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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.20549
FORM 10-K
(X) Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 26, 1993 or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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Commission file number 0-14727
ACME METALS INCORPORATED
(Exact name of registrant as specified in its charter)
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DELAWARE 36-3802419
(State of (I.R.S.
incorporation) Employer
Identification
No.)
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13500 SOUTH PERRY AVE., RIVERDALE, ILLINOIS 60627-1182
(Address of principal executive offices) (Zip Code)
(708) 849-2500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each Class
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Common stock, par value $1.00 per share
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. / /
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, and (2) has been
subject to such filing requirements for the
past 90 days. Yes X No __
The aggregate market value as of February 11, 1994 of common stock, $1 par
value, held by non-affiliates of the Registrant was: $136,403,555
Number of shares of Common Stock outstanding as of February 11, 1994, 5,477,923
The following documents are partially incorporated into this report by
reference:
(1) Proxy Statement filed in connection with the Annual Meeting of
Shareholders scheduled April 28, 1994 partially incorporated by reference
into Part III, Items 10, 11, 12 and 13.
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ACME METALS INCORPORATED
1993 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
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Item 1. Business............................................................................................. 3
Item 2. Properties........................................................................................... 9
Item 3. Legal Proceedings.................................................................................... 9
Item 4. Submission of Matters to a Vote of Security Holders.................................................. 16
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters................................ 16
Item 6. Selected Financial Data.............................................................................. 17
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 19
Item 8. Financial Statements and Supplementary Data.......................................................... 25
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................. 25
PART III
Item 10. Directors and Executive Officers of the Company...................................................... 25
Item 11. Executive Compensation............................................................................... 26
Item 12. Security Ownership of Certain Beneficial Owners and Management....................................... 26
Item 13. Certain Relationships and Related Transactions....................................................... 26
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...................................... 27
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PART I
ITEM 1. BUSINESS
(a) General description of business
Acme Metals Incorporated, based in Riverdale, Illinois, is the successor
to the original Acme Steel Company which merged with the Interlake Iron Company
in 1964 to form Interlake Steel Corporation. The company's name was changed to
Interlake, Inc. and was subsequently reincorporated in Delaware on December 19,
1969.
As a result of a reorganization in 1986, The Interlake Corporation ("new
Interlake") became the parent company of Interlake, Inc. ("old Interlake"). Old
Interlake transferred all but its iron, steel and domestic steel strapping
assets and businesses to new Interlake. Old Interlake was again renamed Acme
Steel Company, and pursuant to the reorganization, was spun off from new
Interlake as a public company in May, 1986.
In connection with the spin-off from new Interlake, Acme Steel Company
entered into certain indemnification agreements with new Interlake. As discussed
in Item 3, Legal Proceedings, significant environmental and tax matters are
subject to indemnification by new Interlake under these agreements. To date
Interlake has met its obligations with respect to all matters covered by these
agreements. The inability of new Interlake to fulfill its obligations, for any
reason, under these indemnification agreements could result in increased future
obligations for the Acme Steel Company.
Acme Steel Company undertook a further reorganization in May, 1992 when
Acme Metals Incorporated ("Company") was formed and became the parent of Acme
Steel Company ("Acme"), and Acme's former subsidiaries, Acme Packaging
Corporation ("Packaging"), Alpha Tube Corporation ("Alpha"), and Universal Tool
& Stamping Co., Inc. ("Universal"). The Company has been publicly traded on
NASDAQ since 1986.
The principal business activities of the Company consist of two separate
industry segments namely:
STEEL MAKING SEGMENT
Acme Steel Company - an integrated iron and steel producer
STEEL FABRICATING SEGMENT
Acme Packaging Corporation - steel strapping and strapping products
Alpha Tube Corporation - welded steel tube products
Universal Tool & Stamping Co., Inc. - auto and light truck jack products.
(b) Financial information about industry segments
The Company is reporting its operations by two industry segments, Steel
Making and Steel Fabricating, for the first time. Financial information about
the Company's industry segments is contained in the BUSINESS SEGMENTS section of
the Notes to the Consolidated Financial Statements on page 48.
(c) Narrative description of business
STEEL MAKING SEGMENT
Acme Steel Company ("Acme") is a fully integrated producer of steel
products. Acme's line of products is concentrated on the manufacture of
flat-rolled steels, including sheet and strip steel. In the flat-rolled steel
market Acme specializes in producing carbon steels, especially high carbon
steels, alloy steels, and high strength steels. The principal markets served by
Acme include the agricultural equipment, automotive components, industrial
equipment, industrial fastener, pipe and tube, processor, and tool manufacturing
industries. The Company's Steel Fabricating Segment consumes approximately 40% -
45% of Acme's steel production. Acme's focus on external customers is centered
around customers whose demand levels and metallurgical requirements are for the
small production quantities available from Acme's facilities. Acme's sales
represented about 41%, 37% and 37% of total Company sales in 1993, 1992 and 1991
respectively.
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Acme's facilities are located in Riverdale and Chicago, Illinois, and
include the following plant facilities: coke ovens, blast furnaces, pigging
machines, basic oxygen furnaces, slab, rolling mill, a slab grinder, hot strip
mill, pickle lines, cold mill, annealing furnaces, slitter lines, and
cut-to-length lines.
Acme is the smallest integrated steel producer in the U.S. with annual
shipping capability of approximately 720,000 tons. This compares with total U.S.
shipments of all steel products of approximately 82 million tons.
STEEL FABRICATING SEGMENT
Acme Packaging Corporation ("Packaging"), which was incorporated as a
separate entity in December 1991, is one of the two major domestic producers of
steel strapping and strapping tools in North America and shares approximately
80% of the domestic market equally with its primary competitor. Strapping is
currently produced at four plants located throughout the U.S. and represented
approximately 33%, 36% and 38% of the Company's sales in 1993, 1992 and 1991,
respectively. Principal markets served by Packaging include the agricultural,
automotive, brick, construction, fabricated and primary metals, forest products,
paper and wholesale industries. Packaging receives all of its steel supply from
Acme.
Packaging currently manufactures its products in four steel strapping
plants, located in Riverdale, Illinois; New Britain, Connecticut; Leeds, Alabama
and Pittsburg, California.
Packaging operates in a market estimated to use 420,000 tons of steel
strapping annually. The most significant end users of steel strapping include
steel and other primary metal producers; lumber and wood products; brick,
concrete and clay products; fabricated metals and machinery; textiles and
synthetic fibers; and paper mills. These end user industries typically have a
low growth rate and are cyclical in nature. Consequently, the steel strapping
market is expected to grow at an annual rate of only 1.5% to 2.0% during the
next several years.
Plastic strapping, especially the higher strength polyester products, will
continue to penetrate the traditional steel strapping markets of lumber, paper,
textiles, wood and synthetic fibers, primarily due to improvements in product
strength characteristics. While the balance of the users remain relatively
immune to penetration by plastic strapping the increasing market share of this
product will continue to limit the growth of the steel strapping market.
The U.S. steel strapping market has also experienced continued pricing
pressure due to the commodity nature of the product as well as the overcapacity
in the industry. The pricing scenario is tied to the flat-rolled steel markets
such that increases in flat-rolled steel prices during economic upswings may
squeeze the gross margin until price increases can be implemented and accepted
by the customer base.
Alpha Tube Corporation ("Alpha"), which was acquired in May, 1989, is a
leading producer of high quality welded carbon steel tubing used for furniture,
recreational, contractors and automotive applications. Alpha receives the
majority of its steel supply from Acme. Alpha markets its products to the
appliance, automotive, construction, heating and cooling equipment, household
and leisure furniture, material handling, recreational products, and warehouse
industries. Alpha's sales represented approximately 16% of total sales for the
Company in each of the last three years.
Alpha operates three facilities in Toledo, Ohio, including two
manufacturing facilities equipped with rolling mills for the production of steel
tube and pipe, and a plant for slitting steel.
Alpha operates in a highly competitive market characterized by numerous
participants with widely varying capabilities. Many of the producers compete
only on price and generally offer little or no technical service.
The tubing industry is trending toward products with increased
formability, greater gauge control, lighter weight in combination with higher
strength and different steel chemistries. Customers, especially automotive, are
increasingly demanding just-in-time inventory delivery which is increasing the
inventory carrying costs at the tubing manufacturer level.
Universal Tool & Stamping Co., Inc. ("Universal"), acquired in May 1987,
produces automotive and light truck jacks, tire wrenches and accessories for the
original equipment manufacturer ("OEM") market in North America. Management
estimates that it currently holds a 40% share of the OEM market for auto and
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light truck jacks in North America. Universal receives virtually all its
flat-rolled steel supply from Acme. Universal markets its products to domestic
and foreign transplant automotive manufacturers and the automotive aftermarket.
Universal's sales were approximately 10%, 11% and 9% of total Company sales in
1993, 1992 and 1991, respectively.
Universal's production facilities, located in Butler, Indiana, include a
computer assisted design and manufacturing system, automated stamping and
assembly lines.
Universal operates principally in the automotive OEM and aftermarket in
the U.S. This market is experiencing several trends including a continuing need
by automotive for product development capability and leadership among their
suppliers; a continuing trend toward global sourcing capability; continuing
pressure by customers for reduced per unit pricing while maintaining or
increasing the quality of each unit; and research and development for
alternative materials used in manufacturing the product.
EMPLOYEE RELATIONS
The Company has a work force of 2,772 employees, of which 649 are salaried
and 2,123 are paid hourly. The unionized work force totals 1,979, or 71% of
total employment. None of the salaried work force is unionized and the hourly
work force at one site (Alpha) is non-union as well. The Company's relationships
with the unions are good. There have been no strikes or work stoppages at any
location since the Company's purchase of the plants. The last strike at the
Riverdale and Chicago locations was in 1959 during the major steel industry work
stoppage. In addition, the Company instituted Labor Management Participation
Teams in 1982 as a vehicle for problem solving in a team environment and a Total
Quality Improvement Program in 1991 to establish standards to achieve the
highest quality product from the existing facilities. Union members participate
extensively in these two programs.
During the year the Company reached an agreement with the United
Steelworkers on a new labor contract covering approximately 1,500 employees at
Acme and Packaging operations in Chicago. The agreement is for six years,
contains a no-strike provision, and a wage reopener subject to binding
arbitration. The contract was ratified on October 1, 1993.
RAW MATERIALS
Acme's principal raw materials are iron ore and coal. Iron ore
requirements are expected to continue to be satisfied through an equity interest
in Wabush Mines in Newfoundland (Labrador) and Quebec, Canada and through term
contracts and purchases on the open market. Acme is obligated to purchase iron
ore from Wabush at the higher of production cost or market. Production cost
currently approximates market; however, there can be no assurance that the
mine's cost structure will not increase in the future in excess of world market
prices. During 1993, Acme acquired approximately 56% of its iron ore needs from
Wabush under this agreement with the balance of ore requirements at a
competitive delivered cost. Coal requirements are expected to be satisfied
through term contracts and purchases on the open market. The Company believes
Acme's sources of iron ore, coal and other raw materials are adequate to provide
for its foreseeable needs.
ENVIRONMENTAL COMPLIANCE
The operations of the Company and its subsidiary companies are subject to
numerous Federal, state and local laws and regulations providing a comprehensive
program of controlling the discharge of materials into the environment and
remediation of certain waste disposal sites by responsible parties for the
protection of public health and the environment. In addition, various federal
and state occupational safety and health laws and regulations apply to the work
place environment.
The current environmental control requirements are comprehensive and
reflect a long-term trend towards increasing stringency as these laws and
regulations are subject to periodic renewal and revision. The Company expects
these requirements will continue to become even more stringent in future years.
The 1990 Federal Clean Air Act amendment, for example, imposed significant
additional environmental control requirements upon Acme's coke plant facilities.
In prior years, the Company has made substantial capital investments in
environmental control facilities to achieve compliance with these laws,
incurring expenditures of $9.8 million for environmental projects in the period
from 1991 through 1993. The Company anticipates making further capital
expenditures of approximately $6 million for environmental projects during 1994
and $7 million in 1995 to maintain
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compliance with these laws (exclusive of any such expenditures related to the
Project (see Item 1(e) for a description of the Project)). In addition,
maintenance, depreciation and operating expenses attributable to installed
environmental control facilities are having, and will continue to have, an
adverse effect upon the Company's earnings. Although all of the Company's
subsidiary operating companies are affected by these laws and regulations,
similar to other steel manufacturing operations, they have had, and are expected
to continue to have, a greater impact upon the Company's steel manufacturing
subsidiary than on the Company's other operating subsidiaries.
The Company, principally through its operating subsidiaries, is and, from
time to time, in the future will be involved in administrative proceedings
involving the issuance, or renewal, of environmental permits relating to the
conduct of its business. The final issuance of these permits have been resolved
on terms satisfactory to the Company and, in the future, the Company expects
such permits will be similarly resolved on satisfactory terms; however, from
time to time, the Company is required to pursue administrative and/or judicial
appeals prior to achieving a resolution of the terms of such permits.
From time to time, the Company may be involved in administrative or
judicial proceedings with various regulatory agencies or private parties in
connection with claims the Company's operations have violated certain
environmental laws, conditions of existing permits or with respect to the
disposal of materials at waste disposal sites. The resolution of such matters
may involve the payment of civil penalties, damages, remediation expenses and/or
the expenditure of funds to add or modify pollution control equipment (see Item
3, Legal Proceedings, for a complete description of environmental proceedings).
BACKLOG; TRADEMARKS; PATENTS
None of the Company's subsidiaries had a significant amount of backlog at
December 26, 1993 and neither the Company nor its subsidiaries hold any patents,
trademarks, licenses or franchises which are deemed material to its overall
business.
(d) Competitive Conditions in the Integrated Steel Industry
GENERAL STEEL MARKET
The U.S. integrated steel industry has suffered economically in the past
decade due to increased competition from mini-mills, lack of investment in newer
steelmaking technologies, foreign competition (often government subsidized),
increasing costs associated with government-mandated environmental regulations
and high labor and benefit costs compared to its competition.
U.S. domestic shipments for all steel products have averaged approximately
80 million tons per year for the last several years. While total U.S. shipments
of steel have grown by an average of 2.4% per year since 1982, steel exports by
U.S. producers have accounted for most of that growth. Domestic steel
consumption has been essentially flat over the past ten years.
The industry has total raw steel production capacity estimated to be 110
to 115 million tons. In addition, nearly 85% of current U.S. steel production is
continuously cast. These two factors together with the industry's ongoing
successful efforts to improve productivity and reduce costs have contributed to
significant downward pressure on the price of steel in the marketplace. Real
steel selling prices have fallen at an annual rate of 3.5% over the past decade
although during 1993, steel prices increased on average. The Company believes
the trend toward lower real steel prices will continue, although at a slower
rate.
Over the long term, steel prices will be set by the lowest cost producers,
and the lowest costs will be attained through the implementation of new
technologies. The flat-rolled steel market provides strong evidence of this
downward trend in real steel prices due to decreasing costs. Technological
innovation is likely to continue in the steel industry and producers will be
required to achieve significant, sustainable cost reductions to succeed.
SPECIAL GRADE MARKET
This component of the flat-rolled market represents the medium carbon,
high carbon, high strength low alloy (HSLA) and alloy markets. The total annual
specialty market is approximately 3 million tons, of which Acme's share is
estimated to be 6% to 7%. However, in the portion of the market where Acme is
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facility-limited (where customers can use narrow widths and have no continuous
cast requirement), it holds a 30% share. Acme's principal customer markets are
agricultural equipment, industrial fasteners, hand and power tools, rerollers,
automotive components and construction.
LOW CARBON FLAT-ROLLED MARKET
Flat-rolled products comprise approximately 50% of the U.S. steel market,
or about 40-45 million tons per year, of which the majority is in low carbon
sheet and strip. Acme's share is estimated to be less than 1%. The key end users
are automotive OEMs, automotive stampers, can and container manufacturers, the
construction industry, appliance makers, tubing manufacturers and steel service
centers.
ACME'S COMPETITIVE POSITION
For commercial sales to unaffiliated customers, Acme currently competes
principally in the mid-and high-carbon and alloy steel markets. Acme has
numerous competitors composed principally of steel service centers and, to a
lesser extent, small integrated mills.
Acme faces the same challenges as the rest of the steel industry. It has
reported operating losses for 2 of its last 3 years. While Acme has generally
outperformed the industry on average over the last 3 years, because of Acme's
high overall cost structure resulting from its outmoded steel finishing process
and the competitive forces affecting the entire steel industry, steelmaking has
proven to be only marginally profitable even at the upper end of the business
cycles. Management believes that Acme, and the U.S. steel industry as a whole,
benefitted during 1993 from an upturn in the business cycle and increases in
steel prices on average over the past year. There can be no assurance that this
upturn in the business cycle will continue or that the industry will be
successful in maintaining current price levels.
(e) The Project
Acme's current rolling mill facilities cannot produce a coil which is
large and wide (more than 30 inches) enough to satisfy the needs of many users
of flat-rolled steel. In addition, the existing physical limitations of the mill
facilities do not allow Acme to fully utilize its existing raw steel
manufacturing capability. Further, large users increasingly demand continuously
cast materials, and many other users prefer such materials.
Since 1982, a number of U.S. steel mills have constructed conventional
thick slab continuous casting production facilities. There are eleven of such
known facilities, which have a combined estimated capacity of 37.1 million tons
of flat-rolled steel per year. One additional company is installing conventional
thick slab continuous casting production facilities which will have a combined
estimated capacity of 2.1 million tons per year.
The conventional thick slab facilities are a technological step behind the
new continuous thin slab casting facilities, which eliminate the extra heating
and rolling necessary to flatten thick slabs to an appropriate dimension. At
present there are 2 operating thin slab casting facilities in North America,
which have a combined estimated capacity of 2 million tons per year. In
addition, thin slab casting facilities are under construction with an estimated
combined capacity of 3 million tons. Of the companies currently using or
constructing continuous thin slab casters, none have or will have the facilities
to use basic oxygen furnace steel as would Acme. Instead, these new
installations will use scrap steel as their raw material.
In response to these and other competitive concerns, in July 1992, the
Company announced that it was conducting a feasibility study of a new continuous
thin slab caster/hot strip rolling mill complex ("Project") at the Company's
Riverdale, Illinois plant. The study concluded that successful implementation of
the Project should result in significantly more favorable financial results for
the Company beginning in 1997 than those it would achieve if it continued its
steelmaking business with its existing facilities. This improved financial
performance would result from increased sales due to increased production
capability and product range, higher yields, lower costs, increased efficiency,
and more consistent product quality.
The Board of Directors of the Company is now in the process of deciding
whether to proceed with the Project. The final cost of the Project, including
equipment, ancillary facilities and construction, is not yet known and the
available estimates vary depending upon various factors including type of
equipment selected, costs of financing and general contractor fees. At this
time, however, the Company believes the cost of the Project will be between $300
million and $350 million.
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If constructed, the Project will include facilities for both the
continuous casting of thin steel slabs (approximately 2" in thickness and 60" in
width) ("Caster") and the hot rolling of those slabs into steel strip ("Mill").
The Project will eliminate the processes Acme now employs for ingot pouring,
processing, heating and rolling of ingots into slabs, slab conditioning, and the
transportation and storage of ingots and slabs. If completed, the Caster will be
the first facility, known to the Company, which utilizes a continuous thin slab
casting process in conjunction with cleaner steel produced in a basic oxygen
furnace.
The Mill would be configured with seven tandem-coupled rolling stands.
Each stand sequentially would reduce the thickness of the slab being rolled. At
the exit of the seventh stand, the slab's thickness would have been reduced from
2 inches to the final gauge required for the customer's order. With 7 rolling
stands, the Mill would be the largest hot strip mill constructed to date for use
with a continuous thin slab caster. The Mill's seven stand configuration should
allow the Company to produce wider and thinner products, across all steel
grades, than any existing continuous thin slab caster/hot strip mill facility.
The Project would be constructed in a new building on a site adjacent to
Acme's current steelmaking facilities. Steel production at Acme's existing
facilities will continue during the construction of the Project without
disruption or reduction of product available for supply to customers. When fully
operational, the Project should be capable of producing Acme's anticipated
product mix of approximately 970,000 tons of finished steel per year. The
limiting factor on annual capacity would be the Caster. The Mill should be
capable of producing over two million tons of finished steel annually.
Accordingly, if the Project proves to be successful, the Company may consider an
expansion of the steelmaking and casting facilities in order to supply a
sufficient quantity of thin slabs to more fully utilize the Mill.
If undertaken, the Project would involve substantial costs in addition to
those for the construction of the facility itself. The new Caster and Mill will
eliminate several labor-intensive operations Acme now must employ. The
efficiencies resulting from the elimination of these operations will result in a
reduction of Acme's workforce of between 250 and 300 people. The Company would
be required to take an approximately $4.8 million charge to income in 1994 to
account for the costs associated with this workforce reduction. The Company
would also be required to take an approximately $8.3 million charge to income in
1994 to reflect a reduction of the useful life of the existing steel finishing
facilities which would be replaced by the Project. Further, during the Project's
final completion phase, including initial testing, the Company anticipates
incurring approximately $15 million of start-up related costs, some of which may
be capitalized as part of the Project. In addition, the Company would be
required to capitalize the interest expenses associated with the Project during
the construction period. This expense is estimated to be approximately $30 - 35
million depending on the nature and amount of the debt used to finance the
Project, which amount would be added to the cost of the Project and amortized
over the life of the related assets.
The Board of Directors of the Company will decide to proceed or not to
proceed with the Project based on whether, within the next five months, the
Company is able to obtain satisfactory commitments (1) from a manufacturer for
the supply of the equipment needed for the Project, (2) from a general
contractor for assumption of "turnkey" responsibility for the Project, and (3)
from credit sources for the financing needed for the Project.
The Company is currently studying the advantages and disadvantages of
alternative casting equipment configurations for the Project which is
manufactured by several different suppliers. One type of equipment under
consideration has not yet successfully cast all grades of steel in Acme s
projected product mix in commercial applications. Another type of equipment
under consideration is not currently operating in any commercial plant. The
Company believes after extensive research, and based on pilot plant testing
together with successful experience with thick slab casting, that all grades in
Acme's product mix can be cast and rolled to reasonable commercial standards;
however, there can be no guarantee that the equipment the Company selects will
perform in accordance with the feasibility studies.
The Company is in discussions with several internationally recognized
general contracting firms about their assumption of "turnkey" responsibility for
the Project. The Company's decision to proceed with the Project depends upon the
negotiation of a satisfactory contract with one of these general contractors or
a general contractor of similar reputation, capability, and financial resources.
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With respect to financing, on March 3, 1994, the Company agreed to sell an
issue of securities at a price of $21.00 per security on a private placement
basis exclusively in Canada. Upon the closing of this transaction, expected to
occur on or before August 25, 1994, the securities will be exchangeable on a
one-for-one basis, subject to certain conditions, for 5,600,000 common shares of
the Company. Conditions for the exchange of the securities for common stock and
the Company's receipt of the proceeds of the sale of the securities include
confirmation of the availability of not less than 85% of the remaining financing
needed for construction of the Project and approval of such construction by the
Company's Board of Directors, which approval will occur only after selection of
an equipment manufacturer and a general contractor. The securities and the
underlying common shares have not been registered under the Securities Act of
1933 (the "Securities Act") and may not be offered or sold in the United States
or to a U.S. person, as defined in Regulation S under the Securities Act, absent
registration or an applicable exemption from registration requirements.
There can be no assurances at this time that the conditions to the
exchange of the securities for common stock will be satisfied by the August 25,
1994 date (which may be extended by the Company, with the purchasers consent,
for a period of up to 20 additional days for further consideration of $27,500
for each extended day) or that the Project will otherwise proceed. If the
Project does proceed, the Company believes Acme's existing steel manufacturing
operations will continue during construction with minimal disruption. The
Project and the activities of the general contractor will be monitored by a
project management team composed primarily of existing officers and employees.
In the event there are significant problems with the construction of the
Project, senior management may have to devote substantial time to those problems
and, as a result, may devote substantially less time than is normal to existing
operations.
ITEM 2. PROPERTIES
The Company, through its subsidiaries, has facilities throughout the
United States.
Acme's principal properties consist of an iron-producing plant in Chicago,
Illinois and a steel producing plant in Riverdale, Illinois. These facilities
include blast furnaces, coke ovens, pigging machines for the production of
molten iron and pig iron, basic oxygen furnaces and rolling mills for the
production of flat-rolled steel. Acme also owns equity interests in raw material
mining ventures in Newfoundland (Labrador) and Quebec, Canada (iron ore).
Packaging's principal properties consist of steel strapping plants, which
include slitting and painting equipment, in Riverdale, Illinois, New Britain,
Connecticut and Leeds, Alabama and a steel strapping plant in Pittsburg,
California.
Alpha's three facilities are located in the Toledo, Ohio metropolitan
area. Alpha's facilities include two manufacturing and office buildings and
rolling mills for the production of welded steel tubing. Alpha has a third plant
at which steel is slit.
Universal's facilities are located in Butler, Indiana. Universal's
facilities include a manufacturing and office building, a computer assisted
design and manufacturing system, and automated forming and assembly lines.
