-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, L3v5iGrItZHd7k5GXItsl0jH4YpnSc1kmLv77xXqvtC/EcYEMqmxMhqrmNqJcqZe ydCS7VrrLHa94JusQQhBog== 0000830260-95-000004.txt : 19950616 0000830260-95-000004.hdr.sgml : 19950616 ACCESSION NUMBER: 0000830260-95-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950321 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OREGON STEEL MILLS INC CENTRAL INDEX KEY: 0000830260 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 940506370 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09887 FILM NUMBER: 95522173 BUSINESS ADDRESS: STREET 1: 1000 BROADWAY BLDG STREET 2: 1000 S W BROADWAY, SUITE 2200 CITY: PORTLAND STATE: OR ZIP: 97205 BUSINESS PHONE: 5032239228 10-K 1 DECEMBER 31, 1994 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ANNUAL REPORT FILED PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 COMMISSION FILE NUMBER 1-9887 OREGON STEEL MILLS, INC. (Exact name of registrant as specified in its charter) DELAWARE 94-0506370 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 1000 BROADWAY BUILDING SUITE 2200 1000 S. W. BROADWAY PORTLAND, OREGON 97205 (Address of principal executive office) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (503) 223-9228 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: Title of each class Name of each exchange on which ------------------- ------------------------------ registered ---------- Common Stock, $.01 par value per share New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[X] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- State the aggregate market value of the voting stock held by non- affiliates of the registrant. BASED ON LAST SALE, JANUARY 31, 1995: $310,037,488 Indicate the number of shares outstanding of each of the registrant's classes of stock as of January 31, 1995: COMMON STOCK, $.01 PAR VALUE 19,377,343 ---------------------------- ---------- (Title of Class) (Number of shares outstanding) DOCUMENTS INCORPORATED BY REFERENCE: Proxy statement for the Registrant's Annual Meeting of Stockholders to be held April 28, 1995 is incorporated by reference into Part III of this report. OREGON STEEL MILLS, INC. TABLE OF CONTENTS PAGE ---- PART I ITEM 1. BUSINESS........................................ 1 General....................................... 1 Capital Expenditures.......................... 2 Business Strategy............................. 3 Products...................................... 5 Raw Materials................................. 7 Marketing and Customers....................... 8 Competition and Other Market Factors.......... 10 Environmental Matters......................... 11 Employees..................................... 13 ITEM 2. PROPERTIES...................................... 14 ITEM 3. LEGAL PROCEEDINGS............................... 15 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............................. 15 Executive Officers of the Registrant.......... 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS................... 16 ITEM 6. SELECTED FINANCIAL DATA......................... 16 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................... 17 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..... 23 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.......................... 43 PART III ITEMS 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE and 11. REGISTRANT AND EXECUTIVE COMPENSATION........... 43 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......................... 43 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.. 43 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K........................... 43 PART I ITEM 1. BUSINESS GENERAL Oregon Steel Mills, Inc. (the "Company" or the "Registrant") was founded in 1926 by William G. Gilmore and was incorporated in California in 1928. The Company reincorporated in Delaware in 1974. The Company changed its name in December 1987 from Gilmore Steel Corporation to Oregon Steel Mills, Inc. During 1994, the Company operated two steel mills and five 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 organized into two business units known as the Oregon Steel Division and the CF&I Steel Division. The Oregon Steel Division is centered on the Company's Portland, Oregon steel minimill (the "Portland Steel Mill"), which supplies steel for the Company's steel plate and large diameter pipe finishing facilities. The Portland Steel Mill operates under the name of Oregon Steel Mills, Inc. The wholly-owned and majority-owned operating divisions, which are included in the Oregon Steel Division, are: Oregon Steel Mills - Fontana Division, Inc., a steel plate rolling mill in Fontana, California (the "Fontana Plate Mill"); Napa Pipe Corporation, a large diameter steel pipe mill and fabrication facility in Napa, California (the "Napa Facility"); and Camrose Pipe Corporation ("CPC") which owns a 60 percent interest in Camrose Pipe Company ("Camrose"), a large diameter pipe and electric resistance welded ("ERW") pipe facility in Camrose, Alberta, Canada (the "Camrose Facility"). The Company ceased operating the Fontana Plate Mill during the fourth quarter of 1994. The CF&I Steel Division consists of the steelmaking and finishing facilities of CF&I Steel, L.P. ("CF&I") located in Pueblo, Colorado (the "Pueblo Steel Mill"). The Company owns 90 percent of New CF&I, Inc., which owns a 95.2 percent general partnership interest in CF&I. The Pueblo Steel Mill is a steel minimill which produces long-length and standard steel rails, seamless oil country tubular goods ("OCTG"), wire rod, wire and bar products. In total, the Company produces eight steel products which include most standard grades of steel plate, a wide range of higher margin specialty steel plate, large diameter steel pipe, ERW pipe, long- length and standard rails, OCTG, wire rod, wire and bar products. The steel industry, including the steel products manufactured by the Company, has been highly cyclical and is generally characterized by overcapacity, both domestically and internationally. The Portland Steel Mill is the only hot-rolled steel plate minimill and one of two steel plate producers located in the eleven western states. The Portland Steel Mill produces slab thicknesses of 6", 7" and 8" and has an annual rolling mill capacity, depending on product mix, of up to 450,000 tons of finished steel plate in widths of up to 102". The Company's Napa Facility produces large diameter pipe of a quality suitable for use in high pressure oil and gas transmission pipelines. The Napa Facility can produce pipe with an outside diameter ranging from 16" to 42", with wall thicknesses of up to 1-1/16" and in lengths of up to 80 feet, and can process two different sizes of pipe simultaneously in its two finishing sections. Depending on product mix, the Napa Facility has an annual capacity in excess of 350,000 tons of pipe. Substantially all of the Napa Facility's requirements for specialty steel plate, which is fabricated into steel pipe, are currently supplied by the Portland Steel Mill and until December of 1994, the Fontana Plate Mill. The Company expanded its plate rolling capacity by commencing operations at the Fontana Plate Mill in December 1989. Depending on product mix, the Fontana Plate Mill had an annual rolling mill capacity of up to 750,000 tons of finished steel plate, bringing the Company's total plate rolling capacity to approximately 1.2 million tons per year. The Fontana Plate Mill can roll plate up to 136" wide, which is sufficient for fabricating the Napa and Camrose Facilities' largest diameter pipe products. The Company acquired the rolling mill machinery used at the Fontana Plate Mill in November 1989 for approximately $7.5 million. The land and buildings at the Fontana 1 Plate Mill are leased by the Company. In the third quarter, the Company announced the permanent closure of the Fontana Plate Mill and it ceased plate production in the fourth quarter. The Company acquired a 60 percent interest in the Camrose Facility in June 1992 for approximately $18 million from Stelco, Inc., a large Canadian steel producer. The Camrose Facility has two pipe manufacturing mills. One is a large diameter pipe mill similar to that of the Napa Facility, and the other is an ERW pipe mill which produces steel pipe used in the oil and gas industry for drilling and distribution. The large diameter pipe mill produces pipe in lengths of up to 80 feet with a diameter ranging from 20" to 42" with maximum wall thickness limited to about 70 percent of the Napa Facility. Depending upon the product mix, the annual capacity for large diameter pipe is up to 184,000 tons. The ERW mill produces pipe in sizes ranging from 4.5" to 16" in diameter and has an annual nominal capacity of up to 142,000 tons depending upon product mix. On March 3, 1993, New CF&I, Inc., a wholly-owned subsidiary of the Company, acquired for $22.2 million a 95.2 percent interest in a newly formed limited partnership, CF&I. The remaining 4.8 percent interest is owned by the Pension Benefit Guaranty Corporation. CF&I purchased substantially all of the steelmaking, fabricating, metals and railroad business assets of CF&I Steel Corporation for $113.1 million. The Pueblo Steel Mill has melting capacity in excess of 1 million tons and a finished ton capacity of approximately 1.5 million tons. In August of 1994, the Company sold a 10 percent equity interest in New CF&I, Inc. to a wholly-owned subsidiary of Nippon Steel Corporation ("Nippon"). In connection with that sale, Nippon agreed to license to the Company a proprietary technology for producing deep head-hardened ("DHH") rail products as well as to provide certain production equipment to produce DHH rail. New CF&I, Inc. received a cash payment of $16.8 million in connection with that transaction. CAPITAL EXPENDITURES As part of its strategy to be a low cost producer of steel products, the Company has undertaken extensive capital expenditure programs at its Portland and Pueblo Steel Mills. The purposes of the programs are to (i) reduce the cost of plate rolling and other finishing operations at the Portland Steel Mill while increasing yields and capacities, (ii) improve the steelmaking capability at the Pueblo Steel Mill, and (iii) reduce the cost of producing rail, rod and bar, and other products at the Pueblo Steel Mill while improving product quality and expanding the specialty grades that can be manufactured there. The Company also expects to invest in alternate metallic capability to help stabilize raw materials costs. Construction of the Combination Mill at Portland. The Company has begun construction of a new Steckel combination rolling mill (the "Combination Mill") at its Portland Steel Mill which is expected to cost approximately $190 million and to reduce average production costs for commodity and specialty grades of plate, primarily as a result of higher product yields as well as a reduction in transportation and labor costs as all of the Company's plate production is shifted to the Portland Steel Mill. The project is expected to include 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 additions are expected to 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 anticipated additions will enable the Company to roll coiled steel plate in lengths up to 2,100 feet and decrease end crop, side trim and crown loss. The Company estimates that these and other related improvements will increase average finished steel plate yields by approximately 8 percent, and that upon completion annual steel plate rolling capacity of the Portland Steel Mill will increase to 1.2 million tons and approximate the current combined capacity of the Portland and Fontana rolling mills. The Combination Mill is expected to begin operation in the third quarter of 1996. It is expected to provide considerable manufacturing flexibility and supply substantially all the Company's plate requirements for large diameter pipe as well as coiled plate for such applications as the smaller diameter ERW pipe manufactured at the Camrose Facility. The Portland Steel Mill currently produces discrete steel plate in dimensions up to 102" wide and 3/16" to 6" thick. The Combination Mill as currently planned would be capable of producing widths from 48" to 136", in thicknesses 2 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. Capital Improvements at the Pueblo Steel Mill. The Company anticipated making significant capital additions to the Pueblo Steel Mill as part of its strategy in acquiring the facility in 1993. In 1993, work began on a series of capital improvements principally to the steelmaking facility, rod and bar mills and rail production facilities. The capital improvement program at the Pueblo Steel Mill is expected to cost approximately $172 million from 1994 through 1996 and be substantially completed by the end of 1995. Certain major improvements are expected to be completed by the first quarter of 1995, including upgrading from ingot to continuous casting for rail production, enhancement of the Company's ability to produce specialty grades of steel, and construction of a new rod/bar mill. These changes are expected to 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 Steel Mill are outlined below. The Company completed in 1994 various capital improvements to the steelmaking facility, including installation of a ladle refining furnace, a vacuum degassing facility and upgrades to the continuous casters. The Company anticipates that after the capital improvements are completed, the Pueblo Steel Mill will be capable of producing approximately 1.2 million tons of hot metal annually. The Company expects that these and other related improvements will reduce the cost of production of molten steel, improve existing product quality and enable the Pueblo Steel Mill to produce additional specialty grades of steel including alloy, high carbon and super clean steels. The current rod and bar mills at the Pueblo Steel Mill are relatively older mills located in separate facilities and generate significant costs as the Company shifts production between them in response to market conditions. During January of 1995, the Company completed a new combination rod and bar mill with a new reheat furnace and a high speed rod train. The new facility will be capable of producing commodity and specialty grades of rod and bar products. Depending on product mix, the new combined facility is expected to have a capacity of approximately 600,000 tons per year and reduce the average cost per ton of rod and bar, principally as a result of decreased labor and energy requirements and increased product yields. In addition, these improvements will enable the Company to increase production of higher margin specialty products, such as high carbon rod, merchant bar and other specialty bar products, and produce larger rod coil sizes, which the Company believes are preferred by many of its customers. Rails are currently produced by ingot casting using processes which incur significant energy costs and yield losses as the ingots are reheated, reduced to blooms and then rolled into rails. During the first quarter of 1995, improvements in the melt shop are expected to replace ingot casting with more efficient continuous casting methods allowing the Company to cast directly into blooms. This is expected to increase rail yields from approximately 79 percent to approximately 95 percent and decrease the average cost of rail produced. The capital improvements are also expected to include installation of technology capable of producing approximately 200,000 tons annually of in-line head-hardened rail. As a result of these improvements, the Company expects to provide a functionally superior higher margin product and to be favorably positioned to increase its share of the domestic rail market. BUSINESS STRATEGY The Company seeks to be a low cost producer of specialty and commodity steel products and is implementing specific strategies to achieve that goal. The Company's diversified product line and flexible manufacturing operations allow it to manage its product mix and reduce the impact of individual product cycles on the Company's overall performance. The Company's manufacturing flexibility allows it, on short notice, to allocate its production resources to products which it believes will enhance profitability. Having completed the Camrose and CF&I acquisitions, which expanded the Company's product offerings from two to eight, the Company's efforts are focused on reducing production costs and emphasizing the manufacture of higher margin, high quality specialty products. The Company considers that substantial opportunities exist to reduce costs significantly and improve financial performance through execution of the following strategies: 3 Invest in Efficient and Flexible Manufacturing Technologies. As part of its effort to reduce manufacturing costs significantly, upgrade its steelmaking facilities and improve product quality, the Company initiated an expanded capital expenditure program in 1993, including approximately $385 million of planned expenditures from 1994 through 1996. Major components of the program yet to be completed include (i) construction of the new Combination Mill at the Portland Steel Mill and (ii) improvements to the rail production process at the Pueblo Steel Mill designed to expand the product mix into higher margin specialty products and increase manufacturing flexibility. Manufacture Higher Margin Specialty Products. The Company has been expanding the number of specialty steel products it produces. The Company's emphasis on higher profit margin specialty steel products will further enhance its ability to reduce the impact of individual product cycles on the Company's overall performance. The Company considers the market for these products to be less subject to competitive pressures because of the significant capital requirements necessary to produce products of the requisite quality. The Company's current range of specialty steel products includes alloy plate, heat treated plate, and large diameter and ERW pipe manufactured to demanding specifications. The Company's capital expenditure program at CF&I will enhance its ability to produce head-hardened and premium rail and a variety of specialty rod and bar products. Pursue Alternative Raw Material Sources. To reduce the effects of scrap price volatility and to insure access to quality raw materials, the Company is seeking to decrease its dependence on steel scrap as an input for the production process. The Company has successfully integrated directly reduced iron in briquetted form ("HBI") into the production process at both the Portland and Pueblo Steel Mills as a low residual scrap substitute. Because HBI is typically purchased on a contract basis (whereas scrap is typically purchased on the spot market), it provides some insulation from the price fluctuations experienced in the scrap market. In 1994, the Company used approximately 107,000 tons of HBI as substitute for approximately 13% of total scrap requirements at the Portland Steel Mill. The Company intends to increase the amount and percentage of HBI or other substitutes used in the production process. 4 PRODUCTS OVERVIEW The following table sets forth for the periods indicated the tonnage shipped and the Company's total shipments by product class. TONS SHIPPED ---------------------------------- PRODUCT 1994 1993(2) 1992(1) ------- --------- --------- --------- Oregon Steel Division: Commodity Plate................ 261,400 292,500 241,200 Specialty Plate................ 162,700 143,700 138,500 Large Diameter Pipe............ 356,300 248,600 269,500 ERW Pipe....................... 94,900 75,100 16,100 Other.......................... 45,400 18,400 - --------- --------- ------- Total Oregon Steel Division.. 920,700 778,300 665,300 CF&I Steel Division(2): Rail........................... 246,600 185,600 - Rod............................ 199,200 183,800 - Bar Products................... 121,000 115,300 - Wire........................... 65,000 53,300 - Seamless Pipe.................. 121,400 81,500 - Other.......................... 12,400 5,200 - --------- --------- ------- Total CF&I Steel Division.... 765,600 624,700 - --------- --------- ------- Total Company................ 1,686,300 1,403,000 665,300 ========= ========= ======= - ------------- (1) Results for 1992 include the results of operations of the Camrose Facility from the date of the Camrose acquisition on June 30, 1992. (2) Results for 1993 include the results of operations of the Pueblo Steel Mill from the date of the CF&I acquisition on March 3, 1993. Oregon Steel Division Steel Plate. The Company's commodity grade steel plate is produced at the Portland Steel Mill, and at the Fontana Plate Mill prior to its closure in December 1994. Commodity steel plate products currently consist of hot-rolled carbon plate varying in widths from 48" to 136" and in thicknesses varying from 3/16" to 3". Following the closure of the Fontana Plate Mill, the Company will only be able to produce steel plate up to 102" wide until the Combination Mill is completed. Commodity steel plate is used in a variety of applications, such as the manufacture of storage tanks, machinery parts, barges and ships. In addition to commodity grades of steel plate, the Company produces a wide range of specialty steel plate. Specialty steel plate products consist of hot-rolled carbon, heat treated and alloy steel plate currently produced in widths of 48" to 136" and in thicknesses varying from 3/16" to 8". Specialty steel plate has superior strength and performance characteristics for particular applications such as the manufacture of construction, mining and logging equipment, pressure vessels, oil and gas transmission pipe and the fabrication of bridges and high-rise buildings. Specialty steel plate is typically made to order for customers that wish to vary the properties of the steel plate product, 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 of elements such as carbon, manganese, chromium, molybdenum, nickel, boron, aluminum and titanium and through the removal of elements such as phosphorous and sulfur; by vacuum degassing; by temperature control while rolling; or by heat treating the plate. The Company has committed considerable capital to its ability to offer a wide range of specialty steel plate products to its customers. The Company recently expanded its heat treating production capacity at the Portland Steel Mill by approximately 50 percent to 90,000 tons annually. The 5 heat treating process of quenching and tempering improves the strength and hardness of the steel plate. Quenched and tempered steel is used extensively in the mining industry, the manufacture of heavy transportation equipment and military armor. In 1994 the Company installed a hot leveler at the Portland Steel Mill, 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. The Company also offers customers the option of surface processing steel plate, which includes descaling (the removal of oxides from the surface of the plate) and painting. This process provides a more efficient and economical means of cleaning and coating steel products than the traditional sandblasting or hand cleaning methods. The Portland Steel Mill, on the basis of an audit conducted in 1992, has received registration under ISO-9002. This registration is the emerging international designation for demonstrating that the Company systems support the production of quality products. This was one of the first ISO-9002 registrations of a steel mill in the United States. Large Diameter Steel Pipe. The Company manufactures large diameter pipe at its Napa and Camrose Facilities. The Company has manufactured large diameter pipe since 1988, after the Company acquired the Napa Facility. The Napa Facility pipe mill is one of the most versatile pipe mills in the industry. The mill can produce large diameter steel pipe ranging from 16" to 42" in diameter with wall thicknesses of up to 1-1/16" and lengths of up to 80 feet. In addition, the mill can process two different sizes of pipe simultaneously in its two finishing sections. Moreover, the Company can vary the pipe's hardness, impact resistance, strength and ability to be welded to meet the customers' specifications. The Company offers customers the option of surface processing the steel pipe, which includes descaling and internal and external coating on-site. The external coating facility was acquired by Napa in 1993. During 1989, the Company completed the construction of a full body ultrasonic inspection facility at the Napa Facility. If requested by the customer, this facility inspects the ends, long seam welds and entire body for all types of steelmaking and pipemaking imperfections and records the results for a permanent record. The Camrose Facility produces large diameter steel pipe ranging from 20" to 42" with maximum wall thickness limited to about 70 percent of that produced at the Napa Pipe Mill. The pipe can be produced in lengths up to 80 feet. Unlike Napa, the mill has one finishing section and can produce one size pipe at a time. The Company's large diameter pipe is used primarily in pressurized underground or underwater oil and gas pipelines where quality is critical. The Company's ability to produce high quality large diameter pipe was recently enhanced by the installation of the vacuum degassing facility at the Portland Steel Mill. The vacuum degassing process reduces the hydrogen content of the final product and increases 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. The closure of the Fontana Plate Mill in the fourth quarter of 1994 will require the Company to seek outside sources of steel plate if it chooses to produce steel pipe in diameters greater than 32" until the Combination Mill is completed. Electric Resistance Welded Pipe. The Company produces smaller diameter ERW pipe at the Camrose Facility. ERW pipe is produced in sizes ranging from approximately 4" to 16" outside diameter. The pipe is manufactured using coiled steel rolled on a high frequency electric resistance weld mill. The principal customers for this product are oil and gas companies that use it for gathering lines to supply product to feed larger pipeline systems. Demand for ERW pipe produced at the Camrose Facility is largely dependent on the level of exploration and drilling activity in the gas fields of western Canada. 6 CF&I Steel Division Rail. The Company produces standard and premium head-hardened rail at its Pueblo Steel Mill. The Pueblo Steel Mill is the sole manufacturer of rail products 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. As part of the capital expenditure program the Company will improve its rail manufacturing facilities to produce in-line head- hardened rail instead of utilizing the current off-line process. The Company has recently licensed technology (known as deep head-hardened or DHH technology) from Nippon in connection with Nippon's investment in New CF&I, Inc. Rod Products. During 1994, the Company produced low carbon rod products at the Pueblo Steel Mill in diameters ranging from 7/32" to 3/4", sold principally to wire drawers in the midwest and western states. Typical end uses include a variety of construction and agricultural applications such as nails, bailing wire, chain link and woven wire fencing. Construction of a new 600,000 ton rod/bar mill was completed by the Company in early 1995 increasing rod production and adding a range of high carbon product capabilities. With the rod/bar mill, the Company is the first producer to make 6,000 pound coils in the U.S. The new finishing facilities provide a range of rod products from .197" to 1" in diameter. Bar Products. Bar products are available in straight lengths (rounds .625" to 2.5" in diameter; rebar nos. 4 to 11) and coils (rounds .75" to 1.5"; rebar nos. 5 to 11). Products include reinforcing bar, coiled rebar, merchant and specialty bar products. Wire Products. The Company uses some of its own rod and draws wire to produce various wire products at its Pueblo Steel Mill; and is one of the few manufacturers which produce a wide variety of wire products. Products include fencing, barbed wire, nails, staples, bailor wire, welded wire fabric, rebar tie wire, and both high and low carbon manufacturer's wire. Seamless Pipe. Seamless pipe produced at the Pueblo Steel Mill consists of seamless casing, coupling stock, and line pipe. Seamless pipe casing is used as a structural retainer for the walls of oil or gas wells. Line pipe is used to transport liquids and gasses above ground. The Company's seamless mill produces pipe in standard lengths (5" to 10-3/4" in diameter). The Company's production capability includes both carbon and heat treated tubular products. RAW MATERIALS The Company's principal raw material for the Portland and Pueblo Steel 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. The purchase price for scrap is 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 to the Company can vary significantly, and product prices cannot always be adjusted, especially in the short-term, to recover the costs of increases in scrap prices. The Company maintains a 30 to 45 day supply of scrap to insulate itself to some extent against possible short-term price fluctuations. The Company purchases scrap through many outside dealers and is not dependent on any single supplier or group of suppliers at its Portland Steel Mill. The Pueblo Steel Mill purchases most of its scrap through a broker. The Company believes that adequate supplies of scrap are readily available from a number of sources, but that current demand will keep pricing relatively high. The Company also purchases a quantity of "HBI" for use as a substitute for steel scrap. The successful integration of this material into the steelmaking process provides the Company with an alternate source of low residual material. Because this material is purchased on a contract basis it provides some insulation from the price fluctuations experienced in the scrap market. During 1993 and 1994, the Company also purchased pig iron as a scrap substitute and believes it can be used successfully in limited quantities. With the shift in the Company's product mix from carbon grades 7 to higher quality grades of steel, the need for higher quality scrap must be assured. The availability of higher grades of scrap in sufficient quantities may not be available in the Company's traditional scrap markets, which will require the use of an alternate source of metallics. During the first quarter 1994, the Company signed a shareholders agreement to purchase an approximately 13 percent equity interest in a joint venture project (the "HBI Project") with several other entities to design, construct and operate an industrial plant in Venezuela for the processing of iron oxides into HBI. The Company believes that the HBI Project has the potential to provide a long-term source of supply of HBI. The plant is expected to have a rated design capacity of one million metric tons per year and cost approximately $255 million. As the HBI Project is currently structured, the Company will be required to purchase 200,000 metric tons of HBI per year from the HBI Project. The Company expects that its initial cash investment will be approximately $15 million. Like other participants in the HBI Project, however, the Company will be responsible for paying its share of cost overruns or related financing shortfalls associated with the construction or operation of the facility. The HBI Project is expected to obtain non-recourse debt financing for approximately 60 percent of its initially estimated capital needs. The shareholders agreement will not become effective, and construction will not commence, until agreements to provide debt financing to the HBI Project have been obtained and certain other conditions satisfied. Plant construction is expected to start in 1995 and plant operation is expected to commence approximately 30 months thereafter, absent unforeseen delays or difficulties. In addition to the HBI Project, the Company is pursuing other direct reduction technologies, such as iron carbide and direct smelting. The Company may participate in one or more joint ventures for these processes and is considering several possible projects. However, the Company has not yet entered into any agreements or letters of intent for any such projects except that, in August 1994, the Company entered into an agreement to form a temporary joint venture to explore the feasibility of constructing and operating an iron carbide plant in the Caribbean. The agreement provides that, following completion of the initial feasibility study, the parties will decide whether to abandon or pursue the project. The Company is unable to predict the outcome of this study or whether this project will be pursued. The Company purchases semi-finished steel slab from third parties to supplement steel production capacity and enable it to produce steel plate in thicknesses greater than three inches. Generally, the Company has been able to adjust product prices in response to increases in slab prices. The world demand for slab can, however, significantly affect its purchase price and there can be no assurance that the Company will be able to adjust product prices to offset increases in slab prices in the future. The Company purchased significant quantities of slab in the first six months of 1994, but was a net seller of slab in the last half of 1994. MARKETING AND CUSTOMERS Steel products are sold by the Company principally through its own sales organizations, which have sales offices at various locations in the United States and Canada and, as appropriate, through foreign sales agents. In addition to selling to customers who consume steel products directly, the Company sells steel products to steel service centers, distributors, processors and converters. The sales force is organized both geographically and by product line. The Company has separate sales people for plate, for tubular products, and for rod and bar, rail and wire products. As of December 31, 1994, the Company employed 30 direct sales people and 20 customer service representatives. Most of the Company's sales are initiated by contacts between sales representatives and customers. Accordingly, the Company does not incur substantial advertising or other promotional expenses for the sale of its products. In 1994, the Company did not derive more than 10 percent of its sales from any single customer. Except for contracts entered into from time to time to supply large diameter pipe to significant projects, the Company does not have any significant ongoing contracts with customers to purchase steel products, and orders placed with the Company generally are cancelable by the customer. The Company does not have a general policy permitting return of purchased steel products except for product defects. The Company does not routinely offer extended payment terms to its customers. 8 The business is generally not subject to significant seasonal trends. The Company does not have material contracts with the United States Government and does not have any contracts subject to renegotiation. Oregon Steel Division Customers for the Company's commodity steel plate are typically located in the western United States, primarily in the Pacific Northwest and California. The Company's commodity steel plate is typically sold to 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 rail cars, storage tanks, machinery parts, bridges, barges and ships. The Company believes the market for commodity steel plate is mature and subject to overcapacity, and anticipates increased competitive pressure on both volumes and prices. The Company believes that its shipments of commodity plate will increase, however, as the Combination Mill expands the Company's product offerings to include coiled plate and lighter gauges. Customers for specialty steel are located throughout the United States, but the Company is most competitive in the west, southwest and midwest where transportation costs are less of a factor. Typical customers include service centers and equipment manufacturers. Typical uses include pressure vessels, construction and mining equipment and military armor. Large diameter pipe is marketed on a global basis and sales generally consist of a small number of large orders generated from natural gas pipeline companies, public utilities and oil and gas producing companies. During 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. The Company believes that the quality of its pipe enables it to compete effectively in this market. Domestically, the Company is most competitive in the steel pipe market west of the Mississippi River. The Camrose Facility is most competitive in western Canada. Sales of large diameter pipe generally consist of a small number of large orders and generally involve the Company responding to requests to submit bids. The principal customers for ERW pipe produced at the Camrose Facility are in the provinces of Alberta and British Columbia, where most of Canada's natural gas and oil is located, as well as the northwestern United States. The primary customers for this product are oil and natural gas companies who utilize ERW for gathering lines to supply their product to feed the larger distribution pipelines. CF&I Steel Division The primary customers for the Pueblo Steel Mill's rail are the major U.S. railroads. Rail is also sold directly to rail contractors, transit districts and short-line railroads. The Company estimates that the market for rail in the United States was approximately 650,000 tons in 1994 and that its share of the domestic rail market in 1994 was approximately 38 percent (with most of the Company's rail shipments made to customers in the western United States). Imports accounted for approximately 25 percent. The Company believes its proximity to western rail markets benefits the Company's marketing efforts in these markets and contributes to the Company's market share. Rail produced using the improved in-line technology is considered by many rail customers to be more durable and higher quality rail than that 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 that this capability, to be completed in the first quarter of 1996, will further enhance the Company's position in the domestic rail market. The Company estimates, based on AISI data and internal estimates, that premium rail represents approximately 40 percent of the domestic rail market. The Company believes the domestic market for premium rail will expand as in-line, head-hardened rail becomes more available from domestic producers at competitive prices. Seamless pipe is sold primarily through distributors to major and independent oil exploration and production companies. Sales of line pipe are made both through distributors and directly to oil 9 and gas transmission and production companies. The market for the Company's seamless pipe product is primarily domestic and 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. The rig count in the United States (and, consequently, the consumption of seamless pipe) has been depressed in recent years. During 1994 the Company sold its bar products (primarily reinforcing bar) to fabricators and distributors. The majority of its customers are regional, located within Colorado. Incremental costs for transportation limit the Company's ability to ship the product out of the region and surrounding states. The Company's wire rod products are sold primarily to wire drawers in the western United States. The demand for wire rod is driven by wire demand and is dependent upon a wide variety of markets, including agricultural, construction and the durable goods segments. Sales of wire products are made to a large number and wide variety of customers in the western United States. The customers are primarily in the distribution of agricultural and construction products. The agricultural market remains constant but the construction market is cyclical. COMPETITION AND OTHER MARKET FACTORS The steel industry is cyclical in nature, and the domestic steel industry has been adversely affected in recent years by high levels of steel imports, worldwide production overcapacity and other factors. The Company also is subject to industry trends and conditions, such as the presence or absence of sustained economic growth and construction activity, currency exchange rates and other factors. The Company is particularly sensitive to trends in the oil and gas, gas transmission, construction, capital equipment, rail transportation, agriculture and durable goods segments, as 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. These trends have caused the Company to seek new overseas markets for large diameter pipe, and to seek higher quality, niche markets for its plate. In addition, one of the Company's competitors for steel plate in the western United States has recently resumed production (at less than full capacity) after having been shut down for capital improvements; the Company expects increased competition as that competitor increases production. The Company competes in its product markets primarily on the basis of product quality, price, and responsiveness to customer needs. Competition within the steel industry is driven by overcapacity in most products and is intense. Some of the Company's competitors are larger, have greater capital resources than the Company and have more modern technology and relatively low labor and raw material costs. Domestic steel producers face significant competition from foreign producers, although currency fluctuations have dampened this competition in the U.S. in recent years. Oregon Steel Division Some of the Company's steel plate competitors are larger, have greater capital resources than the Company and have modern technology and relatively low labor and raw material costs. Principal competitors in the commodity steel plate market include Geneva Steel Company, located in Utah, IPSCO, located in Regina, Saskatchewan, and several other foreign producers. Principal competitors in the market for specialty steel plate include Lukens Steel Company, U.S. Steel Corporation and several foreign producers. Steel plate producers in the western United States have faced competition in past years from foreign producers, including producers in Japan, certain members of the European Economic Community, Korea, Brazil and Canada. The effects of foreign competition were mitigated in recent years by the decline and continued weakness of the U.S. dollar relative to several foreign currencies. The Company believes that its efforts in increasing productivity, reducing production costs and shifting into higher margin product niches should enable the Company to compete effectively with both foreign and domestic producers even if the dollar strengthens relative to foreign currencies. The Company believes that competition in the market for large diameter pipe is based primarily on quality, price and responsiveness to customer needs. The Company competes on a global basis and believes its ability to manufacture pipe of sufficiently high quality will enable it to compete effectively. 10 Principal domestic competitors in the large diameter pipe market at this time are Berg Steel Pipe Corporation, located in Florida, and Bethlehem Steel Corporation, located in Pennsylvania. International competitors consist primarily of Japanese and European pipe producers. The principal Canadian competitor is IPSCO, located in Regina, Saskatchewan. Demand for the Company's pipe in recent years is primarily a function of new construction of oil and gas transportation pipelines and to a lesser extent maintenance and replacement of existing pipelines. Construction of new pipelines domestically depends to some degree on the level of oil and gas exploration and drilling activity, which has declined in recent years. The competition in the market for ERW pipe is based on price, product quality and responsiveness to customers. The need for this product has a direct correlation to the drilling rig count in the United States and Canada. Principal competitors in the ERW product in western Canada are IPSCO located in Regina, Saskatchewan and Prudential located in Calgary, Alberta. CF&I Steel Division The majority of current rail requirements in the United States revolves around replacement rail for existing rail lines. Consequently, domestic rail demand is projected to be stable for the next several years. Imports have been a significant factor in the domestic premium rail market in recent years. Premium rail represents approximately 25 percent of the domestic market and is expected to increase over the next few years. The Company's capital expenditure program at CF&I will give the rail production facilities the continuous cast steel and in-line head hardening rail capabilities necessary to compete with the level of cost and quality available from other producers. Pennsylvania Steel Technologies is the only other domestic rail producer. The Company's primary competitors in OCTG include a number of domestic and foreign manufacturers, some of which have significantly greater resources than the Company. The Company enjoys a freight advantage over eastern producers in shipping to some of the major oil drilling areas. The Company also has the flexibility to produce relatively small volumes of specified products on short notice in response to customer requirements. Principal domestic competitors include U.S. Steel Corporation, Lone Star Steel and North Star Steel. The competition in bar products include a group of minimills that have a geographical location close to the intermountain market. Some of these mills utilize reinforcing bar as an incremental product to keep mills operating at capacity. With the new rod/bar mill, market expansion into other geographical locations is feasible because of the addition of higher valued products, such as MBQ and SBQ products. The Company's market area on wire and wire rod products is considered to be west of the Mississippi River. The Company completed construction of a new rod/bar mill which provides substantially larger coils and reduced manufacturing costs. Domestic rod competitors include GST, North Star Steel, Keystone Steel and Wire, and Northwestern Steel & Wire. Major wire producers include Davis Wire and Tree Island Steel. ENVIRONMENTAL MATTERS The Company is subject to federal, state and local environmental laws and regulations concerning, among other things, wastewater, air emissions, toxic use reduction and hazardous materials disposal. The Portland and Pueblo Steel 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, is managed in accordance with applicable laws and regulations. In 1993, the Environmental Protection Agency ("EPA") concluded a site assessment of the Portland Steel Mill. The review ranked the facility as a medium/low corrective action priority for identified Solid Waste Management Units. The Company is proceeding with an internal corrective action schedule. This schedule will make portions of the Company's property useable for future development and is expected to be completed by September 1995. The cost of these corrective action improvements is estimated at approximately $1.2 million. 11 The property and building at which the Fontana Plate Mill is located are leased to the Company. The Fontana Plate Mill was formerly part of a larger integrated steel plant (the "Mill") operated on property (the "Mill Property") surrounding the Fontana Plate Mill. Prior to the termination of steel production at the Mill in 1983, the Mill owner generated by-products that currently are defined as hazardous by federal and California regulations. 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 has not included sampling at the Fontana Plate Mill site. The Company has conducted only limited testing at the Fontana Plate Mill site, and there can be no assurance that the levels of hazardous substances in the subsurface soils and groundwater at the Fontana Plate Mill are within permissible limits. The Fontana Plate Mill operation is being terminated in 1995 and the Company signed a lease termination agreement with the lessor on January 18, 1995. A $900,000 accrual has been established for restoring the leased premises. (See Note 13 to the Consolidated Financial Statements.) Prior to the acquisition of the Napa Facility by the Company, the prior owner of the Napa Facility 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 Facility. The prior owner of the Napa Facility entered into a stipulated judgment with the County of Napa which required a site investigation of the Napa Facility 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 Facility, the Company's subsidiary, Napa Pipe Corporation, is obligated by contract 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 Facility were submitted to local, regional and state environmental authorities in February 1988. The Company is continuing to negotiate certain terms of the remediation plans with such environmental authorities. In addition to local, regional and state environmental authorities, the EPA conducted an investigation of the Napa Facility and has taken soil and water samples at the Napa Facility. The Company's proposed plans for investigating the soil and water conditions at the Napa Facility were furnished to the EPA in March 1988. While awaiting possible further response from the EPA, the Company is proceeding with its remediation plans as described in the preceding paragraph. In April 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 Facility. The total cost of the remedial action that may be required to correct existing environmental problems at the Napa Facility, including remediation of contaminants in the soil and groundwater, depends on the eventual requirements of the relevant regulatory authorities. As of December 31, 1994, the Company had expended $6.7 million for remediation and had reserved an additional $2.8 million to cover future costs arising from environmental issues relating to the site. The Company owns a 60 percent interest in Camrose Pipe Company located in Camrose, Alberta, Canada. A preliminary assessment of the property indicates the potential presence of subsurface petroleum contamination as a result of previous operations. The assessment also identifies the potential for waste waters to have impacted the site. An internal investigation is scheduled for 1995 to determine the extent of this impact, if any. At December 31, 1994, the Company had accrued a reserve of $34.1 million for environmental remediation at the Pueblo Steel Mill site. This reserve is based upon a range of estimated remediation costs of $23.1 million to $43.6 million at that date. The Company's estimate of this environmental reserve was based on two separate remediation investigations conducted by independent environmental engineering consultants. The estimated costs were based on then available technologies and laws and regulations in effect at the time. 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 12 public notice for the post-closure permit of two historic hazardous waste units at the CF&I facility. 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. CF&I and the State of Colorado Department of Public Health and Environmental are finalizing a prioritized schedule of corrective actions to be completed which are substantially reflective of a straight-line rate of expenditure over 30 years. The State of Colorado stated that the schedule for corrective action could be accelerated if new data indicated a greater threat to the environment than is currently known to exist. It is currently anticipated that the reserve is adequate to cover the remediation costs. In November 1990 the President of the United States signed into law the Clean Air Act Amendments of 1990. This law has imposed new responsibilities on many industrial sources of air emissions, including plants owned by the Company. The Company cannot determine at this time the financial impact of the new law since 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 will be submitting Title V permits for the Portland and Pueblo in 1995. 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. 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 certain reserves for environmental remediation as described above, there can be 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 so reserved. EMPLOYEES As of December 31, 1994, the Company had 3,019 full-time employees. The Company's 972 employees at the Portland Steel Mill, Fontana Plate Mill, Napa Facility and corporate headquarters are not represented by a union. At the Pueblo Steel Mill, 1,439 employees work under collective bargaining agreements with several unions, principally the United Steelworkers of America ("USWA"). The USWA contract was negotiated in March 1993 and will expire in September 1997. The contract provides for scheduled annual cost of living pay increases during the life of the contract. Approximately 95 employees of the Camrose Facility are members of the Canadian Autoworkers Union. A contract for these employees was renegotiated in January 1994 and expires on January 31, 1997. The Company believes it has a good relationship with its employees. The domestic employees of the Oregon Steel Division participate in the ESOP. As of December 31, 1994 the ESOP owned approximately 12 percent of the Company's common stock. Common stock is contributed to the ESOP, as decided annually by the Board of Directors. The Company also has a profit participation plan for its domestic employees of both the Oregon Steel Division and the CF&I Steel Division which permits eligible employees to share in the pre-tax profits of their division unit. 13 ITEM 2. PROPERTIES Oregon Steel Division The Portland Steel Mill is located on approximately 147 acres owned by the Company in the Rivergate Industrial Park in Portland, Oregon, near the confluence of the Columbia and Willamette rivers. The operating facilities principally consist of one electric arc furnace, ladle metallurgy stations, slab casting equipment and a plate rolling mill. The Company's 24,500 square foot office building and its steel mill facilities occupy approximately 84 acres of the site. The remaining 63 acres consist of two waterfront sites totaling 59 acres and a four-acre site. The adjacent water channel accommodates ocean- going vessels. The Company's heat treating facilities are located near its principal facilities on a five acre site owned by the Company. In addition, the Company owns 74 acres of industrial property nearby, of which 44 acres are leased. The Company owns approximately 152 acres in Napa, California. The Company's large diameter pipe mill occupies approximately 92 of these acres. The Company also owns a steel fabricating facility located adjacent to the pipe mill on this site. The fabricating facility is not currently used by the Company and consists of approximately 325,000 square feet of industrial buildings containing equipment for the production and assembly of large steel products or components and is periodically leased on a short-term basis. Camrose owns approximately 67 acres in Camrose, Alberta, Canada. The large diameter pipe mill occupies approximately 4 acres and the ERW pipe mill occupies approximately 3 acres of the site. In addition, there is a 3,600 square foot office building on the site. The sales staff is located in Calgary, Alberta in leased space. The assets of Camrose, including all property, plant and equipment are collateral for the Camrose $15 million revolving credit facility (see Note 6 to the Consolidated Financial Statements). The land and buildings at the Fontana Plate Mill were leased to the Company under a net lease. In connection with the closure of the Fontana Plate Mill, the Company signed a lease termination agreement with the lessor on January 18, 1995 and has agreed to vacate the premises by June 30, 1995. CF&I STEEL DIVISION The Pueblo Steel Mill is located in Pueblo, Colorado on approximately 570 acres. The operating facilities principally consist of two electric arc furnaces for production of all raw steel, a 6- strand continuous billet caster and a 6-strand continuous round caster for producing semi-finished steel, and five finishing mills for conversion of semi-finished steel to a finished steel product. These finishing mills consist of a rail mill, a seamless tube mill, an 11" bar mill, a rod mill and a wire mill. During 1993 the Company began a major capital improvement program of CF&I. This program includes the installation of two new reheat furnaces, a new rod mill, a continuous caster and the upgrading of the steelmaking facilities with a new ladle furnace and vacuum degassing system. At December 31, 1994, the Company had the following nominal capacities which are affected by product mix: PRODUCTION CAPACITY 1994 (TONS) (TONS) --------- ---------- Portland Steel Mill: Melting.......... 800,000 713,000 Rolling.......... 425,000 402,500 Fontana Plate Mill Rolling.......... 750,000 312,700 Napa Facility Steel Pipe....... 350,000 258,200 Camrose Steel Pipe....... 326,000 169,000 Pueblo Steel Mill: Melting.......... 1,000,000 902,900 Finishing Mills.. 1,500,000 787,300 14 ITEM 3. LEGAL PROCEEDINGS The Company is party to 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were voted upon during the fourth quarter of 1994. EXECUTIVE OFFICERS OF THE REGISTRANT Officers are elected by the Board of Directors of the Company to serve for a period ending with the next succeeding annual meeting of the Board of Directors held immediately after the annual meeting of stockholders. The name of each executive officer of the Company, their age as of February 28, 1995, and position(s) and office(s) and all other positions and offices held by each executive officer are as follows: ASSUMED PRESENT EXECUTIVE NAME AGE POSITIONS POSITION - ---- --- --------- --------- Thomas B. Boklund 55 Chairman of the July 1985 Board of Directors Chief Executive Officer and President L. Ray Adams 44 Vice President of Finance March 1991 and Chief Financial Officer Christopher D. Cassard 41 Treasurer January 1994 Joe E. Corvin 50 Senior Vice President of April 1994 Manufacturing and Chief Operating Officer Edward J. Hepp, Jr. 49 Senior Vice President of January 1995 Commercial Richard J. Kasten 50 Vice President of Quality February 1992 and Metallurgy LaNelle F. Lee 57 Secretary April 1994 Jack C. Longbine 48 Vice President of Employee February 1992 Resources Robert R. Mausshardt 62 Vice President of March 1984 Marketing, Tubular Products Steven M. Rowan 49 Vice President of February 1992 Materials and Transportation Each of the executive officers named above has been employed by the Company in an executive or managerial role for at least five years, except Edward J. Hepp, Jr. and Christopher D. Cassard. Mr. Hepp joined the Company in September of 1991 and until January 1995 served as Vice President of Commercial. In January 1995 he was elected Senior Vice President of Commercial. From 1972 until 1991 he was with Lukens Steel Company where his last position was Manager of Product Sales. Mr. Cassard joined the Company in August of 1992 as Assistant Treasurer. From 1990 to 1992 he was a consultant on various finance projects for privately-held companies and from 1989 to 1990 was Chief Financial Officer for Columbia Vista Corporation. 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the New York Stock Exchange. At December 31, 1994, the number of common stockholders of record was 846. Information on quarterly dividends and common stock prices is shown on page 23 and incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31, ---------------------------------------------------------------------- 1994 1993 1992 1991 1990 ----------- ----------- ---------- ---------- --------- (IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA AMOUNTS) INCOME STATEMENT DATA: Sales...................................... $ 838,268 $ 679,823 $397,722 $489,357 $331,234 Cost of Sales.............................. 761,335 608,236 316,455 386,517 252,036 Provision for rolling mill closures........ 22,134 - - - - Selling, general and administrative expenses................................. 50,052 41,447 29,785 28,910 21,610 Contributions to employee stock ownership plans........................... 738 753 3,501 5,002 4,001 Profit participation....................... 2,336 4,527 10,510 14,284 11,362 ---------- ---------- -------- -------- -------- Operating income......................... 1,673 24,860 37,471 54,644 42,225 Other income (expense), net................ (1,579) (3,421) 955 1,591 (100) Settlement of litigation................... - 2,750 (5,040) - - Gain on sale of subsidiary's common stock............................. 12,323 - - - - Minority interests......................... (3,290) (1,996) 1,097 - - Income tax benefit (expense)............... 2,941 (7,388) (14,506) (20,770) (15,990) ---------- ---------- -------- -------- -------- Net income $ 12,068 $ 14,805 $ 19,977 $ 35,465 $ 26,135 ========== ========== ======== ======== ======== COMMON STOCK INFORMATION: Per common share: Primary and fully diluted net income per common and common equivalent share................ $.60 $.75 $1.04 $1.89 $1.64 Cash dividends declared.................... $.56 $.56 $.56 $.50 $.42 Weighted average common shares and common equivalents outstanding........... 19,973 19,822 19,183 18,735 15,959 BALANCE SHEET DATA: Working Capital............................ $ 141,480 $ 139,461 $ 99,444 $ 122,780 $ 38,946 Total assets............................... 665,733 549,670 354,252 323,529 246,749 Current liabilities........................ 117,986 116,322 55,522 43,298 86,008 Long-term debt............................. 187,935 76,487 - 3,417 5,204 Total stockholders' equity................. 275,883 275,242 257,515 245,006 137,078 OTHER DATA: Total tonnage sold: Oregon Steel Division (1): Plate products......................... 424,100 436,200 379,700 344,100 336,600 Pipe products.......................... 451,200 323,700 285,600 418,600 212,900 Semi-finished products................. 45,400 18,400 - - - ---------- ---------- -------- -------- -------- 920,700 778,300 665,300 762,700 549,500 CF&I Steel Division...................... 765,600 624,700 - - - ---------- ---------- -------- -------- -------- 1,686,300 1,403,000 665,300 762,700 549,500 ========== ========== ======== ======== ======== Operating margin (2)....................... 2.8% 3.7% 9.4% 11.2% 12.7% Operating income per ton sold (2).......... $14.12 $17.72 $56.32 $71.65 $76.84 - ---------------- (1) The Oregon Steel Division consists primarily of the operations of Oregon Steel Mills, Inc., Napa Pipe Corporation, Oregon Steel Mills - Fontana Division, Inc., and Camrose Pipe Company. (2) Excluding provision for rolling mill closures in 1994. 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth for the periods indicated the percentages of sales represented by selected income statement items and information regarding selected balance sheet data:
YEARS ENDED DECEMBER 31, ---------------------------------------- 1994 1993 1992 ------- ------- ------- INCOME STATEMENT DATA: Sales.......................................................... 100.0% 100.0% 100.0% Cost of Sales.................................................. 90.8 89.4 79.6 Provision for rolling mill closures............................ 2.6 - - Selling, general and administrative expenses................... 6.0 6.1 7.5 Contribution to employee stock ownership plans................. .1 .1 .9 Profit participation........................................... .3 .7 2.6 ------ ------ ------ Operating income............................................. .2 3.7 9.4 Interest and dividend income................................... .2 .1 .2 Interest expense............................................... (.5) (.6) - Other income (expense), net.................................... .1 - - Settlement of litigation....................................... - .4 (1.3) Gain on sale of subsidiary's common stock...................... 1.5 - - Minority interests............................................. (.4) (.3) .3 ------ ------ ------ Pretax income................................................ 1.1 3.3 8.6 Income tax benefit (expense)................................... .3 (1.1) (3.6) ------ ------ ------ Net income................................................... 1.4% 2.2% 5.0% ====== ====== ====== BALANCE SHEET DATA (AT DECEMBER 31): Current ratio.................................................. 2.2:1 2.2:1 2.8:1 Long-term debt as a percent of capitalization.................. 40.5% 21.7% - Net book value per share....................................... $14.24 $14.23 $13.41 The following table sets forth by division, for the periods indicated, tonnage sold, revenues and average selling price per ton: YEARS ENDED DECEMBER 31, ------------------------------------------ 1994 1993 1992 --------- --------- ------- TOTAL TONNAGE SOLD: Oregon Steel Division Plate products............................................... 424,100 436,200 379,700 Pipe products................................................ 451,200 323,700 285,600 Semi-finished products....................................... 45,400 18,400 - --------- --------- ------- 920,700 778,300 665,300 CF&I Steel Division............................................ 765,600 624,700 - --------- --------- ------- Total........................................................ 1,686,300 1,403,000 665,300 ========= ========= ======= REVENUES (IN THOUSANDS): Oregon Steel Division.......................................... $498,794 $415,165 $397,722 CF&I Steel Division............................................ 339,474 264,658 - -------- -------- -------- Total........................................................ $838,268 $679,823 $397,722 ======== ======== ======== AVERAGE SELLING PRICE PER TON: Oregon Steel Division.......................................... $542 $533 $598 CF&I Steel Division............................................ $443 $424 - Average...................................................... $497 $485 $598
