<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1996
REGISTRATION NO. 333-02333
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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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.)
1000 S.W. BROADWAY, SUITE 2200 THOMAS B. BOKLUND
PORTLAND, OREGON 97205 CHAIRMAN AND CHIEF EXECUTIVE OFFICER
(503) 223-9228 1000 S.W. BROADWAY, SUITE 2200
(Address, including zip code, and PORTLAND, OREGON 97205
telephone number, including area code, (503) 223-9228
of registrant's principal executive offices) (Name, address, including zip code,
and telephone number, including area code
of agent for service)
</TABLE>
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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>
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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
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 22, 1996
6,000,000 SHARES
[OREGON STEEL LOGO]
COMMON STOCK
------------------
All of the shares of Common Stock offered hereby (the "Common Stock
Offering") are being sold by Oregon Steel Mills, Inc. ("Oregon Steel" or the
"Company"). The Common Stock is traded on the New York Stock Exchange (the
"NYSE") under the symbol "OS." On May 20, 1996, the last reported sale price of
the Common Stock on the NYSE was $16.00 per share.
Concurrently with the Common Stock Offering, the Company is publicly
offering $235 million aggregate principal amount of its % First Mortgage
Notes due 2003 (the "Notes") pursuant to a separate prospectus (the "Notes
Offering" and, together with the Common Stock Offering, the "Offerings"). The
Common Stock Offering is contingent upon the concurrent completion of the Notes
Offering and the effectiveness of the Amended Credit Agreement (as defined
herein). See "Description of Certain Indebtedness."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK.
------------------
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>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share $ $ $
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Total(3) $ $ $
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</TABLE>
(1) For information regarding indemnification, see "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $400,000.
See "Underwriting."
(3) The Company has granted to the Underwriters a 30-day option to purchase
up to 900,000 additional shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If the Underwriters exercise
this option in full, the total Price to Public, Underwriting Discounts
and Commissions and Proceeds to Company will be $ , $ and
$ , respectively.
------------------
The shares of Common Stock 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 certificates for the shares of Common
Stock offered hereby will be available for delivery on or about ,
1996, at the office of Smith Barney Inc., 333 West 34th Street, New York, New
York 10001.
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SMITH BARNEY INC. PAINEWEBBER INCORPORATED
, 1996
<PAGE> 3
[Photograph of steel coil [Photograph of continuous caster at
produced at CF&I Steel CF&I Steel Division's Pueblo Mill]
Division's rod and bar mill]
Continuous Caster (above) -- CF&I Steel
Division
Only domestic minimill to utilize 100%
continuously
cast rounds.
Rod and Bar Mill (left) -- CF&I Steel
Division
Newly modernized rod and bar mill
produces a full range
of grades, available in coil weights up
to 6,000 pounds.
Pressure Cast
Slab (right) -- Oregon Steel
Division. Bottom poured cast slab
provides a uniform structure
ideal for hot rolled plate.
Napa Pipe Mill (below) -- Oregon [Photograph of pressure cast steel
Steel Division. Only large slab produced at the Oregon Steel
diameter pipe mill in the western Division's Portland Mill]
United States.
[Photograph of large diameter steel
pipe produced at the Oregon Steel
Division's Napa Pipe Mill]
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following regional offices of the Commission: New York Regional Office, 7 World
Trade Center, New York, New York 10048 and Chicago Regional Office, 1400
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, the aforementioned material can also be inspected
at the offices of the New York Stock Exchange, Inc., 20 Broad Street, New York,
New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (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 undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus has been delivered, on
written or oral request, a copy of any and all of the documents incorporated in
this Prospectus by reference, other than exhibits to such documents not
specifically incorporated by reference therein. Requests for such copies should
be directed to Oregon Steel Mills, Inc., at its principal executive offices
located at 1000 S.W. Broadway, Suite 2200, Portland, Oregon 97205, Attention:
Director of Investor Relations (telephone: (503) 223-9228).
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK 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> 5
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
granted to the Underwriters by the Company 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> 6
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.
5
<PAGE> 7
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 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 Common Stock 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>
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(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> 8
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective purchasers of the Common Stock.
FORWARD-LOOKING STATEMENTS
The Company believes the information set forth in this Prospectus under the
captions "Prospectus Summary," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business" includes
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and is subject to the safe harbor created by that section. Certain factors
that could cause results to differ materially from those projected in the
forward-looking statements are set forth in "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Capital Improvement Program."
THE COMMON STOCK OFFERING
Common Stock offered by the
Company............................ 6,000,000 shares
Common Stock to be outstanding
after the Common Stock Offering.... 25,421,614 shares(1)
Use of proceeds.................... The net proceeds from the Common Stock
Offering and the Notes 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."
NYSE Symbol........................ OS
Conditions to the Common Stock
Offering........................... The Common Stock Offering is contingent
upon the concurrent completion of the
Notes Offering and the effectiveness of
the Amended Credit Agreement. See
"Description of Certain Indebtedness."
- ---------------
(1) 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 acquisition of
the CF&I Steel Division and 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."
7
<PAGE> 9
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 -- 76,487 187,935 312,679 195,012 320,660
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)
8
<PAGE> 10
(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
understands that it is used by certain investors as one measure of a
company's historical ability to service its debt. EBITDA is not intended to
represent cash flows for the period nor has it been presented as an
alternative to operating income or net income as an indicator of operating
performance and should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with generally accepted
accounting principles.
(8) For purposes of this percentage, long-term debt excludes current portion,
and capitalization is defined as the sum of long-term debt plus
stockholders' equity.
(9) The Oregon Steel Division consists primarily of the operations of the
Portland Mill, the Napa Pipe Mill, the Camrose Pipe Mill and, until
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."
(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.
9
<PAGE> 11
RISK FACTORS
Prospective investors should carefully review the risk factors set forth
below and the other information set forth and incorporated by reference in this
Prospectus.
SUBSTANTIAL INCREASE IN DIVIDEND REQUIREMENTS; LIMITATIONS ON PAYMENT OF COMMON
STOCK DIVIDENDS
The Common Stock Offering will substantially increase the number of shares
of Common Stock outstanding and the Company's dividend requirements. For the
year ended December 31, 1995, the Company paid total Common Stock dividends of
$10.9 million (based on a quarterly dividend rate of $0.14 per share) and had
net income of $12.4 million. Assuming that the Common Stock Offering and other
transactions contemplated by the Refinancing had occurred on January 1, 1995,
and giving effect to the other assumptions and adjustments described under "Pro
Forma Unaudited Condensed Consolidated Financial Data," pro forma Common Stock
dividends for 1995 and the first quarter of 1996 would have been approximately
$14.2 million and $3.6 million, respectively, (based on a quarterly dividend
rate of $0.14 per share) and pro forma net income for 1995 and the first quarter
of 1996 would have been approximately $7.4 million and $6.9 million,
respectively.
Although the Company has no plans to alter the frequency or rate of its
dividends, the amount of future dividends, as well as the decision to pay any
dividends, on the Common Stock will depend on the Company's results of
operations, capital requirements and financial condition and other factors the
Board of Directors deems relevant. In addition, the Amended Credit Agreement and
the indenture (the "Indenture") relating to the Notes will contain, and other
debt instruments and agreements to which the Company and its subsidiaries are or
may in the future become parties contain or may contain, restrictive covenants
and provisions that limit or could limit the amount of dividends payable by the
Company. In particular, following completion of the Offerings, the Company's
ability to pay Common Stock dividends will be limited by the covenants described
in the following paragraph. See "Description of Certain Indebtedness."
The Indenture will contain a covenant which, in general, will limit the
aggregate amount of dividends payable by the Company after the date on which the
Notes are issued (the "Issue Date") to an amount (the "Restricted Payment
Amount") equal to 50% of the Company's "consolidated net income" (as
defined)(calculated on a cumulative basis commencing on the first day of the
fiscal quarter in which the Notes are issued). The Indenture will contain an
exception to this covenant which will permit the payment of Common Stock
dividends in an aggregate amount of up to $25 million. To the extent the Company
fully utilizes this $25 million exception to pay dividends, however, additional
Common Stock dividends may only be paid if the amount of those dividends, when
added to the aggregate amount of all Common Stock dividends (excluding those
paid pursuant to such $25 million exception) and certain other restricted
payments paid since the Issue Date, does not exceed the Restricted Payment
Amount. In that regard, assuming the Refinancing had occurred on January 1,
1995, and giving effect to the other assumptions and adjustments described under
"Pro Forma Unaudited Condensed Consolidated Financial Data," the pro forma
Restricted Payment Amount for the year ended December 31, 1995 would have been
approximately $4.0 million, and the pro forma amount of dividends payable on the
Company's Common Stock at the current quarterly rate of $0.14 per share would
have been approximately $14.2 million. As a result, on a pro forma basis for the
year ended December 31, 1995 the Company would have been required to utilize
approximately $10.2 million of the $25 million exception to sustain its current
level of Common Stock dividends. It is anticipated that the Amended Credit
Agreement will contain a covenant which will require the Company to maintain a
consolidated tangible net worth (as defined) of not less than $232.5 million (i)
plus 50% of its consolidated net income (as defined) (without giving effect to
any losses) for each fiscal quarter beginning on or after January 1, 1996, (ii)
plus the net proceeds from equity offerings by the Company or any of its
subsidiaries after that date, including the Common Stock Offering, (iii) plus
certain other amounts. At March 31, 1996, this covenant would have required the
Company to have a consolidated tangible net worth (as expected to be defined in
the Amended Credit Agreement) of approximately $235.8 million, and at that date
the Company had a consolidated tangible net worth (as defined) of approximately
$265.9 million. The effect of this covenant is substantially similar to the
effect of the Indenture restriction described above. Accordingly, these
covenants will require that the Company substantially improve its results of
operations to sustain its current level of Common Stock dividends after the
Offerings, and there is no assurance that such an improvement will
10
<PAGE> 12
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.
START-UP DIFFICULTIES
The Company experienced significant delays and operational difficulties in
bringing the new rod and bar mill at the Pueblo Mill into production, which
required the CF&I Steel Division to operate its steelmaking and casting
facilities, as well as the new rod and bar mill, at substantially below full
capacities during much of 1995. Although the Company believes these difficulties
and delays are typical of those encountered when commissioning major pieces of
capital equipment, the Company may continue to experience difficulties with this
mill that could adversely affect its results of operations. In addition, the
Company may experience similar start-up difficulties and delays with respect to
the Combination Mill and other capital improvements, which could interrupt or
reduce production and materially adversely affect its results of operations.
11
<PAGE> 13
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 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
12
<PAGE> 14
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 Pipe Company ("Camrose"), a 60% owned
subsidiary which owns the Camrose Pipe Mill, will likely limit significantly the
Company's ability to obtain additional financing or make the terms of any
financing which may be obtained less favorable.
The amount of the Company's borrowings which may be outstanding under the
Amended Credit Agreement at any time will be limited to a specified percentage
of its eligible accounts receivable and eligible inventory. Moreover, the
Company's ability to borrow under the Amended Credit Agreement will require its
compliance with financial and other covenants contained therein. See
"Description of Certain Indebtedness." As of September 30, 1995 and December 31,
1995, the Company obtained amendments to the Old Credit Agreement to, among
other things, modify the interest coverage ratio covenant and certain other
restrictive covenants and to facilitate the Company in pursuing other or
additional financing alternatives. The amendments were needed for the Company to
remain in compliance with certain financial covenants in the Old Credit
Agreement in light of lower than anticipated earnings and higher than
anticipated borrowing requirements. Compliance with the terms of the Amended
Credit Agreement, which also will contain certain restrictive financial
covenants and other customary terms, will depend upon an improvement in the
Company's results of operations, including improved performance by the Pueblo
Mill, and a significant reduction in the ratio of the Company's debt to total
capitalization. There is no assurance these improvements or this reduction will
occur and, if they do not, the Company could be required to obtain amendments or
waivers under the Amended Credit Agreement to avoid a default and obtain future
borrowings thereunder. There is no assurance that any such amendment or waiver
could be obtained on terms satisfactory to the Company, if at all. In the event
of a default under the Amended Credit Agreement or the Indenture, or if the
Company or its subsidiaries are unable to comply with covenants contained in
other debt instruments or to pay their indebtedness when due, the holders of
such indebtedness generally will be able to declare all indebtedness owing them
to be due and payable immediately and, in the case of collateralized
indebtedness, to proceed against their collateral. In addition, default on one
debt instrument could in turn permit lenders under other debt instruments to
declare borrowings outstanding thereunder to be due and payable pursuant to
cross-default clauses. As a result, any default by the Company or any of its
subsidiaries under any of their respective debt instruments or credit facilities
would likely have a material adverse effect on the Company. Furthermore, the
Amended Credit Agreement will bear, and the Camrose Credit Facility bears,
interest at variable interest rates. Accordingly, increases in the applicable
interest rates may adversely affect the Company's cost of capital.
If the Company and its subsidiaries remain in compliance with the terms of
their respective credit facilities and debt instruments, the Company believes
its anticipated cash needs for currently budgeted capital expenditures and for
working capital through the end of 1996 will be met from the net proceeds of the
Offerings, borrowings under the credit facilities, existing cash balances and
funds generated by operations. There is no assurance, however, that the amounts
available from these sources will be sufficient for such purposes. In that
event, or for other reasons, the Company may be required to seek additional
financing, which may include additional bank financing and debt or equity
securities offerings. There is no assurance that such sources of funding will be
available if required or, if available, will be on terms satisfactory to the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
POTENTIAL DELAY IN COMPLETION OF CAPITAL IMPROVEMENT PROGRAM
Completion of the capital improvement program, including the Combination
Mill at the Portland Mill, is subject to a number of uncertainties, including
the need for borrowings under the Amended Credit Agreement and completion of the
design and construction of the facilities. The Company experienced significant
delays and difficulties in bringing new capital equipment at its Pueblo Mill up
to production capacity (see "-- Start-Up Difficulties"); and there is no
assurance that the Company will not experience delays and difficulties with
13
<PAGE> 15
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 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
14
<PAGE> 16
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 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
15
<PAGE> 17
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."
ANTI-TAKEOVER EFFECT OF THE NOTES
Certain provisions of the Indenture under which the Notes will be issued
could make it more difficult for a party to gain control of the Company. For
example, upon the occurrence of a Change of Control (as defined in the
Indenture) the Company will be obligated to make an offer to purchase all of the
then outstanding Notes at a purchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest, if any. 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. See also "Description of Capital Stock."
16
<PAGE> 18
USE OF PROCEEDS
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 is exercised in full). The net proceeds to the Company from the Notes
Offering are estimated to be approximately $228.1 million. 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."
17
<PAGE> 19
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.
18
<PAGE> 20
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is listed on the NYSE under the symbol "OS." The following
table sets forth the high and low reported sale prices of the Common Stock on
the NYSE Composite Tape, together with the amount of cash dividends declared per
share, for the calendar quarters indicated.
<TABLE>
<CAPTION>
CASH
DIVIDENDS
HIGH LOW DECLARED
---- --- ---------
<S> <C> <C> <C>
1994
1st Quarter................................................ 27 3/8 22 5/8 .14
2nd Quarter................................................ 23 18 7/8 .14
3rd Quarter................................................ 20 1/4 15 7/8 .14
4th Quarter................................................ 18 1/4 14 1/8 .14
1995
1st Quarter................................................ 18 3/8 14 7/8 .14
2nd Quarter................................................ 19 3/4 15 1/2 .14
3rd Quarter................................................ 18 7/8 15 3/4 .14
4th Quarter................................................ 16 1/8 13 1/8 .14
1996
1st Quarter................................................ 15 3/8 12 3/4 .14
2nd Quarter (through May 20, 1996)......................... 16 7/8 13 1/2 .14*
</TABLE>
- ---------------
* Payable May 31 to holders of record on May 10. As a result, purchasers will
not be entitled to receive such dividend on the shares of Common Stock offered
hereby.
On December 31, 1995, there were 846 holders of record of the Company's
Common Stock, of which approximately 2.3 million shares (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. A recent last
reported sale price of the Common Stock on the NYSE is set forth on the cover
page of this Prospectus.
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.
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 will contain, and other debt instruments and agreements to which
the Company and its subsidiaries are or may in the future become parties contain
or may contain, restrictive covenants and provisions that limit or could limit
the amount of dividends payable by the Company. In particular, following
completion of the Offerings, the Company's ability to pay Common Stock dividends
will be limited by the covenants described in the following paragraph. See
"Description of Certain Indebtedness."
The Indenture will contain a covenant which, in general, will limit the
aggregate amount of dividends payable by the Company after the date on which the
Notes are issued (the "Issue Date") to an amount (the "Restricted Payment
Amount") equal to 50% of the Company's "consolidated net income" (as
defined)(calculated on a cumulative basis commencing on the first day of the
fiscal quarter in which the Notes are issued). The Indenture will contain an
exception to this covenant which will permit the payment of Common Stock
dividends in an aggregate amount of up to $25 million. To the extent the Company
fully
19
<PAGE> 21
utilizes this $25 million exception to pay dividends, however, additional Common
Stock dividends may only be paid if the amount of those dividends, when added to
the aggregate amount of all Common Stock dividends (excluding those paid
pursuant to such $25 million exception) and certain other restricted payments
paid since the Issue Date, does not exceed the Restricted Payment Amount. In
that regard, assuming the Refinancing had occurred on January 1, 1995, and
giving effect to the other assumptions and adjustments described under "Pro
Forma Unaudited Condensed Consolidated Financial Data," the pro forma Restricted
Payment Amount for the year ended December 31, 1995 would have been
approximately $4.0 million, and the pro forma amount of dividends payable on the
Company's Common Stock at the current quarterly rate of $0.14 per share would
have been approximately $14.2 million. As a result, on a pro forma basis for the
year ended December 31, 1995 the Company would have been required to utilize
approximately $10.2 million of the $25 million exception to sustain its current
level of Common Stock dividends. It is anticipated that the Amended Credit
Agreement will contain a covenant which will require the Company to maintain a
consolidated tangible net worth (as defined) of not less than $232.5 million (i)
plus 50% of its consolidated net income (as defined) (without giving effect to
any losses) for each fiscal quarter beginning on or after January 1, 1996, (ii)
plus the net proceeds from equity offerings by the Company or any of its
subsidiaries after that date, including the Common Stock Offering, (iii) plus
certain other amounts. At March 31, 1996, this covenant would have required the
Company to have a consolidated tangible net worth (as expected to be defined in
the Amended Credit Agreement) of approximately $235.8 million, and at that date
the Company had a consolidated tangible net worth (as defined) of approximately
$265.9 million. The effect of this covenant is substantially similar to the
effect of the Indenture restriction described above. Accordingly, these
covenants will require that the Company substantially improve its results of
operations to sustain its current level of Common Stock dividends after the
Offerings, and there is no assurance that such an improvement will occur. Absent
such an improvement, to the extent the Company has exhausted the $25 million
exception under the Indenture 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.
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.
20
<PAGE> 22
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 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
YEARS ENDED DECEMBER 31, ENDED 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)
21
<PAGE> 23
(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.
22
<PAGE> 24
PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL DATA
The following pro forma unaudited condensed consolidated statements of
income for the year ended December 31, 1995 and the three months ended March 31,
1996 give effect to the Refinancing as if it had occurred as of January 1, 1995.