All of these plants are owned in fee except for the Alpha facilities which
are leased through 1994, and are renewable at the option of the Company.
In the opinion of management, the manufacturing facilities of the
Company's subsidiaries are properly maintained and their productive capacity is
adequate to meet their requirements.
ITEM 3. LEGAL PROCEEDINGS
(a) General
Pursuant to an Agreement and Plan of Reorganization as of March 5, 1986,
the Company (prior to the Company's 1992 reorganization, the Company was Acme
Steel Company, now a subsidiary and formerly called Interlake, Inc. hereinafter
referred to as the "Company") and Interlake, its former parent company entered
into a Tax Indemnification Agreement ("TIA"). The TIA generally provides for
Interlake to indemnify the Company for certain tax matters. Per the TIA,
Interlake is solely responsible for any additional income taxes it is assessed
related to adjustments relating to all tax years prior to 1982. With respect to
any additional
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income taxes that are finally determined to be due with respect to the tax years
beginning in 1982 through the date of the "Spin-Off" (as said term is identified
in the Reorganization documents), the Company is responsible for taxes relating
to "Timing Differences" related to the Company's "Continuing Operations." A
"Timing Difference" is defined generally as an adjustment to income, deductions
or credits which is required to be reported in a tax year beginning subsequent
to 1981 through the Spin-Off, but which will reverse in a subsequent year.
"Continuing Operations" is defined generally as any business and operations
conducted by the Company as of the Spin-Off date. Interlake is principally
responsible for any additional income taxes the Company is assessed relating to
all other adjustments prior to the Spin-Off.
While certain issues have been negotiated and settled between the Company,
Interlake and the Internal Revenue Service for the tax years beginning 1982
through the date of the Spin-Off, certain significant issues for the tax years
beginning 1985 through the Spin-Off remain unresolved; and on March 17, 1994,
the Company received a Statutory Notice of Deficiency ("Notice") in the amount
of $16.9 million in tax as a result of the Internal Revenue Service's
examination of the 1982 through 1984 tax years. Interlake has been principally
responsible, pursuant to the TIA, for representing the Company before the
Internal Revenue Service for the 1982 through 1984 tax years. Should the
government sustain its position as proposed for those unresolved issues and
those contained in the Notice, substantial interest would also be due
(potentially in an amount greater than the tax claimed). The taxes claimed
relate principally to adjustments for which the Company is indemnified by
Interlake pursuant to the TIA. The Company has adequate reserves to cover that
portion of the tax for which it believes it may be responsible per the TIA. The
Company intends to contest the unresolved issues and the Notice.
To date Interlake has met its obligations under the TIA with respect to
all matters covered. In the event, Interlake, for any reason, was unable to
fulfill its obligations under the TIA, the Company could have increased future
obligations.
The Company's subsidiaries also have various other litigation matters
pending which arise out of the ordinary course of their businesses. In the
opinion of management, the ultimate resolution of these matters will not have a
material adverse effect on the financial position of the Company.
(b) Environmental
In addition to the general matters noted above, the operations of the
Company and its subsidiary companies are subject to numerous Federal, state and
local laws and regulations providing a comprehensive program of controlling the
discharge of materials into the environment and remediation of certain waste
disposal sites by responsible parties for the protection of public health and
the environment. In addition, various federal and state occupational safety and
health laws and regulations apply to the work place environment.
The current environmental control requirements are comprehensive and
reflect a long-term trend towards increasing stringency as these laws and
regulations are subject to periodic renewal and revision. The Company expects
these requirements will continue to become even more stringent in future years.
The 1990 Federal Clean Air Act amendment, for example, imposed significant
additional environmental control requirements upon Acme's coke plant facilities.
In prior years, the Company has made substantial capital investments in
environmental control facilities to achieve compliance with these laws,
incurring expenditures of $9.8 million for environmental projects in the period
from 1991 through 1993. The Company anticipates making further capital
expenditures of approximately $6 million for environmental projects during 1994
and $7 million in 1995 to maintain compliance with these laws (exclusive of any
such expenditures related to the continuous thin slab caster and hot strip mill
project should this project be approved by the Company's Board of Directors). In
addition, maintenance, depreciation and operating expenses attributable to
installed environmental control facilities are having, and will continue to
have, an adverse effect upon the Company's earnings. Although all of the
Company's subsidiary operating companies are affected by these laws and
regulations, similar to other steel manufacturing operations, they have had, and
are expected to continue to have, a greater impact upon the Company's steel
manufacturing subsidiary than on the Company's other operating subsidiaries.
The Company, principally through its operating subsidiaries, is and, from
time to time, in the future will be involved in administrative proceedings
involving the issuance, or renewal, of environmental permits
-10-
<PAGE>
relating to the conduct of its business. The final issuance of these permits
have been resolved on terms satisfactory to the Company and, in the future, the
Company expects such permits will be similarly resolved on satisfactory terms;
however, from time to time, the Company is required to pursue administrative
and/or judicial appeals prior to achieving a resolution of the terms of such
permits.
From time to time, the Company may be involved in administrative or
judicial proceedings with various regulatory agencies or private parties in
connection with claims the Company's operations have violated certain
environmental laws, conditions of existing permits or with respect to the
disposal of materials at waste disposal sites. The resolution of such matters
may involve the payment of civil penalties, damages, remediation expenses and/or
the expenditure of funds to add or modify pollution control equipment.
WASTE REMEDIATION MATTERS
Pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C., Section 9601 ET SEQ. ("Superfund") and
similar state statutes, liability for remediation of property, including waste
disposal sites, contaminated by hazardous materials may be imposed on present
and former owners or operators of such property and generators or transporters
of such materials to a waste disposal site (i.e., Potentially Responsible
Parties, "PRPs"). The Company and its operating subsidiaries have been named as
PRPs with respect to several such sites. In each instance, the Company's
investigation has evidenced either i) the Company had not disposed of waste
materials at the site and was not properly named as a PRP; or, ii) the Company's
proportion of materials disposed of at such sites is of sufficiently small
volume to qualify the Company as a DE MINIMIS contributor of waste material at
such sites. This DE MINIMIS status has been confirmed at essentially all of the
applicable sites. The following are Superfund sites in which the Company's
operating subsidiaries have been identified and to which the Company's
investigation discloses the Company i) did not ship waste materials; or ii) the
Company is a DE MINIMIS PRP: U.S. Scrap Site, Chicago, Illinois; 9th Avenue Dump
Site, Gary, Indiana; MIDCO I and MIDCO II Site, Gary, Indiana; American Chemical
Services Site, Griffith, Indiana; Calumet Containers Site, Hammond, Indiana;
Aqua-Tech Site, Greer, South Carolina; PSC Resources Site, Palmer,
Massachusetts; U.S. Lead Refinery Site, East Chicago, Indiana; Thermo-Chem Site,
Muskegon County, Michigan; Port Monroe Landfill Site, Monroe County, Michigan;
and Peoples Gas Light and Coke Company Site, Chicago, Illinois.
Although no assurances can be given that new information will not be
uncovered which would cause the Company's subsidiary companies to lose their DE
MINIMIS status at these sites, or, that the Company, or its subsidiary companies
would not be named as PRPs at additional sties, the Company presently believes
its total costs for the sites named above will not be material.
In addition to the foregoing Superfund sites, the following waste
remediation matters relating to the Company's subsidiary companies are currently
pending:
UNIVERSAL TOOL AND STAMPING COMPANY, INC. - CLOSURE PLAN
A hazardous waste permit application under the Interim Status provision of
RCRA was filed on behalf of the Company's Universal Tool & Stamping Company,
Inc. subsidiary ("Universal") with U.S. EPA and the Indiana Department of
Environmental Management ("IDEM") for several small temporary storage areas
utilized to hold hazardous waste prior to shipment to a permanent, off-site,
approved disposal area. A permit was issued categorizing Universal as a
Temporary Storage and/or Disposal facility ("TSD") which required a statutory
showing of financial responsibility.
RCRA amendments, which were passed following the issuance of the permit,
eliminated the Interim Status classification and Universal attempted to
recategorize itself as a Generator of hazardous waste rather than a TSD
facility. To be reclassified as a Generator, Universal must meet a statutorily
prescribed closure procedure ("Closure Plan") for areas where hazardous
materials have been temporarily stored. This Closure Plan was submitted by
Universal to the Indiana Department of Environmental Management ("IDEM").
Closure of area 1 was separated from closure of area 2, 3 and 3-Extended.
On September 14, 1989 a complaint was filed by the U.S. EPA pursuant to
Section 3008(a)(1) of RCRA as amended, 42 U.S.C. Section 6928 and the U.S. EPA's
Consolidated Rules of Practice Governing the Administrative Assessment of Civil
Penalties and the Revocation or Suspension of Permits, 40 C.F.R. Part 22.
-11-
<PAGE>
This complaint was resolved pursuant to a Consent Agreement and Final Order
whereby Universal, through the Company, provided financial assurances and agreed
to cease all treatment, storage or disposal of any hazardous waste. Universal
paid a civil penalty in the amount of $9,500.
In 1988 Universal submitted a Closure Plan (the "Plan") to IDEM following
a Notice of Violation arising out of the storage of hazardous wastes for longer
than ninety (90) days. This Plan was revised in 1992 and again in 1993. The
revised estimated cost of remediation of Area 1 is approximately $25,000. The
Plan also provided for remediation of Areas 2, 3 and 3-Extended. The revised
estimated cost of remediation of Closure Areas 2, 3 and 3-Extended is estimated
at less than $40,000.
Universal intends to complete the Closure Plan for those areas where
materials were temporarily stored. The costs associated with the remediation of
these areas have either been paid or reserved for by Universal; however, while
there are no assurances the final costs may not exceed these estimates, they are
not expected to be significant.
ENVIRONMENTAL REMEDIATION AT THE PACKAGING FACILITY LOCATED AT 855 NORTH
PARKSIDE DRIVE, PITTSBURG, CALIFORNIA
On or about March 31, 1988, the Company's Acme Steel Company subsidiary
entered into an Asset Purchase Agreement for the acquisition of assets
associated with a strapping facility located in Pittsburg East, California (the
"Pittsburg Facility"). Pursuant to the Company's 1992 reorganization, the
Pittsburg Facility was conveyed to the Company's Acme Packaging Corporation
subsidiary ("Packaging"). During the course of the Company's due diligence
investigation conducted prior to the acquisition of the Pittsburg Facility, the
Company identified contamination in the soil and groundwater at the Pittsburg
Facility. As part of the acquisition, the seller undertook obligations in
connection with environmental contamination at the Pittsburg Facility and these
obligations were guaranteed by the seller and its parent company. The Company
made a demand on prior owners of the Pittsburg Facility and when no satisfactory
resolution was achieved, the Company commenced litigation.
The litigation was settled in 1990 by agreement among the Company and the
prior owners and operators of the Pittsburg Facility. The Settlement required a
prior owner to remediate contamination detected in the groundwater, soil or
subsurface soil on, under or near the Pittsburg Facility and to investigate and
remediate other contamination on, under or near the Pittsburg Facility caused by
prior owners of that facility and to investigate and remove contamination
brought to the Pittsburg Facility during the remediation program. The prior
owner is responsible for preparation of a Remedial Action Plan (the "Plan") and
to verify that the appropriate local, state and federal agencies have no
objection to the Plan as completed. The remediation levels are subject to local,
state and federal laws, rules and regulations. The Packaging's participation
includes observation of the former owner's actions and to contribute to the
funding of the Plan costs in a non-material amount.
While the facility has been closed for business reasons, the remediation,
principally in the form of a groundwater extraction and treatment system which
discharges the treated water to a nearby sanitary sewer under permit continues.
Based on the information available to date, the Packaging's level of financial
commitments have not been significant and the balance of its commitment is not
anticipated to be significant.
LEEDS, ALABAMA - ELEVATED LEVELS OF LEAD
In September, 1992, the Company's Acme Packaging Corporation subsidiary
("Packaging") hired a consulting engineering firm for the purpose of providing
soil sampling and analysis in connection with an application for a stormwater
permit for its Leeds, Alabama, plant. Pursuant to an investigation conducted by
the consultant, elevated levels of lead were discovered on the property,
including one area of the property wherein buried drums were discovered
containing lead.
In January, 1993, Packaging advised the seller of this plant site that the
sampling program was initiated in conjunction with filing a Notice of Intent for
the plant for coverage under the Alabama Department of Environmental
Management's General Stormwater Discharge Permit. The seller was advised that
the results of the sampling program showed runoff from the west parking lot area
contained elevated concentrations of lead in the samples. Pursuant to
Packaging's investigation, Packaging advised the seller that all evidence
indicates these conditions were present on the property at the time the seller
owned the property
-12-
<PAGE>
and were present at the time the Leeds, Alabama, facility was sold to the
Company on March 29, 1989; and, pursuant to the terms of the purchase and sale
agreements relating to this property, the seller is responsible for remediating
any lead or other contaminants located on this property. Without admitting or
denying its liability, the seller has retained a consultant to conduct a full
investigation, sampling and analysis of the property.
Packaging is cooperating with the seller regarding the investigation of
the contamination of this property by lead, and/or other substances; however,
Packaging intends to vigorously pursue its remedies under the purchase and sale
agreements with the seller.
ADMINISTRATIVE AND LITIGATION MATTERS
The Company, or its operating subsidiaries are currently involved in the
following matters relating to administrative regulations which affect, or may
affect, the operations, the permits or the issuance of permits; or litigation
relating to the Company:
ACME STEEL COMPANY - NPDES PERMIT
In 1991, the Illinois Environmental Protection Agency ("IEPA"), issued the
Company's Acme Steel Company subsidiary ("Acme") a permit, pursuant to the
National Pollution Discharge Elimination System ("NPDES") regulating non-contact
water discharges to the Calumet River from Acme's coke and blast furnace plant
facilities. The NPDES permit contains strict temperature and stormwater
discharge limitations. Acme filed an appeal of certain conditions of the permit
with the Illinois Pollution Control Board ("IPCB"). Acme is proceeding to
resolve this matter through the administrative proceedings which allow for the
filing of a Petition for an Adjusted Standard and a request the IPCB grant Acme
an adjusted standard and relief from the temperature limitations. Further,
through modification of certain provisions in the permit and the implementation
of best management practices, Acme anticipates achieving control of the Acme's
stormwater discharge to an the extent that it will achieve compliance with
permit conditions.
In the event these matters are not resolved through the administrative
process as outlined above, Acme will petition the IPCB for a variance from the
General Use Water Quality Standards. If issued, a variance will provide
temporary relief. Future compliance with permit conditions would be achieved at
an estimated capital expenditure of approximately $4.0 million and operating
expenses would be incurred at an annual rate of approximately $600,000. In the
event Acme's Petition for an Adjusted Standard is denied and a variance is
denied, Acme may be subject to penalties until compliance is achieved.
While the Company believes Acme has demonstrated it is entitled to the
issuance of an Adjusted Standard, or absent an Adjusted Standard, a variance
allowing the Company sufficient time to install additional capital equipment to
achieve compliance, there are no assurances the same will be granted. If such
relief is not granted, and penalties are assessed, the Company does not have
sufficient information to estimate its liabilities for such penalties, if any,
which may be assessed.
REMOVAL CREDITS AND PRETREATMENT
The Metropolitan Water Reclamation District of Greater Chicago ("MWRD") is
a publicly owned treatment works ("POTW"). The MWRD applied to the U.S. EPA for
authority to revise categorical pretreatment standards to reflect the actual
treatment provided by the MWRD for waste water discharged to the MWRD's POTW by
industrial users ("Removal Credits"). These revised categorical standards,
reflecting Removal Credits are essential for the Company's Acme Steel Company
subsidiary ("Acme") to avoid expenditures for control of 4AAP phenol found in
discharges from its coke by-products plant and for control of certain other
pollutants. In 1987, the MWRD's application was denied by the U.S. EPA and the
denial was upheld by the United States Court of Appeals for the Seventh Circuit.
The U.S. EPA maintained that under the Clean Water Act and decisions of U.S.
District Courts, that it could not approve Removal Credits until it promulgated
"sludge criteria."
In 1993, the U.S. EPA promulgated sludge criteria which included the
possibility of granting Removal Credits for phenols in certain circumstances.
Acme petitioned the MWRD for Removal Credits. Following this petition, the MWRD
again applied to the U.S. EPA for authority to grant Removal Credits. While this
application was denied, the U.S. EPA stated that if the Agency amends its
regulations with respect to phenol 4AAP either as a result of the petition filed
by the MWRD or independently, that the MWRD may then resubmit its application.
-13-
<PAGE>
Acme filed Comments and a Request for Reconsideration and Clarification
concerning U.S. EPA's Standards for Disposal of Sludges with the U.S. EPA and
filed a Petition for Review of the U.S. EPA's decision with the Court of Appeals
for the DC Circuit. Both the Comments and Request for Reconsideration and the
Petition for Review are pending. While Acme continues to challenge the U.S.
EPA's denial of the Removal Credits application and is pursuing administrative
and legal remedies, Acme could be subject to allegations it is in violation of
currently applicable pretreatment standards and could be required to negotiate
appropriate resolutions with the U.S. EPA and the MWRD which could result in the
payment of penalties. In the event Acme is unsuccessful in its challenge of U.S.
EPA's actions, capital expenditures required to bring its discharges to the MWRD
into compliance with the current applicable pretreatment standards are estimated
at approximately $6.0 million.
Although Acme is vigorously pursuing its administrative and judicial
remedies and would vigorously contest any action to assess civil penalties
against Acme, the Company does not have sufficient information to estimate its
potential liability, if any, if Acme's efforts to obtain such relief, or contest
such penalty assessments, are not successful.
ACME STEEL COMPANY CONSENT DECREE (BOF)
The Illinois Environmental Protection Agency ("IEPA"), through the
Illinois Attorney General's Office, filed an enforcement action against the
Company's Acme Steel Company subsidiary ("Acme") in the Circuit Court of Cook
County, Illinois. The IEPA claimed violations of the Illinois Environmental
Protection Act and the state of Illinois Air Pollution Control Regulations
arising out of the discharge of particulate matter and dust from the Acme's
basic oxygen furnace located at its Riverdale facility. During 1993, Acme and
the Attorney General for the State of Illinois entered into a Consent Decree
which was filed with the Circuit Court of Cook County. The Consent Decree
required Acme to improve certain operating and maintenance practices, upgrade
certain equipment and pay a civil penalty of $17,500. Acme has completed all
requirements of the Consent Decree and is in substantial compliance with all
continuing obligations of the Consent Decree.
UNIVERSAL TOOL & STAMPING COMPANY, INC. CONSENT DECREE COMPLIANCE
The Company's Universal Tool & Stamping Company, Inc. subsidiary
("Universal") owns and operates a Class B industrial waste water treatment plant
("WWTP") subject to a federal Clean Water Act National Pollution Discharge
Elimination System ("NPDES") permit. The State of Indiana issued a Notice of
Violation to Universal in 1985 resulting from violations of the terms and
conditions of Universal's NPDES permit. In 1987 Universal entered into a Final
Consent Order which provided a schedule for Universal to come into compliance
with the NPDES permit affluent limitations and contained additional limitations
on Universal's discharge from the WWTP. Compliance with effluent limitations was
not achieved until February, 1993. Settlement conferences were held in
September, 1993 and a Consent Order was entered into wherein Universal was
assessed a Civil Penalty in the amount of $59,175 and which subjected Universal
to continued penalties in the event of a violation of the terms of its NPDES
permit occurring during a six (6) month period following execution of the
Consent Order. Universal continues to operate in compliance with the Consent
Order and has not experienced any reportable violations of its NPDES permit or
any term of the Consent Order as of this date.
OTHER MATTERS
GREAT LAKES INITIATIVE
The U.S. EPA and the eight Great Lakes States are currently developing
guidelines for discharge standards in the Great Lakes basin pursuant to the
Great Lakes Critical Programs Act ("guidelines"). These guidelines were due to
be issued in 1991; however, due to the complexity of the process and subject,
these guidelines have not yet been published. When finalized, these guidelines
are expected to require substantially more stringent limitations on industrial
discharges to the water of, or entering, the Great Lakes than those currently
applicable to such industrial waste waters. After publication of the Guidelines,
each state would revise its water discharge regulations to incorporate the
substance of the contents of the Guidelines.
All of the process waste waters from the Company's Acme Steel Company
subsidiary ("Acme") are discharged to the Metropolitan Water Reclamation
District of Greater Chicago's ("MWRD") sewerage system
-14-
<PAGE>
for treatment by the MWRD's municipal sewerage plant. Until such time as the
final guidelines are published by U.S. EPA and specific water effluent
limitations for the MWRD's public sewerage plants are adopted by the Illinois
EPA, the Company is unable to determine whether or not Acme will be subjected to
further restrictions on its process water discharges to the MWRD's sewerage
system or the cost of implementing such requirements, if any.
1986 REORGANIZATION MATTERS
Pursuant to an Agreement and Plan of Reorganization dated as of March 5,
1986, (the "Reorganization") between the Company (prior to the Company's 1992
reorganization, the Company was Acme Steel Company, now a subsidiary and
formerly called Interlake, Inc.; hereinafter referred to as the "Company") and
its former parent company, The Interlake Corporation ("Interlake"), the Company
became a separate, publicly held corporation with separate management. In
connection with this Reorganization, Interlake and the Company entered into a
Cross-Indemnification Agreement, dated May 29, 1986, (the "Agreement") more
specifically described in Exhibit 10.2 to the Company's Annual Report/Form 10K
filed with the U.S. Securities Exchange Commission for the fiscal year 1992.
Pursuant to the terms of this Agreement, for a period of ten (10) years
following the date of the "Spin-Off" (as said term is identified in the
Reorganization documents), the Company undertook to defend, indemnify and hold
Interlake and its affiliates harmless from and against any and all "Claims," as
that term is defined in the Agreement, occurring either before or after the date
of the Reorganization and which arose out of or are related to the "Acme
Business." The Acme Business is more specifically defined in the Agreement as
the iron and steel and domestic U.S. steel strapping business as conducted by
the Company on or about May 29, 1986. The indemnification by the Company of
Interlake with respect to any claims includes, but is not limited to, all claims
asserted in connection with the Company's interests or obligations with respect
to: Wabush Iron Company, Ltd.; Wabush Mines; Erie Mining Company; Olga Coal
Company; assets and liabilities related to qualified welfare and benefit plans
with respect to retired, current and future employees of the Company; certain
environmental matters relating to the Acme Business, whether brought by a
governmental agency or a private entity; workers' compensation matters and
occupational safety, health and administration matters; and product liability
and general liability matters related to the Acme Businesses. The Agreement
designated certain mineral property interests retained by the Company, including
land held for the account of the Company by Syracuse Mining Company, a
subsidiary of Pickands Mather and Company; stock held in Tilden Iron Mining
Company; and, lands owned in Bruce County, Ontario, Canada, as being within the
scope of the indemnification.
Similarly, and for the same period of time, Interlake undertook to defend,
indemnify and hold the Company and its affiliates harmless from and against all
"Claims," as that term is defined in the Agreement, occurring either before or
after the date of the Reorganization related to the operation of all businesses
and properties currently owned, directly or indirectly, by Interlake or any
subsidiary of Interlake (other than the Company and its affiliates) and relating
to the Transferred Property, as that term is defined in the Reorganization
Agreement (but excluding the Acme Business), and, any business and properties
discontinued or sold by Interlake or Interlake, Inc. prior to May 29, 1986,
including any discontinued or sold businesses or property which, if continued,
would be part of the Acme Business. The indemnification by Interlake with
respect to any Claims incurred in connection with or arising out of or related
to Interlake Business, as that term is defined more specifically in the
Agreement, includes but is not limited to: those claims asserted in connection
with certain stock options, rights, awards and programs; certain deferred
compensation matters; certain matters arising under qualified welfare and
benefit plans and post-retirement income plans; and, environmental matters
relating to Interlake Businesses whether brought by governmental agencies or
private entities. These environmental matters include, without limitation, the
lawsuit captioned PEOPLE OF THE STATE OF ILLINOIS V. WASTE MANAGEMENT OF
ILLINOIS, INTERLAKE, INC. AND FIRST NATIONAL BANK OF WESTERN SPRINGS, Circuit
Court of Cook County, Illinois (No. 85 L 30162); the disposal of materials at
the landfill operated by Conservation Chemical located at Gary, Indiana, to the
extent such materials originated at the plant of Gary Steel Company; operation
of facilities by predecessors of Interlake, Inc. at Duluth, Minnesota; workers'
compensation, occupational safety and health matters relating to the Interlake
Business; general products liability and general litigation matters related to
Interlake's Business; and, the matters arising from Lake Mining Company, Mauthe
Mining Company, Odanah Iron Company, Vermillion Mining Company and Western
Mining Company.