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. In pursuing this goal, the Company has sought alternatives to its recent reliance on the domestic market for large diameter pipe, the demand for which declined significantly during 1993 and 1994. In an effort to decrease the Company's reliance on the domestic 17 large diameter pipe market and provide additional end use for its steel plate, the Company purchased an interest in the Camrose Facility in 1992. During 1993 and 1994 the Camrose Facility shipped 155,400 and 172,800 tons respectively of steel pipe. The Company believes there will continue to be opportunities in Canada for steel pipe sales as the large reserves of natural gas in western Canada continue to be developed during the next several years. To expand the Company's steel product lines and enter new geographic areas, a company subsidiary, New CF&I, Inc., purchased a 95.2 percent interest in CF&I in March of 1993. CF&I shipped 624,700 tons and generated $264.7 million of revenue in 1993 and shipped 765,600 tons and generated $339.5 million of revenue in 1994. During 1994, the Napa Facility shipped 278,400 tons of large diameter pipe. Of this amount, approximately 148,000 tons were shipped pursuant to contracts awarded from the Petroleum Authority of Thailand and British Gas to provide large diameter pipe for international pipeline projects. However, due to transportation and other costs and price competition, margins on international large diameter pipe sales in 1994 were significantly lower than on domestic large diameter pipe sales in 1993. The Company believes that its ability to compete effectively in the international large diameter pipe market will depend in large part on efficiencies that it expects to realize following the completion and operation of the Combination Mill. A majority of the plate used by the Napa Facility to produce large diameter pipe was rolled at the Fontana Plate Mill which is more than 40 years old, costly to maintain and no longer cost competitive. The high operating costs of the facility, the current depressed pricing in the international large diameter pipe market and the lack of domestic pipeline activity resulted in a decision to permanently close the Fontana Plate Mill in the fourth quarter of 1994 (see Note 13 to the Consolidated Financial Statements). Until the Combination Mill is operational, the Company is unable to produce plate for pipe sizes larger than 32" in diameter but believes if market conditions permit, it will be able to purchase plate for pipe sizes larger than 32". The pricing for international pipe began to erode in 1994 and the Company has temporarily withdrawn from the international market for this product. However, the Company believes the international market for large diameter oil and gas transmission pipe could provide significant opportunities in the next few years. The completion of the Combination Mill is expected to provide the Company with manufacturing cost reductions and enhance its global competitiveness as well as provide plate for all of the Napa Facility's size requirements. The Company expects to utilize its excess hot metal capacity at the Portland Steel Mill by selling slabs during 1995 and 1996 subject to market demand. The Company expects the cost of raw materials and alloys to remain high during 1995. The Company implemented price increases during 1994 on most of its products in an effort to offset the increased raw material costs. Pricing of the Company's steel products will continue to be affected by the competitive environment in the respective product markets. COMPARISON OF 1994 TO 1993 Sales. Sales in 1994 of $838.3 million increased 23.3 percent from sales of $679.8 million in 1993. Tonnage shipments increased 20.2 percent 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 CF&I which was acquired on March 3, 1993. Increased shipments of pipe from the Napa Facility (278,400 tons in 1994 versus 168,300 tons in 1993) and Camrose Facility (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 Facility which declined by approximately 20 percent. Gross Profits. Gross profits as a percentage of sales for 1994 were 9.2 percent compared to 10.6 percent for 1993. Gross profit margins were negatively impacted by significantly lower selling prices for large diameter pipe shipped from the Company's Napa Facility and the associated higher costs of producing a higher quality grade of steel slab at the Company's Portland Steel Mill for 18 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 CF&I. Provision for Rolling Mill Closures. During 1994 the Company recognized a loss associated with the closure of the Fontana Plate Mill and the provision for loss on the shutdown of the existing Portland Steel Mill plate rolling mill at completion of the construction of the Combination Mill. Of the $13.7 million after-tax charge, approximately $13 million is 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, the current depressed pricing in the international large diameter pipe market and the lack of domestic pipeline activity. Selling, General and Administrative. Selling, general and administrative expenses for 1994 increased $8.6 million or 20.7 percent compared with 1993 but decreased as a percentage of sales from 6.1 percent in 1993 to 6.0 percent in 1994. The dollar amount increase is primarily a result of the inclusion of CF&I costs (which increased by $4.1 million) for 12 months in 1994, versus 10 months in 1993 and increased shipping costs related to welded pipe shipments from the Company's Oregon Steel Division ($2.8 million). 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 interest earned on the property tax refunds (see Note 13 to the Consolidated Financial Statements). 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 cost incurred on debt issued to fund the CF&I capital expenditure program. Of the $11.3 million of interest cost, $7.4 million was capitalized as part of construction in progress. Gain on Sale of Subsidiary's Common Stock. The $12.3 million gain on sale of subsidiary's common stock was realized from the sale of a 10 percent equity interest in New CF&I, Inc. to a subsidiary of Nippon Steel Corporation (see Note 13 to the Consolidated Financial Statements). Income Tax Expense. The Company's effective income tax rate for state and federal taxes was a benefit of 32.2 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 rates due to earned state tax credits and deductible dividends paid on stock held by the ESOP and paid to ESOP participants. Income before income taxes in 1994 included a $12.3 million gain on the sale of a 10 percent equity interest in New CF&I, Inc. which was treated as a nontaxable item (see Note 13 to the Consolidated Financial Statements). 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. COMPARISON OF 1993 TO 1992 Sales. Sales in 1993 of $679.8 million increased 70.9 percent from sales of $397.7 million in 1992. Tonnage shipments increased 110.9 percent to 1.4 million tons in 1993 from 665,300 tons in 1992. Selling prices in 1993 averaged $485 per ton versus $598 in 1992. Of the $282.1 million sales increase, $441 million was the result of volume increase offset by $158.9 million of lower average selling prices. The increase in sales and shipments was primarily due to the inclusion of the operations of CF&I and a full year contribution from Camrose Pipe Company which was formed on June 30, 1992. The decrease in selling price was primarily due to a decline in large diameter steel pipe shipments from the Napa Facility (168,300 tons in 1993 versus 255,100 tons in 1992) and a larger percentage of CF&I's product mix to total sales and shipments. On average CF&I's products have a lower selling price than steel plate and large diameter pipe products. 19 Gross Profits. Gross profits as a percentage of sales for 1993 were 10.6 percent compared to 20.4 percent for 1992. The gross profit margin decline year to year is due to higher raw material costs, principally scrap, which could not be completely recovered through sales price increases. During 1993 the Company experienced an average increase of $26 per ton in scrap cost over the average 1992 cost per ton. This increase reversed the downward spiral in costs experienced for certain raw materials during the previous two years. In addition, the reduction of pipe production and pipe shipments in 1993 at the Napa Facility negatively impacted the Company's ability to absorb fixed costs at both the Napa Facility and the Fontana Plate Mill, since a majority of the Fontana Plate Mill production was shipped to the Napa Facility for conversion into steel pipe. Decreased Napa Facility shipments also required the Company to increase its sales of lower margin commodity steel plate products in order to sustain the operating efficiency of the Portland Steel Mill. Production began on a number of large pipe orders during the fourth quarter of 1993; however, the revenues related to these orders was not recognized until shipments began in the first quarter of 1994. Selling, General and Administrative. Selling, general and administrative expenses for 1993 increased $11.7 million or 39.2 percent compared with 1992 but decreased as a percentage of sales from 7.5 percent in 1992 to 6.1 percent in 1993. The dollar amount increase is primarily a result of the Company's acquisitions of the Camrose Facility and CF&I ($11.5 million), increased expenses related to increased support required by the Company's growth and general inflation ($2.3 million), offset by decreased shipping costs due to reduced pipe shipments from the Napa Facility ($2.1 million). The percentage decrease is due primarily to the increased sales volume in 1993. Contribution to ESOP and Profit Participation. The contribution to the ESOP was $753,000 in 1993 compared with $3.5 million in 1992. Profit Participation Plan expense was $4.5 million for 1993 compared with $10.5 million for 1992. These reductions are a result of the decreased profitability of the Company in 1993 versus 1992. Interest and Dividend Income. Interest and dividend income on investments was $.9 million in 1993 compared with $.7 million in 1992. This increase was primarily the result of an increase in average cash and cash equivalent balances available for investment and an increase in average interest rates during 1993 compared with 1992. Interest Expense. Total interest cost for 1993 was $5.7 million, an increase of $5.4 million compared to 1992. This increase was primarily related to interest cost incurred on debt issued by CF&I for its purchase of substantially all the assets of CF&I Steel Corporation. Of the $5.7 million of interest cost, $1.7 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 33.3 percent for 1993 compared to 42.1 percent for 1992. The effective income tax rate for both periods varied from the combined state and federal statutory rates due to utilization of carryforward tax credits against state income taxes and deductible dividends paid on stock held by the ESOP and paid to ESOP participants. In 1993 the insurance recovery of $2.8 million related to the 1992 litigation settlement was treated as a nontaxable item. The higher effective income tax rate in 1992 resulted primarily because the litigation settlement expense of $5 million was treated as a nondeductible item for tax purposes. LIQUIDITY AND CAPITAL RESOURCES Cash flow from 1994 operations was $20.5 million compared to $44.5 million in the corresponding 1993 period. The major items affecting this $24 million decrease were positive cash flows from the non-cash charge for provision for rolling mill closures ($22.1 million), decreased inventories ($15.3 million) and decreased other current assets ($3.8 million). The positive cash flows were offset by reduced net income ($2.7 million), the non-cash gain on sale of subsidiary's common stock ($12.3 million), decrease in deferred taxes ($8.1 million), decreased trade accounts payable and accrued expenses ($35.9 million) and decreased other taxes payable ($2.5 million). 20 Net working capital at December 31, 1994 increased $2.0 million due to a $3.7 million increase in current assets offset by a $1.7 million increase in current liabilities. The increase in current liabilities is primarily a result of an increase in accounts payable and accrued expense liabilities ($15.8 million) offset by the transfer of short-term debt to the new long-term debt facilities ($14.2 million). The accounts payable and accrued expense liability increase was due primarily to the capital spending programs, and increased sales activity. In December 1994, the Company entered into an agreement establishing two credit facilities ("Senior Credit Facilities") which provide for collateralized borrowing of up to $300 million from a group of banks ("Lender Banks"). Use of the Senior Credit Facilities is to fund capital expenditures, for general corporate purposes, and for working capital. The Senior Credit Facilities are comprised of: (1) a $200 million term loan facility ("Term Loan") which may be drawn at any time through December 31, 1996; and (2) up to a $100 million revolving loan facility ("Revolving Loan") which may be drawn and repaid at any time through December 31, 1997 based upon the Company's accounts receivable and inventory balances. Substantially all $100 million of the Revolving Loan is expected to be available throughout its term. 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 3/8 of 1 percent or 1/2 of 1 percent of the unused portions of the Senior Credit Facilities, depending on the Company's quarterly consolidated ratio ("Leverage Ratio") of funded debt to the most recent four quarters' earnings before interest, taxes, depreciation and amortization. At the Company's election, interest is based on the London Interbank Borrowing Rate ("LIBOR"), the prime rate or, for the Revolving Loan only, the federal funds rate, plus a margin determined by the Company's Leverage Ratio. The outstanding balance of the Term Loan on December 31, 1996 will be repaid in eleven quarterly installments commencing June 30, 1997. If the Term Loan is fully drawn at December 31, 1996, the repayments will total $50 million in 1997, $70 million in 1998, and $80 million in 1999. Such payments will be reduced pro-rata if less than the full amount is drawn. The Term and Revolving Loans are 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. The Senior Credit Facilities are guaranteed by the material wholly-owned subsidiaries of the Company. The Senior Credit Facilities 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 of capital expenditures, liens, investments and additional indebtedness. At December 31, 1994, $120 million was outstanding under the Term Loan and $10 million was outstanding under the Revolving Loan. The Company has entered into interest rate swap agreements with banks, as required by the Senior Credit Facilities, to reduce the impact of unfavorable changes in interest rates on its debt. (See Note 6 to the Consolidated Financial Statements.) Term debt of $67.5 million was incurred by CF&I as part of the purchase price of certain assets of CF&I Steel Corporation on March 3, 1993. This debt is uncollateralized and is payable over ten years with interest at 9.5 percent. The Company has guaranteed the payment of the first 25 months installment cash payments (a total remaining of approximately $3.5 million of principal and interest at December 31, 1994). As of December 31, 1994, the outstanding balance on the debt is $60.1 million, of which $54.8 million is classified as noncurrent. The Company has an uncollateralized and uncommitted revolving line of credit with a bank which matures May 31, 1995 which may be used to support issuance of letters of credit, foreign exchange contracts and interest rate hedges. At December 31, 1994, $13.6 million was restricted under outstanding letters of credit. In addition, the Company has a $5 million unsecured and uncommitted revolving credit line with a bank which is restricted to use for letters of credit. At December 31, 1994, $3.2 million was restricted under outstanding letters of credit. 21 Camrose maintains a $15 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 the assets of Camrose and expires on October 31, 1996. 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 United States dollar prime rate, or (3) LIBOR. As of December 31, 1994, Camrose had $3.2 million outstanding under the facility. During 1994 the Company expended approximately $120 million on the capital program at CF&I and $10 million on the Combination Mill. During 1995 the Company expects to expend $45 million on the capital program at CF&I and $120 million on the Combination Mill. In addition to the Combination Mill, the Company has budgeted approximately $13 million for capital expenditures at its Oregon Steel Division manufacturing facilities for recurring upgrade projects to the present facilities and equipment. Approximately $10 million was expended on various capital projects at these facilities in 1994. The Company has also budgeted $15 million for an approximated 13 percent equity interest in the planned Venezuelan HBI plant. Expenditures for this project are expected to be $5 million in 1995. The Company's total capitalization at December 31, 1994 of $463.8 million consists of $187.9 million in long-term debt and $275.9 million in stockholders' equity, for a long-term debt-to- capitalization ration of .41 to 1. Net book value per share of common stock at December 31, 1994 was $14.24 per share versus $14.23 per share at December 31, 1993. The Company believes that anticipated needs for working capital and capital expenditures through 1995 will be met from existing cash balances, funds generated by operations and borrowing pursuant to the Company's Senior credit facilities. 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. Property, plant facilities and equipment purchased by the Company in prior years have been subject to inflation; consequently, current charges to depreciation are smaller than would be required if such assets were valued at replacement cost. 22 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA QUARTERLY FINANCIAL DATA - UNAUDITED
1994 1993 --------------------------------------- ---------------------------------------- 4th 3rd 2nd 1st 4th 3rd 2nd 1st -------- ------- ------- -------- -------- ------- -------- -------- (IN MILLIONS EXCEPT PER SHARE AMOUNTS) Sales.......................... $191.5 $193.1 $234.8 $218.9 $152.5 $174.2 $204.1 $149.0 Operating income (loss)........ 6.6(1) (19.6)(2) 7.2 7.5 (1.5) 1.91 12.1 12.3 Net income (loss).............. 5.5 (.5)(3) 3.4 3.7 (1.2) - 9.2 6.8 Net income (loss) per share.................... $.27 $(.02) $.17 $.18 $(.06) - $.46 $.35 Dividends declared per common share................. $.14 $.14 $.14 $.14 $.14 $.14 $.14 $.14 Common stock price range: High......................... $18 1/4 $20 1/4 $23 $27 3/8 $25 1/4 $22 3/4 $25 5/8 $27 1/2 Low.......................... $14 1/8 $15 7/8 $18 7/8 $22 5/8 $20 7/8 $17 1/2 $20 1/8 $21 3/4 Average shares outstanding.................. 20.0 20.0 20.0 20.0 19.8 19.7 19.7 19.4 (1) Includes property tax refunds totalling $3.5 million related to prior years. (See note 13 to the Consolidated Financial Statements.) (2) Includes provision for rolling mill closures of $22.1 million. (See Note 13 to the Consolidated Financial Statements.) (3) Includes gain of approximately $12.3 million on the sale of a 10 percent interest in the Company's subsidiary, New CF&I, Inc. (See Note 13 to the Consolidated Financial Statements.) 23
REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Directors of Oregon Steel Mills, Inc. We have audited the consolidated financial statements and the financial statement schedule of Oregon Steel Mills, Inc. and Subsidiaries as listed in Item 14(a) of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Oregon Steel Mills, Inc. and Subsidiaries as of December 31, 1994, 1993 and 1992, and the consolidated results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Portland, Oregon February 10, 1995 24 OREGON STEEL MILLS, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS
DECEMBER 31, -------------------------------------- 1994 1993 1992 -------- -------- -------- Current assets: Cash and cash equivalents............................................ $ 5,039 $ 9,623 $ 5,177 Trade accounts receivable, less allowance for doubtful accounts of $2,063, $1,906, and $926...................... 80,203 71,649 23,900 Inventories.......................................................... 160,788 160,504 113,253 Other current assets................................................. 7,661 9,203 9,003 Deferred tax asset................................................... 5,775 4,804 3,633 -------- -------- -------- Total current assets 259,466 255,783 154,966 -------- -------- -------- Property, plant and equipment: Land and improvements................................................ 28,319 24,466 21,652 Buildings............................................................ 36,943 35,821 32,180 Machinery and equipment.............................................. 230,019 240,833 197,492 Construction in progress............................................. 139,842 34,605 19,756 -------- -------- -------- 435,123 335,725 271,080 Accumulated depreciation............................................. (97,027) (104,300) (84,287) -------- -------- -------- 338,096 231,425 186,793 -------- -------- -------- Excess of cost over net assets acquired................................ 42,569 39,474 - Other assets........................................................... 25,602 22,988 12,493 -------- -------- -------- $665,733 $549,670 $354,252 ======== ======== ======== LIABILITIES Current liabilities: Current portion of long-term debt.................................... $ 5,302 $ 4,680 $ - Short-term debt...................................................... - 14,225 11,000 Accounts payable..................................................... 85,618 75,419 34,179 Accrued expenses..................................................... 24,692 19,091 9,306 Other taxes payable.................................................. 2,374 2,907 1,037 -------- --------- -------- Total current liabilities.......................................... 117,986 116,322 55,522 Long-term debt......................................................... 187,935 76,487 - Deferred employee benefits............................................. 17,661 15,327 13,495 Other deferred liabilities............................................. 36,609 36,803 2,605 Deferred income taxes.................................................. 10,725 16,514 14,245 -------- --------- -------- 370,916 261,453 85,867 -------- --------- -------- Minority interests..................................................... 18,934 12,975 10,870 -------- --------- -------- Commitments and contingencies (Note 11) STOCKHOLDERS' EQUITY Capital stock: Preferred stock, par value $.01 per share; 1,000 shares authorized; none issued Common stock, par value $.01 per share; 30,000 shares authorized; 19,377, 19,348, and 19,201 shares issued and outstanding.................................................... 194 193 192 Additional paid-in capital............................................. 150,090 149,340 134,101 Retained earnings...................................................... 130,145 128,924 124,935 Minimum pension liability adjustment................................... - (297) - -------- --------- -------- 280,429 278,160 259,228 Cumulative foreign currency translation adjustment..................... (4,546) (2,918) (1,713) -------- --------- -------- 275,883 275,242 257,515 -------- --------- -------- $665,733 $ 549,670 $354,252 ======== ========= ======== The accompanying notes are an integral part of the consolidated financial statements. 25
OREGON STEEL MILLS, INC. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------- 1994 1993 1992 -------- -------- -------- Sales......................................................... $838,268 $679,823 $397,722 -------- -------- -------- Costs and expenses: Cost of sales............................................... 761,335 608,236 316,455 Provision for rolling mill closures......................... 22,134 - - Selling, general and administrative expenses................ 50,052 41,447 29,785 Contribution to employee stock ownership plan............... 738 753 3,501 Profit participation........................................ 2,336 4,527 10,510 -------- -------- -------- 836,595 654,963 360,251 -------- -------- -------- Operating income.......................................... 1,673 24,860 37,471 Other income (expense): Interest and dividend income................................ 1,620 921 741 Interest expense............................................ (3,910) (3,988) - Settlement of litigation.................................... - 2,750 (5,040) Gain on sale of subsidiary's common stock................... 12,323 - - Minority interests.......................................... (3,290) (1,996) 1,097 Other, net.................................................. 711 (354) 214 -------- -------- -------- Income before income taxes................................ 9,127 22,193 34,483 Income tax benefit (expense).................................. 2,941 (7,388) (14,506) -------- -------- -------- Net income................................................ $ 12,068 $ 14,805 $ 19,977 ======== ======== ======== Primary and fully diluted net income per common and common equivalent share.......................... $ .60 $ .75 $1.04 ======== ======== ======== The accompanying notes are an integral part of the consolidated financial statements. 26
OREGON STEEL MILLS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994 (IN THOUSANDS)
CUMULATIVE MINIMUM FOREIGN COMMON STOCK ADDITIONAL PENSION CURRENCY ---------------- PAID-IN RETAINED LIABILITY TRANSLATION SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT ADJUSTMENT TOTAL ------- ------- ---------- -------- ---------- ----------- -------- Balances, December 31, 1991...... 18,986 $190 $129,136 $115,680 - - $245,006 Net income....................... 19,977 19,977 Issuance to employee stock ownership plan................. 215 2 4,998 5,000 Adjust prior year common stock issuance....................... (33) (33) Foreign currency translation adjustment..................... $(1,713) (1,713) Dividends paid ($.56 per share).. (10,722) (10,722) ------- ---- -------- -------- ------ ------- -------- Balances, December 31, 1992...... 19,201 192 134,101 124,935 - (1,713) 257,515 Net income....................... 14,805 14,805 Issuance to employee stock ownership plan................. 147 1 3,499 3,500 Common stock to be issued March 2003 (598,400 shares).......... 11,184 11,184 Warrants to purchase 100,000 shares of common stock for five years, expiring March 3, 1998.. 556 556 Minimum pension liability adjustment..................... $(297) (297) Foreign currency translation adjustment..................... (1,205) (1,205) Dividends paid ($.56 per share).. (10,816) (10,816) ------- ---- -------- -------- ----- -------- -------- Balances, December 31, 1993 19,348 193 149,340 128,924 (297) (2,918) 275,242 Net income....................... 12,068 12,068 Issuance to employee stock ownership plan................. 29 1 750 751 Minimum pension liability adjustment..................... 297 297 Foreign currency translation adjustment..................... (1,628) (1,628) Dividends paid ($.56 per share).. (10,847) (10,847) ------- ---- -------- -------- ----- ------- -------- Balances, December 31, 1994 19,377 $194 $150,090 $130,145 $ - $(4,546) $275,883 ======= ==== ======== ======== ===== ======= ======== The accompanying notes are an integral part of the consolidated financial statements. 27
OREGON STEEL MILLS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------- 1994 1993 1992 -------- -------- -------- Cash flows from operating activities: Net income...................................................... $ 12,068 $ 14,805 $ 19,977 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation................................................ 20,642 20,769 16,253 Amortization................................................ 1,370 606 - Provision for rolling mill closures......................... 22,134 - - Deferred income taxes....................................... (5,789) 2,269 3,050 Accruals for contribution of common stock to employee stock ownership plan............................. 736 750 3,500 Gain on sale of subsidiary's common stock................... (12,323) Loss on disposal of property, plant and equipment........... 147 591 958 Minority interests' share of income (loss).................. 1,482 905 (1,068) Other, net.................................................. 53 1,198 (941) Changes in current assets and liabilities net of effect of acquisitions: Trade accounts receivable.............................. (9,161) (7,980) 26,226 Refundable income taxes................................ (152) 2,413 (3,349) Inventories............................................ (3,786) (19,124) (6,762) Other current assets................................... 1,690 (2,136) (1,618) Deferred tax asset..................................... (971) (1,171) 114 Accounts payable....................................... (12,568) 21,559 (1,330) Accrued expenses....................................... 5,530 7,221 (4,612) Other taxes payable.................................... (582) 1,870 (2,013) -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES.......................................... 20,520 44,545 48,385 -------- -------- -------- Cash flows from investing activities: Additions to property, plant and equipment...................... (128,237) (40,905) (34,281) Proceeds from disposal of property, plant and equipment......... 390 2,236 - Investment in Camrose Pipe Company.............................. - - (17,972) Investment in CF&I Steel, L.P................................... - (8,039) - Other, net...................................................... (855) 565 (707) -------- -------- -------- NET CASH USED BY INVESTING ACTIVITIES........................... (128,702) (46,143) (52,960) -------- -------- -------- Cash flows from financing activities: Net borrowings under revolving loan agreements.................. 94,047 20,042 11,000 Proceeds from Senior Credit Facilities.......................... 137,600 - - Payments on Senior Credit Facilities............................ (7,600) - - Payment of existing debt with proceeds from Senior Credit Facilities........................ (121,600) - - Other reductions of debt........................................ (4,394) (3,033) (5,125) Dividends paid.................................................. (10,847) (10,816) (10,722) Proceeds from sale of subsidiary's common stock................. 16,800 - - Other, net...................................................... 258 (42) (45) --------- -------- -------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES.......................................... 104,264 6,151 (4,892) --------- -------- -------- Effects of foreign currency exchange rate changes on cash......... (666) (107) (30) --------- -------- -------- Net increase (decrease) in cash and cash equivalents.............. (4,584) 4,446 (9,497) Cash and cash equivalents at beginning of year.................... 9,623 5,177 14,674 --------- -------- -------- Cash and cash equivalents at end of year.......................... $ 5,039 $ 9,623 $ 5,177 ========= ======== ======== See Note 4 for additional supplemental disclosures of cash flow information: Cash paid for: Interest...................................................... $ 10,500 $ 5,443 $ 547 Income taxes.................................................. $ 3,967 $ 4,017 $ 15,442 The accompanying notes are an integral part of the consolidated financial statements. 28
/PAGE OREGON STEEL MILLS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of all wholly-owned and majority-owned subsidiaries. Affiliates which are 20 percent to 50 percent owned are accounted for using the equity method. Material wholly-owned and majority-owned subsidiaries of the Company are Napa Pipe Corporation ("Napa"), Oregon Steel Mills - Fontana Division, Inc. ("Fontana"), Camrose Pipe Corporation ("CPC") which owns a 60 percent interest in Camrose Pipe Company ("Camrose"), and 90 percent owned New CF&I, Inc. which owns a 95.2 percent interest in CF&I Steel, L.P. ("CF&I"). All material intercompany transactions and account balances have been eliminated upon consolidation. Operations of purchased businesses are included in the consolidated financial statements from the date of acquisition. CASH AND CASH EQUIVALENTS The Company invests excess cash balances in short-term securities, including corporate and municipal obligations, bank repurchase agreements, commercial paper, remarketed preferred stock, and similar liquid instruments which are readily converted to known amounts of cash and are so near to maturity that they present insignificant risk of changes in value because of changes in interest rates. The carrying amounts approximate fair value because of the short maturity of these instruments. CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, investments and trade receivables. The Company places its cash and cash equivalents and investments with high-credit-quality financial institutions and limits the amount of credit exposure at any one financial institution. At times, temporary cash investments may be in excess of the Federal Deposit Insurance Corporation insurance limit. Management believes that risk of loss on the Company's trade receivables is significantly reduced by ongoing credit evaluation of customer financial condition and requirements for collateral, such as letters of credit and bank guarantees. INVENTORIES Inventories are stated at the lower of average cost or market. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at historical cost, including all costs directly related to the acquisition, construction, and preparation for intended use, such as capitalized interest. Such capitalized interest amounted to $7.4 million, $1.7 million, and $318,000 in 1994, 1993 and 1992, respectively. Depreciation is determined utilizing principally the straight-line method over the estimated useful lives of the individual assets. Maintenance and repairs are expensed as incurred and costs of improvements are capitalized. Upon disposal, related costs and accumulated depreciation are removed from the accounts and resulting gains or losses are reflected in income. EXCESS OF COST OVER NET ASSETS ACQUIRED Excess of cost over net assets acquired relate to the acquisitions of CF&I and Camrose. The excess is being amortized on a straight-line basis over 40 years. Accumulated amortization was $1.8 million and $765,000 in 1994 and 1993, respectively. INTEREST RATE SWAP AGREEMENTS The differentials to be paid or received on interest rate swaps are recognized as adjustments to interest expense during the term of the swap agreements on an accrual basis. Cash flows from interest rate hedging transactions are classified in the same category as the cash flows from the related borrowing activity. 29 TAXES ON INCOME Deferred income taxes reflect the tax consequences in future years of differences between the financial reporting and tax bases of assets and liabilities at year end based on enacted tax laws and statutory tax rates. Tax credits are recognized on the flow through method as a reduction of income tax expense in the year the credit arises. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. FOREIGN CURRENCY TRANSLATION Assets and liabilities of foreign subsidiaries are translated at the rate of exchange in effect as of the balance sheet date. The related translation adjustments are reflected in the cumulative foreign currency translation adjustment section of the consolidated balance sheet. Income and expenses are translated at the average rates of exchange prevailing during the year. NET INCOME PER SHARE The computation of net income per common and common equivalent share is based upon the weighted average number of common shares outstanding during each period plus (in periods in which they have a dilutive effect) the effect of common shares contingently issuable. The weighted average number of common shares and equivalents outstanding was 20 million, 19.8 million and 19.2 million, respectively, in 1994, 1993 and 1992. There were no dilutive common share equivalents outstanding in any years presented. REVENUE RECOGNITION Revenue is recognized when the earnings process is complete and an exchange has taken place. The earnings process is not considered complete until collection of the sales price is reasonably assured. RECLASSIFICATIONS Certain amounts in the 1993 and 1992 financial statements have been reclassified to conform with the current year's presentation. The reclassifications do not affect previously reported net income. 30 2. BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION The Company operates in one business segment in two geographical locations, the United States and Canada. Geographical area information is as follows: 1994 1993 1992 -------- -------- -------- (IN THOUSANDS) SALES TO UNAFFILIATED CUSTOMERS United States...................... $728,229 $587,247 $379,714 Canada............................. 110,039 92,576 18,008 -------- -------- -------- $838,268 $679,823 $397,722 ======== ======== ======== OPERATING INCOME (LOSS) BY GEOGRAPHIC LOCATION United States...................... $ (7,186) $ 19,645 $ 39,917 Canada............................. 8,859 5,215 (2,446) -------- -------- -------- $ 1,673 $ 24,860 $ 37,471 ======== ======== ======== INCOME (LOSS) BEFORE INCOME TAXES BY GEOGRAPHIC LOCATION United States...................... $ 3,839 $ 19,192 $ 36,068 Canada............................. 5,288 3,001 (1,585) -------- -------- -------- $ 9,127 $ 22,193 $ 34,483 ======== ======== ======== IDENTIFIABLE ASSETS BY GEOGRAPHIC AREAS United States...................... $615,816 $508,084 $314,273 Canada............................. 49,917 41,586 39,979 -------- -------- -------- $665,733 $549,670 $354,252 ======== ======== ======== The major industries to which the Company sells steel products are fabricators, manufacturers, steel service centers, natural gas pipeline companies and railroad companies. In 1993 and 1992, the Company derived 11.8 percent and 44.9 percent, respectively, of its sales from one customer. These sales were to the same customer in 1993 and 1992. Operating income is total revenues less operating expenses excluding investment income, interest expense, other nonoperating income (expense), settlement of litigation, gain on sale of subsidiary's common stock, equity in income or loss attributable to minority interest and provision for income taxes. 3. INVENTORIES Inventories at December 31 consist of: 1994 1993 1992 -------- -------- -------- (IN THOUSANDS) Raw materials....................... $ 37,389 $ 26,242 $ 8,326 Semi-finished product............... 50,033 51,759 29,280 Finished product.................... 50,320 62,104 61,557 Stores and operating supplies....... 23,046 20,399 14,090 -------- -------- -------- $160,788 $160,504 $113,253 ======== ======== ======== 4. SUPPLEMENTAL CASH FLOW INFORMATION During 1994 the Company (a) acquired property, plant and equipment for $18.6 million which was included in accounts payable at December 31, 1994, (b) incurred a non-cash charge of $22.1 million to reduce the carrying value of various pieces of property, plant and equipment, inventories, and other operating supplies relating to the closure of the Company's Fontana, California plate mill and for those assets unlikely to be used following the construction of the new steckel combination mill ("Combination Mill") at the Company's Portland, Oregon steel mill (see Note 13) and (c) accrued accounts payable related to the annual performance purchase price adjustment at Camrose for $3.6 million (see Note 11). 31 During 1993 the Company's purchase of certain of the CF&I Steel Corporation's net assets was accomplished by remitting $8 million, along with other non-cash items to the seller. During 1992 the Company's purchase of Camrose net assets was accomplished by remitting $18 million to the seller representing the Company's net 60 percent acquisition cost. As a result, no funds were paid to, or received from, the seller for its 40 percent interest in the facility. 5. ACCRUED EXPENSES Accrued expenses at December 31 are as follows: 1994 1993 1992 -------- -------- ------ (IN THOUSANDS) Accrued vacation.................... $ 6,254 $ 5,391 $2,606 Other............................... 18,438 13,700 6,700 ------- ------- ------ $24,692 $19,091 $9,306 ======= ======= ====== 6. DEBT AND FINANCING ARRANGEMENTS LONG-TERM DEBT: Long-term debt at December 31 is summarized as follows: 1994 1993 -------- ------- (IN THOUSANDS) Term Loan...................................... $120,000 $ - Revolving Loan................................. 10,000 16,700 CF&I term loan................................. 60,073 64,467 Other term loans............................... 3,164 - -------- ------- 193,237 81,167 Less current maturities........................ 5,302 4,680 -------- ------- $187,935 $76,487 ======== ======= In December 1994 the Company entered into an agreement establishing two credit facilities ("Senior Credit Facilities") which provide for collateralized borrowing of up to $300 million from a group of banks ("Lender Banks"). Use of the Senior Credit Facilities is to fund capital expenditures, for general corporate purposes, and for working capital. The Senior Credit Facilities are comprised of: (1) a $200 million term loan facility ("Term Loan") which may be drawn at any time through December 31, 1996; and (2) up to a $100 million revolving loan facility ("Revolving Loan") which may be drawn and repaid at any time through December 31, 1997 based upon the Company's accounts receivable and inventory balances. By mutual agreement of the Company and the Lender Banks, the Revolving Loan may be extended for two additional one-year periods to December 31, 1999. Annual commitment fees are .375 percent or .5 percent of the unused portions of the Senior Credit Facilities, depending on the Company's quarterly consolidated ratio ("Leverage Ratio") of funded debt to the most recent four quarters' earnings before interest, taxes, depreciation and amortization. At the Company's election, interest is based on the London Interbank Borrowing Rate ("LIBOR"), the prime rate or, for the Revolving Loan only, the federal funds rate, plus a margin determined by the Company's Leverage Ratio. As of December 31, 1994, interest on the Senior Credit Facilities was 8.13 percent. The outstanding balance of the Term Loan on December 31, 1996 will be repaid in eleven quarterly installments commencing June 30, 1997. If the Term Loan is fully drawn at December 31, 1996, the repayments will total $50 million in 1997, $70 million in 1998, and $80 million in 1999. Such payments will be reduced pro-rata if less than the full amount is drawn. The Senior Credit Facilities are collateralized by substantially all of the Company's inventory and accounts receivable, except those of Camrose. In addition, the Company has pledged as collateral its material loan receivables from its subsidiaries, and the stock of certain material subsidiaries. The Senior Credit Facilities are guaranteed by the material wholly-owned subsidiaries of the Company. 32 The Senior Credit Facilities agreement contains various restrictive covenants including a minimum current asset to current liability ratio; a minimum interest coverage ratio; a minimum ratio of cash flow to scheduled maturities of long-term debt, interest and taxes; and a minimum tangible net worth; a maximum ratio of long-term debt to total capitalization; and restrictions on capital expenditures, liens, investments and additional indebtedness. The Company has entered into interest rate swap agreements with banks, as required by the Senior Credit Facilities, to reduce the impact of unfavorable changes in interest rates on its debt. At December 31, 1994, the Company had outstanding four interest rate swap agreements with commercial banks, having a notional principal amount of $30 million. These agreements effectively change the Company's interest rate costs on a portion of its Senior Credit Facilities to 9.34 percent on $10 million maturing on November 9, 1997, 9.35 percent on $10 million maturing on November 9, 1997 and 9.64 percent on a remaining $10 million maturing on December 22, 1997. These rates are fixed over the indicated terms of the swap agreements except for the effect of changes in the Company's leverage ratio, which could reduce the interest by up to 1 percent, or increase interest by up to .5 percent. The Company is exposed to credit loss in the event of nonperformance by the other parties in the interest rate swap agreements. However, the Company does not anticipate nonperformance by the counterparties. Term debt of $67.5 million was incurred by CF&I as part of the purchase price of certain assets of CF&I Steel Corporation on March 3, 1993. This debt is without stated collateral and is payable over ten years with interest at 9.5 percent. The Company has guaranteed the payment of the first 25 months installment cash payments on the $67.5 million note (a total remaining of approximately $3.5 million of principal and interest at December 31, 1994). As of December 31, 1994, the outstanding balance on this debt is $60.1 million, of which $54.8 million is classified as noncurrent. Camrose maintains a $15 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 the assets of Camrose and expires on October 31, 1996. 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 United States dollar prime rate, or (3) LIBOR. As of December 31, 1994, Camrose had $3.2 million outstanding under the facility with interest at 8.13 percent. As of December 31, 1994, principal payments on long-term debt are payable in annual installments of: 1995...................................................... $ 5,302 1996...................................................... 7,269 1997...................................................... 38,678 1998...................................................... 60,165 1999...................................................... 50,800 Balance due in installments through 2003.................. 31,023 -------- $193,237 ======== SHORT-TERM DEBT: The Company has an uncollateralized and uncommitted revolving line of credit with a bank which matures May 31, 1995 and may be used to support issuance of letters of credit, foreign exchange contracts and interest rate hedges. At December 31, 1994, $13.6 million was restricted under outstanding letters of credit. In addition, the Company has a $5 million uncollateralized and uncommitted revolving credit line with a bank which is restricted to use for letters of credit. At December 31, 1994, $3.2 million was restricted under outstanding letters of credit. The weighted average interest rates on short-term borrowings were 5.1 percent and 3.5 percent at December 31, 1993 and 1992, respectively. 33 7. FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, Disclosures about Fair Value of Financial Instruments, defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Based on quotations from counterparties, the fair value of the Company's interest rate swap agreements (see Note 6) at December 31, 1994 was $192,000 which represents the estimated unrealized gain that would result if the Company terminated the agreements. However, the Company has no intention to exit these agreements. The interest rate swap agreements are a part of an interest rate management strategy that is required by the Senior Credit Facilities. The carrying value of the Company's borrowings under its Senior Credit Facilities and other revolving loan agreements (see Note 6) at December 31, 1994 approximates fair value since the Senior Credit Facilities and other revolving loan agreements carry a variable interest rate. The carrying value and fair value of the CF&I term loan at December 31, 1994 is $60.1 million and $57.9 million, respectively. At December 31, 1993 the carrying value of the CF&I term loan of $64.5 million approximated its fair value because there was only minor variance in interest rates from the March 1993 acquisition of the debt to the end of 1993. The lower fair value of the CF&I term loan at December 31, 1994 reflects the benefit to the Company of having a fixed interest rate while market rates have increased. The fair value is estimated by discounting the future payments with an interest rate which approximates the market rate as of December 31, 1994 for obligations of similar size, term and security. 34 8. INCOME TAXES The Company adopted Statement of Financial Accounting Standards No. 109 (FAS No. 109), "Accounting for Income Taxes," as of January 1, 1992. The accounting change had no effect on 1992 or previously reported net income. The income tax benefit (expense) consists of the following: 1994 1993 1992 -------- -------- -------- (IN THOUSANDS) Current: Federal........................... $ (3,325) $ (5,287) $ (9,162) State............................. (479) (984) (2,082) Foreign........................... (14) (19) - -------- -------- -------- (3,818) (6,290) (11,244) -------- -------- -------- Deferred: Federal........................... 5,856 (124) (3,932) State............................. 2,148 (163) 670 Foreign........................... (1,245) (811) - -------- -------- -------- 6,759 (1,098) (3,262) -------- -------- -------- Income tax benefit (expense)........ $ 2,941 $ (7,388) $(14,506) ======== ======== ======== The components of the deferred income tax benefit (expense) are as follows: 1994 1993 1992 ------- -------- --------- (IN THOUSANDS) Difference between tax and financial statement accounting for: Depreciation and amortization........ $ (4,722) $ (4,707) $ (2,673) Inventories.......................... (368) 239 (447) Unfunded pension liability........... 896 100 (126) Accrued vacation liability........... 568 1,091 - Alternative minimum tax.............. 2,599 1,665 - Provision for rolling mill closures.. 5,450 - - Federal and state tax credits........ 1,670 - - Foreign tax credit................... 1,296 - - Other................................ (630) 514 (16) -------- -------- -------- $ 6,759 $ (1,098) $ (3,262) ======== ======== ======== 35 The components of deferred tax assets and liabilities as of December 31 are as follows:
1994 1993 1992 --------- --------- --------- (IN THOUSANDS) Net current deferred tax asset: Assets Inventories........................................................ $ 1,904 $ 2,268 $ 2,029 Accrued vacation liability......................................... 2,488 1,920 829 Accounts receivable................................................ 697 597 384 State tax credits.................................................. 135 196 196 Provision for rolling mill closures................................ 1,906 - - Other.............................................................. 1,717 920 366 -------- ------- -------- 8,847 5,901 3,804 Liabilities Other.............................................................. 3,072 1,097 171 -------- ------- -------- Net current deferred tax asset......................................... $ 5,775 $ 4,804 $ 3,633 ======== ======= ======== Net noncurrent deferred income tax liability: Assets Post retirement benefits other than pensions....................... $ 1,182 $ 2,009 $ 1,124 State tax credits.................................................. 6,996 207 403 Alternative minimum tax credit..................................... 4,264 1,665 - Excess of cost over net assets acquired............................ 12,673 13,282 - Water rights....................................................... 4,052 4,247 - Provision for rolling mill closures................................ 3,543 - - Foreign tax credit................................................. 1,296 - - Other.............................................................. 4,284 1,076 488 ------- ------- -------- 38,290 22,486 2,015 ------- ------- -------- Valuation allowances............................................... 5,408 - - ------- ------- -------- 32,882 22,486 2,015 ------- ------- -------- Liabilities Property, plant and equipment...................................... 23,655 19,015 14,308 Environmental liability............................................ 13,070 13,282 - Other.............................................................. 6,882 6,703 1,952 ------- ------- -------- 43,607 39,000 16,260 ------- ------- -------- Net non-current deferred tax liability................................. $10,725 $16,514 $ 14,245 ======= ======= ======== A reconciliation of the statutory tax rate to the effective tax rate on income before income taxes is as follows: 1994 1993 1992 ------- ------- ------- U.S. statutory income tax rate......................................... (35.0%) (35.0%) (34.0%) Tax credits............................................................ 20.3 1.4 1.8 Deduction for dividends to ESOP participants........................... 5.6 2.6 2.1 State income taxes..................................................... (5.0) (6.6) (5.2) Settlement of litigation............................................... - 4.3 (6.1) Rate changes on beginning deferred taxes............................... - (1.8) - Gain on sale of subsidiary's common stock.............................. 47.3 - - Foreign tax in excess of U.S. rate..................................... (5.5) - - Other.................................................................. 4.5 1.8 (.7) ------- ------- ------- 32.2% (33.3%) (42.1%) ======= ======= ======= A valuation allowance of $5.4 million has been established in 1994 to reflect the uncertainty of realizing certain state tax credits. At December 31, 1994, the Company has state tax credits of $7.1 million expiring 1997 through 2006 and a federal tax credit of $546,000 expiring 2005 through 2009 which are available to reduce future income taxes payable. 36
9. EMPLOYEE BENEFIT PLANS U.S. PENSION PLANS The Company has noncontributory defined benefit retirement plans covering all of its eligible domestic employees. The plans provide benefits based on participants' years of service and compensation. The Company funds at least the minimum annual contribution required by ERISA. Pension cost included the following components: 1994 1993 1992 ------- ------- ------- (IN THOUSANDS) Service cost.......................... $ 5,076 $ 3,857 $ 1,703 Interest cost......................... 2,014 1,714 1,528 Actual (return) loss on plan assets .. 398 (4,002) (2,256) Net amortization and deferral......... (2,401) 2,423 1,002 ------- ------- ------- $ 5,087 $ 3,992 $ 1,977 ======= ======= ======= The following table sets forth the funded status of the plans and amount recognized in the Company's consolidated balance sheet at December 31: 1994 1993 1992 ------- ------- ------- (IN THOUSANDS) Accumulated benefit obligation, including vested benefits of $25,017 in 1994, $23,589 in 1993, and $17,781 in 1992................. $26,451 $26,543 $19,918 ======= ======= ======= Projected benefit obligation.......... $28,110 $28,413 $21,987 Plan assets at fair value............. 26,790 27,380 20,464 ------- ------- ------- Projected benefit obligation in excess of plan assets............... (1,320) (1,033) (1,523) Unrecognized net loss (gain).......... (2,296) 428 2,165 Unrecognized prior service cost....... 1,032 1,156 413 Unrecognized net obligation at January 1, 1987 being recognized over 15 years....................... 529 1,271 681 Adjustment required to recognize minimum liability................... - (297) - ------- ------- ------- Pension asset (liability) recognized in consolidated balance sheet....... $(2,055) $ 1,525 $ 1,736 ======= ======= ======= The following table sets forth the significant actuarial assumptions as of December 31: 1994 1993 1992 ------- ------- ------- Discount rate......................... 8.5% 7.3% 8.0% Rate of increase in future compensation levels................. 4.5% 4.5% 4.5% Expected long-term rate of return on plan assets...................... 8.8% 8.0% 8.0% Plan assets are invested in common stock and bond funds (85 percent), marketable fixed income securities (2 percent) and insurance company contracts (12 percent) at December 31, 1994. The plans do not invest in the stock of the Company. SUPPLEMENTAL U.S. PENSION PLAN The amounts of benefits which can be covered by the funded domestic plans are limited by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. Therefore, in 1994, the Company established an unfunded supplemental retirement plan designed to maintain benefits for all non-union domestic employees at the plan formula level. The amount expensed for this plan in 1994 was $160,000. The accumulated benefit obligation recognized in the consolidated balance sheet at December 31, 1994 was $857,000. 37 CANADIAN PENSION PLANS The Company has noncontributory defined benefit retirement plans covering all of its eligible Camrose employees. The plans provide benefits based on participants' years of service and compensation. The Canadian pension plan assets acquired with the Company's 60 percent interest in Camrose are still held by Stelco, Inc. until such time as the transfer is approved by Canadian regulatory authorities. Pension cost included the following components: 1994 1993 1992 ------- ------- ------ (IN THOUSANDS) Service cost.......................... $ 297 $ 303 $ 149 Interest cost......................... 408 8 - Actual (return) loss on plan assets... (447) (13) - Gains................................. (16) (3) - ------- ------ ------ $ 242 $ 295 $ 149 ======= ====== ====== The following table sets forth the funded status of the plans and amount recognized in the Company's consolidated balance sheet at December 31: 1994 1993 1992 ------- ------- ------- (IN THOUSANDS) Accumulated benefit obligation, including vested benefits of $4,045 in 1994, $4,212 in 1993, and $3,979 in 1992.................. $ 4,596 $ 4,893 $ 4,787 ------- ------- ------- Projected benefit obligation.......... $ 5,488 $5,870 $ 5,700 Plan assets at fair value............. 6,415 6,337 5,253 ------- ------ ------- Projected benefit obligation under (over) plan assets............ 927 467 (447) Unrecognized net gain................. (627) (535) (71) ------- ------ ------- Pension asset (liability) recognized in consolidated balance sheet....... $ 300 $ (68) $ (518) ======= ====== ======= The following table sets forth the significant actuarial assumptions as of December 31: 1994 1993 1992 ------- ------- ------- Discount rate......................... 8.5% 7.3% 8.0% Rate of increase in future compensation levels................. 5.0% 5.0% 5.0% Expected long-term rate of return on plan assets...................... 8.8% 8.0% 8.0% EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP") The Company has an ESOP for eligible domestic employees which enables an employee to own stock in the Company. This plan is a noncontributory qualified stock bonus plan. Contributions to the plan are made at the discretion of the Board of Directors. Company contributions in 1994, 1993 and 1992 were $736,000, $753,000, and $3.5 million, respectively. Shares are allocated to eligible employees' accounts based on annual compensation. At December 31, 1994, the ESOP held 2.4 million shares of Company common stock which had been allocated to employees. PROFIT PARTICIPATION PLANS The Company has discretionary profit participation plans under which it distributes quarterly 12 percent to 20 percent, depending on the operating division, of its pre-tax profits to its eligible employees. The plans define profits as pre-tax earnings from divisional operations after adjustments for certain non-operating items. Each eligible employee receives a share of the distribution based upon the level of the eligible employee's base compensation compared with the total base compensation of all eligible employees of the division. THRIFT PLAN The Company has a qualified thrift plan (401-k) for all of its eligible domestic employees that is designed to receive and invest their deferred compensation as provided by current laws. The Company currently matches 25 percent of the first 4 percent of the participant's deferred compensation. The Company's contribution expense in 1994, 1993 and 1992 was $778,000, $461,000, and $424,000, respectively. 38 POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS The Company provides certain health care and life insurance benefits for substantially all of its retired employees. Employees are generally eligible for benefits upon retirement and completion of a specified number of years of service. The benefit plans are unfunded. The following table sets forth the plans' status at December 31: 1994 1993 1992 ------- ------- ------- (IN THOUSANDS) Accumulated postretirement benefit obligation: Retirees............................. $ 4,557 $ 8,240 $ 7,155 Fully eligible plan participants..... 2,037 1,294 786 Other active plan participants....... 6,387 5,050 1,728 ------- ------- ------- $12,981 $14,584 $ 9,669 ======= ======= ======= Accumulated postretirement benefit obligation in excess of plan assets............................... $(12,981) $(14,584) $(9,669) Unrecognized net (gain) loss........... (2,379) 34 (450) Accrued postretirement benefit cost.... 8,777 7,557 2,716 -------- -------- ------- Postretirement asset recognized in consolidated balance sheet........... $ 6,583 $ 6,993 $ 7,403 ======== ======== ======= Net periodic postretirement benefit costs include the following components: Service cost....................... $ 457 $ 395 $ 196 Interest cost...................... 1,033 1,017 733 Transition obligation at March 31, 1991 being amortized over 20 years............................ 410 410 410 Gains.............................. (3) - - -------- -------- ------- Net periodic postretirement benefit cost....................... $ 1,897 $ 1,822 $ 1,339 ======== ======== ======= For measurement purposes, a long-term inflation rate of 4 percent is assumed for health care cost trend rates. However, a lower inflation rate (negative 6 percent in 1995 and 3.5 percent in 1996) has been assumed over the next two years, based on negotiated health care costs. A one percentage point increase in the assumed health care cost trend rate for 1995 would increase the accumulated postretirement benefit obligation by $473,000; the aggregate service and interest cost would increase $98,000. The discount rate used in determining the accumulated postretirement benefit obligation was 8.5 percent. 10. RELATED PARTY TRANSACTIONS CAMROSE PIPE COMPANY Camrose purchases steel coil, plate, and pipe under a steel supply agreement from Stelco, Inc. (and its subsidiaries) whose wholly-owned subsidiary, Stelcam Holdings Inc., owns 40 percent of Camrose. Transactions under the agreement are at negotiated market prices. The following table summarizes the transactions among Camrose, Stelco Inc., and Stelcam Holdings Inc.: 1994 1993 1992 ------- ------- ------- (IN THOUSANDS) Sales to Stelco....................... $ 2,189 $ - $ - Purchases from Stelco................. 72,642 59,019 17,000 Accounts payable to Stelco at December 31...................... 