifications, if any, from time to time
thereafter made thereto, the "Credit Agreement"), among the Borrower, First
Interstate, as Administrative Agent, The Bank of Nova Scotia ("Scotiabank"), as
Syndication Agent, First Interstate and Scotiabank, as Managing Agents, and the
various financial institutions as are, or may from time to time become, parties
thereto.
The Borrower also promises to pay interest on the unpaid principal amount
hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made in lawful money of
the United States of America in same day or immediately available funds to the
account designated by the Administrative Agent pursuant to the Credit Agreement.
This Note is the Swingline Note referred to in, and evidences Indebtedness
incurred under, the Credit Agreement, to which reference is made for a
description of the security for this Note and for a statement of the terms and
conditions on which the Borrower is permitted and required to make prepayments
and repayments of principal of the Indebtedness evidenced by this Note and on
which such Indebtedness may be declared to be immediately due and payable.
Unless otherwise defined, terms used herein have the meanings provided in the
Credit Agreement.
All parties hereto, whether as makers, endorsers, or otherwise, severally
waive presentment for payment, demand, protest and notice of dishonor.
<PAGE> 92
THIS NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK AND SHALL BE DEEMED TO
BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW
YORK.
OREGON STEEL MILLS, INC.
By___________________________
Title:
2
<PAGE> 93
SWINGLINE LOANS AND PRINCIPAL PAYMENTS
<TABLE>
<CAPTION>
Amount of Interest Amount of Unpaid
Swingline Period (if Principal Principal Notation
Date Loan Made applicable) Repaid Balance Total Made By
- ---- --------- ----------- ------ ------- ----- -------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
3
<PAGE> 94
EXHIBIT C
BORROWING REQUEST
First Interstate Bank Of Oregon, N.A.,
as Administrative Agent
1300 S.W. Fifth Avenue
Portland, Oregon 97208
Attention: [Name]
[Title]
Re: Oregon Steel Mills, Inc.
Gentlemen and Ladies:
This Borrowing Request is delivered to you pursuant to Section 2.3 of the
Amended and Restated Credit Agreement, dated as of _________________, 1996
(together with all amendments, if any, from time to time made thereto, the
"Credit Agreement"), among Oregon Steel Mills, Inc., a Delaware corporation (the
"Borrower"), certain financial institutions, First Interstate Bank of Oregon,
N.A. ("First Interstate"), as administrative agent (the "Administrative Agent"),
The Bank of Nova Scotia ("Scotiabank"), as syndication agent, and First
Interstate and Scotiabank, as managing agents. Unless otherwise defined herein
or the context otherwise requires, terms used herein have the meanings provided
in the Credit Agreement.
The Borrower hereby requests that a Revolving Loan be made in the aggregate
principal amount of $__________ on __________, 19___ as a [LIBO Rate Loan having
an Interest Period of _______ months] [Base Rate Loan].
The Borrower hereby acknowledges that, pursuant to Section 5.2.2 of the
Credit Agreement, each of the delivery of this Borrowing Request and the
acceptance by the Borrower of the proceeds of the Loans requested hereby
constitute a representation and warranty by the Borrower that, on the date of
such Loans, and before and after giving effect thereto and to the application of
the proceeds therefrom, all statements set forth in Section 5.2.1 are true and
correct in all material respects.
The Borrower agrees that if prior to the time of the Borrowing requested
hereby any matter certified to herein by it will not be true and correct at such
time as if then made, it will immediately so notify the Administrative Agent.
Except to
<PAGE> 95
the extent, if any, that prior to the time of the Borrowing requested hereby the
Administrative Agent shall receive written notice to the contrary from the
Borrower, each matter certified to herein shall be deemed once again to be
certified as true and correct at the date of such Borrowing as if then made.
Please wire transfer the proceeds of the Borrowing to the accounts of the
following persons at the financial institutions indicated respectively:
<TABLE>
<CAPTION>
Person to be Paid
--------------------------------------
Amount to be Name, Address, etc.
Transferred Name Account No. of Transferee Lender
- ----------- ---- ----------- --------------------
<S> <C> <C> <C>
$
----------- ------------- ----------- --------------------
--------------------
Attention:
----------
$
----------- ------------- ----------- --------------------
--------------------
Attention:
----------
Balance of The Borrower ----------- --------------------
such proceeds --------------------
Attention:
----------
</TABLE>
The Borrower has caused this Borrowing Request to be executed and
delivered, and the certification and warranties contained herein to be made, by
its duly Authorized Officer this day of , 19 .
OREGON STEEL MILLS, INC.
By
-----------------------
Title:
2
<PAGE> 96
EXHIBIT D
CONTINUATION/CONVERSION NOTICE
First Interstate Bank of Oregon, N.A.,
as Administrative Agent
1300 S.W. Fifth Avenue
Portland, Oregon 97208
Attention: [Name]
[Title]
Re: Oregon Steel Mills, Inc.
Gentlemen and Ladies:
This Continuation/Conversion Notice is delivered to you pursuant to Section
2.4 of the Amended and Restated Credit Agreement, dated as of _______________,
1996 (together with all amendments, if any, from time to time made thereto, the
"Credit Agreement"), among Oregon Steel Mills, Inc., a Delaware corporation (the
"Borrower"), certain financial institutions, First Interstate Bank of Oregon,
N.A. ("First Interstate") as administrative agent (the "Administrative Agent"),
The Bank of Nova Scotia ("Scotiabank"), as syndication agent, and First
Interstate and Scotiabank, as managing agents. Unless otherwise defined herein
or the context otherwise requires, terms used herein have the meanings provided
in the Credit Agreement.