The pro forma unaudited consolidated condensed balance sheet as of March 31,
1996 gives effect to the Refinancing as if it had occurred on that date. The pro
forma adjustments are described in the notes thereto. Such pro forma unaudited
condensed consolidated financial data assume a public offering price of $16.00
per share for shares to be sold in the Common Stock Offering and an interest
rate of 10% per annum on the Notes to be sold in the Notes Offering.
The pro forma unaudited condensed consolidated financial data should be
read in conjunction with the Oregon Steel Financial Statements. The pro forma
unaudited condensed consolidated financial data do not purport to represent what
the Company's results of operations or financial position would actually have
been if the events described above had occurred as of the dates indicated or
what such results of operations or financial position will be for any future
periods. In addition, such data have been prepared on the basis of certain
estimates and assumptions and do not give effect to any matters other than those
described in the notes thereto or in the preceding paragraph.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 THREE MONTHS ENDED MARCH 31, 1996
----------------------------------- ---------------------------------
PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- --------- -------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales................................... $710,971 $ 710,971 $205,489 $ 205,489
Cost of sales........................... 638,413 638,413 176,905 176,905
Selling, general and administrative
expenses............................. 43,123 43,123 11,414 11,414
Profit participation expense............ 5,416 5,416 1,869 1,869
-------- -------- -------- --------
Operating income..................... 24,019 24,019 15,301 15,301
Interest and dividend income............ 557 557 111 111
Interest expense........................ (10,307) $(8,175)(1) (18,482) (3,872) $ 546(1) (3,326)
Other income, net....................... 1,065 1,065 (87) (87)
Minority interests...................... 862 862 (788) (788)
-------- -------- -------- --------
Income before income taxes........... 16,196 8,021 10,665 11,211
Income tax expense...................... 3,762 $(3,106)(2) 656 4,147 $ 207(2) 4,354
-------- -------- -------- --------
Net income........................... $ 12,434 $ 7,365 $ 6,518 $ 6,857
======== ======== ======== ========
OTHER DATA:
Ratio of earnings to fixed charges(3)... 1.1x .8x 2.0x 1.9x
EBITDA(4)............................... $ 51,467 $ 51,467 $ 21,668 $ 21,668
Ratio of EBITDA to interest expense
(including capitalized
interest)(13)........................ 2.3x 1.6x 2.9x 2.8x
Total long-term debt as a percentage of
capitalization(5).................... 54.0% 45.1% 54.2% 44.0%
</TABLE>
23
<PAGE> 25
<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 purposes 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.
(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 capitalizing 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.
24
<PAGE> 26
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
YEARS ENDED DECEMBER 31, ENDED 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)
25
<PAGE> 27
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."
26
<PAGE> 28
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
27
<PAGE> 29
also retained a right of first refusal in the event that Nippon and Nissho Iwai
desired to transfer their interest in New CF&I to a non-affiliate.
In connection with the foregoing sale of the 10% equity interest in New
CF&I to Nippon, the Company received a cash payment of $16.8 million which was
initially reported in the Company's 1994 financial statements as a non-taxable
gain on the sale of subsidiary stock of approximately $12.3 million. However, in
the fourth quarter of 1995, the Company restated its 1994 financial statements
to reflect the $16.8 million received in connection with that sale as a minority
interest and not as a non-taxable gain. Accordingly, on a restated basis no gain
on the sale of subsidiary stock has been included in net income for the year
ended December 31, 1994, and the Company's 1994 consolidated financial
statements reflect a $12.4 million increase in minority interest and a reduction
in retained earnings by a like amount. The effect of the restatement was to
reduce the Company's 1994 net income by $12.4 million ($.62 per share) to a net
loss of $338,000 ($.02 per share) for the year ended December 31, 1994.
On March 31, 1996, approximately 2.3 million shares of the Company's Common
Stock (approximately 12% of the total outstanding) were held of record by the
Company's employee stock ownership plan (the "ESOP") for the benefit of its
participants. Under current federal income tax laws, the amount of any cash
dividends that are declared on shares of capital stock held by the ESOP and
distributed to ESOP participants is deductible by the Company for federal income
tax purposes.
In connection with the Refinancing, the Company anticipates incurring an
estimated pre-tax charge against income in the second quarter of 1996 of
approximately $2.6 million related to anticipated losses in connection with the
termination of certain interest rate swap agreements related to the Old Credit
Agreement. Financing costs and expenses of approximately $2.8 million under the
Amended Credit Agreement will be amortized over the term of the debt. See "Pro
Forma Unaudited Condensed Consolidated Financial Data."
Historically, the Company's operating results have fluctuated
substantially, and the Company's capital improvement program is subject to
certain risks and uncertainties. For a discussion of these and other risk
factors, see "Risk Factors."
The approximate annual tonnage production capacities as of March 31, 1996
of the Company's facilities are set forth below. (Actual production capacity
depends upon product mix and therefore may vary.)
<TABLE>
<CAPTION>
OREGON STEEL DIVISION CF&I STEEL DIVISION
--------------------- -------------------
<S> <C> <C>
Melting capacity................................. 840,000 1,200,000
Welded pipe capacity............................. 675,000 --
Finishing capacity............................... 430,000 1,200,000
</TABLE>
COMPARISON OF FIRST QUARTER 1996 TO FIRST QUARTER 1995
Sales. Sales for the first quarter of 1996 of $205.5 million increased 9.9
percent from sales of $187.0 million in the first quarter of 1995. Shipments
increased 3.2 percent to 407,900 tons in the first quarter of 1996 from 395,100
tons in the corresponding 1995 period. The increase in sales and shipments was
primarily due to increased shipments of rail, OCTG and rod products manufactured
by the CF&I Steel Division, offset in part by a decline in shipments of plate
products and the absence of sales of semifinished products by the Oregon Steel
Division. Selling prices in the first quarter of 1996 averaged $504 per ton
versus $473 per ton in the first quarter of 1995. The increase in average
selling price is due to several factors including increased sales of rail and
OCTG products and the absence of sales of semifinished products which generally
have the lowest selling price of any of the Company's products. Of the $18.5
million sales increase, $12.5 million was the result of higher average selling
prices and $6.0 million was the result of volume increases.
The Company's Oregon Steel Division shipped 152,200 tons of product at an
average selling price of $610 per ton during the first quarter of 1996 compared
to 202,900 tons of product at an average selling price of $490 per ton during
the first quarter of 1995. The decline in shipments, as well as the increase in
average selling price, were primarily due to the absence of sales of
semifinished products during the first quarter of 1996. Welded pipe shipments
from the Napa and Camrose Pipe Mills were 70,400 tons in 1996 compared to 53,300
28
<PAGE> 30
tons in 1995. During the first quarter of 1996, the Oregon Steel Division did
not ship any semifinished products compared to 57,600 tons shipped in the first
quarter of 1995. Shipments of plate products during the first quarter of 1996
were 81,800 tons compared to 92,000 tons in 1995. The 1995 quarter included
15,600 tons of plate shipments from the now closed Fontana Plate Mill. Demand
for the Company's plate products remained strong during the first quarter of
1996 compared to the fourth quarter of 1995.
The CF&I Steel Division shipped 255,700 tons of products at an average
selling price of $441 per ton during the first quarter of 1996 compared to
192,200 tons of product at an average selling price of $456 per ton during the
first quarter of 1995. The CF&I Steel Division experienced strong shipments in
rail and OCTG products during the first quarter of 1996 (95,100 tons and 40,700
tons, respectively) compared to 78,600 tons of rail and 28,900 tons of OCTG in
the first quarter of 1995. Shipments of rail products have generally been the
highest in the first quarter of the year. The decrease in average selling prices
was due in part to the higher proportion of sales represented by lower priced
rod and bar products and lower selling prices for most of the CF&I Steel
Division's products compared to the first quarter of 1995. Shipments of rod and
bar products increased 41 percent to 97,100 tons in the first quarter of 1996
compared to 68,800 tons in 1995.
Gross Profit. Gross profit for the first quarter of 1996 was 13.9 percent,
compared to 9 percent for the first quarter of 1995. Gross profit margins were
positively impacted by increased shipments of rail, OCTG and rod products and
the elimination of sales of semifinished products. In addition, the Company
ceased rolling plate at its Fontana Plate Mill in the fourth quarter of 1994,
and costs were incurred during the first quarter of 1995 for shipping remaining
inventory, winding down of operations and removal of supplies and equipment.
Costs incurred in the first quarter of 1995 in connection with the closure of
the Fontana Plate Mill adversely affected gross profit for that quarter by $1.7
million. Further, the Company estimates that expenses associated with the CF&I
Steel Division's capital improvement program were approximately $3 million in
the first quarter of 1995. These expenses related to the start-up of the CF&I
Steel Division's new rod and bar mill, the conversion from ingot to continuous
casting for the rail mill and improvements to the steelmaking process, including
a new ladle refining furnace, a vacuum degassing unit and caster modifications.
Selling, General and Administrative. Selling, general and administrative
expenses for the three months ended March 31, 1996 increased $585,000 or 5.4
percent from the corresponding period in 1995, but decreased as a percentage of
sales from 5.8 percent in the first quarter of 1995 to 5.6 percent in the first
quarter of 1996. The dollar amount increase was primarily due to increased
shipping expense as a result of increased tons shipped in the first quarter of
1996 compared to the corresponding 1995 period.
Contribution to ESOP and Profit Participation. There was no contribution
to the Company's ESOP during the first quarter of 1996, compared to a
contribution of $334,000 in the first quarter of 1995. Profit participation plan
expense was $1.9 million for the first quarter of 1996 compared to $735,000 for
the first quarter of 1995. The increase in 1996 profit participation plan
expense reflects the increased profitability of the Company in 1996.
Interest Expense. Total interest costs for the three months ended March
31, 1996 were $7.5 million compared to $4.8 million for the corresponding 1995
period. The higher interest cost is primarily the result of the debt incurred to
fund the capital improvement program. Of the $7.5 million of interest cost in
the first quarter of 1996, $3.6 million was capitalized as part of construction
in progress, compared to $2.9 million capitalized in the corresponding 1995
period. As projects in the capital improvement program are completed, ongoing
interest costs will be expensed (rather than capitalized), which will
substantially increase the Company's interest expense.
Income Tax Expense. The Company's effective income tax rates were 39
percent and 38 percent for the three months ended March 31, 1996 and 1995,
respectively.
29
<PAGE> 31
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.
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.
30
<PAGE> 32
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 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
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<PAGE> 33
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 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
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<PAGE> 34
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.
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.
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<PAGE> 35
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 Certain Indebtedness" for a description of the
proposed terms of the Notes. The terms of the Notes, and the aggregate principal
amount thereof which may be issued by the Company, will depend upon market
conditions and other factors, and there is no assurance that the terms or
principal amount of the Notes will not differ from those described herein.
During 1995 the Company expended approximately $51.8 million (exclusive of
capitalized interest) on the capital improvement program at the CF&I Steel
Division and $111.9 million (exclusive of capitalized interest) on the
Combination Mill. During 1996 the Company's capital improvement program
contemplates expenditures of approximately $18 million at the Pueblo Mill and
approximately $74 million on the Combination Mill (of which approximately $11.4
million and $24.2 million, respectively, was expended in the first quarter of
1996), and also contemplates expenditures of up to approximately $7 million for
investments in raw material ventures in 1996. In addition, the Company has
budgeted approximately $14 million in 1996 for upgrade and maintenance projects
to the present facilities and equipment; the cost of these upgrade and
maintenance projects is in addition to amounts budgeted for the capital
improvement program.
If the Company and its subsidiaries remain in compliance with the terms of
their respective credit facilities and other debt instruments, the Company
believes its anticipated cash needs for working capital and for currently
budgeted capital expenditures through the end of 1996 will be met from the net
proceeds of the Offerings, borrowings under available credit facilities,
existing cash balances and funds generated by operations. There is no assurance,
however, that the amounts available from these sources will be sufficient for
such purposes. In that event, or for other reasons, the Company may be required
to seek additional financing, which may include additional bank financing and
debt or equity securities offerings. There is no assurance that such sources of
funding will be available if required or, if available, will be on terms
satisfactory to the Company. Failure to obtain required funds would delay or
prevent some of the planned capital expenditure projects from being initiated or
completed, which could have a material adverse effect on the Company. In
addition, the Company's level of indebtedness presents other risks to investors,
including the possibility that the Company and its subsidiaries may be unable to
generate cash sufficient to pay the principal of and interest on their
indebtedness when due. In the event of a default under the Amended Credit
Agreement or the Indenture, or if the Company or its subsidiaries are unable to
comply with covenants contained in other debt instruments or to pay their
indebtedness when due, the holders of such indebtedness generally will be able
to declare all indebtedness owing to them to be due and payable immediately and,
in the case of collateralized indebtedness, to proceed against their collateral,
which would likely have a material adverse effect on the Company. See "Risk
Factors -- Funding for the Capital Improvement Program," "Risk
Factors -- Leverage and Access to Capital; Compliance with Financial Covenants,"
"Use of Proceeds" and "Business -- Capital Improvement Program."
Impact of Inflation. Inflation can be expected to have an effect on many of
the Company's operating costs and expenses. Due to worldwide competition in the
steel industry, the Company may not be able to pass through such increased costs
to its customers.
34
<PAGE> 36
BUSINESS
GENERAL
Oregon Steel operates two steel minimills and four finishing facilities in
the western United States and Canada that produce one of the broadest lines of
specialty and commodity steel products of any domestic minimill company. The
Company emphasizes the cost-efficient production of higher margin specialty
steel products targeted at a diverse customer base located primarily in the
western United States, western Canada and the Pacific Rim. Approximately
one-half of the total tonnage of the Company's products shipped in 1995 was
specialty steel products. The Company's manufacturing flexibility allows it to
manage actively its product mix in response to changes in customer demand and
individual product cycles.
Through strategic acquisitions and selective capital enhancements, the
Company has evolved from an operator of a single minimill facility into one of
the largest domestic minimill companies. Between 1991 and 1995 the Company has:
- increased shipments of steel products from 762,700 tons in 1991 to 1.4
million tons in 1995
- expanded its range of finished products from plate and welded pipe in
1991 to eight products currently by adding ERW pipe, rail, rod, bar, wire
and OCTG
- increased its emphasis on higher margin specialty products
- expanded its geographic markets from the western United States to
national and international markets
The Company's Portland Mill is the only steel plate minimill in the 11
western states and is one of only two steel plate production facilities
operating in that region. The Company's Napa Pipe Mill, one of only four large
diameter pipe mills operating in the United States and the only such mill in the
11 western states, produces large diameter pipe that satisfies the demanding
specifications of oil and gas transmission companies. The Company also produces
large diameter pipe and ERW pipe at its 60% owned Camrose Pipe Mill, which is
located strategically in the Alberta, Canada natural gas fields. Through the
Pueblo Mill of its CF&I Steel Division in Pueblo, Colorado, the Company is the
sole rail manufacturer west of the Mississippi River and is one of only two rail
manufacturers in the United States. The Pueblo Mill also produces specialty and
commodity rod and bar, wire products and seamless pipe.
STRATEGY
Oregon Steel seeks to be a cost-efficient producer of specialty and
commodity steel products. The Company strives to reduce costs and improve
performance through execution of the following strategies:
Operate Flexible Manufacturing Facilities. The Company, through its
capital improvement program, seeks to create finishing capacity in excess
of its melting capacity that permits flexible production and fuller
utilization of melt shop capacity. As a result, the Company expects to
improve its ability to pursue a flexible, market-driven strategy by
shifting finished steel production among products in response to market
demand. This strategy is expected to enhance the Company's ability to
manage its product mix and to help reduce the impact of individual product
cycles on the Company's overall operating performance.
Emphasize Higher Margin Specialty Products. The Company believes
higher quality specialty steel products generally have higher profit
margins and are less susceptible to steel industry cyclicality than
commodity steel products. The Company's current range of specialty steel
products, which represented approximately one-half of the total tonnage
shipped by the Company in 1995, includes alloy plate, heat treated plate,
large diameter and ERW pipe, rail and high carbon rod and specialty bar
products.
Invest in Efficient and Flexible Technology. In late 1993 the Company
initiated a capital improvement program as part of its effort to reduce
manufacturing costs, upgrade its steelmaking facilities and improve product
quality and product mix. The capital improvement program contemplates total
expenditures of $410 million from 1993 through 1997, of which the Company
had expended approxi-
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<PAGE> 37
mately $324 million as of March 31, 1996. The primary components of the
program completed to date include substantial improvements to the Pueblo
Mill steelmaking facilities, including expansion of steel making capacity
from 900,000 to 1.2 million tons annually, upgrading from ingot to
continuous casting for rail production, enhancement of its ability to
produce specialty grades of steel and construction of a new rod and bar
mill. Improvements to be completed include installation of in-line rail
head hardening equipment at the Pueblo Mill and completion of the
Combination Mill in Portland. See "-- Capital Improvement Program."
Explore Alternative Raw Material Sources to Reduce Dependence on
Scrap. To reduce the effects of scrap price volatility, the Company has
integrated HBI and pig iron ("alternative metallics") into its steelmaking
process. Alternative metallics are low residual scrap substitutes that
allow the Company to purchase lower grades of scrap for use in its
steelmaking operations. Alternative metallics are typically purchased on a
contract basis (whereas scrap is typically purchased on the spot market),
which often limits the effect of price volatility. In 1995 at the Portland
Mill, alternative metallics replaced approximately 11% of total scrap tons
required. Subject to availability, the Company's objective is to increase
the percentage of HBI, pig iron and other alternative metallics it uses in
steelmaking. See "-- Raw Materials."
Promote Employee Productivity. The Company has established the ESOP
and a profit participation plan. At March 31, 1996 the ESOP owned
approximately 12% of the Company's outstanding Common Stock.
CAPITAL IMPROVEMENT PROGRAM
As part of its strategy to invest in efficient and flexible manufacturing
technologies, the Company has undertaken a $410 million (excluding capitalized
interest) capital improvement program at its Pueblo and Portland Mills, of which
the Company had expended approximately $324 million as of March 31, 1996. The
purpose of this program is to (i) improve the steelmaking and casting capability
at the Pueblo Mill, (ii) reduce the cost of producing rail, rod and bar products
at the Pueblo Mill while improving product quality and expanding the specialty
grades that can be manufactured there, (iii) reduce the cost and improve the
yield of plate rolling and other finishing operations at the Portland Mill while
increasing plate rolling capacity from 430,000 tons to 1.2 million tons annually
and (iv) reduce dependence on scrap steel.
The principal components, expected benefits, cost and current status of the
capital improvement program are discussed below.