9,053 6,755 7,100 Note payable to Stelcam at December 31 (interest at Canadian prime rate plus 2 percent)..................... - - 2,200 NEW CF&I, INC. In 1994 the Company's 90 percent owned New CF&I, Inc. paid a $1.7 million deposit on an equipment contract supply agreement for purchase of deep head-hardened ("DHH") rail equipment to Nippon Steel Corporation (together with its subsidiaries, "Nippon") which owns 10 percent of New CF&I, Inc. 39 11. COMMITMENTS AND CONTINGENCIES ENVIRONMENTAL All material environmental remediation liabilities which are probable and estimatable are recorded in the financial statements based on current technologies and current environmental standards. Adjustments are made when additional information is available that may require different remediation methods or periods, and ultimately affect the total cost. The best estimate of the probable loss within a range is recorded. If there is no best estimate, the low end of the range is recorded, and the range is disclosed. The Company's Napa Pipe Corporation subsidiary has a reserve of $2.8 million at December 31, 1994 for environmental remediation relating to the Napa pipe mill. The Company's estimate of this environmental reserve was based on several remedial investigations and feasibility studies performed by an independent engineering consultant. The reserve includes costs for remedial action which is scheduled to be completed in 1998 with sampling, monitoring and maintenance costs continuing through 2024. In connection with the 1993 acquisition of CF&I, the Company established a reserve of $36.7 million for environmental remediation at CF&I's Pueblo steel mill. CF&I believed $36.7 million was the best estimate from a range of $23.1 to $43.6 million. CF&I's estimate of this environmental reserve was based on two separate remediation investigations and feasibility studies conducted by independent environmental engineering consultants. The reserve includes costs for the Resource Conservation and Recovery Act facility investigation, a corrective measures study, remedial action, and operation and maintenance associated with the proposed remedial actions. CF&I and the State of Colorado Department of Public Health and Environmental are finalizing a prioritized schedule of corrective actions to be completed which are substantially reflective of a straight-line rate of expenditure over 30 years. The State of Colorado stated that the schedule for corrective action could be accelerated if new data indicated a greater threat to the environment than is currently known to exist. At December 31, 1994, the reserve is $34.1 million and is included in other deferred liabilities in the consolidated balance sheet. CONTRACTS WITH KEY EMPLOYEES The Company has employment agreements with certain of its officers which provide for severance compensation in the event their employment with the Company is terminated subsequent to a change in control (as defined) of the Company under the circumstances set forth in the agreements. Each agreement has automatic annual extensions until the employee reaches the age of 65, unless either the Company or the employee gives notice that the agreement shall not be extended. In the event of a change in control while the agreements are in effect, the agreements are automatically extended for 36 months from the date the change in control occurs. The agreements will generally terminate upon termination of employment prior to a change in control of the Company. If, within 36 months following a change in control, the employee's employment with the Company is terminated by the Company without cause (as defined) or by the employee with good reason (as defined), then the Company will pay the employee his full base salary through the date of termination at the rate in effect on the date the change in control occurred, plus three times his annual base salary at the above specified rate, the four most recent quarterly cash distributions from the Company's profit participation plan and certain post retirement benefits as specified in the agreement. The employee is also entitled to be reimbursed for any reasonable legal fees and expenses he may incur in enforcing his rights under the agreement. CAMROSE ACQUISITION On June 30, 1992 Camrose Pipe Corporation acquired a 60 percent interest in a newly formed Canadian general partnership, Camrose Pipe Company. Concurrent with the formation of Camrose and the purchase of the partnership interest by Camrose Pipe Corporation, Camrose purchased from Stelco, Stelco's steel pipemaking facility in Camrose, Alberta, Canada and related receivables, inventories and other current assets. Under the terms of the asset purchase agreement the purchase price for the Camrose assets may be increased or decreased based upon an annual performance adjustment over a five-year period as described in the asset purchase agreement. The purchase price was increased by $3.6 million and $485,000, respectively, in 1994 and 1993. 40 CAPITAL EXPENDITURES During 1994 the Company began construction of various capital improvement projects at both its Portland, Oregon and Pueblo, Colorado steel mills. At December 31, 1994, the Company had commitments for expenditures of approximately $73.8 million related to the completion of these projects. 12. CAPITAL STOCK 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 designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions of 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 liquidation preferences, all without any vote or action by the stockholders. In connection with the acquisition of certain assets of CF&I Steel Corporation, the Company, through its ownership interest in CF&I, agreed to issue 598,400 shares of its common stock in March 2003 to specified creditors of CF&I Steel Corporation. The stock was valued at $11.2 million using the Black-Scholes valuation method. The common stock has no voting rights or rights to receive dividends until it is issued. In connection with the acquisition, the Company also issued five year warrants expiring March 3, 1998 to purchase 100,000 shares of the Company's common stock at $35 per share to CF&I Steel Corporation. The warrants were valued at $556,000 using the Black- Scholes method. 13. UNUSUAL AND NONRECURRING ITEMS GAIN ON SALE OF SUBSIDIARY'S COMMON STOCK In August 1994 the Company sold a 10 percent equity interest in its subsidiary, New CF&I, Inc., to a wholly-owned subsidiary of Nippon. In connection with that sale, Nippon agreed to license to the Company its proprietary technology for producing DHH rail products, as well as to sell the Company certain production equipment to produce DHH rail under a separate equipment supply agreement. New CF&I, Inc. received a cash payment of $16.8 million in connection with the transaction. The sale resulted in a gain of approximately $12.3 million for the Company. The gain is not subject to federal or state income taxes. PROVISION FOR ROLLING MILL CLOSURES During the fourth quarter of 1994, the Company began construction on the Combination Mill at its Portland, Oregon steel mill. When completed in 1996 this mill will replace the Company's existing plate rolling mill at the Portland steel mill. Accordingly, in the third quarter of 1994 the Company recorded a non-cash charge of $8.9 million, before income taxes of $3.4 million, to reduce the carrying value of various pieces of plant and equipment and inventories located at the Portland steel mill which are unlikely to be used following the completion of the Combination Mill. The Company's Fontana, California plate mill ceased plate production in the fourth quarter of 1994 and will close permanently in the first quarter of 1995. As a result of the closure, the Company recognized a loss for the disposal and exit costs of $13.2 million, before income taxes of $5 million. Of this net amount, approximately $7.4 million is a non-cash charge relating to the write-off of production supplies and property, plant and equipment. The Fontana plate mill is on leased property. The lease was terminated on January 18, 1995. The agreement provided for, among other stipulations, the termination of the lease and vacating the premises by March 31, 1995. The Company agreed to specific actions to restore the premises to a condition acceptable to the lessor by June 30, 1995, or within 60 days following receipt of all requirements for closure of the premises from the local county environmental authorities. The lessor agreed to indemnify the Company against environmental claims upon written notification by this local authority that the Company has satisfactorily performed all of the authority's requirements for closure of the premises. The Company has established a $900,000 reserve at December 31, 1994 for probable and estimatable remediation costs. 41 PROPERTY TAX REFUND During the fourth quarter of 1994, the Company received property tax refunds totaling $4.6 million related to prior years for the over assessment of its Portland, Oregon and Pueblo, Colorado steel mills. The refunds reduced cost of sales by $3.5 million and increased interest income by $1.1 million. 42 ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEMS 10 and 11. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AND EXECUTIVE COMPENSATION A definitive proxy statement of Oregon Steel Mills, Inc. will be filed not later than 120 days after the end of the fiscal year with the Securities and Exchange Commission. The information set forth therein under "Election of Directors" and "Executive Compensation" is incorporated herein by reference. Executive Officers of Oregon Steel Mills, Inc. and principal subsidiaries are listed on page 15 of this Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required is set forth under the caption "Principal Stockholders" in the Proxy Statement for the 1995 Annual Meeting of Stockholders and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information required is set forth under the caption "Executive Compensation" in the Proxy Statement for the 1995 Annual Meeting of Stockholders and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K PAGE (A) (i) FINANCIAL STATEMENTS: Report of Independent Accountants.................. 24 Consolidated Financial Statements: Balance Sheets at December 31, 1994, 1993 and 1992....................................... 25 Statements of Income for each of the three years in the period ended December 31, 1994.......... 26 Statements of Changes in Stockholders' Equity for each of the three years in the period ended December 31, 1994........................ 27 Statements of Cash Flows for each of the three years in the period ended December 31, 1994.... 28 Notes to Consolidated Financial Statements....... 29 (ii) Financial Statement Schedules for each of the three years in the period ended December 31, 1994: Schedule II - Valuation and Qualifying Accounts.... 44 (iii) Exhibits: References made to the list on page 45 of the exhibits filed with this report. (B) No reports on Form 8-K were required to be filed by the Registrant during the fourth quarter of the year ended December 31, 1994. 43 OREGON STEEL MILLS, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31 (IN THOUSANDS)
COLUMN C ------------------------ COLUMN B COLUMN E ---------- ADDITIONS COLUMN D ---------- COLUMN A BALANCE AT CHARGED TO CHARGED ---------- BALANCE AT - ---------------- BEGINNING COSTS AND TO OTHER DEDUCTIONS END OF CLASSIFICATION OF PERIOD EXPENSES ACCOUNTS (1) PERIOD - ---------------- --------- ---------- -------- ---------- ---------- 1994 ---- Allowance for doubtful accounts....... $1,906 $ 488 - $ (331) $ 2,063 Provision for rolling mill closures: Inventories......................... - $ 2,792 - - $ 2,792 Property, plant and equipment, net.. - $17,994 - - $ 17,994 Other assets........................ - $ 78 - - $ 78 Deferred tax assets valuation allowance........................... - $ 5,408 - - $ 5,408 1993 ---- Allowance for doubtful accounts....... $ 926 $ 764 $ 463(2) $ (247) $ 1,906 1992 ---- Allowance for doubtful accounts....... $ 770 $ 360 - $ (204) $ 926 - ------------- (1) Results from write-offs of accounts receivable. (2) Additions from purchase of assets of CF&I Steel Corporation. 44
LIST OF EXHIBITS* 2.0 Asset Purchase Agreement dated as of January 2, 1992, by and between Camrose Pipe Company (a partnership) and Stelco Inc. (Filed as exhibit 2.0 to Form 8-K dated June 30, 1992 and incorporated by reference herein.) 2.1 Asset Purchase Agreement dated as of March 3, 1993, among CF&I Steel Corporation, Denver Metals Company, Albuquerque Metals Company, CF&I Fabricators of Colorado, Inc., CF&I Fabricators of Utah, Inc., Pueblo Railroad Service Company, Pueblo Metals Company, Colorado & Utah Land Company, the Colorado and Wyoming Railway Company, William J. Westmark as trustee for the estate of The Colorado and Wyoming Railway Company, CF&I Steel, L.P., New CF&I, Inc. and Oregon Steel Mills, Inc. (Filed as exhibit 2.1 to Form 8-K dated March 3, 1993, and incorporated by reference herein.) 3.1 Restated Certificate of Incorporation of the Company. (Filed as exhibit 3.1 to Form 10-K for the year ended December 31, 1992, and incorporated by reference herein.) 3.2 Bylaws of the Company. (Filed as exhibit 3.2 to Form 10-Q dated March 31, 1993, and incorporated by reference herein.) 4.1 Specimen Common Stock Certificate. (Filed as exhibit 4.1 to Form S-1 Registration Statement 33-38379 and incorporated by reference herein.) 4.2 Form of Oregon Steel Mills, Inc. - Five-Year Common Stock Purchase Warrant. (Filed as exhibit 4.2 to Form 8-K dated March 3, 1993, and incorporated by reference herein.) 10.1 Employee Stock Ownership Plan, as amended. (Filed as exhibit 10.1 to Form S-1 Registration Statement 33-38379 and incorporated by reference herein.) 10.2 Employee Stock Ownership Plan Trust Agreements. (Filed as exhibit 10.2 to Form 10-K for the year ended December 31, 1990 and incorporated by reference herein.) 10.3 Profit Participation Plan. (Filed as exhibit 10.5 to Form S-1 Registration Statement 33-20407 and incorporated by reference herein.) 10.4 Form of Indemnification Agreement between the Company and its directors. (Filed as exhibit 10.6 to Form S-1 Registration Statement 33-20407 and incorporated by reference herein.) 10.5 Form of Indemnification Agreement between the Company and its executive officers. (Filed as exhibit 10.7 to Form S-1 Registration Statement 33-20407 and incorporated by reference herein.) 10.6 Agreement for Electric Power Service between registrant and Portland General Electric Company. (Filed as exhibit 10.20 to Form S-1 Registration Statement 33-20407 and incorporated by reference herein.) 10.7 Agreement dated February 21, 1994 between Oregon Steel Mills, Inc. and Robert J. Sikora. 10.8 Key employee contracts for Thomas B. Boklund and Robert R. Mausshardt. (Filed as exhibit 10.11 to Form 10-K for the year ended December 31, 1988, and incorporated by reference herein.) 10.9 Key employee contracts for L. Ray Adams and James R. McCaughey. (Filed as exhibit 10.10 to Form 10-K for the year ended December 31, 1990 and incorporated by reference herein.) 10.10 Key employee contract for Edward J. Hepp. (Filed as exhibit 10.11 to Form 10-K for the year ended December 31, 1991, and incorporated by reference herein.) 10.12 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. - ------------ * The Company will furnish to stockholders a copy of the exhibit upon payment of $.25 per page to cover the expense of furnishing such copies. Requests should be directed to Vicki A. Tagliafico, Investor Relations Contact, Oregon Steel Mills, Inc., PO Box 5368, Portland, Oregon 97228. 45 11.0 Statement re computation of per share earnings. 21.0 Subsidiaries of registrant. (Filed as exhibit 22.1 to Form 10-K for the year ended December 31, 1992, and incorporated by reference herein.) 23.0 Independent Auditor's Consent 99.0 Partnership Agreement dated as of January 2, 1992, by and between Camrose Pipe Corporation and Stelcam Holding, Inc. (Filed as exhibit 28.0 to Form 8-K dated June 30, 1992, and incorporated by reference herein.) 99.1 Amended and Restated Agreement of Limited Partnership of CF&I Steel, L.P. dated as of March 3, 1993 by and between New CF&I, Inc. and the Pension Benefit Guaranty Corporation. (Filed as exhibit 28.1 to Form 8-K dated March 3, 1993, and incorporated by reference herein.) 99.2 Oregon Steel Mills, Inc. Pension Plan, as amended. (Filed as 99.0 to Form 10-K for the year ended December 31, 1993, and incorporated by reference herein.) 46 SIGNATURES REQUIRED FOR FORM 10-K Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Oregon Steel Mills, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OREGON STEEL MILLS, INC. (Registrant) By /s/ Thomas B. Boklund ---------------------------------- Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Oregon Steel Mills, Inc. and in the capacities and on the dated indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Thomas B. Boklund Chairman of the Board, - -------------------------- Chief Executive Officer and President (Thomas B. Boklund) (Principal Executive Officer) March 1, 1995 /s/ L. Ray Adams Vice President of Finance - -------------------------- and Chief Financial Officer (L. Ray Adams) (Principal Financial Officer) March 1, 1995 /s/ Jackie L. Williams Controller - -------------------------- (Jackie L. Williams) (Principal Accounting Officer) March 1, 1995 /s/ C. Lee Emerson Director March 1, 1995 - -------------------------- (C. Lee Emerson) /s/ V. Neil Fulton Director March 1, 1995 - -------------------------- (V. Neil Fulton) /s/ Edward C. Gendron Director March 1, 1995 - -------------------------- (Edward C. Gendron) /s/ Robert W. Keener Director March 1, 1995 - -------------------------- (Robert W. Keener) /s/ Richard G. Landis Director March 1, 1995 - -------------------------- (Richard G. Landis) /s/ James A. Maggetti Director March 1, 1995 - -------------------------- (James A. Maggetti) /s/ John A. Sproul Director March 1, 1995 - -------------------------- (John A. Sproul) /s/ William Swindells Director March 1, 1995 - -------------------------- (William Swindells) 47
EX-10 2 AGREEMENT WITH ROBERT J. SIKORA AGREEMENT This Agreement is made and entered into by and between Oregon Steel Mills, Inc., its subsidiaries and affiliates ("OSM"), and Robert J. Sikora ("Sikora") on this 21 day of Feb. ---- ----------------, 1994. Sikora is an employee, officer and director of Oregon Steel Mills, Inc. and serves in various capacities in connection with the management of one or more of its subsidiaries and affiliates. This Agreement is to acknowledge the early retirement of Sikora, his resignation as an officer, director, committee member or a management participant of OSM and the date of the termination of his employment. This Agreement is also to acknowledge certain payments made or to be made to Sikora by OSM in consideration of such early retirement and all rights of Sikora arising out of or related to his employment. OSM has advised Sikora to confer with financial and legal counsel in connection with his early retirement and the terms and conditions of this Agreement; has further advised Sikora that he has twenty-one (21) days to consider this Agreement prior to execution; and that if Sikora signs this Agreement, he will have seven (7) days thereafter within which to repudiate this Agreement. 1 The parties agree as follows: 1. OSM agrees: ---------- A. To pay to Sikora his regular salary and related employee benefits through April 27, 1994. B. On and after April 28, 1994, to pay to Sikora Two Hundred Forty Thousand Dollars ($240,000.00), the first payment in the amount of $160,000.00 on May 1, 1994, and the second and last payment in the amount of $80,000.00 on January 1, 1995. C. At OSM's expense, less the co-payment that Sikora would have had to pay if Sikora were an active employee of the Company, to provide Sikora with health care benefits similar to those he would receive under the OSM, Inc.Health Plan, as modified from time to time, if he were an active OSM employee until he reaches the age of fifty-five (55) or is eligible to actively draw his regular company pension. Upon reaching age fifty-five (55) or, if later, beginning to actively draw his regular OSM pension, Sikora shall receive retiree health care benefits similar to those he would receive under the OSM, Inc. Health Plan had he retired from OSM employment at age fifty-five (55), subject to such changes, amendment or termination as may affect retiree health care benefits provided by OSM generally. Cost of such benefits to be borne by OSM, less the amount that would have been paid by Sikora for such benefits had Sikora been a retiree under the OSM, Inc. Health Plan. 2 D. To the extent that OSM is the owner of any golf club or social club memberships utilized by Sikora, which OSM may transfer to Sikora under the terms of such membership, OSM will transfer such membership to Sikora upon Sikora's request. E. To supplement Sikora's retirement benefits, OSM shall pay to Sikora: (i) The total sum of One Hundred Thirteen Thousand Nine Hundred Thirty Five Dollars and Fifty-Eight Cents ($113,935.58), payable $33,347.00 per year (and pro rated for any portion of any calendar year) beginning on May 1, 1995, payable through September 30, 1998; and (ii) If during 1994 the Oregon Steel Mills, Inc. Pension Plan is amended to provide a Supplemental Executive Retirement Plan, the amount of Nine Thousand Three Hundred Seventy Seven Dollars ($9,377.00) per year (pro rated for any portion of a calendar year) beginning May 1, 1995, through November 30, 2000; and the payments of Thirty Three Thousand Three Hundred Forty Seven Dollars ($33,347.00) per year provided by paragraph E(i) above shall be 3 continued from October 1, 1998, through November 30, 2000. F. OSM hereby waives any notice of termination of employment otherwise required of Sikora. G. On and after April 28, 1994, Sikora shall retain all vested rights of a former employee of OSM under the Oregon Steel Mills, Inc. Employee Stock Ownership Plan, Thrift Plan, Pension Plan, and any other fringe benefits which may apply generally to former employees or any changes or amendments that are so applicable, as well as any duties or obligations thereunder. H. OSM, on behalf of itself, its predecessor and successor companies, its directors, officers, employees, agents and representatives, hereby releases Sikora from any and all claims, actions, causes of action, demands, rights, damages, costs, or liabilities, which it now has or which may hereafter accrue on account of or in any way growing out of Sikora's employment as an officer and director of OSM, or out of his service in connection with the management of one or more of OSM's subsidiaries and affiliates. I. In the event of a sale of substantially all of the assets of OSM or the merger, consolidation or other reorganization of OSM, OSM shall require that, as a condition to any such transaction, such purchaser or successor entity shall assume and agree to be responsible for the obligations of OSM under the terms of this Agreement. 4 J. OSM warrants that Thomas B. Boklund is authorized to enter into this Agreement on behalf of the corporation. K. OSM agrees that all payments due to Sikora as provided by this Agreement shall be payable to Sikora's Estate in the event of Sikora's death. 2. Sikora Agrees: ------------- A. Sikora's employment by OSM shall terminate effective 12:01 A.M. April 28, 1994, and Sikora hereby resigns as an officer, director, committee member, and management participant or advisor of Oregon Steel Mills, Inc. and all subsidiaries, affiliates and any benefit plans or trusts of OSM effective 12:01 A.M. April 28, 1994. B. Sikora, for himself, his heirs, successors and assigns, hereby releases OSM, their benefit plans or trusts (and the administrators or trustees thereof), their officers, directors, employees and agents of and from all claims, causes of actions, or rights, arising out of or in any fashion related to his employment as an employee, officer, director or agent of OSM, including, without limitation, any and all express or implied contractual or statutory rights to employment or reemployment; any and all expressed or implied contractual or statutory rights to salary, wages, fringes or side benefits, tort claims, discrimination claims, or claims for the violation of civil rights, including the ADEA, whether at common law or by statute; provided, however, that the foregoing has no application to the 5 payments or benefits to be received by Sikora pursuant to the terms and provisions hereof. C. To assume and pay any and all tax liabilities resulting from this Agreement. 3. Terms and conditions of this Agreement shall be deemed confidential and shall not be disclosed to third parties except upon the mutual agreement of the parties or as required by law. 4. Sikora acknowledges that he has had access to the confidential records, customer lists, data, drawings, writings and other materials of OSM. Sikora agrees that for a period of two (2) years from the date hereof, he will not directly or indirectly disclose to others or use for his own benefit or the benefit of others any of the foregoing information. Notwithstanding the foregoing, the parties acknowledge that the foregoing prohibition on disclosure of confidential information is not intended to preclude Sikora from engaging in business activities which may directly or indirectly compete with the business activities of OSM. 5. This Agreement is intended to include the entire agreement of the parties and does supersede all other agreements, including the existing Employment Agreement between Sikora and OSM dated the 9 day of Jan. , 19 , which agreement is hereby ---- ---------- --- terminated. 6. This Agreement will be construed and enforced in accordance with the laws of the state of Oregon. Venue for any 6 action arising hereunder shall lie exclusively in the Circuit Court of Multnomah County, Oregon. In any action, arbitration hearing or other proceeding arising out of or relating to this Agreement, or the breach thereof, the prevailing party shall be entitled to recover their reasonable attorney's fees, including attorney fees on appeal. 7. Any controversy or claim arising out of or relating to this Agreement,or the breach thereof, shall be settled by arbitration in accordance with ORS 36.300 et seq. The parties shall attempt to mutually agree upon a single individual to serve as the arbitrator. In the event that the parties cannot agree on the arbitrator, either party shall have the right, after notice to the other, to ask the Multnomah County Circuit Court to appoint an arbitrator. Costs of the arbitration, including the arbitrator's fee, shall be shared equally by the parties. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first hereinabove written. OREGON STEEL MILLS, INC. By /s/ Thomas B. Boklund ------------------------- Thomas B. Boklund, Chairman /s/ Robert J. Sikora --------------------------- Robert J. Sikora 7 EX-10 3 CREDIT AGREEMENT DATED DECEMBER 14, 1994 U.S. $300,000,000 CREDIT AGREEMENT, dated as of 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. TABLE OF CONTENTS PAGE ---- I DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . .2 1.1. Defined Terms. . . . . . . . . . . . . . . . . .2 1.2. Use of Defined Terms . . . . . . . . . . . . . 23 1.3. Cross-References . . . . . . . . . . . . . . . 23 1.4. Accounting and Financial Determinations. . . . 23 II COMMITMENTS, BORROWING PROCEDURES AND NOTES. . . . . . . 24 2.1. Commitments. . . . . . . . . . . . . . . . . . 24 2.1.1. Term Loan Commitment . . . . . . . . . . . . . 24 2.1.2. Revolving Loan Commitment. . . . . . . . . . . 24 2.1.3. Swingline Commitment . . . . . . . . . . . . . 24 2.1.4. Lenders Not Permitted or Required To Make Loans. . . . . . . . . . . . . . . . . . . . . 25 2.1.5. Extension of Revolving Loan Termination Date . . . . . . . . . . . . . . . . . . . . . 26 2.2. Optional Reduction of Commitment Amounts . . . 27 2.3. Borrowing Procedure. . . . . . . . . . . . . . 27 2.3.1. Term Loans and Revolving Loans . . . . . . . . 27 2.3.2. Swingline Loans. . . . . . . . . . . . . . . . 28 2.4. Continuation and Conversion Elections. . . . . 28 2.5. Funding. . . . . . . . . . . . . . . . . . . . 28 2.6. Notes. . . . . . . . . . . . . . . . . . . . . 29 III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES . . . . . . . 29 3.1. Repayments and Prepayments . . . . . . . . . . 29 3.1.1. Voluntary Prepayments. . . . . . . . . . . . . 29 3.1.2. Exceeding the Revolving Loan Commitment. . . . 30 3.1.3. Scheduled Term Loan Repayments . . . . . . . . 30 3.1.4. Excess Cash Flow Repayments. . . . . . . . . . 30 3.1.5. Net Equity Proceeds. . . . . . . . . . . . . . 31 3.1.6. Net Disposition Proceeds . . . . . . . . . . . 31 3.1.7. Net Receivables Proceeds . . . . . . . . . . . 31 3.1.8. Acceleration . . . . . . . . . . . . . . . . . 32 3.2. Application of Payments and Prepayments. . . . 32 3.2.1. Voluntary Prepayments. . . . . . . . . . . . . 32 3.2.2. Mandatory Prepayments. . . . . . . . . . . . . 32 3.3. Interest Provisions. . . . . . . . . . . . . . 32 3.3.1. Rates. . . . . . . . . . . . . . . . . . . . . 32 3.3.2. Post-Maturity Rates. . . . . . . . . . . . . . 34 3.3.3. Payment Dates. . . . . . . . . . . . . . . . . 34 3.3.4. Interest Rate Determination. . . . . . . . . . 34 3.4. Fees . . . . . . . . . . . . . . . . . . . . . 35 3.4.1. Commitment Fee . . . . . . . . . . . . . . . . 35 3.4.2. Upfront Fee. . . . . . . . . . . . . . . . . . 35 3.4.3. Agents' Fees . . . . . . . . . . . . . . . . . 35 IV CERTAIN LIBO RATE AND OTHER PROVISIONS . . . . . . . . . 35 i TABLE OF CONTENTS ----------------- (continued) ----------- PAGE ---- 4.1. LIBO Rate Lending Unlawful . . . . . . . . . . 35 4.2. Deposits Unavailable . . . . . . . . . . . . . 36 4.3. Increased LIBO Rate Loan Costs, etc. . . . . . 36 4.4. Funding Losses . . . . . . . . . . . . . . . . 36 4.5. Increased Capital Costs. . . . . . . . . . . . 37 4.6. Taxes. . . . . . . . . . . . . . . . . . . . . 37 4.7. Payments, Computations, etc. . . . . . . . . . 39 4.8. Sharing of Payments. . . . . . . . . . . . . . 39 4.9. Setoff . . . . . . . . . . . . . . . . . . . . 40 4.10. Use of Proceeds. . . . . . . . . . . . . . . . 40 4.11. Actions of Affected Lenders. . . . . . . . . . 40 V CONDITIONS TO BORROWING. . . . . . . . . . . . . . . . . 41 5.1. Initial Borrowing. . . . . . . . . . . . . . . 41 5.1.1. Resolutions, etc.. . . . . . . . . . . . . . . 41 5.1.2. Delivery of Notes. . . . . . . . . . . . . . . 42 5.1.3. Payment of Outstanding Indebtedness, etc.. . . 42 5.1.4. Guaranties . . . . . . . . . . . . . . . . . . 42 5.1.5. Pledge Agreement . . . . . . . . . . . . . . . 42 5.1.6. Security Agreements. . . . . . . . . . . . . . 42 5.1.7. Opinion of Counsel . . . . . . . . . . . . . . 43 5.1.8. Organization Documents . . . . . . . . . . . . 43 5.1.9. Closing Fees, Expenses, etc. . . . . . . . . . 44 5.2. All Borrowings . . . . . . . . . . . . . . . . 44 5.2.1. Compliance with Warranties, No Default, etc. . . . . . . . . . . . . . . . . . . . . . 44 5.2.2. Borrowing Request. . . . . . . . . . . . . . . 44 5.2.3. Satisfactory Legal Form. . . . . . . . . . . . 45 VI REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . 45 6.1. Organization, etc. . . . . . . . . . . . . . . 45 6.2. Due Authorization, Non-Contravention, etc. . . 45 6.3. Government Approval, Regulation, etc.. . . . . 46 6.4. Validity, etc. . . . . . . . . . . . . . . . . 46 6.5. Financial Information. . . . . . . . . . . . . 46 6.6. No Material Adverse Change . . . . . . . . . . 46 6.7. Litigation, Labor Controversies, etc.. . . . . 47 6.8. Subsidiaries . . . . . . . . . . . . . . . . . 47 6.9. Ownership of Properties. . . . . . . . . . . . 47 6.10. Taxes. . . . . . . . . . . . . . . . . . . . . 47 6.11. Pension and Welfare Plans. . . . . . . . . . . 47 6.12. Environmental Warranties . . . . . . . . . . . 48 6.13. Regulations G, U and X . . . . . . . . . . . . 49 6.14. Accuracy of Information. . . . . . . . . . . . 49 VII COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . 49 7.1. Affirmative Covenants. . . . . . . . . . . . . 49 ii TABLE OF CONTENTS ----------------- (continued) ----------- PAGE ---- 7.1.1. Financial Information, Reports, Notices, etc. . . . . . . . . . . . . . . . . . . . . .50 7.1.2. Compliance with Laws, etc. . . . . . . . . . .52 7.1.3. Maintenance of Properties. . . . . . . . . . .52 7.1.4. Insurance. . . . . . . . . . . . . . . . . . .52 7.1.5. Books and Records. . . . . . . . . . . . . . .53 7.1.6. Environmental Covenant . . . . . . . . . . . .53 7.1.7. Interest Rate Protection . . . . . . . . . . .53 7.1.8. Future Significant Subsidiaries; Further Assurances . . . . . . . . . . . . . . . . . .54 7.1.9. Opinion of New Guarantors. . . . . . . . . . .54 7.2. Negative Covenants . . . . . . . . . . . . . .54 7.2.1. Business Activities. . . . . . . . . . . . . .54 7.2.2. Indebtedness . . . . . . . . . . . . . . . . .54 7.2.3. Liens. . . . . . . . . . . . . . . . . . . . .55 7.2.4. Financial Condition. . . . . . . . . . . . . .56 7.2.5. Investments. . . . . . . . . . . . . . . . . .59 7.2.6. Restricted Payments, etc.. . . . . . . . . . .60 7.2.7. Capital Expenditures, etc. . . . . . . . . . .60 7.2.8. Rental Obligations . . . . . . . . . . . . . .61 7.2.9. Sale and Leasebacks. . . . . . . . . . . . . .61 7.2.10. Consolidation, Merger, etc.. . . . . . . . . .61 7.2.11. Asset Dispositions, etc. . . . . . . . . . . .62 7.2.12. Transactions with Affiliates . . . . . . . . .63 7.2.13. Negative Pledges, Restrictive Agreements, etc. . . . . . . . . . . . . . . . . . . . . .63 VIII EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . 63 8.1. Listing of Events of Default . . . . . . . . .63 8.1.1. Non-Payment of Obligations . . . . . . . . . .63 8.1.2. Breach of Warranty . . . . . . . . . . . . . .64 8.1.3. Non-Performance of Certain Covenants and Obligations. . . . . . . . . . . . . . . . . .64 8.1.4. Non-Performance of Other Covenants and Obligations. . . . . . . . . . . . . . . . . .64 8.1.5. Default on Other Indebtedness. . . . . . . . .64 8.1.6. Judgments. . . . . . . . . . . . . . . . . . .64 8.1.7. Pension Plans. . . . . . . . . . . . . . . . .65 8.1.8. Control of the Borrower. . . . . . . . . . . .65 8.1.9. Bankruptcy, Insolvency, etc. . . . . . . . . .65 8.1.10. Impairment of Security, etc. . . . . . . . . .66 8.1.11. Environmental Matters. . . . . . . . . . . . .66 8.2. Action if Bankruptcy . . . . . . . . . . . . .66 8.3. Action if Other Event of Default . . . . . . .66 IX THE AGENTS . . . . . . . . . . . . . . . . . . . . . . .67 9.1. Actions. . . . . . . . . . . . . . . . . . . .67 iii TABLE OF CONTENTS ----------------- (continued) ----------- PAGE ---- 9.2. Funding Reliance, etc. . . . . . . . . . . . .68 9.3. Exculpation. . . . . . . . . . . . . . . . . .68 9.4. Successor. . . . . . . . . . . . . . . . . . .68 9.5. Loans by First Interstate and Scotiabank . . .69 9.6. Credit Decisions . . . . . . . . . . . . . . .69 9.7. Copies, etc. . . . . . . . . . . . . . . . . .70 X MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . .70 10.1. Waivers, Amendments, etc.. . . . . . . . . . .70 10.2. Notices. . . . . . . . . . . . . . . . . . . .71 10.3. Payment of Costs and Expenses. . . . . . . . .71 10.4. Indemnification. . . . . . . . . . . . . . . .72 10.5. Survival . . . . . . . . . . . . . . . . . . .73 10.6. Severability . . . . . . . . . . . . . . . . .73 10.7. Headings . . . . . . . . . . . . . . . . . . .74 10.8. Execution in Counterparts, Effectiveness, etc. . . . . . . . . . . . . . . . . . . . . .74 10.9. Governing Law; Entire Agreement. . . . . . . .74 10.10. Successors and Assigns . . . . . . . . . . . .74 10.11. Sale and Transfer of Loans and Notes; Participations in Loans and Notes. . . . . . .74 10.11.1. Assignments. . . . . . . . . . . . . . . . . .74 10.11.2. Participations . . . . . . . . . . . . . . . .76 10.12. Confidentiality. . . . . . . . . . . . . . . .77 10.13. Other Transactions . . . . . . . . . . . . . .78 10.14. Forum Selection and Consent to Jurisdiction . . . . . . . . . . . . . . . . .78 10.15. Waiver of Jury Trial . . . . . . . . . . . . .78 SCHEDULE 1 - Disclosure Schedule EXHIBIT A - Form of Revolving Note EXHIBIT B - Form of Term Note EXHIBIT C - Form of Swingline Note EXHIBIT D - Form of Borrowing Request EXHIBIT E - Form of Continuation/Conversion Notice EXHIBIT F - Form of Lender Assignment Agreement EXHIBIT G - Form of Guaranty EXHIBIT H - Form of Pledge Agreement EXHIBIT I - Form of Security Agreement EXHIBIT J - Form of Opinion of Counsel to the Obligors EXHIBIT K - Form of Borrowing Base Certificate EXHIBIT L - Form of Compliance Certificate iv CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of December 14, 1994, among OREGON STEEL MILLS, INC., a Delaware corporation (the "Borrower"), the -------- various financial institutions as are or may become parties hereto (collectively, the "Lenders"), FIRST INTERSTATE BANK OF OREGON, N.A. ------- ("First Interstate"), as administrative agent (the "Administrative ---------------- -------------- Agent") for the Lenders, THE BANK OF NOVA SCOTIA ("Scotiabank"), as - ----- ---------- syndication agent for the Lenders (the "Syndication Agent") and First ----------------- Interstate and Scotiabank as managing agents (the "Managing Agents") --------------- for the Lenders, W I T N E S S E T H: WHEREAS, the Borrower is engaged directly and through its various Subsidiaries in the business of manufacturing and marketing specialty and commodity steel products; and WHEREAS, the Borrower desires to obtain Commitments from the Lenders pursuant to which Loans, in a maximum aggregate principal amount at any one time outstanding not to exceed $300,000,000, will be made to the Borrower from time to time prior to the applicable Commitment Termination Dates for such Commitments; and WHEREAS, the Lenders are willing, on the terms and subject to the conditions hereinafter set forth (including Article V), to extend such --------- Commitments and make such Loans to the Borrower; and WHEREAS, the proceeds of such Loans will be used (a) to make payment in full, concurrently with the initial Borrowing hereunder, of all Indebtedness identified in Item 7.2.2(b) ("Indebtedness to be Paid") of the Disclosure ------------- Schedule; (b) to finance the Borrower's planned capital expenditure program; and (c) for general corporate purposes and working capital purposes of the Borrower and its Subsidiaries other than Camrose Pipe Corporation, a Delaware corporation and wholly- owned Subsidiary of the Borrower ("Camrose") and Camrose Pipe ------- Company, a Canadian general partnership which is 60% owned by Camrose (the "Camrose Partnership"); ------------------- NOW, THEREFORE, the parties hereto agree as follows: 1 ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1. Defined Terms. The following terms (whether or not ------------- underscored) when used in this Agreement, including its preamble and recitals, shall, except where the context otherwise requires, have the following meanings (such meanings to be equally applicable to the singular and plural forms thereof): "Account Debtor" means any Person who is or who may become -------------- obligated under or on account of an Account. "Accounts" means all accounts, as such term is defined in the -------- Uniform Commercial Code in effect in the State of New York as of the Effective Date. "Administrative Agent" is defined in the preamble and includes -------------------- -------- each other Person as shall have subsequently been appointed as the successor Administrative Agent pursuant to Section 9.4. ----------- "Affiliate" of any Person means any other Person which, directly --------- or indirectly, controls, is controlled by or is under common control with such Person (excluding the ESOP or any trustee under, or any committee with responsibility for administering, the ESOP or any Plan). A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power (a) to vote 15% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Agent(s)" means, as the context may require, any (or all) of the -------- Administrative Agent, the Syndication Agent or either Managing Agent. "Agreement" means, on any date, this Credit Agreement as --------- originally in effect on the Effective Date and as thereafter from time to time amended, supplemented, amended and restated, or otherwise modified and in effect on such date. "Alternate Base Rate" means, on any date and with respect to all ------------------- Base Rate Loans, a fluctuating rate of interest per annum equal to the higher of (a) the rate of interest most recently announced by First Interstate at its Domestic Office as its prime rate; and 2 (b) the Federal Funds Rate most recently determined by the Administrative Agent plus one-half of 1%. The Alternate Base Rate is not necessarily intended to be the lowest rate of interest determined by First Interstate in connection with extensions of credit. Changes in the rate of interest on that portion of any Loans maintained as Base Rate Loans will take effect simultaneously with each change in the Alternate Base Rate. The Administrative Agent will give notice promptly to the Borrower and the Lenders of changes in the Alternate Base Rate. "Applicable Margin" means, in the case of any Loan, a rate per ----------------- annum determined by reference to the Leverage Ratio as of the last day of the most recently ended Fiscal Quarter, as follows: Reserve Adjusted Base Swingline Leverage LIBO Rate Rate Ratio Margin Margin Margin -------- -------- ------ --------- less than 2.0 to 1.0 .75% .0% .75% 2.0 to 1.0 or more but 1.25% .25% 1.25% less than 3.0 to 1.0 3.0 to 1.0 or more but 1.50% .50% 1.50% less than 3.5 to 1.0 3.5 to 1.0 or more but 1.75% .75% 1.75% less than 3.75 to 1.0 3.75 to 1.0 or more 2.25% 1.25% 2.25% The Applicable Margin shall be based on the Leverage Ratio as set forth in the most recent Compliance Certificate, and shall be effective from and including the date the Administrative Agent receives such Compliance Certificate to but excluding the date on which the Administrative Agent receives the next Compliance Certificate; provided, however, that if Administrative Agent does not -------- ------- receive a Compliance Certificate by the date required by Section ------- 7.1.1(c), the Applicable Margin shall, effective as of such date, - -------- increase by one level to but excluding the date the Administrative Agent receives such Compliance Certificate. Subject to the foregoing proviso, from the Effective Date until the date on which the Administrative Agent has received a Compliance Certificate for the quarter ended December 31, 1994, the Borrower's Reserve Adjusted LIBO Margin, Base Rate Margin and Swingline Rate Margin will be 1.75%, .75% and 1.75%, respectively. "Assignee Lender" is defined in Section 10.11.1. --------------- --------------- 3 "Authorized Officer" means, relative to any Obligor, those of its ------------------ officers (or in the case of a Borrowing Request, any other employee) whose signatures and incumbency shall have been certified to the Administrative Agent and the Lenders pursuant to Section 5.1.1 or from ------------- time to time after the Effective Date. "Base Rate Loan" means a Loan bearing interest at a -------------- fluctuating rate determined by reference to the Alternate Base Rate. "Borrower" is defined in the preamble. -------- -------- "Borrowing" means the Loans of the same type and, in the case of --------- LIBO Rate Loans, having the same Interest Period made by all Lenders on the same Business Day and pursuant to the same Borrowing Request. "Borrowing Base" means, as of any date of determination thereof, -------------- an amount equal to the sum of (x) 70% of the value of all Eligible Accounts outstanding at such date, plus (y) 50% of the value of all ---- Eligible Inventory at such date. "Borrowing Base Certificate" means a certificate duly executed by -------------------------- an Authorized Officer of the Borrower, substantially in the form of Exhibit K hereto. - --------- "Borrowing Request" means a loan request and certificate duly ----------------- executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit D hereto. --------- "Business Day" means ------------ (a) any day which is neither a Saturday or Sunday nor a legal holiday on which banks are authorized or required to be closed in New York, New York and Portland, Oregon; and (b) relative to the making, continuing, prepaying or repaying of any LIBO Rate Loans, any day which is a Business Day for purposes of clause (a) above and which is also a day on which dealings in Dollars are carried on in the interbank eurodollar markets of the Reference Lenders' LIBO Offices. "Camrose" is defined in the fourth recital. ------- -------------- "Camrose Partnership" is defined in the fourth recital. ------------------- -------------- "Capital Expenditures" means, for any period, the sum of -------------------- (a) the aggregate amount of all expenditures of the Borrower and its Subsidiaries for fixed or capital assets made during such period which, in accordance with GAAP, would be 4 classified as capital expenditures (including, without limitation, any expenditures made by the Borrower with asset sale proceeds retained by the Borrower pursuant to Section 7.2.11, but excluding, in any event, expenditures made -------------- with insurance proceeds); (b) the aggregate amount of all Capitalized Lease Liabilities incurred during such period; and (c) the aggregate amount of the Borrower's Investments in joint ventures for alternate metalics projects, including, without limitation, Comsigua and Cliffs & Associates. "Capitalized Lease Liabilities" means all monetary obligations of ----------------------------- the Borrower or any of its Subsidiaries under any leasing or similar arrangement which, in accordance with GAAP, would be classified as capitalized leases, and, for purposes of this Agreement and each other Loan Document, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP, and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty. "Cash Equivalent Investment" means, at any time: -------------------------- (a) any obligation, maturing not more than one year after such time, issued or guaranteed by the United States or Canadian Government; (b) municipal notes or note funds rated at the time of purchase, SP-1/A-1 or SP-2/A-2 by Standard & Poor's Corporation or VM1G1 or VM1G2 by Moody's Investors Services, Inc.; municipal bonds or bond funds rated at the time of purchase, AAA or AA by Standard & Poor's Corporation or Aaa or Aa by Moody's Investors Service, Inc.; or money market preferred stock rated at the time of purchase, AAA or AA by Standard & Poor's Corporation or aaa or aa by Moody's Investors Service, Inc.; (c) commercial paper, maturing not more than nine months from the date of issue, which is issued by (i) a corporation (other than an Affiliate of any Obligor) organized under the laws of any state of the United States or of the District of Columbia and rated at least A-2 by Standard & Poor's Corporation or at least P-2 by Moody's Investors Service, Inc., or (ii) any Lender (or its holding company); or (d) any certificate of deposit or bankers acceptance, maturing not more than one year after such time, which is issued by either (i) a commercial banking institution that is 5 a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000, or (ii) any Lender. "Cash Flow Coverage Ratio" means, for any period of four Fiscal ------------------------ Quarters, the ratio of (x) the sum of the Borrower and its Subsidiaries' (i) Net Income (including minority share portion) during such period, plus (ii) depreciation, plus (iii) amortization, plus ---- ---- ---- (iv) ESOP accrual, plus (v) deferred employee benefits, plus (vi) ---- ---- other non-cash items, including such items that relate to the Borrower's closure of its Fontana facility, plus (vii) total taxes ---- (including cash and deferred portion) and plus (viii) total interest ---- expense during such period to (y) the sum of (i) the scheduled principal payments of consolidated Funded Debt (including, but not limited to, principal payments of the Term Loans pursuant to Section 3.1) during such period, plus (ii) total interest charges - ----------- ---- incurred (including capitalized interest) during such period, plus ---- (iii) the cash portion of taxes paid during such period. "CERCLA" means the Comprehensive Environmental Response, ------ Compensation and Liability Act of 1980, as amended. "CERCLIS" means the Comprehensive Environmental Response ------- Compensation Liability Information System List. "CF&I Steel, L.P." means CF&I Steel, L.P., a Delaware limited ---------------- partnership which is 95.2% owned by New CF&I. "Change in Control" means the acquisition by any Person (other ----------------- than the ESOP), or two or more Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 20% or more of the outstanding shares of voting stock of the Borrower. "Cliffs & Associates" means Cliffs and Associates Iron Carbide ------------------- Limited, a corporation to be formed under the laws of Trinidad and Tobago, in which Oregon Steel de Guayana, Inc., a Delaware corporation and wholly owned Subsidiary of the Borrower, contemplates investment in stock, and which will be organized for the purposes of acquiring, designing, constructing, developing and operating an industrial facility in Trinidad to produce, load and ship iron carbide. "Code" means the Internal Revenue Code of 1986, as amended, ---- reformed or otherwise modified from time to time. "Commitment" means, as the context may require, a Lender's ---------- Revolving Loan Commitment or Term Loan Commitment or the Swingline Lender's Swingline Loan Commitment. 6 "Commitment Amount" means, as the context may require, either the ----------------- Revolving Loan Commitment Amount, the Term Loan Commitment Amount or the Swingline Loan Commitment Amount. "Commitment Fee Rate" means the percentage determined by ------------------- reference to the Leverage Ratio as of the last day of its most recently ended Fiscal Quarter, as follows: Leverage Ratio Commitment Fee Rate -------------- ------------------- less than 2.0 to 1.0 .375% 2.0 to 1.0 or more .50% "Commitment Termination Date" means, as the context may require, --------------------------- the Revolving Loan Commitment Termination Date, the Term Loan Commitment Termination Date or the Swingline Loan Commitment Termination Date. "Commitment Termination Event" means ---------------------------- (a) the occurrence of any Default described in clauses ------- (a) through (d) of Section 8.1.9; or --- --- ------------- (b) the occurrence and continuance of any other Event of Default and either (i) the declaration of the Loans to be due and payable pursuant to Section 8.3, or ----------- (ii) in the absence of such declaration, the giving of notice by the Administrative Agent, acting at the direction of the Required Lenders, to the Borrower that the Commitments have been terminated. "Compliance Certificate" means a certificate duly executed by an ---------------------- Authorized Officer of the Borrower, substantially in the form of Exhibit L hereto. - --------- "Comsigua" means Complejo Siderurgico de Guayana C.A., a -------- corporation organized and existing under the laws of the Republic of Venezuela, in which Borrower has invested and may further invest pursuant to that certain Comsigua Project Shareholders Agreement, dated March 18, 1994, and which was organized for the purpose of designing, constructing and operating an industrial facility in Venezuela for the processing of iron oxides into hot briquetted iron. "Consolidated Tangible Net Worth" means (i) the book value of the ------------------------------- Borrower and its Subsidiaries' equity plus (ii) the book value of the ---- Borrower and its Subsidiaries' minority interests minus ----- 7 (iii) the aggregate amount of any intangible assets of the Borrower and its Subsidiaries, including goodwill, franchises, licenses, patents, trademarks, tradenames, copyrights, servicemarks and brandnames. "Contingent Liability" means any agreement, undertaking or -------------------- arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to, or otherwise to invest in, a debtor, or otherwise to assure a creditor against loss) the indebtedness, obligation or any other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the shares of any other Person. The amount of any Person's obligation under any Contingent Liability shall (subject to any limitation set forth therein) be calculated in accordance with GAAP. "Continuation/Conversion Notice" means a notice of continuation ------------------------------ or conversion and certificate duly executed by an Authorized Officer of the Borrower, substantially in the form of Exhibit E hereto. --------- "Controlled Group" means all members of a controlled group of ---------------- corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414(b) or 414(c) of the Code or Section 4001 of ERISA. "Current Assets" means the consolidated current assets of the -------------- Borrower and its Subsidiaries, determined in accordance with GAAP. "Current Liabilities" means the consolidated current liabilities ------------------- of the Borrower and its Subsidiaries, determined in accordance with GAAP. "Current Ratio" means the ratio of (a) Current Assets to (b) ------------- -- Current Liabilities. "Default" means any Event of Default or any condition, occurrence ------- or event which, after notice or lapse of time or both, would constitute an Event of Default. "Disclosure Schedule" means the Disclosure Schedule attached ------------------- hereto as Schedule 1, as it may be amended, supplemented or otherwise ---------- modified from time to time by the Borrower with the written consent of the Managing Agents and the Required Lenders. "Dollar" and the sign "$" mean lawful money of the United States. ------ - 8 "Domestic Office" means, relative to any Lender, the office of --------------- such Lender designated as such below its signature hereto or designated in the Lender Assignment Agreement or such other office of a Lender (or any successor or assign of such Lender) within the United States as may be designated from time to time by notice from such Lender, as the case may be, to each other Person party hereto. "EBITDA" means, for any period of four Fiscal Quarters, the ------ Borrower and its Subsidiaries' earnings before interest expense, taxes, depreciation and amortization, calculated on a rolling four Fiscal Quarter basis; provided, that for the Fiscal Quarter ending -------- December 31, 1994, EBITDA shall be the product of EBITDA for such Fiscal Quarter times 4, that for the two Fiscal Quarters ending March 31, 1995, EBITDA shall be the product of EBITDA for such two Fiscal Quarters times 2, and that for the three Fiscal Quarters ending June 30, 1995, EBITDA shall be the product of EBITDA for such three Fiscal Quarters times 1.33. "Effective Date" means the date this Agreement becomes effective -------------- pursuant to Section 10.8. ------------ "Eligible Account" means, at the time of any determination ---------------- thereof, any Account of the Borrower or any of its Subsidiaries (other than the Camrose Partnership) as to which each of the following requirements has been fulfilled to the reasonable satisfaction of the Administrative Agent: (a) the Borrower or such Subsidiary has lawful and absolute title to such Account and such Account is, in the Borrower's or such Subsidiary's reasonable judgment, collectible in the ordinary course of business; (b) such Account is not subject to a bona fide dispute, --------- setoff, counterclaim or other claim or defense on the part of any person (including such Account Debtor) denying liability under such Account; (c) such Account is not subject to any Lien in favor of any Person, except Liens permitted by clause (a), (e), (f), ---------- --- --- (g), or (h) of Section 7.2.3; --- --- ------------- (d) such Account is a bona fide Account (which, with --------- respect to an Account arising from a sale of goods, was created as a result of a sale on an absolute basis and not on a consignment, approval or sale-and-return basis) of the Borrower or such Subsidiary arising in the ordinary course of the Borrower's or such Subsidiary's business, and which, (i) in the case of Accounts arising from the sale of goods, such goods have been shipped or delivered and all other actions have been taken necessary to create a 9 binding obligation on the part of the Account Debtor for such Account; (ii) in the case of Accounts relating to the rendering of services, such services have been performed or completed and all other actions have been taken necessary to create a binding obligation on the part of the Account Debtor for such Account; (e) with respect to such Account, the Account Debtor is not (i) an Affiliate of the Borrower, or (ii) the subject of any reorganization, bankruptcy, receivership, custodianship, insolvency or other condition analogous to those described in clauses (a) ----------- through (d) of Section 8.1.9; --- ------------- (f) such Account is not outstanding more than 90 days past the original billing date therefor; (g) such Account is the subject of a first priority perfected security interest in favor of the Administrative Agent; (h) such Account is not owing from any Account Debtor from whom more than 25% of the Accounts owed to the Borrower and its Subsidiaries are more than 90 days past the original billing date therefor; (i) the Account Debtor thereunder is not the United States or any department, agency or instrumentality thereof unless the Borrower assigns its rights to payment of such account to the Administrative Agent, in form and substance satisfactory to the Administrative Agent, so as to comply with the Assignment of Claims Act of 1940, as amended; and (j) the Account Debtor thereunder is not located outside of the United States unless payment thereunder is secured by a letter of credit in form and substance satisfactory to the Administrative Agent. "Eligible Inventory" means, at the time of any determination ------------------ thereof, all Inventory of the Borrower or any of its Subsidiaries (other than the Camrose Partnership) arising in the ordinary course of business and as to which each of the following requirements has been fulfilled to the reasonable satisfaction of the Administrative Agent: 10 (a) all of such Inventory is located in the United States; (b) none of such Inventory shall consist of (i) items in the custody of third parties (other than the Borrower and its Subsidiaries) for processing or manufacture, (ii) items in the Borrower's or such Subsidiary's possession but intended by the Borrower or such Subsidiary for return to the suppliers thereof, (iii) items belonging to third parties (other than the Borrower and its Subsidiaries) that have been consigned to the Borrower or such Subsidiary or are otherwise in the Borrower's or such Subsidiary's custody or possession, (iv) items in the Borrower's or such Subsidiary's custody and possession on a sale-on-approval or sale-or-return basis or subject to any other repurchase or return agreement or (v) miscellaneous operating items which are generally categorized by the Borrower as "stores inventory"; (c) none of such Inventory shall be unsalable, obsolete, damaged or otherwise unfit for sale or consumption in the normal course of the business of the Borrower or such Subsidiary; (d) none of such Inventory shall be subject to any Lien in favor of any Person, except Liens permitted by clause (a), ---------- (e), (f), (g) or (h) of Section 7.2.3; and --- --- --- --- ------------- (e) all of such Inventory is the subject of a first priority perfected security interest in favor of the Administrative Agent. "Environmental Laws" means all applicable federal, state or local ------------------ statutes, laws, ordinances, codes, rules, regulations and guidelines (including consent decrees and administrative orders) relating to protection of the environment. "ERISA" means the Employee Retirement Income Security Act of ----- 1974, as amended, and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA also refer to any successor sections. "ESOP" means the employee stock ownership plan for the employees ---- of the Borrower and certain of its Subsidiaries in effect as of the Effective Date and any successor to such plan. "Event of Default" is defined in Section 8.1. ---------------- ----------- "Excess Cash Flow" means for any Fiscal Year, the excess of ---------------- (x) the EBITDA for such period over (y) the sum of (i) the scheduled ---- principal payments of consolidated Funded Debt 11 (including, but not limited to, principal payments of the Term Loans pursuant to Section 3.1) during such period, plus (ii) cash interest ----------- ---- payments made during such period, plus (iii) taxes paid during such ---- period, plus (iv) Capital Expenditures made during such period, plus ---- ---- (v) any net increase, if positive, in Working Capital during such period. "Federal Funds Rate" means, for any period, a fluctuating ------------------ interest rate per annum equal for each day during such period to (a) the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York; or (b) if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by First Interstate from three federal funds brokers of recognized standing selected by it. "First Interstate" is defined in the preamble. ---------------- -------- "Fiscal Quarter" means any quarter of a Fiscal Year. -------------- "Fiscal Year" means any period of twelve consecutive calendar ----------- months ending on December 31; references to a Fiscal Year with a number corresponding to any calendar year (e.g., the "1993 Fiscal ---- Year") refer to the Fiscal Year ending on the December 31 occurring during such calendar year. "Fontana" means Oregon Steel Mills - Fontana Division, Inc., a ------- Delaware corporation and wholly-owned Subsidiary of the Borrower. "F.R.S. Board" means the Board of Governors of the Federal ------------ Reserve System or any successor thereto. "Funded Debt" means the outstanding principal amount of all ----------- Indebtedness of the Borrower and its Subsidiaries of the nature referred to in clauses (a) and (b) of the definition of ----------- --- "Indebtedness". ------------ "Funded Debt to Capitalization Ratio" means the ratio of ----------------------------------- (x) Funded Debt to (y) the sum of (i) Funded Debt plus ---- (ii) Consolidated Tangible Net Worth. "GAAP" is defined in Section 1.4. ---- ----------- "Guaranties" means the Guaranties executed and delivered pursuant ---------- to Section 5.1.4, substantially in the form of Exhibit G ------------- --------- 12 hereto, as amended, supplemented, restated or otherwise modified from time to time. "Guarantors" means all direct and indirect Significant ---------- Subsidiaries of the Borrower, whether presently existing or hereafter created, including, without limitation, Napa, Fontana, Camrose and New CF&I, but excluding the Camrose Partnership and CF&I Steel, L.P.; provided, that if Fontana shall cease to be a Significant Subsidiary - -------- of the Borrower, it shall thereupon cease to be a Guarantor hereunder and shall be released from its obligations under its Security Agreement. "Hazardous Material" means ------------------ (a) any "hazardous substance", as defined by CERCLA; (b) any "hazardous waste", as defined by the Resource Conservation and Recovery Act, as amended; or (c) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material or substance within the meaning of any other applicable federal, state or local law, regulation, ordinance or requirement (including consent decrees and administrative orders) relating to or imposing liability or standards of conduct concerning any hazardous, toxic or dangerous waste, substance or material, all as amended or hereafter amended. "Hedging Obligations" means, with respect to any Person, all ------------------- liabilities of such Person under interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, and all other agreements or arrangements designed to protect such Person against fluctuations in interest rates, currency exchange rates or commodity prices. "herein", "hereof", "hereto", "hereunder" and similar terms ------ ------ ------ --------- contained in this Agreement or any other Loan Document refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular Section, paragraph or provision of this Agreement or such other Loan Document. "Impermissible Qualification" means, relative to the opinion or --------------------------- certification of any independent public accountant as to any financial statement of any Obligor, any qualification or exception to such opinion or certification (a) which is of a "going concern" or similar nature; (b) which relates to the limited scope of examination of matters relevant to such financial statement; or 13 (c) which relates to the treatment or classification of any item in such financial statement and which, as a condition to its removal, would require an adjustment to such item the effect of which would be to cause such Obligor to be in default of any of its obligations under Section 7.2.4. ------------- "including" means including without limiting the generality of --------- any description preceding such term. "Indebtedness" of any Person means, without duplication: ------------ (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (b) all obligations of such Person as lessee under leases which have been or should be, in accordance with GAAP, recorded as Capitalized Lease Liabilities; (c) all obligations, contingent or otherwise, relative to the face amount of all letters of credit, whether or not drawn, and banker's acceptances issued for the account of such Person; (d) all other items which, in accordance with GAAP, would be included as liabilities on the liability side of the balance sheet of such Person as of the date at which Indebtedness is to be determined; (e) whether or not so included as liabilities in accordance with GAAP, all indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; provided, however, that -------- ------- the indebtedness secured by the Lien on the Borrower's shares of Comsigua and Cliffs & Associates permitted by the terms of Section 7.2.3(i) hereof shall not be considered Indebtedness; ---------------- and (f) all Contingent Liabilities of such Person in respect of any of the foregoing. For all purposes of this Agreement, (i) Permitted Intercompany Loans shall not be considered Indebtedness and (ii) the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer to the extent that either (x) such Person is directly obligated for such Indebtedness or (y) that such Indebtedness is a Contingent Liability of such Person. 