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<PAGE>
Pursuant to this Agreement, Interlake has provided the defense and paid
all costs in the matter of CITY OF TOLEDO V. BEAZER MATERIALS AND SERVICES,
INC., SUCCESSOR-IN-INTEREST TO KOPPERS COMPANY, INC., TOLEDO COKE CORPORATION,
THE INTERLAKE CORPORATION, SUCCESSOR-IN-INTEREST TO INTERLAKE, INC., THE
INTERLAKE COMPANIES, INC., SUCCESSOR-IN-INTEREST TO INTERLAKE, INC., ACME STEEL
COMPANY, SUCCESSOR-IN-INTEREST TO INTERLAKE, INC., United States District Court,
Northern District of Ohio, Western Division, Case No. 3:90 CV 7344, which is an
action for declaratory and injunctive relief by the City of Toledo (the "City")
to recover its past and future costs and damages associated with the presence of
and release of hazardous substances, hazardous wastes, solid waste, industrial
waste and other waste at or about property located on Front Street in Toledo,
Ohio. The City seeks relief pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), the Resource Conservation
Recovery Act ("RCRA") and on the basis of nuisance. City claims that the
defendants owned and/or operated facilities located on Front Street in Toledo,
Ohio which generated, transported and/or treated, stored or disposed of
hazardous substances, hazardous wastes, solid wastes and industrial wastes or
other wastes which were released at and from the facility by defendants or
successors-in-interest to the entities which owned, operated, generated,
transported and/or treated, stored or disposed of said substances. Interlake
also has and continues to provide indemnification to the Company for the Duluth,
Minnesota, facility which has been designated as a Superfund Site pursuant to
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, 42
U.S.C. Section 9601, ET SEQ.
To date Interlake has met its obligations under the Cross-Indemnification
Agreement with respect to all matters covered therein affecting the Company,
including those matters related to litigation and environmental matters. The
Company does not have sufficient information to determine the potential
liability of the Company, if any, for the matters covered by the Agreement in
the event Interlake fails to meet its obligations thereunder in the future. In
the event, Interlake, for any reason, was unable to fulfill its obligations
under the Cross-Indemnification Agreement, the Company could have increased
future obligations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the last quarter of the last fiscal year.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The information relating to the market for the Company's common stock and
related shareholder matters appears in the note to consolidated financial
statements titled LONG-TERM DEBT and REVOLVING CREDIT AGREEMENT, page 45, and on
the inside back cover of the Annual Report under the captions STOCK MARKET
INFORMATION and DIVIDEND POLICY which is incorporated by reference in this Form
10-K Annual Report.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Certain amounts have been reclassified to conform with the 1993
presentation. A ten-year presentation is provided. Acme Metals Incorporated,
formerly Acme Steel Company, became a public company in 1986 when, following the
reorganization of Interlake, Inc., the shares of the company were distributed to
shareholders of The Interlake Corporation, pursuant to a reorganization of
Interlake, Inc. Financial data for 1984 and 1985 have been reconstructed.
TEN YEARS IN REVIEW (dollars in thousands except for per share data)
<TABLE>
<CAPTION>
1993 1992
- --------------------------------------------------------------
- --------------------------------------------------------------
<S> <C> <C>
Income Data
Net sales $457,406 $391,562
- --------------------------------------------------------------
Gross profit $ 45,223 $ 29,546
- --------------------------------------------------------------
Income (loss) before income taxes,
extraordinary credit and cumulative
effect of changes in accounting
principle $ 10,432 $ (4,522)
- --------------------------------------------------------------
Income tax provision (credit) $ 4,173 $ (1,673)
- --------------------------------------------------------------
Net income (loss) before
extraordinary credit and cumulative
effect of changes in accounting
principle $ 6,259 $ (2,849)
- --------------------------------------------------------------
Extraordinary credit resulting from
utilization of net operating loss
- --------------------------------------------------------------
Cumulative effect on prior years of
changes in accounting principle $(50,323)
- --------------------------------------------------------------
Net income (loss) $ 6,259 $(53,172)
- --------------------------------------------------------------
- --------------------------------------------------------------
Per Share Data
Income (loss) before extraordinary
credit and cumulative effect of
changes in accounting principle $ 1.15 $ (0.53)
- --------------------------------------------------------------
Extraordinary credit
- --------------------------------------------------------------
Cumulative effect of changes in
accounting principle $ (9.32)
- --------------------------------------------------------------
Net income (loss) $ 1.15 $ (9.85)
- --------------------------------------------------------------
Shareholders' equity $ 15.29 $ 16.55
- --------------------------------------------------------------
- --------------------------------------------------------------
Balance Sheet
Current assets $170,394 $148,860
- --------------------------------------------------------------
Property, plant and equipment, net $115,539 $120,689
- --------------------------------------------------------------
Total assets $333,869 $300,702
- --------------------------------------------------------------
Current liabilities $ 77,197 $ 59,425
- --------------------------------------------------------------
Long-term debt $ 49,333 $ 56,000
- --------------------------------------------------------------
Shareholders' equity $ 83,203 $ 89,295
- --------------------------------------------------------------
- --------------------------------------------------------------
Cash flows
Net cash provided by (used for)
operating activities $ 16,041 $ 24,018
- --------------------------------------------------------------
Net cash used for investing $(11,749) $ (6,562)
- --------------------------------------------------------------
Net cash provided by (used for)
financing $ (3,072) $ 34
- --------------------------------------------------------------
Net increase (decrease) in cash $ 1,220 $ 17,490
- --------------------------------------------------------------
- --------------------------------------------------------------
Ratio Analysis (%)
Gross profit margin 9.9 7.5
- --------------------------------------------------------------
Pre-tax margin 2.3 (1.2)(b)
- --------------------------------------------------------------
Net margin 1.4 (0.7)(b)
- --------------------------------------------------------------
Return on shareholders' equity 7.3(d) (59.5)(c)
- --------------------------------------------------------------
Debt as a percentage of
capitalization 40 40(c)
- --------------------------------------------------------------
- --------------------------------------------------------------
Additional Information
Depreciation $ 15,234 $ 14,705
- --------------------------------------------------------------
Capital expenditures $ 11,749 $ 7,557
- --------------------------------------------------------------
Working capital $ 93,197 $ 89,435
- --------------------------------------------------------------
- --------------------------------------------------------------
<FN>
(a) Includes net transactions with Interlake prior to the public company
formation.
(b) Computed before cumulative effect of changes in accounting principle.
(c) Includes result of cumulative effect of changes in accounting principle and
an $8 million reduction in retained earnings related to a minimum pension
liability adjustment.
(d) Includes a $13.1 million reduction in retained earnings related to a minimum
pension liability adjustment.
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987 1986 1985 1984
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income Data
Net sales $376,951 $446,042 $439,412 $412,453 $335,488 $240,314 $239,861 $291,196
- ----------------------------------------------------------------------------------------------------------------------------
Gross profit $ 27,748 $ 36,712 $ 51,886 $ 54,493 $ 31,314 $ 14,174 $ 12,032 $ 32,337
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes,
extraordinary credit and cumulative
effect of changes in accounting
principle $ (3,050) $ 9,388 $ 26,126 $ 30,982 $ 13,302 $(21,103) $ (2,847) $ 16,202
- ----------------------------------------------------------------------------------------------------------------------------
Income tax provision (credit) $ (732) $ 3,755 $ 9,926 $ 12,393 $ 6,360 $ (1,451) $ 6,220
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) before
extraordinary credit and cumulative
effect of changes in accounting
principle $ (2,318) $ 5,633 $ 16,200 $ 18,589 $ 6,942 $(21,103) $ (1,396) $ 9,982
- ----------------------------------------------------------------------------------------------------------------------------
Extraordinary credit resulting from
utilization of net operating loss $ 1,010 $ 6,041
- ----------------------------------------------------------------------------------------------------------------------------
Cumulative effect on prior years of
changes in accounting principle
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (2,318) $ 5,633 $ 16,200 $ 19,599 $ 12,983 $(21,103) $ (1,396) $ 9,982
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Per Share Data
Income (loss) before extraordinary
credit and cumulative effect of
changes in accounting principle $ (0.43) $ 1.05 $ 3.00 $ 3.22 $ 1.19 $ (3.66) $ (0.24) $ 1.74
- ----------------------------------------------------------------------------------------------------------------------------
Extraordinary credit 0.17 1.03
- ----------------------------------------------------------------------------------------------------------------------------
Cumulative effect of changes in
accounting principle
- ----------------------------------------------------------------------------------------------------------------------------
Net income (loss) (0.43) 1.05 3.00 3.39 2.22 (3.66) (0.24) 1.74
- ----------------------------------------------------------------------------------------------------------------------------
Shareholders' equity $ 28.13 $ 28.65 $ 27.63 $ 24.62 $ 21.43 $ 19.01 $ 19.31 $ 21.54
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Balance Sheet
Current assets $134,192 $126,497 $149,199 $102,572 $ 86,117 $ 70,772 $ 58,837 $ 69,334
- ----------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net $129,730 $133,419 $116,552 $104,024 $ 99,285 $ 91,583 $ 88,806 $ 91,047
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $290,736 $286,603 $285,275 $224,070 $201,155 $177,085 $171,205 $187,298
- ----------------------------------------------------------------------------------------------------------------------------
Current liabilities $ 50,027 $ 50,026 $ 57,683 $ 66,331 $ 51,511 $ 47,297 $ 49,250 $ 52,856
- ----------------------------------------------------------------------------------------------------------------------------
Long-term debt $ 59,500 $ 59,500 $ 59,500 $ 9,500 $ 9,500 $ 10,000
- ----------------------------------------------------------------------------------------------------------------------------
Shareholders' equity $150,664 $152,370 $147,106 $130,390 $124,775 $110,486 $110,474 $123,251
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Cash flows
Net cash provided by (used for)
operating activities $ 21,721 $ 24,045 $ 20,805 $ 23,252 $ 22,750 $ (5,731) $ 18,128 $ 36,144
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used for investing (10,611) (37,693) (38,804) (16,014) (18,909) (12,363) (6,754) (11,599)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for)
financing (443) (328) 50,155 (15,410) 1,213 22,947 (11,381)(a) (24,544)(a)
- ----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash $ 10,667 $(13,976) $ 32,156 $ (8,172) $ 5,054 $ 4,853 $ (7)(a) $ 1(a)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Ratio Analysis (%)
Gross profit margin 7.4 8.2 11.8 13.2 9.3 5.9 5.0 11.1
- ----------------------------------------------------------------------------------------------------------------------------
Pre-tax margin (0.8) 2.1 5.9 7.5 4.0 (8.8) (1.2) 5.6
- ----------------------------------------------------------------------------------------------------------------------------
Net margin (0.6) 1.3 3.7 4.8 3.9 (8.8) (0.6) 3.4
- ----------------------------------------------------------------------------------------------------------------------------
Return on shareholders' equity (1.5) 3.8 11.6 15.0 11.0 (17.9) (1.2) 7.6
- ----------------------------------------------------------------------------------------------------------------------------
Debt as a percentage of
capitalization 28 28 29 7 7 8
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Additional Information
Depreciation $ 14,224 $ 13,031 $ 12,031 $ 10,742 $ 9,873 $ 9,629 $ 9,202 $ 8,941
- ----------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 10,611 $ 28,604 $ 14,960 $ 9,314 $ 7,151 $ 12,363 $ 6,754 $ 11,599
- ----------------------------------------------------------------------------------------------------------------------------
Working capital $ 84,165 $ 76,471 $ 91,516 $ 36,241 $ 34,666 $ 23,475 $ 9,587 $ 16,478
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
-18-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS ENVIRONMENT
In 1993, Acme enjoyed an improvement in orders and pricing that benefitted
the steel industry as a whole. Order rates for all products increased
significantly during the year. The Steel Making Segment increased its average
selling price for commercial steel by $40 per ton (approximately 10%) over the
course of 1993. However, in comparison to the prior year, selling prices were up
only 3 percent as Acme, like most steel producers, did not feel the impact of
the price hike until the second half of the year due to the gradual phase-in
period of the price increase. Average selling prices for the Steel Fabricating
Segments' products were higher in 1993 with steel strapping and welded steel
tube prices increasing largely in response to price increases by suppliers of
raw materials as well as competitors.
The Steel Making Segment operates in a highly competitive market with
lower cost steel-making techniques and intensifying competition from other steel
producers, foreign imports and substitute materials, severely limiting the steel
industry's ability to achieve and sustain higher prices. In fact, even with the
price increases instituted in 1993, average steel prices remain only slightly
higher than the average price levels in 1988. Because of this intensifying
competition and price stagnation for our products, the Company's management and
its Board of Directors are evaluating the costs and benefits of building a
continuous thin-slab caster/hot strip mill complex (the "Project") at Acme Steel
Company's Riverdale, Illinois steel plant. If approved, the Project would
involve the largest capital outlay in the Company's history. See Item 1(e) for a
discussion of the Project. See Liquidity and Capital Resources for a discussion
of certain financial aspects of the Project.
CONSOLIDATED RESULTS OF OPERATIONS
SEVENTEEN PERCENT INCREASE IN SALES OVER 1992
In 1993, the Company benefitted from the strengthening economy in terms of
increased shipments and higher average selling prices. As a result of an
improving economy and price increases, the Company experienced the highest
quarterly net sales in its history in 1993's fourth quarter achieving sales of
$120.5 million. For the year, consolidated sales totaled $457.4 million, up
$65.8 million over 1992 sales. Shipments of products were strong, representing a
$57.5 million increase from last year's volume levels. Average selling prices
were 2 percent higher than in 1992 with all of the increase coming in the second
half of the year. The improvement in selling prices added $8.3 million to 1993
net sales.
COMPARING 1992 TO 1991 SALES
As a result of the modest economic recovery that began in 1992, net sales
of $391.6 million were $14.6 million, or 4 percent, higher than prior year
sales. Shipments of products rebounded, representing a $22 million increase from
1991 levels. However, selling prices on average declined 2 percent from prior
year's prices. The weakness in selling prices, particularly for steel and steel
strapping products, had a $7.4 million negative effect on 1992 sales.
COMPARATIVE SALES BY SEGMENT
The table below presents the percentage make-up of the products comprising
our business segments, for the past three years.
<TABLE>
<CAPTION>
1993
<S> <C>
Sheet and strip steel 37%
Semi-finished steel 2%
Iron products and other 2%
TOTAL STEEL MAKING SEGMENT 41%
Sheet strapping and strapping tools 33%
Welded steel tube 16%
Auto and light truck jacks 10%
TOTAL STEEL FABRICATING SEGMENT 59%
<CAPTION>
1992
<S> <C>
Sheet and strip steel 33%
Semi-finished steel 2%
Iron products and other 2%
TOTAL STEEL MAKING SEGMENT 37%
Sheet strapping and strapping tools 36%
Welded steel tube 16%
Auto and light truck jacks 11%
TOTAL STEEL FABRICATING SEGMENT 63%
<CAPTION>
1991
Sheet and strip steel 32%
Semi-finished steel 1%
Iron products and other 4%
TOTAL STEEL MAKING SEGMENT 37%
Sheet strapping and strapping tools 38%
Welded steel tube 16%
Auto and light truck jacks 9%
TOTAL STEEL FABRICATING SEGMENT 63%
</TABLE>
HIGHER NET SALES LEADS TO IMPROVED GROSS PROFIT PERCENTAGE
Gross profit as a percent of sales in 1993 equaled 9.9 percent, the
highest percentage since 1989. The gross profit percentages in 1992 and 1991
were 7.5 percent and 7.4 percent, respectively. Increased sales volume and
higher average selling prices were the primary determinants for the significant
increase in gross margin over last year. Operating costs, however, were higher
in 1993. Labor costs increased due to a combination of higher overtime premiums
and incentive bonuses, a negotiated bonus payment to the Company's union workers
for ratifying the one year labor contract that ended August, 1993 of $0.8
million and a union signing bonus and lump sum payments negotiated as part of
the current labor contract resulting in charges of $0.3 million during the year.
Unplanned expenditures to repair Acme's basic oxygen furnace and primary rolling
mill also reduced gross profit in 1993. Pension expense was $1.5 million higher
than in 1992 as the Company recorded a $0.3 million expense in 1993 versus a
$1.2 million pension benefit in the prior year. Depreciation has increased in
$0.5 million increments over the last two years due partially to a major
relining of Acme's blast furnace in 1990.
-19-
<PAGE>
Selling and administrative expenses in 1993 were $1.7 million higher than
a year ago. However, on a percentage of sales basis, selling and administrative
expenses improved over last year as expenses totaled 6.7 percent of sales in
1993 versus 7.4 and 7.8 percent in 1992 and 1991, respectively. The Company
began to benefit from lower labor costs resulting from a program, initiated in
the 1992 third quarter and substantially completed by year end, to reduce our
salaried employee work-force by 10 percent. The 1993 savings from this program
were sufficient to offset higher medical costs for selling and administrative
employees.
During 1992, the Company recorded a $2.7 million restructuring charge in
connection with its 10 percent salaried work force reduction which was completed
during 1993. This charge covered additional pension liability and extra vacation
pay as part of an early retirement offer and severance payments for involuntary
separations. See the note to the financial statements titled RESTRUCTURING
CHARGE for further specific components of the charge.
The Company recorded a $1.9 million non-recurring charge in 1993 for
equipment impairments in connection with the $1.3 million write-off Acme's No. 3
Hot Strip Mill and Billet Mill and a $0.6 million expense to close Packaging's
Pittsburg-East facility in California and write-off a strapping line at its New
Britain, Connecticut, facility.
Interest expense was slightly lower than the prior year. The decrease
resulted from a reduced balance on our long-term debt as the result of a $3.5
million principal payment in May. Interest income was $0.1 million lower than in
1992 due mainly to reduced returns on cash balances. Earnings before interest
expense, taxes and cumulative effect of changes in accounting principles were
2.9 times interest expense in 1993 as compared to .2 times in 1992 and .5 times
in 1991.
In 1993, the Company recorded a $1.2 million pre-tax gain as the result of
a settlement of prior claims against LTV Steel Company (LTV) by Wabush Iron, in
an iron ore mine equity interest held by Acme pursuant to the finalization of
LTV's plan of reorganization. The sale of all of the Company's interests in a
coal producing property located in West Virginia added approximately $1 million
to pre-tax income in 1992. In 1991, the Company benefitted from a one-time gain
of $1.2 million from the assignment to a third party of Acme's rights in certain
claims allowed in the LTV Steel bankruptcy.
Nonoperating income in 1993 was consistent with a year earlier because
royalty income in the current year was offset by a loss on the disposal of fixed
assets recorded in 1992.
The income tax expense for 1993 equaled $4.2 million based on a 40 percent
effective tax rate. Because of losses in 1992 and 1991, the Company recognized
income tax benefits of $1.7 million in 1992, based on a 37 percent effective tax
rate and $0.7 million in 1991, based on a 24 percent effective tax rate.
1993 NET INCOME OF $6.3 MILLION BEST EARNINGS PERFORMANCE SINCE 1989
For 1993, the Company registered net income of $6.3 million, or $1.15 per
share. In 1992, the Company incurred a net loss of $2.8 million, or 53 cents per
share, before the cumulative effect of changes in accounting principles. In
1991, the Company incurred a net loss of $2.3 million, equal to 43 cents per
share. The improvement in net income was due primarily to increased shipments,
and to a lesser extent, higher average selling prices for steel, steel strapping
and welded steel tube.
In 1992, the Company adopted both Financial Accounting Standards (FAS) No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and
FAS No. 109, "Accounting for Income Taxes." The transition effect of adopting
FAS No. 106 resulted in a $67.6 million charge to 1992 earnings, partially
offset by $25.4 million in income tax effects. The cumulative effect of the
adoption of FAS No. 109 increased the 1992 net loss by $8.1 million.
OUTLOOK
If the Board of Directors approves the construction of the Project (see
Item 1(e)), the estimated capital cost will approximate $300 million to $350
million. It is expected that the Project will be financed by a combination of
existing cash, new equity and debt. An investment banker has been retained to
assist the Company in its financing activities. If the Project is approved,
there will be a one-time, non-cash charge to earnings to write down those assets
that will be replaced because of the new technology, and a provision to record
estimated costs related to the associated restructuring of operations. The
financial impact of the asset write-down and restructuring charge would total
approximately $13 million, pre-tax. (See Liquidity and Capital Resources.)
Additionally, the Company will benefit from using the higher statutory federal
tax rate to value its deferred tax accounts. The effect of this change will be
to lower the Company's effective tax rate from 40% to 34% in 1994.
The Company is well positioned in terms of labor stability for the next
several years due to its new long-term agreements with the United Steelworkers
of America (USWA). The new contracts cover approximately 1,500 hourly employees
at the Chicago and Riverdale operations and are slated to run through 1999 with
a reopener on wages only, subject to binding arbitration in 1996.
Financial results in 1994 should improve in comparison with 1993, if the
economy continues to strengthen and the Company receives the full year benefit
of the 1993 price increases for commercial steel, steel strapping and welded
steel tubing. The Company expects to derive additional gains from the recently
announced price increases scheduled to take effect in January and July of 1994.
In addition, cost reduction efforts and the benefits of facility rationalization
undertaken in 1993 will enhance the gains derived from increased sales.
In November 1992, the Financial Accounting Standards Board issued
Statement No. 112, "Employers' Accounting for Postemployment Benefits," which
requires accrual basis accounting for Postemployment benefits, and must be
adopted not later than fiscal 1994. Postemployment benefits include all benefits
paid after employment but before retirement, such as layoff and disability
benefits. The Company has not yet determined the impact, if any, or the timing
of this change on the financial statements.
There are several factors, however, which will partially negate the
projected gain in net sales and cost reductions in 1994. The Company will face
increased employment costs in 1994 (estimated to be $5 million higher than in
1993) in the form of higher pension and medical expenses. The increased costs
are the result of lowering the interest income assumptions related to
post-retirement obligations of the Company and continued higher expenses for its
active and retired employees' medical expenses. In addition, 1994 will see
significant expenditures associated with Acme's compliance with the Clean Air
Act.
Several uncertainties face the Company in 1994. Imports of foreign steel
into the U.S. could, in all likelihood, increase in 1994 as a result of the
unfavorable ruling by the International Trade Commission in July, 1993 regarding
alleged dumping and subsidies by foreign steel producers. It is unclear what
impact, if any, an increased supply of foreign steel might have on domestic
steel prices. Of
-20-
<PAGE>
course, the biggest uncertainty is the state of the U.S. economy. Although the
economy is apparently on the upswing, it is impossible to gauge how the higher
personal tax rates levied in 1993 and the proposed reforms coming out of
Washington in 1994 will affect consumer spending. Also, it is unclear what
impact the Federal Reserve Board's decision to increase short-term interest
rates will have on the economy in 1994.
Overall, we are optimistic about 1994. If the economy continues to improve
as we expect, and assuming we continue to benefit from the higher steel selling
prices and continue to control operating costs, the Companies' business plans
call for a significant improvement over our 1993 results.
STEEL MAKING SEGMENT
Sales for the Steel Making Segment advanced to $187.8 million in 1993, a
$42.1 million, or 29 percent, improvement over the prior year. The increase was
principally the result of a 25 percent jump in shipments. Steel selling prices,
on average, were 3 percent higher than last year. Nearly all of the price
increases materialized in the second half of the year as we began to benefit
from two $20 per ton (5 percent) increases initiated in the second and third
quarters of 1993. Sales of $145.6 million for the Steel Making Segment in 1992
were up modestly (3 percent) over the year earlier due entirely to increased
shipments as average selling prices were 2 percent lower than 1991 price levels.
Sales of sheet and strip steel, which accounted for 91 percent of the
segment's sales in 1993, advanced $40.3 million, or 31 percent over last year.
Semi-finished steel sales increased $3.3 million, or 45 percent over last year
while sales of iron products fell $1.5 million, or 18 percent, as compared to a
year earlier.
Operating income for the Steel Making group totaled $0.7 million, a
significant improvement over the $9.4 million and $4.1 million losses from
operations recorded in 1992 and 1991, respectively. The earnings improvement was
driven by increased shipments and higher average selling prices. Shipments to
external customers in 1993 increased 87,000 tons over the prior year while
shipments to the Steel Fabricating Segment were 5,600 tons lower than in 1992.
Approximately 60 percent of 1993's shipments and gross margin was attributable
to external customers while the remaining 40 percent of gross margin was
generated by shipments to the Steel Fabricating Segment. In 1992, the Steel
Making group shipped 55 percent of its products to external customers which
generated 52 percent of its margin while shipments to the Fabricating segment
produced the remaining 48 percent of gross margin. The increased percentage of
shipments to external customers in 1993 is consistent with the Company's
two-pronged strategy to obtain the highest possible margin on flat-rolled steel
and obtain the highest earnings for the Company as a whole. In total, the
increased shipments generated $8.6 million in increased revenue while a 3
percent increase in average selling prices contributed $5.9 million to the
improvement over last year's results. Partially offsetting the Steel Making
Segment's sales related gains were increased labor costs in connection with
overtime and union negotiated payments, unexpected repairs to its basic oxygen
furnace and primary rolling mill and a $1.3 million write-off of the #3 hot
strip mill recorded in the fourth quarter.
Looking ahead to 1994, sales are expected to increase as a result of the
full-year effects of price increases instituted during 1993 and price increases
planned for 1994. Shipments are projected to continue on an upward trend under
the assumption that the current economic expansion that began in 1992 will
continue into 1994. Results should also benefit from cost savings from the
permanent idling of its #3 hot strip mill. These benefits will be partially
offset by increased pension and medical costs in the coming year which are
expected to increase approximately $4 million over the expense for these items
recorded in 1993.