<TABLE>
<CAPTION>
COST
PROJECT BENEFITS ---------- STATUS
- -------------------------------- ---------------------------------------- (MILLIONS) ------------------
<S> <C> <C> <C>
CF&I Steel Division
Steelmaking - reduced operating costs $ 46 Completed
- 100% continuous casting
- expanded capacity
- improved steel quality
- higher yields
- broader product line
Rod and bar mill - reduced operating costs $ 85 Completed
- flexible product mix
- increased capacity
- higher yields
- additional specialty products
- larger coils
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
COST
PROJECT BENEFITS ---------- STATUS
- -------------------------------- ---------------------------------------- (MILLIONS) ------------------
<S> <C> <C> <C>
Rail manufacturing, including - higher yields $ 57* Completed (except
head hardened rail - additional premium product head hardening
- increased head-hardened rail capacity project)
- in-line production of head-hardened
rail
Oregon Steel Division
Combination Mill - reduced operating costs $210* Under construction
- consolidated plate rolling production
- increased manufacturing efficiency
- higher yields
- flexible production
- addition of coiled products
- wider plate
Raw materials ventures - less dependence on scrap $ 12* Exploratory phase
- potential cost stabilization
- higher quality end products
----------
Total $410
=======
</TABLE>
- ---------------
* Estimated
Capital Improvements at the CF&I Steel Division. As part of its strategy in
acquiring the CF&I Steel Division in March 1993, the Company anticipated making
significant capital additions to the Pueblo Mill. The Company began a series of
major capital improvements at the Pueblo Mill shortly after its acquisition in
1993 and, with the exception of the installation of the head hardened rail
equipment, these improvements had been substantially completed by the end of the
third quarter of 1995. The Company believes these improvements will increase
yields, improve productivity and quality and expand the Company's ability to
offer specialty rod and bar products. The primary components of the capital
improvements at the Pueblo Mill are outlined below.
Steelmaking. The Company has installed a ladle refining furnace and a
vacuum degassing facility and upgraded both continuous casters. By the end
of the first quarter of 1995, ingot casting had been replaced with more
efficient continuous casting methods, which allow the Company to cast
directly into blooms. As a result, the Company estimates that it has
expanded the steelmaking capacity at the Pueblo Mill to approximately 1.2
million tons of hot metal annually from approximately 900,000 tons of hot
metal annually at the time of the acquisition. These and related
improvements have reduced the cost of production of cast steel, improved
product quality and enabled the Pueblo Mill to produce additional specialty
grades of steel including alloy, high carbon and super clean steels.
Rod and Bar Mill. At the time of the acquisition of the CF&I Steel
Division, the rod and bar mills at the Pueblo Mill were relatively old and
located in separate facilities, which resulted in significant costs as the
Company shifted production between them in response to market conditions.
In the third quarter of 1995, the Company commenced operation of a new
combination rod and bar mill, with a new reheat furnace and a high-speed
rod train, capable of producing commodity and specialty grades of rod and
bar products. Depending on product mix, the new combined facility has a
capacity of approximately 600,000 tons per year. These improvements should
enable the Company to produce a wider range of high margin specialty
products, such as high-carbon rod, merchant bar and other specialty bar
products, and larger rod coil sizes, which the Company believes are
preferred by many of its customers. The Company believes the new mill will
reduce the manufacturing costs for rod and bar, principally as a result of
decreased labor and energy requirements and increased product yields and
manufacturing efficiencies. Although the planned capital improvements at
the Pueblo Mill are substantially complete, the Company experienced
37
<PAGE> 39
significant delays in bringing the new rod and bar mill technology and
equipment up to production capacity. Although the Company believes these
delays are typical of those encountered when commissioning major pieces of
capital equipment, the Company may continue to experience difficulties with
this equipment that will adversely affect its production capability and
results of operations. See "Risk Factors -- Start-Up Difficulties."
Rail Manufacturing. At the time of the Company's acquisition of the
Pueblo Mill, rails were produced by ingot casting using energy-intensive
processes with significant yield losses as the ingots were reheated,
reduced to blooms and then rolled into rails. Continuous casting has
increased rail yields and decreased rail manufacturing costs. In 1996 the
Company plans to enhance its existing 450,000 tons of annual railmaking
capacity through the addition of equipment capable of producing in-line
head hardened rail. Rail produced using this technology is considered by
many rail customers to be more durable and higher quality rail than that
produced with existing techniques. As a result of these improvements,
expected to begin start-up operation in the second quarter of 1996, the
Company believes it will be able to provide a functionally superior, higher
margin product. See "-- Products, Customers and Markets -- CF&I Steel
Division -- Rail."
Capital Improvements at the Oregon Steel Division. Capital improvements at
the Oregon Steel Division consist primarily of the construction of the
Combination Mill.
Combination Mill. The Company is constructing the Combination Mill at
its Portland Mill. The Combination Mill is expected to reduce production
costs for commodity and specialty grades of plate, primarily as a result of
higher product yields and enhanced throughput at the Portland Mill. The
project includes installation of a new reheat furnace, a 4-high rolling
mill with coiling furnaces capable of producing plate up to 136" wide, a
vertical edging mill, a down coiler, on-line accelerated cooling, hot
leveling and plate shearing equipment. Other planned additions include an
extension of the rolling line and the installation of a fully automated
hydraulic gauge control system designed to roll steel plate to exacting
standards. These additions will enable the Company to roll coiled steel
plate in lengths up to 2,100 feet and are expected to decrease end crop,
side trim and crown loss. The Company estimates that these and other
related improvements will increase average finished steel plate yields and
that upon completion annual steel plate rolling capacity of the Portland
Mill will increase to approximately 1.2 million tons from approximately
430,000 tons.
The Combination Mill is expected to begin start-up operation in the
second half of 1996 and is expected to reach full production capacity by
the end of 1997. The Company believes the Combination Mill will be capable
of producing wider steel plate than any similar mill in the world. The
Company also believes the Combination Mill will increase its manufacturing
flexibility and supply substantially all the Company's plate requirements
for large diameter line pipe as well as coiled plate for applications such
as the smaller diameter ERW pipe manufactured at the Camrose Pipe Mill. The
Portland Mill currently produces discrete steel plate in dimensions up to
102" wide and 3/16" to 8" thick. Wider dimensions used for gas
transmission pipe in diameters greater than 30", formerly rolled at the
closed Fontana Plate Mill, are now purchased from other steel producers.
The Combination Mill as currently planned would be capable of producing
widths from 48" to 136" and in thicknesses from 3/16" to 8". In
addition, the Combination Mill is being designed to produce both discrete
steel plate and coiled plate in units up to approximately 40 tons and to
produce steel plate for all of the Company's commodity and specialty
markets, including heat treated applications. See "Risk Factors -- Delay in
Completion of Capital Improvement Program."
Raw Materials Ventures. The Company is exploring the possibility of a
project to process iron oxides into HBI, as well as other direct reduction
technologies such as fastmet, romelt and iron carbide. The Company has budgeted
approximately $12 million in 1996 and 1997 for joint ventures or other
arrangements involving one or more of these processes.
Estimated Cost Savings. The Company believes the improvements described
above will significantly reduce production costs at both the CF&I and Oregon
Steel Divisions. The Company estimates that the capital improvements at the
Pueblo Mill, when fully operational, should reduce the average production costs
of making cast steel for use in its finishing operations by approximately $27
per ton and should reduce the
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<PAGE> 40
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 Difficul-
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<PAGE> 41
ties," "-- Funding for the Capital Improvement Program," "-- Potential Delay in
Completion of Capital Improvement Program" and "-- Uncertainty of Benefits of
Capital Improvement Program; Increase in Interest and Depreciation Expense."
The estimated cost savings attributable to certain major items of equipment
included in the capital improvement program were based in part on information
provided to the Company by suppliers of that equipment. Although the Company
sought, where possible, to verify this information by examination of similar
equipment operated by others and by other means, the estimated cost savings set
forth herein depend in part on the accuracy of the information provided to the
Company. In addition, the estimated benefits of the projects included in the
capital improvement program assume completion and full operation of those
projects.
It is likely that the Company's actual production levels, product mix, wage
rates (which in the case of certain Company employees are subject to mandatory
increases under labor agreements), energy prices and other costs will differ
from those used in calculating the cost savings estimates. Because these costs,
as well as production levels and product mix, will vary over time and will
therefore impact the benefits derived from the capital improvement program, the
estimated cost savings stated herein are not necessarily indicative of the
Company's actual results of operations or financial performance for any period.
The estimated cost savings per ton set forth herein do not purport to predict
actual costs per ton or the Company's results of operations for any period.
The capital improvement program has had and will have other effects on the
Company's results of operations. In particular, the foregoing estimated cost
savings do not reflect the pre-tax charge of approximately $22.1 million which
the Company incurred in 1994 in connection with the closure of the Fontana Plate
Mill and the anticipated closure of the existing plate rolling mill at the
Portland Mill. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Comparison of 1994 to 1993 -- Provision for Rolling
Mill Closures." In connection with Refinancing, the Company will terminate
certain interest rate swap agreements related to the Old Credit Agreement, which
will result in an estimated cash payment by the Company of approximately $2.6
million and a related pre-tax charge against income in the same amount, which
also are not reflected in the foregoing estimated cost savings. Likewise, the
Company will have a substantial increase in interest costs due to debt incurred
to finance the program, including the debt incurred in the Notes Offering, which
is not reflected in such estimates. The Company also anticipates that it will
incur start-up and transition costs as projects are initiated, completed and
implemented, none of which are considered in the cost per ton estimates.
The Company believes the information set forth in the preceding seven
paragraphs includes "forward-looking statements" within the meaning of Section
27A of the Securities Act and is subject to the safe harbor created by that
section. Certain factors that could cause results to differ materially from
those projected in the forward-looking statements are set forth in those
paragraphs and in "Risk Factors."
PRODUCTS, CUSTOMERS AND MARKETS
OVERVIEW
The Company manufactures and markets one of the broadest lines of specialty
and commodity steel products of any domestic minimill company. Through
acquisitions and capital improvements, the Company has expanded its range of
finished products from plate and welded pipe in 1991 to eight products currently
by adding ERW pipe, rail, rod, bar, wire and seamless pipe. It has also expanded
its primary selling region from the western United States to national and
international markets. The Company believes its current product line will be
extended further with completion of the capital improvement program. Anticipated
product additions include in-line head hardened rail and steel plate in coiled
form. The Company believes the addition of these products will help reduce the
impact of individual product cycles on the Company's overall performance.
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<PAGE> 42
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 prior to the acquisition
of the CF&I Steel Division) and 1995.
<TABLE>
<CAPTION>
1992 1995
---- ----
[Pie Chart] [Pie Chart]
<S> <C>
Commodity plate - 36% Rail - 17%
Specialty plate - 21% Seamless pipe - 8%
ERW - 2% Rod/bar/wire - 19%
Large diameter pipe - 41% Semifinished - 15%
Large diameter pipe - 16%
Commodity plate - 10%
Specialty plate - 12%
ERW - 3%
Total Tonnage sold: 665,300 Total tonnage sold - 1,403,700
</TABLE>
OREGON STEEL DIVISION
Commodity Steel Plate
The Company's commodity grade steel plate is produced at the Portland Mill.
Historically, commodity steel plate products consisted of hot-rolled carbon
plate varying in widths from 48 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> 43
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> 44
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 inch 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> 45
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 also sells semi-finished seamless pipe (known as "green tubes") for
processing and finishing by others.
Seamless pipe is sold primarily through distributors to a large number of
oil exploration and production companies. Sales of standard and line pipe are
made both through distributors and directly to oil and gas transmission and
production companies. The market for the Company's seamless pipe is primarily
domestic and is focused in the western and southwestern United States. The
demand for this product is determined in large part by the number and drilling
depths of the oil and gas drilling rigs working in the United States.
RAW MATERIALS
The Company's principal raw material for the Portland and Pueblo Mills is
ferrous scrap metal derived from, among other sources, junked automobiles,
railroad cars and railroad track materials and demolition scrap from obsolete
structures, containers and machines. In addition, HBI can substitute for a
limited portion of the scrap used in minimill steel production, although the
sources and availability of HBI are substantially more limited than those of
scrap. The purchase prices for scrap and HBI are subject to market forces
largely beyond the control of the Company including demand by domestic and
foreign steel producers, freight costs, speculation by scrap brokers and other
conditions. The cost of scrap and HBI to the Company can vary significantly, and
the Company's product prices often cannot be adjusted, especially in the short
term, to recover the costs of increases in scrap and HBI prices. See "Risk
Factors -- Availability and Cost of Raw Materials."
To reduce the effects of scrap price volatility and improve access to high
quality raw materials, the Company is seeking to decrease its dependence on
steel scrap as an input for the production process by utilizing HBI. The Company
has successfully integrated HBI into the production process as a low residual
scrap substitute. The Company typically purchases HBI on a contract basis
(whereas scrap is typically purchased on the spot market), which limits the
effects of price fluctuations experienced in the scrap market. To date, the
Company has purchased substantially all of the HBI it has used from a single
source, but it has no long-term contracts for material amounts of HBI and there
is no assurance it will be able to obtain significant quantities of HBI in the
future. See "Risk Factors -- Availability and Cost of Raw Materials."
The Company is exploring the possibility of a project to process iron
oxides into HBI, as well as other direct reduction technologies, such as
fastmet, romelt and iron carbide. The Company may participate in one or more
joint ventures or other arrangements involving one or more of these processes.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local environmental laws and
regulations concerning, among other things, wastewater, air emissions, toxic use
reduction and hazardous materials disposal. The Portland and Pueblo Mills are
classified in the same manner as other similar steel mills in the industry as
generating hazardous waste materials because the melting operation produces dust
that contains heavy metals ("EAF" dust). This dust, which constitutes the
largest waste stream generated at these facilities, must be managed in
accordance with applicable laws and regulations.
44
<PAGE> 46
Portland Mill. In 1993 the Environmental Protection Agency ("EPA")
concluded a site assessment of the Portland Mill. The review ranked the facility
as a medium/low corrective action priority for identified solid waste management
units ("SWMUs"). The Company has remediated the medium priority SWMUs and is
evaluating action, if any, necessary with respect to the low priority SWMUs. The
Company's actions are intended to make the property useable for future
development.
Fontana Plate Mill. The property and building at which the Fontana Plate
Mill is located were leased to the Company. The Fontana Plate Mill was formerly
part of a larger integrated steel plant (the "Mill") operated by California
Steel, Inc. ("CSI") on property (the "Mill Property") surrounding the Fontana
Plate Mill. The Company conducted operations at the Fontana Plate Mill site from
December 1989 to March 1995 and generated hazardous substances under
California's regulations, which were disposed of in compliance with applicable
law. The Company closed the Fontana Plate Mill and has reached a lease
termination agreement with CSI. Prior to the use of the Mill Property by the
Company, the prior owner generated by-products that are now defined as hazardous
by federal and California regulations. The owner of the Mill Property has agreed
to indemnify the Company for damages, including the costs for remediation,
suffered by the Company as the result of, or in connection with, toxic or
hazardous substances at the Fontana Plate Mill site, subject to receipt of a
written approval from the County Health Department of satisfactory performance
of site cleanup activities. Hazardous substances have been detected in the soil
and groundwater at a number of specific areas within the Mill Property on the
basis of inspections done by the prior owner and by the EPA. The testing program
carried out by the prior owner and the EPA at the Mill Property did not include
sampling at the Fontana Plate Mill site. The Company conducted only limited
testing at the Fontana Plate Mill site, and there is no assurance that the
levels of hazardous substances in the subsurface soils and groundwater at the
Fontana Plate Mill are within permissible limits.
Napa Pipe Mill. The Company acquired the Napa Pipe Mill in 1987. The prior
owner of the mill disposed of certain waste materials, including spent sandblast
materials, mill scale and welding flux, on-site. As a result of these matters
and other actions prior to the acquisition, certain metals were released into
the ground, and certain petroleum based compounds have seeped into the ground
and groundwater at the Napa Pipe Mill. The prior owner of the mill entered into
a stipulated judgment with the County of Napa which required a site
investigation of the Napa Pipe Mill and remediation (to the satisfaction of
local, regional and state environmental authorities) of soil and groundwater
contamination associated with activities conducted at the site prior to its
acquisition by the Company. As a result of the acquisition of the Napa Pipe
Mill, the Company agreed to comply with the terms and requirements of the
stipulated judgment. Proposed plans for investigating and remediating the soil
and water conditions at the Napa Pipe Mill were submitted to local, regional and
state environmental authorities in 1988. The Company is continuing to negotiate
certain terms of the remediation plans with these environmental authorities. In
addition to local, regional and state environmental authorities, the EPA
conducted an investigation of the Napa Pipe Mill and took soil and water samples
at the site. The Company's proposed plans for investigating the soil and water
conditions at the Napa Pipe Mill were furnished to the EPA in 1988. While
awaiting possible further response from the EPA, the Company is proceeding with
its remediation plans as described above. In 1992 the State of California
Environmental Protection Agency, Department of Toxic Substances Control
completed a site screening and recommended a low priority preliminary
endangerment assessment for the Napa Pipe Mill. The total cost of the remedial
action that may be required to correct existing environmental problems at the
Napa Pipe Mill, including remediation of contaminants in the soil and
groundwater, depends on the eventual requirements of the relevant regulatory
authorities. As of March 31, 1996, the Company had expended $6.9 million for
remediation and had accrued reserves of $2.6 million to cover future costs
arising from environmental issues relating to the site.
Camrose Pipe Mill. The Company owns a 60% interest in the Camrose Pipe Mill
located in Camrose, Alberta, Canada. A preliminary assessment of the property at
the Camrose Pipe Mill indicates the presence of limited subsurface petroleum
contamination as a result of previous operations. The assessment also identifies
the potential for waste waters to have impacted the site. A voluntary assessment
of the potential sources of the subsurface petroleum contamination was conducted
in 1992. In 1995 the Company determined that some of the contamination was due
to on-site processes and took action necessary to prevent further contamination
of
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<PAGE> 47
the site. The Company will assess other operations to determine their potential
for causing future contamination of the site.
Pueblo Mill. At March 31, 1996 the Company had accrued a reserve of $35.4
million for environmental remediation at the Pueblo Mill. This reserve is based
upon a range of estimated remediation costs of $23.1 million to $43.6 million.
The Company's estimate of this environmental reserve was based on two
remediation investigations conducted by independent environmental engineering
consultants. The reserve includes costs for Resource Conservation and Recovery
Act facility investigation, corrective measures study, remedial action and
operation and maintenance of the remedial actions taken. The State of Colorado
has issued public notice for the post-closure permit of two historic hazardous
waste units at the Pueblo Mill. As part of the post-closure permit requirements,
CF&I must begin a corrective action program for the 82 solid waste management
units at the facility. In October 1995 CF&I and the State of Colorado Department
of Public Health and Environment finalized a post-closure permit, which contains
a prioritized schedule of corrective actions to be completed and substantially
reflects a straight-line rate of expenditure over 30 years. The State of
Colorado has indicated that the schedule for corrective action could be
accelerated if new data indicated a greater threat to the environment than is
currently known to exist. The Company believes the reserve is adequate to cover
the remediation costs.
The Clean Air Act Amendments of 1990 imposed new responsibilities on many
industrial sources of air emissions, including plants owned by the Company. The
Company cannot determine the exact financial impact of the new law because
Congress is continuing to modify it. The impact will depend on a number of
site-specific factors, including the quality of the air in the geographical area
in which a plant is located, rules to be adopted by each state to implement the
law and future EPA rules specifying the content of state implementation plans.
The Company anticipates that it will be required to make additional
expenditures, and will be required to pay higher fees to governmental agencies,
as a result of the new law and future laws regulating air emissions. In
addition, the monitoring and reporting requirements of the new law have
subjected and will subject all air emissions to increased regulatory scrutiny.
The Company submitted applications for permits under Title V of the Clean Air
Act for the Portland and Pueblo Mills in 1995. The Company has budgeted capital
expenditures to comply with Title V requirements in the amount of $7.5 million
over a three-year period beginning in 1996.