14 "Indemnified Liabilities" is defined in Section 10.4. ----------------------- ------------ "Indemnified Parties" is defined in Section 10.4. ------------------- ------------ "Interest Coverage Ratio" means, for any period of four Fiscal ----------------------- Quarters, the ratio of (x) the sum of the Borrower and its Subsidiaries' (i) Net Income during such period, plus (ii) total taxes ---- (including cash and deferred portion) accrued during such period, plus ---- (iii) cash interest expense during such period plus (iv) noncash ---- extraordinary losses during such period minus (v) noncash extraordinary gains during such period to (y) the Borrower and its Subsidiaries' total interest expense (including capitalized interest) during such period. "Interest Period" means, relative to any LIBO Rate Loans, the --------------- period beginning on (and including) the date on which such LIBO Rate Loan is made or continued as, or converted into, a LIBO Rate Loan pursuant to Section 2.3 or 2.4 and shall end on (but exclude) the day ----------- --- which numerically corresponds to such date one, two, three or six months thereafter (or, if such month has no numerically corresponding day, on the last Business Day of such month), as the Borrower may select in its relevant notice pursuant to Section 2.3 or 2.4; ----------- --- provided, however, that - -------- ------- (a) Interest Periods commencing on the same date for Loans comprising part of the same Borrowing shall be of the same duration; (b) if such Interest Period would otherwise end on a day which is not a Business Day, such Interest Period shall end on the next following Business Day (unless such next following Business Day is the first Business Day of a calendar month, in which case such Interest Period shall end on the Business Day next preceding such numerically corresponding day); and (c) no Interest Period for any Loan may end later than the Stated Maturity Date for such Loan. "Inventory" means all inventory, as such term is defined in the --------- Uniform Commercial Code in effect in the state of New York as of the Effective Date. "Investment" means, relative to any Person, ---------- (a) any loan or advance made by such Person to any other Person (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business) other than Permitted Intercompany Loans; (b) any Contingent Liability of such Person; and 15 (c) any ownership or similar interest held by such Person in any other Person. The amount of any Investment shall be the original principal or capital amount thereof less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property at the time of such Investment. "Lender Assignment Agreement" means a Lender Assignment Agreement --------------------------- substantially in the form of Exhibit F hereto. --------- "Lenders" is defined in the preamble. ------- -------- "Leverage Ratio" means, as of the end of any Fiscal Quarter of -------------- the Borrower, the ratio of the Borrower and its Subsidiaries' (x) Funded Debt to (y) EBITDA. "LIBO Rate" is defined in Section 3.3.1. --------- ------------- "LIBO Rate Loan" means a Loan bearing interest, at all times -------------- during an Interest Period applicable to such Loan, at a fixed rate of interest determined by reference to the LIBO Rate (Reserve Adjusted). "LIBO Rate (Reserve Adjusted)" is defined in Section 3.3.1. --------- ------------- "LIBOR Office" means, relative to any Lender, the office of such ------------ Lender designated as such below its signature hereto or designated in the Lender Assignment Agreement or such other office of a Lender as designated from time to time by notice from such Lender to the Borrower and the Administrative Agent, whether or not outside the United States, which shall be making or maintaining LIBO Rate Loans of such Lender hereunder. "LIBOR Reserve Percentage" is defined in Section 3.3.1. ------------------------ ------------- "Lien" means any security interest, mortgage, pledge, ---- hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise), charge against or interest in property to secure payment of a debt or performance of an obligation or other priority or preferential arrangement of any kind or nature whatsoever. "Loan" means, as the context may require, a Revolving Loan, a ---- Term Loan or a Swingline Loan of any type. "Loan Document" means this Agreement, the Notes, the Guaranties, ------------- the Pledge Agreement, the Security Agreements, each 16 agreement relating to Hedging Obligations to which a Lender is a party (unless otherwise agreed by such Lender) and each other agreement, document or instrument delivered in connection with this Agreement. "Managing Agents" is defined in the preamble and includes each --------------- -------- other Person as shall have subsequently been appointed as a successor Managing Agent pursuant to Section 9.4. ----------- "Material Adverse Effect" means any circumstance or event which ----------------------- is reasonably likely to (i) have a material adverse effect on the validity or enforceability of this Agreement, the Notes or any other Loan Document, (ii) have a material adverse effect on the financial condition, operations, assets, business or properties of Borrower and its Subsidiaries, taken as a whole, or (iii) materially impair the ability of the Borrower or any Guarantor to fulfill its respective obligations under this Agreement or any other Loan Document. "Material Partnership" means each of the Camrose Partnership, -------------------- CF&I Steel, L.P. and any other partnership in which Borrower or any Subsidiary has an Investment in excess of $10,000,000. "Monthly Payment Date" means the last day of each calendar month -------------------- or, if any such day is not a Business Day, the next succeeding Business Day. "Napa" means Napa Pipe Corporation, a Delaware corporation and ---- wholly-owned Subsidiary of the Borrower. "Net Disposition Proceeds" means, with respect to any Restricted ------------------------ Disposition, the gross consideration received by or for the account of its seller minus (i) transfer taxes paid or payable as a result of ----- such sale, (ii) broker's commissions, professional fees and other expenses relating to such sale that are payable by seller and (iii) any promissory notes received by the seller in connection with such sale. "Net Equity Proceeds" means, with respect to any issuance by the ------------------- Borrower or any Subsidiary of any equity securities, the gross consideration received by or for the issuer minus underwriting and ----- brokerage commissions, discounts and fees and other professional fees and expenses relating to such issuance that are payable by the issuer. "Net Income" means the consolidated net income of the Borrower ---------- and its Subsidiaries, determined in accordance with GAAP. "Net Receivables Proceeds" means, with respect to any Permitted ------------------------ Receivables Financing, the gross consideration received 17 by such seller minus professional fees and expenses relating to such ----- financing payable by the seller. "New CF&I" means New CF&I, Inc., a Delaware corporation and -------- 90%-owned Subsidiary of the Borrower. "Note" means, as the context may require, a Revolving Note, a ---- Term Note or the Swingline Note. "Obligations" means all obligations (monetary or otherwise) of ----------- the Borrower and each other Obligor arising under or in connection with this Agreement, the Notes and each other Loan Document. "Obligor" means, as the context may require, the Borrower, any ------- Guarantor or any other Person (other than an Agent or any Lender) obligated under any Loan Document. "Organic Document" means, relative to any Obligor, its ---------------- certificate of incorporation, its by-laws and all shareholder agreements, voting trusts and similar arrangements applicable to any of its authorized shares of capital stock. "Participant" is defined in Section 10.11.2. ----------- --------------- "PBGC" means the Pension Benefit Guaranty Corporation and any ---- entity succeeding to any or all of its functions under ERISA. "Pension Plan" means a "pension plan", as such term is defined ------------ in section 3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which the Borrower or any corporation, trade or business that is, along with the Borrower, a member of a Controlled Group, may have liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. "Percentage" means, relative to any Lender, the percentage set ---------- forth on Schedule 2 hereto or set forth in the Lender Assignment Agreement, as such percentage may be adjusted from time to time pursuant to Lender Assignment Agreement(s) executed by such Lender and its Assignee Lender(s) and delivered pursuant to Section 10.11.1. --------------- "Permitted Dispositions" means (x) any sale, transfer, lease or ---------------------- conveyance by the Borrower or any of its Subsidiaries of any assets that is made in the ordinary course of its business or (y) any sale, transfer, lease or conveyance of any of the properties and assets more particularly described on Item 1.1 ("Permitted Dispositions") of the -------- Disclosure Schedule, but only to the extent 18 that the net proceeds therefrom do not exceed the amount set forth on the Disclosure Schedule. If the proceeds from any such sale, transfer, lease or conveyance shall exceed the amount set forth on the Disclosure Schedule, all such excess proceeds shall be treated as Net Disposition Proceeds from a Restricted Disposition. "Permitted Intercompany Loans" means (i) any loans from the ---------------------------- Borrower to any of its Subsidiaries to the extent that such loans are evidenced by promissory notes that have been pledged to the Administrative Agent pursuant to the Pledge Agreement, (ii) the existing intercompany loan from New CF&I to CF&I Steel, L.P., (iii) any loans from the Borrower to CF&I Steel, L.P. to the extent that such loans are evidenced by promissory notes that have been pledged to the Administrative Agent or (iv) any loans from any of the Borrower's Subsidiaries to the Borrower to the extent that such loans are subordinated on terms and conditions satisfactory to Administrative Agent. "Permitted Receivables Financing" means any sale (or financing) ------------------------------- by the Borrower or its Subsidiaries of Accounts to a receivables purchaser, on terms satisfactory to the Managing Agents. "Person" means any natural person, corporation, partnership, ------ firm, association, trust, government, governmental agency or any other entity, whether acting in an individual, fiduciary or other capacity. "Plan" means any Pension Plan or Welfare Plan. ---- "Pledge Agreement" means the Pledge Agreement executed and ---------------- delivered pursuant to Section 5.1.5, substantially in the form of ------------- Exhibit H hereto, as amended, supplemented, restated or otherwise - --------- modified from time to time. "Quarterly Payment Date" means the last day of each March, June, ---------------------- September, and December or, if any such day is not a Business Day, the next succeeding Business Day. "Reference Lenders" means First Interstate, Scotiabank and United ----------------- States National Bank of Oregon. "Release" means a "release", as such term is defined in CERCLA. ------- "Required Lenders" means, at any time, Lenders holding at least ---------------- 51% of the then aggregate outstanding principal amount of the Revolving Notes (including, for such purposes, any participations of the Lenders under Swingline Loans) and Term Notes, or, if no such principal amount is then outstanding, Lenders having at least 19 51% of the aggregate Revolving Loan Commitments and Term Loan Commitments. "Resource Conservation and Recovery Act" means the Resource -------------------------------------- Conservation and Recovery Act, 42 U.S.C. Section 690, et seq., as in effect from time to time. "Restricted Disposition" means any sale, transfer, lease, ---------------------- contribution or conveyance by the Borrower or any Subsidiary of its assets that is not a Permitted Disposition. "Revolving Loan" is defined in Section 2.1.2. -------------- ------------- "Revolving Loan Commitment" means, relative to any Lender, such ------------------------- Lender's obligation to make Revolving Loans pursuant to Section 2.1.2. ------------- "Revolving Loan Commitment Amount" means, on any date, -------------------------------- $100,000,000, as such amount may be reduced from time to time pursuant to Section 2.2. ----------- "Revolving Loan Commitment Termination Date" means the earliest ------------------------------------------ of (a) December 31, 1997, as such date may be extended pursuant to Section 2.1.5; ------------- (b) the date on which the Revolving Loan Commitment Amount is terminated in full or reduced to zero pursuant to Section 2.2; and ----------- (c) the date on which any Commitment Termination Event occurs. Upon the occurrence of any event described above, the Revolving Loan Commitments shall terminate automatically and without any further action. "Revolving Note" means a promissory note of the Borrower payable -------------- to any Lender, in the form of Exhibit A hereto (as such promissory --------- note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from outstanding Revolving Loans, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Scotiabank" is defined in the preamble. ---------- -------- "Security Agreements" means the Security Agreements executed and ------------------- delivered pursuant to Section 5.1.6, substantially in the form ------------- 20 of Exhibit I hereto, as amended, supplemented, restated or otherwise --------- modified from time to time. "Significant Subsidiary" means each Subsidiary of the Borrower ---------------------- that (a) as of the Effective Date, is designated with an asterisk in Item 2 ("Subsidiaries") of the Disclosure ------ Schedule; (b) accounted for at least 5% of consolidated revenues of the Borrower and its Subsidiaries or 5% of consolidated earnings of the Borrower and its Subsidiaries before interest and taxes, in each case for the four Fiscal Quarters of the Borrower ending on the last day of the last Fiscal Quarter of the Borrower immediately preceding the date as of which any such determination is made; or (c) has assets which represent at least 5% of the consolidated assets of the Borrower and its Subsidiaries as of the last day of the last Fiscal Quarter of the Borrower immediately preceding the date as of which any such determination is made, all of which, with respect to clauses (b) and (c), shall be as ----------- --- reflected on the financial statements of the Borrower for the period, or as of the date, in question. "Stated Maturity Date" means -------------------- (a) in the case of any Revolving Loan, December 31, 1997, as such date may be extended pursuant to Section 2.1.5; ------------- (b) in the case of any Swingline Loan, December 31, 1997, as such date may be extended pursuant to Section 2.1.5; ------------- and (c) in the case of any Term Loan, December 31, 1999. "Subsidiary" means, with respect to any Person, any corporation ---------- of which more than 50% of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency) is at the time directly or indirectly owned by such Person, by such Person and one or more other Subsidiaries of such Person, or by one or more other Subsidiaries of such Person; provided, however, that in the case of -------- ------- the Borrower, such term also includes, without limitation, Camrose Partnership and CF&I Steel, L.P. 21 "Swingline Lender" means First Interstate. ---------------- "Swingline Loan" is defined in Section 2.1.3. -------------- ------------- "Swingline Loan Commitment" means the Swingline Lender's ------------------------- obligation to make Swingline Loans pursuant to Section 2.1.3. ------------- "Swingline Loan Commitment Amount" means, on any date -------------------------------- $15,000,000, as such amount may be reduced from time to time pursuant to Section 2.2. ----------- "Swingline Loan Commitment Termination Date" means the earlier of ------------------------------------------ (a) the Revolving Loan Commitment Termination Date; or (b) the date on which the Swingline Loan Commitment Amount is terminated in full or reduced to zero pursuant to Section 2.2. ----------- Upon the occurrence of any event described above, the Swingline Loan Commitment shall terminate automatically and without any further action. "Swingline Note" means the promissory note of the Borrower -------------- payable to the Swingline Lender, in the form of Exhibit C hereto (as --------- such promissory note may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to the Swingline Lender resulting from outstanding Swingline Loans, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "Syndication Agent" is defined in the preamble and includes each ----------------- -------- other Person as shall have subsequently been appointed as the successor Syndication Agent pursuant to Section 9.4. ----------- "Taxes" is defined in Section 4.6. ----- ----------- "Term Loan" is defined in Section 2.1.1. --------- ------------- "Term Loan Commitment" means, relative to any Lender, such -------------------- Lender's obligation to make Term Loans pursuant to Section 2.1.1. ------------- "Term Loan Commitment Amount" means, on any date, --------------------------- $200,000,000, as such amount may be reduced from time to time pursuant to Section 2.2. ----------- "Term Loan Commitment Termination Date" means the earliest of ------------------------------------- (a) December 31, 1996; 22 (b) the date on which the Term Loan Commitment Amount is terminated in full or reduced to zero pursuant to Section 2.2; and (c) the date on which any Commitment Termination Event occurs. Upon the occurrence of any event described above, the Term Loan Commitments shall terminate automatically and without any further action. "Term Note" means a promissory note of the Borrower payable to --------- any Lender, in the form of Exhibit B hereto (as such promissory note --------- may be amended, endorsed or otherwise modified from time to time), evidencing the aggregate Indebtedness of the Borrower to such Lender resulting from outstanding Term Loans, and also means all other promissory notes accepted from time to time in substitution therefor or renewal thereof. "type" means, relative to any Loan, the portion thereof, if any, ---- being maintained as a Base Rate Loan or a LIBO Rate Loan. "United States" or "U.S." means the United States of America, its ------------- fifty States and the District of Columbia. "Welfare Plan" means a "welfare plan", as such term is defined in ------------ section 3(1) of ERISA. "Working Capital" means the excess of (a) Current Assets over (b) --------------- ---- Current Liabilities. SECTION 1.2. Use of Defined Terms. Unless otherwise defined or -------------------- the context otherwise requires, terms for which meanings are provided in this Agreement shall have such meanings when used in the Disclosure Schedule and in each Note, Borrowing Request, Continuation/Conversion Notice, Loan Document, notice and other communication delivered from time to time in connection with this Agreement or any other Loan Document. SECTION 1.3. Cross-References. Unless otherwise specified, ---------------- references in this Agreement and in each other Loan Document to any Article or Section are references to such Article or Section of this Agreement or such other Loan Document, as the case may be, and, unless otherwise specified, references in any Article, Section or definition to any clause are references to such clause of such Article, Section or definition. SECTION 1.4. Accounting and Financial Determinations. Unless --------------------------------------- otherwise specified, all accounting terms used herein or in any other Loan Document shall be interpreted, all accounting determinations and computations hereunder or thereunder (including 23 under Section 7.2.4) shall be made, and all financial statements ------------- required to be delivered hereunder or thereunder shall be prepared in accordance with, those generally accepted accounting principles ("GAAP") applied in the preparation of the audited financial statements referred to in Section 6.5. ----------- ARTICLE II COMMITMENTS, BORROWING PROCEDURES AND NOTES SECTION 2.1. Commitments. On the terms and subject to the ----------- conditions of this Agreement (including Article V), each Lender --------- severally agrees to make Loans pursuant to the Commitments described in this Section 2.1. ----------- SECTION 2.1.1. Term Loan Commitment. From time to time on any -------------------- Business Day occurring prior to the Term Loan Commitment Termination Date, each Lender will make Loans (relative to such Lender, its "Term ---- Loans") to the Borrower equal to such Lender's Percentage of the - ----- aggregate amount of the Borrowing of Term Loans requested by the Borrower to be made on such day. The Commitment of each Lender described in this Section 2.1.1 is herein referred to as its "Term ------------- ---- Loan Commitment". No amounts paid or prepaid with respect to Term - --------------- Loans may be reborrowed. SECTION 2.1.2. Revolving Loan Commitment. From time to time on ------------------------- any Business Day occurring prior to the Revolving Loan Commitment Termination Date, each Lender will make Loans (relative to such Lender, its "Revolving Loans") to the Borrower equal to such Lender's --------------- Percentage of the aggregate amount of the Borrowing of Revolving Loans requested by the Borrower to be made on such day. The Commitment of each Lender described in this Section 2.1.2 is herein referred to as ------------- its "Revolving Loan Commitment". On the terms and subject to the ------------------------- conditions hereof, the Borrower may from time to time borrow, prepay and reborrow Revolving Loans. SECTION 2.1.3. Swingline Commitment. From time to time on any -------------------- Business Day occurring prior to the Swingline Loan Commitment Termination Date, the Swingline Lender will make Swingline Loans to the Borrower in the aggregate amount of Swingline Loans requested by the Borrower to be made on such date. The Commitment of the Swingline Lender described in this Section 2.1.3 is herein referred to as the ------------- "Swingline Loan Commitment". On the terms and subject to the ------------------------- conditions hereof, the Borrower may from time to time, borrow, prepay and reborrow Swingline Loans. All Swingline Loans shall bear interest at a fluctuating rate determined by reference to the Federal Funds Rate plus the Applicable Margin for Swingline Loans. On the date a ---- Swingline Loan is made hereunder, each Lender absolutely and unconditionally agrees to and does purchase a participation in an amount equal to its respective Percentage of 24 Revolving Loans in such Swingline Loan. At the request of the Swingline Lender, made through the Administrative Agent at any time and from time to time, including, without limitation, following the occurrence of Event of Default, each Lender (including the Swingline Lender) absolutely and unconditionally agrees to fund the Swingline Loans then outstanding by advancing such Lender's Percentage of the outstanding Swingline Loans to the Administrative Agent for disbursement to the Swingline Lender. Such advances shall be made no later than 10:00 a.m. (Portland time) on the next following Business Day after a request therefor is made. Advances made by the Lenders hereunder for purposes of funding Swingline Loans shall constitute Revolving Loans (and be advanced as Base Rate Loans) for all purposes hereof. In consideration of the Lenders' agreement to advance funds for purposes of repaying Swingline Loans and purchasing participations in Swingline Loans, the Swingline Lender agrees to pay to each Lender, such Lender's Percentage of the Applicable Margin for Swingline Loans collected by the Swingline Lender on all outstanding Swingline Loans. Such payment shall be made by the Swingline Lender to the Administrative Agent, for the account of the Lenders, monthly in arrears on each Monthly Payment Date. SECTION 2.1.4. Lenders Not Permitted or Required To Make Loans. ----------------------------------------------- No Lender shall be permitted or required to make (a) any Term Loan if, after giving effect thereto, the aggregate original principal amount of all Term Loans (i) of all Lenders made since the Effective Date would exceed the Term Loan Commitment Amount, or (ii) of such Lender made since the Effective Date would exceed such Lender's Percentage of the Term Loan Commitment Amount; or (b) any Revolving Loan if, after giving effect thereto, (i) the sum of (x) the aggregate outstanding Swingline Loans plus (y) the aggregate outstanding ---- principal amount of all Revolving Loans of all Lenders would exceed the Revolving Loan Commitment Amount, (ii) the sum of (x) the aggregate outstanding Swingline Loans plus (y) the aggregate outstanding ---- principal amount of all Revolving Loans of all Lenders would exceed the then-current Borrowing Base, or (iii) the aggregate outstanding principal amount of all Revolving Loans of such Lender would exceed such Lender's Percentage of the Revolving Loan Commitment Amount. 25 The Swingline Lender shall not be permitted or required to make any Swingline Loan, if, after giving effect thereto, the aggregate outstanding principal amount of: (i) the sum of (x) the aggregate outstanding principal amount of all Revolving Loans of all Lenders plus (y) the aggregate outstanding Swingline Loans would ---- exceed the Revolving Loan Commitment Amount, (ii) the sum of (x) the aggregate outstanding principal amount of all Revolving Loans of all Lenders plus (y) the aggregate outstanding Swingline Loans would ---- exceed the Borrowing Base, or (iii) all Swingline Loans would exceed the Swingline Loan Commitment Amount. SECTION 2.1.5. Extension of Revolving Loan Termination Date. -------------------------------------------- (a) Not less than 90 days nor more than 135 days before the first and the second anniversary of the Effective Date, the Borrower may, by written request delivered to the Administrative Agent, request that the Revolving Loan Commitment Termination Date be extended by all of the Lenders for a period of one year from the then-current Revolving Loan Commitment Termination Date. The Administrative Agent shall promptly notify the Lenders of any such request. Such extension shall only be effective upon approval thereof in writing by each Managing Agent and all of the Lenders holding Revolving Loan Commitments, and the execution and delivery of such amendments to the Loan Documents and other documents as the Managing Agents may require in connection with such extension. Each Managing Agent and Lender may accept or reject any request for an extension in its sole and absolute discretion. Each Managing Agent and Lender shall use reasonable efforts to accept or reject any such request within 30 days after receiving notice thereof, provided that any failure by a Managing -------- Agent or Lender to respond to such a request shall be deemed to be a rejection thereof. Each request for the extension of the Revolving Loan Commitment Termination Date that is approved by the Lenders holding Revolving Credit Loans shall automatically extend the Swingline Loan Commitment Termination Date by an identical time period. (b) If on or before the 30th day after the Administrative Agent's receipt of an extension request, the Administrative Agent shall have received written consents for the extension of the Revolving Loan Commitment Termination Date from Lenders then holding 75% or more of the aggregate Revolving Loan Commitments and one or more Lenders shall have rejected the Borrower's request for such extension hereunder, the Borrower may by notice to but without consent of any such rejecting Lender: (i) request one or more of the other Lenders to acquire and assume (in such Lender's sole 26 discretion) all or part of any such rejecting Lender's Revolving Loans and Revolving Loan Commitment; or (ii) with the written consent of the Managing Agents, designate a replacement bank or financial institution to acquire and assume all or part of any such rejecting Lender's Revolving Loans and Revolving Loan Commitment; or (iii) with the written consent of Lenders holding 75% or more of the aggregate Revolving Loan Commitments, terminate any such rejecting Lender's Revolving Loan Commitment and either (x) prepay any such rejecting Lender's Revolving Loans in full, without premium or penalty but subject to Section 4.4, or (y) repay any such rejecting Lender's ----------- Revolving Loans in full at the end of the then-outstanding Interest Periods, without premium or penalty, whereupon the aggregate Revolving Loan Commitments shall be reduced by an amount equal to such rejecting Lender's Revolving Loan Commitment. SECTION 2.2. Optional Reduction of Commitment Amounts. The ---------------------------------------- Borrower may, from time to time on any Business Day occurring after the time of the initial Borrowing hereunder, voluntarily reduce the amount of any Commitment Amount; provided, however, that all such -------- ------- reductions shall require at least one Business Day's prior notice to the Administrative Agent and be permanent, and any partial reduction of the Swingline Loan Commitment Amount shall be in a minimum amount of $1,000,000 and in an integral multiple of $1,000,000 and any partial reduction of any other Commitment Amount shall be in a minimum amount of $10,000,000 and in an integral multiple of $1,000,000. SECTION 2.3. Borrowing Procedure. The Borrower may request ------------------- Loans to be made pursuant to this Section 2.3. ----------- SECTION 2.3.1. Term Loans and Revolving Loans. By delivering a ------------------------------ Borrowing Request to the Administrative Agent on or before 9:00 a.m., Portland time, on a Business Day, the Borrower may from time to time irrevocably request, (i) on not less than three Business Days' notice in the case of LIBO Rate Loans and on not less than one Business Day's notice in the case of Base Rate Loans, that a Borrowing of Term Loans be made in a minimum amount of $10,000,000 and an integral multiple of $1,000,000, or in the unused amount of the Term Loan Commitment and (ii) on not less than three Business Days' notice in the case of LIBO Rate Loans and on not less than one Business Day's notice in the case of Base Rate Loans, that a Borrowing of Revolving Loans be made in a minimum amount of $5,000,000 and an integral multiple of $1,000,000 or in the unused amount of the Revolving Loan Commitment. Not later than 10:00 a.m., Portland time, on the date of receipt, the Administrative Agent shall give notice to each Lender of the terms of each Borrowing Request for Revolving Loans and Term Loans submitted by the Borrower. On the terms and subject to the conditions of this Agreement, each Borrowing shall be comprised of the type of Loans, and shall be made on the Business Day, specified in such Borrowing Request. On or before 11:00 a.m. (Portland time) on the Business Day specified in the Borrowering Request each Lender shall deposit with the Administrative Agent same day funds in an amount equal to such Lender's Percentage 27 of the requested Borrowing. Such deposit will be made to an account which the Administrative Agent shall specify from time to time by notice to the Lenders. To the extent funds are received from the Lenders, the Administrative Agent shall make such funds available to the Borrower by deposit to the accounts the Borrower shall have specified in its Borrowing Request. No Lender's obligation to make any Loan shall be affected by any other Lender's failure to make any Loan. SECTION 2.3.2. Swingline Loans. By delivering a Borrowing --------------- Request to the Swingline Lender on or before 3:00 p.m., Portland Time, on a Business Day, the Borrower may from time to time irrevocably request that a Borrowing of Swingline Loans be made on such date in a minimum amount of $100,000 and an integral multiple of $100,000 or in the unused amount of the Swingline Loan Commitment. On the terms and subject to the conditions of this Agreement, each Borrowing of Swingline Loans shall be made on the Business Day specified in such Borrowing Request. The Swingline Lender shall make the Swingline Loan available to the Borrower by deposit to the accounts the Borrower shall have specified in its Borrowing Request. SECTION 2.4. Continuation and Conversion Elections. By ------------------------------------- delivering a Continuation/Conversion Notice to the Administrative Agent on or before 9:00 a.m., Portland time, on a Business Day, the Borrower may from time to time irrevocably elect, on not less than three nor more than five Business Days' notice that all, or any portion in an aggregate minimum amount of $1,000,000 and an integral multiple of $100,000, of any Term Loans or Revolving Loans be, in the case of Base Rate Loans, converted into LIBO Rate Loans or, in the case of LIBO Rate Loans, be converted into a Base Rate Loan or continued as a LIBO Rate Loan (in the absence of delivery of a Continuation/Conversion Notice with respect to any LIBO Rate Loan at least three Business Days before the last day of the then current Interest Period with respect thereto, such LIBO Rate Loan shall, on such last day, automatically convert to a Base Rate Loan); provided, -------- however, that (i) each such conversion or continuation shall be pro - ------- rated among the applicable outstanding Loans of all Lenders, and (ii) no portion of the outstanding principal amount of any Term Loans or Revolving Loans may be continued as, or be converted into, LIBO Rate Loans when any Default has occurred and is continuing. Not later than 10:00 a.m., Portland time, on the date of receipt, the Administrative Agent shall give notice to each Lender of the terms of each Continuation/Conversion Notice delivered to it by the Borrower. SECTION 2.5. Funding. Each Lender may, if it so elects, fulfill ------- its obligation to make, continue or convert LIBO Rate Loans hereunder by causing one of its foreign branches or Affiliates (or an international banking facility created by such Lender) to make or maintain such LIBO Rate Loan; provided, however, that such LIBO Rate -------- ------- 28 Loan shall nonetheless be deemed to have been made and to be held by such Lender, and the obligation of the Borrower to repay such LIBO Rate Loan shall nevertheless be to such Lender for the account of such foreign branch, Affiliate or international banking facility. In addition, the Borrower hereby consents and agrees that, for purposes of any determination to be made for purposes of Sections 4.1, 4.2, 4.3 ------------ --- --- or 4.4, it shall be conclusively assumed that each Lender elected to --- fund all LIBO Rate Loans by purchasing Dollar deposits in its LIBOR Office's interbank eurodollar market. SECTION 2.6. Notes. Each Lender's Loans under a Commitment ----- shall be evidenced by a Note payable to the order of such Lender in a maximum principal amount equal to such Lender's Percentage of the original applicable Commitment Amount. The Borrower hereby irrevocably authorizes each Lender to make (or cause to be made) appropriate notations on the grid attached to such Lender's Notes (or on any continuation of such grid), which notations, if made, shall evidence, inter alia, the date of, the outstanding principal of, and ----- ---- the interest rate and Interest Period applicable to the Loans evidenced thereby. Such notations shall be conclusive and binding on the Borrower absent manifest error; provided, however, that the -------- ------- failure of any Lender to make any such notations shall not limit or otherwise affect any Obligations of the Borrower or any other Obligor. ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES SECTION 3.1. Repayments and Prepayments. The Borrower shall -------------------------- repay in full the unpaid principal amount of each Loan upon the Stated Maturity Date therefor. Prior thereto, payments and prepayments of Loans shall be made as set forth below: SECTION 3.1.1. Voluntary Prepayments. From time to time on any --------------------- Business Day, the Borrower may make a voluntary prepayment, in whole or in part, of the outstanding principal amount of any Loans; provided, however, that - -------- ------- (i) any such prepayment shall be applied to such Loans as shall be specified by the Borrower in a written notice to the Administrative Agent, or in the absence of such notice, as the Administrative Agent shall specify; (ii) no such prepayment of any LIBO Rate Loan may be made on any day other than the last day of the Interest Period for such Loan; (iii) voluntary prepayments of Swingline Loans may be made with notice from an Authorized Officer of the Borrower to 29 the Swingline Lender prior to 3:00 p.m. on the date of such payment, and all voluntary prepayments of Revolving Loans and Term Loans shall require at least one Business Day's prior written notice to the Administrative Agent; and (iv) all voluntary partial prepayments of Swingline Loans shall be in an aggregate minimum amount of $100,000 and an integral multiple of $100,000; all voluntary partial prepayments of Revolving Loans shall be in an aggregate minimum amount of $5,000,000 and an integral multiple of $1,000,000; and all voluntary prepayments of Term Loans shall be in an aggregate minimum amount of $10,000,000 and an integral multiple of $1,000,000. SECTION 3.1.2. Exceeding the Revolving Loan Commitment. On each --------------------------------------- date when the sum of the aggregate outstanding principal amount of all Revolving Loans and Swingline Loans exceeds the lesser of (x) the Revolving Loan Commitment Amount (as it may be reduced from time to time) and (y) the then effective Borrowing Base amount, the Borrower shall make a mandatory prepayment of the Revolving Loans or Swingline Loans (or both) in an aggregate amount equal to such excess. SECTION 3.1.3. Scheduled Term Loan Repayments. On the Stated ------------------------------ Maturity Date and on each Quarterly Payment Date set forth below, the Borrower shall make a scheduled repayment of the Term Loans in an amount shown below opposite such Quarterly Payment Date: Date Amount ---- ------ June 30, 1997 16,666,666.00 September 30, 1997 16,666,667.00 December 31, 1997 16,666,667.00 March 31, 1998 17,500,000.00 June 30, 1998 17,500,000.00 September 30, 1998 17,500,000.00 December 31, 1998 17,500,000.00 March 31, 1999 20,000,000.00 June 30, 1999 20,000,000.00 September 30, 1999 20,000,000.00 December 31, 1999 20,000,000.00 If less than $200,000,000 of Term Loans are outstanding on the Term Facility Commitment Termination Date, then all scheduled payments shall be reduced pro rata. --- ---- SECTION 3.1.4. Excess Cash Flow Repayments. Within 90 days --------------------------- after the close of each Fiscal Year, commencing with the Fiscal Year ending December 31, 1997, the Borrower shall make a mandatory prepayment of the Loans in an amount equal to 50% of Excess Cash 30 Flow (if any) for such period to be applied as set forth in Section ------- 3.2.2. - ----- SECTION 3.1.5. Net Equity Proceeds. Within five Business Days ------------------- of the receipt by the Borrower of any Net Equity Proceeds, the Borrower shall make a mandatory prepayment of the Loans in an amount equal to 75% of such Net Equity Proceeds to be applied as set forth in Section 3.2.2 or, if such prepayment would cause the Borrower to be - ------------- liable for losses or expenses pursuant to the terms of Section 4.4(a) -------------- hereof, the Borrower shall deliver such Net Equity Proceeds to the Administrative Agent to be held as cash collateral pursuant to the terms of the Security Agreement and to be applied by the Administrative Agent as set forth in Section 3.2.2 to the payments of ------------- the Loans on the earliest dates such payment may be made without incurring losses or expenses pursuant to Section 4.4(a). -------------- SECTION 3.1.6. Net Disposition Proceeds. Within five Business ------------------------ Days of receipt by the Borrower or any Subsidiary of Net Disposition Proceeds in excess of $10,000,000 in any Fiscal Year or $40,000,000 in the aggregate since the Effective Date, the Borrower shall make a mandatory prepayment of the Loans in an amount equal to such excess to be applied as set forth in Section 3.2.2, and immediately upon the ------------- expiration of any time period for the reinvestment of net proceeds of a Restricted Disposition pursuant to Section 7.2.11(b)(ii), the ------------- Borrower shall make a mandatory prepayment of the Loans in an amount equal to 100% of any such unreinvested net proceeds to be applied as set forth in Section 3.2.2 or, if such prepayment would cause the ------------- Borrower to be liable for losses or expenses pursuant to the terms of Section 4.4(a) hereof, the Borrower shall deliver such Net Disposition - -------------- Proceeds to the Administrative Agent to be held as cash collateral pursuant to the terms of the Security Agreement and to be applied by the Administrative Agent as set forth in Section 3.2.2 to the payments ------------- of the Loans on the earliest dates such payment may be made without incurring losses or expenses pursuant to Section 4.4(a). -------------- SECTION 3.1.7. Net Receivables Proceeds. Within five Business ------------------------ Days of receipt of Net Receivables Proceeds, the Borrower shall make a mandatory prepayment of the Revolving Loans and permanently reduce the Revolving Loan Commitment Amount in an amount equal to 100% of such Net Receivables Proceeds as set forth in Section 3.2.2 or, if such ------------- prepayment would cause the Borrower to be liable for losses or expenses pursuant to the terms of Section 4.4(a) hereof, the Borrower -------------- shall deliver such Net Receivables Proceeds to the Administrative Agent to be held as cash collateral pursuant to the terms of the Security Agreement and to be applied by the Administrative Agent as set forth in Section 3.2.2 to the payments of the Loans on the ------------- earliest dates such payment may be made without incurring losses or expenses pursuant to Section 4.4(a). -------------- 31 SECTION 3.1.8. Acceleration. The Borrower shall, immediately ------------ upon any acceleration of the Stated Maturity Date of any Loans pursuant to Section 8.2 or Section 8.3, repay all Loans, unless, ----------- ----------- pursuant to Section 8.3, only a portion of all Loans is so ----------- accelerated. SECTION 3.2. Application of Payments and Prepayments. --------------------------------------- SECTION 3.2.1. Voluntary Prepayments. Each voluntary prepayment --------------------- of Term Loans made pursuant to Section 3.1.1 shall be applied, to the ------------- extent of such prepayment, to the pro rata reduction of all scheduled --- ---- repayments of Term Loans set forth in Section 3.1.3. Each prepayment ------------- of any Loans made pursuant to this Section shall be without premium or penalty, except as may be required by Section 4.4. No voluntary ----------- prepayment of principal of any Revolving Loans shall cause a reduction in the Revolving Loan Commitment Amount, and no voluntary prepayment of principal of any Swingline Loans shall cause a reduction in the Swingline Loan Commitment Amount. SECTION 3.2.2. Mandatory Prepayments. Each prepayment of the --------------------- Loans made pursuant to Sections 3.1.4, 3.1.5, and 3.1.6 shall be -------------- ----- ----- applied, to the scheduled Term Loan repayments set forth in Section ------- 3.1.3 in inverse order of their maturity. After all outstanding Term - ----- Loans have been repaid in full, if any proceeds from prepayments made pursuant to Sections 3.1.4, 3.1.5, and 3.1.6 remain, and in the case -------------- ----- ----- of 100% of the proceeds pursuant to Section 3.1.7, the Revolving Loan ------------- Commitment Amount shall be reduced by the aggregate amount of such proceeds (and the Borrower shall make a prepayment of Revolving Loans in an amount equal to the excess, if any, of the then outstanding Revolving Loans over the Revolving Loan Commitment Amount, as so reduced). SECTION 3.3. Interest Provisions. Interest on the outstanding ------------------- principal amount of Loans shall accrue and be payable in accordance with this Section 3.3. ----------- SECTION 3.3.1. Rates. Pursuant to an appropriately delivered ----- Borrowing Request or Continuation/Conversion Notice, the Borrower may elect that Base Rate Loans and LIBO Rate Loans comprising a Borrowing accrue interest at a rate per annum: (a) on that portion maintained from time to time as a Base Rate Loan, equal to the sum of the Alternate Base Rate from time to time in effect plus the Applicable Margin; and (b) on that portion maintained as a LIBO Rate Loan, during each Interest Period applicable thereto, equal to the sum of the LIBO Rate (Reserve Adjusted) for such Interest Period plus the Applicable Margin. 32 All Swingline Loans shall accrue interest at a rate per annum equal to the sum of Federal Funds Rate from time to time in effect plus the Applicable Margin for Swingline Loans. The "LIBO Rate (Reserve Adjusted)" means, relative to any Loan to --------------------------- be made, continued or maintained as, or converted into, a LIBO Rate Loan for any Interest Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) determined pursuant to the following formula: LIBO Rate = LIBO Rate ------------------------------- (Reserve Adjusted) 1.00 - LIBOR Reserve Percentage The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate Loans will be determined by the Administrative Agent on the basis of the LIBOR Reserve Percentage in effect on, and the applicable rates furnished to and received by the Administrative Agent from the Reference Lenders, two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 3.3.4. ------- ------- ------------- "LIBO Rate" means, relative to any Interest Period for LIBO Rate --------- Loans, the rate of interest equal to the average (rounded upwards, if necessary, to the nearest 1/16 of 1%) of the rates per annum at which Dollar deposits in immediately available funds are offered to each Reference Lender's LIBOR Office in the interbank eurodollar market as at or about 12:00 noon New York time two Business Days prior to the beginning of such Interest Period for delivery on the first day of such Interest Period, and in an amount approximately equal to the amount of each such Reference Lender's LIBO Rate Loan and for a period approximately equal to such Interest Period. "LIBOR Reserve Percentage" means, relative to any Interest Period ------------------------ for LIBO Rate Loans, the reserve percentage (expressed as a decimal) equal to the maximum aggregate reserve requirements (including all basic, emergency, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements) specified under regulations issued from time to time by the F.R.S. Board and then applicable to assets or liabilities consisting of and including "Eurocurrency Liabilities", as currently defined in Regulation D of the F.R.S. Board, having a term approximately equal or comparable to such Interest Period. All LIBO Rate Loans shall bear interest from and including the first day of the applicable Interest Period to (but not including) the last day of such Interest Period at the interest rate determined as applicable to such LIBO Rate Loan. 33 SECTION 3.3.2. Post-Maturity Rates. After the date any ------------------- principal amount of any Loan is due and payable (whether on the Stated Maturity Date, upon acceleration or otherwise), or after any other monetary Obligation of the Borrower shall have become due and payable, the Borrower shall pay, but only to the extent permitted by law, interest (after as well as before judgment) on such amounts at a rate per annum equal to the sum of the Alternate Base Rate plus 2% plus the Applicable Margin for Base Rate Loans then in effect. SECTION 3.3.3. Payment Dates. Interest accrued on each Loan ------------- shall be payable, without duplication: (a) on the Stated Maturity Date therefor; (b) on the date of any payment or prepayment, in whole or in part, of principal outstanding on such Loan; (c) with respect to Revolving Loans and Term Loans made as Base Rate Loans, on each Quarterly Payment Date occurring after the Effective Date, and with respect to Swingline Loans made as Base Rate Loans, on each Monthly Payment Date occurring after the Effective Date; (d) with respect to LIBO Rate Loans, the last day of each applicable Interest Period (and, if such Interest Period shall exceed 90 days, on the 90th day of such Interest Period); and (e) on that portion of any Loans the Stated Maturity Date of which is accelerated pursuant to Section 8.2 or ----------- Section 8.3, immediately upon such acceleration. ----------- Interest accrued on Loans or other monetary Obligations arising under this Agreement or any other Loan Document after the date such amount is due and payable (whether on the Stated Maturity Date, upon acceleration or otherwise) shall be payable upon demand. SECTION 3.3.4. Interest Rate Determination. Each Reference --------------------------- Lender agrees to furnish to the Administrative Agent timely information for the purpose of determining each LIBO Rate. If any one or more of the Reference Lenders shall fail timely to furnish such information to the Administrative Agent for any such interest rate, the Administrative Agent shall determine such interest rate on the basis of the information furnished by the remaining Reference Lenders. SECTION 3.4. Fees. The Borrower agrees to pay the fees set ---- forth in this Section 3.4. All such fees shall be non-refundable. ----------- 34 SECTION 3.4.1. Commitment Fee. The Borrower agrees to pay to -------------- the Administrative Agent for the account of each Lender, for the period (including any portion thereof when any of its Commitments are suspended by reason of the Borrower's inability to satisfy any condition of Article V) commencing on the Effective Date and --------- continuing through the final Commitment Termination Date, a commitment fee at the Commitment Fee Rate per annum on such Lender's Percentage of the sum of the average daily unused portion of the Revolving Commitment Amount and the Term Loan Commitment Amount; provided, -------- however, that for purposes of determining usage under the Revolving - ------- Commitment, all outstanding Swingline Loans shall be deemed to be Revolving Loans. Such commitment fees shall be payable by the Borrower in arrears on each Quarterly Payment Date, commencing with the first such day following the Effective Date, and on each Commitment Termination Date. SECTION 3.4.2. Upfront Fee. The Borrower agrees to pay to the ----------- Administrative Agent for the account of each Lender on the Effective Date, an upfront fee based on such Lender's initial Commitment and based on such Lender's final allocated Commitment in such amounts as previously agreed by the Borrower and the Managing Agents. SECTION 3.4.3. Agents' Fees. The Borrower agrees to pay to the ------------ Agents for their own account, in addition to all other amounts payable by the Borrower under Sections 3.4.1 and 3.4.2, such other fees as -------------- ----- were described in the fee letter dated October 19, 1994 among the Borrower, First Interstate and Scotiabank. ARTICLE IV CERTAIN LIBO RATE AND OTHER PROVISIONS SECTION 4.1. LIBO Rate Lending Unlawful. If any Lender shall -------------------------- determine (which determination shall, upon notice thereof to the Borrower and the Lenders, be conclusive and binding on the Borrower) that the introduction of or any change in or in the interpretation of any law makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for such Lender to make, continue or maintain any Loan as, or to convert any Loan into, a LIBO Rate Loan, the obligations of such Lender to make, continue, maintain or convert any such Loans shall, upon such determination, forthwith be suspended until such Lender shall notify the Administrative Agent that the circumstances causing such suspension no longer exist, and all LIBO Rate Loans of such Lender shall automatically convert into Base Rate Loans at the end of the then current Interest Periods with respect thereto or sooner, if required by such law or assertion. 35 SECTION 4.2. Deposits Unavailable. If the Administrative Agent -------------------- shall have determined that (a) Dollar deposits in the relevant amount and for the relevant Interest Period are not available to the Reference Lenders in their relevant markets; or (b) by reason of circumstances affecting the Reference Lenders' relevant markets, adequate means do not exist for ascertaining the interest rate applicable hereunder to LIBO Rate Loans, then, upon notice from the Administrative Agent to the Borrower and the Lenders, the obligations of all Lenders under Section 2.3 and ----------- Section 2.4 to make or continue any Loans as, or to convert any Loans - ----------- into, LIBO Rate Loans shall forthwith be suspended until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist. SECTION 4.3. Increased LIBO Rate Loan Costs, etc. The Borrower ----------------------------------- agrees to reimburse each Lender for any increase in the cost to such Lender of, or any reduction in the amount of any sum receivable by such Lender in respect of, making, continuing or maintaining (or of its obligation to make, continue or maintain) any Loans as, or of converting (or of its obligation to convert) any Loans into, LIBO Rate Loans which results from the introduction of or any change since the date of this Agreement in any applicable law, governmental rule, regulation, guideline, order or request (whether or not having the force of law), or in the interpretation or administration thereof (including, by way of example, but not limited to, a change in official reserve requirements). Such Lender shall promptly notify the Administrative Agent and the Borrower in writing of the occurrence of any such event, such notice to state, in reasonable detail, the reasons therefor and the additional amount required fully to compensate such Lender for such increased cost or reduced amount. Such additional amounts shall be payable by the Borrower directly to such Lender within five days of its receipt of such notice, and such notice shall, in the absence of manifest error, be conclusive and binding on the Borrower. SECTION 4.4. Funding Losses. In the event any Lender shall -------------- incur any loss or expense (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to make, continue or maintain any portion of the principal amount of any Loan as, or to convert any portion of the principal amount of any Loan into, a LIBO Rate Loan) as a result of (a) any conversion or repayment or prepayment of the principal amount of any LIBO Rate Loans on a date other than 36 the scheduled last day of the Interest Period applicable thereto, whether pursuant to Section 3.1 or otherwise; ----------- (b) any Loans not being made as LIBO Rate Loans in accordance with the Borrowing Request therefor, except as a result of a Lender's breach of its Commitments hereunder; or (c) any Loans not being continued as, or converted into, LIBO Rate Loans in accordance with the Continuation/Conversion Notice therefor, except as a result of a Lender's breach of its Commitments hereunder, then, upon the written notice of such Lender to the Borrower (with a copy to the Administrative Agent), the Borrower shall, within five days of its receipt thereof, pay directly to such Lender such amount as will (in the reasonable determination of such Lender) reimburse such Lender for such loss or expense. Such written notice (which shall include calculations in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Borrower. SECTION 4.5. Increased Capital Costs. If any change in, or the ----------------------- introduction, adoption, effectiveness, interpretation, reinterpretation or phase-in of, any law or regulation, directive, guideline, decision or request (whether or not having the force of law) of any court, central bank, regulator or other governmental authority affects or would affect the amount of capital required or expected to be maintained by any Lender or any Person controlling such Lender, and such Lender determines (in its sole and absolute discretion) that the rate of return on its or such controlling Person's capital as a consequence of its Commitments or the Loans made by such Lender is reduced to a level below that which such Lender or such controlling Person could have achieved but for the occurrence of any such circumstance, then, in any such case upon notice from time to time by such Lender to the Borrower and the Administrative Agent, the Borrower shall immediately pay directly to such Lender additional amounts sufficient to compensate such Lender or such controlling Person for such reduction in rate of return. A statement of such Lender as to any such additional amount or amounts (including calculations thereof in reasonable detail) shall, in the absence of manifest error, be conclusive and binding on the Borrower. In determining such amount, such Lender may use any method of averaging and attribution that it (in its sole and absolute discretion) shall deem applicable. SECTION 4.6. Taxes. All payments by the Borrower of principal ----- of, and interest on, the Loans and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future income, excise, stamp or franchise taxes and other taxes, fees, duties, withholdings or other charges of any nature whatsoever imposed by any taxing 37 authority, but excluding franchise taxes and taxes imposed on or measured by any Lender's net income or receipts (such non-excluded items being called "Taxes"). In the event that any withholding or ----- deduction from any payment to be made by the Borrower hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then the Borrower will (a) pay directly to the relevant authority the full amount required to be so withheld or deducted; (b) promptly forward to the Administrative Agent an official receipt or other documentation satisfactory to the Administrative Agent evidencing such payment to such authority; and (c) pay to the Administrative Agent for the account of the Lenders such additional amount or amounts as is necessary to ensure that the net amount actually received by each Lender will equal the full amount such Lender would have received had no such withholding or deduction been required. Moreover, if any Taxes are directly asserted against the Administrative Agent or any Lender with respect to any payment received by the Administrative Agent or such Lender hereunder, the Administrative Agent or such Lender may pay such Taxes and the Borrower will promptly pay such additional amounts (including any penalties, interest or expenses) as is necessary in order that the net amount received by such person after the payment of such Taxes (including any Taxes on such additional amount) shall equal the amount such person would have received had not such Taxes been asserted. If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent, for the account of the respective Lenders, the required receipts or other required documentary evidence, the Borrower shall indemnify the Lenders for any incremental Taxes, interest or penalties that may become payable by any Lender as a result of any such failure. For purposes of this Section 4.6, a distribution hereunder by the ----------- Administrative Agent or any Lender to or for the account of any Lender shall be deemed a payment by the Borrower. Upon the request of the Administrative Agent, each Lender that is organized under the laws of a jurisdiction other than the United States shall, prior to the due date of any payments under the Notes, execute and deliver to the Borrower and the Administrative Agent, on or about the first scheduled payment date in each Fiscal Year, one or more (as the Administrative Agent may reasonably request) United States Internal Revenue Service Forms 4224 or Forms 1001 or such other forms or documents (or successor forms or 38 documents), appropriately completed, as may be applicable to establish the extent, if any, to which a payment to such Lender is exempt from withholding or deduction of Taxes. SECTION 4.7. Payments, Computations, etc. All payments by the --------------------------- Borrower pursuant to Swingline Loans shall be made by the Borrower directly to the Swingline Lender. Unless otherwise expressly provided, all other payments by the Borrower pursuant to this Agreement, the Notes or any other Loan Document shall be made by the Borrower to the Administrative Agent for the pro rata account of the Lenders entitled to receive such payment. All such payments required to be made to the Administrative Agent or Swingline Lender shall be made, without setoff, deduction or counterclaim, not later than 10:00 a.m., Portland time, on the date due, in same day or immediately available funds, to such account as the Administrative Agent or Swingline Lender shall specify from time to time by notice to the Borrower. Funds received after that time shall be deemed to have been received by the Administrative Agent or Swingline Lender on the next succeeding Business Day. The Administrative Agent shall promptly remit in same day funds to each Lender its share, if any, of such payments received by the Administrative Agent for the account of such Lender. All interest and fees shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which such interest or fee is payable over a year comprised of 360 days (or, in the case of interest on a Base Rate Loan, 365 days or, if appropriate, 366 days). Whenever any payment to be made shall otherwise be due on a day which is not a Business Day, such payment shall (except as otherwise required by clause (c) of the definition of the term "Interest Period" with - ---------- --------------- respect to LIBO Rate Loans) be made on the next succeeding Business Day and such extension of time shall be included in computing interest and fees, if any, in connection with such payment. SECTION 4.8. Sharing of Payments. If any Lender shall obtain ------------------- any payment or other recovery (whether voluntary, involuntary, by application of setoff or otherwise) on account of any Loan (other than pursuant to the terms of Sections 4.3, 4.4 and 4.5) in excess of its ------------ --- --- pro rata share of payments then or therewith obtained by all Lenders, - --- ---- such Lender shall purchase from the other Lenders such participations in Loans made by them as shall be necessary to cause such purchasing Lender to share the excess payment or other recovery ratably with each of them; provided, however, that if all or any portion of the excess -------- ------- payment or other recovery is thereafter recovered from such purchasing Lender, the purchase shall be rescinded and each Lender which has sold a participation to the purchasing Lender shall repay to the purchasing Lender the purchase price to the ratable extent of such recovery together with an amount equal to such selling Lender's ratable share (according to the proportion of (a) the amount of such selling Lender's required repayment to the purchasing Lender to (b) the total -- amount 39 so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section may, to the fullest extent permitted by law, exercise all its rights of payment (including pursuant to Section 4.9) with respect to ----------- such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation. If under any applicable bankruptcy, insolvency or other similar law, any Lender receives a secured claim in lieu of a setoff to which this Section applies, such Lender shall, to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this Section to share in the benefits of any recovery on such secured claim. SECTION 4.9. Setoff. Each Lender shall, upon the occurrence of ------ any Default described in clauses (a) through (d) of Section 8.1.9 or ----------- --- ------------- any other Event of Default, have the right to appropriate and apply to the payment of the Obligations owing to it (whether or not then due), and (as security for such Obligations) the Borrower hereby grants to each Lender a continuing security interest in, any and all balances, credits, deposits, accounts or moneys of the Borrower then or thereafter maintained with such Lender; provided, however, that any -------- ------- such appropriation and application shall be subject to the provisions of Section 4.8. Each Lender agrees promptly to notify the Borrower ----------- and the Administrative Agent after any such setoff and application made by such Lender; provided, however, that the failure to give such -------- ------- notice shall not affect the validity of such setoff and application. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which such Lender may have. SECTION 4.10. Use of Proceeds. The Borrower shall apply the --------------- proceeds of each Borrowing in accordance with the fourth recital; -------------- without limiting the foregoing, no proceeds of any Loan will be used to acquire any equity security of a class which is registered pursuant to Section 12 of the Securities Exchange Act of 1934 or any "margin stock", as defined in F.R.S. Board Regulation U. SECTION 4.11. Actions of Affected Lenders. Each Lender agrees --------------------------- to use reasonable efforts (including reasonable efforts to change the booking office for its Loans) to avoid or minimize any illegality pursuant to Section 4.1 or any amounts which might otherwise be ----------- payable pursuant to Sections 4.3, 4.5 or 4.6; provided, however, that ------------ --- --- -------- ------- such efforts shall not cause the imposition on such Lender of any additional costs or legal or regulatory burdens deemed by such Lender to be material. In the event that such reasonable efforts are insufficient to avoid all such illegality pursuant to Section 4.1 or ----------- all amounts that might be 40 payable pursuant to Sections 4.3, 4.5 or 4.6, then the Borrower shall ------------ --- --- have the right, but not the obligation, at its own expense, to request such Lender (the "Affected Lender") to transfer its Commitments --------------- hereunder to any other Lender (which itself is not then an Affected Lender) or financial institution designated by the Borrower and approved by the Managing Agents (which approval shall not be unreasonably withheld), and such Lender hereby agrees to transfer and assign without recourse (in accordance with and subject to the restrictions contained in this Agreement) all its interests, rights and obligations under this Agreement to such assignee; provided, -------- however, that no Lender shall be obligated to make any such assignment - ------- unless (i) such assignment shall not conflict with any law or any rule, regulation or order of any governmental authority, (ii) such assignee shall pay to the Affected Lender in immediately available funds on the date of such assignment the principal of the Loans made by such Lender hereunder, and (iii) the Borrower shall pay to the Affected Lender in immediately available funds on the date of such assignment the interest accrued to the date of such assignment hereunder and all other amounts accrued for such Lender's account or owed to it hereunder. ARTICLE V CONDITIONS TO BORROWING SECTION 5.1. Initial Borrowing. The obligations of the Lenders ----------------- to fund the initial Borrowing shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Section 5.1. ----------- SECTION 5.1.1. Resolutions, etc. The Administrative Agent shall ---------------- have received from each Obligor a certificate, dated the date of the initial Borrowing, of its Secretary or Assistant Secretary as to (a) resolutions of its Board of Directors then in full force and effect authorizing the execution, delivery and performance of this Agreement, the Notes and each other Loan Document to be executed by it; and (b) the incumbency and signatures of those of its officers authorized to act with respect to this Agreement, the Notes and each other Loan Document executed by it, upon which certificate each Lender may conclusively rely until it shall have received a further certificate of the Secretary of such Obligor canceling or amending such prior certificate. 41 SECTION 5.1.2. Delivery of Notes. The Administrative Agent ----------------- shall have received, for the account of each Lender, its Notes duly executed and delivered by the Borrower. SECTION 5.1.3. Payment of Outstanding Indebtedness, etc. All ---------------------------------------- Indebtedness identified in Item 7.2.2(b) ("Indebtedness to be Paid") ------------- of the Disclosure Schedule, together with all interest, all prepayment premiums and other amounts due and payable with respect thereto, shall have been paid in full (including, to the extent necessary, from proceeds of the initial Borrowing); all commitments for such Indebtedness shall have been terminated; and all Liens securing payment of any such Indebtedness have been released and the Administrative Agent shall have received all Uniform Commercial Code Form UCC-3 termination statements or other instruments as may be suitable or appropriate in connection therewith. SECTION 5.1.4. Guaranties. The Administrative Agent shall have ---------- received the Guaranties, dated the date hereof, duly executed by the Guarantors. SECTION 5.1.5. Pledge Agreement. The Administrative Agent shall ---------------- have received executed counterparts of the Pledge Agreement, dated as of the date hereof, duly executed by the Borrower, together with (i) the certificates, evidencing all of the issued and outstanding shares of all corporate Significant Subsidiaries, which capital stock is not margin stock for purposes of F.R.S. Board Regulation U, which certificates shall in each case be accompanied by undated stock powers duly executed in blank and (ii) the original promissory notes evidencing the Indebtedness of the Borrower's Subsidiaries to the Borrower pursuant to the definition of "Permitted Intercompany ---------------------- Indebtedness", which notes shall have been duly endorsed in blank. - ------------ SECTION 5.1.6. Security Agreements. The Administrative Agent ------------------- shall have received executed counterparts of the Security Agreements, dated as of the date hereof, duly executed by the Borrower, the Guarantors, CF&I Steel, L.P. and any other Subsidiary designated by the Borrower, together with (a) acknowledgment copies of properly filed Uniform Commercial Code financing statements (Form UCC-1), dated a date reasonably near to the date of the initial Borrowing, or such other evidence of filing as may be acceptable to the Managing Agents, naming the Borrower, each Guarantor, CF&I Steel, L.P. and such Subsidiaries, as the debtors and the Administrative Agent as the secured party, or other similar instruments or documents, filed under the Uniform Commercial Code of all jurisdictions as may be necessary or, in the opinion of the Managing Agents, desirable to perfect the security interest of the Administrative Agent pursuant to the Security Agreement; 42 (b) executed copies of proper Uniform Commercial Code Form UCC-3 termination statements, if any, necessary to release all Liens and other rights of any Person (i) in any collateral described in the Security Agreement previously granted by any Person, and (ii) securing any of the Indebtedness identified in Item 7.2.2(b) ("Indebtedness to be Paid") of the ------------- Disclosure Schedule, together with such other Uniform Commercial Code Form UCC-3 termination statements as the Managing Agents may reasonably request from such Obligors; and (c) certified copies of Uniform Commercial Code Requests for Information or Copies (Form UCC-11), or a similar search report certified by a party acceptable to the Managing Agents, dated a date reasonably near to the date of the initial Borrowing, listing all effective financing statements which name the Borrower, each Guarantor, CF&I Steel, L.P. and such Subsidiary (under their present names and any previous names) as the debtor and which are filed in the jurisdictions in which filings were made pursuant to clause (a) above, together ---------- with copies of such financing statements (none of which (other than those described in clause (a), if such Form UCC-11 or ---------- search report, as the case may be, is current enough to list such financing statements described in clause (a)) shall cover ---------- any collateral described in the Security Agreement). SECTION 5.1.7. Opinion of Counsel. The Administrative Agent ------------------ shall have received opinions, dated as of the Effective Date and addressed to the Administrative Agent and all Lenders, from Schwabe Williamson & Wyatt, counsel to the Obligors, substantially in the form of Exhibit J hereto. --------- SECTION 5.1.8. Organization Documents. The Administrative Agent ---------------------- shall have received from the Borrower and each Guarantor a certificate, dated the date of the initial Borrowing, of its Secretary or Assistant Secretary as to (a) the articles or certificate of incorporation of such Person as in effect on such date, certified by the Secretary of State of the state of its incorporation as of a recent date (to the extent such certification is available), and the bylaws of such Person as in effect on such date, certified by the Secretary or an Assistant Secretary as of such date; and (b) a good standing certificate for such Person from the Secretary of State of the state of its incorporation as of a recent date (to the extent such certification is available). 43 SECTION 5.1.9. Closing Fees, Expenses, etc. The Administrative --------------------------- Agent shall have received for its own account, or for the account of the Syndication Agent, the Managing Agents and each Lender, as the case may be, all fees, costs and expenses due and payable pursuant to Sections 3.4 and 10.3, if then invoiced. - ------------ ---- SECTION 5.2. All Borrowings. The obligation of each Lender to -------------- fund any Loan on the occasion of any Borrowing (including the initial Borrowing) shall be subject to the satisfaction of each of the conditions precedent set forth in this Section 5.2. SECTION 5.2.1. Compliance with Warranties, No Default, etc. ------------------------------------------- Both before and after giving effect to any Borrowing (but, if any Default of the nature referred to in Section 8.1.5 shall have occurred ------------- with respect to any other Indebtedness, without giving effect to the application, directly or indirectly, of the proceeds thereof) the following statements shall be true and correct (a) the representations and warranties set forth in Article VI (excluding, however, those contained in Section ---------- ------- 6.7) shall be true and correct with the same effect as if then --- made (unless stated to relate solely to an earlier date, in which case such representations and warranties shall be true and correct as of such earlier date); (b) except as disclosed by the Borrower to the Administrative Agent and the Lenders pursuant to Section 6.7 ----------- (i) no labor controversy, litigation, arbitration or governmental investigation or proceeding shall be pending or, to the knowledge of the Borrower, threatened against the Borrower or any of its Subsidiaries which might have a Material Adverse Effect; and (ii) no development shall have occurred in any labor controversy, litigation, arbitration or governmental investigation or proceeding disclosed pursuant to Section 6.7 which might have a Material ----------- Adverse Effect; and (c) no Default shall have then occurred and be continuing, and neither the Borrower, any other Obligor, nor any of its Subsidiaries are in material violation of any law or governmental regulation or court order or decree. SECTION 5.2.2. Borrowing Request. For all Borrowings of ----------------- Revolving Loans and Term Loans, the Administrative Agent shall have received a Borrowing Request for such Borrowing, and for all Borrowings of Swingline Loans, the Swingline Lender shall have received a Borrowing Request for such Borrowing. Each of the delivery of a Borrowing Request and the acceptance by the Borrower 44 of the proceeds of such Borrowing shall constitute a representation and warranty by the Borrower that on the date of such Borrowing (both immediately before and after giving effect to such Borrowing and the application of the proceeds thereof) the statements made in Section ------- 5.2.1 are true and correct. - ----- SECTION 5.2.3. Satisfactory Legal Form. All documents executed ----------------------- or submitted pursuant hereto by or on behalf of the Borrower or any of its Subsidiaries or any other Obligors shall be satisfactory in form and substance to the Managing Agents and their counsel; and the Managing Agents and their counsel shall have received all information, approvals, opinions, documents or instruments as the Managing Agents or their counsel may reasonably request. ARTICLE VI REPRESENTATIONS AND WARRANTIES In order to induce the Lenders and the Agents to enter into this Agreement and to make Loans hereunder, the Borrower represents and warrants unto the Agents and each Lender as set forth in this Article ------- VI. - -- SECTION 6.1. Organization, etc. The Borrower and each of its ----------------- Subsidiaries is a corporation validly organized and existing and in good standing under the laws of the state of its incorporation, is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the nature of its business requires such qualification (except where the failure to so qualify shall not have a Material Adverse Effect), and has full power and authority and holds all requisite governmental licenses, permits and other approvals to enter into and perform its Obligations under this Agreement, the Notes and each other Loan Document to which it is a party and to own and hold under lease its property and to conduct its business substantially as currently conducted by it. SECTION 6.2. Due Authorization, Non-Contravention, etc. The ----------------------------------------- execution, delivery and performance by the Borrower of this Agreement, the Notes and each other Loan Document executed or to be executed by it, and the execution, delivery and performance by each other Obligor of each Loan Document executed or to be executed by it are within the Borrower's and each such Obligor's corporate powers, have been duly authorized by all necessary corporate action, and do not (a) contravene the Borrower's or any such Obligor's Organic Documents; 45 (b) contravene any contractual restriction, law or governmental regulation or court decree or order binding on or affecting the Borrower or any such Obligor; or (c) result in, or require the creation or imposition of, any Lien on any of any Obligor's properties, except for the Liens created pursuant to the Loan Documents. SECTION 6.3. Government Approval, Regulation, etc. No ------------------------------------ authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other Person is required for the due execution, delivery or performance by the Borrower or any other Obligor of this Agreement, the Notes or any other Loan Document to which it is a party. Neither the Borrower nor any of its Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 6.4. Validity, etc. This Agreement constitutes, and the ------------- Notes and each other Loan Document executed by the Borrower will, on the due execution and delivery thereof, constitute, the legal, valid and binding obligations of the Borrower enforceable in accordance with their respective terms, and each Loan Document executed pursuant hereto by each other Obligor will, on the due execution and delivery thereof by such Obligor, be the legal, valid and binding obligation of such Obligor enforceable in accordance with its terms, all subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and general principles of equity. SECTION 6.5. Financial Information. The audited balance sheets --------------------- of the Borrower and its Subsidiaries as at December 31, 1993, and the related statements of earnings and cash flow of the Borrower and its Subsidiaries, and the unaudited financial statements of the Borrower and its Subsidiaries as at September 30, 1994, copies of which have been furnished to the Administrative Agent and each Lender, have been prepared in accordance with GAAP consistently applied, and present fairly the consolidated financial condition of the corporations covered thereby as at the dates thereof and the results of their operations for the periods then ended. SECTION 6.6. No Material Adverse Change. Since the date of the -------------------------- audited financial statements described in Section 6.5, except as ----------- otherwise disclosed in Item 6.6 ("Material Developments") of the -------- Disclosure Schedule, there has been no Material Adverse Effect. 46 SECTION 6.7. Litigation, Labor Controversies, etc. There is no ------------------------------------ pending or, to the knowledge of the Borrower, threatened litigation, action, proceeding, or labor controversy affecting the Borrower or any of its Subsidiaries, or any of their respective properties, businesses, assets or revenues, which may have a Material Adverse Effect, except as disclosed in Item 6.7 ("Litigation") of the -------- Disclosure Schedule. SECTION 6.8. Subsidiaries. The Borrower has no Subsidiaries, ------------ except those Subsidiaries (a) which are identified in Item 6.8 ("Existing -------- Subsidiaries") of the Disclosure Schedule; or (b) which are permitted to have been acquired in accordance with Section 7.2.5 or 7.2.10. ------------- ------ SECTION 6.9. Ownership of Properties. The Borrower and each of ----------------------- its Subsidiaries owns good and marketable title to all of its properties and assets, real and personal, tangible and intangible, of any nature whatsoever (including patents, trademarks, trade names, service marks and copyrights), free and clear of all Liens, charges or claims (including infringement claims with respect to patents, trademarks, copyrights and the like) except as permitted pursuant to Section 7.2.3. - ------------- SECTION 6.10. Taxes. The Borrower and each of its Subsidiaries ----- has filed all tax returns and reports required by law to have been filed by it and has paid all taxes and governmental charges thereby shown to be owing, except any such taxes or charges which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. SECTION 6.11. Pension and Welfare Plans. During the ------------------------- twelve-consecutive-month period prior to the date of the execution and delivery of this Agreement and prior to the date of any Borrowing hereunder, no steps have been taken to terminate any Pension Plan, and no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a Lien under section 302(f) of ERISA. No condition exists or event or transaction has occurred with respect to any Pension Plan which might result in the incurrence by the Borrower or any member of the Controlled Group of any material liability, fine or penalty. Except as disclosed in Item 6.11 ("Employee Benefit --------- Plans") of the Disclosure Schedule, neither the Borrower nor any member of the Controlled Group has any contingent liability with respect to any post-retirement benefit under a Welfare Plan, other than liability for continuation coverage described in Part 6 of Title I of ERISA. 47 SECTION 6.12. Environmental Warranties. Except as set forth in ------------------------ Item 6.12 ("Environmental Matters") of the Disclosure Schedule: - --------- (a) all facilities and property (including underlying groundwater) owned or leased by the Borrower or any of its Subsidiaries have been, and continue to be, owned or leased by the Borrower and its Subsidiaries in material compliance with all Environmental Laws; (b) there have been no past, and there are no pending or threatened (i) claims, complaints, notices or requests for information received by the Borrower or any of its Subsidiaries with respect to any alleged violation of any Environmental Law that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect, or (ii) complaints, notices or inquiries to the Borrower or any of its Subsidiaries regarding potential material liability under any Environmental Law that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect; (c) there have been no Releases of Hazardous Materials at, on or under any property now or previously owned or leased by the Borrower or any of its Subsidiaries that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect; (d) the Borrower and its Subsidiaries have been issued and are in material compliance with all permits, certificates, approvals, licenses and other authorizations relating to environmental matters and necessary or desirable for their businesses; (e) no property now or previously owned or leased by the Borrower or any of its Subsidiaries is listed or proposed for listing (with respect to owned property only) on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list of sites requiring investigation or clean- up; (f) there are no underground storage tanks, active or abandoned, including petroleum storage tanks, on or under any property now or previously owned or leased by the Borrower or any of its Subsidiaries that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect; 48 (g) neither Borrower nor any Subsidiary of the Borrower has directly transported or directly arranged for the transportation of any Hazardous Material to any location which is listed or proposed for listing on the National Priorities List pursuant to CERCLA, on the CERCLIS or on any similar state list or which is the subject of federal, state or local enforcement actions or other investigations which may lead to material claims against the Borrower or such Subsidiary thereof for any remedial work, damage to natural resources or personal injury, including claims under CERCLA; (h) there are no polychlorinated biphenyls or friable asbestos present at any property now or previously owned or leased by the Borrower or any Subsidiary of the Borrower that, singly or in the aggregate, have, or may reasonably be expected to have, a Material Adverse Effect; and (i) no conditions exist at, on or under any property now or previously owned or leased by the Borrower which, with the passage of time, or the giving of notice or both, would give rise to material liability under any Environmental Law. SECTION 6.13. Regulations G, U and X. The Borrower is not ---------------------- engaged in the business of extending credit for the purpose of purchasing or carrying margin stock, and no proceeds of any Loans will be used for a purpose which violates, or would be inconsistent with, F.R.S. Board Regulation G, U or X. Terms for which meanings are provided in F.R.S. Board Regulation G, U or X or any regulations substituted therefor, as from time to time in effect, are used in this Section with such meanings. SECTION 6.14. Accuracy of Information. All factual information ----------------------- heretofore or contemporaneously furnished by or on behalf of the Borrower in writing to the Agents or any Lender for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all other such factual information hereafter furnished by or on behalf of the Borrower to the Agents or any Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified and as of the date of execution and delivery of this Agreement by the Agents and such Lender, and such information is not, or shall not be, as the case may be, incomplete by omitting to state any material fact necessary to make such information not misleading. ARTICLE VII COVENANTS SECTION 7.1. Affirmative Covenants. The Borrower agrees with --------------------- the Agents and each Lender that, until all Commitments have 49 terminated and all Obligations have been paid and performed in full, the Borrower will perform the obligations set forth in this Section ------- 7.1. - --- SECTION 7.1.1. Financial Information, Reports, Notices, etc. -------------------------------------------- The Borrower will furnish, or will cause to be furnished, to the Administrative Agent for the further distribution to each of the Lenders copies of the following financial statements, reports, notices and information: (a) as soon as available and in any event within 50 days after the end of each of the first three Fiscal Quarters of each Fiscal Year of the Borrower, consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as of the end of such Fiscal Quarter and consolidated and consolidating statements of earnings and consolidated statements of cash flow of the Borrower and its Subsidiaries for such Fiscal Quarter and for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, certified by an Authorized Officer of the Borrower; (b) as soon as available and in any event within 100 days after the end of each Fiscal Year of the Borrower, a copy of the annual audit report for such Fiscal Year for the Borrower and its Subsidiaries, including therein audited consolidated and unaudited consolidating balance sheets of the Borrower and its Subsidiaries as of the end of such Fiscal Year and audited consolidated and unaudited consolidating statements of earnings and audited consolidated statements of cash flow of the Borrower and its Subsidiaries for such Fiscal Year, in each case certified (without any Impermissible Qualification) in a manner acceptable to the Managing Agents by Coopers & Lybrand or other independent public accountants acceptable to the Managing Agents, together with a certificate from such accountants to the effect that, in making the examination necessary for the signing of such annual report by such accountants, they have not become aware of any Default or Event of Default under Article VIII that has occurred and is ------------ continuing, or, if they have become aware of such Default or Event of Default, describing such Default or Event of Default and the steps, if any, being taken to cure it; (c) as soon as available and in any event within 50 days after the end of each Fiscal Quarter and 100 days after the end of each Fiscal Year, a Compliance Certificate, executed by an Authorized Officer of the Borrower, showing (in reasonable detail and with appropriate calculations and computations in all respects satisfactory to the Managing Agents) compliance with the financial covenants set forth in Section 7.2.4; ------------- 50 (d) as soon as available and in any event within 15 days after the end of each month, a Borrowing Base Certificate as of the end of such month; (e) as soon as possible and in any event within five Business Days after the occurrence of each Default, a statement of an Authorized Officer of the Borrower setting forth details of such Default and the action which the Borrower has taken and proposes to take with respect thereto; (f) as soon as possible and in any event within five Business Days after (x) the occurrence of any material adverse development with respect to any litigation, action, proceeding, or labor controversy described in Section 6.7 or (y) the ----------- commencement of any material labor controversy, litigation, action, proceeding of the type described in Section 6.7, notice ----------- thereof and copies of all documentation relating thereto; (g) promptly after the same become publicly available, copies of all reports which the Borrower sends to any of its securityholders, and all registration statements, Forms 10K, Forms 10Q, Forms 8K and similar reports which the Borrower or any of its Subsidiaries files with the Securities and Exchange Commission, any other national securities exchange or any foreign securities commission or exchange relating to issuance and sale of securities; (h) immediately upon becoming aware of the institution of any steps by the Borrower or any other Person to terminate any Pension Plan, or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a Lien under section 302(f) of ERISA, or the taking of any action with respect to a Pension Plan which could result in the requirement that the Borrower furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan which could result in the incurrence by the Borrower of any material liability, fine or penalty, or any material increase in the contingent liability of the Borrower with respect to any post-retirement Welfare Plan benefit, notice thereof and copies of all documentation relating thereto; (i) as soon as possible and in any event within 15 days after the receipt by the Borrower or any Subsidiary thereof, copies of all final, written environmental audits prepared by, or at the request of, the Borrower or its Subsidiaries or affecting any properties of the Borrower or any of its Subsidiaries; 51 (j) as soon as available and in any event within 60 days after the commencement of each Fiscal Year, a consolidated financial forecast for the Borrower and its Subsidiaries for such Fiscal Year; and (k) such other information concerning the condition or operations, financial or otherwise, of the Borrower or any of its Subsidiaries as any Lender through the Administrative Agent may from time to time reasonably request. SECTION 7.1.2. Compliance with Laws, etc. The Borrower will, ------------------------- and will cause each of its Significant Subsidiaries to, comply in all material respects with all applicable laws, rules, regulations and orders, such compliance to include (without limitation): (a) except in the case of Fontana, the maintenance and preservation of its corporate existence and, except to the extent that such failure will have a Material Adverse Effect, qualification as a foreign corporation; and (b) the payment, before the same become delinquent, of all taxes, assessments and governmental charges imposed upon it or upon its property except to the extent being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books. SECTION 7.1.3. Maintenance of Properties. The Borrower will, ------------------------- and will cause each of its Subsidiaries to, maintain, preserve, protect and keep its properties in good repair, working order and condition, and make necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times unless the Borrower determines in good faith that the continued maintenance of any of its properties is no longer economically desirable and except for properties that may be the subject of Permitted Dispositions. SECTION 7.1.4. Insurance. The Borrower will, and will cause --------- each of its Subsidiaries to, maintain or cause to be maintained with responsible insurance companies insurance with respect to its properties and business (including business interruption insurance) against such casualties and contingencies and of such types and in such amounts as is customary in the case of similar businesses and will, upon request of the Administrative Agent, furnish to the Administrative Agent at reasonable intervals a certificate of an Authorized Officer of the Borrower setting forth the nature and extent of all insurance maintained by the Borrower and its Subsidiaries in accordance with this Section. 52 SECTION 7.1.5. Books and Records. The Borrower will, and will ----------------- cause each of its Subsidiaries to, keep books and records which accurately reflect all of its business affairs and transactions and permit the Managing Agents or any of their respective representatives, at reasonable times and intervals and upon reasonable notice, to visit all of its offices, to discuss its financial matters with its officers and independent public accountant (and the Borrower hereby authorizes such independent public accountant to discuss the Borrower's financial matters with each Managing Agent or its representatives whether or not any representative of the Borrower is present) and to examine (and, at the expense of the Borrower, photocopy extracts from) any of its books or other corporate records. The Borrower shall pay any fees of such independent public accountant incurred in connection with any Managing Agent's exercise of its rights pursuant to this Section. SECTION 7.1.6. Environmental Covenant. The Borrower will, and ---------------------- will cause each of its Subsidiaries to, (a) use and operate all of its facilities and properties in material compliance with all Environmental Laws, keep all necessary permits, approvals, certificates, licenses and other authorizations relating to environmental matters in effect (except for permits associated with properties that have been the subject of a Permitted Disposition) and remain in material compliance therewith, and handle all Hazardous Materials in material compliance with all applicable Environmental Laws; (b) immediately notify the Administrative Agent and provide copies upon receipt of all material adverse written claims, complaints, notices or inquiries relating to the condition of its facilities and properties or compliance with Environmental Laws, and shall promptly cure and have dismissed with prejudice to the satisfaction of the Administrative Agent any actions and proceedings relating to compliance with Environmental Laws, except for those being diligently contested in good faith and by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; and (c) provide such information and certifications which the Administrative Agent may reasonably request from time to time to evidence compliance with this Section 7.1.6. ------------- SECTION 7.1.7. Interest Rate Protection. The Borrower will ------------------------ arrange and continue in effect interest rate protection on terms satisfactory to the Managing Agents (i) covering not less than 50% of the Term Loans made pursuant to the initial Borrowing of Term Loans within 180 days after the making of such Term Loans and (ii) covering not less than 50% of the outstanding Term Loans as of 53 the Term Loan Commitment Termination Date within 180 days after such date; provided, however, that interest rate protection on terms -------- ------- satisfactory to the Managing Agents in total of not less than $75,000,000 (or in such other amounts as may be satisfactory to the Managing Agents and the Borrower) shall be executed within 180 days of the Term Loan Commitment Termination Date. SECTION 7.1.8. Future Significant Subsidiaries; Further ---------------------------------------- Assurances. The Borrower shall cause each of its Subsidiaries (as - ---------- soon as any such Subsidiary becomes a Significant Subsidiary) that is not already a Guarantor to execute and deliver (within 30 days after delivery of the financial statements indicating that such Subsidiary has become a Significant Subsidiary) a Guaranty and Security Agreement and to provide opinions and documentation of the type set forth in Section 5.1.1 and Section 7.1.9 as to such Guarantor. In addition, - ------------- ------------- the Borrower shall deliver to the Administrative Agent the stock (and accompanying stock powers executed in blank) of each of its Subsidiaries that is not already a Guarantor within 30 days after the delivery of the financial statements indicating that such Subsidiary has become a Significant Subsidiary, which stock shall be held subject to the terms and conditions of the Pledge Agreement. SECTION 7.1.9. Opinion of New Guarantors. The Borrower shall ------------------------- cause to be delivered within 30 days after a Subsidiary becomes a Significant Subsidiary favorable opinions of counsel confirming, among other things, that (i) such Guarantor's obligations under its Guaranty and Security Agreement are legal, valid, binding and enforceable against such Guarantor and (ii) no government approvals, consents, registrations or filings are required by such Guarantor except as have been obtained. SECTION 7.2. Negative Covenants. The Borrower agrees with the ------------------ Agents and each Lender that, until all Commitments have terminated and all Obligations have been paid and performed in full, the Borrower will perform the obligations set forth in this Section 7.2. ----------- SECTION 7.2.1. Business Activities. The Borrower will not, and ------------------- will not permit any of its Subsidiaries to, engage in any business activity, except those described in the first recital and such ------------- activities as may be incidental or related thereto. SECTION 7.2.2. Indebtedness. The Borrower will not, and will ------------ not permit any of its Subsidiaries to, create, incur, assume or suffer to exist or otherwise become or be liable in respect of any Indebtedness, other than, without duplication, the following: (a) Indebtedness in respect of the Loans and other Obligations; 54 (b) until the date of the initial Borrowing, Indebtedness identified in Item 7.2.2(b) ("Indebtedness to be ------------- Paid") of the Disclosure Schedule; (c) Indebtedness existing as of the Effective Date which is identified in Item 7.2.2(c) ("Ongoing Indebtedness") of the ------------- Disclosure Schedule; (d) unsecured Indebtedness incurred in the ordinary course of business (including open accounts extended by suppliers on normal trade terms in connection with purchases of goods and services, but excluding Indebtedness incurred through the borrowing of money or Contingent Liabilities) including, without limitation, accrued expenses, taxes payable, accrued environmental liabilities, deferred employment benefits and deferred income taxes, to the extent incurred in the ordinary course of business; (e) Indebtedness in respect of Capitalized Lease Liabilities to the extent permitted by Section 7.2.7; ------------- (f) Indebtedness in an aggregate principal amount not to exceed $30,000,000, relative to letters of credit issued for the account of the Borrower and its Subsidiaries; (g) Indebtedness of the Borrower and its Subsidiaries in an aggregate principal amount not to exceed $5,000,000 in respect of the deferred purchase price of capital assets acquired by the Borrower and its Subsidiaries exclusive of all Capital Expenditures and Investments projected to be made by the Borrower in its financial plan dated October 19, 1994 for the years ended December 31, 1994 through December 31, 1999; (h) the obligations of the Borrower and its Subsidiaries in connection with a Permitted Receivables Financing in accordance with clause (c) of Section 7.2.11; and -------------- (i) other Indebtedness of the Borrower and its Subsidiaries in an aggregate amount not to exceed $25,000,000; of which not greater than $5,000,000 may be debt secured by any assets of the Borrower or its Subsidiaries; provided, however, that no Indebtedness otherwise permitted by clauses - -------- ------- ------- (d), (e), (f), (g), (h) or (i) shall be permitted if, after giving - --- --- --- --- --- --- effect to the incurrence thereof, any Default shall have occurred and be continuing. SECTION 7.2.3. Liens. The Borrower will not, and will not ----- permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon any of its property, revenues or assets, whether now owned or hereafter acquired, except: 55 (a) Liens securing payment of the Obligations, granted pursuant to any Loan Document; (b) Liens securing payment of Indebtedness of the type permitted and described in clause (b) of Section 7.2.2; ---------- ------------- (c) Liens granted prior to the Effective Date to secure payment of Indebtedness of the type permitted and described in clause (c) of Section 7.2.2; ---------- ------------- (d) Liens granted to secure payment of Indebtedness of the type permitted and described in clause (i) of Section ---------- ------- 7.2.2; ----- (e) Liens for taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (f) Liens of carriers, warehousemen, mechanics, materialmen and landlords incurred in the ordinary course of business for sums not overdue or being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books; (g) Liens incurred in the ordinary course of business in connection with worker's compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts (other than for borrowed money) entered into in the ordinary course of business or to secure obligations on surety or appeal bonds; (h) judgment Liens in existence less than 30 days after the entry thereof or with respect to which execution has been stayed or the payment of which is covered in full (subject to a customary deductible) by insurance maintained with responsible insurance companies; and (i) Liens on the Borrower's shares of Comsigua and Cliffs & Associates in favor of those entities or the lenders to such parties and securing such parties' obligations to those entities or such lender. 56 SECTION 7.2.4. Financial Condition. The Borrower will not ------------------- permit to occur any of the events set forth below: (a) Its Consolidated Tangible Net Worth at any time to be less than (i) $225,000,000 plus (ii) 50% of Net Income ---- (without giving effect to any losses) for each Fiscal Quarter beginning on or after January 1, 1995 plus (iii) 100% of the ---- net proceeds from any equity offering by the Borrower or any of its Subsidiaries after the Effective Date. (b) Its Interest Coverage Ratio, tested on a rolling four quarter basis, to be less than the specified ratio as of the end of any of the following Fiscal Quarters: Fiscal Quarter Minimum Interest Coverage Ratio -------------- ------------------------------- December 31, 1994 2.25 to 1.0 March 31, 1995 2.25 to 1.0 June 30, 1995 2.25 to 1.0 September 30, 1995 2.25 to 1.0 December 31, 1995 2.25 to 1.0 March 31, 1996 2.0 to 1.0 June 30, 1996 2.0 to 1.0 September 30, 1996 2.0 to 1.0 December 31, 1996 2.0 to 1.0 March 31, 1997 2.25 to 1.0 June 30, 1997 2.50 to 1.0 September 30, 1997 2.75 to 1.0 December 31, 1997 3.0 to 1.0 March 31, 1998 3.0 to 1.0 June 30, 1998 3.25 to 1.0 September 30, 1998 3.25 to 1.0 December 31, 1998 3.5 to 1.0 March 31, 1999 3.5 to 1.0 June 30, 1999 3.75 to 1.0 September 30, 1999 3.75 to 1.0 December 31, 1999 4.0 to 1.0 (c) Its Current Ratio at any time to be less than the specified ratio in any of the following Fiscal Quarters: Fiscal Quarter Minimum Current Ratio -------------- --------------------- December 31, 1994 1.5 to 1.0 March 31, 1995 1.5 to 1.0 June 30, 1995 1.5 to 1.0 September 30, 1995 1.5 to 1.0 December 31, 1995 1.5 to 1.0 March 31, 1996 1.1 to 1.0 June 30, 1996 1.1 to 1.0 September 30, 1996 1.1 to 1.0 57 December 31, 1996 1.1 to 1.0 March 31, 1997 1.1 to 1.0 June 30, 1997 1.1 to 1.0 September 30, 1997 1.1 to 1.0 December 31, 1997 1.1 to 1.0 March 31, 1998 1.1 to 1.0 June 30, 1998 1.1 to 1.0 September 30, 1998 1.1 to 1.0 December 31, 1998 1.1 to 1.0 March 31, 1999 1.5 to 1.0 June 30, 1999 1.5 to 1.0 September 30, 1999 1.5 to 1.0 December 31, 1999 1.5 to 1.0 (d) Its Cash Flow Coverage Ratio, tested on a rolling four quarter basis, to be less than the specified ratio as of the end of any of the following Fiscal Quarters: Fiscal Quarter Minimum Cash Flow Coverage Ratio -------------- -------------------------------- December 31, 1994 1.5 to 1.0 March 31, 1995 1.5 to 1.0 June 30, 1995 1.5 to 1.0 September 30, 1995 1.5 to 1.0 December 31, 1995 1.5 to 1.0 March 31, 1996 1.5 to 1.0 June 30, 1996 1.5 to 1.0 September 30, 1996 1.5 to 1.0 December 31, 1996 1.5 to 1.0 March 31, 1997 1.4 to 1.0 June 30, 1997 1.3 to 1.0 September 30, 1997 1.3 to 1.0 December 31, 1997 1.25 to 1.0 March 31, 1998 1.20 to 1.0 June 30, 1998 1.15 to 1.0 September 30, 1998 1.15 to 1.0 December 31, 1998 1.1 to 1.0 thereafter 1.1 to 1.0 (e) Its Funded Debt to Capitalization Ratio at any time to exceed the specified ratio in any of the following Fiscal Quarters: Maximum Funded Debt to Quarter Ending Capitalization Ratio -------------- ---------------------- December 31, 1994 .50 to 1.0 March 31, 1995 .55 to 1.0 June 30, 1995 .55 to 1.0 September 30, 1995 .55 to 1.0 December 31, 1995 .55 to 1.0 58 March 31, 1996 .55 to 1.0 June 30, 1996 .55 to 1.0 September 30, 1996 .55 to 1.0 December 31, 1996 .55 to 1.0 March 31, 1997 .50 to 1.0 June 30, 1997 .50 to 1.0 September 30, 1997 .50 to 1.0 December 31, 1997 .50 to 1.0 March 31, 1998 .40 to 1.0 June 30, 1998 .40 to 1.0 September 30, 1998 .40 to 1.0 December 31, 1998 .40 to 1.0 March 31, 1999 .35 to 1.0 June 30, 1999 .35 to 1.0 September 30, 1999 .35 to 1.0 December 31, 1999 .35 to 1.0 SECTION 7.2.5. Investments. The Borrower will not, and will not ----------- permit any of its Subsidiaries to, make, incur, assume or suffer to exist any Investment in any other Person, except: (a) Investments identified in Item 7.2.5(a) ("Ongoing ------------- Investments") of the Disclosure Schedule; (b) Cash Equivalent Investments; (c) without duplication, Investments permitted as Indebtedness pursuant to Section 7.2.2 or Investments ------------- permitted as Capital Expenditures pursuant to Section 7.2.7; ------------- provided that no such Investments may be made in Camrose or the Camrose Partnership; (d) Investments in Camrose or the Camrose Partnership in an aggregate amount at any time not to exceed $5,000,000; (e) in the ordinary course of business, Investments by the Borrower in any of its Subsidiaries other than Camrose or the Camrose Partnership, or by any such Subsidiary in any of its Subsidiaries or any other Subsidiary other than Camrose or the Camrose Partnership, by way of contributions to capital or loans or advances; and (f) other Investments in an aggregate amount at any time not to exceed $15,000,000 minus any losses on such Investments; ----- provided, however, that - -------- ------- (g) any Investment which when made complies with the requirements of the definition of the term "Cash Equivalent --------------- Investment" may continue to be held notwithstanding that such ---------- 59 Investment if made thereafter would not comply with such requirements; (h) no Investment otherwise permitted by clause (e) or ---------- (f) shall be permitted to be made if, immediately before or --- after giving effect thereto, any Default shall have occurred and be continuing; and (i) after the Effective Date, all Investments by the Borrower in CF&I Steel, L.P. shall be made through Permitted Intercompany Loans and not by way of contributions to capital. SECTION 7.2.6. Restricted Payments, etc. On and at all times ------------------------ after the Effective Date the Borrower will not declare, pay or make any dividend or distribution (in cash, property or obligations) on any shares of any class of capital stock (now or hereafter outstanding) of the Borrower or on any warrants, options or other rights with respect to any shares of any class of capital stock (now or hereafter outstanding) of the Borrower (other than dividends or distributions payable in its common stock or warrants to purchase its common stock or splitups or reclassifications of its stock into additional or other shares of its common stock) or apply, or permit any of its Subsidiaries to apply, any of its funds, property or assets to the purchase, redemption, sinking fund or other retirement of, or agree or permit any of its Subsidiaries to purchase or redeem, any shares of any class of capital stock (now or hereafter outstanding) of the Borrower, or warrants, options or other rights with respect to any shares of any class of capital stock (now or hereafter outstanding) of the Borrower, if either before or after giving effect to any of such actions, there shall exist a Default or an Event of Default. SECTION 7.2.7. Capital Expenditures, etc. The Borrower will ------------------------- not, and will not permit any of its Subsidiaries to, make or commit to make Capital Expenditures in any Fiscal Year, except Capital Expenditures substantially as contemplated by the Borrower's five year financial plan dated October 1994 and which do not aggregate in excess of the amount set forth below opposite such Fiscal Year: Year Maximum Capital Expenditures ---- ---------------------------- 1994 $180,000,000 1995 $187,500,000 1996 $ 86,250,000 1997 $ 65,000,000 1998 $ 30,000,000 1999 $ 25,000,000 provided, however, that - -------- ------- 60 (i) to the extent Capital Expenditures are made or committed to be made in any Fiscal Year in an amount less than the maximum amount permitted for such Fiscal Year as provided above, the Capital Expenditures which the Borrower or its Subsidiaries may make or commit to make in the next following Fiscal Year shall be increased by 100% of the amount of the permitted Capital Expenditures not so made or committed to be made in the immediately preceding Fiscal Year (the "Carry- ------ Forward Amount"); -------------- (ii) if all or a part of the Carry-Forward Amount is not used in full in the immediately succeeding Fiscal Year, up to 50% of such original Carry-Forward Amount may be carried forward to the second immediately succeeding Fiscal Year, but no further carry forward of such Carry-Forward Amount to any other succeeding Fiscal Year shall be permitted; and (iii) no portion of any Carry-Forward Amount shall be used in any Fiscal Year until the entire amount of the Capital Expenditures permitted to be made or committed to be made in such Fiscal Year as provided in the preceding clauses (a) and ----------- (b) shall have been used. --- SECTION 7.2.8. Rental Obligations. The Borrower will not, and ------------------ will not permit any of its Subsidiaries to, enter into at any time any arrangement which does not create a Capitalized Lease Liability and which involves the leasing by the Borrower or any of its Subsidiaries from any lessor of any real or personal property (or any interest therein), except arrangements which, together with all other such arrangements which shall then be in effect, will not require the payment of an aggregate amount of rentals by the Borrower and its Subsidiaries in excess of (excluding escalations resulting from a rise in the consumer price or similar index) $4,000,000 for any Fiscal Year or $15,000,000 during the full remaining term of such arrangements; provided, however, that any calculation made for purposes of this - -------- ------- Section shall exclude any amounts required to be expended for maintenance and repairs, insurance, taxes, assessments, and other similar charges. SECTION 7.2.9. Sale and Leasebacks. The Borrower will not, and ------------------- will not permit any of its Subsidiaries to, enter into any transaction by which the Borrower or any of its Subsidiaries, directly or indirectly, becomes liable as a lessee or as a guarantor or other surety with respect to any lease, whether an operating lease or a capital lease of any property (whether real or personal or mixed) whether now owned or hereafter acquired (i) which the Borrower or any of its Subsidiaries has sold or transferred or is to sell or transfer to any other Person, or (ii) which the Borrower or any of its Subsidiaries intends to use for substantially the same purpose as any other property which has been 61 or is to be sold or transferred by the Borrower or any such Subsidiary to any person in connection with such lease. SECTION 7.2.10. Consolidation, Merger, etc. The Borrower will -------------------------- not, and will not permit any of its Subsidiaries to, liquidate or dissolve, consolidate with, or merge into or with, any other corporation, or purchase or otherwise acquire all or substantially all of the assets of any Person (or of any division thereof) except (a) the Borrower or any Subsidiary may make Permitted Dispositions; (b) any Subsidiary may liquidate or dissolve voluntarily into, and may merge with and into, the Borrower or any other Subsidiary, and the assets or stock of any Subsidiary may be purchased or otherwise acquired by the Borrower or any other Subsidiary; and (c) so long as no Default has occurred and is continuing or would occur after giving effect thereto, the Borrower or any of its Subsidiaries may purchase all or substantially all of the assets of any Person, or acquire such Person by merger, if permitted (without duplication) by Section 7.2.7 to be made ------------- as a Capital Expenditure in connection with alternative metalics ventures contemplated by the Borrower's five year financial plan dated October 1994 or if permitted (without duplication) by Section 7.2.5(f). ---------------- SECTION 7.2.11. Asset Dispositions, etc. The Borrower will not, ----------------------- and will not permit any of its Subsidiaries to, sell, transfer, lease, contribute or otherwise convey, or grant options, warrants or other rights with respect to, any or all of its assets (including the capital stock of Subsidiaries) to any Person, unless (a) such sale, transfer, lease, contribution or conveyance is a Permitted Disposition; (b) if such sale is a Restricted Disposition, the net proceeds from such sale, together with the net proceeds of all other Restricted Dispositions does not exceed (x) $10,000,000 in any Fiscal Year or (y) $40,000,000 since the Effective Date, unless (i) all net proceeds in excess of either such amount are used to prepay the Loans in accordance with Section ------- 3.1.6 and (ii) all net proceeds less than $10,000,000 in any ----- Fiscal Year or $40,000,000 since the Effective Date are used to prepay the Loans in accordance with Section 3.1.6 unless, ------------- within 180 days after the Borrower's receipt of such proceeds, such proceeds are used by the Borrower to fund Capital Expenditures; or 62 (c) so long as no Default or Event of Default shall have occurred and be continuing at the time of or after giving effect to such transaction, the Borrower and its Subsidiaries may sell (or finance) Accounts as part of a Permitted Receivables Financing on terms satisfactory to the Managing Agents, provided that the Net Receivables Proceeds therefrom are applied as provided in Section 3.1.8 and the Required ------------- Lenders consent to the release of their security interest in such Accounts as provided in Section 10.1. ------------ SECTION 7.2.12. Transactions with Affiliates. The Borrower will ---------------------------- not, and will not permit any of its Subsidiaries to, enter into, or cause, suffer or permit to exist any arrangement or contract with any of its other Affiliates unless such arrangement or contract is fair and equitable to the Borrower or such Subsidiary and is an arrangement or contract of the kind which would be entered into by a prudent Person in the position of the Borrower or such Subsidiary with a Person which is not one of its Affiliates. SECTION 7.2.13. Negative Pledges, Restrictive Agreements, etc. --------------------------------------------- The Borrower will not, and will not permit any of its Subsidiaries to, enter into any agreement (excluding this Agreement, any other Loan Document and any agreement governing any Indebtedness permitted either by clause (b) of Section 7.2.2 as in effect on the Effective Date or ---------- ------------- by clause (d) of Section 7.2.2 as to the assets financed with the ---------- ------------- proceeds of such Indebtedness) prohibiting (a) the creation or assumption of any Lien in favor of the Administrative Agent upon its properties, revenues or assets, whether now owned or hereafter acquired or the ability of the Borrower or any other Obligor to amend or otherwise modify this Agreement or any other Loan Document; or (b) the ability of any Subsidiary to make any payments, directly or indirectly, to the Borrower by way of dividends, advances, repayments of loans or advances, reimbursements of management and other intercompany charges, expenses and accruals or other returns on investments, or any other agreement or arrangement which restricts the ability of any such Subsidiary to make any payment, directly or indirectly, to the Borrower. ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1. Listing of Events of Default. Each of the ---------------------------- following events or occurrences described in this Section 8.1 shall ----------- 63 constitute an "Event of Default" (unless waived pursuant to the ---------------- provisions of Section 10.1). ------------ SECTION 8.1.1. Non-Payment of Obligations. The Borrower shall -------------------------- default in the payment or mandatory prepayment when due of any principal of or interest on any Loan, or the Borrower shall default (and such default shall continue unremedied for a period of five days) in the payment when due of any commitment fee or of any other Obligation. SECTION 8.1.2. Breach of Warranty. Any representation or ------------------ warranty of the Borrower or any other Obligor made or deemed to be made hereunder or in any other Loan Document executed by it or any other writing or certificate furnished by or on behalf of the Borrower or any other Obligor to any Agent or any Lender for the purposes of or in connection with this Agreement or any such other Loan Document (including any certificates delivered pursuant to Article V) is or --------- shall be incorrect when made in any material respect. SECTION 8.1.3. Non-Performance of Certain Covenants and ---------------------------------------- Obligations. The Borrower shall default in the due performance and - ----------- observance of any of its obligations under Section 7.2. ----------- SECTION 8.1.4. Non-Performance of Other Covenants and -------------------------------------- Obligations. Any Obligor shall default in the due performance and - ----------- observance of any other agreement contained herein or in any other Loan Document executed by it, and such default shall continue unremedied for a period of 30 days after notice thereof shall have been given to the Borrower by the Administrative Agent or any Lender. SECTION 8.1.5. Default on Other Indebtedness. A default shall ----------------------------- occur in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any Indebtedness (other than Indebtedness described in Section 8.1.1) of the Borrower ------------- or any of its Subsidiaries having a principal amount, individually or in the aggregate, in excess of $5,000,000, or a default shall occur in the performance or observance of any obligation or condition with respect to such Indebtedness if the effect of such default is to accelerate the maturity of any such Indebtedness or such default shall continue unremedied for any applicable period of time sufficient to permit the holder or holders of such Indebtedness, or any trustee or agent for such holders, to cause such Indebtedness to become due and payable prior to its expressed maturity. SECTION 8.1.6. Judgments. Any judgment or order for the payment --------- of money in excess of $5,000,000 shall be rendered against the Borrower or any of its Subsidiaries and either 64 (a) enforcement proceedings shall have been commenced by any creditor upon such judgment or order; or (b) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect. SECTION 8.1.7. Pension Plans. Any of the following events shall ------------- occur with respect to any Pension Plan (a) the institution of any steps by the Borrower, any member of its Controlled Group or any other Person to terminate a Pension Plan if, as a result of such termination, the Borrower or any such member could be required to make a contribution to such Pension Plan, or could reasonably expect to incur a liability or obligation to such Pension Plan, in excess of $5,000,000; or (b) a contribution failure occurs with respect to any Pension Plan sufficient to give rise to a Lien under section 302(f) of ERISA. SECTION 8.1.8. Control of the Borrower. Any Change in Control ----------------------- shall occur. SECTION 8.1.9. Bankruptcy, Insolvency, etc. The Borrower, any --------------------------- of its Subsidiaries or any Material Partnership shall (a) become insolvent or generally fail to pay, or admit in writing its inability or unwillingness to pay, debts as they become due; (b) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower, any of its Subsidiaries or any Material Partnership or any property of any thereof, or make a general assignment for the benefit of creditors; (c) in the absence of such application, consent or acquiescence, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Borrower, any of its Subsidiaries or any Material Partnership or for a substantial part of the property of any thereof, and such trustee, receiver, sequestrator or other custodian shall not be discharged within 60 days, provided that the Borrower, each Subsidiary and each Material Partnership hereby expressly authorizes the Administrative Agent and each Lender to appear in any court conducting any relevant proceeding during such 60-day period to preserve, protect and defend their rights under the Loan Documents; 65 (d) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Borrower, any of its Subsidiaries or any Material Partnership, and, if any such case or proceeding is not commenced by the Borrower, such Subsidiary or such Material Partnership, such case or proceeding shall be consented to or acquiesced in by the Borrower, such Subsidiary or such Material Partnership or shall result in the entry of an order for relief or shall remain for 60 days undismissed, provided that the Borrower, each Subsidiary and each Material Partnership hereby expressly authorizes the Administrative Agent and each Lender to appear in any court conducting any such case or proceeding during such 60-day period to preserve, protect and defend their rights under the Loan Documents; or (e) take any corporate action authorizing, or in furtherance of, any of the foregoing. SECTION 8.1.10. Impairment of Security, etc. Any Loan Document, --------------------------- or any Lien granted thereunder, shall (except in accordance with its terms), in whole or in part, terminate, cease to be effective or cease to be the legally valid, binding and enforceable obligation of any Obligor party thereto; the Borrower, any other Obligor or any other party shall, directly or indirectly, contest in any manner such effectiveness, validity, binding nature or enforceability; or any Lien securing any Obligation shall, in whole or in part, cease to be a perfected first priority Lien. SECTION 8.1.11. Environmental Matters. Any claims shall be made --------------------- under any Environmental Laws that, singly or in the aggregate, have, or may reasonably be expected to have, upon the final resolution thereof a Material Adverse Effect, net of any reserves. SECTION 8.2. Action if Bankruptcy. If any Event of Default -------------------- described in clauses (a) through (d) of Section 8.1.9 shall occur, the ----------- --- ------------- Commitments (if not theretofore terminated) shall automatically terminate and the outstanding principal amount of all outstanding Loans and all other Obligations shall automatically be and become immediately due and payable, without notice or demand. SECTION 8.3. Action if Other Event of Default. If any Event of -------------------------------- Default (other than any Event of Default described in clauses (a) ----------- through (d) of Section 8.1.9 shall occur for any reason, whether --- ------------- voluntary or involuntary, and be continuing, the Administrative Agent, upon the direction of the Required Lenders, shall by notice to the Borrower declare all or any portion of the outstanding principal amount of the Loans and other Obligations to be due and payable and/or the Commitments (if not theretofore terminated) to be terminated, whereupon the full unpaid amount of 66 such Loans and other Obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand or presentment, and/or, as the case may be, the Commitments shall terminate. ARTICLE IX THE AGENTS SECTION 9.1. Actions. Each Lender hereby appoints First ------- Interstate as its Administrative Agent under and for purposes of this Agreement, the Notes and each other Loan Document; each Lender hereby appoints Scotiabank as the Syndication Agent for the purposes of syndicating the credit facilities provided hereunder; and each Lender hereby appoints First Interstate and Scotiabank as its Managing Agents under and for purposes of this Agreement. Each Lender authorizes the Administrative Agent to act on behalf of such Lender under this Agreement, the Notes and each other Loan Document and, in the absence of other written instructions from the Required Lenders received from time to time by the Administrative Agent (with respect to which the Administrative Agent agrees that it will comply, except as otherwise provided in this Section or as otherwise advised by counsel), to exercise such powers hereunder and thereunder as are specifically delegated to or required of the Administrative Agent by the terms hereof and thereof, together with such powers as may be reasonably incidental thereto. Notwith-standing any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agents shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agents have or be deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agents. Each Lender hereby indemnifies (which indemnity shall survive any termination of this Agreement) each Agent, pro rata according to such Lender's Percentage, --- ---- from and against any and all liabilities, obligations, losses, damages, claims, costs or expenses of any kind or nature whatsoever which may at any time be imposed on, incurred by, or asserted against, such Agent in any way relating to or arising out of this Agreement, the Notes and any other Loan Document, including reasonable attorneys' fees, and as to which such Agent is not reimbursed by the Borrower; provided, however, that no Lender shall be liable for the payment of - -------- ------- any portion of such liabilities, obligations, losses, damages, claims, costs or expenses which are determined by a court of competent jurisdiction in a final proceeding to have resulted solely from an Agent's gross negligence or wilful misconduct. No Agent shall be required to take any action hereunder, under the Notes or under any other Loan Document, or to prosecute or defend any suit in respect of this Agreement, the 67 Notes or any other Loan Document, unless it is indemnified hereunder to its satisfaction. If any indemnity in favor of an Agent shall be or become, in such Agent's determination, inadequate, such Agent may call for additional indemnification from the Lenders and cease to do the acts indemnified against hereunder until such additional indemnity is given. SECTION 9.2. Funding Reliance, etc. Unless the Administrative --------------------- Agent shall have been notified by telephone, confirmed in writing, by any Lender by 5:00 p.m., Portland time, on the day prior to a Borrowing that such Lender will not make available the amount which would constitute its Percentage of such Borrowing on the date specified therefor, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent and, in reliance upon such assumption, make available to the Borrower a corresponding amount. If and to the extent that such Lender shall not have made such amount available to the Administrative Agent, such Lender shall repay the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date the Administrative Agent made such amount available to the Borrower to the date such amount is repaid to the Administrative Agent, at the interest rate applicable at the time to Loans comprising such Borrowing. If a Lender shall fail to repay the Administrative Agent all amounts owing under the preceding sentence, the Borrower shall forthwith on demand repay all such amounts together with interest thereon through the date such amount is repaid to the Administrative Agent. SECTION Exculpation. Neither any Agent nor any of its ----------- respective directors, officers, employees or agents shall be liable to any Lender for any action taken or omitted to be taken by it under this Agreement or any other Loan Document, or in connection herewith or therewith, except for its own wilful misconduct or gross negligence, nor responsible for any recitals or warranties herein or therein, nor for the effectiveness, enforceability, validity or due execution of this Agreement or any other Loan Document, nor for the creation, perfection or priority of any Liens purported to be created by any of the Loan Documents, or the validity, genuineness, enforceability, existence, value or sufficiency of any collateral security, nor to make any inquiry respecting the performance by the Borrower of its obligations hereunder or under any other Loan Document. Any such inquiry which may be made by any Agent shall not obligate it to make any further inquiry or to take any action. Each Agent shall be entitled to rely upon advice of counsel concerning legal matters and upon any notice, consent, certificate, statement or writing which such Agent believes to be genuine and to have been presented by a proper Person. 