STEEL FABRICATING SEGMENT
Steel Fabricating Segment sales of $270 million were $23.7 million, or 10
percent, higher than the prior year. Higher shipments accounted for $20 million
of the improvement while a 2 percent increase in average selling prices
generated the remainder of the increase over a year earlier.
Sales of steel strapping and strapping tools totaled $152.4 million in
1993, a $11.1 million, or 8 percent, increase over a year earlier. Increased
volume accounted for $8.9 million, or 80 percent, of the improvement over last
year's results. Average selling prices were 2 percent higher than last year's
levels with all of the increase coming in the latter part of the year. Steel
strapping sales of $141 million in 1992 were unchanged from the prior year.
Steel tube sales for 1993 reached $74.1 million, up 17 percent from the
prior year. The $10.7 million improvement in sales was due mainly to increased
volume. Selling prices rose 4 percent during the year with most of the increase
in the last half of 1993. Comparing 1992 to 1991, sales of steel tubing amounted
to $63.4 million in 1992, up 4 percent from a year earlier.
Sales of jacks and lifting tools for cars and light trucks totaled $43.1
million, 5 percent higher than the prior year. The improvement in sales was due
entirely to increased volume as selling prices, on average, were slightly below
last year's levels. Auto and truck jack sales of $41 million in 1992 increased
20 percent over the prior year.
Operating income for the Steel Fabricating Segment of $11.9 million in
1993 was $4.6 million and $9.3 million higher than the results recorded in 1992
and 1991, respectively. The group benefitted from the improving economy and
increased average selling prices in 1993. Packaging, which sells steel strapping
used to secure various finished products to pallets or within shipping
containers during transportation, was helped by higher demand for its products
in connection with increased domestic industrial output. Alpha's results
advanced due to the improvement in the housing and recreational product markets.
Alpha's business also benefitted from higher margins due to increased demand for
its more technologically advanced products and gains in product quality and
manufacturing productivity. Despite downward pressure on its selling prices in
1993, Universal's business achieved record results due to improved manufacturing
productivity. Partially offsetting the Steel Fabricating Segment's sales and
productivity related gains were increased raw material costs in the form of
higher flat-rolled steel prices and a $0.6 million expense to close Acme
Packaging's Pittsburg-East facility and the write-off of a strapping line at its
New Britain Connecticut facility.
Results for the Steel Fabricating Segment are expected to improve over the
prior year with sales advancing modestly. Packaging's results should improve due
to increased sales, driven primarily by increased selling prices, and the
expected realization of savings related to the closure of the Pittsburg East
facility and the increased utilization of its Leeds, Alabama, facility. Results
for Alpha should improve in 1994 bolstered by increased market penetration in
its target markets. Universal's sales are expected to decline moderately in 1994
leading to slightly reduced results in comparison with 1993 results. The
projected sales reduction is in line with continuing price pressures and the
anticipated reduction in orders from a major U.S. automobile manufacturer.
-21-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY REMAINS STRONG
Working capital of $93.2 million increased $3.8 million in 1993. Current
assets increased $21.5 million, or 15 percent, driven primarily by increased
receivable and inventory balances. The increase in the Company's receivable
balance reflects the sales improvement in 1993. The build-up of inventories at
the end of 1993 is in anticipation of increased orders in the first quarter of
1994. Current liabilities increased $17.7 million, or 30 percent. The higher
current liability balance was caused by increases to the accounts payable,
accrued expense and income tax payable accounts and a $3.2 million increase from
the net effect of long-term debt entries. In 1993, a portion of long-term debt
became current (a $6.7 million principal payment is due October, 1994) and a
principal payment of $3.5 million was made reducing the current maturities of
long-term debt balance at the end of 1992. The current ratio decreased from 2.5
at the end of 1992 to 2.2 at the end of 1993.
Deferred income taxes and other assets increased significantly due
primarily to an additional minimum pension adjustment recorded in 1993. The
pension adjustment was recorded net of tax, thereby increasing our long-term
deferred tax asset by $8.2 million in 1993. Other balance sheet accounts
affected by the minimum pension adjustment include a $4.1 million increase to
the long-term intangible pension asset account and a $25.4 million increase to
our long-term pension liability.
Long-term debt was reduced by $6.7 million to $49.3 million due to the
current classification of a principal payment due October 30, 1994. The Company
currently has available a $60 million unsecured revolving credit agreement with
various commercial banks. It has not been necessary to borrow against this
credit agreement during the past three years.
SHAREHOLDERS EQUITY REDUCED BY MINIMUM PENSION ADJUSTMENT
Shareholders' equity at year end 1993 was $83.2 million, or $15.29 per
share, compared with $89.3 million, or $16.55 per share at the end of 1992. The
decline in equity was due to a minimum pension adjustment recorded in 1993. The
additional minimum pension liability was primarily the result of a more current
actuarial assumption involving the discount rate used to calculate estimated
future retirement benefits. The change in the discount rate caused several of
our defined benefit pension plans to fall further into an underfunded position
at December 26, 1993. Accordingly, to reflect this underfunded position, we
recorded a $13.1 million non-cash charge, net of deferred taxes, to
shareholders' equity in 1993. An adjustment of $8.2 million to reflect the
underfunded status at December 27 was recorded in 1992. (See the note to the
financial statements titled RETIREMENT BENEFIT PLANS for further discussion of
this minimum pension liability adjustment.)
FINANCING ALTERNATIVES FOR THE CASTER PROJECT
In the event the Board of Directors of the Company decides to proceed with
the Project (see Item 1(e) for a discussion of the Project), the Company will be
committed to a construction and engineering project that will involve direct
costs of approximately $300 to $350 million over an approximately 30 month
period. The Company will be required to fund these costs almost exclusively from
external financing sources, including new credit facilities.
On March 3, 1994, the Company agreed to sell an issue of securities at a
price of $21.00 per security on a private placement basis exclusively in Canada.
Subject to certain conditions, within 150 days of the closing of this
transaction (expected on March 28, 1994), the securities will be exchangeable on
a one-for-one basis, for 5,600,000 shares of the Company's common stock. The
conditions for the exchange of the securities for common stock and the Company's
receipt of the proceeds of the sale of the securities include assurance that not
less than 85% of the reasonably estimated funds needed for construction of the
Project (inclusive of the Company's cash on hand) will be available to the
Company and approval of such construction by the Company's Board of Directors.
The securities and the underlying common shares have not been registered under
the Securities Act and may not be offered or sold in the United States or to a
U.S. person, as defined in Regulation S under the Securities Act, absent
registration or an applicable exemption from registration requirements.
In the event the conditions for completion of the privately placed
Canadian financing are satisfied, the Company's outstanding shares of common
stock will increase from 5,407,527 to 11,007,537, and the Company's total
shareholders equity will increase by approximately $112 million. The Company
anticipates that substantially all of this additional equity will be used to pay
costs associated with the Project.
In addition to the funds to be raised from the privately placed Canadian
financing, the Company will need to raise approximately $190 million to $240
million from other financing sources. To date, the Company has not received
commitments from any such financing source. The Company is exploring the sale of
additional equity securities, the sale of debt securities, and the opening of
new credit facilities. At present, there can be no assurance that the Company
will be able to obtain any such funds nor are the terms and conditions known on
which such funds may be available.
To the extent the Company decides and is able to raise the additional
funds needed for construction of the Project (exclusive of the funds to be
raised through the privately placed Canadian financing) through debt financing,
the Company's interest expense and debt-to-equity ratio will increase
accordingly. Although neither the availability nor the characteristics of such
debt are known at this time, the Company will not proceed with the Project until
it is assumed that adequate sources of liquidity are available to cover
foreseeable interest costs through construction, start-up and operation of the
Project. The Company's current debt-to-total capitalization ratio is .4 to 1 and
its coverage of its outstanding debt (expressed as times interest earned before
interest, taxes and unusual items) is 2.35 to 1. These ratios are expected to be
.46 to 1 and .68 to 1, respectively at the end of 1996.
The Company currently has outstanding Senior notes in the principal amount
of $50 million. The terms of these notes would preclude the Company from
increasing its indebtedness by more than approximately $75 million. To the
extent the Company wishes to increase its debt by more than this amount, these
notes would have to be renegotiated or prepaid. Prepayment of the notes would
trigger a penalty of approximately $4 million. The Company also has an unused
$60 million revolving credit agreement. This agreement would terminate upon the
approval of the Project by the Company's Board of Directors. If the Project is
approved, the Company believes it can secure an adequate working capital credit
facility; however, there can be no assurances the Company would be able to
obtain a new credit facility or that it would be otherwise able to fund its
working capital needs from external sources if these needs cannot be met from
continuing operation of the existing facilities.
OPERATING ACTIVITIES CONTINUE TO GENERATE CASH
Cash balances totaled $50.4 million at December 26, 1993, up $1.2 million
over December 1992's ending balance. The amount of cash generated in 1993 was
smaller than the increases of $17.5 million and $10.7 million in 1992 and 1991,
respectively, due to higher inventory and receivable balances, a $3.5 million
principal payment on long-term debt in May and higher capital expenditures.
-22-
<PAGE>
Operating activities generated $16 million of cash in 1993. A combination
of our net income of $6.3 million for the year and the addition of $15.2 million
non-cash depreciation more than offset a reduction in cash from working capital
and non-current accounts.
During 1993, we invested $11.7 million in capital projects, $4.2 million
higher than a year earlier. The increase in expenditures can be attributed in
part to environmental related expenditures of $3.2 million in connection with
the Environmental Protection Agency's emission compliance program for our coke
ovens located at the Steel subsidiary's Chicago plant. The remainder of the
capital project expenditures were primarily for replacement and rehabilitation
of our productive capabilities throughout the Company.
In 1994, the Company is planning capital project expenditures of
approximately $18 million, not including the Project. About $6 million of the
planned capital projects relate to environmental expenditures. The balance of
the planned projects are primarily devoted to capital maintenance items at our
steelmaking operations. Cash flows from operations should be sufficient to meet
these planned projects.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to Item 8 is submitted in a separate section of this Annual
Report on Form 10-K. See the audited Consolidated Financial Statements and
Schedules of The Company Metals Incorporated attached hereto and listed in the
index on page 32 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information with respect to directors of the Company is incorporated
herein by reference from the proxy statement for the Annual Meeting of
Shareholders of the Company to be held on April 28, 1994 under the caption
ELECTION OF DIRECTORS.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth, as of March 15, 1994, with respect to each
executive officer of the Company, his name and all positions held during the
last five years. Executive officers are elected annually by the Board of
Directors of the Company to serve for a term of office of one year and until
their successors are elected.
As a result of a Reorganization effected May 25, 1992, Acme Steel Company
became and continues to be a subsidiary of the Company. Prior to the
Reorganization the executive officers listed below were executive officers of
Acme Steel Company and, at the time of the reorganization, were elected to
similar positions within the Company.
<TABLE>
<CAPTION>
NAME AND AGE POSITIONS DURING LAST 5 YEARS
- ------------------------------------------------------------------------------- ---------------------------------------------------
<S> <C>
Brian W. H. Marsden (62) Chairman and Chief Executive Officer of the Company
since January 1, 1993 and Chairman, President and
Chief Executive Officer May 1992 through December
1992; President and Chief Executive Officer of Acme
Steel Company (integrated steel producer) June 1986
to May 1992.
Stephen D. Bennett (45) President and Chief Operating Officer of the
Company since January 1, 1993 and Group Vice
President May 1992 through December 1992; Group
Vice President of Acme Steel Company (integrated
steel producer) January 1992 to May 1992 and Vice
President-Operations June 1990 through December
1991; General Manager of Fairfield Works, USS
Division of USX Corporation (integrated steel
producer) December 1987 to May 1990.
Richard J. Stefan (57) Vice President-Employee Relations of the Company
since May 25, 1992; Vice President-Employee
Relations of Acme Steel Company (integrated steel
producer) June 1986 to May 1992.
Edward P. Weber, Jr. (56) Vice President, General Counsel and Secretary of
the Company since May 25, 1992; Vice President,
General Counsel and Secretary of Acme Steel Company
(integrated steel producer) June 1986 to May 1992.
Jerry F. Williams (54) Vice President-Finance and Administration and
Treasurer of the Company since May 25, 1992; Vice
President-Finance and Administration and Treasurer
of Acme Steel Company (integrated steel producer)
May 1991 to May 1992; Vice President-Finance and
Administration of Acme Steel Company May, 1986 to
May, 1991.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is incorporated herein by
reference from the proxy statement for the Annual Meeting of Shareholders of the
Company to be held on April 28, 1994 under the caption EXECUTIVE COMPENSATION.
-23-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership of certain beneficial owners
and management is incorporated herein by reference from the proxy statement for
the Annual Meeting of Shareholders of the Company to be held on April 28, 1994
under the caption SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
-24-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements:
The response to this portion of Item 14 is submitted in a
separate section of this report. See the audited Consolidated
Financial Statements and Schedules of Acme Metals Incorporated
attached hereto and listed on the index on page 32 of this
report.
(2) Financial Statement Schedules:
The response to this portion of Item 14 is submitted in a
separate section of this report. See the audited Consolidated
Financial Statements and Schedules of Acme Metals Incorporated
attached hereto and listed on the index on page 32 of this
report.
(3) Exhibits
<TABLE>
<CAPTION>
Exhibit Description
- ----------- -----
<C> <C> <S>
3. Articles
of
Incorporation
and By-Laws
3(i)
3(ii)
10. Material
contracts
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
<CAPTION>
Exhibit
- -----------
<C> <S>
3.
Restated Certificate of Incorporation of the Registrant. Filed as Exhibit 3.1 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 27, 1992 (the "1992 10-K") and incorporated by reference herein.
Amended and Restated By-Laws of Registrant as adopted May 25, 1992. Filed as Exhibit 3.2 to the 1992 10-K and
incorporated by reference herein.
10.
Tax Indemnification Agreement between Acme Steel Company (a subsidiary of the Company) ("Acme") and The Interlake
Corporation dated May 30, 1986. Filed as Exhibit 10.1 to the 1992 10-K and incorporated by reference herein.
Cross-Indemnification Agreement between Acme and The Interlake Corporation dated May 29, 1986. Filed as Exhibit 10.2 to
the 1992 10-K and incorporated by reference herein.
Agreement between the Registrant and Reynold C. MacDonald dated June 1, 1992.(1) Filed as Exhibit 10.3 to the 1992 10-K
and incorporated by reference herein.
Non-Employee Directors Retirement Plan dated February 22, 1990 as adopted May 25, 1992.(1) Filed as Exhibit 10.4 to the
1992 10-K and incorporated by reference herein.
Credit Agreement among the Registrant and Certain Banks and Harris Trust and Savings Bank, as Agent, dated June 26,
1992 (the "Credit Agreement"). Filed as Exhibit 10.5 to the 1992 10-K and incorporated by reference herein.
First Amendment to Credit Agreement dated September 15, 1992. Filed as Exhibit 10.6 to the 1992 10-K and incorporated
by reference herein.
Second Amendment to Credit Agreement dated January 15, 1993. Filed as Exhibit 10.7 to the 1992 10-K and incorporated by
reference herein.
Third Amendment to Credit Agreement dated February 1, 1993. Filed as Exhibit 10.8 to the 1992 10-K and incorporated by
reference herein.
Note Agreements dated October 16, 1989 between the Registrant as Borrower and each of six Financial Institutions as
Lender for an aggregate of $40 million in senior notes due 1999 and $10 million senior notes due 1996 (the "Note
Agreements"). Filed as Exhibit 10.9 to the 1992 10-K and incorporated by reference herein.
First Amendment, Consent and Waiver to Note Agreements dated June 26, 1992. Filed as Exhibit 10.10 to the 1992 10-K and
incorporated by reference herein.
Second Amendment to Note Agreements dated February 1, 1993. Filed as Exhibit 10.11 to the 1992 10-K and incorporated by
reference herein.
Assignment and Assumption Agreement dated May 24, 1992 relating to Indemnification Agreements including Form of
Indemnification Agreement. Filed as Exhibit 10.12 to the 1992 10-K and incorporated by reference herein.
Indemnification Agreement between the Registrant and William R. Wilson dated July 23, 1992. Filed as Exhibit 10.13 to
the 1992 10-K and incorporated by reference herein.
1986 Executive Incentive Compensation Plan of Acme Metals Incorporated as adopted May 25, 1992.(1) Filed as Exhibit
10.14 to the 1992 10-K and incorporated by reference herein.
Deferred Compensation Agreement dated May 24, 1986 between the Registrant and Brian W. H. Marsden as adopted May 25,
1992.(1) Filed as Exhibit 10.15 to the 1992 10-K and incorporated by reference herein.
Acme Metals Incorporated Deferred Compensation Plan as Amended and Restated effective January 1, 1987 as adopted May
25, 1992.(1) Filed as Exhibit 10.16 to the 1992 10-K and incorporated by reference herein.
Key Executive Severance Pay Plan dated January 22, 1987, as adopted May 25, 1992, with Exhibit 1 amended through May
25, 1992.(1) Filed as Exhibit 10.17 to the 1992 10-K and incorporated by reference herein.
Acme Metals Incorporated 1986 Stock Incentive Program, Amended and Restated as of January 22, 1992 as adopted May 25,
1992.(1) Filed as Exhibit 10.18 to the 1992 10-K and incorporated by reference herein.
</TABLE>
(1) Filed pursuant to Item 14 of Form 10-K
-25-
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
- ----------- -----
<C> <C> <S>
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
13. Registrant's
Annual
Report to
Security
Holders for
the fiscal
year ended
December 26,
1993.
21. Subsidiaries
of the
registrant
23. Consent
of
Experts
and
Counsel.
23.1
<CAPTION>
Exhibit
- -----------
<C> <S>
Form of Grant of Stock Option including Form of First Amendment dated October 30, 1986 -- 10 executive officers, 30
other employees.(1)(2) Filed as Exhibit 10.19 to the 1992 10-K and incorporated by reference herein.
Form of Grant of Stock Option dated July 22, 1987 including Form of First Amendment dated October 30, 1986 -- 10
executive officers, 41 other employees.(1)(2) Filed as Exhibit 10.20 to the 1992 10-K and incorporated by reference
herein.
Form of Grant of Stock Option dated May 26, 1988 -- 10 executive officers, 49 other employees.(1)(2) Filed as Exhibit
10.21 to the 1992 10-K and incorporated by reference herein.
Form of Grant of Stock Option dated June 1, 1989 -- 10 executive officers, 48 other employees.(1)(2) Filed as Exhibit
10.22 to the 1992 10-K and incorporated by reference herein.
Grant of Stock Option Agreement dated June 1, 1990 -- S. D. Bennett.(1)(2) Filed as Exhibit 10.23 to the 1992 10-K and
incorporated by reference herein.
Form of Grant of Stock Option dated June 7, 1990 -- 9 executive officers, 50 other employees.(1)(2) Filed as Exhibit
10.24 to the 1992 10-K and incorporated by reference herein.
Form of Grant of Stock Option dated May 20, 1991 -- 10 executive officers, 54 other employees.(1)(2) Filed as Exhibit
10.25 to the 1992 10-K and incorporated by reference herein.
Form of Grant of Stock Option dated June 12, 1992 -- 5 executive officers, 10 other employees.(1)(2) Filed as Exhibit
10.26 to the 1992 10-K and incorporated by reference herein.
Form of Grant of Stock Option dated May 27, 1993 -- 5 executives officers 26 other employees.(1) Filed as Exhibit 10.27
to the 1992 10-K and incorporated by reference herein.
Stock Award Agreement dated June 1, 1990 -- S. D. Bennett.(1)(2) Filed as Exhibit 10.28 to the 1992 10-K and
incorporated by reference herein.
Form of Grant of Stock Award dated January 25, 1991 including Form of First Amendment dated January 25, 1991 -- 11
executive officers, 14 other employees.(1)(2) Filed as Exhibit 10.29 to the 1992 10-K and incorporated by reference
herein.
Form of Grant of Stock Award dated January 22, 1992 -- 5 executive officers, 10 other employees.(1)(2) Filed as Exhibit
10.30 to the 1992 10-K and incorporated by reference herein.
Stock Award Agreement dated June 12, 1992 -- S. D. Bennett.(1)(2) Filed as Exhibit 10.31 to the 1992 10-K and
incorporated by reference herein.
Form of Grant of Stock Award dated January 26, 1993 -- 5 executive officers, 16 other employees.(1)(2) Filed as Exhibit
10.32 to the 1992 10-K and incorporated by reference herein.
Form of Grant of Stock Award dated January 26, 1994, 5 executive officers, 14 other employees.
Acme Metals Incorporated Employee Stock Ownership Plan ("ESOP") including amendments 1 through 4, as adopted June 1,
1992.(1) Filed as Exhibit 10.34 to the 1992 10-K and incorporated by reference herein.
Fifth Amendment to the ESOP.
Acme Metals Incorporated Salaried Employees' Retirement Savings Plan Restated as of January 1, 1990 together with
amendments 1 through 4, as adopted June 1, 1992.(1) Filed as Exhibit 10.36 to the 1992 10-K and incorporated by
reference herein.
Acme Metals Incorporated Salaried Employees' Past Service Pension Plan ("Past Service Pension Plan") dated June 1,
1992.(1) Filed as Exhibit 10.37 to the 1992 10-K and incorporated by reference herein.
Amendment No. 1 to the Past Service Pension Plan.
Purchase Agreement dated as of March 11, 1994 between the Registrant and Nesbitt Thompson Inc. for the purchase of $5.6
million Special Warrants convertible into common stock of the Registrant.
Subscription Agreement for Special Common Stock Purchase Warrants.
13.
21.
23.
Consent of Price Waterhouse.
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the fourth quarter of 1993.
No financial statements were filed.
(1) Filed pursuant to Item 14 of Form 10-K
(2) Also see Amendment and Assignment Agreement filed with Exhibit 10.13 to the
1992 10-K.
-26-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ACME METALS INCORPORATED
<TABLE>
<S> <C>
/s/ BRIAN W. H. MARSDEN
- ------------------------------------------
Brian W. H. Marsden March 25, 1994
Chairman and Chief Executive Officer
/s/ STEPHEN D. BENNETT
- ------------------------------------------
Stephen D. Bennett March 25, 1994
President and Chief Operating Officer
/s/ JERRY F. WILLIAMS
- ------------------------------------------
Jerry F. Williams March 25, 1994
Vice President-Finance and Administration
(Principal Financial Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
/s/ EUGENE P. BERG
- ------------------------------------------
Eugene P. Berg March 25, 1994
Director
/s/ EDWARD G. JORDAN
- ------------------------------------------
Edward G. Jordan March 25, 1994
Director
/s/ ANDREW R. LAIDLAW
- ------------------------------------------
Andrew R. Laidlaw March 25, 1994
Director
</TABLE>
-30-
<PAGE>
SIGNATURES (continued)
<TABLE>
<S> <C>
/s/ FANK A. LEPAGE
- ------------------------------------------
Frank A. LePage March 25, 1994
Director
/s/ REYNOLD C. MACDONALD
- ------------------------------------------
Reynold C. MacDonald March 25, 1994
Director
/s/ WILLIAM P. SOVEY
- ------------------------------------------
William P. Sovey March 25, 1994
Director
/s/ C. J. GAUTHIER
- ------------------------------------------
C. J. Gauthier March 25, 1994
Director
/s/ JULIEN L. MCCALL
- ------------------------------------------
Julien L. McCall March 25, 1994
Director
/s/ WILLIAM R. WILSON
- ------------------------------------------
William R. Wilson March 25, 1994
Director
</TABLE>
-31-
<PAGE>
ACME METALS INCORPORATED
Form 10-K - Item 8 and Items 14 (a) (1) and 14 (a) (2)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
The following Consolidated Financial Statements of Acme Metals
Incorporated and the related Report of Independent Accountants are included in
Item 8 and Item 14 (a) (1):
<TABLE>
<CAPTION>
Page in
this
Form 10-K
-----------
<S> <C>
Report of Independent Accountants 33
Report of Management 33
Consolidated Statements of Operations for the fiscal years ended
December 26, 1993 December 27, 1992 and December 29, 1991 34
Consolidated Balance Sheets at December 26, 1993, December 27, 1992 and
December 29, 1991 35
Consolidated Statements of Cash Flows for the fiscal years ended
December 26, 1993, December 27, 1992 and December 29, 1991 36
Consolidated Statements of Changes in Shareholders' Equity for the
fiscal years ended December 26, 1993, December 27, 1992 and
December 29, 1991 37
Notes to Consolidated Financial Statements 38
</TABLE>
The following Consolidated Financial Statement Schedules of Acme Metals
Incorporated are included in Item 14 (a) (2):
<TABLE>
<S> <C>
Quarterly Results (Unaudited) 51
Schedule V - Property, Plant and Equipment 52
Schedule VI - Accumulated Depreciation of Property, Plant and Equipment 53
Schedule VIII - Valuation and Qualifying Accounts and Reserves 54
Schedule X - Supplementary Income Statement Information 54
</TABLE>
All other schedules have been omitted because they are not applicable, or
not required, or because the required information is shown in the consolidated
financial statements or notes thereto.