The Company's future expenditures for installation of and improvements to
environmental control facilities, remediation of environmental conditions
existing at its properties and other similar matters are difficult to predict
accurately. Environmental legislation and regulations and related administrative
policies have changed rapidly in recent years. It is likely that the Company
will be subject to increasingly stringent environmental standards in the future
(including those under the Clean Air Act Amendments of 1990, the Clean Water Act
Amendments of 1990 storm water permit program and toxic use reduction programs)
and will be required to make additional expenditures, which could be
significant, relating to environmental matters on an ongoing basis. Furthermore,
although the Company has established certain reserves for environmental
remediation as described above, there is no assurance regarding the cost of
remedial measures that might eventually be required by environmental authorities
or that additional environmental hazards, requiring further remedial
expenditures, might not be asserted by such authorities or private parties.
Accordingly, the costs of remedial measures may exceed the amounts reserved.
There is no assurance that expenditures or proceedings of the nature described
above, or other expenditures or liabilities resulting from hazardous substances
located on the Company's property or used or generated in the conduct of its
business, or resulting from circumstances, actions, proceedings or claims
relating to environmental matters, will not have a material adverse effect on
the Company.
LEGAL PROCEEDINGS
In July 1995 the Oregon Occupational Safety and Health Division ("Oregon
OSHA") cited the Company $1.4 million in penalties for alleged violations of
Oregon occupational safety and health rules. Of the 18 individual citations, 10
were alleged by Oregon OSHA to be willful.
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<PAGE> 48
Oregon OSHA claims that a Material Safety Data Sheet ("MSDS") that the
Company had prepared for its glass frit product produced at the Portland Mill
was incomplete in its description of certain metals present in the product.
Oregon OSHA also alleges that certain aspects of the glass plant's lead and
cadmium protection programs were not in complete compliance with applicable OSHA
regulations. The Company has conducted its own investigation of all the alleged
violations and believes no willful violation of the OSHA rules occurred. Oregon
OSHA has pointed out some areas where the Company has not been in complete
technical compliance with certain administrative and recordkeeping rules, and
the Company believes it has promptly corrected those issues. Although the
Company has appealed the citation and believes the final outcome will not have a
material adverse effect on the Company, the Company's appeal may be unsuccessful
and it may be required to pay all or a material portion of the penalties.
The Company is also party to other various claims, disputes, legal actions
and other proceedings involving contracts, employment and various other matters.
In the opinion of management, the outcome of these matters should not have a
material adverse effect on the consolidated financial condition of the Company.
The Company maintains insurance against various risks, including certain
types of product liability. The Company does not maintain insurance against
liability arising out of waste disposal, other environmental matters or
earthquake damage because of the high cost of such insurance. There is no
assurance that insurance currently carried by the Company, including products
liability insurance, will be available in the future at reasonable rates or at
all.
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 or to the registration statement of the Company on Form S-3 (Registration
No. 333-02355-01) filed in connection with the Notes Offering and which are
available as described under "Available Information."
FIRST MORTGAGE NOTES DUE 2003
Concurrently with the Common Stock Offering, the Company is publicly
offering $235 million aggregate principal amount of its % First Mortgage Notes
due 2003 pursuant to a separate prospectus. The terms of the Notes will be
determined by market conditions and other factors at the time the Notes are
offered for sale, and it is possible that the terms of the Notes will differ
from those described below. The Common Stock Offering is contingent upon the
concurrent completion of the Notes Offering.
It is anticipated the Notes will bear interest at a fixed rate of interest
to be determined at the time of offering, payable semi-annually, will mature on
June , 2003 and will be unconditionally guaranteed (the "Guarantees"), jointly
and severally, by New CF&I and CF&I (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 collateralize
such other indebtedness.
It is anticipated the Notes will be redeemable, in whole or in part, at the
option of the Company, on or after June , 2000, at redemption prices declining
over time from % of the principal amount in the year 2000 to 100% of the
principal amount in the year 2002 and thereafter.
In the event of a Change of Control (as defined in the Indenture), 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 Company will also 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.
The Notes will be secured by, among other things, 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
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<PAGE> 49
such buildings are located. CF&I's Guarantee will be secured by substantially
all of the buildings, fixtures and equipment which comprise the Pueblo Mill,
together with the real property on which such buildings are located. The
collateral for the Notes and the Guarantees will not include, among other
things, (i) inventory and accounts receivable and related books and records,
which will be pledged as collateral for the Company's proposed $125 million
Amended Credit Agreement, (ii) stock or partnership interest in New CF&I or CF&I
or in any other direct or indirect subsidiary of the Company, (iii)
inter-company indebtedness or (iv) certain other assets and certain intangibles.
The Indenture relating to the Notes will contain certain covenants that,
among other things, will limit the ability of the Company and certain of its
subsidiaries to incur additional indebtedness, pay dividends or make other
distributions, create certain liens, make certain asset sales, sell the capital
stock of certain subsidiaries, enter into transactions with affiliates, create
restrictions on the ability of certain subsidiaries to pay dividends to the
Company, enter into sale-leaseback transactions and enter into certain
consolidations, mergers and other business combinations, in each case subject to
the exceptions and qualifications provided therein. For a description of the
provisions of the Indenture limiting the ability of the Company to pay
dividends, see "Risk Factors -- Substantial Increase in Dividend Requirements;
Limitations on Payment of Common Stock Dividends."
The Indenture will contain customary events of default, including a
cross-default provision triggered by the acceleration of outstanding
indebtedness in excess of $5 million. Upon the occurrence of an event of
default, the trustee or the holders of at least 25% in outstanding principal
amount of the Notes may declare the Notes to be due and payable immediately
(except that, upon the occurrence of an event of default triggered by certain
events of bankruptcy, insolvency or reorganization, the Notes ipso facto will
become due and payable), whereupon the trustee may initiate proceedings to
realize on the collateral for the Notes and the Guarantees.
AMENDED CREDIT AGREEMENT
The Offerings are contingent upon the concurrent effectiveness of the
Amended Credit Agreement. The Company has received a commitment letter from the
agent banks for the lenders who are parties to the Old Credit Agreement with
respect to the Amended Credit Agreement. The following is a summary of certain
terms and provisions of the proposed Amended Credit Agreement as set forth in
the bank commitment letter. The effectiveness, however, of the Amended Credit
Agreement is subject to, among other things, the consummation of the Offerings
and the negotiation and execution of definitive documentation, and the final
terms of the Amended Credit Agreement may differ from those set forth below.
The Amended Credit Agreement is expected to be a revolving credit facility
collateralized by substantially all of the accounts receivable and inventory and
related books and records of the Company, New CF&I and CF&I. The maximum amount
of borrowings which may be outstanding under the Amended Credit Agreement at any
time will be limited to an amount calculated as a specified percentage of
eligible accounts receivable and inventory, provided that the maximum amount of
borrowings thereunder may not at any time exceed $125 million. It is anticipated
that the Amended Credit Agreement will mature in 1999 and will be guaranteed by
New CF&I and CF&I.
It is anticipated that the Amended Credit Agreement will contain financial
and other restrictive covenants, including a minimum interest coverage ratio; a
minimum consolidated tangible net worth requirement; a maximum ratio of
long-term debt to total capitalization; and restrictions on liens, dividends,
asset sales, investments, additional indebtedness and mergers and other business
combinations. These covenants, particularly the requirement that the Company
maintain a minimum consolidated tangible net worth, could limit the Company's
ability to pay dividends on the Common Stock. See "Risk Factors -- Substantial
Increase in Dividend Requirements; Limitations on Payment of Common Stock
Dividends." The Amended Credit Agreement will also contain customary events of
default and other provisions, including an event of default due to a "change of
control" (as defined) of the Company. Upon the occurrence of an event of
default, the banks may declare all amounts owing under the Amended Credit
Agreement to be immediately due and payable (except that, upon the occurrence of
an event of default triggered by certain events of bankruptcy, insolvency or
reorganization, borrowings under the Amended Credit Agreement ipso facto will
48
<PAGE> 50
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 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.
49
<PAGE> 51
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,
50
<PAGE> 52
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.
51
<PAGE> 53
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 number of shares of
Common Stock set forth opposite the name of such Underwriter.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
------------------------------------------------------------------ ---------
<S> <C>
Smith Barney Inc. ................................................
PaineWebber Incorporated..........................................
---------
Total................................................... 6,000,000
========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions,
including the concurrent completion of the Notes Offering and the effectiveness
of the Amended Credit Agreement. The Underwriters are obligated to take and pay
for all shares of Common Stock offered hereby (other than those covered by the
over-allotment option described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc. and PaineWebber Incorporated
are acting as the Representatives, propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page of this Prospectus and part of the shares of Common Stock to certain
dealers at a price which represents a concession not in excess of $ per
share under the public offering price. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the initial public offering, the public offering
price, concession and reallowance may be changed.
The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase up to 900,000 additional shares of
Common Stock at the price to the public set forth on the cover page of this
Prospectus minus the underwriting discounts and commissions and minus the amount
of any dividends or other distributions payable on the shares initially
purchased by the Underwriters but not payable on the shares purchased upon
exercise of such option. The Underwriters may exercise such option solely for
the purpose of covering over-allotments, if any, in connection with the offering
of the shares offered hereby. To the extent such option is exercised, each
Underwriter will be obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares set forth opposite such Underwriter's name in the preceding table bears
to the total number of shares listed in such table.
The Company, its directors and four of its most senior executive officers
have agreed that, for a period of 90 days from the date of this Prospectus, they
will not, without the prior written consent of Smith Barney Inc., offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock or any
securities convertible into, or exercisable or exchangeable for, Common Stock,
other than the shares of Common Stock offered hereby.
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 shares of Common Stock offered
hereby will be passed upon for the Company by Stoel Rives LLP and Schwabe,
Williamson & Wyatt, Portland, Oregon. Brown & Wood, San Francisco, California,
will act as counsel for the Underwriters.
52
<PAGE> 54
EXPERTS
The consolidated financial statements and financial statement schedule of
the Company included in the Company's Annual Report on Form 10-K (and amendment
thereto on Form 10-K/A) as of December 31, 1995, 1994 and 1993 and for the years
then ended and incorporated by reference in this Prospectus and in the
Registration Statement of which this Prospectus is a part have been incorporated
by reference herein and therein in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing.
53
<PAGE> 55
Heat Treat Facility (left) -- Oregon Steel Division
Oregon Steel operates the only plate heat treating
line in the western United States.
[Photograph of the Oregon Steel Division's
steel plate heat treating facility at the
Portland Mill]
[Photograph of steel rail produced at the CF&I
Steel Division's Pueblo Mill]
Rail Mill (right) -- CF&I Steel Division
Oregon Steel is the only rail manufacturer
west of the Mississippi River.
[Photograph of seamless steel pipe being
produced at the CF&I Steel Division's
Pueblo Mill]
Seamless Pipe Mill (left) -- CF&I Steel Division
Oregon Steel operates the only seamless pipe
mill west of the Mississippi River.
[Photograph of the interior of the Oregon
Steel Division's Portland Mill]
Plate Mill (right) -- Oregon Steel Division
Oregon Steel operates the only steel plate
minimill in the western United States.
<PAGE> 56
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS
PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
FACTS SET FORTH OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Incorporation of Certain Documents by
Reference........................... 3
Prospectus Summary.................... 4
Risk Factors.......................... 10
Use of Proceeds....................... 17
Capitalization........................ 18
Price Range of Common Stock and
Dividends........................... 19
Selected Historical Consolidated
Financial Data...................... 21
Pro Forma Unaudited Condensed
Consolidated Financial Data......... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business.............................. 35
Description of Certain Indebtedness... 47
Description of Capital Stock.......... 50
Underwriting.......................... 52
Legal Matters......................... 52
Experts............................... 53
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
6,000,000 SHARES
LOGO
COMMON STOCK
------------
PROSPECTUS
, 1996
------------
SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 57
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. 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 Common Stock being registered. All amounts are estimates except
the registration fee, the NYSE Listing Fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee.......................................................... $ 32,716
NYSE listing fee.......................................................... 21,000
NASD filing fee........................................................... 9,988
Blue Sky fees and expenses, including legal fees.......................... 15,000
Accounting fees and expenses.............................................. 25,000
Legal fees and expenses................................................... 115,000
Transfer agent and registrar fees......................................... 5,000
Printing and engraving.................................................... 100,000
Miscellaneous............................................................. 76,296
--------
Total........................................................... $400,000
========
</TABLE>
ITEM 15. 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.
The Registrant's Restated Certificate of Incorporation (the "Restated
Certificate") and Bylaws provide for the indemnification by the Registrant of
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. The Registrant maintains an insurance policy covering its
directors and officers against such liability. The Registrant 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 Restated Certificate provides for the
elimination, to the fullest extent permitted by law, of personal liability of
its directors for monetary damages for breach of fiduciary duty as a director.
Reference is made to the Restated Certificate filed as Exhibit 4.1.
II-1
<PAGE> 58
ITEM 16. EXHIBITS
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement
4.1 Restated Certificate of Incorporation (incorporated by reference to
Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992)
4.2 By-laws (incorporated by reference to Exhibit 3.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1993)
5.1 Opinion of Stoel Rives LLP**
12.1 Statement re computation of ratios of earnings to fixed charges (actual
and pro forma) (included on page II-5)
12.2 Statement re computation of ratios of EBITDA to interest expense
(including capitalized interest) (actual and pro forma) (included on page
II-6)
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants (included on
page II-7)
23.2 Consent of Stoel Rives LLP (included in Exhibit 5.1)
24.1 Power of Attorney of the directors and certain officers of the
Registrant*
99.1 Credit Agreement dated December 14, 1994 among the Registrant, 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 10.12 to the Annual Report on Form 10-K 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 the Registrant, 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
10.0 to the Quarterly Report on Form 10-Q 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 for the year ended December 31, 1995)
</TABLE>
II-2
<PAGE> 59
<TABLE>
<S> <C>
99.4 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 the Registrant (incorporated by reference
to exhibit 2.1 to the Current Report on Form 8-K dated March 3, 1993)
</TABLE>
- ---------------
* Filed April 8, 1996.
** To be filed by Amendment.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes 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.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant'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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the 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 the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 60
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Portland,
State of Oregon, on May 22, 1996.
OREGON STEEL MILLS, INC.
By: THOMAS B. BOKLUND
--------------------------------
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
following capacities effective on May 22, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------- --------------------------------------------
<S> <C>
THOMAS B. BOKLUND Chairman of the Board and Chief Executive
--------------------------------------- Officer (Principal Executive Officer)
(Thomas B. Boklund)
L. RAY ADAMS Chief Financial Officer and Vice President
---------------------------------------- of Finance (Principal Financial Officer)
(L. Ray Adams)
CHRISTOPHER D. CASSARD* Corporate Controller
----------------------------------------- (Principal Accounting Officer)
(Christopher D. Cassard)
C. LEE EMERSON* Director
-----------------------------------------
(C. Lee Emerson)
V. NEIL FULTON* Director
-----------------------------------------
(V. Neil Fulton)
EDWARD C. GENDRON* Director
-----------------------------------------
(Edward C. Gendron)
ROBERT W. KEENER* Director
-----------------------------------------
(Robert W. Keener)
RICHARD G. LANDIS* Director
-----------------------------------------
(Richard G. Landis)
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-4
<PAGE> 61
EXHIBIT 12.1
OREGON STEEL MILLS, INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
PRO FORMA(4)
THREE MONTHS -----------------
YEAR ENDED DECEMBER 31, ENDED 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-5
<PAGE> 62
EXHIBIT 12.2
OREGON STEEL MILLS, INC.
COMPUTATION OF RATIOS OF EBITDA TO INTEREST EXPENSE
<TABLE>
<CAPTION>
PRO FORMA(2)
THREE MONTHS -----------------
YEAR ENDED DECEMBER 31, ENDED 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-6
<PAGE> 63
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
on Form S-3 of our report, which has an explanatory paragraph with regard to
restatement of the 1994 financial statements, dated January 19, 1996, on our
audits of the consolidated financial statements and financial statement schedule
of Oregon Steel Mills, Inc. and Subsidiaries as of December 31, 1995, 1994 and
1993 and for the years then ended, which report is included in the Annual Report
on Form 10-K (and amendment thereto on Form 10-K/A) for the year ended December
31, 1995. We also consent to the reference to our firm under the caption
"Experts."
COOPERS & LYBRAND L.L.P.
Portland, Oregon
May 22, 1996
II-7
<PAGE> 64
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
PAGE
EXHIBIT NO. EXHIBIT NUMBER
- ----------- ------------------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.................................................
4.1 Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1
to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1992)..........................................................................
4.2 By-laws (incorporated by reference to Exhibit 3.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993)......................
5.1 Opinion of Stoel Rives LLP**...................................................
12.1 Statement re computation of ratios of earnings to fixed charges (actual and pro
forma) (included on page II-5).................................................
12.2 Statement re computation of ratios of EBITDA to interest expense (including
capitalized interest) (actual and pro forma) (included on page II-6)...........
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants (included on page
II-7)..........................................................................
23.2 Consent of Stoel Rives LLP (included in Exhibit 5.1)...........................
24.1 Power of Attorney of the directors and certain officers of the Registrant*.....
99.1 Credit Agreement dated December 14, 1994 among the Registrant, 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 10.12 to the Annual Report on
Form 10-K 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 the Registrant, 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 10.0 to the Quarterly Report on Form 10-Q
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 for the year
ended December 31, 1995).......................................................
99.4 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 the Registrant (incorporated by reference to exhibit 2.1 to the
Current Report on Form 8-K dated March 3, 1993)................................
</TABLE>
- ---------------
* Filed April 8, 1996.
** To be filed by Amendment.
<PAGE> 1
EXHIBIT 1.1
B&W Draft 5/20/96
6,000,000 Shares
OREGON STEEL MILLS, INC.
Common Stock
UNDERWRITING AGREEMENT
+, 1996
SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
Oregon Steel Mills, Inc., a Delaware corporation (the "Company"),
proposes, upon the terms and conditions set forth herein, to issue and sell an
aggregate of 6,000,000 shares (the "Firm Shares") of its common stock, par value
$.01 per share (the "Common Stock"), to the several Underwriters named in
Schedule I hereto (the "Underwriters"). The Company also proposes to sell to the
Underwriters, upon the terms and conditions set forth in Section 2 hereof, up to
an additional 900,000 shares (the "Additional Shares") of Common Stock. The Firm
Shares and the Additional Shares are hereinafter collectively referred to as the
"Shares".