68 SECTION 9.4. Successor. If any Agent shall be guilty of gross --------- negligence or willful misconduct, the Required Lenders may, upon 10 days' prior written notice to the Borrower and such Agent, remove such Agent. Any Agent may resign as such at any time upon at least 30 days' prior written notice to the Borrower and all Lenders. If any Agent at any time shall resign or be removed, the Required Lenders may appoint another Lender as a successor Agent which shall thereupon become an Agent hereunder. If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving written notice of resignation or within 10 days after the Required Lenders shall have delivered a removal notice, then the retiring or removed Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be one of the Lenders or a commercial banking institution organized under the laws of the U.S. (or any State thereof) or a U.S. branch or agency of a commercial banking institution, and having a combined capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as an Agent hereunder by a successor Agent, such successor Agent shall be entitled to receive from the retiring Agent such documents of transfer and assignment as such successor Agent may reasonably request, and shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Agreement. After any retiring Agent's resignation hereunder as an Agent, the provisions of (a) this Article IX shall inure to its benefit as to any ---------- actions taken or omitted to be taken by it while it was an Agent under this Agreement; and (b) Section 10.3 and Section 10.4 shall continue to ------------ ------------ inure to its benefit. SECTION 9.5. Loans by First Interstate and Scotiabank. First ---------------------------------------- Interstate and Scotiabank shall each have the same rights and powers with respect to (x) the Loans made by each of them or any of their Affiliates, and (y) the Notes held by each of them or any of their Affiliates as any other Lender and may exercise the same as if they were not an Agent. First Interstate and Scotiabank and their Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or Affiliate of the Borrower as if First Interstate and Scotiabank were not Agents hereunder. SECTION Credit Decisions. Each Lender acknowledges that it ---------------- has, independently of the Agents and each other Lender, and based on such Lender's review of the financial information of the Borrower, this Agreement, the other Loan Documents (the terms and provisions of which being satisfactory to such Lender) and such other documents, information and investigations as such Lender has 69 deemed appropriate, made its own credit decision to extend its Commitments. Each Lender also acknowledges that it will, independently of the Agents and each other Lender, and based on such other documents, information and investigations as it shall deem appropriate at any time, continue to make its own credit decisions as to exercising or not exercising from time to time any rights and privileges available to it under this Agreement or any other Loan Document. SECTION 9.7. Copies, etc. The Administrative Agent shall give ----------- prompt notice to each Lender of each notice or request required or permitted to be given to the Administrative Agent by the Borrower pursuant to the terms of this Agreement (unless concurrently delivered to the Lenders by the Borrower). The Administrative Agent will distribute to each Lender each document or instrument received for its account and copies of all other communications received by the Administrative Agent from the Borrower for distribution to the Lenders by the Administrative Agent in accordance with the terms of this Agreement. ARTICLE X MISCELLANEOUS PROVISIONS SECTION 10.1. Waivers, Amendments, etc. The provisions of this ------------------------ Agreement and of each other Loan Document (other than agreements relating to the Hedging Obligations which may be amended, modified or waived solely with the consent of the Borrower and Lender party thereto) may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to by the Borrower and the Required Lenders; provided, however, that no such -------- ------- amendment, modification or waiver which would: (a) modify any requirement hereunder that any particular action be taken by all the Lenders or by the Required Lenders shall be effective unless consented to by each Lender; (b) modify this Section 10.1, change the definition of ------------ "Required Lenders", increase any Commitment Amount or (except ---------------- as contemplated in connection with the termination of the Commitment of a non-consenting Lender under Section 2.1.5) the ------------- Percentage of any Lender, reduce any fees described in Article ------- III or extend the date for any such fees, change the schedule --- of reductions to the Commitments provided for in Sections 3.1.3 -------------- through and including 3.1.7, release all or substantially all ----- collateral security, release any Guarantor (except as hereinafter provided in this Section), or extend any Commitment Termination Date shall be made without the consent of each Lender and each holder of a Note; provided, -------- 70 however that the release by the Lenders of their security ------- interest in the Borrower's and Guarantor's Accounts in connection with a Permitted Receivables Financing will require the approval of only the Required Lenders; (c) extend the due date for, or reduce the amount of, any scheduled repayment or prepayment of principal of or interest on any Loan (or reduce the principal amount of or rate of interest on any Loan) shall be made without the consent of the holder of that Note evidencing such Loan; or (d) affect adversely the interests, rights or obligations of any Agent qua an Agent shall be made without consent of such Agent. Notwithstanding the foregoing, the Administrative Agent shall not release any collateral security unless it has received the prior written consent of the Required Lenders except (i) for releases in connection with the sale or transfer of collateral by an Obligor in the ordinary course of its business or (ii) as provided in the following sentence. The Lenders acknowledge and agree that unless an Event of Default shall have occurred and be continuing, upon the request of the Borrower, (i) the stock of a Subsidiary shall be released from the lien of the Pledge Agreement if such Subsidiary is no longer a Significant Subsidiary and (ii) a Subsidiary that is not a Significant Subsidiary shall be released from its obligations under any Guaranty or Security Agreement delivered by it. No failure or delay on the part of any Agent, any Lender or the holder of any Note in exercising any power or right under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Borrower in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by any Agent, any Lender or the holder of any Note under this Agreement or any other Loan Document shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 10.2. Notices. All notices and other communications ------- provided to any party hereto under this Agreement or any other Loan Document shall be in writing or by facsimile and addressed, delivered or transmitted to such party at its address, facsimile number set forth below its signature hereto or set forth in the Lender Assignment Agreement or at such other address or facsimile number as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier 71 service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when received. SECTION 10.3. Payment of Costs and Expenses. The Borrower ----------------------------- agrees to pay on demand all expenses of the Agents (including the fees and out-of-pocket expenses of counsel to the Agents and of local counsel, if any, who may be retained by counsel to the Agents) in connection with (a) the negotiation, preparation, execution and delivery of this Agreement and of each other Loan Document, including schedules and exhibits, and any amendments, waivers, consents, supplements or other modifications to this Agreement or any other Loan Document as may from time to time hereafter be required, whether or not the transactions contemplated hereby are consummated, and (b) the filing, recording, refiling or rerecording of the Pledge Agreement and the Security Agreement and/or any Uniform Commercial Code financing statements relating thereto and all amendments, supplements and modifications to any thereof and any and all other documents or instruments of further assurance required to be filed or recorded or refiled or rerecorded by the terms hereof or of the Pledge Agreement or the Security Agreement, and (c) the preparation and review of the form of any document or instrument relevant to this Agreement or any other Loan Document. The Borrower further agrees to pay, and to save the Agents and the Lenders harmless from all liability for, any stamp or other taxes which may be payable in connection with the execution or delivery of this Agreement, the borrowings hereunder, or the issuance of the Notes or any other Loan Documents. The Borrower also agrees to reimburse the Agents and each Lender upon demand for all reasonable out-of- pocket expenses (including attorneys' fees and legal expenses (including all allocated costs of any Lender's in-house counsel)) incurred by the Agents or such Lender in connection with (x) the negotiation of any restructuring or "work-out", whether or not consummated, of any Obligations and (y) the enforcement of any Obligations. SECTION 10.4. Indemnification. In consideration of the --------------- execution and delivery of this Agreement by each Lender and the extension of the Commitments, the Borrower hereby indemnifies, exonerates and holds the Agents and each Lender and each of their respective officers, directors, employees, agents and Affiliates (collectively, the "Indemnified Parties") free and harmless from and ------------------- against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection 72 therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or ----------------------- any of them as a result of, or arising out of, or relating to (a) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Loan; (b) the entering into and performance of this Agreement and any other Loan Document by any of the Indemnified Parties (including any action brought by or on behalf of the Borrower as the result of any determination by the Required Lenders pursuant to Article V not to fund any Borrowing); --------- (c) any investigation, litigation or proceeding related to any environmental cleanup, audit, compliance or other matter relating to the protection of the environment or the Release by the Borrower or any of its Subsidiaries of any Hazardous Material; or (d) the presence on or under, or the escape, seepage, leakage, spillage, discharge, emission, discharging or releases from, any real property owned or operated by the Borrower or any Subsidiary thereof of any Hazardous Material (including any losses, liabilities, damages, injuries, costs, expenses or claims asserted or arising under any Environmental Law), regardless of whether caused by, or within the control of, the Borrower or such Subsidiary, except for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the relevant Indemnified Party's gross negligence or wilful misconduct. If and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. SECTION 10.5. Survival. The obligations of the Borrower under -------- Sections 4.3, 4.4, 4.5, 4.6, 10.3 and 10.4, and the obligations of the - ------------ --- --- --- ---- ---- Lenders under Section 9.1, shall in each case survive any termination ----------- of this Agreement, the payment in full of all Obligations and the termination of all Commitments. The representations and warranties made by each Obligor in this Agreement and in each other Loan Document shall survive the execution and delivery of this Agreement and each such other Loan Document. 73 SECTION 10.6. Severability. Any provision of this Agreement or ------------ any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 10.7. Headings. The various headings of this Agreement -------- and of each other Loan Document are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or such other Loan Document or any provisions hereof or thereof. SECTION 10.8. Execution in Counterparts, Effectiveness, etc. --------------------------------------------- This Agreement may be executed by the parties hereto in several counterparts, each of which shall be executed by the Borrower and the Agents and be deemed to be an original and all of which shall constitute together but one and the same agreement. This Agreement shall become effective when counterparts hereof executed on behalf of the Borrower and each Lender (or notice thereof satisfactory to the Administrative Agent) shall have been received by the Administrative Agent and notice thereof shall have been given by the Administrative Agent to the Borrower and each Lender. SECTION 10.9. Governing Law; Entire Agreement. THIS ------------------------------- AGREEMENT, THE NOTES AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. This Agreement, the Notes and the other Loan Documents constitute the entire understanding among the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. SECTION 10.10. Successors and Assigns. Except as herein ---------------------- provided, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that: -------- ------- (a) the Borrower may not assign or transfer its rights or obligations hereunder without the prior written consent of the Administrative Agent and all Lenders; and (b) the rights of sale, assignment and transfer of the Lenders are subject to Section 10.11. ------------- SECTION 10.11. Sale and Transfer of Loans and Notes; ------------------------------------- Participations in Loans and Notes. Each Lender may assign, or sell - --------------------------------- participations in, its Loans and Commitments to one or more other Persons in accordance with this Section 10.11. ------------- 74 SECTION 10.11.1. Assignments. Any Lender, ----------- (a) with the written consents of the Borrower and the Administrative Agent (which consents shall not be unreasonably delayed or withheld and which consent, in the case of the Borrower, shall be deemed to have been given in the absence of a written notice delivered by the Borrower to the Administrative Agent, on or before the fifth Business Day after receipt by the Borrower of such Lender's request for consent, stating, in reasonable detail, the reasons why the Borrower proposes to withhold such consent) may at any time assign and delegate to one or more commercial banks or other financial institutions, and (b) with notice to the Borrower and the Administrative Agent, but without the consent of the Borrower or the Administrative Agent, may assign and delegate to any of its Affiliates or to any other Lender (each Person described in either of the foregoing clauses as being the Person to whom such assignment and delegation is to be made, being hereinafter referred to as an "Assignee Lender"), all or any fraction --------------- of such Lender's total Loans and Commitments (which assignment and delegation shall be of a constant, and not a varying, percentage of all the assigning Lender's Loans and Commitments) in a minimum aggregate amount of $10,000,000; provided, however, that after giving -------- ------- effect to such assignment, the assignor Lender's remaining aggregate Commitment shall be at least $10,000,000; and provided, further, that, -------- ------- the Borrower, each other Obligor and the Agents shall be entitled to continue to deal solely and directly with such Lender in connection with the interests so assigned and delegated to an Assignee Lender until (c) written notice of such assignment and delegation, together with payment instructions, addresses and related information with respect to such Assignee Lender, shall have been given to the Borrower and the Administrative Agent by such Lender and such Assignee Lender, (d) such Assignee Lender shall have executed and delivered to the Borrower and the Administrative Agent a Lender Assignment Agreement, accepted by the Administrative Agent, and (e) the processing fees described below shall have been paid. From and after the date that the Administrative Agent accepts such Lender Assignment Agreement, (x) the Assignee Lender thereunder shall be deemed automatically to have become a party hereto and to the extent that rights and obligations hereunder have been assigned 75 and delegated to such Assignee Lender in connection with such Lender Assignment Agreement, shall have the rights and obligations of a Lender hereunder and under the other Loan Documents, and (y) the assignor Lender, to the extent that rights and obligations hereunder have been assigned and delegated by it in connection with such Lender Assignment Agreement, shall be released from its obligations hereunder and under the other Loan Documents. Within five Business Days after its receipt of notice that the Administrative Agent has received an executed Lender Assignment Agreement, the Borrower shall execute and deliver to the Administrative Agent (for delivery to the relevant Assignee Lender) new Notes evidencing such Assignee Lender's assigned Loans and Commitments and, if the assignor Lender has retained Loans and Commitments hereunder, replacement Notes in the principal amount of the Loans and Commitments retained by the assignor Lender hereunder (such Notes to be in exchange for, but not in payment of, those Notes then held by such assignor Lender). Each such Note shall be dated the date of the predecessor Notes. The assignor Lender shall mark the predecessor Notes "exchanged" and deliver them to the Borrower. Accrued interest on that part of the predecessor Notes evidenced by the new Notes, and accrued fees, shall be paid as provided in the Lender Assignment Agreement. Accrued interest on that part of the predecessor Notes evidenced by the replacement Notes shall be paid to the assignor Lender. Accrued interest and accrued fees shall be paid at the same time or times provided in the predecessor Notes and in this Agreement. Such assignor Lender or such Assignee Lender must also pay a processing fee to the Administrative Agent upon delivery of any Lender Assignment Agreement in the amount of $2,500. Any attempted assignment and delegation not made in accordance with this Section 10.11.1 shall be null and void. In addition to the foregoing, - --------------- and notwithstanding any other provision hereof, any Lender may at any time assign any or all of its rights hereunder or its Notes to any Federal Reserve Bank. SECTION 10.11.2. Participations. Any Lender may at any time -------------- sell to one or more commercial banks or other Persons (each of such commercial banks and other Persons being herein called a "Participant") participating interests in any of the Loans, ----------- Commitments, or other interests of such Lender hereunder; provided, -------- however, that - ------- (a) no participation contemplated in this Section 10.11 ------------- shall relieve such Lender from its Commitments or its other obligations hereunder or under any other Loan Document, (b) such Lender shall remain solely responsible for the performance of its Commitments and such other obligations, (c) the Borrower and each other Obligor and the Agents shall continue to deal solely and directly with such Lender in 76 connection with such Lender's rights and obligations under this Agreement and each of the other Loan Documents, (d) no Participant, unless such Participant is an Affiliate of such Lender, or is itself a Lender, shall be entitled to require such Lender to take or refrain from taking any action hereunder or under any other Loan Document, except that such Lender may agree with any Participant that such Lender will not, without such Participant's consent, take any actions of the type described in clause (b) or (c) of Section ---------- --- ------- 10.1, and ---- (e) the Borrower shall not be required to pay any amount under Section 4.6 that is greater than the amount which it ----------- would have been required to pay had no participating interest been sold. The Borrower acknowledges and agrees that each Participant, for purposes of Sections 4.3, 4.4, 4.5, 4.6, 4.8, 4.9, 10.3 and 10.4, ------------ --- --- --- --- --- ---- ---- shall be considered a Lender. SECTION 10.12. Confidentiality. The Lenders shall hold all --------------- non-public information (which has been identified as such by the Borrower) obtained pursuant to the requirements of this Agreement in accordance with their customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure to any of their employees, examiners, Affiliates, outside auditors, counsel and other professional advisors in connection with this Agreement or as reasonably required by any bona fide transferee, participant or ---- ---- assignee or as required or requested by any governmental agency or representative thereof or pursuant to legal process; provided, -------- however, that - ------- (a) unless prohibited by applicable law or court order, each Lender shall notify the Borrower of any request by any governmental agency or representative thereof (other than any such request in connection with an examination of the financial condition of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information; (b) prior to any such disclosure pursuant to this Section 10.12, each Lender shall require any such bona fide ------------- transferee, participant and assignee receiving a disclosure of non-public information to agree in writing (i) to be bound by this Section 10.12; ------------- (ii) to require such Person to require any other Person to whom such Person discloses such non-public 77 information to be similarly bound by this Section 10.12; and (c) except as may be required by an order of a court of competent jurisdiction and to the extent set forth therein, no Lender shall be obligated or required to return any materials furnished by the Borrower or any Subsidiary. SECTION 10.13. Other Transactions. Nothing contained herein ------------------ shall preclude any Agent or any other Lender from engaging in any transaction, in addition to those contemplated by this Agreement or any other Loan Document, with the Borrower or any of its Affiliates in which the Borrower or such Affiliate is not restricted hereby from engaging with any other Person. SECTION 10.14. Forum Selection and Consent to Jurisdiction. ANY ------------------------------------------- LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENTS, THE LENDERS OR THE BORROWER SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE ADMINISTRATIVE AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY COURT OF FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. SECTION 10.15. Waiver of Jury Trial. THE AGENTS, THE LENDERS -------------------- AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION 78 WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE AGENTS, THE LENDERS OR THE BORROWER. THE BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. OREGON STEEL MILLS, INC. By: ----------------------------------- Title: ----------------------------- Address: P.O. Box 5368 Portland, Oregon 97228 Facsimile No.: (503) 240-5232 Attention: Mr. Christopher Cassard Treasurer 79 FIRST INTERSTATE BANK OF OREGON, N.A., as Administrative Agent and Managing Agent By: ------------------------------------ Title: ------------------------------ Address: 1300 S.W. Fifth Avenue, T19 Portland, Oregon 97201 Facsimile No.: (503) 220-4896 Attention: Mr. Jim Kennedy THE BANK OF NOVA SCOTIA, as Syndication Agent and Managing Agent By: ------------------------------------ Title: ------------------------------ Address: 888 S.W. Fifth Avenue Suite 750 Portland, Oregon 97204 Facsimile No.: (503) 222-5502 Attention: Mr. Errett Hummel 80 PERCENTAGE LENDERS ---------- ------- 20.00% FIRST INTERSTATE BANK OF OREGON, N.A. By: ------------------------------ Title: ----------------------- Domestic Office: 1300 S.W. Fifth Avenue, T19 Portland, Oregon 97201 Facsimile No.: (503) 220-4896 Attention: Mr. Jim Kennedy LIBOR Office: 1300 S.W. Fifth Avenue, T19 Portland, Oregon 97201 Facsimile No.: (503) 220-4896 Attention: Mr. Jim Kennedy 81 16.67% THE BANK OF NOVA SCOTIA By: ------------------------------- Title: ------------------------- Domestic Office: 888 S.W. Fifth Avenue, Suite 750 Portland, Oregon 97204 Facsimile No.: (503) 222-5502 Attention: Mr. Errett Hummel LIBOR Office: 888 S. W. Fifth Avenue Suite 750 Portland, Oregon 97204 Facsimile No.: (503) 222-5502 Attention: Mr. Errett Hummel 82 10.00% TORONTO DOMINION (TEXAS), INC. By: ------------------------------- Title: ------------------------- Domestic Office: 909 Fannin Street 17th Floor Houston, Texas 77010 Facsimile No.: (713) 951-9921 Attention: Manager, Credit Administration LIBOR Office: 909 Fannin Street 17th Floor Houston, Texas 77010 Facsimile No.: (713) 951-9921 Attention: Manager, Credit Administration 83 10.00% UNITED STATES NATIONAL BANK OF OREGON By: ------------------------------- Title: ------------------------ Office: 111 S.W. 5th Ave., T-29 Portland, OR 97204 Facsimile No.: (503) 275-5428 Attention: Paricipation Specialist LIBOR Office: 111 S.W. 5th Ave., T-29 Portland, OR 97204 Facsimile No.: (503) 275-5428 Attention: Participation Specialist 84 10.00% KEY BANK OF WASHINGTON By: ------------------------------- Title: ------------------------ Domestic Office: 1325 Fourth Avenue Seattle, Washington 98101 Facsimile No.: (206) 684-6035 Attention: John Brock LIBOR Office: 1325 Fourth Avenue Seattle, Washington 98101 Facsimile No.: (206) 689-5743 Attention: Sue Titus 85 6.67% NBD BANK, NA. By: ------------------------------- Title: ------------------------- Domestic Office: 611 Woodward Detroit, Michigan 48226 Facsimile No.: (313) 225-2649 Attention: Commercial Loans LIBOR Office: 611 Woodward Detroit, Michigan 48226 Facsimile No.: (313) 225-2649 Attention: Commercial Loans 86 6.67% THE BANK OF TOKYO, LTD., PORTLAND BRANCH By: -------------------------------- Title: -------------------------- Domestic Office: 2300 Pacwest Center 1211 S.W. Fifth Avenue Portland, Oregon 97204 Facsimile No.: (503) 227-5372 Attention: Mr. M.W. Kringlen LIBOR Office: 2300 Pacwest Center 1211 S.W. Fifth Avenue Portland, Oregon 97204 Facsimile No.: (503) 227-5372 Attention: Mr. M.W. Kringlen 87 4.17% PNC BANK, NATIONAL ASSOCIATION By: -------------------------------- Title: -------------------------- Domestic Office: 55 South Lake Avenue Suite 650 Pasadena, CA 91101 Facsimile No.: (818) 568-0653 Attention: Commercial Loan Questions LIBOR Office: 55 South Lake Avenue Suite 650 Pasadena, CA 91101 Facsimile No.: (818) 568-0653 Attention: Commercial Loan Questions 88 4.17% THE BANK OF CALIFORNIA, N.A. By: ------------------------------- Title: ------------------------- Domestic Office: 400 California Street 17th Floor San Francisco, CA 94104 Facsimile No.: (415) 765-3146 Attention: Regina Abdulgedir LIBOR Office: 400 California Street 17th Floor San Francisco, CA 94104 Facsimile No.: (415) 765-3146 Attention: Regina Abdulgedir 89 4.17% NATIONSBANK OF TEXAS, N.A. By: ------------------------------- Title: ------------------------- Domestic Office: 444 South Flower Suite 1500 Los Angeles, CA 90071 Facsimile No.: (213) 626-5815 Attention: Kay Hibbe LIBOR Office: 444 South Flower Suite 1500 Los Angeles, CA 90071 Facsimile No.: (213) 626-5815 Attention: Kay Hibbe 90 4.17% FUJI BANK, LIMITED By: ------------------------------- Title: ------------------------- Domestic Office: 601 California Street San Francisco, CA 94108 Facsimile No.: (415) 362-4613 Attention: Marketing Department LIBOR Office: 601 California Street San Francisco, CA 94108 Facsimile No.: (415) 362-4613 Attention: Marketing Department 91 3.33% BANK OF AMERICA NT & SA By: ------------------------------- Title: ------------------------- Domestic Office: 555 California Street 41st Floor San Francisco, CA 94104 Facsimile No.: (415) 362-4613 Attention: Cheryl Colombo LIBOR Office: 555 California Street 41st Floor San Francisco, CA 94104 Facsimile No.: (415) 362-4613 Attention: Cheryl Colombo 92 SCHEDULE 1 ---------- DISCLOSURE SCHEDULE Item 1.1: Permitted Dispositions - --------- ---------------------- 1 - All properties of Oregon Steel Mills - Fontana Division, Inc. 2 - Certain rolling mill and shipping assets and a reheat furnace at the Portland steelworks which are expected to be replaced by the new Combination Mill equipment as it is fabricated and installed. 3 - Certain real property not part of the core production facilities in Portland and Colorado. 4 - Certain water rights and related assets in Colorado. 5 - Certain mill machinery and related production assets of CF&I Steel, L.P. which are expected to be replaced in accordance with the capital improvement plan. 6 - Certain machinery and equipment at Napa Pipe Corporation and Camrose Pipe Company to the extent they are replaced by new assets in accordance with the capital improvement plan. Item 2 and Item 6.8: Existing Subsidiaries and Significant ------------------------------------- Subsidiaries ------------ SUBSIDIARIES OF OREGON STEEL MILLS, INC. SUBSIDIARY OWNERSHIP COMMENTS ---------- --------- ------------------ * Napa Pipe Corporation 100% 1025 Kaiser Road Napa California 94559 * Oregon Steel Mills - Fontana 100% Division, Inc. 14000 San Bernardino Avenue Fontana CA 92335 * Camrose Pipe Corporation 100% Owns 60% partnership 1000 SW Broadway #2200 interest of Camrose Portland OR 97205 Pipe Company and is a general partner * Camrose Pipe Company 60% 5302 - 39th Street Camrose Alberta T4V 2N8 CANADA * New CF&I, Inc. 90% Owns 95.2% partnership 1000 SW Broadway #2200 interest in CF&I Steel, Portland OR 97205 L.P. and is the sole general partner. 10% owned by Nippon Steel * CF&I Steel, L.P. 95.2% 4.8% owned by Pension 1612 E Abriendo Benefit Guarantee Corp. Pueblo CO 81004 Oregon Steel Mills International, 100% Inc. 1000 SW Broadway #2200 Portland OR 97205 Oregon Steel de Guayana, Inc. 100% Expected to be owner 1000 SW Broadway #2200 of stock of Cliffs Portland OR 97205 and Associates OSM Glassificationtm, Inc. 100% Owns 51% partnership 1000 SW Broadway #2200 interest in Portland OR 97205 Glassificationtm International Ltd. and is a general partner Glassificationtm 51% International, Ltd 1500 - 19th Avenue NW Issaquah WA 98027 NW Container Services, Inc. 50% 11920 N Burgard Road Portland OR 97203 Colorado & Wyoming Railway Co. 100% Owned by New 1612 E Abriendo CF&I, Inc. Pueblo CO 81004 Union Ditch & Water Company 69% Owned by New 113 W 5th Street CF&I, Inc. Florence CO 81226 * Significant subsidiaries Item 6.6: Material Developments - --------- --------------------- None Item 6.7: Litigation - --------- ---------- 1 - Samsung America, Inc. v. Napa Pipe Corporation. In 1994 Samsung ---------------------------------------------- America, Inc., a Korean trading company ("Samsung") filed a complaint in the US District Court for the Southern District of Texas against Napa Pipe Corporation ("Napa Pipe"), Ferrostaal Metals Corporation ("Ferrostaal") and John K. Holman alleging breach of an exclusive contract arrangement with Napa Pipe relating to development of a pipeline in Colombia, South America. The complaint alleges that Napa Pipe breached the contract by designating Ferrostaal as its agent rather than Samsung and also seeks recovery under the quantum meruit theory. Samsung is also suing Ferrostaal for tortious interference with a contract and unfair competition and John K. Holman for breach of fiduciary duty. The complaint alleges damages against all defendants totalling $3 million. Samsung sought a preliminary injunction prohibiting Napa from submitting any bid on the project unless it was submitted through Samsung. The injunction was denied and the court indicated that damages was an adequate remedy. A bid was submitted through Ferrostaal and the outcome of the bid proposal is pending. By informal agreement of the parties, all discovery has been held in abeyance pending the outcome of the bid proposal. The case is set to be called for trial in November 1995. The Company is unable to estimate the ultimate outcome of this matter, but such outcome would not have a material adverse effect on the consolidated financial condition of the Company. 2 - Marvin R. Clark and Janet Clark v. Raybestos-Manhattan, Inc., et ---------------------------------------------------------------- al. In 1994, a complaint was filed in San Francisco County --- Superior Court against many defendants, including the Company and Napa Pipe which alleges wrongful death resulting from asbestos exposure. The amount of damages is unspecified and the case is in the discovery phase. The plaintiff was not an employee of the Company or Napa Pipe. It is alleged that the plaintiff was indirectly exposed by a predecessor to the Napa Pipe property. The Company believes the case is without merit, and that the ultimate outcome of the litigation will not have a material adverse effect on the consolidated financial condition of the Company. 3 - See also, Item 6.12 of this Disclosure Schedule for environmental matters. 4 - In addition to the foregoing matters, the Company and its subsidiaries are party to various claims, disputes, legal actions and other proceedings involving contracts, employment and various other matters. The company believes that the outcome of such matters will not have a material adverse effect on the consolidated financial condition of the Company. Item 6.11: Employee Benefits Plans - ---------- ----------------------- Oregon Steel Mills, Inc. Pension Plan Oregon Steel Mills, Inc. Thrift Plan Oregon Steel Mills, Inc. Employee Stock Ownership Plan Oregon Steel Mills, Inc. Supplemental Retirement Plan CF&I Steel, L.P. Pension Plan CF&I Steel, L.P. Thrift Plan Camrose Pipe Company Pension Plan Item 6.12: 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 material disposal. The Portland and Pueblo Steel 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, has been disposed of at substantial expense in order to comply with applicable laws and regulations. In 1993 the Company began processing EAF dust in its Glassificationtm facility at the Portland Steel Mill. It is anticipated that the Company will be recycling 100 percent of the EAF dust produced at the Portland Steel Mill. In 1993 the Environmental Protection Agency (EPA) concluded a site assessment of the Portland Steel Mill. The review ranked the facility as a medium/low corrective action priority for identified Solid Waste Management Units. The Company intends to proceed with an internal corrective action schedule. This schedule will include making portions of the Company's property useable for future development. Cost of these corrective action improvements is estimated at $1.5 million. The Portland Steel Mill received a renewed air discharge permit in 1993 which will require additional monitoring and reporting obligations. The Company is currently conducting engineering studies to address site drainage issues and the quality of storm water runoff at the Portland Steel Mill. In addition, management of waste waters and sludges at the site are undergoing improvement and are planned capital expenditures. Historical operations have included the onsite management of solid wastes. The Company has undertaken measures to recycle and manage these wastes offsite. The property and building at which the Fontana Plate Mill is located are leased to the Company. The Fontana Plate Mill was formerly part of a larger integrated steel plant (the "Mill") operated on property (the "Mill Property") surrounding the Fontana Plate Mill. Prior to the termination of steel production at the Mill in 1983, the Mill operator produced substances that currently are defined as hazardous by federal and California regulations. 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 operator and by the EPA. The testing program carried out by the prior operator and the EPA at the Mill Property has not included sampling at the Fontana Plate Mill site. On the basis of limited testing on behalf of the Company at the Fontana Plate Mill site, the levels of hazardous substances in the subsurface soils and groundwater at the Fontana Plate Mill site appear to be within permissible limits, although there can be no assurance that this is the case. The successor to the former operator of the Mill currently is carrying out site investigations at the Mill Property that may lead to the identification of needed remedial action. The successor is taking these actions pursuant to a consent order with the State of California Department of Health Services as required by corrective action provisions of the federal Resource Conservation and Recovery Act. The lessor of the land and building at the Fontana Plate Mill has agreed to indemnify the Company for certain expenses (excluding consequential damages, but including cost of clean-up and remediation required by governmental agencies) resulting from the presence of hazardous substances at the Fontana Plate Mill site other than as a result of the actions or negligence of the Company; and the Company has agreed to indemnify such lessor for similar expenses resulting from the presence of hazardous substances at the Fontana Plate Mill site as a result of actions or negligence of the Company. Operations at the Fontana Plate Mill will be discontinued by March 1995. Therefore, the Company is implementing a closure plan to address certain environmental issues and has accrued $625,000 for that purpose. In 1983 the Company purchased an 84-acre parcel of land which was formerly a metals production facility. The prior owner's activities included the onsite management of wastes, wastewater treatment facilities and air pollution control equipment. The 84 acres included 10 acres which the Company sold in 1987. The Company is conducting a preliminary internal investigation into the environmental issues related to the remaining 74 acres. The results of this study are pending. Management is unable to determine the full magnitude of the issues at this site. Prior to the acquisition of the Napa Facility by the Company, the prior owner of the Napa Facility 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 Facility. The prior owner of the Napa Facility entered into a stipulated judgment with the County of Napa which required a site investigation of the Napa Facility 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 Facility, the Company's subsidiary, Napa Pipe Corporation, is obligated by contract to comply with the terms and requirements of the stipulated judgment. Proposed plans for investigating the soil and water conditions at the Napa Facility were submitted to local, regional and state environmental authorities in February 1988. The Company is continuing to negotiate certain terms of these proposed plans with such environmental authorities. In addition to local, regional and state environmental authorities, the EPA conducted an investigation of the Napa Facility and has taken soil and water samples at the Napa Facility. The Company's proposed plans for investigating the soil and water conditions at the Napa Facility were furnished to the EPA in March 1988. While awaiting possible further response from the EPA, the Company is proceeding with its remediation plans as described in the preceding paragraph. In April 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 Facility. The total cost of the remedial action that may be required to correct existing environmental problems at the Napa Facility, including remediation of contaminants in the soil and groundwater, depends on the eventual requirements of the relevant regulatory authorities. As of December 31, 1993, the Company has expended $6.4 million and has reserved an additional $3.1 million to cover future costs arising from environmental issues relating to the site. CF&I Steel, L.P. has accrued a reserve of $36.7 million as of December 31, 1993 for environmental remediation at the Pueblo Steel Mill site. CF&I's estimate of this environmental reserve was based on two separate remediation investigations and feasibility studies conducted by independent environmental engineering consultants. The estimated costs were based on current technologies and presently enacted laws and regulations. The reserve includes costs for RCRA (Resource Conservation and Recovery Act) facility investigation, corrective measures study, remedial action, and operation and maintenance of the remedial actions taken. CF&I has an agreement with the State of Colorado for the remediation of environmental issues. The agreement specifies a schedule for corrective action and a yearly expenditure amount. The State of Colorado anticipated that the schedule would be reflective of a straight line rate of expenditures over 30 years. The State of Colorado stated 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 owns a 60% interest in Camrose Pipe Company located in Camrose, Alberta Canada. A preliminary assessment of the property indicates the potential presence of subsurface petroleum contamination as a result of previous operations. The assessment also identifies the potential for waste waters to have impacted the site. An internal investigation is scheduled for 1995 to determine the extent of this impact, if any. Management is unable to determine the magnitude of these issues. In November 1990 the President signed into law the Clean Air Act Amendments of 1990. This law has imposed new responsibilities on many industrial sources of air emissions, including plants owned by the Company. The Company cannot determine at this time the financial impact of the new law. 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 state laws regulating air emissions. In addition, the monitoring and reporting requirements of the new law will subject all air emissions to increased regulatory scrutiny. The Company's future expenditures for installation of environmental control facilities, remediation of environmental conditions existing at its properties and other similar matters are difficult to predict. 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 and will be required to make additional expenditures, which could be significant, relating to environmental matters on an ongoing basis. Item 7.2.2(b): Indebtedness to be Paid - -------------- ----------------------- 1 - All outstanding balances under the $40 million unsecured revolving operating line from First Interstate Bank. Approximately $30 million of credit availability permitted by Section 7.2.2(f) of the Credit Agreement will be continued for support of letters of credit and other capital markets transactions. 2 - All outstanding balances under the $75 million unsecured revolving credit facility from First Interstate Bank and Bank of Nova Scotia. 3 - All outstanding balances under the $20 million uncommitted and unsecured credit line from ABN AMRO Bank. 4 - All outstanding balances under the $30 million secured revolving operating line from Bank of Nova Scotia. Item 7.2.2(c): Ongoing Indebtedness - -------------- -------------------- 1 - $18 million secured operating line of Camrose Pipe Company with Bank of Nova Scotia, plus any renewals thereof. 2 - $61 million term note payable by CF&I Steel, L.P. to a VEBA benefiting former USW members. 3 - $1.3 million capital lease obligation of CF&I Steel, L.P. Item 7.2.5(a): Ongoing Investments - -------------- ------------------- 1 - Investments in subsidiary companies, and by subsidiary companies in their subsidiaries as disclosed in the Senior Credit Facility syndication book dated October 1994 and in this Disclosure Schedule. 2 - Investments in machinery and equipment pursuant to the capital expenditure plan discussed in the Senior Credit Facility syndication book dated October 1994 and the financial projections included therein. 3 - Potential investment of approximately $15 million in Comsigua pursuant to the Comsigua Project Shareholders Agreement. 4 - Potential investment of approximately $20 million in Cliffs & Associates pursuant to the proposed Shareholder Agreement for Cliffs and Associates Iron Carbide Limited. 5 - Other potential investments in HBI, iron carbide, romelt, scrap processing or other projects for development of alternative raw materials sources substantially as contemplated in the capital improvement plan. SCHEDULE 2 ---------- REVOLVING LOAN TERM LOAN BANK COMMITMENT COMMITMENT PERCENTAGE ---- -------------- ---------- ---------- First Interstate Bank 20,000,000.00 40,000,000.00 20.0000000% of Oregon, N.A. The Bank of Nova Scotia 16,666,666.65 33,333,333.35 16.6666667% Key Bank of Washington 10,000,000.00 20,000,000.00 10.0000000% Toronto Dominion 10,000,000.00 20,000,000.00 10.0000000% (Texas), Inc. United States National 10,000,000.00 20,000,000.00 10.0000000% Bank of Oregon The Bank of Tokyo, Ltd., 6,666,666.67 13,333,333.33 6.6666667% Portland Branch NBD Bank, N.A. 6,666,666.67 13,333,333.33 6.6666667% The Bank of California, 4,166,666.67 8,333,333.33 4.1666667% N.A. PNC Bank, National 4,166,666.67 8,333,333.33 4.1666667% Association Fuji Bank, Limited 4,166,666.67 8,333,333.33 4.1666667% NationsBank of Texas, 4,166,666.67 8,333,333.33 4.1666667% N.A. Bank of America NT & SA 3,333,333.33 6,666,666.67 3.3333333% ------------ ------------- --------- Total 100,000,000 200,000,000 100% =========== =========== === LIST OF EXHIBITS ---------------- EXHIBIT A - Form of Revolving Note EXHIBIT B - Form of Term Note EXHIBIT C - Form of Swingline Note EXHIBIT D - Form of Borrowing Request EXHIBIT E - Form of Continuation/Conversion Notice EXHIBIT F - Form of Lender Assignment Agreement EXHIBIT G - Form of Guaranty EXHIBIT H - Form of Pledge Agreement EXHIBIT I - Form of Security Agreement EXHIBIT J - Form of Opinion of Counsel to the Obligors EXHIBIT K - Form of Borrowing Base Certificate EXHIBIT L - Form of Compliance Certificate EXHIBIT A REVOLVING NOTE $ December 14, 1994 ------------------- FOR VALUE RECEIVED, the undersigned, OREGON STEEL MILLS, INC., a Delaware corporation (the "Borrower"), promises to pay to the order of -------- (the "Lender") on the Revolving Loan - ----------------------- ------ Commitment Termination Date (as such term is defined in the hereinafter-described Credit Agreement) the principal sum of DOLLARS ($ ) or, if less, the aggregate - ------------------ ----------- unpaid principal amount of all Revolving Loans shown on the schedule attached hereto (and any continuation thereof) or in the records of the Lender made by the Lender pursuant to that certain Credit ------ Agreement, dated as of even date herewith (together with all - --------- amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among the Borrower, FIRST INTERSTATE BANK OF OREGON, N.A. ("First Interstate"), as ---------------- Administrative Agent, THE BANK OF NOVA SCOTIA ("Scotiabank"), as ---------- Syndication Agent, First Interstate and Scotiabank, as Managing Agents, and the various financial institutions (including the Lender) as are, or may from time to time become, parties thereto. The Borrower also promises to pay interest on the unpaid principal amount hereof from time to time outstanding from the date hereof until maturity (whether by acceleration or otherwise) and, after maturity, until paid, at the rates per annum and on the dates specified in the Credit Agreement. Payments of both principal and interest are to be made in lawful money of the United States of America in same day or immediately available funds to the account designated by the Administrative Agent pursuant to the Credit Agreement. This Note is one of the Revolving Notes referred to in, and evidences Indebtedness incurred under, the Credit Agreement, to which reference is made for a description of the security for this Note and for a statement of the terms and conditions on which the Borrower is permitted and required to make prepayments and repayments of principal of the Indebtedness evidenced by this Note and on which such Indebtedness may be declared to be immediately due and payable. Unless otherwise defined, terms used herein have the meanings provided in the Credit Agreement. All parties hereto, whether as makers, endorsers, or otherwise, severally waive presentment for payment, demand, protest and notice of dishonor. THIS NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK AND SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. OREGON STEEL MILLS, INC. By ------------------------------ Title: 2 REVOLVING LOANS AND PRINCIPAL PAYMENTS - ----------------------------------------------------------------------------------------------
Amount of Amount of Unpaid Revolving Principal Principal Loan Made Repaid Balance --------------- Interest -------------- --------------- Base LIBO Period (if Base LIBO Base LIBO Notation Date Rate Rate applicable) Rate Rate Rate Rate Total Made By - ---- ---- ---- ----------- ---- ---- ---- ---- ----- -------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- 3
EXHIBIT B TERM NOTE $ December 14, 1994 -------------------------- FOR VALUE RECEIVED, the undersigned, OREGON STEEL MILLS, INC., a Delaware corporation (the "Borrower"), promises to pay to the order of -------- (the "Lender") the principal sum of - ----------------------- ------ DOLLARS ($ ) or, if less, the - --------------------- ------------ aggregate unpaid principal amount of all Term Loans shown on the schedule attached hereto (and any continuation thereof) or in the records of the Lender made by the Lender pursuant to that certain Credit Agreement, dated as of even date herewith (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among the Borrower, ---------------- FIRST INTERSTATE BANK OF OREGON, N.A. ("First Interstate") as ---------------- Administrative Agent, THE BANK OF NOVA SCOTIA ("Scotiabank"), as ---------- Syndication Agent, First Interstate and Scotiabank, as Managing Agents, the various financial institutions (including the Lender) as are, or may from time to time become, parties thereto, payable in installments as set forth in the Credit Agreement, with a final installment (in the amount necessary to pay in full this Note) due and payable on December 31, 1999. The Borrower also promises to pay interest on the unpaid principal amount hereof from time to time outstanding from the date hereof until maturity (whether by acceleration or otherwise) and, after maturity, until paid, at the rates per annum and on the dates specified in the Credit Agreement. Payments of both principal and interest are to be made in lawful money of the United States of America in same day or immediately available funds to the account designated by the Administrative Agent pursuant to the Credit Agreement. This Note is one of the Term Notes referred to in, and evidences Indebtedness incurred under, the Credit Agreement, to which reference is made for a description of the security for this Note and for a statement of the terms and conditions on which the Borrower is permitted and required to make prepayments and repayments of principal of the Indebtedness evidenced by this Note and on which such Indebtedness maybe declared to be immediately due and payable. Unless otherwise defined, terms used herein have the meanings provided in the Credit Agreement. All parties hereto, whether as makers, endorsers, or otherwise, severally waive presentment for payment, demand, protest and notice of dishonor. THIS NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK AND SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. OREGON STEEL MILLS, INC. By --------------------------- Title: 2 TERM LOANS AND PRINCIPAL PAYMENTS - ----------------------------------------------------------------------------------------------
Amount of Amount of Unpaid Term Principal Principal Loan Made Repaid Balance --------------- Interest -------------- --------------- Base LIBO Period (if Base LIBO Base LIBO Notation Date Rate Rate applicable) Rate Rate Rate Rate Total Made By - ---- ---- ---- ----------- ---- ---- ---- ---- ----- -------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- 3
EXHIBIT C SWINGLINE NOTE $15,000,000 December 14, 1994 FOR VALUE RECEIVED, the undersigned, OREGON STEEL MILLS, INC., a Delaware corporation (the "Borrower"), promises to pay to the order of -------- FIRST INTERSTATE BANK OF OREGON, N.A., ("First Interstate") on the ---------------- Swingline Loan Commitment Termination Date (as such term is defined in the hereinafter-described Credit Agreement) the principal sum of FIFTEEN MILLION DOLLARS ($15,000,000) or, if less, the aggregate unpaid principal amount of all Swingline Loans shown on the schedule attached hereto (and any continuation thereof) or in the records of First Interstate made by First Interstate as Swingline Lender pursuant to that certain Credit Agreement, dated as of even date herewith (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among ---------------- the Borrower, First Interstate, as Administrative Agent, The Bank of Nova Scotia ("Scotiabank"), as Syndication Agent, First Interstate and ---------- Scotiabank, as Managing Agents, and the various financial institutions as are, or may from time to time become, parties thereto. The Borrower also promises to pay interest on the unpaid principal amount hereof from time to time outstanding from the date hereof until maturity (whether by acceleration or otherwise) and, after maturity, until paid, at the rates per annum and on the dates specified in the Credit Agreement. Payments of both principal and interest are to be made in lawful money of the United States of America in same day or immediately available funds to the account designated by the Administrative Agent pursuant to the Credit Agreement. This Note is the Swingline Note referred to in, and evidences Indebtedness incurred under, the Credit Agreement, to which reference is made for a description of the security for this Note and for a statement of the terms and conditions on which the Borrower is permitted and required to make prepayments and repayments of principal of the Indebtedness evidenced by this Note and on which such Indebtedness may be declared to be immediately due and payable. Unless otherwise defined, terms used herein have the meanings provided in the Credit Agreement. All parties hereto, whether as makers, endorsers, or otherwise, severally waive presentment for payment, demand, protest and notice of dishonor. THIS NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK AND SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. OREGON STEEL MILLS, INC. By ------------------------------ Title: 2 SWINGLINE LOANS AND PRINCIPAL PAYMENTS - ----------------------------------------------------------------------------------------------
Amount of Interest Amount of Unpaid Swingline Period (if Principal Principal Notation Date Loan Made applicable) Repaid Balance Total Made By - ---- --------- ----------- --------- --------- ----- -------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 3