-32-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Acme Metals Incorporated
In our opinion, the accompanying consolidated financial statements listed in the
index appearing on page 32 present fairly, in all material respects, the
financial position of Acme Metals Incorporated and its subsidiaries at December
26, 1993 and December 27, 1992, and the results of their operations and their
cash flows for each of the three years in the period ended December 26, 1993, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in the Notes to Consolidated Financial Statements, Acme Metals
Incorporated changed its method of accounting for postretirement benefits other
than pensions and income taxes in 1992.
March 21, 1994
Chicago, Illinois
REPORT OF MANAGEMENT
The management of Acme Metals Incorporated has prepared and is responsible for
the consolidated financial statements and other financial information included
in this Form 10-K Annual Report. The consolidated financial statements have been
prepared in conformity with generally accepted accounting principles and include
amounts that are based upon informed judgments and estimates by management. The
other financial information in this annual report is consistent with the
consolidated financial statements.
The Company maintains a system of internal accounting controls. Management
believes the internal accounting controls provide reasonable assurance that
transactions are executed and recorded in accordance with Company policy and
procedures and that the accounting records may be relied on as a basis for
preparation of the consolidated financial statements and other financial
information.
The financial statements have been audited by Price Waterhouse, the Company's
independent accountants, whose report is included herein. In addition, the
Company has a professional staff of internal auditors who coordinate their
financial audits with the procedures performed by the independent accountants
and conduct operational and special audits.
The Audit Review Committee of the Board of Directors, composed of directors who
are not employees of the Company, meets periodically with management, the
internal auditors and the independent accounts to discuss the adequacy of
internal accounting controls and the quality of financial reporting. Both the
independent accountants and internal auditors have full and free access to the
Audit Review Committee.
<TABLE>
<S> <C>
Brian W. H. Marsden Jerry F. Williams
Chairman and Chief Vice President
Executive Officer Finance and Administration
Chief Financial Officer
</TABLE>
-33-
<PAGE>
ACME METALS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the Years Ended
-------------------------------------------
December 26, December 27, December 29,
1993 1992 1991
------------- ------------- -------------
<S> <C> <C> <C>
NET SALES $ 457,406 $ 391,562 $ 376,951
COSTS AND EXPENSES:
Cost of products sold 397,526 347,624 335,503
Depreciation expense 14,657 14,392 13,700
------------- ------------- -------------
Gross profit 45,223 29,546 27,748
Selling and administrative expense 30,633 28,901 29,219
Restructuring charge 2,700
Nonrecurring charge 1,925
------------- ------------- -------------
Operating income (loss) 12,665 (2,055) (1,471)
NON-OPERATING INCOME (EXPENSE):
Interest expense (5,384) (5,569) (5,533)
Interest income 1,571 1,700 1,322
Unusual income item 1,210 1,047 1,241
Other - net 370 355 1,391
------------- ------------- -------------
Income (loss) before income taxes and cumulative effect of changes
in accounting principles 10,432 (4,522) (3,050)
Income tax provision (credit) 4,173 (1,673) (732)
------------- ------------- -------------
6,259 (2,849) (2,318)
Cumulative effect of changes in accounting principles:
Retiree health care and life insurance benefits, net of taxes (42,246)
Income taxes (8,077)
-------------
(50,323)
------------- ------------- -------------
Net income (loss) $ 6,259 $ (53,172) $ (2,318)
------------- ------------- -------------
------------- ------------- -------------
PER SHARE:
Income (loss) before cumulative effect of changes in accounting
principles $ 1.15 $ (0.53 ) $ (0.43 )
Cumulative effect of changes in accounting principles:
Retiree health care and life insurance benefits, net of
taxes (7.82 )
Income taxes (1.50 )
------------- ------------- -------------
Net income (loss) $ 1.15 $ (9.85 ) $ (0.43 )
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
-34-
<PAGE>
ACME METALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 26, December 27,
1993 1992
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 50,444 $ 49,224
Receivables, less allowances of $1,155 in 1993 and $1,081 in 1992 58,479 47,091
Inventories 47,867 39,488
Deferred income taxes 12,337 11,754
Other current assets 1,267 1,303
------------- -------------
Total current assets 170,394 148,860
------------- -------------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies 14,701 14,105
Other assets 13,389 7,197
------------- -------------
Deferred income taxes 19,846 9,851
------------- -------------
Total investments and other assets 47,936 31,153
------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost 408,556 405,684
Accumulated depreciation (293,017) (284,995)
------------- -------------
Total property, plant and equipment 115,539 120,689
------------- -------------
$ 333,869 $ 300,702
------------- -------------
------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 32,800 $ 25,985
Accrued expenses 34,089 28,641
Income taxes payable 3,641 1,299
Current maturities of long-term debt 6,667 3,500
------------- -------------
Total current liabilities 77,197 59,425
------------- -------------
LONG-TERM LIABILITIES:
Long-term debt 49,333 56,000
Other long-term liabilities 10,543 7,951
Postretirement benefits other than pensions 82,630 80,959
Retirement benefit plans 30,963 7,072
------------- -------------
Total long-term liabilities 173,469 151,982
------------- -------------
Commitments and contingencies (see note titled COMMITMENTS AND
CONTINGENCIES)
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par value, 2,000,000 shares authorized, no
shares issued
Common stock, $1 par value, 20,000,000 shares authorized, 5,406,387
and 5,357,870 shares issued in 1993 and 1992, respectively 5,406 5,358
Additional paid-in capital 48,344 47,679
Retained earnings 50,748 44,489
Minimum pension liability adjustment (21,295) (8,231)
------------- -------------
Total shareholders' equity 83,203 89,295
------------- -------------
$ 333,869 $ 300,702
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
-35-
<PAGE>
ACME METALS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Years Ended
-------------------------------------------
December 26, December 27, December 29,
1993 1992 1991
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 6,259 $ (53,172) $ (2,318)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation 15,234 14,705 14,224
Deferred income taxes (1,629) (1,848) 1,049
Cumulative effect of changes in accounting 50,323
Gain on sale of assets (1,047)
Nonrecurring charge 1,925
Investment in associated company (596)
CHANGE IN CURRENT ASSETS AND LIABILITIES:
Receivables (11,388) 1,403 741
Inventories (8,379) 1,698 7,922
Accounts payable 6,815 4,843 (2,242)
Other current accounts 7,826 3,170 (2,475)
Other, net (26) 3,943 4,820
------------- ------------- -------------
Net cash provided by operating activities 16,041 24,018 21,721
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (11,749) (7,557) (10,611)
Proceeds from sales of assets 995
------------- ------------- -------------
Net cash used for investing activities (11,749) (6,562) (10,611)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt (3,500)
Repurchase of common stock (98) (79) (462)
Other 526 113 19
------------- ------------- -------------
Net cash provided by (used for) financing activities (3,072) 34 (443)
------------- ------------- -------------
Net increase in cash and cash equivalents 1,220 17,490 10,667
Cash and cash equivalents at beginning of year 49,224 31,734 21,067
------------- ------------- -------------
Cash and cash equivalents at end of year $ 50,444 $ 49,224 $ 31,734
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of this financial statement.
-36-
<PAGE>
ACME METALS INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Additional Minimum
stock, $1 paid-in Retained Pension Treasury
par value capital earnings Liability stock
----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 30, 1990 $ 5,948 $ 46,813 $ 115,281 $ 0 $ (15,312)
Net loss (2,318)
Stock plans - issuance of shares 61 646
Tax benefit arising from stock plan transactions 7
Purchase of common stock for treasury (462)
----------- ----------- ----------- ---------- ----------
BALANCE - DECEMBER 29, 1991 6,009 47,466 112,963 0 (15,774)
----------- ----------- ----------- ---------- ----------
Net loss (53,172)
Stock plans - issuance of shares 7 191
Tax benefit arising from stock plan transactions 22
Purchase of common stock for treasury (79)
Redemption of stock rights (107)
Retirement of treasury stock (658) (15,195) 15,853
Minimum pension liability (8,231)
----------- ----------- ----------- ---------- ----------
BALANCE - DECEMBER 27, 1992 5,358 47,679 44,489 (8,231) 0
----------- ----------- ----------- ---------- ----------
Net income 6,259
Stock plans - issuance of shares 48 635
Tax benefit arising from stock plan transactions 30
Minimum pension liability (13,064)
----------- ----------- ----------- ---------- ----------
BALANCE - DECEMBER 26, 1993 $ 5,406 $ 48,344 $ 50,748 $ (21,295) $ 0
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of this financial statement.
-37-
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Acme Metals
Incorporated (the Company) and its majority-owned subsidiaries. Investments in
mining ventures are accounted for by the equity method. All intercompany
transactions have been eliminated.
The Company's fiscal year ends on the last Sunday in December.
INVENTORIES
Inventories are stated at the lower of cost or market. The primary method used
to determine inventory costs is the last-in, first-out (LIFO) method.
PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION
Property, plant and equipment are stated at cost. Depreciation of plant and
equipment is computed principally on a straight-line basis over the estimated
useful lives of the assets. Expenditures for maintenance, repairs and minor
renewals and betterments are charged to expense as incurred. Furnace relines and
major renewals and betterments are capitalized.
Upon disposition of property, plant and equipment, the cost and related
accumulated depreciation are removed from the accounts, and the resulting gain
or loss is recognized.
The Company from time to time reviews the carrying value of certain of its
assets and recognizes impairments when appropriate.
RETIREMENT BENEFIT PLANS
Pension costs include service cost, interest cost, return on plan assets and
amortization of the unrecognized initial net asset. The Company's policy is to
fund not less than the minimum funding required under ERISA.
The Company has postretirement health care and life insurance plans. The
provision for postretirement costs in 1991 includes current costs, amortization
of prior service costs over periods not exceeding twenty-five years and interest
on the accrued liability. The provisions for postretirement costs in 1993 and
1992 were determined pursuant to the provisions of Financial Accounting
Standards Board Statement (FAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." Under this statement, the annual
expense represents a combination of interest and service cost provisions of the
annual accrual. The postretirement benefits are not funded.
INCOME TAXES
The credit for deferred income taxes in 1993 and 1992 were determined pursuant
to the provisions of FAS No. 109, "Accounting for Income Taxes." Under this
statement, the provision for deferred income taxes represents the tax effect of
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities. In 1991, the provision for deferred income
taxes represents the tax effect of differences in the timing of income and
expense recognition for tax and financial reporting purposes.
PER SHARE DATA
Amounts per common share are based on the weighted average number of common and
dilutive common equivalent shares outstanding during the year: 5,439,784 in
1993, 5,396,311 in 1992 and 5,373,564 in 1991.
CONSOLIDATED STATEMENT OF CASH FLOWS
For purposes of the Consolidated Statement of Cash Flows, the Company considers
all highly liquid investments purchased with a maturity of three months or less
to be cash equivalents.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year
presentation.
-38-
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
RESTRUCTURING CHARGE:
During 1992, the Company substantially completed its program to reduce its
salaried work force by 10% which was completed during 1993. Voluntary retirement
offers which included an increased pension benefit and extra vacation pay, were
extended to a number of employees for a limited period of time. Other employees
were terminated with severance pay. The pre-tax reserve of $2.7 million
established by the Company included $1.1 million related to the increased
pension benefits and acceleration of the payment of pension benefits, a special
postretirement termination charge of $1.3 million, a postretirement plan
curtailment gain of $0.4 million and $0.7 million related to increased vacation
benefits, severance pay and a reserve for contingencies related to the program.
NONRECURRING CHARGE:
The Company recorded a $1.9 million non-recurring charge in 1993 including $1.3
million in connection with a decision made during the year to permanently idle
Acme Steel s No. 3 Hot Strip Mill and Billet Mill; a $0.6 million charge to
close Acme Packaging's Pittsburg-East facility in California; and, the
elimination of a strapping line at its New Britain, Connecticut facility
following a determination made during the year to consolidate production
facilities and eliminate unprofitable lines.
UNUSUAL INCOME ITEM:
In 1993, the Company recorded a benefit in connection with its investment in
Wabush Iron Company (WabIron). As a result of the finalization of a plan of
reorganization for LTV Steel Company, a former participant in WabIron, Acme was
awarded $1.2 million (market value) of LTV securities in a settlement of a
bankruptcy claim filed by all of the participants in the Wabush Mines Project
joint venture.
During 1992, the Company sold all of its interests in certain coal producing
property located in West Virginia. This transaction added approximately $1
million of pre-tax income to 1992 results.
In 1991, the Company recorded a benefit from an unusual item related to the
assignment of it's rights in claims allowed in the LTV Steel Company, Inc.
bankruptcy to a third party. This transaction added $1.2 million of pre-tax
income to 1991 results.
INVENTORIES:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1993 1992
--------- ---------
(in thousands)
<S> <C> <C>
Raw materials $ 6,201 $ 4,594
Semi-finished and finished products 32,364 26,540
Supplies 9,302 8,354
--------- ---------
$ 47,867 $ 39,488
--------- ---------
--------- ---------
</TABLE>
On December 26, 1993 and December 27, 1992, inventories valued on the LIFO
method were less than the current costs of such inventories by $57.4 million and
$55.4 million, respectively.
In 1992, inventory quantities decreased from the prior year, the effect of which
decreased cost of products sold and net loss by $0.4 million and $0.2 million,
respectively.
-39-
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
(in thousands)
<S> <C> <C>
Land $ 3,786 $ 3,786
Buildings 49,578 48,530
Equipment 352,306 349,494
Construction in progress 2,886 3,874
----------- -----------
408,556 405,684
Less accumulated depreciation (293,017) (284,995)
----------- -----------
$ 115,539 $ 120,689
----------- -----------
----------- -----------
</TABLE>
The difference between depreciation expense presented in the Consolidated
Statement of Cash Flows and the Consolidated Statement of Operations represents
that portion of depreciation expense that is classified in selling and
administrative expense on the Consolidated Statement of Operations.
RETIREMENT BENEFIT PLANS:
The Company has various retirement benefit plans covering substantially all
salaried and hourly employees. Certain salaried employees with one full calendar
quarter of service are eligible to participate in the Company's defined
contribution plan and employee stock ownership plan (ESOP). Company
contributions to the defined contribution plan and employee stock ownership plan
are based upon 7.5% and 3.5% (the ESOP contribution was reduced from 6.5% to
3.5% in the second quarter of 1993), respectively, of eligible compensation.
Amounts charged to operations under these plans were $3.4 million in 1993, $4.1
million in 1992 and $3.6 million in 1991.
Salaried employees who joined the Company prior to December 31, 1981 and certain
hourly employees participate in defined benefit retirement plans which provide
benefits based upon either years of service and final average pay or fixed
amounts for each year of service.
The net defined benefit pension credit (expense) included the following
components:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
(in thousands)
<S> <C> <C> <C>
Service cost $ (1,852) $ (1,979) $ (1,984)
Interest cost on projected benefit obligation (14,526) (14,231) (13,923)
Actual return on plan assets 16,094 9,715 28,085
Net amortization and deferral 7,662 (12,157)
---------- ---------- ----------
Net pension credit (cost) $ (284) $ 1,167 $ 21
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Pension plan curtailment losses of $1.1 million are included in the 1992
restructuring charge.
Actuarial assumptions used to calculate the defined benefit pension credits
(costs) were:
<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Weighted average discount rate 8.5% 8.5% 9%
Increase in future compensation levels 5% 5% 5%
Expected rate of return on plan assets 9.75% 9.75% 9.75%
</TABLE>
-40-
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The following table sets forth the funded status of the Company's defined
benefit retirement plans and amounts recognized in the balance sheet.
<TABLE>
<CAPTION>
1993 1992
-------------------------- --------------------------
Underfunded Overfunded Underfunded Overfunded
Plans Plans Plans Plans
------------- ----------- ------------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $182,993 in 1993 and
$155,815 in 1992 $ 189,939 $ 9,648 $ 138,372 $ 33,635
Effect of increase in future compensation
levels 4,419 709 4,525 725
------------- ----------- ------------- -----------
Projected benefit obligation for service
rendered to date 194,358 10,357 142,897 34,360
Plan assets at fair value, primarily U.S.
government bonds and notes and common stock of
publicly traded companies 158,975 9,860 131,300 37,258
Unrecognized net loss from past experience
different from that assumed and effects of
changes in assumptions 51,465 2,461 29,367 4,503
Prior service cost not yet recognized in net
periodic pension cost 5,539 1,440 192
Unrecognized net asset at December 30, 1985
being recognized over 15 years (12,879) (604) (11,773) (3,637)
Minimum pension liability adjustment (39,705) (14,509)
------------- ----------- ------------- -----------
Prepaid (accrued) pension cost $ (30,963) $ 1,360 $ (7,072) $ 3,956
------------- ----------- ------------- -----------
------------- ----------- ------------- -----------
</TABLE>
In accordance with FAS No. 87, the Company has recorded an adjustment, as shown
in the table above, to recognize a minimum pension liability relating to certain
under-funded pension plans. The additional $25.2 million adjustment arose at the
end of 1993 primarily as a result of a lowering of the discount rate to 7.5
percent from 8.5 percent. Accordingly, for pension plans with accumulated
benefits in excess of the fair value of plan assets at December 26, 1993, the
accompanying consolidated balance sheet includes an additional long-term pension
liability of $40.1 million, a long-term intangible asset of $5.8 million and a
charge to shareholders' equity of $21.3 million, net of a deferred tax benefit,
representing the excess of the additional long-term liability over unrecognized
prior service cost.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company and its subsidiaries sponsor several unfunded defined benefit
postretirement plans that provide medical, dental, and life insurance for
retirees and eligible dependents.
In 1993 and 1992 the cost for all plans, calculated pursuant to FAS No. 106,
"Employers Accounting for Postretirement Benefits Other Than Pensions" amounted
to $7.9 million and $7.8 million, respectively. The cost in 1991, which was
calculated under the previous accounting method totalled $6.4 million.
-41-
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The net periodic postretirement benefit cost for 1993 and 1992, net of retiree
contributions of approximately 10% of costs, included the following components:
<TABLE>
<CAPTION>
1993 1992
--------- ---------
(in thousands)
<S> <C> <C>
Service cost - benefits attributed to service during the period $ 1,185 $ 1,109
Interest cost on accumulated postretirement benefit obligation 6,743 6,708
Net amortization and deferral (64)
--------- ---------
Net periodic postretirement benefit cost $ 7,864 $ 7,817
--------- ---------
--------- ---------
</TABLE>
The following table sets forth the plans' combined status at December 26, 1993
and December 27, 1992:
<TABLE>
<CAPTION>
1993 1992
--------- ---------
(in thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 55,687 $ 57,685
Fully eligible active plan participants 9,675 6,751
Other active plan participants 25,619 20,983
--------- ---------
90,981 85,419
Unrecognized net gain and prior service cost (3,036) (10)
--------- ---------
Accrued postretirement benefit cost $ 87,945 $ 85,409
--------- ---------
--------- ---------
</TABLE>
The accrued postretirement obligation was determined by application of the terms
of medical, dental, and life insurance plans, together with relevant actuarial
assumptions and health care cost trend rates projected at annual rates ranging
ratably from 12 percent in 1992 to 5 percent through 1999. The effect of a 1
percent annual increase in these assumed cost trend rates would increase the
accumulated postretirement benefit obligation by approximately $10.9 million;
the annual service costs would increase by approximately $1.2 million. The
obligation for postretirement benefits was remeasured as of January 1, 1994
using a 7.5% discount rate, as compared to the 8.5% discount rate used for the
January 1, 1993 valuation.
The reduction in the discount rate contributed to a net increase in the
obligations of approximately $5 million. As the measurement of net periodic
postretirement benefits cost is based on beginning of the year assumptions, the
higher revalued obligation at the end of fiscal 1993 did not have any impact on
the expense recorded for 1993.
In accordance with the new labor agreement with the hourly workers effective
January 1, 1994, individuals retiring on or after January 1, 1993 will be
covered by a new managed care medical plan (PPO). This new plan is expected to
help control future medical costs to be paid by the Company.
POSTEMPLOYMENT BENEFITS:
In November 1992, the Financial Accounting Standards Board issued Statement No.
112, "Employers' Accounting for Postemployment Benefits," which requires accrual
basis accounting for Postemployment benefits, and must be adopted not later than
fiscal 1994. Postemployment benefits include all benefits paid after employment
but before retirement, such as layoff and disability benefits. The Company has
not yet determined the impact, if any, or the timing of this change on the
financial statements.
-42-
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
ACCRUED EXPENSES:
Included in the Consolidated Balance Sheet caption Accrued expenses are the
following:
<TABLE>
<CAPTION>
1993 1992
--------- ---------
(in thousands)
<S> <C> <C>
Accrued salaries and wages $ 16,235 $ 11,177
Accrued postretirement health care and life insurance 5,328 4,450
Accrued taxes other than income taxes 4,970 4,736
Other current liabilities 7,556 8,278
--------- ---------
$ 34,089 $ 28,641
--------- ---------
--------- ---------
</TABLE>
INVESTMENTS IN ASSOCIATED COMPANIES
The Company has a 31.7 percent interest in an iron ore mining venture. In 1993,
1992 and 1991, the Company made iron ore purchases of $18.3 million, $21.7
million, and $26.8 million, respectively from the venture. At December 26, 1993,
$4.2 million was owed to the venture for iron ore purchases; amounts owed to the
venture for such ore purchases were $3.6 million at December 27, 1992.
The Company has a 37% interest in Olga Coal Company. In 1987, Olga Coal Company
filed for protection under Chapter 11 of the U.S. Bankruptcy Act and the coal
mining operation was idled. The coal mining investment is carried at no value in
the Consolidated Balance Sheet.
INCOME TAXES:
The provision (credit) for taxes consisted of the following:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Taxes on income:
Current:
Federal $ 5,399 $ 62 $ (1,781)
State 403 113 --
--------- --------- ---------
5,802 175 (1,781)
Deferred (1,629) (1,848) 1,049
--------- --------- ---------
$ 4,173 $ (1,673) $ (732)
--------- --------- ---------
--------- --------- ---------
</TABLE>
In 1992, the Company adopted FAS No. 109, "Accounting for Income Taxes," and
reported the cumulative effect of the change in the method of accounting for
income taxes as of the beginning of the 1992 fiscal year in the consolidated
statement of operations. The cumulative effect of the change in accounting for
income taxes increased the 1992 net loss by $8.1 million or $1.50 per share and
was reported separately in the consolidated statement of operations for the year
ended December 27, 1992. The change in accounting for income taxes increased the
credit for taxes in 1992 by $0.9 million.
-43-
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Significant components of the Company's deferred tax liabilities and assets at
December 26, 1993 and December 27, 1992 is summarized below.
<TABLE>
<CAPTION>
Liabilities 1993 1992
- ----------------------------------------------------------------------------- --------- ---------
(Expressed in
thousands)
<S> <C> <C>
Property, plant and equipment $ 21,319 $ 21,535
--------- ---------
Gross deferred tax liabilities 21,319 21,535
--------- ---------
<CAPTION>
Assets
- -----------------------------------------------------------------------------
<S> <C> <C>
Postretirement benefits other than pensions 34,381 32,222
Inventory 4,313 3,185
Reserves 670 426
Pensions 8,620 565
Other employee benefits 2,712 2,039
Other assets 910 736
Miscellaneous 310 236
Alternative minimum tax credits 1,496 3,005
Other 90 726
--------- ---------
Gross deferred tax assets 53,502 43,140
--------- ---------
Net deferred tax asset $ 32,183 $ 21,605
--------- ---------
--------- ---------
</TABLE>
The Company believes it is more likely than not to realize the net deferred tax
asset and accordingly no valuation allowance has been provided. This conclusion
is based on, (i) reversing deductible temporary differences (excluding
postretirement amounts) being offset by reversing taxable temporary differences,
(ii) the extremely long period that is available to realize the future tax
benefits associated with the postretirement related deductible temporary
differences and, (iii) the Company's expected future profitability.
In 1993 and 1992, the change in the deferred income tax liability primarily
represents the effect of changes in the amounts of temporary differences from
December 27, 1992 to December 26, 1993 and December 29, 1991 to December 27,
1992, respectively. For 1991, the deferred income tax liability results from
timing differences, created principally by the use of accelerated tax
depreciation, in the recognition of income and expense for tax and financial
reporting purposes.
The Company's federal tax liability is the greater of its regular tax or
alternative minimum tax. At December 26, 1993, the Company had available
alternative minimum tax credits of $1.5 million. This amount can be carried
forward indefinitely and utilized as a tax credit to reduce, to a certain
extent, regular tax liabilities of future years.
-44-
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The effective income tax rates for 1993, 1992 and 1991 are reconciled to the
federal statutory tax rate in the following table:
<TABLE>
<CAPTION>
1993 1992 1991
----------- ------------ ------------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% (34.0)% (34.0)%
Change in tax rate due to:
Federal surtax 1.9 -- --
Depreciation -- -- 5.1
Reorganization and restructuring costs -- 1.7 3.9
State taxes - net of federal tax effect 4.7 .8 (2.0)
Reserves no longer required -- (6.4) --
Penalties .6 2.3 --
Other - net (1.2) (1.4) 3.0
--- ----- -----
40.0% (37.0)% (24.0)%
--- ----- -----
--- ----- -----
</TABLE>
There are currently certain federal tax matters that, upon resolution, could
enable the Company to carryback its entire 1986 net operating loss.