The Borrower hereby requests that on ____________, 19___,
(1) $___________ of the presently outstanding principal amount of the
Revolving Loans originally made on __________, 19___ [and $__________ of
the presently outstanding principal amount of the Revolving Loans
originally made on __________, 19___],
(2) and all presently being maintained as *[Base Rate Loans] [LIBO Rate
Loans],
(3) be [converted into] [continued as],
______________________
* Select appropriate interest rate option.
<PAGE> 97
(4) *[LIBO Rate Loans having an Interest Period of ______ months] [Base
Rate Loans].
The Borrower hereby:
(a) certifies and warrants that no Default has occurred and is
continuing; and
(b) agrees that if prior to the time of such continuation or conversion
any matter certified to herein by it will not be true and correct at such
time as if then made, it will immediately so notify the Administrative
Agent.
Except to the extent, if any, that prior to the time of the continuation or
conversion requested hereby the Administrative Agent shall receive written
notice to the contrary from the Borrower, each matter certified to herein shall
be deemed to be certified at the date of such continuation or conversion as if
then made.
The Borrower has caused this Continuation/Conversion Notice to be
executed and delivered, and the certification and warranties contained herein to
be made, by its Authorized Officer this ___ day of _________, 19___.
OREGON STEEL MILLS, INC.
By________________________
Title:
_______________
* Insert appropriate interest rate option.
2
<PAGE> 98
EXHIBIT E
LENDER ASSIGNMENT AGREEMENT
To: Oregon Steel Mills, Inc.
P.O. Box 5368
Portland, Oregon 97228
To: First Interstate Bank of Oregon, N.A.,
as Administrative Agent
1300 S.W. Fifth Avenue
Portland, Oregon 97208
Gentlemen and Ladies:
We refer to clause (d) of Section 10.11.1 of the Amended and Restated
Credit Agreement, dated as of _________, 1996 (together with all amendments and
other modifications, if any, from time to time thereafter made thereto, the
"Credit Agreement"), among Oregon Steel Mills, Inc., a Delaware corporation (the
"Borrower"), the various financial institutions (the "Lenders") as are, or shall
from time to time become, parties thereto, First Interstate Bank of Oregon, N.A.
("First Interstate"), as administrative agent (the "Administrative Agent"), The
Bank of Nova Scotia ("Scotiabank"), as syndication agent and First Interstate
and Scotiabank, as managing agents for the Lenders. Unless otherwise defined
herein or the context otherwise requires, terms used herein have the meanings
provided in the Credit Agreement.
This agreement is delivered to you pursuant to clause (d) of Section
10.11.1 of the Credit Agreement and also constitutes notice to each of you,
pursuant to clause (c) of Section 10.11.1 of the Credit Agreement, of the
assignment and delegation to _______________ (the "Assignee") of ___% of the
Loans and Commitments of _____________ (the "Assignor") outstanding under the
Credit Agreement on the date hereof. After giving effect to the foregoing
assignment and delegation, the Assignor's and the Assignee's Percentages for the
purposes of the Credit Agreement are set forth opposite such Person's name on
the signature pages hereof.
[Add paragraph dealing with accrued interest and fees with respect to Loans
assigned.]
The Assignee hereby acknowledges and confirms that it has received a copy
of the Credit Agreement and the exhibits related thereto, together with copies
of the documents which were required to be delivered under the Credit Agreement
as a
<PAGE> 99
condition to the making of the Loans thereunder. The Assignee further confirms
and agrees that in becoming a Lender and in making its Commitments and Loans
under the Credit Agreement, such actions have and will be made without recourse
to, or representation or warranty by any Agent.
Except as otherwise provided in the Credit Agreement, effective as of the
date of acceptance hereof by the Administrative Agent
(a) the Assignee
(i) shall be deemed automatically to have become a party to the Credit
Agreement, have all the rights and obligations of a "Lender" under the
Credit Agreement and the other Loan Documents as if it were an original
signatory thereto to the extent specified in the second paragraph hereof;
and
(ii) agrees to be bound by the terms and conditions set forth in the
Credit Agreement and the other Loan Documents as if it were an original
signatory thereto; and
(b) the Assignor shall be released from its obligations under the Credit
Agreement and the other Loan Documents to the extent specified in the second
paragraph hereof.
The Assignor and the Assignee hereby agree that the [Assignor] [Assignee]
will pay to the Administrative Agent the processing fee referred to in Section
10.11.1 of the Credit Agreement upon the delivery hereof.
The Assignee hereby advises each of you of the following administrative
details with respect to the assigned Loans and Commitments and requests the
Administrative Agent to acknowledge receipt of this document:
(A) Address for Notices:
Institution Name:
Attention:
Domestic Office:
Telephone:
Facsimile:
LIBOR Office:
Telephone:
Facsimile:
2
<PAGE> 100
(B) Payment Instructions:
This Agreement may be executed by the Assignor and Assignee in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute one and the same
agreement.
Adjusted Percentage [ASSIGNOR]
Revolving Loan
Commitment
and
Revolving Loans: __%
By:_____________________
Title:
Percentage [ASSIGNEE]
Revolving Loan
Commitment
and
Revolving Loans: __%
By:_____________________
Title:
Accepted and Acknowledged
this __ day of _______, 19__
First Interstate Bank of Oregon, N.A.
as Administrative Agent
By:________________________
Title:
3