The Company is also proposing to issue and sell, concurrently with the
issuance and sale of the Firm Shares, $235,000,000 aggregate principal amount of
its +% First Mortgage Notes due 2003 (the "Notes") pursuant to an Underwriting
Agreement of even date herewith (the "Other Agreement") among the Company, the
Guarantors (as defined below) and the underwriters named in Schedule I to the
Other Agreement (the "Debt Underwriters"). The Notes are to be issued pursuant
to an indenture (the "Indenture") among the Company, New CF&I, Inc., a Delaware
corporation ("New CF&I"), and CF&I Steel, L.P., a Delaware limited partnership
("CF&I") (New CF&I, and CF&I are hereinafter called, collectively, the
"Guarantors" and, individually, a "Guarantor"), and Chemical Bank, as trustee
(the "Trustee"). The Guarantors will jointly and severally guarantee, among
other things, the punctual payment of the principal of, premium, if any, and
interest on the Notes pursuant to the Indenture and pursuant to guarantees (the
"Guarantees", which term includes, unless the context otherwise requires, the
CF&I Note referred to below) to be endorsed on the Notes. As collateral for the
Notes and the Guarantees, (i) the Company will enter into a Deed of Trust,
Assignment of Rents and Leases and Security Agreement with respect to certain
real property, improvements and fixtures located in the State of Oregon and a
Deed of Trust, Assignment of Rents and Leases and Security Agreement with
respect to certain real property, improvements and fixtures located in the State
of California and CF&I will enter into a Deed of Trust, Assignment of Rents and
Leases and Security Agreement with respect to certain real property,
improvements and fixtures located in Pueblo County, State of Colorado and a
separate Deed of Trust,
<PAGE> 2
Assignment of Rents and Leases and Security Agreement with respect to certain
real property, improvements and fixtures located in Fremont County, State of
Colorado (each individually, a "Mortgage" and, collectively, the Mortgages"),
(ii) the Company, New CF&I and CF&I will each enter into a separate Security
Agreement (each, a "Security Agreement" and, collectively, the "Security
Agreements") (the Mortgages and the Security Agreements are referred to,
collectively, as the "Security Documents" and, individually, as a "Security
Document") and (iii) CF&I will execute a promissory note as additional evidence
of its obligations under its Guarantee (the "CF&I Note"). The Company, the
Guarantors, the Trustee and FIOR (defined below), as agent for the banks (the
"Bank Agent") under the Amended Credit Agreement (defined below), will enter
into an Intercreditor Agreement (the "Intercreditor Agreement") to set forth
certain agreements relating to the collateral securing the Notes and the Amended
Credit Agreement.
In connection with the offering of the Shares and the Notes, the
Company will enter into an Amended and Restated Credit Agreement (the "Amended
Credit Agreement") with First Interstate Bank of Oregon, N.A. ("FIOR"), The Bank
of Nova Scotia ("BNS") and the other lenders named therein (collectively, the
"Lenders") which will be an amendment and restatement of the Old Credit
Agreement (as defined in Section 6(w) hereof). In order to guarantee the
Company's obligations under the Amended Credit Agreement, New CF&I will enter
into an Amended and Restated Guaranty (the "Amended and Restated New CF&I
Guaranty") and CF&I will enter into a guaranty (the "CF&I Bank Guaranty"; the
Amended and Restated New CF&I Guaranty and the CF&I Guaranty are hereafter
called, individually, a "Bank Guaranty" and, collectively, the "Bank
Guaranties"), the Company will enter into a Security Agreement (the "Company's
Bank Security Agreement") and each of New CF&I and CF&I will enter into a
separate Amended and Restated Security Agreement (the "Amended and Restated New
CF&I Security Agreement" and the "Amended and Restated CF&I Security Agreement",
respectively; the Company's Bank Security Agreement, the Amended and Restated
New CF&I Security Agreement and the Amended and Restated CF&I Security Agreement
are hereafter called, individually, a "Bank Security Agreement" and,
collectively, the "Bank Security Agreements") to secure their obligations under
the Amended Credit Agreement and the Bank Guaranties, respectively.
The sale of the Firm Shares to the Underwriters pursuant to this
Agreement and the sale of the Notes to the Debt Underwriters pursuant to the
Other Agreement are each conditioned on (i) the occurrence of the other event
and (ii) and the effectiveness of the Amended Credit Agreement.
The Company wishes to confirm as follows its agreement with you (the
"Representatives") and the other several Underwriters on whose behalf you are
acting, in connection with the several purchases of the Shares by the
Underwriters.
1. Registration Statement and Prospectus. The Company has prepared
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-3 under the Act (the "registration
statement"), including a prospectus subject to completion, relating to the
Shares. The term "Registration Statement" as used in this Agreement means the
registration statement (including all financial schedules and exhibits), as
amended at the time it becomes effective, or, if the registration statement
became effective prior to the execution of this Agreement, as amended prior to
the execution of this Agreement, and shall include in any such case the
information, if any, deemed to be a part of such registration statement pursuant
to Rule 430A(b) under the Act. If it is contemplated, at the time this Agreement
is executed, that a post-effective amendment to the registration statement will
be filed and must be declared effective before the offering of the Shares may
commence, the term "Registration Statement" as used in this Agreement means the
registration statement as amended by said post-effective amendment and including
the information, if any,
-2-
<PAGE> 3
deemed to be a part thereof pursuant to Rule 430A(b) under the Act. If the
Company files a registration statement to register a portion of the Shares
pursuant to Rule 462(b) under the Act (the "Rule 462(b) Registration
Statement"), then after such filing the term "Registration Statement" shall
include the Rule 462(b) Registration Statement at the time it became effective.
The term "Prospectus" as used in this Agreement means the prospectus in the form
included in the Registration Statement, or, if the prospectus included in the
Registration Statement omits information in reliance on Rule 430A under the Act
and such information is included in a prospectus filed with the Commission
pursuant to Rule 424(b) under the Act, the term "Prospectus" as used in this
Agreement means the prospectus in the form included in the Registration
Statement as supplemented by the addition of the Rule 430A information contained
in the prospectus filed with the Commission pursuant to Rule 424(b). The term
"Prepricing Prospectus" as used in this Agreement means the prospectus subject
to completion in the form included in the registration statement at the time of
the initial filing of the registration statement with the Commission, and as
such prospectus shall have been amended from time to time prior to the date of
the Prospectus. Any reference in this Agreement to the registration statement,
the Registration Statement, a Rule 462(b) Registration Statement, any Prepricing
Prospectus or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the Act, as of the date of the registration statement, the Registration
Statement, such Rule 462(b) Registration Statement, such Prepricing Prospectus
or the Prospectus, as the case may be, and any reference to any amendment or
supplement to the registration statement, the Registration Statement, a Rule
462(b) Registration Statement, any Prepricing Prospectus or the Prospectus shall
be deemed to refer to and include any documents filed after such date under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), which, upon
filing, are incorporated by reference therein, as required by paragraph (b) of
Item 12 of Form S-3. As used herein, the term "Incorporated Documents" means the
documents which at the time are incorporated or are deemed to be incorporated by
reference in the registration statement, the Registration Statement, any
Prepricing Prospectus, the Prospectus, or any amendment or supplement thereto.
2. Agreements to Sell and Purchase. The Company hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Company herein contained and subject to all the terms and
conditions set forth herein, each Underwriter agrees, severally and not jointly,
to purchase from the Company, at a purchase price of $+ per Share (the "purchase
price per share"), the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto (or such number of Firm Shares increased as set
forth in Section 10 hereof).
The Company also agrees, subject to all the terms and conditions set
forth herein, to sell to the Underwriters, and, upon the basis of the
representations, warranties and agreements of the Company herein contained and
subject to all the terms and conditions set forth herein, the Underwriters shall
have the right to purchase from the Company, at a price equal to the purchase
price per share minus an amount per share equal to any dividends or
distributions payable on the Firm Shares but not payable on the Additional
Shares to be purchased, pursuant to an option (the "over-allotment option")
which may be exercised at any time and from time to time prior to 9:00 P.M., New
York City time, on the 30th day after the date of the Prospectus (or, if such
30th day shall be a Saturday or Sunday or a holiday, on the next business day
thereafter when the New York Stock Exchange is open for trading), up to an
aggregate of 900,000 Additional Shares. Additional Shares may be purchased only
for the purpose of covering over-allotments made in connection with the offering
of the Firm Shares. Upon any exercise of the over-allotment option, each
Underwriter, severally and not jointly, agrees to purchase from the Company the
number of Additional Shares (subject to such adjustments as you may determine in
order to avoid fractional shares) which bears the same proportion to the number
of Additional Shares to be purchased by the Underwriters as the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto (or
-3-
<PAGE> 4
such number of Firm Shares increased as set forth in Section 10 hereof) bears to
the aggregate number of Firm Shares.
3. Terms of Public Offering. The Company has been advised by you that
the Underwriters propose to make a public offering of their respective portions
of the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and initially to offer the
Shares upon the terms set forth in the Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office of
Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, at 10:00
A.M., New York City time, on +, 1996 (the "Closing Time"). The place of closing
for the Firm Shares and the Closing Time may be varied by agreement between you
and the Company.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at the aforementioned office
of Smith Barney Inc. at such time on such date (the "Option Closing Time"),
which may be the same as the Closing Time but shall in no event be earlier than
the Closing Time nor earlier than two nor later than ten business days after the
giving of the notice hereinafter referred to, as shall be specified in a written
notice from you on behalf of the Underwriters to the Company of the
Underwriters' determination to purchase a number, specified in such notice, of
Additional Shares. The place of closing for any Additional Shares and the Option
Closing Time for such Shares may be varied by agreement between you and the
Company.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 9:30 A.M., New York City time, on the second
business day preceding the Closing Time or any Option Closing Time, as the case
may be. Such certificates shall be made available to you in New York City for
inspection and packaging not later than 9:30 A.M., New York City time, on the
business day next preceding the Closing Time or the Option Closing Time, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you at the Closing Time
or the Option Closing Time, as the case may be, against payment of the purchase
price therefor by wire transfer of same-day funds to a bank account designated
by the Company or, at your option, by check payable in same-day funds.
5. Agreements of the Company. The Company agrees with the several
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it
is necessary for the Registration Statement or a post-effective amendment
thereto or the 462(b) Registration Statement, as the case may be, to be declared
effective before the offering of the Shares may commence, the Company will
endeavor to cause the Registration Statement or such post-effective amendment or
the 462(b) Registration Statement to become effective as soon as possible and
will advise you promptly and, if requested by you, will confirm such advice in
writing, when the Registration Statement or such post-effective amendment or the
462(b) Registration Statement has become effective, as the case may be.
(b) The Company will advise you promptly and, if requested by you,
will confirm such advice in writing: (i) of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the
-4-
<PAGE> 5
initiation of any proceeding for such purpose; and (iii) within the period of
time referred to in paragraph (f) below, of any change in the Company's
condition (financial or other), business, prospects, properties, net worth or
results of operations, or of the happening of any event, which makes any
statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the making
of any additions to or changes in the Registration Statement or the Prospectus
(as then amended or supplemented) in order to state a material fact required by
the Act to be stated therein or necessary in order to make the statements
therein not misleading, or of the necessity to amend or supplement the
Prospectus (as then amended or supplemented) to comply with the Act or any other
law. If at any time the Commission shall issue any stop order suspending the
effectiveness of the Registration Statement, the Company will make every
reasonable effort to obtain the withdrawal of such order at the earliest
possible time.
(c) The Company will furnish to you, without charge (i) three
signed copies of the registration statement and any Rule 462(b) Registration
Statement as originally filed with the Commission and of each amendment thereto,
including financial statements and all exhibits, (ii) such number of conformed
copies of the registration statement and any Rule 462(b) Registration Statement
as originally filed and of each amendment thereto, but without exhibits, as you
may reasonably request, (iii) such number of copies of the Incorporated
Documents, without exhibits, as you may reasonably request, and (iv) such number
of copies of the exhibits to the Incorporated Documents as you may reasonably
request.
(d) The Company will not file any amendment to the Registration
Statement (including any filing under Rule 462(b)) or make any amendment or
supplement to the Prospectus or, prior to the end of the period of time referred
to in the first sentence in subsection (f) below, file any document which, upon
filing, becomes an Incorporated Document, of which you shall not previously have
been advised or to which, after you shall have received a copy of the document
proposed to be filed, you shall reasonably object.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered to you, without charge, in such quantities as you have
requested, copies of each form of the Prepricing Prospectus. The Company
consents to the use, in accordance with the provisions of the Act and with the
securities or Blue Sky laws of the jurisdictions in which the Shares are offered
by the several Underwriters and by dealers, prior to the date of the Prospectus,
of each Prepricing Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this Agreement as
possible and thereafter from time to time for such period as in the opinion of
counsel for the Underwriters a prospectus is required by the Act to be delivered
in connection with sales by any Underwriter or dealer, the Company will
expeditiously deliver to each Underwriter and each dealer, without charge, as
many copies of the Prospectus (and of any amendment or supplement thereto) as
you may request. The Company consents to the use of the Prospectus (and of any
amendment or supplement thereto) in accordance with the provisions of the Act
and with the securities or Blue Sky laws of the jurisdictions in which the
Shares are offered by the several Underwriters and by all dealers to whom Shares
may be sold, both in connection with the offering and sale of the Shares and for
such period of time thereafter as the Prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer. If during such
period of time any event shall occur that in the judgment of the Company or in
the opinion of counsel for the Underwriters is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth therein in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to supplement or
amend the Prospectus (or to file under the Exchange Act any document which, upon
filing, becomes an Incorporated Document) in order to comply with the Act or any
other law, the Company will forthwith prepare and, subject to the
-5-
<PAGE> 6
provisions of paragraph (d) above, file with the Commission an appropriate
supplement or amendment to the Prospectus (or file such document), and will
expeditiously furnish to the Underwriters and dealers a reasonable number of
copies thereof. In the event that the Company and you, as Representatives of the
several Underwriters, agree that the Prospectus should be amended or
supplemented, the Company, if requested by you, will promptly issue a press
release announcing or disclosing the matters to be covered by the proposed
amendment or supplement.
(g) The Company will cooperate with you and with counsel for the
Underwriters in connection with the registration and qualification of the Shares
for offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as you may designate and will
file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided that
in no event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to service of process in suits, other than those arising out of the
offering or sale of the Shares, in any jurisdiction where it is not now so
subject.
(h) The Company will make generally available to its security
holders a consolidated earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as practicable
after the end of such period, which consolidated earnings statement shall
satisfy the provisions of Section 11(a) of the Act.
(i) During the period of five years hereafter, the Company will
furnish to you (i) as soon as available, a copy of each report of the Company
mailed to stockholders or other securityholders or filed with the Commission or
any national securities exchange (as defined in the Exchange Act) on which
securities of the Company are listed, and (ii) from time to time such other
information concerning the Company as you may reasonably request.
(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 10 hereof or by notice given by you terminating this
Agreement pursuant to Section 10 or Section 11 hereof) or if this Agreement
shall be terminated by the Underwriters because of any failure or refusal on the
part of the Company to comply with the terms or fulfill any of the conditions of
this Agreement, the Company agrees to reimburse the Representatives for all
out-of-pocket expenses (including fees and expenses of counsel for the
Underwriters) incurred by you in connection herewith.
(k) The Company will apply the net proceeds from the sale of the
Shares and the Notes in accordance with the description set forth in the
Prospectus.
(l) If Rule 430A of the Act is employed, the Company will timely
file the Prospectus pursuant to Rule 424(b) under the Act and will advise you of
the time and manner of such filing.
(m) Except as provided in this Agreement and pursuant to warrants
or reservations referred to in the Prospectus, the Company will not issue, sell,
offer to sell, solicit any offer to buy, contract to sell, grant any option or
warrants to purchase, or otherwise transfer or dispose of, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock for a period of 90 days after the date of the Prospectus, without
the prior written consent of Smith Barney Inc.
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<PAGE> 7
(n) The Company has furnished to you "lock-up" letters, in
substantially the form attached hereto as Exhibit A, signed by each of its
current executive officers and directors (which current executive officers and
directors are listed on Schedule II hereto).
(o) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(p) The Company will use its best efforts to have the Shares
listed, subject to notice of issuance, on the New York Stock Exchange before the
Closing Time.
6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act. The Commission
has not issued any order preventing or suspending the use of any Prepricing
Prospectus.
(b) The Company and the transactions contemplated by this
Agreement meet the requirements for using Form S-3 under the Act. The
Registration Statement and any Rule 462(b) Registration Statement, each in the
form in which it became or becomes effective and also in such form as it may be
when any post-effective amendment thereto shall become effective, and the
Prospectus and any supplement or amendment thereto as of its date and, if
applicable, when filed with the Commission under Rule 424(b) under the Act,
complied and will comply in all material respects with the provisions of the Act
and did not at any such time and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, except that this
representation and warranty does not apply to statements in or omissions from
the Registration Statement, any Rule 462(b) Registration Statement, or the
Prospectus made in reliance upon and in conformity with information relating to
any Underwriter furnished to the Company in writing by or on behalf of any
Underwriter through you expressly for use therein.
(c) The Incorporated Documents heretofore filed, when they were
filed (or, if any amendment with respect to any such document was filed, when
such amendment was filed), conformed in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder (the "Exchange Act Regulations"), any further Incorporated Documents
so filed will, when they are filed, conform in all material respects with the
requirements of the Exchange Act and the Exchange Act Regulations; no such
document when it was filed (or, if an amendment with respect to any such
document was filed, when such amendment was filed), contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading; and no such further document, when it is filed, will contain an
untrue statement of a material fact or will omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading.
(d) Except as disclosed in the Registration Statement and the
Prospectus, subsequent to the respective dates as of which such information is
given in the Registration Statement and the Prospectus, neither the Company nor
any of its subsidiaries has incurred any liability or obligation, direct or
contingent, or entered into any transaction, whether or not in the ordinary
course of business, that is material to the Company and the subsidiaries taken
as a whole, and there has not been any change in the
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<PAGE> 8
capital stock (except for subsequent issuances, if any, pursuant to this
Agreement or pursuant to warrants or reservations referred to in the
Prospectus), or material increase in the short-term debt or long-term debt
(other than (i) as a result of borrowings under the Old Credit Agreement in the
ordinary course of business (which borrowings shall not exceed $300,000,000),
(ii) pursuant to intercompany transactions that do not result in an increase in
the Company's consolidated indebtedness or (iii) as a result of long-term debt
becoming classified as short-term debt as the result of the passage of time), of
the Company or any of its subsidiaries, or any material adverse change, or any
development involving or which may reasonably be expected to involve a
prospective material adverse change, in the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company and its subsidiaries taken as a whole.
(e) To the Company's knowledge, neither the Company nor any of its
subsidiaries nor any employee or agent of the Company or any of its subsidiaries
has made any payment of funds or received or retained any funds in violation of
any law, rule or regulation, which payment, receipt or retention of funds is of
a character required to be disclosed in the Prospectus.
(f) The accountants who certified the financial statements and
supporting schedules included or incorporated in the Registration Statement are
independent public accountants as required by the Act, the Exchange Act, and the
Exchange Act Regulations.
(g) The financial statements included or incorporated in the
Registration Statement and the Prospectus present fairly the financial position
of the Company and its consolidated subsidiaries as at the dates indicated and
the results of their operations for the periods specified; except as otherwise
stated in the Registration Statement, said financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis; the supporting schedules included in the Registration
Statement present fairly the information required to be stated therein; the pro
forma financial statements and related notes thereto included in the
Registration Statement and the Prospectus present fairly the information shown
therein, have been prepared in accordance with the Commission's rules and
guidelines with respect to pro forma financial statements and have been properly
compiled on the basis described therein, and the assumptions used in the
preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and circumstances referred to
therein; and the Company's ratios of earnings to fixed charges (actual and, if
any, pro forma) included in the Prospectus under the captions "Prospectus
Summary--Summary Historical and Pro Forma Consolidated Financial Data",
"Selected Historical Consolidated Financial Data" and "Pro Forma Unaudited
Condensed Consolidated Financial Data" and in Exhibit 12.1 to the Registration
Statement have been calculated in compliance with Item 503(d) of Regulation S-K
of the Commission.