In 1993, cash flows were reduced by $4.5 million resulting from income tax
payments of $5.0 million and income tax refunds of $0.5 million in connection
with net operating loss carryback claims. In 1992, cash flows were increased by
$4.8 million resulting from $6.0 million of income tax refunds in connection
with net operating loss carryback claims and income tax payments of $1.2
million. No cash payments for income taxes were made in 1991.
LONG-TERM DEBT AND REVOLVING CREDIT AGREEMENT:
The Company's long-term debt at December 26, 1993 and December 27, 1992 is
summarized as follows:
<TABLE>
<CAPTION>
1993 1992
--------- ---------
(in thousands)
<S> <C> <C>
Senior notes, 9.35%, due 1994-1999 $ 50,000 $ 50,000
Note payable, 6.5% to 6.75%, due 1998-2008 6,000 9,500
--------- ---------
56,000 59,500
Less current portion 6,667 3,500
--------- ---------
$ 49,333 $ 56,000
--------- ---------
--------- ---------
</TABLE>
-45-
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
The maturities during the five years ending December 27, 1998 are $6.7
million in 1994 and 1995, $16.7 million in 1996, $6.7 million in 1997 and $7.2
million in 1998. Cash flows from operating activities were reduced by cash paid
for interest on debt by $5.2 million in 1993 and $5.6 million in 1992 and 1991.
The Company has a revolving credit agreement with a group of banks which
provides aggregate commitments of $60 million. At December 26, 1993 and December
27, 1992, no amounts were outstanding under the credit agreement. The Company
pays an annual commitment fee ranging from three-eighths to one-half percent on
the unused portion of the credit line. The credit agreement includes a covenant
that restricts the payment of dividends. At December 26, 1993, retained earnings
available for the payment of dividends amounted to $10 million.
FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH AND SHORT-TERM INVESTMENTS
The carrying amount approximates fair value because of the short maturity
of those instruments.
LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated by calculating
the present value of the remaining interest and principal payments on the debt
to maturity. The present value computation uses a discount rate equal to the
prime rate at the end of the reporting period plus or minus the spread between
the prime rate and the rate negotiated on the debt at the inception of the loan.
<TABLE>
<CAPTION>
1993 1992
---------------------------- ----------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 50,444 $ 50,444 $ 49,224 $ 49,224
Long-term debt
- Senior notes, 9.35%, due 1994-1999 50,000 56,130 50,000 57,992
- Note payable, 6.50% to 6.75%, due 1998-2008 6,000 7,021 9,500 10,524
------------- ------------- ------------- -------------
$ 106,444 $ 113,595 $ 108,724 $ 117,740
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
COMMON STOCK:
The Company has a stock incentive program which provides, among other
benefits, for the granting of stock options and stock awards to officers and key
employees. Stock options for the Company's common stock are granted at prices
not less than the market price at date of grant and no option may be exercised
more than ten years from the grant date.
-46-
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
Information regarding stock options is summarized below:
<TABLE>
<CAPTION>
Option Per share
Shares option price
--------- ---------------------
<S> <C> <C>
OUTSTANDING AT DECEMBER 30, 1990 382,475 $ 8.375 - $24.25
Granted 198,500 $13.563
Exercised (2,250) $ 8.375
Canceled (18,700) $ 8.375 - $24.25
---------
OUTSTANDING AT DECEMBER 29, 1991 560,025 $ 8.375 - $24.25
Granted 58,000 $18.75
Exercised (10,100) $ 8.375 - $15.625
Canceled (30,950) $13.563 - $24.25
---------
OUTSTANDING AT DECEMBER 27, 1992 576,975
Granted 88,500 $14.50
Exercised (39,450) $ 8.375 - $17.00
Canceled (17,675) $13.563 - $24.25
---------
OUTSTANDING AT DECEMBER 26, 1993 608,350
---------
---------
</TABLE>
At December 26, 1993, 490,850 options were exercisable; 447,650 options
were exercisable at December 27, 1992.
Stock awards granted in 1993 totaled 15,400 shares at a value of either
$16.00 or $16.75 per share depending on the grant date. Stock awards granted in
1992 totaled 18,650 shares at a value of either $ 15.00 or $ 18.75 per share
depending on the grant date. Stock awards granted in 1991 totaled 60,900 shares
at a value of either $ 11.75 or $ 13.563 per share depending on the grant date.
COMMITMENTS AND CONTINGENCIES:
The Company's interest in an iron ore mining joint venture requires
payment of its proportionate share of all fixed operating costs, regardless of
the quantity of ore received, plus the variable operating costs of minimum ore
production for the Company's account. Normally, the Company reimburses the joint
venture for these costs through its purchase of ore at the higher of cost or
market prices. During 1993, the Company obtained approximately 56% of its iron
ore needs from the joint venture and purchases during 1993 generally
approximated market prices.
The Company is subject to various federal, state and local environmental
statutes and regulations which provide a comprehensive program for controlling
the release of materials into the environment and require responsible parties to
remediate certain waste disposal sites. In addition, various health and safety
statutes and regulations apply to the work-place environment. Administrative,
civil and criminal penalties may be applicable for failure to comply with these
laws.
These environmental laws and regulations are subject to periodic revision
and modification. The United States Congress, by example, has recently completed
a major overhaul of the federal Clean Air Act which is a major component of the
federal environmental statutes affecting the Company's operations.
From time to time, the Company is also involved in administrative
proceedings involving the issuance, or renewal, of environmental permits
relating to the conduct of its business. The final issuance of these permits
have been resolved on terms satisfactory to the Company; and, in the future, the
Company expects such permits will similarly be resolved on satisfactory terms.
Although management believes it will be required to make further
substantial expenditures for pollution abatement facilities in future years,
because of the continuous revision of these regulatory and statutory
requirements, the Company is not able to reasonably estimate the specific
pollution abatement
-47-
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
requirements, the amount or timing of such expenditures to maintain compliance
with these environmental laws. While such expenditures in future years may be
substantial, management does not presently expect they will have a material
adverse effect on the Company's future ability to compete within its markets.
In those cases where the Company has been identified as a Potentially
Responsible Party ("PRP") or is otherwise made aware of a possible exposure to
incur costs associated with an environmental matter, management determines (i)
whether, in fact, the Company has been properly named or is otherwise obligated,
(ii) the extent to which the Company may be responsible for costs associated
with the site in question, (iii) an assessment as to whether another party may
be responsible under various indemnification agreements the Company is a party
to, and (iv) an estimate, if one can be made, of the costs associated with the
clean-up efforts or settlement costs. It is the Company's policy to make
provisions for environmental clean-up costs at the time that a reasonable
estimate can be made. At December 26, 1993, the Company had recorded reserves of
less than $0.3 million for environmental clean-up matters. While it is not
possible to predict the ultimate costs of resolving environmental related issues
facing the Company, based upon information currently available, they are
currently not expected to have a material effect on the consolidated financial
condition of the Company.
In connection with the spin-off from new Interlake, Acme Steel Company
entered into certain indemnification agreements with new Interlake. As discussed
in Item 3, Legal Proceedings, significant environmental and tax matters are
subject to indemnification by new Interlake under these agreements. To date
Interlake has met its obligations with respect to all matters covered by these
agreements. The inability of new Interlake to fulfill its obligations, for any
reason, under these indemnification agreements could result in increased future
obligations for the Acme Steel Company.
BUSINESS SEGMENTS:
Commencing in 1993, the Company has elected to present its operations in
two segments, Steel Making and Steel Fabricating. Prior year amounts have been
restated for comparison purposes.
Steel Making operations include the manufacture of sheet, strip and
semifinished steel in low-, mid-, and high-carbon alloy and special grades.
Principal markets include agricultural, automotive, industrial equipment,
industrial fasteners, welded steel tubing, processor and tool manufacturing
industries.
The Steel Fabricating business segment processes and distributes steel
strapping, strapping tools and industrial packaging (Acme Packaging
Corporation), welded steel tube (Alpha Tube Corporation) and auto and light
truck jacks (Universal Tool & Stamping). The Steel Fabricating Segment sells to
a number of markets.
All sales between segments are recorded at current market prices. Income
from operations consists of total sales less operating expenses. Operating
expenses include an allocation of expenses incurred at the Corporate Office that
are considered by the Company to be operating expenses of the segments rather
than general corporate expenses. Income (loss) from operations does not include
other non-operating income or expense, interest income or expense, the
cumulative effect of changes in accounting principles, or income taxes.
Identifiable assets are those that are associated with each business segment.
Corporate assets are principally investments in cash equivalents and deferred
income taxes.
The products and services of the Steel Making and Steel Fabricating
Segments are distributed through their own respective sales organizations which
have sales offices at various locations in the United States. Export sales are
insignificant for the years presented.
-48-
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SEGMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992 1991
--------- ------------ ---------
<S> <C> <C> <C>
Sales
Trade:
Steel Making $ 187,750 $ 145,627 $ 140,877
Steel Fabricating 269,656 245,935 236,074
Intersegment:
Steel Making 116,094 114,517 110,184
Steel Fabricating 1,873 1,023 --
Eliminations: (117,967) (115,540) (110,184)
--------- ------------ ---------
Total $ 457,406 $ 391,562 $ 376,951
--------- ------------ ---------
--------- ------------ ---------
Income (Loss) from Operations
Steel Making $ 736(1) $ (9,363)(3) $ (4,110)
Steel Fabricating 11,929(2) 7,308(4) 2,639
--------- ------------ ---------
Total $ 12,665 $ (2,055) $ (1,471)
--------- ------------ ---------
--------- ------------ ---------
Identifiable Assets:
Steel Making $ 203,366 $ 185,743 $ 171,389
Steel Fabricating 108,254 94,514 84,100
Corporate 22,249 20,445 35,247
--------- ------------ ---------
Total $ 333,869 $ 300,702 $ 290,736
--------- ------------ ---------
--------- ------------ ---------
Depreciation:
Steel Making $ 11,285 $ 10,805 $ 10,010
Steel Fabricating 3,842 3,804 4,124
Corporate 107 96 90
--------- ------------ ---------
Total $ 15,234 $ 14,705 $ 14,224
--------- ------------ ---------
--------- ------------ ---------
Capital Expenditures:
Steel Making $ 9,368 $ 5,661 $ 8,402
Steel Fabricating 2,283 1,823 2,027
Corporate 98 73 182
--------- ------------ ---------
Total $ 11,749 $ 7,557 $ 10,611
--------- ------------ ---------
--------- ------------ ---------
<FN>
(1) Includes a $1.3 million write off of Acme Steel Company's No. 3 Hot
Strip Mill and Billet Mill.
(2) Includes a $0.6 million expense to close Acme Packaging s Pittsburg-East
facility in California and the write-off of a strapping line at its New
Britain, Connecticut facility.
(3) Includes a $2.1 million restructuring charge in connection with a 10%
salaried work force reduction plan.
(4) Includes a $0.3 million restructuring charge in connection with a 10%
salaried work force reduction plan.
</TABLE>
-49-
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
SUBSEQUENT EVENT:
On March 3, 1994, Acme Metals Incorporated (the "Company") agreed to sell an
issue of securities on a private placement basis exclusively in Canada. Within
160 days of the closing of this transaction (expected on March 28, 1994), the
securities will be exchangeable for 5,000,000 common shares of the Company
(5,600,000 common shares if an over-allotment option for the securities is
exercised before closing) subject to the fulfillment of certain conditions.
Conditions include the approval by the Board of Directors of the Company of the
construction of a continuous thin slab caster-hot rolled mill and confirmation
of the availability of debt financing sufficient for such construction.
The securities and the underlying common shares have not been registered under
the Securities Act of 1933 (the "Securities Act") and may not be offered or sold
in the United States or to a U.S. person, as defined in Regulation S under the
Securities Act, absent registration or an applicable exemption from registration
requirements.
-50-
<PAGE>
ACME METALS INCORPORATED
QUARTERLY RESULTS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
1993
- ----
Net sales $ 107,863 $ 117,169 $ 111,919 $ 120,455
Gross profit 7,518 11,670 9,206 16,829
Net income (loss) 114 2,056 115 3,974
Net income (loss) per share $ 0.02 $ 0.38 $ 0.02 $ 0.73
- -------------------------------------------------------------------------------------------------------------------
1992
- ----
Net sales $ 98,522 $ 99,993 $ 94,884 $ 98,163
Gross profit 7,967 5,897 6,303 9,379
Net income (loss)(1) (50,144) (1,288) (2,647) 907
Net income (loss) per share(1) $ (9.29) $ (0.24) $ (0.49) $ 0.17
Net income before accounting changes 179 (1,288) (2,647) 907
Net income per share before accounting changes $ 0.03 $ (0.24) $ (0.49) $ 0.17
- -------------------------------------------------------------------------------------------------------------------
1991
- ----
Net sales $ 92,403 $ 91,732 $ 98,545 $ 94,271
Gross profit 6,025 5,642 8,223 7,858
Net income (loss) (1,001) (626) 229 (920)
Net income (loss) per share $ (0.19) $ (0.11) $ 0.04 $ (0.17)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The fourth quarter of 1993 includes a $1.2 million benefit related to Acme's
investment in Wabush Mines, a $1.3 million expense to write-off the Steel
subsidiary's No. 3 Hot Strip Mill and Billet Mill, and $0.6 million of expense
associated with the closure of the Packaging subsidiary's Pittsburg-East
facility in California and the write-off of a strapping line at the Packaging
subsidiary's New Britain, Connecticut facility.
The third quarter of 1992 includes a $3.1 million restructuring charge in
connection with the Company's work force reduction plan.
The fourth quarter of 1992 includes a $1 million gain on the sale of all the
Company's interests in a coal producing property in West Virginia, and a
postretirement plan curtailment gain of $0.4 million related to the
restructuring charge was included in fourth quarter results.
The second quarter of 1991 includes an unusual item related to the assignment of
Acme's rights in claims allowed in the LTV Steel Company, Inc. bankruptcy to a
third party which added $1.2 million to pre-tax income.
(1) Reflects the adoption of Financial Accounting Standards (FAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" and
FAS No. 109, "Accounting for Income Taxes" in the first quarter of 1992.
-51-
<PAGE>
ACME METALS INCORPORATED
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(in thousands)
<TABLE>
<CAPTION>
Other
Balance at changes Balance
beginning Additions add at end
Fiscal Year of year at cost Retirements (deduct) of year
- ------------------------------ ---------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
1993
------
Land $ 3,786 $ 3,786
Buildings 48,530 $ 1,084 $ (36) 49,578
Equipment 349,494 11,653 (8,841) 352,306
Construction in progress 3,874 (988) 2,886
---------- --------- ----------- --------- --------
Total $ 405,684 $ 11,749 $ (8,877) $ 0 $408,556
---------- --------- ----------- --------- --------
---------- --------- ----------- --------- --------
1992
------
Land $ 3,786 $ 3,786
Buildings 47,804 $ 960 $ (247) $ 13(a) 48,530
Equipment 347,767 3,739 (2,882) 870(a) 349,494
Construction in progress 1,016 2,858 3,874
Coal land and development 1,598 (1,598)(b)
---------- --------- ----------- --------- --------
Total $ 401,971 $ 7,557 $ (3,129) $ (715) $405,684
---------- --------- ----------- --------- --------
---------- --------- ----------- --------- --------
1991
------
Land $ 3,786 $ 3,786
Buildings 47,228 $ 592 $ (16) 47,804
Equipment 335,091 13,105 (429) 347,767
Construction in progress 4,102 (3,086) 1,016
Coal land and development 1,598 1,598
---------- --------- ----------- --------- --------
Total $ 391,805 $ 10,611 $ (445) $ 0 $401,971
---------- --------- ----------- --------- --------
---------- --------- ----------- --------- --------
<FN>
(a) Represents the cumulative effect on a prior purchase business
combination as a result of the Company's implementation of FAS No. 109,
Accounting for Income Taxes.
(b) Represents a sale of all of the Company's interests in a coal producing
property in West Virginia.
(c) The estimated lives used in determining annual rates of depreciation (on
a straight-line basis) to be applied to the cost of principal classes of
assets are:
</TABLE>
<TABLE>
<CAPTION>
Years
--------
<S> <C>
Buildings 30 to 50
Equipment 5 to 18
</TABLE>
-52-
<PAGE>
ACME METALS INCORPORATED
SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
(in thousands)
<TABLE>
<CAPTION>
Additions
charged
Balance at to costs Other
beginning and changes add Balance at
Fiscal Year of year expenses Retirements (deduct) end of year
- ---------------------------------------------------------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1993
------
Buildings $ 31,191 $ 851 $ (35) $ 32,007
Equipment 253,804 14,383 (7,177) 261,010
----------- --------- ----------- ----------- -----------
Total $ 284,995 $ 15,234 $ (7,212) $ 0 $ 293,017
----------- --------- ----------- ----------- -----------
----------- --------- ----------- ----------- -----------
1992
------
Buildings $ 30,588 $ 848 $ (247) $ 2(a) $ 31,191
Equipment 241,653 13,858 (2,106) 399(a) 253,804
----------- --------- ----------- ----------- -----------
Total $ 272,241 $ 14,706 $ (2,353) $ 401 $ 284,995
----------- --------- ----------- ----------- -----------
----------- --------- ----------- ----------- -----------
1991
------
Buildings $ 29,818 $ 770 $ 30,588
Equipment 228,568 13,454 $ (369) 241,653
----------- --------- ----------- ----------- -----------
Total $ 258,386 $ 14,224 $ (369) $ 0 $ 272,241
----------- --------- ----------- ----------- -----------
----------- --------- ----------- ----------- -----------
<FN>
(a) Represents the cumulative effect on a prior purchase business
combination as a result of the Company's implementation of FAS No. 109,
Accounting for Income Taxes.
</TABLE>
-53-
<PAGE>
ACME METALS INCORPORATED
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(in thousands)
<TABLE>
<CAPTION>
Additions
---------------------
Balance at Charged to Charged
beginning costs and to other Balance at
Fiscal Year of year expenses Accounts Deductions end of year
- --------------------------------------------------------- ----------- ----------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
1993
------
Allowance for doubtful accounts receivable $ 1,081 $ 240 $ 232(a) $ (398)(b) $ 1,155
----------- ----------- -------- --------- -----------
----------- ----------- -------- --------- -----------
1992
------
Allowance for doubtful accounts receivable $ 741 $ 645 $ 300(a) $ (605)(b) $ 1,081
----------- ----------- -------- --------- -----------
----------- ----------- -------- --------- -----------
1991
------
Allowance for doubtful accounts receivable $ 523 $ 1,045 $ 91(a) $ (918)(b) $ 741
----------- ----------- -------- --------- -----------
----------- ----------- -------- --------- -----------
<FN>
(a) Consists principally of recoveries of accounts charged off in prior
years.
(b) Uncollectible accounts charged off.
</TABLE>
SCHEDULE X - SUPPLEMENTAL INCOME STATEMENT INFORMATION
(in thousands)
<TABLE>
<CAPTION>
Charged to costs and expenses for the year
ended
-------------------------------------------
December 26, December 27, December 29,
1993 1992 1991
------------- ------------- -------------
<S> <C> <C> <C>
Maintenance and repairs $ 39,456 $ 34,337 $ 32,418
------------- ------------- -------------
------------- ------------- -------------
Taxes, other than payroll and income taxes (principally real
estate and personal property taxes) $ 5,343 $ 5,882 $ 4,762
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Other items requiring disclosure are not shown as they individually are less
than 1% of net sales.
-54-
<PAGE>
EXHIBIT 10.27
STOCK OPTION AGREEMENT
Pursuant to the Acme Metals Incorporated
1986 Stock Incentive Program
This agreement, made and entered into as of the Date of Grant by and
between Acme Metals Incorporated, a Delaware corporation (the "Company"), and
the Optionee, consists of this facing page, the reverse side of the facing
page containing the definition of Change in Control, and the Standard Terms
and Conditions attached hereto.
WHEREAS, the Optionee is an employee of Acme Metals Incorporated or a
subsidiary thereof, (hereinafter called the "Company");
WHEREAS, the 1986 Stock Incentive Program of Acme Metals Incorporated and
its subsidiaries authorizing the granting to officers and to other key
employees of the Company and its subsidiaries of options to buy from the
Company shares of common stock, par value $1 per share, has been duly adopted
by the Board of Directors and shareholders of the Company; and
WHEREAS, the execution of a stock option agreement in the form hereof has
been duly authorized by a resolution of the Board of Directors of the Company
duly adopted on June 12, 1992 and incorporated herein by reference;
NOW, THEREFORE, BE IT RESOLVED, that the Company hereby grants to the
Optionee an option to purchase the number of shares shown below of common
stock, par value $1 per share, of the Company, upon the terms and conditions
herein set forth.
Date of Grant:
Optionee:
Option Shares:
Option Price:
Exercise Schedule
Per Paragraph 1:
ACME METALS INCORPORATED
By
---------------------------------
Brian W. H. Marsden
Chairman and
Chief Executive Officer
I hereby acknowledge receipt of the nonqualified stock option granted on
the date shown above, which has been issued to me under the terms and
conditions of the 1986 Stock Incentive Program (the "Plan"). I further
acknowledge receipt of a copy of the Plan and agree to conform to all of the
terms and conditions of this Stock Option Agreement and the Plan.
Date:
-------------------- -----------------------------------
<PAGE>
* The term "Change in Control" shall mean the occurrence of any of the
following events:
(a) there shall be consummated any consolidation, merger or reorganization
of Acme Metals Incorporated (the "Company") in which the Company is
not the continuing or surviving corporation or pursuant to which the
outstanding voting securities or other capital interests of the
Company would be converted into cash, securities or other property,
other than a consolidation, merger or reorganization of the Company in
which the holders of the Company's outstanding voting securities or
other capital interests immediately prior to such consolidation,
merger or reorganization shall directly or indirectly, have
seventy-five (75%) or more of the outstanding voting securities or
other capital interests of the surviving, resulting or acquiring
corporation or other legal entity;
(b) the Company sells, leases, exchanges or transfers (in one transaction
or a series of related transactions) all or substantially all of its
business and/or assets to any other corporation or other legal entity
of which less than 75% of the outstanding voting securities or other
capital interests of said corporation or other legal entity are owned
in the aggregate by the shareholders of the Company, directly or
indirectly, immediately prior to or after such sale;
(c) the shareholders of the Company shall approve any plan or proposal for
the liquidation or dissolution of the Company;
(d) any person or group (as such terms are used in Section 13(d) or
Section 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange
Act") other than the Company or a subsidiary or any employee benefit
plan sponsored by the Company has become the beneficial owner (as the
term "beneficial owner" is defined under Rule 13d-3 or any successor
rule or regulation promulgated under the Exchange Act), directly or
indirectly, of 25% or more of the combined voting power of the
Company's then outstanding voting securities ordinarily (and apart
from rights accruing in special circumstances) having the right to
vote in the election of directors, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases, or
otherwise;
(e) at any time during any period of two consecutive years, individuals
who at the beginning of any such period constitute the Directors of
the Company cease for any reason to constitute at least a majority
thereof unless the election, or the nomination for election by the
Company's shareholders, of each new Director of the Company was
approved by a vote of at least two-thirds of such Directors of the
Company then still in office who were Directors of the Company at the
beginning of any such two-year period; or
(f) such other event, or events, as shall be determined by the Board of
Directors to be a Change in Control.
<PAGE>
Standard Terms and Conditions of
Non-Qualified Stock Option Agreement
Under the 1986 Stock Incentive Program
of
Acme Metals Incorporated
As Adopted By the Board of Directors on June 12, 1992
1. This option may be exercised in full (until terminated as hereinafter
provided) upon the retirement or upon death of the Optionee while employed by
the Company or any subsidiary or upon a Change in Control(*) of the Company.
Except as provided in the preceding sentence, this option (until terminated as
hereinafter provided) shall be exercisable only to the extent of one-half of
the shares hereinabove specified after the Optionee shall have been in the
continuous employ of the Company or any subsidiary for one full year from the
date hereof and to the extent of the remaining one-half of such shares after
the next succeeding year during which the Optionee shall have been in the
continuous employ of the Company or any subsidiary. For the purposes of this
paragraph, leaves of absence for illness, military or governmental service, or
other cause, shall be considered as employment. To the extent exercisable,
this option may be exercised in whole or in part from time to time, provided,
however, that any fractional share shall be rounded down to the nearest whole
share.
2. The option price may, at the election of the Optionee, be paid (i) in
cash or by check acceptable to the Company, or (ii) by transfer to the Company
of shares of common stock of the Company having a value at the time of
exercise (the average of the high and low prices quoted on NASDAQ
Over-the-Counter Markets, National Markets Issues, or The New York Stock
Exchange Composite Transactions, whichever is applicable, on the date upon
which the Optionee's exercise of stock option is received) no greater than the
total option price, or (iii) any combination of whole shares and funds. In
addition, the Optionee shall pay the Company an amount equal to applicable
federal, state and local withholding taxes. Upon receipt of the payments
referred to in the preceding sentence, the Company agrees to cause
certificates for any shares purchased hereunder to be delivered to the
Optionee.