EXHIBIT D BORROWING REQUEST First Interstate Bank of Oregon, N.A., as Administrative Agent 1300 S.W. Fifth Avenue, T19 Portland, Oregon 97201 Attention: [Name] [Title] Re: Oregon Steel Mills, Inc. ------------------------ Gentlemen and Ladies: This Borrowing Request is delivered to you pursuant to Section ------- 2.3 of the Credit Agreement, dated as of December 14, 1994 (together - --- with all amendments, if any, from time to time made thereto, the "Credit Agreement"), among Oregon Steel Mills, Inc., a Delaware ---------------- corporation (the "Borrower"), certain financial institutions, First -------- Interstate Bank of Oregon, N.A. ("First Interstate"), as ---------------- administrative agent (the "Administrative Agent"), The Bank of Nova -------------------- Scotia ("Scotiabank"), as syndication agent, and First Interstate and ---------- Scotiabank, as managing agents. Unless otherwise defined herein or the context otherwise requires, terms used herein have the meanings provided in the Credit Agreement. The Borrower hereby requests that a [Revolving Loan] [Term Loan] be made in the aggregate principal amount of $ -------------- on , 19 as a [LIBO Rate Loan having an Interest Period of - --- --- months] [Base Rate Loan]. - -------- The Borrower hereby acknowledges that, pursuant to Section 5.2.2 ------------- of the Credit Agreement, each of the delivery of this Borrowing Request and the acceptance by the Borrower of the proceeds of the Loans requested hereby constitute a representation and warranty by the Borrower that, on the date of such Loans, and before and after giving effect thereto and to the application of the proceeds therefrom, all statements set forth in Section 5.2.1 are true and correct in all ------------- material respects. The Borrower agrees that if prior to the time of the Borrowing requested hereby any matter certified to herein by it will not be true and correct at such time as if then made, it will immediately so notify the Administrative Agent. Except to the extent, if any, that prior to the time of the Borrowing requested hereby the Administrative Agent shall receive written notice to the contrary from the Borrower, each matter certified to herein shall be deemed once again to be certified as true and correct at the date of such Borrowing as if then made. Please deposit the proceeds of the Borrowing in our account number maintained with you or wire transfer --------------------------- the proceeds of the Borrowing to the accounts of the following persons at the financial institutions indicated respectively: Amount to be Person to be Paid Name, Address, etc. ------------------------------ Transferred Name Account No. of Transferee - ----------- ---- ----------- ------------------- $ ---------- ---------------- ----------- ------------------- ------------------- Attention: -------- $ ---------- ---------------- ----------- ------------------ ------------------ Attention: -------- Balance of The Borrower such proceeds ---------- ------------------ ------------------ Attention: -------- The Borrower has caused this Borrowing Request to be executed and delivered, and the certification and warranties contained herein to be made, by its duly Authorized Officer this day of ---- , 19 . - ------- --- OREGON STEEL MILLS, INC. By --------------------------- Title: 2 EXHIBIT E CONTINUATION/CONVERSION NOTICE First Interstate Bank of Oregon, N.A., as Administrative Agent 1300 S.W. Fifth Avenue, T19 Portland, Oregon 97201 Attention: [Name] [Title] Re: Oregon Steel Mills, Inc. ------------------------ Gentlemen and Ladies: This Continuation/Conversion Notice is delivered to you pursuant to Section 2.4 of the Credit Agreement, dated as of December 14, 1994 (together with all amendments, if any, from time to time made thereto, the "Credit Agreement"), among Oregon Steel Mills, Inc., a Delaware ---------------- corporation (the "Borrower"), certain financial institutions, First -------- Interstate Bank of Oregon, N.A. ("First Interstate"), as ---------------- administrative agent (the "Administrative Agent"), The Bank of Nova -------------------- Scotia ("Scotiabank"), as syndication agent, and First Interstate and ---------- Scotiabank, as managing agents. Unless otherwise defined herein or the context otherwise requires, terms used herein have the meanings provided in the Credit Agreement. The Borrower hereby requests that on , 19 , ------------ --- (1) $ of the presently outstanding ----------- principal amount of the [Term Loans] [Revolving Loans] originally made on , 19 [and $ of the ---------- --- ---------- presently outstanding principal amount of the [Term Loans] [Revolving Loans] originally made on , 19 ], ---------- --- (2) and all presently being maintained as * [Base Rate Loans] [LIBO Rate Loans], (3) be [converted into] [continued as], - ------------------------- * Select appropriate interest rate option. (4) *[LIBO Rate Loans having an Interest Period of months] [Base Rate Loans]. ------ The Borrower hereby: (a) certifies and warrants that no Default has occurred and is continuing; and (b) agrees that if prior to the time of such continuation or conversion any matter certified to herein by it will not be true and correct at such time as if then made, it will immediately so notify the Administrative Agent. Except to the extent, if any, that prior to the time of the continuation or conversion requested hereby the Administrative Agent shall receive written notice to the contrary from the Borrower, each matter certified to herein shall be deemed to be certified at the date of such continuation or conversion as if then made. The Borrower has caused this Continuation/Conversion Notice to be executed and delivered, and the certification and warranties contained herein to be made, by its Authorized Officer this day of --- , 19 . - ---------- --- OREGON STEEL MILLS, INC. By -------------------------- Title: - --------------------------------- * Insert appropriate interest rate option. EXHIBIT F LENDER ASSIGNMENT AGREEMENT To: Oregon Steel Mills, Inc. P.O. Box 5368 Portland, Oregon 97228 To: First Interstate Bank of Oregon, N.A., as Administrative Agent 1300 S.W. Fifth Avenue, T19 Portland, Oregon 97201 Re: Oregon Steel Mills, Inc. Gentlemen and Ladies: We refer to clause (d) of Section 10.11.1 of the Credit ---------- --------------- Agreement, dated as of December 14, 1994 (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), among Oregon Steel Mills, Inc., a ---------------- Delaware corporation (the "Borrower"), the various financial -------- institutions (the "Lenders") as are, or shall from time to time ------- become, parties thereto, First Interstate Bank of Oregon, N.A. ("First ----- Interstate"), as administrative agent (the "Administrative Agent"), - ---------- -------------------- The Bank of Nova Scotia ("Scotiabank"), as syndication agent and First ---------- Interstate and Scotiabank, as managing agents for the Lenders. Unless otherwise defined herein or the context otherwise requires, terms used herein have the meanings provided in the Credit Agreement. This agreement is delivered to you pursuant to clause (d) of ---------- Section 10.11.1 of the Credit Agreement and also constitutes notice to - --------------- each of you, pursuant to clause (c) of Section 10.11.1 of the Credit ---------- --------------- Agreement, of the assignment and delegation to (the --------------- "Assignee") of % of the Loans and Commitments of (the -------- --- ------------- "Assignor") outstanding under the Credit Agreement on the date hereof. -------- After giving effect to the foregoing assignment and delegation, the Assignor's and the Assignee's Percentages for the purposes of the Credit Agreement are set forth opposite such Person's name on the signature pages hereof. [Add paragraph dealing with accrued interest and fees with respect to Loans assigned.] The Assignee hereby acknowledges and confirms that it has received a copy of the Credit Agreement and the exhibits related thereto, together with copies of the documents which were required to be delivered under the Credit Agreement as a condition to the making of the Loans thereunder. The Assignee further confirms and agrees that in becoming a Lender and in making its Commitments and Loans under the Credit Agreement, such actions have and will be made without recourse to, or representation or warranty by any Agent. Except as otherwise provided in the Credit Agreement, effective as of the date of acceptance hereof by the Administrative Agent (a) the Assignee (i) shall be deemed automatically to have become a party to the Credit Agreement, have all the rights and obligations of a "Lender" under the Credit Agreement and the other Loan Documents as if it were an original signatory thereto to the extent specified in the second paragraph hereof; and (ii) agrees to be bound by the terms and conditions set forth in the Credit Agreement and the other Loan Documents as if it were an original signatory thereto; and (b) the Assignor shall be released from its obligations under the Credit Agreement and the other Loan Documents to the extent specified in the second paragraph hereof. The Assignor and the Assignee hereby agree that the [Assignor] [Assignee] will pay to the Administrative Agent the processing fee referred to in Section 10.11.1 of the Credit Agreement --------------- upon the delivery hereof. The Assignee hereby advises each of you of the following administrative details with respect to the assigned Loans and Commitments and requests the Administrative Agent to acknowledge receipt of this document: (A) Address for Notices: Institution Name: Attention: Domestic Office: Telephone: Facsimile: LIBOR Office: 2 Telephone: Facsimile: (B) Payment Instructions: This Agreement may be executed by the Assignor and Assignee in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Adjusted Percentage [ASSIGNOR] - ------------------- Term Loan Commitment and Term Loans: % -- Revolving Loan Commitment and Revolving Loans: % -- By: -------------------- Title: Percentage [ASSIGNEE] - ---------- Term Loan Commitment and Term Loans: % -- Revolving Loan Commitment and Revolving Loans: % -- By: -------------------- Title: 3 Accepted and Acknowledged this day of , 19 ----- --------- -- First Interstate Bank of Oregon, N.A., as Administrative Agent By: --------------------------- Title: Accepted and Acknowledged this day of , 19 ---- ---------- -- Oregon Steel Mills, Inc. By: --------------------------- Title: 4 EXHIBIT G GUARANTY -------- THIS GUARANTY (this "Guaranty"), dated as of December 14, -------- 1994, is made by , a [Delaware corporation] (the ------------- "Guarantor"), in favor of each of the Lender Parties (as defined below). W I T N E S S E T H: - - - - - - - - - - WHEREAS, pursuant to a Credit Agreement, dated as of December 14, 1994 (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit ------ Agreement"), among Oregon Steel Mills, Inc., a Delaware corporation - --------- (the "Borrower"), the various commercial banking institutions -------- (individually a "Lender" and collectively the "Lenders") as are, or ------ ------- may from time to time become, parties thereto, First Interstate Bank of Oregon, N.A. ("First Interstate"), as administrative agent (the ---------------- "Administrative Agent"), The Bank of Nova Scotia ("Scotiabank"), as -------------------- ---------- syndication agent (the "Syndication Agent") and First Interstate and ----------------- Scotiabank, as managing agents for the Lenders ("Managing Agents"), --------------- the Lenders have extended Commitments to make Loans to the Borrower; and WHEREAS, as a condition precedent to the making of the initial Loans under the Credit Agreement, the Guarantor is required to execute and deliver this Guaranty; WHEREAS, the Guarantor has duly authorized the execution, delivery and performance of this Guaranty; WHEREAS, it is in the best interests of the Guarantor to execute this Guaranty inasmuch as the Guarantor will derive substantial direct and indirect benefits from the Loans made from time to time to the Borrower by the Lenders pursuant to the Credit Agreement; NOW THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, and in order to induce the Lenders to make Loans (including the initial Loans) to the Borrower pursuant to the Credit Agreement, the Guarantor agrees, for the benefit of each Lender Party, as follows: ARTICLE I DEFINITIONS SECTION 1.1. Certain Terms. The following terms (whether or ------------- not underscored) when used in this Guaranty, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Administrative Agent" is defined in the first recital. -------------------- ------------- "Agent" means, as the context may require, any of the ----- Administrative Agent, the Syndication Agent or either Managing Agent. "Agents" means, collectively, the Administrative Agent, the ------ Syndication Agent and the Managing Agents. "Borrower" is defined in the first recital. -------- ------------- "Credit Agreement" is defined in the first recital. ---------------- ------------- "Guarantor" is defined in the preamble. --------- -------- "Guaranty" is defined in the preamble. -------- -------- "Lender" is defined in the first recital. ------ ------------- "Lender Party" means, as the context may require, any Lender ------------ or Agent and each of their respective successors, transferees and assigns. "Lenders" is defined in the first recital. ------- ------------- "Managing Agents" is defined in the first recital. --------------- ------------- "Syndication Agent" is defined in the first recital. ----------------- ------------- "Termination Date" means the earlier to occur of (i) the date ---------------- upon which all Obligations of the Borrower have been paid in full, all Obligations of the Guarantor hereunder shall have been paid in full and all Commitments shall have been terminated or (ii) the date upon which the Guarantor shall have ceased to be a Significant Subsidiary of the Borrower. "U.C.C." means the Uniform Commercial Code as in effect in the ------ State of New York. SECTION 1.2. Credit Agreement Definitions. Unless otherwise ---------------------------- defined herein or the context otherwise requires, terms used in 2 this Guaranty, including its preamble and recitals, have the meanings provided in the Credit Agreement. SECTION 1.3. U.C.C. Definitions. Unless otherwise defined herein or the context otherwise requires, terms for which meanings are provided in the U.C.C. are used in this Guaranty, including its preamble and recitals, with such meanings. ARTICLE II GUARANTY PROVISIONS SECTION 2.1. Guaranty. The Guarantor hereby absolutely, -------- unconditionally and irrevocably (a) guarantees the full and punctual payment when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise, of all Obligations of the Borrower, whether for principal, interest, fees, expenses or otherwise (including all such amounts which would become due but for the operation of the automatic stay under Section 362(a) of the United States Bankruptcy Code, 11 U.S.C. Section 362(a), and the operation of Sections 502(b) and 506(b) of the United States Bankruptcy Code, 11 U.S.C. Section 502(b) and Section 506(b)), and (b) indemnifies and holds harmless each Lender Party and each holder of a Note for any and all costs and expenses (including reasonable attorney's fees and expenses) incurred by such Lender Party or such holder, as the case may be, in enforcing any rights under this Guaranty. provided, however, that the Guarantor shall be liable under this - -------- ------- Guaranty for the maximum amount of such liability that can be hereby incurred without rendering this Guaranty, as it relates to the Guarantor, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount. This Guaranty constitutes a guaranty of payment when due and not of collection, and the Guarantor specifically agrees that it shall not be necessary or required that any Lender Party or any holder of any Note exercise any right, assert any claim or demand or enforce any remedy whatsoever against the Borrower or any other Obligor (or any other Person) before or as a condition to the obligations of the Guarantor hereunder. SECTION 2.2. Acceleration of Guaranty. The Guarantor agrees ------------------------ that, in the event of the dissolution or insolvency of the Borrower, any other Obligor which is a Significant Subsidiary or the Guarantor, or the inability or failure of the Borrower, any other Obligor which is a Significant Subsidiary or the Guarantor to 3 pay debts as they become due, or an assignment by the Borrower, any other Obligor which is a Significant Subsidiary or the Guarantor for the benefit of creditors, or the commencement of any case or proceeding in respect of the Borrower, any other Obligor which is a Significant Subsidiary or the Guarantor under any bankruptcy, insolvency or similar laws, and if such event shall occur at a time when any of the Obligations of the Borrower and each other Obligor may not then be due and payable, the Guarantor will pay to the Lenders forthwith the full amount which would be payable hereunder by the Borrower if all such Obligations were then due and payable. SECTION 2.3. Guaranty absolute, etc. This Guaranty shall in ----------------------- all respects be a continuing, absolute, unconditional and irrevocable guaranty of payment, and shall remain in full force and effect until the Termination Date. The Guarantor guarantees that the Obligations of the Borrower will be paid strictly in accordance with the terms of the Credit Agreement and each other Loan Document under which they arise, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of any Lender Party or any holder of any Note with respect thereto. The liability of the Guarantor under this Guaranty shall be absolute, unconditional and irrevocable irrespective of: (a) any lack of validity, legality or enforceability of the Credit Agreement, any Note or any other Loan Document; (b) the failure of any Lender Party or any holder of any Note (i) to assert any claim or demand or to enforce any right or remedy against the Borrower, any other Obligor or any other Person (including any other guarantor) under the provisions of the Credit Agreement, any Note, any other Loan Document or otherwise, or (ii) to exercise any right or remedy against any other guarantor of, or collateral securing, any Obligations of the Borrower or any other Obligor; (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations of the Borrower or any other Obligor, or any other extension, compromise or renewal of any Obligation of the Borrower or any other Obligor; (d) any reduction, limitation, impairment or termination of the Obligations of the Borrower or any other Obligor for any reason, including any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to (and the Guarantor hereby waives any right to or claim of) any defense 4 or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality, nongenuineness, irregularity, compromise, unenforceability of, or any other event or occurrence affecting, the Obligations of the Borrower, any other Obligor or otherwise; (e) any amendment to, rescission, waiver, or other modification of, or any consent to departure from, any of the terms of the Credit Agreement, any Note or any other Loan Document; (f) any addition, exchange, release, surrender or non- perfection of any collateral, or any amendment to or waiver or release or addition of, or consent to departure from, any other guaranty, held by any Lender Party or any holder of any Note securing any of the Obligations of the Borrower or any other Obligor; or (g) any other circumstance which might otherwise constitute a defense available to, or a legal or equitable discharge of, the Borrower, any other Obligor, any surety or any guarantor. SECTION 2.4. Reinstatement, etc. The Guarantor agrees that ------------------ this Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment (in whole or in part) of any of the Obligations is rescinded or must otherwise be restored by any Lender Party or any holder of any Note, upon the insolvency, bankruptcy or reorganization of the Borrower, any other Obligor or otherwise, all as though such payment had not been made. SECTION 2.5. Waiver, etc. The Guarantor hereby waives ----------- promptness, diligence, notice of acceptance and any other notice with respect to any of the Obligations of the Borrower or any other Obligor and this Guaranty and any requirement that any Agent, any other Lender Party or any holder of any Note protect, secure, perfect or insure any security interest or Lien, or any property subject thereto, or exhaust any right or take any action against the Borrower, any other Obligor or any other Person (including any other guarantor) or entity or any collateral securing the Obligations of the Borrower or any other Obligor, as the case may be. SECTION 2.6. Postponement of Subrogation, etc. The Guarantor -------------------------------- will not exercise any rights which it may acquire by way of rights of subrogation under this Guaranty, by any payment made hereunder or otherwise as a result of payment, until the prior payment, in full and in cash, of all Obligations of the Borrower. Any amount paid to the Guarantor on account of any such subrogation rights prior to the payment in full of all Obligations of the Borrower shall be held in trust for the benefit of the Lender Parties and 5 each holder of a Note and shall immediately be paid to the Administrative Agent and credited and applied against the Obligations of the Borrower, whether matured or unmatured, in accordance with the terms of the Credit Agreement; provided, however, that if -------- ------- (a) the Guarantor has made payment to the Lender Parties and each holder of a Note of all or any part of the Obligations of the Borrower, and (b) all Obligations of the Borrower have been paid in full and all Commitments have been permanently terminated, each Lender Party and each holder of a Note agrees that, at the Guarantor's request, the Administrative Agent, on behalf of the Lender Parties and the holders of the Notes, will execute and deliver to the Guarantor appropriate documents (without recourse and without representation or warranty) necessary to evidence the transfer by subrogation to the Guarantor of an interest in the Obligations of the Borrower and each other Obligor resulting from such payment by the Guarantor. In furtherance of the foregoing, for so long as any Obligations or Commitments remain outstanding, the Guarantor shall refrain from taking any action or commencing any proceeding against the Borrower or any other Obligor (or its successors or assigns, whether in connection with a bankruptcy proceeding or otherwise) to recover any amounts in the respect of payments made under this Guaranty to any Lender Party or any holder of a Note. SECTION 2.7. Successors, Transferees and Assigns; ------------------------------------ Transfers of Notes, etc. This Guaranty shall: - ----------------------- (a) be binding upon the Guarantor, and its successors and assigns; and (b) inure to the benefit of and be enforceable by any Agent and each other Lender Party. Without limiting the generality of clause (b), any Lender may assign ---------- or otherwise transfer (in whole or in part) any Note or Loan held by it to any other Person or entity, and such other Person or entity shall thereupon become vested with all rights and benefits in respect thereof granted to such Lender under any Loan Document (including this Guaranty) or otherwise, subject, however, to the provisions of Section 10.11 and Article IX of the Credit Agreement. SECTION 2.8. Termination of Guaranty. Subject to the ----------------------- 6 provisions of Section 2.4 hereof, the obligations of the Guarantor under this Guaranty shall terminate on the Termination Date. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties. The Guarantor ------------------------------ hereby represents and warrants unto each Lender Party as set forth in this Article III. ----------- SECTION 3.1.1. Organization, etc. The Guarantor is a ----------------- corporation validly organized and existing and in good standing under the laws of the State of its incorporation, is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the nature of its business requires such qualification (except where the failure to so qualify shall not have a Material Adverse Effect), and has full power and authority and holds all requisite governmental licenses, permits and other approvals to enter into and perform its Obligations under this Guaranty and each other Loan Document to which it is a party and to own and hold under lease its property and to conduct its business substantially as currently conducted by it. SECTION 3.1.2. Due Authorization, Non-Contravention, etc. ----------------------------------------- The execution, delivery and performance by the Guarantor of this Guaranty and each other Loan Document executed or to be executed by it are within the Guarantor's corporate powers, have been duly authorized by all necessary corporate action, and do not (a) contravene the Guarantor's Organic Documents; (b) contravene any contractual restriction, law or governmental regulation or court decree or order binding on or affecting the Guarantor; (c) result in, or require the creation or imposition of, any Lien on any of any Guarantor's properties, except for the Liens created pursuant to the Loan Documents. SECTION 3.1.3. Government Approval, Regulation, etc. No ------------------------------------ authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other Person is required for the due execution, delivery or performance by the Guarantor of this Guaranty or any other Loan Document to which it is a party. The Guarantor is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended, or a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of 7 a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. SECTION 3.1.4. Validity, etc. This Guaranty constitutes and ------------- each other Loan Document executed by the Guarantor will, on the due execution and delivery thereof, constitute, the legal, valid and binding obligations of the Guarantor enforceable in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and general principles of equity. SECTION 3.1.5. Accuracy of Information. All factual ----------------------- information heretofore or contemporaneously furnished by or on behalf of the Guarantor in writing to the Agents or any Lender for purposes of or in connection with this Guaranty and the Loan Documents or any transaction contemplated hereby, or thereby, is, and all other such factual information hereafter furnished by or on behalf of the Guarantor to the Agents or any Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified and as of the date of execution and delivery of this Guaranty, and such information is not, or shall not be, as the case may be, incomplete by omitting to state any material fact necessary to make such information not misleading. ARTICLE IV MISCELLANEOUS PROVISIONS SECTION 4.1. Loan Document. This Guaranty is a Loan Document ------------- executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof, including, without limitation, Article X thereof. SECTION 4.2. Binding on Successors, Transferees and Assigns; ---------------------------------------------- Assignment. In addition to, and not in limitation of, Section 2.7, - ---------- ----------- this Guaranty shall be binding upon the Guarantor and its successors and assigns and shall inure to the benefit of and be enforceable by each Lender Party and each holder of a Note and their respective successors, and assigns (to the full extent provided pursuant to Section 2.7); provided, however, that the Guarantor may not assign any - ----------- -------- ------- of its obligations hereunder without the prior written consent of all Lenders. SECTION 4.3. Amendments, etc. No amendment to or waiver of --------------- any provision of this Guaranty, nor consent to any departure by the Guarantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Agent, and then such waiver 8 or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 4.4. Notices. All notices and other communications ------- provided to the Guarantor under this Guaranty shall be in writing or by facsimile and addressed, delivered or transmitted to the Guarantor at its address or facsimile number set forth below its signature hereto or at such other address or facsimile number as may be designated by the Guarantor in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid or if properly addressed and sent by pre-paid courier service, shall be deemed given when received; any notice, if transmitted by facsimile, shall be deemed given when received. SECTION 4.5. No Waiver; Remedies. In addition to, and not in ------------------- limitation of, Section 2.3 and Section 2.5, no failure on the part of ----------- ----------- any Lender Party or any holder of a Note to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 4.6. Captions. Section captions used in this -------- Guaranty are for convenience of reference only, and shall not affect the construction of this Guaranty. SECTION 4.7. Setoff. In addition to, and not in limitation ------ of, any rights of any Lender Party or any holder of a Note under applicable law, each Lender Party and each such holder shall, upon the occurrence and during the continuance of any Default described in any of clauses (a) through (d) of Section 8.1.9 of the Credit Agreement or ----------- --- upon the occurrence and during the continuance of any Event of Default, have the right to appropriate and apply to the payment of the obligations of the Guarantor owing to it hereunder, whether or not then due, and the Guarantor hereby grants to each Lender Party and each such holder a continuing security interest in, any and all balances, credits, deposits, accounts or moneys of the Guarantor then or thereafter maintained with such Lender Party or such holder; provided, however, that any such appropriation and application shall - -------- ------- be subject to the provisions of Section 4.8 of the Credit Agreement. ----------- Each Lender agrees promptly to notify the Guarantor and the Administrative Agent after any such setoff and application made by such Lender; provided, however, that the failure to give such notice -------- ------- shall not affect the validity of such setoff and application. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff under applicable law or otherwise) which such Lender may have. 9 SECTION 4.8. Severability. Wherever possible each provision ------------ of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. SECTION 4.9. Governing Law. THIS GUARANTY SHALL BE GOVERNED ------------- BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK. FOR PURPOSES OF ANY ACTION OR PROCEEDING INVOLVING THIS GUARANTY, THE GUARANTOR HEREBY EXPRESSLY SUBMITS TO THE JURISDICTION OF ALL FEDERAL AND STATE COURTS LOCATED IN THE STATE OF NEW YORK AND CONSENTS THAT IT MAY BE SERVED WITH ANY PROCESS OR PAPER BY REGISTERED MAIL OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK SECTION 4.10. Waiver of Jury Trial. THE GUARANTOR HEREBY -------------------- KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS GUARANTY. THE GUARANTOR ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDERS ENTERING INTO THE CREDIT AGREEMENT. IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. [Name of Guarantor] By ------------------------------ Title: ------------------------ Address: ------------------------- ------------------------- Attention: ---------------------- Telecopy: ---------------------- 10 EXHIBIT H PLEDGE AGREEMENT ---------------- THIS PLEDGE AGREEMENT (this "Pledge Agreement"), dated as of ---------------- December 14, 1994, made by Oregon Steel Mills, Inc., a Delaware corporation (the "Pledgor"), in favor of First Interstate Bank of ------- Oregon, N.A. ("First Interstate"), as administrative agent (together ---------------- with any successor(s) thereto in such capacity, the "Administrative -------------- Agent") for each of the Lender Parties (as defined below). - ----- W I T N E S S E T H: - - - - - - - - - - WHEREAS, pursuant to a Credit Agreement, dated as of even date herewith (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit ------ Agreement"), among the Pledgor, the various commercial lending - --------- institutions (individually a "Lender" and collectively the "Lenders") ------ ------- as are, or may from time to time become, parties thereto, the Administrative Agent, The Bank of Nova Scotia ("Scotiabank"), as ---------- syndication agent (the "Syndication Agent") and First Interstate and ----------------- Scotiabank as the managing agents (the "Managing Agents"), the Lenders --------------- have extended Commitments to make Loans to the Pledgor; and WHEREAS, as a condition precedent to the making of the initial Loans under the Credit Agreement, the Pledgor is required to execute and deliver this Pledge Agreement; and WHEREAS, the Pledgor has duly authorized the execution, delivery and performance of this Pledge Agreement; NOW THEREFORE, for good and valuable consideration the receipt of which is hereby acknowledged, and in order to induce the Lenders to make Loans (including the initial Loans) to the Pledgor pursuant to the Credit Agreement, the Pledgor agrees, for the benefit of each Lender Party, as follows: ARTICLE I DEFINITIONS SECTION 1.1. Certain Terms. The following terms (whether or ------------- not underscored) when used in this Pledge Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): "Administrative Agent" is defined in the preamble. -------------------- -------- "Agent" means, as the context may require, any of the ----- Administrative Agent, the Syndication Agent or either Managing Agent. "Agents" means, collectively, the Administrative Agent, the ------ Syndication Agent and the Managing Agents. "Collateral" is defined in Section 2.1. ---------- ----------- "Credit Agreement" is defined in the first recital. ---------------- ------------- "Distributions" means all stock dividends, liquidating ------------- dividends, shares of stock resulting from (or in connection with the exercise of) stock splits, reclassifications, warrants, options, non- cash dividends, mergers, consolidations, and all other distributions (whether similar or dissimilar to the foregoing) on or with respect to any Pledged Shares, but shall not include Dividends. "Dividends" means cash dividends and cash distributions with --------- respect to any Pledged Shares or other Pledged Property made in the ordinary course of business and not a liquidating dividend. "Lender" is defined in the first recital. ------ ------------- "Lender Party" means, as the context may require, any Lender ------------ or the Administrative Agent and each of its respective successors, transferees and assigns. "Lenders" is defined in the first recital. ------- ------------- "Managing Agents" is defined in the preamble. --------------- -------- "Pledge Agreement" is defined in the preamble. ---------------- -------- "Pledged Note Issuer" means each Person identified in Item A ------------------- ------ of Attachment 1 hereto as the issuer of the Pledged Note identified ------------ opposite the name of such Person. "Pledged Notes" means all promissory notes of any Pledged Note ------------- Issuer in the form or substantially the form of Exhibit A hereto which --------- are delivered by the Pledgor to the Agent as Pledged Property hereunder, as such promissory notes, in accordance with Section 4.5, ----------- are amended, modified or supplemented from time to time and together with any promissory note of any Pledged Note Issuer taken in extension or renewal thereof or substitution therefor. "Pledged Property" means all Pledged Shares, Pledged Notes, ---------------- and all other property which may from time to time hereafter be 2 delivered by the Pledgor to the Administrative Agent for the purpose of pledge under this Pledge Agreement or any other Loan Document, and all proceeds of any of the foregoing. "Pledged Share Issuer" means each Person identified in Item B -------------------- of Attachment 1 hereto as the issuer of the Pledged Shares identified ------------ opposite the name of such Person. "Pledged Shares" means all shares of capital stock of any -------------- Pledged Share Issuer which are delivered by the Pledgor to the Administrative Agent as Pledged Property hereunder. "Pledgor" is defined in the preamble. ------- -------- "Obligations" is defined in Section 2.2. ----------- ----------- "Syndication Agent" is defined in the preamble. ----------------- -------- "U.C.C." means the Uniform Commercial Code as in effect in the ------ State of New York. SECTION 1.2. Credit Agreement Definitions. Unless otherwise ---------------------------- defined herein or the context otherwise requires, terms used in this Pledge Agreement, including its preamble and recitals, have the meanings provided in the Credit Agreement. SECTION 1.3. U.C.C. Definitions. Unless otherwise defined ------------------ herein or the context otherwise requires, terms for which meanings are provided in the U.C.C. are used in this Pledge Agreement, including its preamble and recitals, with such meanings. ARTICLE II PLEDGE SECTION 2.1. Grant of Security Interest. The Pledgor hereby -------------------------- pledges, hypothecates, assigns, charges, mortgages, delivers, and transfers to the Administrative Agent, for its benefit and the ratable benefit of each of the Lender Parties, and hereby grants to the Administrative Agent, for its benefit and the ratable benefit of the Lender Parties, a continuing security interest in, all of the following property (the "Collateral"): ---------- (a) all promissory notes of each Pledged Note Issuer identified in Item A of Attachment 1 hereto; ------ ------------ (b) all other Pledged Notes issued from time to time; 3 (c) all issued and outstanding shares of capital stock of each Pledged Share Issuer identified in Item B of ------ Attachment 1 hereto; ------------ (d) all other Pledged Shares issued from time to time; (e) all other Pledged Property, whether now or hereafter delivered to the Agent in connection with this Pledge Agreement; (f) all Dividends, Distributions, interest, and other payments and rights with respect to any Pledged Property; and (g) all proceeds of any of the foregoing. SECTION 2.2. Security for Obligations. This Pledge Agreement ------------------------ secures the payment in full of all Obligations now or hereafter existing under the Credit Agreement, the Notes and each other Loan Document to which the Pledgor is or may become a party, whether for principal, interest, costs, fees, expenses, or otherwise (all such obligations of the Pledgor being the "Obligations"). ----------- SECTION 2.3. Delivery of Pledged Property. All certificates ---------------------------- or instruments representing or evidencing any Collateral, including all Pledged Shares and all Pledged Notes, shall be delivered to and held by or on behalf of (and in the case of the Pledged Notes, endorsed to the order of) the Administrative Agent pursuant hereto, shall be in suitable form for transfer by delivery, and shall be accompanied by all necessary instruments of transfer or assignment, duly executed in blank. SECTION 2.4. Dividends on Pledged Shares and Payments on ------------------------------------------- Pledged Notes. In the event that any Dividend is to be paid on any - ------------- Pledged Share or any payment of principal or interest is to be made on any Pledged Note at a time when (x) no Default of the nature referred to in Section 8.1.9 of the Credit Agreement has occurred and is continuing and (y) no Event of Default has occurred and is continuing, such Dividend or payment shall be paid directly to the Pledgor. If any such Default or Event of Default has occurred and is continuing, then any such Dividend or payment shall be paid directly to the Administrative Agent. SECTION 2.5. Continuing Security Interest; Transfer of Note. ---------------------------------------------- This Pledge Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until payment in full of all Obligations and the termination of all Commitments, 4 (b) be binding upon the Pledgor and its successors, transferees and assigns, and (c) inure, together with the rights and remedies of the Administrative Agent hereunder, to the benefit of the Administrative Agent and each other Lender Party. Without limiting the foregoing clause (c), any Lender may assign or ---------- otherwise transfer (in whole or in part) any Note or Loan held by it to any other Person or entity, and such other Person or entity shall thereupon become vested with all the rights and benefits in respect thereof granted to such Lender under any Loan Document (including this Pledge Agreement) or otherwise, subject, however, to any contrary provisions in such assignment or transfer, and to the provisions of Section 10.11 and Article IX of the Credit Agreement. Upon the payment in full of all Obligations and the termination of all Commitments, the security interest granted herein shall terminate and all rights to the Collateral shall revert to the Pledgor. Upon any such termination, the Administrative Agent will, at the Pledgor's sole expense, deliver to the Pledgor, without any representations, warranties or recourse of any kind whatsoever, all certificates and instruments representing or evidencing all Pledged Shares and all Pledged Notes, together with all other Collateral held by the Administrative Agent hereunder, and execute and deliver to the Pledgor such documents as the Pledgor shall reasonably request to evidence such termination. SECTION 2.6. Termination of Pledge Agreement. This Pledge ------------------------------- Agreement shall create a continuing security interest in the Collateral and shall remain in full force and effect until payment in full of all Obligations and the termination of all Commitments. Notwithstanding the foregoing, the Pledged Shares of any Pledged Share Issuer that ceases to be a Significant Subsidiary of the Borrower shall be released from the Lien of this Pledge Agreement on the date upon which such Pledged Share Issuer ceases to be a Significant Subsidiary. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Warranties, etc. The Pledgor represents and --------------- warrants unto the Administrative Agent and each Lender Party, as at the date of each pledge and delivery hereunder (including each pledge and delivery of Pledged Shares and each pledge and delivery of a Pledged Note) by the Pledgor to the Administrative Agent of any Collateral, as set forth in this Article. 5 SECTION 3.1.1. Ownership, No Liens, etc. The Pledgor is the ------------------------ legal and beneficial owner of, and has good and marketable title to (and has full right and authority to pledge and assign) such Collateral, free and clear of all liens, security interests, options, or other charges or encumbrances, except any lien or security interest granted pursuant hereto in favor of the Administrative Agent. SECTION 3.1.2. Valid Security Interest. The delivery of such ----------------------- Collateral to the Administrative Agent is effective to create a valid, perfected, first priority security interest in such Collateral and all proceeds thereof, securing the Obligations. No filing or other action will be necessary to perfect or protect such security interest. SECTION 3.1.3. As to Pledged Shares. In the case of any -------------------- Pledged Shares constituting such Collateral, all of such Pledged Shares are duly authorized and validly issued, fully paid, and non- assessable, and, except in the case of New CF&I, Inc., constitute all of the issued and outstanding shares of capital stock of each Pledged Share Issuer. SECTION 3.1.4. As to Pledged Notes. In the case of each ------------------- Pledged Note, all of such Pledged Notes have been duly authorized, executed, endorsed, issued and delivered, and are the legal, valid and binding obligation of the issuers thereof, and are not in default. SECTION 3.1.5. Authorization, Approval, etc. No ---------------------------- authorization, approval, or other action by, and no notice to or filing with, any governmental authority, regulatory body or any other Person is required either (a) for the pledge by the Pledgor of any Collateral pursuant to this Pledge Agreement or for the execution, delivery, and performance of this Pledge Agreement by the Pledgor, or (b) for the exercise by the Administrative Agent of the voting or other rights provided for in this Pledge Agreement, or, except with respect to any Pledged Shares, as may be required in connection with a disposition of such Pledged Shares by laws affecting the offering and sale of securities generally, the remedies in respect of the Collateral pursuant to this Pledge Agreement. 6 ARTICLE IV COVENANTS SECTION 4.1. Protect Collateral; Further Assurances, etc. ------------------------------------------- The Pledgor will not sell, assign, transfer, pledge, or encumber in any other manner the Collateral (except in favor of the Administrative Agent hereunder). The Pledgor will warrant and defend the right and title herein granted unto the Administrative Agent in and to the Collateral (and all right, title, and interest represented by the Collateral) against the claims and demands of all Persons whomsoever. The Pledgor agrees that at any time, and from time to time, at the expense of the Pledgor, the Pledgor will promptly execute and deliver all further instruments, and take all further action, that may be necessary or desirable, or that the Administrative Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Administrative Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. SECTION 4.2. Stock Powers, etc. The Pledgor agrees that all ----------------- Pledged Shares (and all other shares of capital stock constituting Collateral) delivered by the Pledgor pursuant to this Pledge Agreement will be accompanied by duly executed undated blank stock powers, or other equivalent instruments of transfer acceptable to the Administrative Agent. The Pledgor will, from time to time upon the request of the Administrative Agent, promptly deliver to the Administrative Agent such stock powers, instruments, and similar documents, satisfactory in form and substance to the Administrative Agent, with respect to the Collateral as the Administrative Agent may reasonably request and will, from time to time upon the request of the Administrative Agent after the occurrence and during the continuance of any Event of Default (but not before), promptly transfer any Pledged Shares or other shares of common stock constituting Collateral into the name of any nominee designated by the Administrative Agent. SECTION 4.3. Continuous Pledge. Subject to Section 2.4, the ----------------- Pledgor will, at all times, keep pledged to the Administrative Agent pursuant hereto all Pledged Shares and all other shares of capital stock constituting Collateral, all Dividends and Distributions with respect thereto, all Pledged Notes, all interest, principal and other proceeds received by the Agent with respect to the Pledged Notes, and all other Collateral and other securities, instruments, proceeds, and rights from time to time received by or distributable to the Pledgor in respect of any Collateral. SECTION 4.4. Voting Rights; Dividends, etc. The Pledgor ----------------------------- agrees: 7 (a) after any Default of the nature referred to in Section 8.1.9 of the Credit Agreement or an Event of Default shall have occurred and be continuing, promptly upon receipt thereof by the Pledgor and without any request therefor by the Administrative Agent, to deliver (properly endorsed where required hereby or requested by the Administrative Agent) to the Administrative Agent all Dividends, Distributions, all interest, all principal, all other cash payments, and all proceeds of the Collateral, all of which shall be held by the Administrative Agent as additional Collateral for use in accordance with Section 6.3; and ----------- (b) after any Event of Default shall have occurred and be continuing and the Administrative Agent has notified the Pledgor of the Administrative Agent's intention to exercise its voting power under this Section 4.4(b) -------------- (i) the Administrative Agent may exercise (to the exclusion of the Pledgor) the voting power and all other incidental rights of ownership with respect to any Pledged Shares or other shares of capital stock constituting Collateral and the Pledgor hereby grants the Administrative Agent an irrevocable proxy, exercisable under such circumstances, to vote the Pledged Shares and such other Collateral; and (ii) promptly to deliver to the Administrative Agent such additional proxies and other documents as may be necessary to allow the Administrative Agent to exercise such voting power. All Dividends, Distributions, interest, principal, cash payments, and proceeds which may at any time and from time to time be held by the Pledgor but which the Pledgor is then obligated to deliver to the Administrative Agent, shall, until delivery to the Administrative Agent, be held by the Pledgor separate and apart from its other property in trust for the Administrative Agent. The Administrative Agent agrees that unless an Event of Default shall have occurred and be continuing and the Administrative Agent shall have given the notice referred to in Section 4.4(b), the Pledgor shall have the exclusive -------------- voting power with respect to any shares of capital stock (including any of the Pledged Shares) constituting Collateral and the Administrative Agent shall, upon the written request of the Pledgor, promptly deliver such proxies and other documents, if any, as shall be reasonably requested by the Pledgor which are necessary to allow the Pledgor to exercise voting power with respect to any such share of capital stock (including any of the Pledged Shares) constituting Collateral; provided, however, that no vote shall be cast, or consent, -------- ------- waiver, or ratification given, or action taken by the Pledgor that would impair any Collateral or be inconsistent with or violate any provision of the 8 Credit Agreement or any other Loan Document (including this Pledge Agreement). SECTION 4.5. Additional Undertakings. The Pledgor will not, ----------------------- without the prior written consent of the Administrative Agent: (a) enter into any agreement amending, supplementing, or waiving any provision of any Pledged Note (including any underlying instrument pursuant to which such Pledged Note is issued) or compromising or releasing or extending the time for payment of any obligation of the maker thereof; or (b) take or omit to take any action the taking or the omission of which would result in any impairment or alteration of any obligation of the maker of any Pledged Note or other instrument constituting Collateral. ARTICLE V THE ADMINISTRATIVE AGENT SECTION 5.1. Administrative Agent Appointed Attorney-in-Fact. ----------------------------------------------- The Pledgor hereby irrevocably appoints the Administrative Agent the Pledgor's attorney-in-fact, with full authority in the place and stead of the Pledgor and in the name of the Pledgor or otherwise, from time to time in the Administrative Agent's discretion, to take any action and to execute any instrument which the Administrative Agent may deem necessary or advisable to accomplish the purposes of this Pledge Agreement, including without limitation, after (but not before) the occurrence and continuance of an Event of Default: (a) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (b) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above; and ---------- (c) to file any claims or take any action or institute any proceedings which the Administrative Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Administrative Agent with respect to any of the Collateral. The Pledgor hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section is irrevocable and coupled with an interest and shall continue in effect until payment 9 in full of all Obligations and the termination of all Commitments. Upon payment in full of all Obligations and the termination of all Commitments, the power of attorney granted pursuant to this Section shall terminate. SECTION 5.2. Administrative Agent May Perform. If the -------------------------------- Pledgor fails to perform any agreement contained herein, the Administrative Agent may itself perform, or cause performance of, such agreement, and the expenses of the Administrative Agent incurred in connection therewith shall be payable by the Pledgor pursuant to Section 6.4. - ----------- SECTION 5.3. Administrative Agent Has No Duty. The powers -------------------------------- conferred on the Administrative Agent hereunder are solely to protect its interest (on behalf of the Lender Parties) in the Collateral and shall not impose any duty on it to exercise any such powers. Except for reasonable care of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Administrative Agent shall have no duty as to any Collateral or responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Pledged Property, whether or not the Administrative Agent has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. SECTION 5.4. Reasonable Care. The Administrative Agent is --------------- required to exercise reasonable care in the custody and preservation of any of the Collateral in its possession; provided, however, the -------- ------- Administrative Agent shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral, if it takes such action for that purpose as the Pledgor reasonably requests in writing at times other than upon the occurrence and during the continuance of any Event of Default, but failure of the Administrative Agent to comply with any such request at any time shall not in itself be deemed a failure to exercise reasonable care. ARTICLE VI REMEDIES SECTION 6.1. Certain Remedies. If any Event of Default shall ---------------- have occurred and be continuing: 10 (a) The Administrative Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the U.C.C. (whether or not the U.C.C. applies to the affected Collateral) and also may, with ten days' prior notice to the Pledgor, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Administrative Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Administrative Agent may deem commercially reasonable. The Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten days' prior notice to the Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Administrative Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Administrative Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) The Administrative Agent may (i) transfer all or any part of the Collateral into the name of the Administrative Agent or its nominee, with or without disclosing that such Collateral is subject to the lien and security interest hereunder, (ii) notify the parties obligated on any of the Collateral to make payment to the Administrative Agent of any amount due or to become due thereunder, (iii) enforce collection of any of the Collateral by suit or otherwise, and surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligations of any nature of any party with respect thereto, (iv) endorse any checks, drafts, or other writings in the Pledgor's name to allow collection of the Collateral, (v) take control of any proceeds of the Collateral, and (vi) execute (in the name, place and stead of the Pledgor) endorsements, assignments, stock powers and 11 other instruments of conveyance or transfer with respect to all or any of the Collateral. SECTION 6.2. Compliance with Restrictions. The Pledgor ---------------------------- agrees that in any sale of any of the Collateral whenever an Event of Default shall have occurred and be continuing, the Administrative Agent is hereby authorized to comply with any limitation or restriction in connection with such sale as it may be advised by counsel is necessary in order to avoid any violation of applicable law (including compliance with such procedures as may restrict the number of prospective bidders and purchasers, require that such prospective bidders and purchasers have certain qualifications, and restrict such prospective bidders and purchasers to persons who will represent and agree that they are purchasing for their own account for investment and not with a view to the distribution or resale of such Collateral), or in order to obtain any required approval of the sale or of the purchaser by any governmental regulatory authority or official, and the Pledgor further agrees that such compliance shall not result in such sale being considered or deemed not to have been made in a commercially reasonable manner, nor shall the Administrative Agent be liable nor accountable to the Pledgor for any discount allowed by the reason of the fact that such Collateral is sold in compliance with any such limitation or restriction. SECTION 6.3. Application of Proceeds. All cash proceeds ----------------------- received by the Administrative Agent in respect of any sale of, collection from, or other realization upon, all or any part of the Collateral may, in the discretion of the Administrative Agent, be held by the Administrative Agent as additional collateral security for, or then or at any time thereafter be applied (after payment of any amounts payable to the Administrative Agent pursuant to Section 10.3 ------------ of the Credit Agreement and Section 6.4) in whole or in part by the ----------- Administrative Agent against, all or any part of the Obligations in such order as the Administrative Agent shall elect. Any surplus of such cash or cash proceeds held by the Administrative Agent and remaining after payment in full of all the Obligations, and the termination of all Commitments, shall be paid over to the Pledgor or to whomsoever may be lawfully entitled to receive such surplus. SECTION 6.4. Indemnity and Expenses. The Pledgor hereby ---------------------- indemnifies and holds harmless the Administrative Agent from and against any and all claims, losses, and liabilities arising out of or resulting from this Pledge Agreement (including enforcement of this Pledge Agreement), except claims, losses, or liabilities resulting from the Administrative Agent's gross negligence or wilful misconduct. Upon demand, the Pledgor will pay to the Administrative Agent the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and 12 of any experts and agents, which the Administrative Agent may incur in connection with: (a) the administration of this Pledge Agreement, the Credit Agreement and each other Loan Document; (b) the custody, preservation, use, or operation of, or the sale of, collection from, or other realization upon, any of the Collateral; (c) the exercise or enforcement of any of the rights of the Administrative Agent hereunder; or (d) the failure by the Pledgor to perform or observe any of the provisions hereof. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 7.1. Loan Document. This Pledge Agreement is a Loan ------------- Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. SECTION 7.2. Amendments, etc. No amendment to or waiver of --------------- any provision of this Pledge Agreement nor consent to any departure by the Pledgor herefrom shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given. SECTION 7.3. Protection of Collateral. The Administrative ------------------------ Agent may from time to time, at its option, perform any act which the Pledgor agrees hereunder to perform and which the Pledgor shall fail to perform after being requested in writing so to perform (it being understood that no such request need be given after the occurrence and during the continuance of an Event of Default) and the Administrative Agent may from time to time take any other action which the Administrative Agent reasonably deems necessary for the maintenance, preservation or protection of any of the Collateral or of its security interest therein. SECTION 7.4. Addresses for Notices. All notices and other --------------------- communications provided for hereunder shall be in writing and, if to the Pledgor, mailed, telecopied or delivered to it at the address set forth below its signature hereto, if to the Administrative Agent, mailed, telecopied or delivered to it, 13 addressed to it at the address of the Administrative Agent specified in the Credit Agreement or, as to either party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed or telecopied, respectively, be effective when received. SECTION 7.5. Section Captions. Section captions used in this ---------------- Pledge Agreement are for convenience of reference only, and shall not affect the construction of this Pledge Agreement. SECTION 7.6. Severability. Wherever possible each provision ------------ of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Pledge Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Pledge Agreement. SECTION 7.7. Governing Law, Entire Agreement, etc. THIS ------------------------------------ PLEDGE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. THIS PLEDGE AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO. 14 IN WITNESS WHEREOF, the parties hereto have caused this Pledge Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written. OREGON STEEL MILLS, INC. By -------------------------------------- Title: Address: 1000 S.W. Broadway Suite 2200 Portland, Oregon 97205 Attention: Mr. Christopher Cassard Treasurer FIRST INTERSTATE BANK OF OREGON, N.A., as Administrative Agent (for purposes of accepting its appointment under Article V hereof) By -------------------------------------- Title: Address: 1300 S.W. Fifth Avenue, T19 Portland, Oregon 97201 Attention: Mr. James Kennedy 15 EXHIBIT A to Pledge Agreement OPTIONAL ADVANCE NOTE --------------------- On demand, or if, no demand, on December 31, 2004, ------------- ("Borrower") promises to pay in lawful money of the United States of America, to the order of Oregon Steel Mills, Inc. ("Lender") at its Portland, Oregon Corporate Office, the principal sum of -------------- Dollars ($ ), or so much thereof as shall have been ------------ advanced by Lender to Borrower and not repaid, together with interest thereon from the date of such advance. This Note is given to avoid the execution by Borrower of an individual note for each advance by Lender to Borrower. In consideration thereof, Borrower agrees that Lender's record entries of transactions pursuant to this Note, together with Lender's written advice of interest charges, shall be conclusive evidence of borrowings, payments and charges made pursuant hereto. Interest shall be payable on demand, or if no demand, on the last business day of each month, based on the daily outstanding unpaid principal balances during the preceding month. The Borrower interest rate will be the First Interstate Bank of Oregon, N.A. ("Bank") Prime Rate of interest as published and changed from time to time. Each change in said rate is to become effective on the effective date of each change announced by the Bank. Interest shall be computed on the basis of a 360-day year. Interest accrued and payable will be aggregated with the unpaid principal amount outstanding. Advances hereunder will be made in the sole and unrestricted discretion of the Lender and the refusal of the Lender to make any requested advance shall constitute a demand for payment of all sums due hereunder, including accrued and unpaid interest. In no event shall advances exceed the principal sum set forth above. Advances hereunder are for sole purpose of funding working cash requirements and capital equipment purchases of the Borrower, and advances for any other purpose shall require the written consent of the Lender. Payment of interest hereunder shall be made when due. Payment of principal and interest by Borrower will be by wire transfer to Oregon Steel Mills, Inc., First Interstate Bank, ABA 123000123, Account Number 552-000059-0. Borrower concurrently will send Lender an advice of such payments by phone or fax. Borrowings hereunder may be made by Lender at the oral or written request three days in advance by [Insert Names and Titles of Authorized Officers], who are each authorized to request Borrowings until written notice of the revocation of such authority 1 EXHIBIT A to Pledge Agreement is received by Lender. Any such Borrowings shall be conclusively presumed to have been made to or for the benefit of undersigned when made in accordance with such requests and when such amounts are deposited to the credit of Account Number of Borrower's -------------- bank, [name of address of bank], regardless of the fact that persons other than those authorized hereunder may have authority to draw against such account. Borrower shall pay upon demand any and all expenses, including reasonable attorneys' fees, incurred or paid by the holder of this Note without suit or action in attempting to collect funds due under this Note. In any suit or action instituted for the collection of any sums due hereunder, the prevailing party shall be entitled to recover such sums as the court may adjudge reasonable for its attorneys' fees, both in the trial court and any appellate court. Dated this day of , 1994. --- ------------- BORROWER: LENDER: - -------------------------------- OREGON STEEL MILLS, INC. By: By: ------------------------------ ----------------------------- Title: --------------------------- Title:-------------------------- 2 ATTACHMENT 1 to Pledge Agreement Item A. Pledged Notes ------------- Pledged Note Issuer Amount Description - ------------------- ------ ----------- Napa Pipe Corporation $50,000,000 Optional Advance Note payable to Oregon Steel Mills, Inc., dated --------------- Oregon Steel Mills - Fontana Division, Inc. $35,000,000 Optional Advance Note payable to Oregon Steel Mills, Inc., dated --------------- Camrose Pipe Corporation $30,000,000 Optional Advance Note payable to Oregon Steel Mills, Inc., dated --------------- CF&I Steel, L.P. $30,000,000 Optional Advance Note payable to Oregon Steel Mills, Inc., dated 2/11/94 CF&I Steel, L.P. $30,000,000 Optional Advance Note payable to Oregon Steel Mills, Inc., dated 5/17/94 CF&I Steel, L.P. $30,000,000 Optional Advance Note payable to Oregon Steel Mills, Inc., dated 10/20/94 CF&I Steel, L.P. $35,000,000 Optional Advance Note payable to Oregon Steel Mills, Inc., dated ---------------- OSM Glassificationtm, Inc. $5,000,000 Optional Advance Note payable to Oregon Steel Mills, Inc., dated --------------- Item B. Pledged Shares -------------- Pledged Share Issuer Common Stock - -------------------- --------------------------------- Authorized Outstanding % of Shares Shares Shares Pledged ---------- ----------- ----------- Napa Pipe Corporation 100 100 100% Oregon Steel Mills - Fontana Division, Inc. 100 100 100% Camrose Pipe Corporation 5,000 5,000 100% New CF&I, Inc. 200 200 90% 3 EXHIBIT I SECURITY AGREEMENT THIS SECURITY AGREEMENT (this "Security Agreement"), dated as of ------------------ December 14, 1994, made by Oregon Steel Mills, Inc., a Delaware corporation (the "Grantor"), in favor of First Interstate Bank of ------- Oregon, N.A. ("First Interstate"), as administrative agent (together ---------------- with any successor(s) thereto in such capacity, the "Administrative -------------- Agent") for each of the Lender Parties (as defined below). - ----- W I T N E S S E T H: - - - - - - - - - - WHEREAS, pursuant to a Credit Agreement, dated as of December 14, 1994 (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the "Credit Agreement"), ---------------- among the Grantor, the various commercial lending institutions (individually a "Lender" and collectively the "Lenders") as are, or ------ ------- may from time to time become, parties thereto, the Administrative Agent, The Bank of Nova Scotia ("Scotiabank"), as syndication agent ---------- (the "Syndication Agent") and the First Interstate and Scotiabank, as ----------------- managing agents (the "Managing Agents"), the Lenders have extended --------------- Commitments to make Loans to the Grantor; and WHEREAS, as a condition precedent to the making of the initial Loans under the Credit Agreement, the Grantor is required to execute and deliver this Security Agreement; and WHEREAS, the Grantor has duly authorized the execution, delivery and performance of this Security Agreement; NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce the Lenders to make Loans (including the initial Loans) to the Grantor pursuant to the Credit Agreement, the Grantor agrees, for the benefit of each Lender Party, as follows: ARTICLE I DEFINITIONS SECTION 1.1. Certain Terms. The following terms (whether or ------------- not underscored) when used in this Security Agreement, including its preamble and recitals, shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): 1 "Administrative Agent" is defined in the preamble. -------------------- -------- "Agent" means, as the context may require, any of the ----- Administrative Agent, the Syndication Agent or either Managing Agent. "Agents" means, collectively, the Administrative Agent, the ------ Syndication Agent and the Managing Agents. "Collateral" is defined in Section 2.1. ---------- ----------- "Collateral Account" is defined in Section 4.1.2(c). ------------------ ---------------- "Credit Agreement" is defined in the first recital. ---------------- ------------- "Grantor" is defined in the preamble. ------- -------- "Inventory" is defined in clause (a) of Section 2.1 --------- --------- ----------- "Lender" is defined in the first recital. ------ ------------- "Lender Party" means, as the context may require, any Lender ------------ or any Agent and each of their respective successors, transferees and assigns. "Lenders" is defined in the first recital. ------- "Managing Agents" is defined in the preamble. --------------- -------- "Receivables" is defined in clause (b) of Section 2.1. ----------- ---------- ----------- "Related Contracts" is defined in clause (b) of Section 2.1. ----------------- ----------- "Security Agreement" is defined in the preamble. ------------------ -------- "Syndication Agent" is defined in the preamble. ----------------- -------- "U.C.C." means the Uniform Commercial Code, as in effect in the ------ State of New York. SECTION 1.2. Credit Agreement Definitions. Unless otherwise ---------------------------- defined herein or the context otherwise requires, terms used in this Security Agreement, including its preamble and recitals, have the meanings provided in the Credit Agreement. SECTION 1.3. U.C.C. Definitions. Unless otherwise defined ------------------ herein or the context otherwise requires, terms for which meanings are provided in the U.C.C. are used in this Security Agreement, including its preamble and recitals, with such meanings. 2 ARTICLE II SECURITY INTEREST SECTION 2.1. Grant of Security. The Grantor hereby assigns ----------------- and pledges to the Administrative Agent for its benefit and the ratable benefit of each of the Lender Parties, and hereby grants to the Administrative Agent for its benefit and the ratable benefit of each of the Lender Parties a security interest in, all of the following, whether now or hereafter existing or acquired (the "Collateral"): ---------- (a) all inventory as defined in the Uniform Commercial Code in effect in the state of New York on the Effective Date of the Grantor, wherever located, including all goods which are returned to or repossessed by the Grantor, and all accessions thereto, products thereof and documents therefor (any and all such inventory, goods, accessions, products and documents being the "Inventory"); --------- (b) all accounts, contracts, contract rights, chattel paper, documents, instruments, and general intangibles of the Grantor, arising out of or in connection with the sale of goods or the rendering of services, and all rights of the Grantor now or hereafter existing in and to all security agreements, guaranties and other contracts securing or otherwise relating to any such accounts, contracts, contract rights, chattel paper, documents, instruments, and general intangibles (any and all such accounts, contracts, contract rights, chattel paper, documents, instruments, and general intangibles being the "Receivables", and any and all such security agreements, ----------- guaranties and other contracts being the "Related Contracts"; ----------------- (c) all books, records, writings, data bases, information and other property relating to, used or useful in connection with, evidencing, embodying, incorporating or referring to, any of the foregoing in this Section 2.1; ----------- (d) all products, offspring, rents, issues, profits, returns, income and proceeds of and from any and all of the foregoing Collateral (including proceeds which constitute property of the types described in clauses (a), ----------- (b) and (c), proceeds deposited from time to time in the --- --- Collateral Account and in any lock boxes of the Grantor,and, to the extent not otherwise included, all payments under insurance with respect to any of the foregoing Collateral (whether or not the Administrative Agent is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral). 