(h) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class of
its capital stock except for regular quarterly dividends on the Common Stock in
amounts per share that are consistent with past practice.
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware with
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus and to enter into and
perform its obligations under this Agreement, the Other Agreement, the Notes,
the Indenture, the Intercreditor Agreement, the Security Documents to which it
is a party, the Amended Credit Agreement and its Bank Security Agreement; and
the Company is duly qualified as a foreign corporation to transact business and
is in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure to so
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<PAGE> 9
qualify or to be in good standing would not have a material adverse effect on
the condition (financial or other), business, prospects, properties, net worth
or results of operations of the Company and its subsidiaries taken as a whole.
(j) Each of Oregon Steel Mills-Fontana Division, Inc., a Delaware
corporation ("Fontana"), and Napa Pipe Corporation, a Delaware corporation
("Napa"), has been merged into the Company (collectively, the "Mergers") and a
certificate or certificates of ownership and merger for each such Merger, duly
certified by the Secretary of State of the State of Delaware, have been
delivered to you; and, by virtue of such Mergers, the Company has succeeded to
all of the assets, properties, rights and franchises of Napa and Fontana,
including the land, improvements, fixtures, equipment, machinery and related
contract rights of the pipe mill located in Napa, California. The only
subsidiaries of the Company are New CF&I, CF&I, Camrose Pipe Corporation, a
Delaware corporation ("CPC"), Camrose Pipe Company, a general partnership
organized under the laws of the Province of Alberta, Canada ("Camrose"), and the
other subsidiaries of the Company whose names are set forth in clause (A) of the
first sentence of the definition of "Unrestricted Subsidiary" in the Indenture.
New CF&I, CF&I, CPC and Camrose are herein referred to as the "Significant
Subsidiaries". Each Significant Subsidiary has been duly organized and is
validly existing as a corporation or partnership, as the case may be, in good
standing under the laws of the jurisdiction of its organization, has power and
authority as a corporation or partnership, as the case may be, to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and, in the case of each Guarantor, to enter into and perform its
obligations under the Other Agreement, the Guarantees, the Indenture, the
Intercreditor Agreement, the Security Documents to which it is a party, the
Amended Credit Agreement, its Bank Guaranty, its Bank Security Agreement and +
and, in the case of CF&I, the CF&I Note; and each Significant Subsidiary is duly
qualified as a foreign corporation or partnership, as the case may be, to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to so qualify or
be in good standing would not have a material adverse effect on the condition
(financial or other), business, prospects, properties, net worth or results of
operations of the Company and its subsidiaries considered as a whole; all of the
issued and outstanding capital stock of each Significant Subsidiary which is a
corporation has been duly authorized and validly issued, is fully paid and
non-assessable and (except for a minority interest in New CF&I described in the
Prospectus) is owned by the Company, directly or through corporate subsidiaries,
free and clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equity; and all of the issued and outstanding partnership interests of
each Significant Subsidiary which is a partnership have been duly authorized (if
applicable) and validly issued and are fully paid and non-assessable and (except
for minority partnership interests in such partnership subsidiaries and the
minority interest in New CF&I, all as described in the Prospectus) are owned by
the Company, directly or through corporate subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or other equity.
Except for New CF&I, CF&I, CPC, Camrose, Fontana and Napa, no subsidiaries of
the Company, individually or in the aggregate, accounted for more than 5% of the
Company's consolidated assets as of December 31, 1995 or more than 3% of the
Company's consolidated sales or operating income for the year then ended.
(k) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement or pursuant to warrants
or reservations referred to in the Prospectus); the shares of issued and
outstanding Common Stock have been duly authorized and validly issued and are
fully paid and non-assessable; the Shares have been duly authorized for issuance
and sale to the Underwriters pursuant to this Agreement and, when issued and
delivered by the Company pursuant to this Agreement against payment of the
consideration set forth herein, will be validly issued and fully paid and
non-assessable; the Common Stock conforms in all material respects to all
statements relating thereto contained in the Prospectus; and the issuance of the
Shares is not subject to preemptive or other similar rights.
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<PAGE> 10
(l) Neither the Company nor any Significant Subsidiary is in
violation of its charter or by-laws, partnership agreement or other
organizational documents, as the case may be; neither the Company nor any of its
subsidiaries is in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture, mortgage,
loan agreement, credit agreement, note, guarantee, lease or other instrument or
agreement to which the Company or any of its subsidiaries is a party or by which
it or any of them may be bound, or to which any of the property or assets of the
Company or any of its subsidiaries is subject, except where such defaults,
singly or in the aggregate, would not have a material adverse effect on the
condition (financial or other), business, prospects, properties, net worth or
result of operations of the Company and its subsidiaries considered as a whole;
and the execution, delivery and performance of this Agreement, the Other
Agreement, the Indenture, the Notes, the Intercreditor Agreement, the
Guarantees, the Security Documents, the CF&I Note, the Amended Credit Agreement,
the Bank Guaranties, the Bank Security Agreements and + and the consummation of
the transactions contemplated herein and therein (including, without limitation,
(i) the issuance and sale of the Shares and the Notes and (ii) the creation and
maintenance of the liens and security interests arising under the Security
Documents and the Bank Security Agreements) have been duly authorized by the
Company and the Guarantors and do not and will not conflict with or constitute a
breach of, or default under, or result in the creation or imposition of any
lien, charge or encumbrance (other than liens created by the Security Documents
in favor of the Trustee and liens created pursuant to the Amended Credit
Agreement and the Bank Security Agreements in favor of the Lenders) upon any
property or assets of the Company or any of its subsidiaries pursuant to, any
contract, indenture, mortgage, loan agreement, credit agreement, note,
guarantee, lease or other instrument or agreement to which the Company or any of
its subsidiaries is a party or by which it or any of them may be bound, or to
which any of the property or assets of the Company or any of its subsidiaries is
subject, nor will such action result in any violation of the provisions of the
charter or by-laws, partnership agreement or other organizational documents, as
the case may be, of the Company or any of its subsidiaries or any applicable
law, administrative regulation or administrative or court decree.
(m) The Mergers were duly authorized by the Company, Fontana and
Napa, as applicable, and did not conflict with or constitute a breach of, or
default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company, Fontana or Napa pursuant
to, any contract, indenture, mortgage, loan agreement, credit agreement, note,
guarantee, lease or other instrument or agreement to which the Company, Fontana
or Napa is or was a party or by which any of them is or was bound, or to which
any of the property or assets of the Company, Fontana or Napa is or was subject,
except where such conflict, breach or default, singly or in the aggregate, would
not have a material adverse effect on the condition (financial or other),
business, prospects, properties, net worth or result of operations of the
Company and its subsidiaries considered as a whole, nor did the Mergers result
in any violation of the provisions of the charter or by-laws of the Company,
Fontana or Napa or any applicable law, administrative regulation or
administrative or court decree.
(n) No labor dispute with the employees of the Company or any
Significant Subsidiary exists or, to the knowledge of the Company, is imminent;
and the Company is not aware of any existing or imminent labor disturbance by
the employees of any of the Company's or any of its subsidiaries' principal
suppliers, manufacturers or contractors which might reasonably be expected to
result in any material adverse change in the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company and its subsidiaries considered as a whole.
(o) There is no action, suit or proceeding before or by any court
or governmental agency or body, domestic or foreign, now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company or any of
its subsidiaries (A) which is required to be disclosed in the Registration
Statement (other than as disclosed therein), or (B) which might result in any
material adverse
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<PAGE> 11
change in the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Company and its subsidiaries
considered as a whole or (C) which might materially and adversely affect
execution, delivery or performance of this Agreement, the Other Agreement, the
Indenture, the Notes, the Intercreditor Agreement, the Guarantees, the Security
Documents, the CF&I Note, the Amended Credit Agreement, the Bank Guaranties, the
Bank Security Agreements or +, or the consummation of any of the transactions
contemplated hereby or thereby (including, without limitation, the issuance and
sale of the Shares and the Notes and the creation and maintenance of the liens
and security interests arising under the Security Documents); all pending legal
or governmental proceedings to which the Company or any subsidiary is a party or
of which any of their respective property or assets is the subject which are not
described in the Registration Statement, including ordinary routine litigation
incidental to the business, are, considered in the aggregate, not material; and
there are no contracts or documents of the Company or any of its subsidiaries
which are required to be filed as exhibits to the Registration Statement by the
Act which have not been so filed.
(p) The Company and its subsidiaries own or possess adequate
rights to use, or can acquire on reasonable terms, the material patents, patent
rights, licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names presently
employed by them in connection with the business now operated by them, and
neither the Company nor any of its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to any
of the foregoing which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in any material adverse
change in the condition (financial or other), business, prospects, properties,
net worth or results of operations of the Company and its subsidiaries
considered as a whole.
(q) No authorization, approval, consent or order of, or
qualification, registration or filing with, any court or governmental authority,
agency or official is necessary in connection with the offering, issuance or
sale of the Shares under this Agreement or of the Notes under the Other
Agreement, or for the execution, delivery or performance by the Company and the
Guarantors of this Agreement, the Other Agreement, the Indenture, the Notes, the
Intercreditor Agreement, the Guarantees, the Security Documents, the CF&I Note,
the Amended Credit Agreement, the Bank Guaranties, the Bank Security Agreements
or + (including without limitation, for the creation and maintenance of the
liens and security interests arising under the Security Documents), except (i)
such as may be required under the Act, state securities or Blue Sky laws, and
the Trustee Indenture Act of 1939, as amended (the "1939 Act") and (ii) for the
filings described in Section 6(ar) of the Other Agreement and the filing from
time to time of continuation statements under the Uniform Commercial Code of the
States of California, Colorado and Oregon (the "UCC").
(r) The Company and its subsidiaries possess such certificates,
authorities or permits issued by the appropriate state, federal or foreign
regulatory agencies or bodies necessary to conduct the business now operated by
them, except where the failure to possess any such certificates, authorities, or
permits would not, singly or in the aggregate, have a material adverse effect on
the condition (financial or other), business, prospects, properties, net worth
or result of operations of the Company and its subsidiaries considered as a
whole; and neither the Company nor any of its subsidiaries has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition (financial or other), business, prospects,
properties, net worth or results of operations of the Company and its
subsidiaries considered as a whole.
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<PAGE> 12
(s) This Agreement has been duly authorized, executed and
delivered by the Company.
(t) There are no persons with registration or other similar rights
to have any securities registered pursuant to the Registration Statement or
included in the offering contemplated by this Agreement or the Other Agreement.
(u) The Company has complied with, and is and will be in
compliance with, the provisions of that certain Florida act relating to
disclosure of doing business with Cuba, codified as Section 517.075 of the
Florida Statutes and the rules and regulations thereunder (collectively, the
"Cuba Act") or is exempt therefrom.
(v) The acquisition by CF&I of the assets of CF&I Steel
Corporation and its subsidiaries pursuant to the Acquisition Agreement (as
defined below) was approved by a Final Order (as defined in the Acquisition
Agreement) and the Final Order, insofar as it relates to the Acquisition
Agreement and transactions contemplated thereby, is not subject to review,
appeal or modification.
(w) As used in this Agreement, "Existing Credit Agreements" means
(A) the Company's $300 million Credit Agreement dated as of December 14, 1994
with FIOR, BNS and the other banks party thereto, as amended by Amendment No. 1
thereto dated as of September 30, 1995 and Waiver and Amendment No. 2 thereto
dated as of March 22, 1996 (the "Old Credit Agreement"), (B) the Asset Purchase
Agreement dated March 3, 1993 (the "Acquisition Agreement") among CF&I Steel
Corporation, the Company, New CF&I and the other parties thereto, (C) Camrose's
Cdn. $18 million credit facilities established by the Amendment, Restatement and
Establishment of Credit Facilities dated as of October 28, 1994 between Camrose
and BNS, as amended on May 9, 1995 (the "Camrose Credit Agreement"), (D) the
Standing Letter of Credit Agreement dated March 15, 1995 (the "BNL Agreement")
from the Company to Banca Nazionale de Lavoro ("BNL") providing for letters of
credit in an aggregate principal amount not to exceed $4,000,000 at any time
outstanding, (E) the Company's uncollateralized and uncommitted revolving line
of credit from FIOR in an aggregate amount not to exceed $15 million, (F) the
Optional Advance Note from CPC to the Company dated December 9, 1994, in the
principal amount of $30 million, (G) the Optional Advance Note from OSM
Glassification(TM), Inc. to the Company dated December 9, 1994, in the principal
amount of $5 million, and (H) Optional Advance Notes from CF&I to the Company,
executed on the following dates and in the following principal amounts: (i)
February 11, 1994, in the amount of $30 million, (ii) May 17, 1994, in the
amount of $30 million, (iii) October 20, 1994, in the amount of $30 million (iv)
December 9, 1994, in the amount of $35 million, (v) March 9, 1995, in the amount
of $15 million and (vi) September 13, 1995 in the amount of $50 million (each of
the Optional Advance Notes referred to in clauses (F) through (H), an "Optional
Advance Note" and collectively, the "Optional Advance Notes")[TO BE UPDATED];
"Old Guaranties" means the Guaranties, each dated as of December 14, 1994,
executed by Napa, Fontana, New CF&I and CPC pursuant to the Old Credit
Agreement; and "Existing Security Agreements" means (A) the Pledge Agreement,
dated as of December 14, 1994 (the "Old Pledge Agreement"), executed by the
Company and the Security Agreements, each dated as of December 14, 1994 (the
"Old Security Agreements"), executed by the Company, Napa, Fontana, New CF&I,
CF&I and CPC, respectively, securing obligations under the Old Credit Agreement
and the Old Guaranties (the Old Pledge Agreement and the Old Security
Agreements, collectively, the "Old Security Documents") and (B) the General
Security Agreement dated January 12, 1993 executed by Camrose securing its
obligations under the Camrose Credit Agreement, as amended by the Amendment
thereto dated June 27, 1994 (the "Camrose Security Agreement"). Immediately
prior to the Closing Time, the only instruments or agreements pursuant to which
the Company or any of its subsidiaries will have outstanding or will have
guaranteed, or which will provide for the Company or any of its subsidiaries to
incur, issue or guarantee, indebtedness (including indebtedness between the
Company
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<PAGE> 13
and any of its subsidiaries or between any of the Company's subsidiaries) for
borrowed money or evidenced by bonds, debentures, notes, drafts, letters of
credit, bankers acceptances or other similar instruments or to issue letters of
credit, bankers acceptances or similar instruments, will be the Existing Credit
Agreements and the Old Guaranties, and the only mortgages, liens, charges,
security interests, pledges, assignments or other encumbrances securing
obligations under the Existing Credit Agreements or the Old Guaranties will be
those created pursuant to the Existing Security Agreements; and the Company has
provided to you true, complete and correct copies of all of the Existing Credit
Agreements, Old Guaranties and Existing Security Agreements. Immediately prior
to the Closing Time, the only indebtedness of the Company and its subsidiaries
(including indebtedness between the Company and any of its subsidiaries or
between any of the Company's subsidiaries but excluding trade payables) will be
indebtedness under the Existing Credit Agreements and the Old Guaranties.
(x) Prior to the Closing Time, the Old Guaranties and the Old
Security Agreements executed by each of Napa and Fontana shall each be
terminated and all mortgages, loans, charges, security interests, pledges,
assignments and other encumbrances created thereby or in connection therewith,
or securing any obligations thereunder or under the Old Credit Agreement will
have been released and terminated (including, without limitation, by the filing
in appropriate governmental offices of UCC termination statements.)
(y) At the Closing Time, the Old Pledge Agreement, the Old
Guaranty executed by CPC and the Old Security Agreement executed by CPC will
have been terminated, all amounts owing thereunder will have been paid, and all
mortgages, liens, charges, security interests, pledges, assignments and other
encumbrances created thereby or in connection therewith, or securing any
obligations thereunder or under the Old Credit Agreement, will have been
released and terminated (including, without limitation, by the filing in
appropriate governmental offices of UCC termination statements).
(z) At the Closing Time, the Old Guaranty executed by New CF&I
(the "Old New CF&I Guaranty"), the Old Security Agreement executed by the
Company (the "Old Company Security Agreement") the Old Security Agreement
executed by New CF&I (the "Old New CF&I Security Agreement") and the Old
Security Agreement executed by CF&I (the "Old CF&I Security Agreement") will be
amended and restated and the Old New CF&I Guaranty, as so amended and restated,
will guarantee obligations of the Company arising only under the Amended Credit
Agreement, and the only collateral which will be subject to the liens and
security interests created by the Old Company Security Agreement, Old New CF&I
Security Agreement and Old CF&I Security Agreement, as so amended and restated,
will be accounts receivable and inventory and related books and records of the
Company, New CF&I and CF&I, respectively, and all mortgages, liens, charges,
security interests, pledges, assignments and other encumbrances created by the
Old Company Security Agreement, Old New CF&I Security Agreement and the Old CF&I
Security agreement on any other property or assets will have been released and
terminated (including, without limitation, by the filing in appropriate
governmental offices of UCC termination or amendment statements).
(aa) Each Optional Advance Note has been duly authorized, executed
and delivered by the issuer thereof and is a valid and binding obligation of the
applicable issuer, enforceable in accordance with its terms, except as
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general principles of equity. As of the Closing Time, the
Optional Advance Notes of CF&I shall have an aggregate outstanding principal
balance of $+ [TO BE PROVIDED BY THE COMPANY].
(ab) The Amended Credit Agreement has been duly authorized by the
Company and +; at the Closing Time, the Amended Credit Agreement will have been
duly executed and delivered by,
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<PAGE> 14
and will be a valid and binding agreement of, the Company and +, enforceable in
accordance with its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general principles of
equity and all conditions precedent to the effectiveness of the Amended Credit
Agreement will have been satisfied.
(ac) The Bank Guaranties have been duly authorized by New CF&I and
CF&I, respectively (including, without limitation, by New CF&I in its capacity
as sole general partner of CF&I); at the Closing Time, the Bank Guaranties will
have been duly executed and delivered by, and will be the valid and binding
agreements of, New CF&I and CF&I, respectively, enforceable in accordance with
their terms, except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general principles of equity.
(ad) The Bank Security Agreements have been duly authorized by the
Company, New CF&I and CF&I, respectively (including, without limitation, by New
CF&I in its capacity as sole general partner of CF&I); at the Closing Time, the
Bank Security Agreements will have been duly executed and delivered by, and will
be the valid and binding agreements of, the Company, New CF&I and CF&I,
respectively, enforceable in accordance with their terms, except as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general principles of equity.
(ae) At the Closing Time there will not be any mortgages, liens,
charges, security interests, pledges, assignments or other similar encumbrances
upon any property or assets of the Company or any of its subsidiaries which
secure indebtedness for borrowed money or evidenced by any bonds, debentures,
notes, drafts, letters of credit, bankers acceptances or other similar
instruments in respect of any of the foregoing, or which secure obligations
under any credit agreement, loan agreement, line of credit, reimbursement
agreement, letter of credit, bankers acceptance or other similar instruments or
agreements (whether or not there are borrowings outstanding thereunder), or
which secure any guarantees in respect of any of the foregoing, except for (i)
the pledge of certain assets by Camrose pursuant to the Camrose Security
Agreement to secure its obligations under the Camrose Credit Agreement, (ii) the
pledge by the Company, New CF&I and CF&I of their accounts receivable, inventory
and related books and records to secure their obligations under the Amended
Credit Agreement and the Bank Guaranties and (iii) the liens and security
interests created by the Security Documents in favor of the Trustee and the
holders of the Notes.