3. This option shall terminate on the earliest of the following dates:
(a) on the date upon which the Optionee ceases to be an employee
of the Company or a subsidiary by reason of termination of
employment for cause;
(b) three months after the Optionee ceases to be an employee of
the Company or a subsidiary, unless he ceases to be such
employee by reason of death, retirement or in a manner
described in (a) above;
(c) two years after the death of the Optionee if the Optionee dies
while an employee of the Company or a subsidiary;
(d) two years after the retirement of the Optionee;
(e) ten years from the date on which this option was granted.
In the event the Optionee shall intentionally commit an act materially
inimical to the interests of the Company or a subsidiary, and the Board of
Directors shall so find, this option shall terminate at the time of such act,
notwithstanding any other provision of this agreement. Nothing contained in
this option
- --------------
* See reverse side of Stock Option Agreement page for definition of Change
in Control shall limit whatever right the Company or a subsidiary might
otherwise have to terminate the employment of the Optionee.
<PAGE>
4. This option is not transferable by the Optionee otherwise than by
will or the laws of descent and distribution and is exercisable, during the
lifetime of the Optionee, only by him.
5. This option shall not be exercisable if such exercise would involve a
violation of any applicable federal or state securities laws, and the Company
hereby agrees to make reasonable efforts to comply with any applicable
securities laws.
6. The Board of Directors shall make such adjustments in the option
price and in the number or kind of shares of common stock, par value $1 a
share, or other securities covered by this option as such Board of Directors
in its discretion, exercised in good faith, may determine is equitably
required to prevent dilution or enlargement of the rights of the Optionee that
otherwise would result from (a) any stock dividend, stock split, combination
of shares, recapitalization or other change in the capital structure of the
Company, or (b) any merger, consolidation, separation, reorganization or
partial or complete liquidation, or (c) any other corporate transaction or
event having an effect similar to any of the foregoing. No adjustment
provided for in this Paragraph 6 shall require the Company to sell any
fractional shares.
7. The term "subsidiary" as used in this agreement means any corporation
(other than the Company) in an unbroken chain of corporations beginning with
the Company if each of the corporations other than the last corporation in the
unbroken chain owns stock possessing fifty per cent or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain. For purposes of this agreement, the continuous employ of the
Optionee with the Company or a subsidiary shall not be deemed interrupted, and
the Optionee shall not be deemed to have ceased to be an employee of the
Company or any subsidiary, by reason of the transfer of his employment among
the Company and its subsidiaries.
8. The term "retirement" means the termination of an Optionee's
employment under such circumstances as entitle him to elect an immediate
pension under any retirement or pension benefit plan (as defined under the
Employee Retirement Income Security Act of 1974, as amended, "ERISA") of the
Company, or any subsidiary by which he is employed and in which he
participates at termination of employment. If an Optionee does not
participate in an ERISA retirement or pension benefit plan, "retirement" means
the termination of an Optionee's employment under such circumstances as would
have entitled him to elect an immediate pension if any such retirement or
pension plan had applied to such employee.
<PAGE>
EXHIBIT 10.33
ACME METALS INCORPORATED
GRANT OF STOCK AWARD
Dated as of____________
To:
Pursuant to and in accordance with all the terms and conditions of the Acme
Metals Incorporated 1986 Stock Incentive Program (the "Program"), the Board of
Directors (the "Board") of Acme Metals Incorporated (hereinafter sometimes
referred to as "the Company") has granted you a stock award, effective the
above date ("Date of Grant"), of shares of the $1.00 par value common stock
of Acme Metals Incorporated, such Grant of Stock Award ("Stock Award") to be
subject also to the following terms and conditions:
1. GRANT OF STOCK AWARD
(a) The Company will cause to be issued in your name the number of shares
covered by this Stock Award represented by five (5) stock certificates, each
representing as nearly as practicable twenty per cent (20%) of the total
number of shares covered in total by this Stock Award, and will physically
deliver such certificates to you as promptly as possible as they become earned
out and deliverable under Paragraph 3 of this Stock Award.
(b) When you sign and return this Stock Award you will also sign and
return the five irrevocable stock powers enclosed herewith and will deliver
the same to the Secretary of the Company to facilitate the transfer of any or
all of the stock covered by this Stock Award to the Company (or its assignee
or nominee), if appropriate or required under the terms of this Stock Award or
the Program under which such shares are issued or applicable laws or
regulations.
2. ISSUE OF STOCK AWARD - LIMITS ON TRANSFER
Physical custody of the stock certificates representing the shares covered
by this Stock Award will be in the Company's possession subject to the removal
or release of restrictions on transfer thereof, as provided in Paragraph 3
hereof. You expressly agree that you will not sell, assign, transfer, pledge,
or otherwise make any disposition of the shares subject to this Stock Award,
or make any attempt to do so, except as to such shares, if any, which are
covered by this Stock Award and which are represented by one or more stock
certificates duly delivered to you.
3. EARN OUT OF STOCK AWARD
(a) Provided that you are then continuing to serve as an employee of the
Company or a subsidiary thereof, the restrictions on disposition of the shares
covered by this Stock Award (except those that may be imposed by law) shall
lapse and such shares shall become deliverable to you as follows:
(i) twenty per cent (20%) of such shares six months and one day
after the Date of Grant ("First Earnout Date"):
(ii) twenty per cent (20%) of such shares on each of the next four
anniversaries of the First Earnout Date (or the next preceding
business day if such anniversary is not a business day):
<PAGE>
(iii) in the event of a Change of Control (see attachment for
definition of Change of Control) of the Company.
For purposes of this agreement, continuous employment with the Company
or a subsidiary shall not be deemed interrupted and employment shall not be
deemed to have ceased by reason of transfer of employment among the Company
and its subsidiaries.
(b) The restrictions on your unearned shares shall lapse and all shares not
theretofore delivered to you shall become deliverable as of the date on which
your employment with the Company or a subsidiary terminates by reason of
retirement, death or disability.
(c) Subparagraphs (a) and (b) of this Paragraph 3 are subject to the
provisions of the Program, the provisions of this Stock Award, and any
election or elections you may make pursuant to Paragraph 4 below. As promptly
as reasonably possible after each date on which restrictions on your unearned
shares shall lapse, the Company will physically deliver to you the stock
certificate representing the number of shares as to which restrictions have
lapsed and will destroy the stock power(s) referred to in Paragraph 1(b)
hereof relating to the shares so delivered; provided, however, that none of
the stock subject to this award shall be deliverable to you, unless and until
(i) all necessary requirements of state and federal securities laws and
regulations have been met and (ii) the Company has been reimbursed for
applicable withholding taxes which are payable to federal, state and local
governments.
4. PAYMENT OF TAXES
(a) You or any other person receiving stock under this Stock Award shall be
required to pay to the Company or a subsidiary the amount of any federal,
state or local taxes which the Company or a subsidiary is required to withhold
with respect to shares covered by this Stock Award at the time the
restrictions on such shares lapse or at such time as the Company or a
subsidiary in its judgment becomes liable to withhold any such tax ("Tax
Date").
(b) You may elect to have the fair market value of up to one-half of the
shares of each installment applied to the payment of federal, state and local
taxes arising out of your right to receive such installment ("Withholding
Election"). "Fair market value" shall mean as to each share the average of
the high and low prices of the Company's common stock on the Tax Date (or, if
there are no sales on that date, the last preceding date on which there was a
reported sale) on the NASDAQ Over-the-Counter Markets, National Markets
Issues, or the New York Stock Exchange Composite Transactions, as reported in
THE WALL STREET JOURNAL (corrected for reporting errors), whichever is
applicable on said date. Such fair market value shall be determined, in the
case of the first installment, on the First Earnout Date, and in the case of
all other installments, on each of the next four anniversaries on which an
installment is earned out, unless a provision of the Program or some other
provision of this Stock Award requires that such installment be valued on a
different Tax Date for federal income tax purposes. If there are no sales of
the Company's common stock on the applicable date, fair market value will be
determined as of the last preceding date on which there was a sale. The fair
market value of such shares will be applied first to state and local taxes at
the statutory withholding rates in effect when the applicable installment is
valued, second to federal income taxes at the statutory withholding rate in
effect when the applicable installment is valued, and any balance will be
treated as federal income taxes withheld in excess of the statutory minimum.
The Company or a subsidiary shall pay to the applicable taxing authorities
such amounts for your account. If you make such an election you will be
deemed to have sold and re-transferred to the Company the number of whole
shares covered by your election.
(c) If you do not make a Withholding Election with respect to the first
installment on the accompanying Tax Payment Provisions form dated as of the
date of this Stock Award and return it to the Secretary of the Company, the
Company will deliver a certificate for twenty per cent (20%) of the shares
granted unless by
- 2 -
<PAGE>
reason of some other provision of this agreement or a provision of the Program
such installment is not deliverable. Withholding Elections with respect to
the second and subsequent installments must be in writing and must be
delivered to the Secretary of the Company either (i) at least six months
before the applicable anniversary of the First Earnout Date or (ii) during the
most recent ten-day period preceding the applicable anniversary of the First
Earnout Date, beginning on the third business day and ending on the twelfth
business day after release for publication of the Company's quarterly or
annual sales and earnings. If no election is received within the time
specified for a particular installment, the Company will deliver a certificate
for twenty per cent (20%) of the shares granted shares unless by reason of
some other provision of this agreement or a provision of the Program such
installment is not deliverable. If a Withholding Election is timely received,
the Company will cancel the stock certificate issued pursuant to Paragraph
1(a) above which pertains to such installment and will issue and deliver a
replacement certificate for the difference between the installment of shares
and the number of shares as to which a timely Withholding Election has been
made, unless by reason of some other provision of this Stock Award or a
provision of the Program such installment is not deliverable. If one or more
installments become deliverable by reason of retirement, death, or disability,
you or your personal representative must, within four months next following
such event, make a Withholding Election to have up to one-half the fair market
value of such shares applied to the payment of taxes or to receive the entire
installment or installments in stock and pay the taxes due in cash. The
entire installment or installments will be paid in stock if a Withholding
Election to receive such installment or installments entirely in stock is made
within such four-month period or if a Withholding Election to have the fair
market value of shares applied to the payment of taxes is not made within such
four-month period.
(d) The Company or a subsidiary will furnish you with a statement of
applicable withholding taxes providing for the election described herein for
each installment of this Stock Award. You are required to promptly reimburse
the Company or a subsidiary for the amount of withholding taxes shown on such
statement. If you fail to reimburse the Company or a subsidiary within three
months after each applicable Tax Date, the entire amount of the installment
will be forfeited unless the Board in its sole discretion determines to extend
the time for good cause shown. If withholding taxes are due because one or
more installments have become immediately deliverable following retirement,
death or disability, the entire amount of such installment or installments
will be forfeited unless the Company or a subsidiary is reimbursed for all
such taxes within six months following such retirement, death or disability or
unless the Board in its sole discretion determines to extend the time for good
cause shown.
5. RIGHTS AS A SHAREHOLDER
Subject to the limitations, conditions, and restrictions on transfer imposed
by this Stock Award and by the Program, it is recognized that you will be
treated as the owner of the stock covered by this Stock Award as follows:
(a) You shall be entitled to receive all dividends, whether in cash, stock
or in any other form, payable with respect to such unearned shares; if
payable in stock, any such dividend shall be subject to all
restrictions applicable to the stock with respect to which such
dividend is paid;
(b) You shall be entitled to vote all such unearned shares in respect to
any question with respect to which a vote of stockholders is required
or solicited.
Such rights shall immediately lapse in the event any shares are forfeited or
lapsed as provided in Paragraphs 6, 7 or 8 hereof.
- 3 -
<PAGE>
6. AMENDMENT, CANCELLATION AND TERMINATION OF GRANT
Reference is specifically made to the provisions regarding amendment,
cancellation and termination of this Stock Award contained in Paragraph 9(e)
of the Program, and such provision is herein expressly incorporated by
reference.
7. ADDITIONAL RESTRICTIONS ON THIS GRANT
As to any shares of stock not delivered (or as to which the date of delivery
as determined under Paragraph 3 hereof has not occurred) to you pursuant to
Paragraph 3 of this Stock Award, any and all of your rights shall cease and
terminate, and the Company shall be fully entitled, legally and beneficially,
to any of such shares not then delivered or deliverable, upon the happening of
any one of the following events specifying termination of such rights. In
such event, the stock certificates representing any unearned or undelivered
shares so forfeited shall be transferred to the Company or its nominee, by it
or its agents, pursuant to your authorization granted the Company under
Paragraph 1(b) hereof.
If your employment terminates for any reason (other than retirement, death
or disability), any shares which have not been earned out shall be forfeited
if you:
(i) COMPETITION
shall be employed by a competitor of, or shall be engaged in
any activity in competition with, the Company or a subsidiary
without the Company's consent;
(ii) CONFIDENTIAL INFORMATION
have divulged without the consent of the Company any secret or
confidential information belonging to the Company or a
subsidiary; or
(iii) have engaged in any other activities which would or which might
constitute grounds for your discharge by the Company or a
subsidiary for cause.
The Company shall give you (or your designated beneficiary or legal
representatives) written notice of any such forfeiture. The determination of
the Board as to the occurrence of any of the events specified in the foregoing
clauses (i), (ii), or (iii) shall be conclusive and binding upon all persons
for all purposes.
8. MISCELLANEOUS PROVISIONS
(a) Your rights and interests under this Stock Award may not be assigned or
transferred except, in the case of your death, to your beneficiary or, in the
absence of such designation, by will or the laws of descent and distribution.
(b) No employee or other person shall have any claim or right to be granted
a stock award under the Program. Neither the Program nor any action taken
thereunder, including this Stock Award, shall be construed as giving any
employee any rights to be retained in the employ of the Company or any
subsidiary thereof.
(c) Express reference is made to all of the terms and conditions of the
Program, and you, by your acceptance of this Stock Award acknowledge that you
have received a copy of such Program, that you have read the same and are
sufficiently familiar therewith to understand both your rights and your
obligations
- 4 -
<PAGE>
thereunder, and you agree to accept and to be bound by all of the terms and
conditions of this Stock Award and such Program, including without limitation
the right of the Board to amend, cancel, suspend or terminate this Stock Award
in whole or in part, on behalf of yourself and your heirs and assigns.
Stock Award Granted By
ACME METALS INCORPORATED
By
---------------------------------
Brian W. H. Marsden
Chairman and Chief Executive Officer
AGREED AND ACCEPTED, including all terms and conditions of the Acme Metals
Incorporated 1986 Stock Incentive Program.
Date: Signed:
---------------------------- ----------------------------
- 5 -
<PAGE>
* The term "Change in Control" shall mean the occurrence of any of the
following events:
(a) there shall be consummated any consolidation, merger or reorganization
of Acme Metals Incorporated (the "Company") in which the Company is
not the continuing or surviving corporation or pursuant to which the
outstanding voting securities or other capital interests of the
Company would be converted into cash, securities or other property,
other than a consolidation, merger or reorganization of the Company in
which the holders of the Company's outstanding voting securities or
other capital interests immediately prior to such consolidation,
merger or reorganization shall directly or indirectly, have
seventy-five (75%) or more of the outstanding voting securities or
other capital interests of the surviving, resulting or acquiring
corporation or other legal entity;
(b) the Company sells, leases, exchanges or transfers (in one transaction
or a series of related transactions) all or substantially all of its
business and/or assets to any other corporation or other legal entity
of which less than 75% of the outstanding voting securities or other
capital interests of said corporation or other legal entity are owned
in the aggregate by the shareholders of the Company, directly or
indirectly, immediately prior to or after such sale;
(c) the shareholders of the Company shall approve any plan or proposal for
the liquidation or dissolution of the Company;
(d) any person or group (as such terms are used in Section 13(d) or
Section 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange
Act") other than the Company or a subsidiary or any employee benefit
plan sponsored by the Company has become the beneficial owner (as the
term "beneficial owner" is defined under Rule 13d-3 or any successor
rule or regulation promulgated under the Exchange Act), directly or
indirectly, of 25% or more of the combined voting power of the
Company's then outstanding voting securities ordinarily (and apart
from rights accruing in special circumstances) having the right to
vote in the election of directors, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases, or
otherwise;
(e) at any time during any period of two consecutive years, individuals
who at the beginning of any such period constitute the Directors of
the Company cease for any reason to constitute at least a majority
thereof unless the election, or the nomination for election by the
Company's shareholders, of each new Director of the Company was
approved by a vote of at least two-thirds of such Directors of the
Company then still in office who were Directors of the Company at the
beginning of any such two-year period; or
(f) such other event, or events, as shall be determined by the Board of
Directors to be a Change in Control.
- 6 -
<PAGE>
EXHIBIT 10.35
AMENDMENT NO. 5 TO THE
ACME METALS INCORPORATED
EMPLOYEE STOCK OWNERSHIP PLAN
ACME METALS INCORPORATED, a corporation organized and existing under the
laws of the State of Delaware, hereby amends the Acme Metals Incorporated
Employee Stock Ownership Plan (hereinafter referred to as the "Plan"),
originally effective January 1, 1989, by this Amendment No. 5, effective as of
April 1, 1993.
Section 4.1 is changed to read as follows:
4.1 FORMULA. For each quarter the Company shall contribute to the
Trust Fund an amount equal to three and one half percent (3-1/2%) of
each Participant's Earnings (as such term is defined in Section 1.5)
during such quarter on behalf of each Participant who is eligible as
of the last day of the quarter and who was actively employed
throughout such quarter. The Company shall contribute to the Trust
Fund a pro rata amount based on the period of employment during any
quarter on behalf of the Participant whose eligibility continues to
the end of the quarter in accordance with Section 3.5. Contributions
under this paragraph shall be considered to have been made under a
money purchase pension plan.
The Company shall be permitted to make such additional
contributions as may be required under Section 6.4 to make principal
and interest payments on exempt loans. Such additional contributions
shall be considered to have been made under a stock bonus plan within
the meaning of Income Tax Regulations ACCENT'1.401-1(a) and (b) and
shall be accounted for separately from contributions made under the
preceding paragraph.
IN WITNESS WHEREOF, Acme Metals Incorporated has caused this Amendment
No. 5 to the Plan to be executed by its duly authorized officer.
ACME METALS INCORPORATED
By /S/ RICHARD J. STEFAN
--------------------------------
Richard J. Stefan
Its VICE PRESIDENT
-------------------------------
ATTEST:
By /S/ ROBERTA A. GLAB
--------------------------------
Roberta A. Glab
Its ASSISTANT SECRETARY
-------------------------------
<PAGE>
EXHIBIT 10.38
AMENDMENT NO. 1 TO THE
ACME METALS INCORPORATED SALARIED EMPLOYEES
PAST SERVICE PENSION PLAN
The Acme Metals Incorporated Salaried Employees Past Service Pension
Plan hereby is amended effective as of August 1, 1992.
Paragraph 3.2 is changed by adding a new subparagraph (e) to read as
follows:
(e) By letter dated August 3, 1992, the Company has offered
early retirement to Eligible Employees. Eligible Employees who accept
the offer of early retirement on or before August 31, 1992 shall receive
an Early Retirement Pension Supplement. For purposes of this
subparagraph, "Eligible Employee" means (a) an employee of the Company,
(b) who is a Participant in the Plan, (c) who is not an officer or a
sales or marketing employee, and (d) who as of December 31, 1992 would
have at least 55 years of age and at least 15 years of Continuous
Service, or would have years of age and years of Continuous Service
which total at least 80. For purposes of this subparagraph, "Early
Retirement Pension Supplement" means an additional pension payment of
$500.00 per month, starting in the fourth month after retirement and
continuing for the longer of 12 months or the date of Eligibility for
Public Pension, but in no event continuing beyond the life of the
recipient. Payments made pursuant to the Company's offer of early
retirement are not Severance Allowances for purposes of paragraph 3.9(a)
of the Plan.
Executed this 9TH day of August, 1992.
--------
ACME METALS INCORPORATED
By /S/ RICHARD J. STEFAN
---------------------------
Its VICE PRESIDENT
---------------------------
ATTEST:
By /S/ ROBERTA GLAB
---------------------------
R. A. Glab
Its ASSISTANT SECRETARY
----------------------------
<PAGE>
Exhibit 10.39
PURCHASE AGREEMENT
March 11, 1994
Acme Metals Incorporated
13500 S. Perry Avenue
Riverdale, Illinois
U.S.A. 60627-1182
Attention: Jerry F. Williams,
VICE-PRESIDENT, FINANCE AND ADMINISTRATION
- -----------------------------------------------------
Dear Sirs:
Nesbitt Thomson Inc. (the "Dealer") hereby agrees to purchase from Acme Metals
Incorporated (the "Company") and, by its acceptance hereof, the Company agrees
to create, issue and sell to the Dealer, all but not less than all of the
aggregate 5,600,000 special common stock purchase warrants (collectively, the
"Special Warrants") referred to herein, subject to the terms and conditions
set out below, at a price of $21.00 per Special Warrant.
Each Special Warrant shall entitle the holder thereof to acquire one share of
the common stock of the Company as constituted at the date hereof
(collectively, the "Common Shares"), upon the exercise of the Special
Warrants in accordance with the terms of the Special Warrant Indenture
hereinafter referred to without payment of any further consideration to the
Company. A summary of the principal terms of the Special Warrants is attached
as Schedule A hereto. The Company shall prepare and file, in accordance
herewith, (a) a Canadian preliminary prospectus and a Canadian (final)
prospectus in order to qualify the Common Shares issuable on the exercise of
the Special Warrants for distribution in each of the Qualifying Provinces (as
hereinafter defined) and (b) a Form S-3 shelf registration statement with the
U.S. Securities and Exchange Commission relating to the Common Shares. The
Company shall take all steps and proceedings necessary to ensure that the Form
S-3 shelf registration statement is continuously effective for a period ending
on the third anniversary of the Common Share Closing Date. The proceeds of
issue of the Special Warrants will be paid to, held by and disbursed by
Montreal Trust Company of Canada, as Escrow Agent, in accordance with the
terms of the Escrow Agreement.
The Company understands that although this offer is presented on behalf of the
Dealer as purchaser, the Dealer will endeavour to arrange for substituted
purchasers for the Special Warrants. It is further understood that, subject
to the terms hereof, the Dealer is committed to purchase all of the Special
Warrants with respect to which the Dealer is not
1
<PAGE>
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able to arrange substituted purchasers. The Dealer's commitment to purchase
Special Warrants will be reduced by the number of Special Warrants purchased
by substituted purchasers with respect to which subscription agreements are
delivered to the Company by the Dealer prior to the Special Warrant Closing
Date.
In consideration of the services to be rendered by the Dealer in connection
with such purchase, the Company shall pay to the Dealer an underwriters' fee
equal to 4.5% of the gross proceeds realized by the Company in respect of the
sale of the Special Warrants.
DEFINITIONS
In this Agreement, in addition to the terms defined above, the following terms
shall have the following meanings:
(a) "AGREEMENT" means the agreement resulting from the acceptance by
the Company of the offer made by the Dealer by this letter;
(b) "AGREEMENTS" has the meaning ascribed thereto in paragraph
10(g)(i);
(c) "BUSINESS DAY" means a day which is not a Saturday, a Sunday or
a statutory or civic holiday in the City of Toronto, Canada;
(d) "CANADIAN FINAL PROSPECTUS" has the meaning ascribed thereto in
subsection 2(b);
(e) "CANADIAN PRELIMINARY PROSPECTUS" has the meaning ascribed
thereto in subsection 2(a);
(f) "CANADIAN PROSPECTUS" means collectively the Canadian
Preliminary Prospectus and the Canadian Final Prospectus;
(g) "CANADIAN SECURITIES LAWS" means all applicable securities laws
in each of the Qualifying Provinces and the respective regulations made
thereunder, together with applicable published policy statements and
orders of the securities regulatory authorities in such provinces and
shall include the notice of the Ontario Securities Commission published
June 2, 1989 respecting the use of "special warrants" in connection with
distributions of securities by prospectus;
(h) "COMMON SHARE CLOSING" means the completion of all steps
necessary (i) to qualify the Common Shares issuable upon the exercise of
the Special Warrants for distribution or distribution to the public
under applicable Canadian Securities Laws in the Qualifying Provinces as
contemplated herein and (ii) to register the Common Shares issuable upon
exercise of the Special Warrants pursuant to an effective Form S-3.
<PAGE>
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(i) "COMMON SHARE CLOSING DATE" means the date which is three
Business Days following the date that the Form S-3 is declared effective
by the SEC or such other date as the Company and the Dealer may agree
upon in writing but in any event not later than the Termination Date;
(j) "COMMON SHARE CLOSING TIME" means 5:00 p.m. (Toronto time) on
the Common Share Closing Date or such other time on the Common Share
Closing Date as the Company and the Dealer may agree;
(k) "ESCROW AGENT" means the escrow agent under the Escrow
Agreement;
(i) "ESCROW AGREEMENT" means the Escrow Agreement to be dated as of
the Special Warrant Closing Date among the Company, the Escrow Agent,
and the Dealer;
(l) "ESCROW CONDITIONS" means the conditions specified in Section
11;
(i) "FORM S-3" means the Form S-3 shelf registration relating to the
Common Shares including the exhibits thereto and the documents
incorporated by reference therein.