3 SECTION 2.2. Security for Obligations. This Security ------------------------ Agreement secures the payment of all Obligations now or hereafter existing under the Credit Agreement, the Notes and each other Loan Document to which the Grantor is or may become a party, whether for principal, interest, costs, fees, expenses or otherwise. SECTION 2.3. Continuing Security Interest; Transfer of Notes. ----------------------------------------------- This Security Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until payment in full of all Obligations and the termination of all Commitments, (b) be binding upon the Grantor, its successors and assigns, and (c) inure, together with the rights and remedies of the Administrative Agent hereunder, to the benefit of the Administrative Agent and each other Lender Party. Without limiting the generality of the foregoing clause (c), any ---------- Lender may assign or otherwise transfer (in whole or in part) any Note or Loan held by it to any other Person or entity, and such other Person or entity shall thereupon become vested with all the rights and benefits in respect thereof granted to such Lender under any Loan Document (including this Security Agreement) or otherwise, subject, however, to any contrary provisions in such assignment or transfer, and to the provisions of Section 10.11 and Article IX of the Credit Agreement. Upon the payment in full of all Obligations and the termination of all Commitments, the security interest granted herein shall terminate and all rights to the Collateral shall revert to the Grantor. Upon any such termination, the Administrative Agent will, at the Grantor's sole expense, execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination. SECTION 2.4. Grantor Remains Liable. Anything herein to the ---------------------- contrary notwithstanding (a) the Grantor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein, and shall perform all of its duties and obligations under such contracts and agreements to the same extent as if this Security Agreement had not been executed, (b) the exercise by the Administrative Agent of any of its rights hereunder shall not release the Grantor from any of its duties or obligations under any such contracts or agreements included in the Collateral, and 4 (c) neither the Administrative Agent nor any other Lender Party shall have any obligation or liability under any such contracts or agreements included in the Collateral by reason of this Security Agreement, nor shall the Administrative Agent or any other Lender Party be obligated to perform any of the obligations or duties of the Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.1. Representations and Warranties. The Grantor ------------------------------ represents and warrants unto each Lender Party as set forth in this Article. SECTION 3.1.1. Location of Collateral, etc. All of the --------------------------- Inventory and lock boxes of the Grantor are located at the places specified in Item A and Item B, respectively, of Schedule I hereto. ------ ------ ---------- None of the Inventory has, within the four months preceding the date of this Security Agreement, been located at any place other than the places specified in Item A of Schedule I hereto. The place(s) of ------ ---------- business and chief executive office of the Grantor and the office(s) where the Grantor keeps its records concerning the Receivables, and all originals of all chattel paper which evidence Receivables, are located at the address set forth below the name of the Grantor on the signature page hereof. The Grantor has no trade names. In the last five years, the Grantor has not been known by any legal name different from the one set forth on the signature page hereto, nor has the Grantor been the subject of any merger or other corporate reorganization. If the Collateral includes any Inventory located in the State of California, the Grantor is not a "retail merchant" within the meaning of Section 9102 of the Uniform Commercial Code -Secured Transactions of the State of California. None of the Receivables is evidenced by a promissory note or other instrument. The Grantor is not a party to any material Federal, state or local government contract. SECTION 3.1.2. Ownership, No Liens, etc. The Grantor owns the ------------------------ Collateral free and clear of any Lien, security interest, charge or encumbrance except for the security interest created by this Security Agreement and except as permitted by the Credit Agreement. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office, except such as may have been filed in favor of the Administrative Agent relating to this Security Agreement. 5 SECTION 3.1.3. Possession and Control. The Grantor has ---------------------- exclusive possession and control of the Inventory. SECTION 3.1.4. Negotiable Documents, Instruments and Chattel --------------------------------------------- Paper. The Grantor has, contemporaneously herewith, delivered to the - ----- Administrative Agent possession of all originals of all negotiable documents, instruments and chattel paper (if any) currently owned or held by the Grantor (duly endorsed in blank, if requested by the Administrative Agent). SECTION 3.1.5. Validity, etc. This Security Agreement ------------- creates a valid first priority security interest in the Collateral, securing the payment of the Obligations and all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken. SECTION 3.1.6. Authorization, Approval, etc. No authorization, ---------------------------- approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either (a) for the grant by the Grantor of the security interest granted hereby or for the execution, delivery and performance of this Security Agreement by the Grantor, or (b) for the perfection of or the exercise by the Administrative Agent of its rights and remedies hereunder. ARTICLE IV COVENANTS SECTION 4.1. Certain Covenants. The Grantor covenants and ----------------- agrees that, so long as any portion of the Obligations shall remain unpaid or any Lender shall have any outstanding Commitment, the Grantor will, unless the Required Lenders shall otherwise consent in writing, perform the obligations set forth in this Section. SECTION 4.1.1. As to Inventory. The Grantor hereby agrees --------------- that it shall (a) keep all the Inventory (other than Inventory sold in the ordinary course of business) at the places therefor specified in Section 3.1.1 or, upon 30 days' prior written notice to the ------------- Administrative Agent, at such other places in a jurisdiction where all representations and warranties set forth in Article III ----------- (including Section 3.1.5) shall be true and correct, and all ------------- action required pursuant to the first sentence of Section 4.1.6 -------------- ------------- shall have been taken with respect to the Inventory; and 6 (b) pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Inventory, except to the extent the validity thereof is being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP have been set aside. SECTION 4.1.2. As to Receivables. ----------------- (a) The Grantor shall keep its place(s) of business and chief executive office and the office(s) where it keeps its records concerning the Receivables, and all originals of all chattel paper which evidenced Receivables, located at the address set forth below its name on the signature page hereof, or, upon 30 days' prior written notice to the Administrative Agent, at such other locations in a jurisdiction where all actions required by the first sentence of Section 4.1.6 shall have been taken -------------- ------------- with respect to the Receivables; not change its name except upon 30 days' prior written notice to the Administrative Agent; hold and preserve such records and chattel paper; and permit representatives of the Administrative Agent at any time during normal business hours to inspect and, at Grantor's expense, make copies and abstracts from such records and chattel paper. (b) The Grantor will direct all obligors under any Receivables to make all payments to one or more lock boxes, except for obligors that have delivered letters of credit to the Grantor or that have customarily delivered checks directly to the Grantor. Each lock box will be maintained only pursuant to a lock box agreement which is in all respects among other things, that (i) until the lock box bank shall have received written notice from the Administrative Agent pursuant to this Section ------- 4.1.2(b), the lock box bank will make all payments from the lock -------- box to those accounts of the Grantor designated by the Grantor, and, after any such notice, the lock box bank will make all payments from the lock box to the Administrative Agent for credit to the Collateral Account, (ii) the lock box bank (if other than the Administrative Agent or a Lender) waives all set off rights (except for returned items and normal account charges), and (iii) such lock box arrangement may not be amended without the written consent of the Administrative Agent. The Administrative Agent will not give the notice referred to in the preceding clause (i) ---------- unless it has given, or is contemporaneously giving, notice pursuant to Section 4.1.2(c). No funds, other than proceeds of ---------------- Collateral, will be paid to the lock boxes. The Grantor will not open any new lock box, or terminate any existing lock box, 7 except upon 10 days' prior written notice to the Administrative Agent. (c) Upon written notice by the Administrative Agent to the Grantor pursuant to this Section 4.1.2(c), all proceeds of ---------------- Collateral received by the Grantor shall be delivered in kind to the Administrative Agent for deposit to a deposit account (the "Collateral Account") of the Grantor maintained with the ------------------ Administrative Agent, and the Grantor shall not commingle any such proceeds, and shall hold separate and apart from all other property, all such proceeds in express trust for the benefit of the Administrative Agent until delivery thereof is made to the Administrative Agent. The Administrative Agent will not give the notice referred to in the preceding sentence unless there shall have occurred and be continuing a Default. No funds, other than proceeds of Collateral, will be deposited in the Collateral Account. (d) The Administrative Agent shall have the right to apply any amount in the Collateral Account to the payment of any Obligations which are due and payable or payable upon demand, or to the payment of any Obligations at any time that an Event of Default shall have occurred and be continuing. Subject to the rights of the Administrative Agent, the Grantor shall have the right, with respect to and to the extent of collected funds in the Collateral Account, (i) as long as there shall be no Default, to require the Administrative Agent to transfer to the Grantor's general demand deposit account at the Administrative Agent any or all of such collected funds and (ii) as long as there shall be a Default and after giving effect to any exercise by the Administrative Agent of its rights, (A) to require the Administrative Agent to transfer to the Grantor's general demand deposit account at the Administrative Agent amounts required to cover checks drawn against that account which shall have been presented for payment at the Administrative Agent as of the preceding business day and all wire transfers which the Grantor has directed to be made on the current business day, to the extent such checks and wire transfers are for any purpose which does not violate any provision of any Loan Document and (B) to require the Administrative Agent to purchase any Cash Equivalent Investment, provided that, in the case of certificated securities, the Administrative Agent will retain possession thereof as Collateral and, in the case of uncertificated securities, the Administrative Agent will take such actions, including registration of such securities in its name, as it shall determine is necessary to perfect its security interest therein. The Administrative Agent may at any time transfer to the Grantor's general demand deposit account at the Administrative Agent any or all of the collected funds in the Collateral Account; provided, however, -------- ------- 8 that any such transfer shall not be deemed to be a waiver or modification of any of the Administrative Agent's rights under this Section 4.1.2(d). ---------------- SECTION 4.1.3. As to Collateral. ---------------- (a) Until such time as the Administrative Agent shall notify notify the Grantor of the revocation of such power and authority the Grantor (i) may in the ordinary course of its business, at its own expense, sell, lease or furnish under the contracts of service any of the Inventory normally held by the Grantor for such purpose, and use and consume, in the ordinary course of its business, any raw materials, work in process or materials normally held by the Grantor for such purpose, (ii) will, at its own expense, endeavor to collect, as and when due, all amounts due with respect to any of the Collateral, including the taking of such action with respect to such collection as the Administrative Agent may reasonably request or, in the absence of such request, as the Grantor may deem advisable, and (iii) may grant, in the ordinary course of business, to any party obligated on any of the Collateral, any rebate, refund or allowance to which such party may be lawfully entitled, and may accept, in connection therewith, the return of goods, the sale or lease of which shall have given rise to such Collateral. The at any time, after (but not before) the occurrence and during the continuance of an Event of Default, notify any parties obligated on any of the Collateral to make payment to the Administrative Agent of any amounts due or to become due thereunder and enforce collection of any of the Collateral by suit or otherwise and surrender, release, or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any indebtedness thereunder or evidenced thereby. Upon request of the Administrative Agent, the Grantor will, at its own expense, notify any parties obligated on any of the Collateral to make payment to the Administrative Agent of any amounts due or to become due thereunder. (b) The Administrative Agent is authorized to endorse, in the name of the Grantor, any item, howsoever received by the Administrative Agent, representing any payment on or other proceeds of any of the Collateral. SECTION 4.1.4. Insurance. The Grantor will maintain or cause --------- to be maintained with responsible insurance companies insurance with respect to the Inventory as required by the terms of the Credit Agreement and will, upon the request of the Administrative Agent, furnish to the Administrative Agent at reasonable intervals a certificate of an Authorized Officer of the Grantor setting forth 9 the nature and extent of all insurance maintained by the Grantor in accordance with this Section. SECTION 4.1.5. Transfers and Other Liens. The Grantor ------------------------- shall not: (a) sell, assign (by operation of law or otherwise) or otherwise dispose of any of the Collateral, except Inventory in the ordinary course of business or as permitted by the Credit Agreement; or (b) create or suffer to exist any Lien or other charge or encumbrance upon or with respect to any of the Collateral to secure Indebtedness of any Person or entity, except for the security interest created by this Security Agreement and except as permitted by the Credit Agreement. SECTION 4.1.6. Further Assurances, etc. The Grantor agrees ----------------------- that, from time to time at its own expense, the Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Administrative Agent may request in writing, in order to perfect, preserve and protect any security interest granted or purported to be granted hereby or to enable the Administrative Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, the Grantor will, upon request of the Administrative Agent, (a) mark conspicuously each document included in the Inventory, each chattel paper included in the Receivables and each Related Contract and, at the request of the Administrative Agent, each of its records pertaining to the Collateral with a legend, in form and substance satisfactory to the Administrative Agent, indicating that such document, chattel paper, Related Contract or Collateral is subject to the security interest granted hereby; (b) if any Receivable shall be evidenced by a promissory note or other instrument, negotiable document or chattel paper, deliver and pledge to the Administrative Agent hereunder such promissory note, instrument, negotiable document or chattel paper duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to the Administrative Agent; (c) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices (including, without limitation, any assignment of claim form under or pursuant to the federal assignment of claims statute, 31 U.S.C. Section 3726, any successor or amended 10 version thereof or any regulation promulgated under or pursuant to any version thereof), as may be necessary or desirable, or as the Administrative Agent may request, in order to perfect and preserve the security interests and other rights granted or purported to be granted to the Administrative Agent hereby; and (d) furnish to the Administrative Agent, from time to time at the Administrative Agent's request, statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Administrative Agent may reasonably request, all in reasonable detail. With respect to the foregoing and the grant of the security interest hereunder, the Grantor hereby authorizes the Administrative Agent to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of the Grantor where permitted by law. A carbon, photographic or other reproduction of this Security Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. ARTICLE V THE ADMINISTRATIVE AGENT SECTION 5.1. Administrative Agent Appointed Attorney- ---------------------------------------- in-Fact. The Grantor hereby irrevocably appoints the Administrative - ------- Agent the Grantor's attorney-in-fact, with full authority in the place and stead of the Grantor and in the name of the Grantor or otherwise, from time to time in the Administrative Agent's discretion, to take any action and to execute any instrument which the Administrative Agent may deem necessary or advisable to accomplish the purposes of this Security Agreement, including, without limitation, after (but not before) the occurrence and during the continuance of an Event of Default, (a) to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (b) to receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) above; ---------- (c) to file any claims or take any action or institute any proceedings which the Administrative Agent may deem 11 necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Administrative Agent with respect to any of the Collateral; and (d) to perform the affirmative obligations of the Grantor hereunder (including all obligations of the Grantor pursuant to Section 4.1.6). ------------- The Grantor hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section is irrevocable and coupled with an interest. Upon the payment in full of all Obligations and the termination of all Commitments, the power of attorney granted pursuant to this Section shall terminate. SECTION 5.2. Administrative Agent May Perform. If the Grantor -------------------------------- fails to perform any agreement contained herein, the Administrative Agent may itself perform, or cause performance of, such agreement, and the expenses of the Administrative Agent incurred in connection therewith shall be payable by the Grantor pursuant to Section 6.2. ----------- SECTION 5.3. Administrative Agent Has No Duty. In addition -------------------------------- to, and not in limitation of, Section 2.4, the powers conferred on ----------- the Administrative Agent hereunder are solely to protect its interest (on behalf of the Lender Parties) in the Collateral and shall not impose any duty on it to exercise any such powers. Except for reasonable care of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Administrative Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. SECTION 5.4. Reasonable Care. The Administrative Agent is --------------- required to exercise reasonable care in the custody and preservation of any of the Collateral in its possession; provided, however, the Administrative Agent shall be deemed to have exercised reasonable care in the custody and preservation of any of the Collateral, if it takes such action for that purpose as the Grantor reasonably requests in writing at times other than upon the occurrence and during the continuance of any Event of Default, but failure of the Administrative Agent to comply with any such request at any time shall not in itself be deemed a failure to exercise reasonable care. 12 ARTICLE VI REMEDIES SECTION 6.1. Certain Remedies. If any Event of Default shall ---------------- have occurred and be continuing: (a) The Administrative Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the U.C.C. (whether or not the U.C.C. applies to the affected Collateral) and also may (i) require the Grantor to, and the Grantor hereby agrees that it will, at its expense and upon request of the Administrative Agent forthwith, assemble all or part of the Collateral as directed by the Administrative Agent and make it available to the Administrative Agent at a place to be designated by the Administrative Agent which is reasonably convenient to both parties and (ii) with ten days prior notice to the Grantor, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Administrative Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as the Administrative Agent may deem commercially reasonable. The Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days' prior notice to the Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Administrative Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Administrative Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) All cash proceeds received by the Administrative Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of the Administrative Agent, be held by the Administrative Agent as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Administrative Agent pursuant to Section 6.2) in whole or in part by the ----------- Administrative Agent for the ratable benefit of the Lender Parties against, all or any part of the Obligations in such order as the Administrative Agent shall 13 elect. Any surplus of such cash or cash proceeds held by the Administrative Agent and remaining after payment in full of all the Obligations shall be paid over to the Grantor or to whomsoever may be lawfully entitled to receive such surplus. SECTION 6.2. Indemnity and Expenses. ---------------------- (a) The Grantor agrees to indemnify the Administrative Agent from and against any and all claims, losses and liabilities arising out of or resulting from this Security Agreement (including, without limitation, enforcement of this Security Agreement), except claims, losses or liabilities resulting from the Administrative Agent's gross negligence or wilful misconduct. (b) The Grantor will upon demand pay to the Administrative Agent the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts and agents, which the Administrative Agent may incur in connection with (i) the administration of this Security Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of the Administrative Agent or the Lender Parties hereunder, or (iv) the failure by the Grantor to perform or observe any of the provisions hereof. ARTICLE VII MISCELLANEOUS PROVISIONS SECTION 7.1. Loan Document. This Security Agreement is a Loan ------------- Document executed pursuant to the Credit Agreement and shall (unless otherwise expressly indicated herein) be construed, administered and applied in accordance with the terms and provisions thereof. SECTION 7.2. Amendments; etc. No amendment to or waiver of any --------------- provision of this Security Agreement nor consent to any departure by the Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 14 SECTION 7.3. Addresses for Notices. All notices and --------------------- other communications provided for hereunder shall be in writing and, if to the Grantor, mailed or telecopied or delivered to it, addressed to it at the address set forth below its signature hereto, if to the Administrative Agent, mailed or delivered to it, addressed to it at the address of the Administrative Agent specified in the Credit Agreement, or as to either party at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed or telecopied, respectively, be effective when received. SECTION 7.4. Section Captions. Section captions used in ---------------- this Security Agreement are for convenience of reference only, and shall not affect the construction of this Security Agreement. SECTION 7.5. Severability. Wherever possible each provision of ------------ this Security Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Security Agreement shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Security Agreement. SECTION 7.6. Governing Law, Entire Agreement, etc. THIS ------------------------------------ SECURITY AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. THIS SECURITY AGREEMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO. IN WITNESS WHEREOF, the Grantor has caused this Security Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. OREGON STEEL MILLS, INC. By: -------------------------------- Title: Address: 1000 S.W. Broadway Suite 2200 Portland, Oregon 97205 15 Attention: Mr. Christopher Cassard Treasurer Telecopier: (503) 240-5232 16 SCHEDULE I to Security Agreement Item A. Location of Inventory --------------------- Description Location ----------- -------- 1. 2. 3. 4. 5. Item B. Location of Lock Boxes ---------------------- Contact Bank Name and Address Account Number Person --------------------- -------------- ------- 1. 2. 3. 17 EXHIBIT J December 14, 1994 To each of the Lenders parties to the Credit Agreement referred to below, First Interstate Bank of Oregon, N.A. ("First Interstate"), as ---------------- Administrative Agent, The Bank of Nova Scotia ("Scotiabank"), as Syndication Agent and First ---------- Interstate and Scotiabank, as Managing Agents Re: Oregon Steel Mills, Inc. Ladies and Gentlemen: This opinion is furnished to you pursuant to Section 5.1.7 of the Credit Agreement, dated as of December 14, 1994, (the "Credit ------ Agreement"), among Oregon Steel Mills, Inc. (the "Borrower"), the - --------- -------- financial institutions from time to time parties thereto (the "Lenders"), First Interstate, as Administrative Agent, Scotiabank as ------- Syndication Agent, and First Interstate and Scotiabank, as Managing Agents. Capitalized terms not herein defined have the meanings assigned in the Credit Agreement. We have acted as counsel for the Borrower and the Guarantors in connection with the preparation, execution and delivery of the Credit Agreement and the other Loan Documents. In that connection, we have examined: (a) the Credit Agreement; (b) the Notes; (c) the Guaranties; Lenders parties to the Credit Agreement December , 1994 ----- Page 2 (d) the Pledge Agreement; (e) the Security Agreements; (f) financing statements naming the Borrower, the Guarantors and CF&I Steel, L.P. ("CF&I Steel"), as debtor, and the ---------- Administrative Agent, as secured party, that have been filed with the Secretaries of State of Colorado, California and Oregon (the "Financing Statements"); -------------------- (g) the documents furnished by the Borrower pursuant to Sections 5.1.1 and 5.1.6 of the Credit Agreement; (h) the Certificate of Incorporation of the Borrower and each Guarantor and all amendments thereto (the "Charters"); -------- (i) the bylaws of the Borrower and each Guarantor and all amendments thereto (the "Bylaws"); ------ (j) the Certificate of Limited Partnership of CF&I Steel and the Amended and Restated Agreement of Limited Partnership of CF&I Steel dated March 3, 1993 and all amendments thereto (the "CF&I Documents"); and -------------- (k) certificates of the Secretary of State of Delaware, dated December , 1994, attesting to the continued -- corporate existence and good standing of the Borrower and the Guarantors in Delaware; certificates of the Secretary of State of Oregon, dated December , 1994, attesting to -- the status of the Borrower and New CF&I, Inc. in Oregon; certificates of the Secretary of State of California, dated December , 1994, attesting to the continued -- corporate existence and good standing of the Borrower, Napa Pipe Corporation, and Oregon Steel Mills-Fontana Division, Inc. in California; certificates of the Secretary of State of Texas, dated December , 1994, -- attesting to the continued corporate existence and good standing of the Borrower and Napa Pipe Corporation in Texas; certificate of the Secretary of State of Illinois, dated December , 1994, attesting to the continued -- corporate existence and good standing of the Borrower in Illinois; certificate of the Secretary of State of Washington, dated December , 1994, attesting to the -- continued corporate Lenders parties to the Credit Agreement December , 1994 ---- Page 3 existence and good standing of the Borrower in Washington; certificate of the Secretary of State of Utah, dated December , 1994, attesting to the continued -- corporate existence and good standing of Napa Pipe Corporation and New CF&I, Inc. in Utah; certificate of the Secretary of State of Nevada, dated December , -- 1994, attesting to the continued corporate existence and good standing of Napa Pipe Corporation in Nevada; certificate of the Secretary of State of Colorado, dated December , 1994, attesting to the continued corporate -- existence and good standing of New CF&I, Inc. in Colorado; certificates of the Secretary of State of Delaware, California, Colorado, Missouri, Texas and Utah, dated December , 1994, attesting to the continued -- existence and good standing of CF&I Steel in such states. We have also examined the originals, or copies certified to our satisfaction, of the documents listed in a certificate of the chief financial officer of the Borrower, dated the date hereof (the "Certificate"), certifying that the documents listed in such ----------- certificate are all of the indentures, loan or credit agreements, leases, guarantees, mortgages, security agreements, bonds, notes and other agreements or instruments, and all of the orders, writs, judgments, awards, injunctions and decrees, which affect or purport to affect the Borrower's right to borrow money, the Borrower's obligations under the Credit Agreement or the Notes, each Guarantor's obligations under the Guaranties and Security Agreements and CF&I Steel's obligations under its Security Agreement. In addition, we have examined the originals, or copies certified to our satisfaction, of such other corporate records of the Borrower, each Guarantor and CF&I Steel, certificates of public officials and of officers of the Borrower, each Guarantor and CF&I Steel, and agreements, instruments and other documents, as we have deemed necessary as a basis for the opinions expressed below. As to questions of fact material to such opinions, we have relied upon certificates and other communications from the Borrower, each Guarantor or CF&I Steel or their officers or from public officials. With respect to the certificates issued by public officials, we disclaim any responsibility for any changes that may have occurred with respect to the status of the Borrower, the Guarantors or CF&I Steel from and after the respective dates of the certificates. We also assume that the certificates of the public officials and the public records upon which they are based are accurate and complete. Lenders parties to the Credit Agreement December , 1994 ---- Page 4 In rendering this opinion, we have assumed without inquiry or investigation: (i) that the Lenders and Agents have all necessary legal, corporate and regulatory power and authority to enter into, execute, deliver and perform the Loan Documents and to consummate the transaction; (ii) the authenticity and completeness of all documents submitted to us as originals; (iii) the legal competence and capacity of all natural persons, other than officers of the Borrowers, the Guarantors and CF&I Steel, who are signatories to the Loan Documents; (iv) the conformity to original documents of all documents submitted to us as copies; (v) that all signatures on all documents submitted to us are genuine; (vi) the funding of the Loans by the Lenders to the Borrower; (vii) that the Lenders and Agents will enforce their rights and remedies under the Loan Documents and applicable law in good faith, in a commercially reasonable manner, and in all respects observing standards of fair dealing; (viii) that the Lenders and Agents have given value in accordance with the Loan Documents; (ix) the truthfulness, accuracy and completeness of all warranties and representations of the Borrower, Guarantors and CF&I Steel set forth in the Loan Documents and the Certificate; (x) the certificates of the public officials are in all respects correct, accurate and complete, and, since the date thereof, have not been modified or rescinded; (xi) the Borrower, Guarantors and CF&I Steel own and have rights in the Collateral as defined in the Security Agreements and the Pledge Agreements, they have good and sufficient title to the Collateral, value has been given and the security interest has attached; (xii) the Guaranties are necessary or convenient to the conduct, promotion or attainment of the business of each Guarantor and (xiii) the Loan Documents are the legal, valid and binding obligations of the Lenders and the Agents. Our opinions expressed below are limited to the laws of the State of Oregon, the General Corporation Law of the State of Delaware and the Federal laws of the United States and we do not express any opinion herein concerning any other law. Based upon the foregoing and subject to the qualifications, assumptions and limitations set forth herein, we are of the following opinion: 1. The Borrower and each Guarantor is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. CF&I Steel is a limited partnership formed under the laws of the State of Delaware, Lenders parties to the Credit Agreement December , 1994 ---- Page 5 legally existing and authorized to transact business under the laws of the State of Delaware. 2. The execution, delivery and performance by the Borrower of the Credit Agreement, the Notes, the Pledge Agreement and its Security Agreement (collectively, the "Borrower -------- Agreements") are within the Borrower's corporate powers, have ---------- been duly authorized by all necessary corporate action, and do not contravene (i) its Charter or Bylaws or (ii) any law, rule or regulation applicable to the Borrower (including, without limitation, Regulation U of the Board of Governors of the Federal Reserve System) the violation of which is reasonably likely to have a Material Adverse Effect or (iii) any contractual or legal restriction contained in any document listed in the Certificate. The Borrower Agreements have been duly executed and delivered by the Borrower. 3. The execution, delivery and performance by each Guarantor of its Guaranty and Security Agreement are within such Guarantor's corporate powers, have been duly authorized by all necessary corporate action, and do not contravene (i) such Guarantor's Charter or Bylaws or (ii) any law, rule or regulation applicable to such Guarantor the violation of which is reasonably likely to have a Material Adverse Effect or (iii) any contractual or legal restriction contained in any document listed in the Certificate. Each Guaranty and Security Agreement has been duly executed and delivered by the Guarantor party thereto. 4. The execution, delivery and performance by CF&I Steel of its Security Agreement are within its powers, have been duly authorized by all necessary action, and do not contravene (i) the CF&I Documents (ii) any law, rule or regulation applicable to it the violation of which is reasonably likely to have a Material Adverse Effect or (iii) any contractual or legal restriction contained in any document listed in the Certificate. The CF&I Steel Security Agreement has been duly executed and delivered by CF&I Steel. 5. No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by the Borrower of the Borrower Agreements, except for the filing of any continuation statements to the Lenders parties to the Credit Agreement December , 1994 ---- Page 6 Financing Statements [and filings with the United States Patent and Trademark Office and the United States Copyright Office] to perfect the security interests that can be perfected by such filings and such authorizations, approvals, actions, notices and filings as have been made or obtained and are in full force and effect. 6. No authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by each Guarantor of its Guaranty and Security Agreement or CF&I Steel of its Security Agreement, except for the filing of any continuation statements to the Financing Statements [and filings with the United States Patent and Trademark Office and the United States Copyright Office] to perfect the security interests that can be perfected by such filings and such authorizations, approvals, actions, notices and filings as have been made or obtained and are in full force and effect. 7. Each Borrower Agreement is the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms. 8. Each Guaranty and Security Agreement is the legal, valid and binding obligation of the Guarantor party thereto, enforceable against such Guarantor in accordance with its terms. The CF&I Steel Security Agreement is the legal, valid and binding obligation of CF&I Steel, enforceable against it in accordance with its terms. 9. To the best of our knowledge after due inquiry, there are no pending or overtly threatened actions or proceedings against the Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator which purport to affect the legality, validity, binding effect or enforceability of the Credit Agreement or any of the Notes or, except as described in Item 6.7 of the Disclosure Schedule, which are reasonably likely to have a Material Adverse Effect. 10. The provisions of the Security Agreements are sufficient to create in favor of the Administrative Agent as secured party, a security interest in all right, title and interest of the Guarantor thereto, in those items and types of Collateral described in the Security Agreements in which Lenders parties to the Credit Agreement December , 1994 ---- Page 7 a security interest may be created under Article 9 of the Uniform Commercial Code ("UCC") as in effect in the State of --- New York (the "Article 9 Collateral"). The filing of the -------------------- Financing Statements with the Secretaries of State of Colorado, Oregon and California are sufficient to perfect the security interest in the Article 9 Collateral in which a security interest may be perfected by the filing of a financing statement under the UCC in such states, except that we express no opinion as to personal property affixed to real property in such a manner as to become a fixture under the laws of any state in which the Article 9 Collateral may be located and we call your attention to the fact that the security interest in certain of such Article 9 Collateral may not be perfected by filing a financing statement under the UCC. We call your attention to the fact that: A. ORS chapter 79 of the UCC requires the filing of continuation statements within the period of six months prior to the expiration of five years from the date of the original filings or the previous continuation statements, in order to maintain the effectiveness of the filings referred to in this paragraph. B. In the case of instruments (as such term is defined in ORS chapter 79) and money not constituting party of chattel paper (as such term is defined in ORS chapter 79 of the UCC), the security interests cannot be perfected by the filing of the Financing Statements but will be perfected if possession thereof is obtained. C. Under certain circumstances described in ORS 79,3060, the rights of a secured party to enforce a perfected security interest in proceeds of collateral may be limited. D. In the case of property which becomes collateral after the date hereof, section 552 of the Federal Bankruptcy Code limits the extent to which property acquired by a debtor after the commencement of a case under the Federal Bankruptcy Code may be subject to a security interest arising from a security agreement entered Lenders parties to the Credit Agreement December , 1994 ---- Page 8 into by the debtor before the commencement of such case. E. ORS 79.4020(7) of the UCC provides that if the Grantor so changes its name, identity or corporate structure that a filed financing statement becomes seriously misleading, the filing is not effective to perfect a security interest in collateral acquired by the Grantor more than four months after the changes unless new appropriate financing statements are properly filed before the expiration of that period. F. If certain tangible Article 9 Collateral is moved to a state in which a financing statement has not been filed or if the Grantor's location changes to a state in which a financing statement has not been filed, a new appropriate financing statement must be filed in such new state within four months after such move to continue perfection of the security interest (or, earlier, when perfection under the laws of the State of Oregon would have ceased as set forth in subparagraph A, above). G. Under certain circumstances described in ORS 79.3070 and 79.3080 of the UCC, purchasers of collateral may take the same free of a perfected security interest. 11. The provisions of the Pledge Agreement are sufficient to create in favor of the Administrative Agent as secured party, a security interest in all of the Pledged Shares pledged to the Administrative Agent thereunder. The delivery of the endorsed Pledged Shares and the possession of the Pledged Shares by the Administrative Agent in accordance with the Pledge Agreement is sufficient to perfect the security interest in the Pledged Shares created by the Pledge Agreement. We call your attention to the fact that a security interest in the proceeds from the Pledged Shares may not be perfected unless a financing statement relating to such proceeds is filed in the State of Oregon. 12. Neither the Borrower nor any of its Subsidiaries is an "investment company" or a company controlled by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. Lenders parties to the Credit Agreement December , 1994 ---- Page 9 13. Neither the Borrower nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. The opinions rendered in paragraphs 7, 8, 10 and 11 above are in all respects subject to the following limitations and qualifications: A. The effect of applicable bankruptcy, insolvency, moratorium, reorganization, fraudulent transfer, or other similar laws now or hereafter in effect affecting the rights of the creditors generally; B. General principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law) and public policy under applicable laws, including among other things, implied obligations or materiality, reasonableness, good faith and fair dealing, and principles that may limit or prohibit the specific enforceability of some remedies, covenants or other provisions of the Loan Documents or that may limit or prohibit the availability of specific performance, injunctive relief or other equitable remedies regardless of whether such enforceability is considered in a proceeding in equity or at law; C. Oregon and federal laws or judicial decisions that may limit or render ineffective certain rights, remedies or waivers contained in the Loan Documents, but which do not render the Loan Documents invalid as a whole; D. The availability or non-availability of such general contractual defenses as mistake, fraud, duress or unconscionability; E. Procedural prerequisites to realizing upon remedies, not otherwise reflected in the Loan Documents, which may restrict rights and remedies otherwise therein stated to be available; and F. The availability of equitable remedies other than the remedies created by the Loan Documents in accordance with applicable law. Lenders parties to the Credit Agreement December , 1994 ---- Page 10 In giving the opinions set forth in paragraphs 7 and 8 above, we advise you that an Oregon court may not strictly enforce certain provisions contained in the Loan Documents or allow acceleration of the maturity of the indebtedness evidenced thereby if a court concludes that such enforcement or acceleration would be unreasonable under the then-existing circumstances. We do believer, however, that, subject to the limitations elsewhere expressed in this opinion, enforcement against the Borrower or the Guarantors would be available if an event of default occurred as a result of a material breach of a material provision contained in the Loan Documents. The following list is not a complete recitation of matters as to which no opinion is expressed, but we specifically emphasize that we express no opinion as to: (a) Self help; rights of set-off; or the right to possession of the personal property or collection of income or rent without appointment of a receiver; and the rights, procedural requirements for or powers of a receiver; (b) Provisions purporting to establish evidentiary standards; (c) Provisions relating to the waiver of rights, remedies and defenses, including without limitation, any provisions purporting to affect rights to notice or to waiver venue, jurisdiction, jury trials or other benefits conferred by statute or by law; (d) Provisions which permit the Lenders to collect increased interest after default or maturity, insofar as such provisions may be interpreted by a court to be unenforceable as a penalty which has no relation to the actual damages suffered by the Lender; (e) Any reservation of the right to pursue inconsistent or cumulative remedies; (f) Provisions for payment or reimbursement of costs and expenses or indemnification for claims, losses, or liabilities (including, without limitation, attorneys fees) in excess of statutory limits or an amount determined to be reasonable by any court or other tribunal, and any provisions for attorneys fees other than to the prevailing parties; Lenders parties to the Credit Agreement December , 1994 ---- Page 11 (g) Provisions pertaining to choice of law; (h) Provisions purporting to appoint the Administrative Agent as attorney in fact for Borrower or each Grantor; (i) Limitations on the liability of Lender or the Agents, or for their indemnification for their own negligence or misconduct; (j) The applicability of usury laws, or provisions for charging interest on interest; (k) Provisions permitting modification of a document only if it is writing; (l) The effect or enforceability of severability clauses; (m) The right of the Lender or the Agents to declare a default based upon, or otherwise to pursue any rights or remedies on account of, a breach of warranty or representation in any circumstance where the Lender or Agents knew, or should have known, or had reason to know, of the inaccuracy or incompleteness of the warranty or representation at the time it was or was deemed to be given; (n) The applicability of federal and state securities laws and regulations (specifically including, without limitation, whether any aspect of the Loans are a "security"); pension and employee benefit laws and regulations; the federal anti-trust and unfair competition laws and regulations; compliance with fiduciary duty requirements; fraudulent transfer laws; federal and state environmental laws and regulations; federal and state zoning, land use, subdivision, building, and health and safety laws and regulations; and federal laws, regulations and policies concerning (i) national and local emergency, (ii) possible judicial deference to acts of sovereign states, and (iii) criminal and civil forfeiture laws; and other federal status of general application to the extent they provide for criminal prosecution (e.g. mail fraud and wire fraud statutes); Lenders parties to Credit Agreement December , 1994 ---- Page 12 (o) Any provisions which attempt to recharacterize, re- apply or re-allocate payments made in the event the applicable rate of interest is determined to be usurious; (p) The negotiability of the Notes; (q) The enforceability or illusory character of obligations that may arise or be varied by the Lender's exercise of discretion which is subject to no or vague standards; (r) Provisions which purport to create, perfect or maintain priority of, a lien or a security interest or pledge (except as expressly provided in these paragraphs 10 and 11); and (s) The effect on enforceability of each Guaranty of modifications or any document evidencing the guaranteed obligations without consent of the Guarantors. The opinions expressed herein are subject to and qualified by the following disclaimers: 1. Regardless of the states in which members of this firm are licensed to practice, we express no opinion as to the laws of any jurisdiction other than the laws of the State of Oregon, the General Corporate Law of the State of Delaware and applicable federal laws. Specifically, we express no opinion as to New York law. 2. This opinion letter is provided to you as a legal opinion only and not as a guarantee of the matters discussed herein. Our opinion is limited to the matters expressly stated herein, and no other opinions may be implied or inferred. 3. We express no opinion as to any matter relating to: (a) the adequacy of the consideration for the Loans or the Guaranties; (b) the accuracy or completeness of any financial, accounting, or statistical information furnished to the Lenders; (c) the financial status of the Borrower or the Subsidiaries; (d) the ability of the Borrower to meet its obligations under the Loan Documents; (e) the existence of, or as to the title of the Borrower or any Lenders parties to the Credit Agreement December , 1994 ---- Page 13 Subsidiary to, any item of Collateral or as to the priority or the perfection (except as expressly provided in opinions 10 and 11 above) of any security interests referred to above. 4. We specifically disclaim any responsibility to advise you now or at any time in the future of any changes (or the need for changes) in this opinion resulting from changes in the relevant law or facts occurring subsequent to the date of this opinion. This opinion is rendered as of the date set forth above, and we disclaim any obligation to advise you of any changes in the circumstances, laws or events that may occur after this date or otherwise to update this opinion. This opinion has been rendered to you in connection with the transaction described herein solely for your benefit and is not to be quoted in whole or in part or otherwise referred to, used, or relied upon by any person or entity other than you, your legal counsel, any governmental or quasi-governmental bodies with jurisdiction over you, or participants or assigns (if any) in the Loans. Very truly yours, SCHWABE WILLIAMSON & WYATT, P.C. -------------------------------- cc: Oregon Steel Mills, Inc. EXHIBIT K [Letterhead of Oregon Steel Mills, Inc.] BORROWING BASE CERTIFICATE -------------------------- Certificate No. Dated as of --- ------------ This Borrowing Base Certificate (this "Certificate") is made by ----------- Oregon Steel Mills, Inc. ("OSM") as of the date set forth above --- pursuant to the Credit Agreement dated as of December 14, 1994 ("Credit Agreement"), by and among First Interstate Bank of Oregon, ---------------- N.A. ("First Interstate"), as administrative agent, the Bank of Nova ---------------- Scotia ("Scotiabank"), as syndication agent, First Interstate and ---------- Scotiabank, as managing agents, the commercial lending institutions as are or may become parties thereto ("Lenders") and OSM. ------- Capitalized words and expressions used in this Certificate and not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement. 1. Consolidated accounts receivable $ ---------- Less: Accounts of Camrose Pipe Company Accounts subject to $ ---------- reorganization, bankruptcy, receivership, etc. Accounts subject to bona fide $ ---------- dispute, setoff or counterclaim Accounts subject to a lien $ ---------- Accounts outstanding more $ ---------- than 90 days Accounts not subject to Lien $ ---------- in favor of Administrative Agent Accounts from party with more $ ---------- than 25% of its Accounts outstanding more than 90 days U.S. Government Receivables $ ---------- (unless assignment of claims has been made) Foreign Receivables (unless $ ---------- secured by letter of credit) Value of Eligible Accounts $ ---------- of OSM and its Subsidiaries ("Eligible Accounts Base") $ --------------------- -------- 2. 70% of Eligible Accounts Base $ -------- (70% of Item 1) 3. Consolidated inventory $ ---------- Less: Inventory of Camrose Pipe $ ---------- Company Inventory located outside the $ ---------- United States Inventory in the custody of $ ---------- 3rd parties, inventory not owned by OSM, subject to a lien or intended to be returned Stores Inventory $ ---------- Inventory that is obsolete, $ ---------- damaged or otherwise unfit for sale Value of Eligible Inventory of OSM $ ---------- and its Subsidiaries ("Eligible Inventory Base") $ ----------------------- -------- 4. 50% of Eligible Inventory Base $ -------- (50% of Item 3) 5. Sum of Items 2 and 4 ("Borrowing $ --------- -------- Base") ---- 6. Principal amount of Revolving $ -------- Loans and Swingline Loans of OSM at date of this Report 7. Available Borrowing Base (Item 5 $ -------- minus Item 6) or Amount Borrowed ----- in Excess of Borrowing Base The undersigned Authorized Officer of OSM hereby certifies to First Interstate and Scotiabank, in each and all of their capacities, and the Lenders that: (a) each item of Eligible Accounts included in the calculation of Borrowing Base set forth herein is at the date of this Certificate an Account of OSM or any of its Subsidiaries (other than the Camrose Partnership) as to which each of the requirements set forth in the definition 2 of the term "Eligible Account" has been fulfilled to the reasonable satisfaction of the Administrative Agent. (b) each item of Eligible Inventory included in the calculation of Borrowing Base set forth herein is at the date of this Certificate Inventory of OSM or any of its Subsidiaries (other than the Camrose Partnership) arising in the ordinary course of business and as to which each of the requirements set forth in the definition of the term "Eligible Inventory" has been fulfilled to the reasonable satisfaction of the Administrative Agent. (c) no Default or Event of Default has occurred and is continuing as at the date of this Certificate. (d) attached hereto are the receivable aging reports from the Borrower and its applicable Subsidiaries. OREGON STEEL MILLS, INC. By ----------------------- Title: 3 EXHIBIT L OREGON STEEL MILLS, INC. ------------------------ COMPLIANCE CERTIFICATE FOR , 199 ------------------------------------------- This Compliance Certificate (this "Certificate") is made by ----------- Oregon Steel Mills, Inc. ("OSM") as of the date set forth above and --- furnished to each of the Lenders and the Agents, pursuant to the Credit Agreement, made as of December 14, 1994 (the "Credit ------ Agreement"), by and among First Interstate Bank of Oregon, N.A. - --------- ("First Interstate"), as Administrative Agent, The Bank of Nova Scotia ---------------- ("Scotiabank"), as Syndication Agent, First Interstate and Scotiabank, ---------- as Managing Agents, the commercial lending institutions as are or may become parties thereto ("Lenders") and OSM, and as required by Section ------- ------- 7.1.1(c) of the Credit Agreement. - -------- Capitalized words and expressions used in this Certificate and not otherwise defined herein shall have the meanings ascribed to them in the Credit Agreement. The officer whose signature appears below certifies that (A) the consolidated and consolidating financial statements of OSM and its Subsidiaries delivered pursuant to Sections 7.1.1(a) and 7.1.1(b) of ----------------- -------- the Credit Agreement are materially accurate and complete and present fairly the financial position and results from operations of OSM and its Subsidiaries on a consolidated basis as of the dates thereof and for the periods referred to therein (subject, where applicable, to year end audit adjustments) and have been prepared in accordance with generally accepted accounting principles (as contemplated in the Credit Agreement) on a basis consistently applied, and (B) under the supervision of the Authorized Officer whose signature appears below, OSM has made a review of the activities of OSM and its Subsidiaries during the period covered by the financial statements accompanying this Certificate to make the determinations and calculations set forth below, and on the basis of such review, to the best of the knowledge of such Authorized Officer, OSM and its Subsidiaries have performed and observed all of the covenants and conditions contained in the Credit Agreement and in each other Loan Document and no Default or Event of Default exists. Set forth below are calculations of the amounts, as at the date set forth above, of Consolidated Tangible Net Worth, the Interest Coverage Ratio, the Current Ratio, the Cash Flow Ratio and the Funded Debt to Capitalization Ratio of OSM and its Subsidiaries, as at that date. All amounts shown herein are expressed in Dollars (thousands). Part I. CONSOLIDATED TANGIBLE NET WORTH ------------------------------- (subsection 7.2.4(a)) For Period Ending , 19 --------------- -- (1) Consolidated Tangible Net Worth: ------------------------------- (a) Book Value of OSM and it Subsidiaries' ---------- Equity (b) Book Value of OSM and it Subsidiaries' ---------- minority interests (c) Aggregate amount of any intangible assets ---------- of OSM and its Subsidiaries, including goodwill, franchises, licenses, patents, trademarks, tradenames, copyrights, servicemarks and brandnames. (d) Consolidated Tangible Net Worth (sum of ---------- Lines (a) and (b) minus Line (c)) ----- (2) Required Consolidated Tangible Net Worth: ---------------------------------------- (a) $225,000,000 ---------- (b) 50% of OSM's Net Income (the consolidated ---------- net income for OSM and its Subsidiaries) for all Fiscal Quarters beginning on or after January 1, 1995 (without giving effect to any losses) (c) 100% of net proceeds from any equity ---------- offering by OSM or any of its Subsidiaries after the Effective Date of the Credit Agreement (d) Required Consolidated Tangible Net Worth ---------- (sum of Lines (a), (b) and (c)) (3) Surplus (Deficit): Line (1)(d) minus ---------- Line (2)(d) Part II. INTEREST COVERAGE RATIO ----------------------- (subsection 7.2.4(b)) Four Fiscal Quarter period ending , 19 ----------- -- 2 (1) OSM and it Subsidiaries' Net Income for such ---------- period (2) OSM and it Subsidiaries' total taxes (including ---------- cash and deferred portion) accrued during such period (3) OSM and it Subsidiaries' cash interest expense ---------- during such period (4) OSM and it Subsidiaries' extraordinary items ---------- during such period (5) Sum of Lines (1), (2), (3) and (4) ---------- (6) OSM and it Subsidiaries' total interest expense ---------- (including capitalized interest) during such period (7) Ratio of Line (5) to Line (6) : ---------- (8) Minimum Interest Coverage Ratio permitted for : ---------- such period Part III. CURRENT RATIO ------------- (subsection 7.2.4(c)) For Period Ending _______________, 19__ (1) Current Assets (consolidated current assets of ---------- OSM and its Subsidiaries, determined in accordance with GAAP) (2) Current Liabilities (consolidated current ---------- liabilities of OSM and its Subsidiaries, determined in accordance with GAAP) (3) Ratio of Line (1) to Line (2) : ---------- (4) Minimum Current Ratio permitted for such period : ---------- Part 1V. CASH FLOW COVERAGE RATIO ------------------------ (subsection 7.2.4(d)) Four Fiscal Quarter period ending , 19 ----------- -- (1) Net Income for OSM and its Subsidiaries ---------- (including minority share portion) for such period 3 (2) OSM and its Subsidiaries' depreciation and ---------- amortization for such period (3) OSM and its Subsidiaries' ESOP accrual ---------- (4) OSM and it Subsidiaries' deferred employee ---------- benefits (5) OSM and its Subsidiaries' other non-cash items, ---------- including such items that relate to OSM's closure of its Fontana facility (6) OSM and its Subsidiaries' total taxes (including ---------- cash and deferred portion) (7) OSM and its Subsidiaries' total interest expense ---------- during such period (8) Sum of Lines (1) through (7) ---------- (9) Scheduled principal payments of consolidated Funded Debt (including, but not limited to, principal payments of the Term Loans pursuant to Section 3.1 of the Credit Agreement) during such period ---------- (10) Total interest charges incurred (including ---------- capitalized interest) during such period (11) Cash portion of taxes paid during such period ---------- (12) Sum of Lines (9) through (11) ---------- (13) Ratio of Line 8 to Line 12 : ---------- (14) Minimum Cash Flow Coverage Ratio permitted for : ---------- such period 4 Part V. FUNDED DEBT TO CAPITALIZATION RATIO ----------------------------------- (subsection 7.2.4(e)) For Period ending , 19 ------------ -- (1) Outstanding principal amount of all obligations ---------- of OSM and its Subsidiaries for borrowed money and all obligations of OSM and its Subsidiaries evidenced by bonds, debentures, notes or other similar instruments (2) Outstanding principal amount of all obligations ---------- of OSM and its Subsidiaries as lessee under leases which have been or should be, in accordance with GAAP, recorded as Capitalized Lease Liabilities (3) Funded Debt (Sum of Lines (1) and (2)) ---------- (4) OSM's Consolidated Tangible Net Worth ---------- (5) OSM's Consolidated Tangible Net Worth and Funded ---------- Debt (Sum of Lines (3) and (4)) (6) Funded Debt to Capitalization Ratio: Ratio of : ---------- Line 3 to Line 5 (7) Maximum Permitted Funded Debt to Capitalization : ---------- Ratio for such period OREGON STEEL MILLS, INC. By: -------------------------- Its: -------------------------- Date: -------------------------- 5 EX-11 4 OREGON STEEL MILLS, INC. EXHIBIT 11.0 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT PER SHARE DATA AMOUNTS) Years ended December 31, ------------------------------- 1994 1993 1992 ------- ------- ------- Weighted average number of common shares outstanding 19,375 19,224 19,183 Common stock equivalents arising from 598 shares of stock to be issued March 2003. 598 598 - ------- ------- ------- 19,973 19,822 19,183 ======= ======= ======= Net income $12,068 $14,805 $19,977 ======= ======= ======= Primary and fully diluted net income per common and common equivalent shares $.60 $.75 $1.04 ==== ==== ===== EX-23 5 INDEPENDENT ACCOUNTANTS CONSENT LETTER CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statement of the Oregon Steel Mills, Inc. Employees Stock Ownership plan on Form S-8 (File No. 33-26739) of our report dated February 10, 1995, on our audits of the consolidated financial statements and financial statement schedule of Oregon Steel Mills, Inc. as of December 31, 1994, 1993, and 1992, and for the years then ended, which report is included in this Annual Report of Form 10-K. Coopers & Lybrand L.L.P. Portland, Oregon March 20, 1995 EX-27 6 FINANCIAL DATA SCHEDULES
5 1000 12-MOS DEC-31-1994 DEC-31-1994 5039 0 82266 2063 160788 259466 435123 97027 665733 117986 0 194 0 0 275689 665733 838268 838268 761335 761335 22134 331 3910 9127 (2941) 12068 0 0 0 12068 .60 .60
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