(af) The representations and warranties of the Company set forth
in the Other Agreement are true, complete and correct, and such representations
and warranties are hereby incorporated by reference in, and made a part of, this
Agreement as if set forth in full at this place.
(ag) The Pension Benefit Guaranty Corporation, as limited partner
of CF&I, has consented to the Guarantee, the Security Agreement and the Mortgage
to be executed by CF&I in connection with the sale of the Notes and the Bank
Guaranty and the Bank Security Agreement to be executed by CF&I in connection
with the Amended Credit Agreement and such consent as in full force and effect
and has not been withdrawn or limited; and BNL has waived the negative pledge
covenant in the BNL Agreement insofar as it relates to the liens and security
interests created by the Security Documents and the Bank Security Agreements and
such waiver is in full force and effect and has not been withdrawn or limited.
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<PAGE> 15
7. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each of you and each other Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act from and against any and all losses,
claims, damages, liabilities and expenses (including reasonable costs of
investigation) arising out of or based upon any untrue statement or alleged
untrue statement of a material fact contained in any Prepricing Prospectus or in
the Registration Statement or the Prospectus or in any amendment or supplement
thereto, or arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of or are based upon any untrue
statement or omission or alleged untrue statement or omission which has been
made therein or omitted therefrom in reliance upon and in conformity with the
information relating to such Underwriter furnished in writing to the Company by
or on behalf of such Underwriter through you expressly for use in connection
therewith; provided, however, that the indemnification contained in this
paragraph (a) with respect to any Prepricing Prospectus shall not inure to the
benefit of any Underwriter (or to the benefit of any person controlling such
Underwriter) on account of any such loss, claim, damage, liability or expense
arising from the sale of the Shares by such Underwriter to any person if a copy
of the Prospectus shall not have been delivered or sent to such person within
the time required by the Act and the regulations thereunder, and the untrue
statement or alleged untrue statement or omission or alleged omission of a
material fact contained in such Prepricing Prospectus was corrected in the
Prospectus itself (and not in, or by the filing of, an Incorporated Document),
provided that the Company has delivered the Prospectus to the several
Underwriters on a timely basis to permit such delivery or sending. The foregoing
indemnity agreement shall be in addition to any liability which the Company may
otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company, such Underwriter or such
controlling person shall promptly notify the Company and the Company shall
assume the defense thereof, including the employment of counsel and payment of
all fees and expenses (including fees and expenses of counsel). Such Underwriter
or any such controlling person shall have the right to employ separate counsel
in any such action, suit or proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Underwriter or such controlling person unless (i) the Company has agreed in
writing to pay such fees and expenses, (ii) the Company has failed to assume the
defense and employ counsel, or (iii) the named parties to any such action, suit
or proceeding (including any impleaded parties) include both such Underwriter or
such controlling person and the Company and such Underwriter or such controlling
person shall have been advised by its counsel that representation of such
indemnified party and the Company by the same counsel would be inappropriate
under applicable standards of professional conduct (whether or not such
representation by the same counsel has been proposed) due to actual or potential
differing interests between them (in which case the Company shall not have the
right to assume the defense of such action, suit or proceeding on behalf of such
Underwriter or such controlling person). It is understood, however, that the
Company shall, in connection with any one such action, suit or proceeding or
separate but substantially similar or related actions, suits or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any one firm serving as local
counsel) at any time for all such Underwriters and controlling persons not
having actual or potential differing interests with you or among themselves,
which firm shall be designated in writing by Smith Barney Inc., and that all
such fees and expenses shall be reimbursed as they are incurred. The Company
shall not be liable for any settlement of any such action, suit or proceeding
effected without its written consent, but if settled with such written consent,
or if there be a final judgment for the plaintiff in any such action, suit or
proceeding, the Company agrees to indemnify and hold harmless each Underwriter
and any controlling persons of such
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<PAGE> 16
Underwriter, to the extent provided in subsection (a) above, from and against
any loss, claim, damage, liability or expense by reason of such settlement or
judgment.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, and any person who controls the Company within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same
extent as the foregoing indemnity from the Company to each Underwriter, but only
with respect to information relating to such Underwriter furnished in writing by
or on behalf of such Underwriter through you expressly for use in the
Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto. If any action, suit or proceeding shall be
brought against the Company, any of its directors, any such officer, or any such
controlling person based on the Registration Statement, the Prospectus or any
Prepricing Prospectus, or any amendment or supplement thereto, and in respect of
which indemnity may be sought against any Underwriter pursuant to this
subsection (c), such Underwriter shall have the rights and duties given to the
Company by subsection (b) above (except that if the Company shall have assumed
the defense thereof such Underwriter shall not be required to do so, but may
employ separate counsel therein and participate in the defense thereof, but the
fees and expenses of such counsel shall be at such Underwriter's expense), and
the Company, its directors, any such officer, and any such controlling person
shall have the rights and duties given to the Underwriters by subsection (b)
above. The foregoing indemnity agreement shall be in addition to any liability
which the Underwriters may otherwise have.
(d) If the indemnification provided for in this Section 7 is
unavailable to an indemnified party under subsections (a) or (c) hereof in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then an indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Shares, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault of the Company on the
one hand and the Underwriters on the other hand shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or by the
Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
(e) The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined by
a pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in subsection (d) above. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages, liabilities and expenses referred to in subsection (d) above shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating any claim or defending any such action, suit or proceeding.
Notwithstanding the provisions of this Section
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<PAGE> 17
7, no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price of the Shares underwritten by it and distributed
to the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 7 are several in proportion to the respective numbers of Firm Shares set
forth opposite their names in Schedule I hereto (or such numbers of Firm Shares
increased as set forth in Section 10 hereof) and not joint.
(f) No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under this
Section 7 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 7 and the
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers, or any person
controlling the Company, (ii) acceptance of any Shares and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter or any person controlling any Underwriter, or to the Company, its
directors or officers, or any person controlling the Company, shall be entitled
to the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 7.
8. Conditions of Underwriters' Obligations. The several obligations
of the Underwriters to purchase the Firm Shares hereunder are subject to the
following conditions:
(a) If, at the time this Agreement is executed and delivered, it
is necessary for the registration statement or a post-effective amendment
thereto or the Rule 462(b) Registration Statement to be declared effective
before the offering of the Shares may commence, the registration statement or
such post-effective amendment or the Rule 462(b) Registration Statement, as the
case may be, shall have become effective not later than 5:30 P.M., New York City
time, on the date hereof, or at such later date and time as shall be consented
to in writing by you, and all filings, if any, required by Rules 424 and 430A
under the Act shall have been timely made; no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been instituted or, to the knowledge of
the Company or any Underwriter, threatened by the Commission, and any request of
the Commission for additional information (to be included in the registration
statement or the prospectus or otherwise) shall have been complied with to your
satisfaction.
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, prospects, properties, net worth, or results of operations of the
Company or its subsidiaries not contemplated by the Prospectus, which in your
opinion, as Representatives of the several Underwriters, would materially
adversely affect the market for the Shares, or (ii) any event or development
relating to or involving the Company or its subsidiaries or any officer or
director of the Company which makes any statement made in the Prospectus untrue
in any material respect or which, in
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<PAGE> 18
the opinion of the Company and its counsel or the Underwriters and their
counsel, requires the making of any addition to or change in the Prospectus in
order to state a material fact required by the Act or any other law to be stated
therein or necessary in order to make the statements therein not misleading, if
amending or supplementing the Prospectus to reflect such event or development
would, in your opinion, as Representatives of the several Underwriters,
materially adversely affect the market for the Shares.
(c) You shall have received at the Closing Time, an opinion of
Stoel Rives LLP, counsel for the Company, dated as of Closing Time and addressed
to you, as Representatives of the several Underwriters, to the effect that:
(i) The Company has been duly incorporated, is in good standing
and has legal corporate existence under the laws of the State of
Delaware.
(ii) The Company has all requisite corporate power and corporate
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and to enter into and perform
its obligations under this Agreement, the Notes, the Indenture, the
Intercreditor Agreement, the Security Documents to which the Company is
a party, the Amended Credit Agreement, the Bank Security Agreement to
which the Company is a party and +.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in the State of California
and the State of Oregon.
(iv) The Shares have been duly authorized for issuance and sale
to the Underwriters pursuant to this Agreement by all necessary
corporate action on the part of the Company and, when issued and
delivered by the Company pursuant to this Agreement against payment of
the consideration set forth herein, will be validly issued and fully
paid and non-assessable.
(v) The issuance of the Shares is not subject to preemptive
rights or other similar rights arising by operation of the General
Corporation Law of the State of Delaware or under the certificate of
incorporation or by-laws of the Company.
(vi) New CF&I has been duly incorporated, is in good standing and
has legal corporate existence under the laws of the State of Delaware
and has all requisite corporate power and corporate authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its
obligation under the Other Agreement, its Guarantees, the Indenture,
the Intercreditor Agreement, the Security Documents to which it is a
party, [the Amended Credit Agreement], its Bank Guaranty, its Bank
Security Agreement and +; New CF&I is duly qualified as a foreign
corporation to transact business and is in good standing in the States
of Oregon and Colorado.
(vii) CF&I has been duly organized and has legal existence as a
limited partnership in good standing under the laws of the State of
Delaware, has all requisite power and authority as a limited
partnership to own, lease and operate its properties and to conduct its
business as described in the Prospectus and to enter into and perform
its obligations under the Other Agreement, its Guarantee, the
Indenture, the Intercreditor Agreement, the Security Documents to which
it is a party, the CF&I Note, [the Amended Credit Agreement], its Bank
Guaranty, its Bank Security Agreement and +; CF&I is duly qualified as
a foreign partnership to transact business, and is in good standing, in
the States of Colorado and California.
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<PAGE> 19
(viii) This Agreement has been duly authorized, executed and
delivered by the Company.
(ix) The Registration Statement is effective under the Act and,
to their knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued under the Act or proceedings
therefor initiated or threatened by the Commission; and any required
filing of the Prospectus pursuant to Rule 424(b) has been made in
accordance with Rule 424(b).
(x) The Registration Statement and the Prospectus, as amended or
supplemented if applicable (in each case other than the financial
statements and supporting schedules and other financial or statistical
data included or incorporated by reference therein) complies as to form
in all material respects with the requirements of the Act.
(xi) The Common Stock conforms as to legal matters in all
material respects to the description thereof contained in the
Prospectus under the caption "Description of Capital Stock", and the
form of certificate used to evidence the Common Stock complies with all
applicable requirements of the General Corporation Law of the State of
Delaware.
(xii) To their knowledge (A) there are no legal or governmental
proceedings pending or threatened which are required to be disclosed in
the Registration Statement, other than those disclosed therein, and (B)
there are no pending legal or governmental proceedings to which the
Company or any subsidiary is a party or to which any of their
respective properties or assets is subject which are not described in
the Registration Statement, including ordinary routine litigation
incidental to the business, which, individually or in the aggregate,
might reasonably be expected to have a material adverse effect on (1)
the consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries or (2) the consummation
of the transactions contemplated herein or the performance by the
Company of its obligations hereunder.
(xiii) The information in the Prospectus under the captions "Risk
Factors--Substantial Increase in Dividend Requirements; Limitations on
Payment of Common Stock Dividends", "Risk Factors--Leverage and Access
to Funding; Compliance with Financial Covenants", "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources", "Business--Environmental
Matters", "Description of Capital Stock", Description of Certain
Indebtedness" and in the last paragraph under "Price Range of Common
Stock and Dividends", the information in the Company's Annual Report on
Form 10-K/A for the year ended December 31, 1995 under
"Business--Environmental Matters", "Business--Employees", "Legal
Proceedings", "Properties" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources", the information in the Company's proxy statement dated
March 15, 1996 under "Executive Compensation--Defined Benefit
Retirement Plans" and "Employment Contracts and Termination of
Employment and Change in Control Arrangements", and the information
under Item 15 of Part II of the Registration Statement, to the extent
that it describes statutes, rules, regulations or other laws, or
summarizes provisions of the Company's articles of incorporation and
by-laws or the Indenture, the Notes, the Guarantees, the Security
Documents, the Intercreditor Agreement, the CF&I Note, the Acquisition
Agreement, the Camrose Credit Agreement, the Old Credit Agreement, the
Amended Credit Agreement, the Bank Guaranties, the Bank Security
Agreements, CF&I's partnership agreement, or other credit agreements,
guarantees, documents, instruments, agreements, legal or governmental
proceedings, leases or employee benefit plans, or constitutes matters
of law or legal conclusions, has been reviewed by them and is correct
in all material respects.
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<PAGE> 20
(xiv) To their knowledge, there are no contracts, indentures,
mortgages, loan agreements, credit agreements, notes, guarantees,
leases or other instruments or agreements required to be described or
referred to in the Registration Statement or to be filed as exhibits
thereto other than those described or referred to therein or filed or
incorporated by reference as exhibits thereto.
(xv) No authorization, approval, consent or order of, or
qualification, registration or filing with, any court or governmental
authority, agency or official is required in connection with the
offering, issuance or sale of the Shares to the Underwriters under this
Agreement and of the Notes under the Other Agreement or for the
execution, delivery or performance by the Company and the Guarantors of
this Agreement, the Other Agreement, the Indenture, the Notes, the
Intercreditor Agreement, the Guarantees, the Security Documents, the
CF&I Note, the Amended Credit Agreement, the Bank Guaranties, the Bank
Security Agreements or + (including, without limitation, for the
creation and maintenance of the liens and security interests arising
under the Security Documents), except (i) such as may be required under
the Act, state securities and Blue Sky laws and the 1939 Act and (ii)
for the filings described in Section 6(ar) of the Other Agreement and
the filing from time to time of continuation statements under the UCC;
and the execution, delivery and performance of this Agreement, the
Other Agreement, the Indenture, the Notes, the Intercreditor Agreement,
the Guarantees, the Security Documents, the CF&I Note, the Amended
Credit Agreement, the Bank Guaranties, the Bank Security Agreements and
+, and the consummation of the transactions contemplated herein and
therein (including without limitation, (i) the issuance and sale of the
Shares and the Notes and (ii) the creation and maintenance of the liens
and security interests arising under the Security Documents and the
Bank Security Agreements), will not conflict with or constitute a
breach of, or default under, or result in the creation or imposition of
any lien, charge or encumbrance (other than liens created by the
Security Document in favor of the Trustee and the holders of the Notes
and liens created pursuant to the Amended Credit Agreement and the Bank
Security Agreements in favor of the Lenders) upon any property or
assets of the Company or any of its subsidiaries pursuant to the
Indenture, the Security Documents, the Amended Credit Agreement, the
Bank Guaranties, the Bank Security Agreements or the Acquisition
Agreement, or, to their knowledge any other material contract,
indenture, mortgage, loan agreement, credit agreement, note, guarantee,
lease or other instrument or agreement to which the Company or any of
its subsidiaries is a party or by which it or any of them may be bound,
or to which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will such action result in any violation
of the provisions of the certificate of incorporation or by-laws,
partnership agreement or organizational documents, as the case may be,
of the Company or any of its Significant Subsidiaries, or any
applicable law, administrative regulation or, to their knowledge,
administrative or court decree.
(xvi) Each Incorporated Document filed pursuant to the Exchange
Act (other than the financial statements and supporting schedules and
other financial or statistical data included therein, as to which no
opinion need be rendered) complies as to form in all material respects
with the Exchange Act and the Exchange Act Regulations.
(xvii) The acquisition by CF&I of the assets of CF&I Steel
Corporation and its subsidiaries pursuant to the Acquisition Agreement
was approved by a Final Order and the Final Order, insofar as it
relates to the Acquisition Agreement and the transactions contemplated
thereby, is not subject to review, appeal or modification.
(xviii) The Old Guaranties and the Old Security Agreements executed
by Napa, Fontana and CPC have been terminated and all mortgages, liens,
charges, security interests, pledges,
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<PAGE> 21
assignments or other encumbrances created thereby or in connection
therewith, or securing any obligations thereunder, have been released
and terminated (including, without limitation, by the filing in
appropriate governmental offices of UCC termination statements).
(xix) The Old New CF&I Guaranty, the Old Company Security
Agreement, the Old New CF&I Security Agreement and the Old CF&I
Security Agreement have been amended and restated and the Old New CF&I
Guaranty, as so amended and restated, guarantees obligations of the
Company arising only under the Amended Credit Agreement, and the only
collateral which is subject to the liens and security interests created
by the Old Company Security Agreement, Old New CF&I Security Agreement
and Old CF&I Security Agreement, as so amended and restated, are
accounts receivable and inventory and related books and records of the
Company, New CF&I and CF&I, respectively, and all mortgages, liens,
charges, security interests, pledges, assignments and other
encumbrances created by the Old Company Security Agreement, Old New
CF&I Security Agreement and the Old CF&I Security Agreement on any
other property or assets have been released and terminated (including,
without limitation, by the filing in appropriate governmental offices
of UCC termination or amendment statements).
(xx) The Amended Credit Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the
Company and +, enforceable against the Company and + in accordance with
its terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
principles of equity, whether such enforcement is considered in a
proceeding in equity or at law.
(xxi) The Bank Guaranties have been duly authorized, executed and
delivered by, and are the valid and binding agreements of, New CF&I and
CF&I, respectively, enforceable against New CF&I and CF&I,
respectively, in accordance with their terms, except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors'
rights generally or by general principles of equity, whether such
enforcement is considered in a proceeding in equity or at law.
(xxii) The Bank Security Agreements have been duly authorized,
executed and delivered by, and are the valid and binding agreements of,
the Company, New CF&I and CF&I, respectively, enforceable against the
Company, New CF&I and CF&I, respectively, in accordance with their
terms, except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating
to or affecting creditors' rights generally or by general principles of
equity, whether such enforcement is considered in a proceeding in
equity or at law.
(xxiii) A duly authorized and executed certificate or certificates
of ownership and merger with respect to each of the Mergers has been
duly filed with the Secretary of State of the State of Delaware and
each of the Mergers has become effective under the General Corporation
Law of the State of Delaware.
Such counsel shall also state that, although counsel has not
undertaken, except as otherwise indicated in their opinion, to
determine independently, and does not assume any responsibility for,
the accuracy or completeness of the statements in the Registration
Statement or the Prospectus, such counsel has participated in the
preparation of the Registration Statement and the Prospectus, including
review and discussion of the contents thereof (including the contents
of all Incorporated Documents), and nothing has come to the attention
of such counsel that has
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<PAGE> 22
caused them to believe that the Registration Statement at the time the
Registration Statement became effective, or the Prospectus, as of its
date and as of the Closing Time or the Option Closing Time, as the case
may be, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that any amendment or
supplement to the Prospectus, as of its respective date, and as of the
Closing Time or the Option Closing Time, as the case may be, contained
any untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading (it being
understood that such counsel need make no statement with respect to the
financial statements and schedules and other financial and statistical
data included in the Registration Statement or the Prospectus or any
Incorporated Document). In the event that a Rule 462(b) Registration
Statement is filed and becomes effective on a date different from that
of the original registration statement, such statement shall be
appropriately modified also to cover the Rule 462(b) Registration
Statement as of its effective date.
In rendering their opinion as aforesaid, counsel may rely upon an
opinion or opinions, each dated as of Closing Time, of other counsel
retained by them or the Company as to laws of any jurisdiction other
than the United States, the State of New York or the State of Oregon,
the General Corporation Law of the State of Delaware or the Revised
Uniform Limited Partnership Act of the State of Delaware provided that
(1) each such local counsel is acceptable to the Representatives and
(2) such reliance is expressly authorized by each opinion so relied
upon and a copy of each such opinion (which also shall state that the
Representatives may rely on such opinion as if it were addressed to
them) is delivered to the Representatives and is, in form and substance
satisfactory to them and their counsel. In rendering their opinion as
aforesaid, insofar as any of the documents covered thereby are governed
by the laws of the State of New York, counsel may assume for purposes
of giving the opinion that the laws of the State of New York are the
same as the laws of the State of Oregon.
(d) You shall have received at the Closing Time an opinion of
Schwabe, Williamson and Wyatt, counsel for the Company, dated as of Closing Time
and addressed to you, as Representatives of the several Underwriters, to the
effect that:
(i) The Company is duly qualified as a foreign corporation to
transact business and is in good standing, in each jurisdiction in
which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not
have a material adverse effect on the condition (financial or other),
business, prospects, properties, net worth or results of operations of
the Company and its subsidiaries considered as a whole.
(ii) The authorized, issued and outstanding capital stock of the
Company is as set forth under the caption "Capitalization" in the
Prospectus (except for subsequent issuances, if any, pursuant to
warrants, reservations, agreements or employee benefit plans referred
to in the Prospectus); the issued and outstanding shares of Common
Stock have been duly authorized and validly issued and are fully paid
and non-assessable; and, to their knowledge there are no persons with
registration or other similar rights to have any securities registered
pursuant to the Registration Statement or included in the offering
contemplated by this Agreement or the Other Agreement.
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<PAGE> 23
(iii) The issuance of the Shares is not subject to preemptive
rights or other similar rights arising (A) by operation of the General
Corporation Law of the State of Delaware or under the certificate of
incorporation or by-laws of the Company or (B) to their knowledge,
otherwise.
(iv) CPC has been duly incorporated, is in good standing and has
legal corporate existence under the laws of the State of Delaware and
has all requisite corporate power and corporate authority to own, lease
and operate its properties and to conduct its business as described in
the Prospectus; each of New CF&I and CPC is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would
not have a material adverse effect on the condition (financial or
other), business, prospects, properties, net worth or results of
operations of the Company and its subsidiaries considered as a whole;
and all of the issued and outstanding capital stock of each of New CF&I
and CPC has been duly authorized and validly issued, is fully paid and
non-assessable and (except for a minority interest in New CF&I
described in the Prospectus) to their knowledge is owned by the
Company, directly, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity.
(v) CF&I is duly qualified as a foreign partnership to transact
business, and is in good standing, in each jurisdiction in which such
qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not have a
material adverse effect on the condition (financial or other),
business, prospects, properties, net worth or results of operations of
the Company and its subsidiaries considered as a whole; all of the
issued and outstanding partnership interests of CF&I have been duly
authorized (if applicable) and validly issued; and all of the issued
and outstanding partnership interests of Camrose and CF&I (except for
minority partnership interests described in the Registration Statement)
to their knowledge are owned by the Company, through New CF&I and CPC,
respectively, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity.
(vi) The Mergers were duly authorized by the Company, Fontana and
Napa, as applicable, and did not conflict with or constitute a breach
of, or default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the Company,
Fontana or Napa pursuant to, any contract, indenture, mortgage, loan
agreement, credit agreement, note, guarantee, lease or other instrument
or agreement, known to such counsel, to which the Company, Fontana or
Napa is or was, at the time of the Mergers, a party or by which any of
them are or were, at the time of the Mergers, bound, or to which any of
the property or assets of the Company, Fontana or Napa is or was, at
the time of the Mergers, subject, nor did the Mergers result in any
violation of the provisions of the charter or by-laws of the Company,
Fontana or Napa or, to the knowledge of such counsel, any applicable
law, administrative regulation or administrative or court decree.
(e) You shall have received at the Closing Time an opinion of
Field & Field Perration, special Canadian counsel for the Company and the
Guarantors, dated as of Closing Time and addressed to you, as Representatives of
the several Underwriters, to the effect that:
(i) CPC is registered in the Province of Alberta, Canada as a
valid and subsisting extra-provincial corporation, is in good standing
with respect to corporate filings in the Province of Alberta, Canada,
and is qualified to transact business in the Province of Alberta,
Canada.
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<PAGE> 24
(ii) Camrose is a general partnership duly formed under the laws
of the Province of Alberta, Canada; Camrose is in good standing with
respect to partnership filings in the Province of Alberta, Canada and
there is no other jurisdiction in which the character of the material
properties held by it, or the nature of its business, makes such
qualification or filing necessary; all of the issued and outstanding
partnership interests in Camrose have been duly authorized (if
applicable) and validly issued and, to their knowledge, CPC owns a 60%
general partnership interest in Camrose; and Camrose has the power and
authority as a general partnership to own, lease and operate its
properties and to conduct its business in the Province of Alberta,
Canada, as described in the Prospectus.
(f) You shall have received at the Closing Time an opinion of
Brown & Wood, counsel for the Underwriters, dated as of Closing Time and
addressed to you, as Representatives of the several Underwriters, with respect
to the matters referred to in clauses (iv), (v), (viii), (ix), (x) (excluding
the Incorporated Documents) and the penultimate paragraph of subsection (c)
above and such other related matters as you may request.
(g) You shall have received letters addressed to you, as
Representatives of the several Underwriters, and dated the date hereof and as of
Closing Time from Coopers & Lybrand L.L.P., independent certified public
accountants, substantially in the forms heretofore approved by you.
(h)(i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Time; (ii) there shall
not have been any change in the capital stock (except for subsequent issuances,
if any, pursuant to this Agreement or pursuant to warrants or reservations
referred to in the Prospectus) of the Company nor any material increase in the
consolidated short-term or long-term debt of the Company and its subsidiaries
(other than in the ordinary course of business) from that set forth or
contemplated in the Registration Statement or the Prospectus; (iii) there shall
not have been, since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as may otherwise be stated
in the Registration Statement and Prospectus, any material adverse change in the
condition (financial or other), business, prospects, properties, net worth or
results of operations of the Company and its subsidiaries considered as a whole;
(iv) the Company and its subsidiaries shall not have any liabilities or
obligations, direct or contingent (whether or not in the ordinary course of
business), that are material to the Company and its subsidiaries considered as a
whole other than those reflected in the Registration Statement or the
Prospectus; and (v) all the representations and warranties of the Company
contained in this Agreement shall be true and correct on and as of the date
hereof and on and as of the Closing Time as if made on and as of the Closing
Time, and you shall have received a certificate, dated as of the Closing Time
and signed on behalf of the Company by the chief executive officer and the chief
financial officer of the Company (or such other officers as are acceptable to
you), to the effect set forth in this Section 8(h) and in Section 8(i) hereof.
(i) The Company shall not have failed at or prior to the Closing
Time to have performed or complied with any of its agreements herein contained
and required to be performed or complied with by it hereunder at or prior to the
Closing Time.
(j) Prior to the Closing Time the Shares shall have been listed,
subject to notice of issuance, on the New York Stock Exchange.
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<PAGE> 25
(k) Prior to or concurrently with the delivery of the Firm Shares
hereunder at the Closing Time, the Company shall have issued, and the Debt
Underwriters shall have paid for, the Notes being sold pursuant to the Other
Agreement.
(l) Prior to the Closing Time, the Amended Credit Agreement, the
Bank Guaranties and the Bank Security Agreements and all ancillary instruments
and agreements shall have been executed and delivered by the parties thereto and
shall be in form and substance satisfactory to you and the Company shall have
furnished you copies thereof; at or prior to Closing Time, the instruments and
agreements (including, without limitation, UCC termination statements or
amendments to UCC financing statements) providing for the release and
termination of the liens and security interests referred to in Sections 6(x),
6(y) and 6(z) hereof shall have been executed, delivered and filed in the
appropriate governmental offices, and the Company shall have delivered copies
thereof to you; at the Closing Time, the Amended Credit Agreement shall be
effective; at the Closing Time, the Company shall have furnished to you
evidence, in form and substance satisfactory to you, that the Old Pledge
Agreement, the Old Guaranties executed by Napa, Fontana and CPC and the Old
Security Agreements executed by Napa, Fontana and CPC shall have been terminated
and that all amounts owing thereunder have been paid, and that all mortgages,
liens, charges, security interests, pledges, assignments or other encumbrances
created thereby or in connection therewith, or securing obligations under the
Old Guaranties or the Old Credit Agreement, have been released and terminated
(including, without limitation, by the filing in appropriate governmental
offices of UCC termination statements); and at the Closing Time, the Company
shall have furnished to you evidence, in form and substance satisfactory to you,
that the Old Guaranty executed by New CF&I shall have been amended and restated
and shall guarantee obligations of the Company arising only under the Amended
Credit Agreement and that the Old Security Agreements executed by the Company,
New CF&I and CF&I have been amended and restated and that the only collateral
which is subject to the liens and security interests created thereby, after
giving effect to such amendment and restatement, are accounts receivable and
inventory and related books and records of the Company, New CF&I and CF&I,
respectively. [TO BE APPROPRIATELY REVISED].
(m) At the Closing Time, you shall have received evidence,
satisfactory to you, of the consent of Pension Benefit Guaranty Corporation, as
the limited partner of CF&I, to the Guarantee, the Security Agreement and the
Mortgage to be executed by CF&I in connection with the sale of the Notes and the
Bank Guaranty and the Bank Security Agreement to be executed by CF&I in
connection with the Amended Credit Agreement and such consent shall be in full
force and effect and shall not have been withdrawn or limited.
(n) At the Closing Time, you shall have received evidence,
satisfactory to you, that BNL has waived the negative pledge covenant in the BNL
Agreement insofar as relates to the liens and security interests created by the
Security Documents and the Bank Security Agreements, and such waiver shall be in
full force and effect and shall not have been withdrawn or limited.
(o) The Company shall have furnished or caused to be furnished to
you such further certificates and documents as you shall have reasonably
requested.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you and your counsel.
Any certificate or document signed by any officer of the Company and
delivered to you, as Representatives of the Underwriters, or to counsel for the
Underwriters, shall be deemed a representation and warranty by the Company to
each Underwriter as to the statements made therein.
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<PAGE> 26
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of any Option Closing
Time of the conditions set forth in this Section 8, except that, if any Option
Closing Time is other than the Closing Time, the certificates, opinions and
letters referred to in paragraphs (c) through (h) shall be dated as of the
Option Closing Time in question and the opinions called for by paragraphs (c),
(d), (e) and (f) shall be revised to reflect the sale of Additional Shares.
9. Expenses. The Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by it of
its obligations hereunder: (i) the preparation, printing (or reproduction), and
filing with the Commission of the Registration Statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the Registration Statement, each
Prepricing Prospectus, the Prospectus, the Incorporated Documents, and all
amendments or supplements to any of them, as may be reasonably requested for use
in connection with the offering and sale of the Shares; (iii) the preparation,
printing, authentication, issuance and delivery of certificates for the Shares,
including any stamp taxes in connection with the original issuance and sale of
the Shares; (iv) the printing (or reproduction) and delivery of this Agreement,
the preliminary and supplemental Blue Sky Memoranda and all other agreements or
documents printed (or reproduced) and delivered in connection with the offering
of the Shares; (v) the listing of the Shares on the New York Stock Exchange;
(vi) the registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of the several states as provided in Section
5(g) hereof (including the reasonable fees, expenses and disbursements of
counsel for the Underwriters relating to the preparation, printing (or
reproduction), and delivery of the preliminary and supplemental Blue Sky
Memoranda and such registration and qualification); (vii) the filing fees and
the reasonable fees and expenses of counsel for the Underwriters in connection
with any filings required to be made with the National Association of Securities
Dealers, Inc.; (viii) the transportation and other expenses incurred by or on
behalf of Company representatives in connection with presentations to
prospective purchasers of the Shares; and (ix) the fees and expenses of the
Company's accountants and the fees and expenses of counsel (including local and
special counsel) for the Company.
10. Effective Date of Agreement. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the registration statement or a post-effective amendment thereto or a Rule
462(b) Registration Statement to be declared or become effective before the
offering of the Shares may commence, when notification of the effectiveness of
the registration statement or such post-effective amendment or a Rule 462(b)
Registration Statement, as the case may be, has been released by the Commission.
Until such time as this Agreement shall have become effective, it may be
terminated by the Company by notifying you, or by you, as Representatives of the
several Underwriters, by notifying the Company.
If any one or more of the Underwriters shall fail or refuse to purchase
Shares which it or they are obligated to purchase hereunder at the Closing Time,
and the aggregate number of Shares which such defaulting Underwriter or
Underwriters are obligated but fail or refuse to purchase is not more than
one-tenth of the aggregate number of Shares which the Underwriters are obligated
to purchase at the Closing Time, each non-defaulting Underwriter shall be
obligated, severally, in the proportion which the number of Firm Shares set
forth opposite its name in Schedule I hereto bears to the aggregate number of
Firm Shares set forth opposite the names of all non-defaulting Underwriters or
in such other proportion as you may specify in accordance with Section 20 of the
Master Agreement Among Underwriters of Smith Barney Inc., to purchase the Shares
which such defaulting Underwriter or Underwriters are obligated, but fail or
refuse, to purchase. If any one or more of the Underwriters shall fail or refuse
to purchase Shares
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<PAGE> 27
which it or they are obligated to purchase at the Closing Time and the aggregate
number of Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Shares which the Underwriters are obligated
to purchase at the Closing Time and arrangements satisfactory to you and the
Company for the purchase of such Shares by one or more non-defaulting
Underwriters or other party or parties approved by you and the Company are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company. In any
such case which does not result in termination of this Agreement, either you or
the Company shall have the right to postpone the Closing Time, but in no event
for longer than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any such default of any such
Underwriter under this Agreement. The term "Underwriter" as used in this
Agreement includes, for all purposes of this Agreement, any party not listed in
Schedule I hereto who, with your approval and the approval of the Company,
purchases Shares which a defaulting Underwriter is obligated, but fails or
refuses, to purchase.
Any notice under this Section 10 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
11. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company, by notice to the Company if prior to the Closing
Time or any Option Closing Time (if different from the Closing Time and then
only as to the Additional Shares), as the case may be, (i) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange or the
Nasdaq National Market shall have been suspended or materially limited, (ii) a
general moratorium on commercial banking activities in New York or Oregon shall
have been declared by either federal or state authorities, or (iii) there shall
have occurred any outbreak or escalation of hostilities or other international
or domestic calamity, crisis or change in political, financial or economic
conditions, the effect of which on the financial markets of the United States is
such as to make it, in your judgment, impracticable or inadvisable to commence
or continue the offering of the Shares at the offering price to the public set
forth on the cover page of the Prospectus or to enforce contracts for the resale
of the Shares by the Underwriters. Notice of such termination may be given to
the Company by telegram, telecopy or telephone and shall be subsequently
confirmed by letter.
12. Information Furnished by the Underwriters. The statements set
forth in the last paragraph on the cover page, the stabilization legend
appearing as the last paragraph under the caption "Incorporation of Certain
Documents by Reference" and the statements in the first and third paragraphs
under the caption "Underwriting" in any Prepricing Prospectus and in the
Prospectus, constitute the only information furnished by or on behalf of the
Underwriters through you as such information is referred to in Sections 6(b) and
7 hereof.
13. Miscellaneous. Except as otherwise provided in Sections 5, 10 and
11 hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company, at the office of the
Company at 1000 S.W. Broadway, Portland, Oregon 97205, Attention: L. Ray Adams;
or (ii) if to you, as Representatives of the several Underwriters, care of Smith
Barney Inc., 388 Greenwich Street, New York, New York 10013, Attention: Manager,
Investment Banking Division.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors and officers, and the other
controlling persons referred to in Section 7 hereof and their respective
successors and assigns, to the extent provided herein, and no other person shall
acquire or have any right under or by virtue of this Agreement. Neither the term
"successor" nor the term
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<PAGE> 28
"successors and assigns" as used in this Agreement shall include a purchaser
from any Underwriter of any of the Shares in his status as such purchaser.
14. Applicable Law; Counterparts. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
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<PAGE> 29
Please confirm that the foregoing correctly sets forth the agreement
between the Company and the several Underwriters.
Very truly yours,
OREGON STEEL MILLS, INC.
By:
-----------------------------------
Name:
Title:
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule I
hereto.
SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
As Representatives of the Several Underwriters
By: SMITH BARNEY INC.
By:
--------------------------------------
Name:
Title:
<PAGE> 30
SCHEDULE I
Number of
Underwriter Firm Shares
- ------------------------------------------------------------ -----------
Smith Barney Inc............................................
PaineWebber Incorporated....................................
-----------
Total.............................................. 6,000,000
===========
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<PAGE> 31
SCHEDULE II
List of Officers and Directors
Subject to Lock-up
Thomas B. Boklund
C. Lee Emerson
V. Neil Fulton
Edward C. Gendron
Richard G. Landis
Robert W. Keener
James A. Maggetti
John A. Sproul
William Swindells
L. Ray Adams
Joe E. Corvin
Edward J. Hepp, Jr.
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<PAGE> 32
Exhibit A
OREGON STEEL MILLS, INC.
LOCK-UP LETTER
, 1996
SMITH BARNEY INC.
PAINEWEBBER INCORPORATED
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
The undersigned understands that you and certain other firms propose to
enter into an Underwriting Agreement (the "Underwriting Agreement") providing
for the purchase by you and such other firms (the "Underwriters") of shares (the
"Shares") of Common Stock, par value $.01 per share (the "Common Stock"), of
Oregon Steel Mills, Inc. (the "Company") and that the Underwriters propose to
reoffer the Shares to the public.
In consideration of the execution of the Underwriting Agreement by the
Underwriters, and for other good and valuable consideration, the undersigned
hereby irrevocably agrees that without the prior written consent of Smith Barney
Inc. the undersigned will not sell, offer to sell, solicit an offer to buy,
contract to sell, grant any option or warrants to purchase, or otherwise
transfer or dispose of, any shares of Common Stock (including, without
limitation, Common Stock owned by the undersigned through the Company's ESOP),
or any securities convertible into or exercisable or exchangeable for Common
Stock, for a period of 90 days after the date of the final Prospectus relating
to the offering of the Shares to the public by the Underwriters.
The undersigned agrees that the provisions of this agreement shall be
binding also upon the successors, assigns, heirs and personal representatives of
the undersigned.
In furtherance of the foregoing, the Company and the registrar and
transfer agent for the Common Stock are hereby authorized to decline to make any
transfer of shares of Common Stock if such transfer would constitute a violation
or breach of this letter agreement.
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<PAGE> 33
It is understood that, if the Underwriting Agreement does not become
effective prior to August 1, 1996, or if the Underwriting Agreement (other than
the provisions thereof which survive termination) shall terminate or be
terminated prior to payment for and delivery of the Shares, you will release us
from our obligations under this letter agreement. This letter agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed within the State of New York.
Very truly yours,
-----------------------------
[Name of Signatory]
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