(m) "HOLDERS" has the meaning ascribed thereto in the Registration
Rights Agreement;
(n) "MISREPRESENTATION", "MATERIAL FACT", "MATERIAL CHANGE" and
"DISTRIBUTION" have the respective meanings ascribed thereto in (i)
the Securities Act (Ontario) with respect to the Canadian Preliminary
Prospectus and the Canadian Final Prospectus and (ii) the U.S.
Securities Laws with respect to the Private Placement Materials, the
Form S-3 and the U.S. Prospectus, except as otherwise expressly provided
herein;
(o) "NASDAQ" means the National Market System of the Nasdaq Stock
Market;
(p) "PRIVATE PLACEMENT MATERIALS" means the Company's Annual Report
on Form 10-K for the year ending December 26, 1993;
(q) 'PROJECT INVESTORS" has the meaning ascribed thereto in
subsection 5(a)(vi);
(r) "PURCHASERS" means the Dealer and the persons who as purchasers
acquire Special Warrants either from the Dealer, or directly from the
Company, by executing Subscription Agreements and permitted assignees or
transferees of such persons from time to time;
<PAGE>
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(s) "QUALIFYING PROVINCES" means those provinces of Canada where the
Purchasers reside as indicated in the Subscription Agreements;
(t) "RECORD DATE" has the meaning ascribed thereto in section 13;
(u) "REGISTRATION RIGHTS AGREEMENT" means the registration rights
agreement dated the Special Warrant Closing Date among the Company and
the Purchasers, providing for the registration rights of the Holders
pursuant to the Form S-3;
(v) "REGULATION S" means Regulation S under the U.S. Securities Act;
(w) "RETRACTION PERIOD" means the period commencing immediately
following 5:00 p.m. (Toronto time) on the Termination Date and ending at
5:00 p.m. (Toronto time) on the date which is twenty days following the
Termination Date;
(x) "SEC" means the United States Securities and Exchange
Commission;
(y) "SPECIAL WARRANT CLOSING" means the completion of the issue and
sale by the Company of the Special Warrants and the purchase by the
Purchasers of the Special Warrants pursuant to this Agreement;
(z) "SPECIAL WARRANT CLOSING DATE" means March 28, 1994 or such
other date as the Company and the Dealer may agree upon in writing;
(aa) "SPECIAL WARRANT CLOSING TIME" means 10:00 a.m. (Toronto time)
on the Special Warrant Closing Date or such other time on the Special
Warrant Closing Date as the Company and the Dealer may agree;
(ab) "SPECIAL WARRANT INDENTURE" means a warrant indenture to be
dated as of the Special Warrant Closing Date between the Company and the
Warrant Agent providing for the issue of the Special Warrants in the
form agreed upon by the Company, the Dealer and the Warrant Agent;
(ac) "SUBSCRIPTION AGREEMENT" means a subscription agreement in the
form agreed upon by the Dealer and the Company pursuant to which
Purchasers agree to subscribe for and purchase the Special Warrants
herein contemplated;
(ad) "SUPPLEMENTARY MATERIAL" has the meaning ascribed thereto in
subsection 4(c);
(ae) "TERMINATION DATE" means August 25, 1994 or such later date
determined in accordance with Section 13 hereof;
<PAGE>
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(af) "U.S. EXCHANGE ACT" means the U.S. Securities Exchange Act of
1934, as amended, and the rules promulgated thereunder;
(ag) "U.S. PERSON" has the meaning ascribed thereto in Rule 902(a) of
Regulation S promulgated under the U.S. Securities Act;
(ah) "U.S. PRELIMINARY PROSPECTUS" means the preliminary shelf
prospectus included in the original filing of the Form S-3;
(ai) "U.S. PROSPECTUS" means the shelf prospectus included in the Form
S-3 at the time that the Form S-3 becomes effective;
(aj) "U.S. SECURITIES ACT" means the U.S. Securities Act of 1933, as
amended, and the rules promulgated thereunder;
(ak) "U.S. SECURITIES LAWS" means the U.S. Securities Act and the
U.S. Exchange Act;
(al) "UNITED STATES" means the United States of America, its
territories and possessions, any state of the United States and the
District of Columbia; and
(am) "WARRANT AGENT" means the warrant agent under the Special
Warrant Indenture.
TERMS AND CONDITIONS
1. (a) SALE ON EXEMPT BASIS. The Dealer shall offer for sale and sell
the Special Warrants:
(i) in the Qualifying Provinces in compliance with all applicable
Canadian Securities Laws; and
(ii) only to such purchasers and in such manner so that, pursuant to
the provisions of applicable Canadian Securities Laws, no prospectus or
offering memorandum need be filed or delivered in connection therewith.
The Dealer will notify the Company with respect to the identity of
any Purchasers (other than the Dealer) as soon as practicable and with a view
to leaving time sufficient to allow the Company to secure compliance with all
Canadian Securities Laws relating to the issue and sale of the Special
Warrants to such Purchasers.
The Dealer covenants with the Company that it will (i) obtain from
each Purchaser an executed Subscription Agreement; (ii) upon the Company
obtaining the
<PAGE>
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necessary receipts therefor from the appropriate securities regulatory
authority in each of the Qualifying Provinces, deliver one copy of the
Canadian Final Prospectus (with any amendments thereto) to persons who acquire
the Common Shares; (iii) provide the Company with all necessary particulars
of the Purchasers prior to the Special Warrant Closing Date; and (iv) arrange
for a sufficient number of Purchasers such that, to the best of the knowledge
of the Dealer (after reasonable inquiry), no one Purchaser and its affiliates
(as defined below) will, after giving effect to the exercise of all Special
Warrants, in the aggregate (A) own, beneficially own, or otherwise have an
economic interest in, or (B) have voting or discretionary trading authority
with respect to, more than 1,095,000 shares of common stock of the Company.
For the purpose of this paragraph, "affiliates" means any person controlling,
controlled by or under common control with the Purchaser and any person with
which the Purchaser has an agreement or is otherwise acting in concert with
respect to the acquisition, disposition or voting of the Common Shares.
(b) CANADIAN FILINGS. The Company undertakes to file or cause to be
filed all forms or undertakings required to be filed by the Company in
connection with the purchase and sale of the Special Warrants so that the
distribution of the Special Warrants to the Purchasers may lawfully occur
without the necessity of filing a prospectus or an offering memorandum in the
Qualifying Provinces.
(c) NO OFFERING MEMORANDUM. Neither the Company nor the Dealer
shall (i) provide to prospective purchasers any document or other material
that would constitute an offering memorandum within the meaning of the
Canadian Securities Laws; or (ii) cause the sale of the Special Warrants to be
advertised in printed media of general and regular paid circulation, radio or
television.
2. (a) CANADIAN PRELIMINARY PROSPECTUS. The Company shall, as soon as
possible under applicable Canadian Securities Laws of each of the Qualifying
Provinces, have prepared, and filed (and received a receipt for) a Canadian
preliminary prospectus (the "Canadian Preliminary Prospectus") in the English
and French languages, as applicable, and other related documents relating to
the proposed distribution of the Common Shares issuable on the exercise of
the Special Warrants.
(b) CANADIAN FINAL PROSPECTUS. The Company shall, as soon as
possible after all comments have been satisfied with respect to the Canadian
Preliminary Prospectus, have prepared and filed (and received a receipt for)
under applicable Canadian Securities Laws, a Canadian (final) prospectus (the
"Canadian Final Prospectus") in the English and French languages, as
applicable, and shall have fulfilled and complied with, to the satisfaction of
the Dealer's counsel, acting reasonably, all applicable Canadian Securities
Laws to be fulfilled or complied with by the Company to enable the Common
Shares to be lawfully distributed to the public in the Qualifying Provinces in
connection with the exercise of the Special Warrants through the Dealer or any
other investment dealer, broker or other applicable registrant registered as
such in the Qualifying Provinces in compliance with Canadian Securities Laws.
The Company shall use its best efforts to ensure that such requirements
(including the issuance of a receipt by the applicable securities regulatory
<PAGE>
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authorities) shall be fulfilled not later than 5:00 p.m. (Toronto time) on the
Termination Date in respect of each of the Qualifying Provinces.
(c) FORM S-3. The Company shall, as soon as possible after the
Special Warrant Closing Date, file the Form S-3 containing a U.S. Preliminary
Prospectus which excludes the names of the Holders. The Company will use its
best efforts to satisfy all SEC comments, if any, relating to the Form S-3 as
soon as possible after the filing thereof. At the earliest possible moment
following the time at which the Company has obtained a receipt for the
Canadian Final Prospectus in each of the Qualifying Provinces, the Company
will file with the SEC an amendment to the Form S-3 (the "Amendment")
containing the U.S. Prospectus which includes the names of the Holders. The
Company will use its best efforts to accelerate the effectiveness date of the
Form S-3 so that the Form S-3 is effective at the earliest possible moment
after the filing of the Amendment with the SEC.
3. RETRACTION RIGHT. The Company recognizes that it is fundamental to
Purchasers of the Special Warrants that the distribution of Common Shares be
qualified under a prospectus in the Qualifying Provinces so that the Common
Shares will be freely tradeable in such provinces without the necessity of the
holder thereof filing a prospectus or effecting the trade in a manner which
falls within one of the various prospectus exemptions under applicable
Canadian Securities Laws (unless such trade is a "distribution" by virtue of
subparagraph (c) of the definition thereof set forth in the Securities Act
(Ontario) and analogous provisions of the other Canadian Securities Laws).
The Company also recognizes that it is fundamental to the Purchasers of the
Special Warrants that the Common Shares be registered pursuant to the Form S-3
so that the Holders will be able to resell the Common Shares within the United
States by delivering a U.S. Prospectus to subsequent purchasers at the time of
resale. The Company acknowledges that it is for this reason that it has
agreed (i) that the Canadian Preliminary Prospectus and the Canadian Final
Prospectus are to be filed with all relevant securities regulatory authorities
in the Qualifying Provinces and receipts are to be obtained therefor within
the time periods contemplated by this Agreement (ii) that the Form S-3 and all
amendments thereto are to be filed with the SEC and the Form S-3 shall be
declared effective within the time periods contemplated by this Agreement and
(iii) to meet the Escrow Conditions. Accordingly, in the event that the
Escrow Conditions are not satisfied prior to the Termination Date each
Purchaser may elect either (i) to cause the Company to repurchase at any time
during the Retraction Period the Special Warrants that have not previously
been exercised at a price per Special Warrant equal to $21.00 together with
all interest earned on the proceeds from the sale of the Special Warrants so
retracted which are held in escrow under the Escrow Agreement from the Special
Warrant Closing Date to and including the date that such purchaser exercised
his right of retraction or (ii) to acquire the Common Shares pursuant to the
terms of the Special Warrant Indenture. In the event that the Escrow
Conditions have not been satisfied and a Purchaser has not made an election
during the Retraction Period, the Special Warrants in respect of which no
election has been made will promptly be retracted by the Company at a price
per Special Warrant equal to $21.00 together with all interest earned on the
proceeds from the sale of the Special Warrants so retracted which
<PAGE>
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are held in escrow under the Escrow Agreement from the Special Warrant Closing
Date to and including the date such Special Warrants are retracted.
4. (a) DELIVERIES AT TIME OF FILING CANADIAN DOCUMENTS. The Company
shall deliver to the Dealer contemporaneously with or prior to the filing of
the Canadian Preliminary Prospectus or the Canadian Final Prospectus, as the
case may be, with the Ontario Securities Commission or with the applicable
securities regulatory authority in each of the Qualifying Provinces:
(i) a signed copy of the Canadian Preliminary Prospectus or the
Canadian Final Prospectus, as the case may be;
(ii) signed copies of any other document required to be filed by the
Company under the laws of each of the Qualifying Provinces in compliance
with Canadian Securities Laws applicable therein; and
(iii) with respect to the filing of the Canadian Final Prospectus, a
comfort letter of the auditors of the Company, addressed to the
directors of the Company and the Dealer in form and substance
satisfactory to the Dealer, relating to the verification of the
financial information and accounting data contained in the Canadian
Final Prospectus, which letter shall be in addition to any auditor's
report contained in the Canadian Final Prospectus and the auditor's
comfort letter addressed to the securities regulatory authorities in the
Qualifying Provinces and which shall be based on a review by the
auditors to a date not more than two Business Days prior to the date of
the Canadian Final Prospectus.
(b) DELIVERIES AT THE TIME OF FILING U.S. DOCUMENTS. The Company
shall deliver to the Dealer as many signed copies of the Form S-3, and all
amendments thereto, whether filed before or after the Form S-3 becomes
effective, copies of all exhibits and documents filed therewith and signed
copies of all consents and certificates of experts, as the Dealer may
reasonably request.
(c) CANADIAN SUPPLEMENTARY MATERIAL. The Company shall also prepare
and deliver promptly to the Dealer duly signed copies of all supplementary
prospectuses or supplemental statements or other documents required to be
filed by the Company in connection with the qualification of the Common Shares
under the laws of any Qualifying Province or by Canadian Securities Laws and
of any amendment to the Canadian Preliminary Prospectus or the Canadian Final
Prospectus or other document required to be filed under Section 6
(collectively, the "Supplementary Material"). The Canadian Prospectus and the
Supplementary Material shall be in form and substance satisfactory to the
Dealer, acting reasonably.
(d) REPRESENTATION AS TO CANADIAN PROSPECTUS AND SUPPLEMENTARY
MATERIAL. Delivery of the Canadian Prospectus and any Supplementary Material
shall constitute a representation and warranty by the Company to the Dealer
that all information and
<PAGE>
- 9 -
statements (except information and statements relating solely to or provided
solely by the Dealer) contained in the Canadian Prospectus and Supplementary
Material, as the case may be, are true and correct in all material respects at
the time of delivery thereof and contain no misrepresentation and constitute
full, true and plain disclosure of all material facts relating to the Company
and the Common Shares and that no material fact has been omitted therefrom
(except facts or information relating solely to or provided by the Dealer)
which is required to be stated therein or is necessary to make the statements
or information contained therein not misleading in light of the circumstances
under which they were made. Such delivery shall also constitute the Company's
consent to the Dealer's use of the Canadian Preliminary Prospectus, the
Canadian Final Prospectus, any Supplementary Material and any other public
documents supplied to the Dealer by the Company in connection with the
distribution of the Common Shares in the Qualifying Provinces in compliance
with the provisions of this Agreement and applicable Canadian Securities Laws.
(e) COPIES OF CANADIAN PROSPECTUS. The Company shall cause copies
of the Canadian Preliminary Prospectus and the Canadian Final Prospectus in
the English and French languages to be delivered to the Dealer without charge,
in such numbers and in such cities in the Qualifying Provinces as the Dealer
may reasonably request by oral instructions to the Company. Such delivery
shall be effected as soon as possible and, in any event, with respect to the
Canadian Preliminary Prospectus and the Canadian Final Prospectus, on or
before a date two Business Days after the receipt is issued therefor by the
last of the securities regulatory authorities in the Qualifying Provinces.
The Company shall similarly cause to be delivered copies of the Supplementary
Material.
5. COVENANTS OF THE COMPANY.
(a) The Company hereby covenants to the Dealer and to the Purchasers
that:
(i) the Company will use its best efforts at all times from the date
hereof to the third anniversary of the Common Share Closing Date
to remain a reporting issuer under the U.S. Exchange Act and to
file on a timely basis all periodic reports, proxy or information
statements and all other reports and information required to be
filed under the U.S. Securities Laws and the rules and regulations
thereunder;
(ii) the Company shall take all steps necessary to authorize the
execution and delivery of the Escrow Agreement and the Special
Warrant Indenture and shall use its reasonable best efforts to
ensure that the Common Shares are or will be listed and posted for
trading on The Toronto Stock Exchange and Nasdaq at the Common
Share Closing Time;
(iii) the Company shall at all times prior to the filing of the Canadian
Final Prospectus in each of the Qualifying Provinces allow the
Dealer and its representatives to conduct all due diligence which
the Dealer may reasonably
<PAGE>
- 10 -
require to be conducted in order to fulfil its obligations as an
underwriter under Canadian Securities Laws and in order to enable
the Dealer responsibly to execute any certificate required to be
executed by the Dealer in connection with a prospectus, and it
shall be a condition precedent to the Dealer's execution of any
certificate in any prospectus that it be satisfied, acting
reasonably, as to the form and content of each prospectus;
(iv) as long as any Special Warrants are outstanding the Company shall
comply with section 57 of the Securities Act (Ontario) and with
the comparable provisions of the other Canadian Securities Laws;
(v) the Company shall use its reasonable best efforts to fulfil, at or
prior to the Special Warrant Closing Date, each of the conditions
set out in Section 10;
(vi) the Company shall not, without the written consent of the Dealer,
such consent not to be unreasonably withheld, have issued or sold
any Common Shares or any securities convertible thereinto or
exchangeable therefor from the date hereof until the date which is
ninety days following the date upon which the Company has received
a receipt from the securities regulatory authorities in each of
the Qualifying Provinces, nor shall the Company publicly announce
prior to such date any intention to do so thereafter, except for
(i) the issuance of any Common Shares upon exercise of Special
Warrants, (ii) the grant of any rights or options under the Acme
Metals Incorporated Employee Stock Ownership Plan, the Acme Metals
Incorporated 1986 Stock Incentive Program or the Acme Metals
Incorporated 1994 Stock Incentive Program, (iii) the issue of any
Common Shares pursuant to the exercise of any such rights or
options under the Acme Metals Incorporated Employee Stock
Ownership Plan, the Acme Metals Incorporated 1986 Stock Incentive
Program or the Acme Metals Incorporated 1994 Stock Incentive
Program and (iv) the issue of up to $40 million of Common Shares,
or securities convertible thereinto or exchangeable therefor, on a
private placement basis to contractors, equipment suppliers or
other suppliers of raw materials ("Project Investors") for use in
connection with the construction of a continuous thin slab
caster/hot strip mill provided that (A) no such securities are
issued at a price of less than $21.00, (B) the dividend of any
preferred share must not exceed 7% per annum, and (C) the Project
Investors agree not to resell any such securities prior to
November 7, 1994;
(vii) the Company will not issue any news release in the United States
with respect to the placement of Special Warrants in Canada until
40 days after the Special Warrant Closing;
(viii)the Company will not issue any news release in the United States
with respect to the Common Shares; provided that such a news
release may be
<PAGE>
- 11 -
issued pursuant to Rule 134 under the U.S. Securities Act, in a
form reasonably acceptable to the Dealer, on and after the date on
which the Form S-3 is filed with the SEC; and
(ix) if at any time before the Special Warrant Closing any event shall
occur or condition exist as a result of which it is necessary, in
the opinion of counsel for the Dealer or counsel to the Company,
to amend or supplement the Private Placement Materials in order
that the Private Placement Materials will not include an untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading
in the light of the circumstances existing at the time the Private
Placement Materials are delivered to a Purchaser, the Company will
prepare and furnish to each Purchaser such amendment or supplement
to the Private Placement Materials as may be necessary to correct
such untrue statement or omission.
(b) TRANSLATION OPINIONS. The Company shall, immediately following
the filing of the Canadian Preliminary Prospectus and the Canadian Final
Prospectus, deliver to the Dealer (i) an opinion of its Quebec counsel,
addressed to the Dealer, the Company and the directors of the Company, in form
and substance satisfactory to the Dealer's counsel, acting reasonably, to the
effect that the French language version of the Canadian Preliminary Prospectus
and the Canadian Final Prospectus, except for the financial information and
accounting data included therein, as to which no opinion need be expressed, is
in all material respects a reasonable translation of the English language
version thereof, and that such English and French language versions are not
susceptible of any materially different interpretation with respect to any
material matter contained therein; and (ii) an opinion of the auditors of the
Company, addressed to the Dealer, the Company and the directors of the
Company, to the effect that the French language version of the financial
information contained in the Canadian Preliminary Prospectus and the Canadian
Final Prospectus is, in all material respects, a complete and proper
translation of the English language version thereof.
(c) CONDITION TO DEALER'S CERTIFICATION. The obligation of the
Dealer to execute any certificate or deliver any documents pertaining to the
Canadian Preliminary Prospectus and the Canadian Final Prospectus shall be
conditional upon compliance by the Company to the date of such execution and
delivery with each of its covenants contained in subsection 4(a) and this
Section 5 to be complied with prior to such execution and delivery.
6. (a) MATERIAL CHANGES DURING CANADIAN DISTRIBUTION. During the
period from the date hereof to the Common Share Closing Date, the Company
shall promptly notify the Dealer in writing of:
(i) any material change (actual, anticipated, contemplated or
threatened, whether financial or otherwise) in the business, affairs,
operations, assets, liabilities
<PAGE>
- 12 -
(contingent or otherwise) or capital of the Company and its subsidiaries
except for the issuance of the Common Shares upon the exercise of
Special Warrants; or
(ii) the existence of a previously undisclosed material fact or any
change in any material fact contained in the Canadian Preliminary
Prospectus, the Canadian Final Prospectus or any Supplementary Material,
which fact or change is or may be of such a nature as to render any
statement in the Canadian Preliminary Prospectus, the Canadian Final
Prospectus or Supplementary Material misleading or untrue or result in a
misrepresentation or which would result in the Company and/or the
Canadian Preliminary Prospectus, the Canadian Final Prospectus or such
Supplementary Material not complying (to the extent that such compliance
is required) with any Canadian Securities Laws.
The Company shall promptly, and in any event, within any applicable time
limitation, comply with all applicable filing and other requirements under
Canadian Securities Laws as a result of such change; provided that the Company
shall not file any Supplementary Material or other document without first
obtaining from the Dealer the approval of the Dealer, after consultation with
the Dealer with respect to the form and content thereof, which approval shall
not be unreasonably withheld. The Company shall in good faith discuss with
the Dealer any fact or change in circumstances (actual, anticipated,
contemplated or threatened, and financial or otherwise) which is of such a
nature that there is reasonable doubt as to whether notice in writing need be
given to the Dealer pursuant to this Section 6.
(b) CHANGE IN CANADIAN SECURITIES LAWS. If during the period of
distribution to the public of the Common Shares, there shall be any change in
Canadian Securities Laws which in the opinion of counsel to the Company or of
counsel to the Dealer requires the filing of Supplementary Material, the
Company shall, to the satisfaction of its counsel and the Dealer's counsel,
promptly prepare and file such Supplementary Material with the appropriate
securities regulatory authority in each of the Qualifying Provinces where such
filing is required.
7. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
to the Purchasers, and acknowledges that each of them is relying upon such
representations and warranties in purchasing Special Warrants, that:
(a) at the time the Private Placement Materials are delivered to the
Purchasers and at all times subsequent thereto up to and including
the Special Warrant Closing Time, none of the Private Placement
Materials nor any amendment or supplement thereto will include an
untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading;
<PAGE>
- 13 -
(b) each of the Company and its subsidiaries has been duly
incorporated and organized and is validly existing and in good
standing under the laws of its jurisdiction of incorporation, has
all requisite corporate power and authority to carry on its
business as now conducted and to own, lease and operate its
properties and assets and each of the Company and its subsidiaries
is duly qualified to transact business as a foreign corporation
and is in good standing in all jurisdictions in which it carries
on business except where the failure to be so qualified would not
have a material adverse effect on the Company, and the Company has
all requisite corporate power and authority to carry out its
obligations under the Agreements;
(c) no consent, approval, permit, authorization, order or filing of
any court or governmental agency or body of the United States
(federal, state or local), Canada or any Qualifying Province is
required by the Company for the execution and delivery of and the
performance by the Company of its obligations under the
Agreements, including the valid authorization, issuance, sale and
delivery of the Special Warrants, except as may be required under
the Canadian Securities Laws, the U.S. Securities Act, the U.S.
state securities or blue sky laws or the by-laws, rules and
regulations of The Toronto Stock Exchange or Nasdaq;
(d) none of the execution and delivery of the Agreements, the
performance by the Company of its obligations thereunder, the sale
of the Special Warrants hereunder or the issuance of the Common
Shares will conflict with or result in a breach of (i) any
statute, rule or regulation applicable to the Company including,
without limitation, the Canadian Securities Laws, the U.S.
Securities Laws and the by-laws, rules and regulations of The
Toronto Stock Exchange and Nasdaq, provided that any consent,
approval, permit, authorization, order or filing required under
the Canadian Securities Laws, the U.S. Securities Laws or the
by-laws, rules and regulations of The Toronto Stock Exchange or
Nasdaq have been obtained by the Special Warrant Closing Date or
the Common Share Closing Date, as the case may be; (ii) the
charter, by-laws or resolutions of the Company which are in effect
at the date hereof; (iii) any mortgage, note, indenture, contract,
agreement, instrument, lease or other document to which the
Company or any of its subsidiaries is a party or by which it is
bound; or (iv) any judgment, decree or order binding the Company
or any of its subsidiaries or the property or assets of the
Company or any of its subsidiaries;
(e) at the date hereof, the Company is in compliance with its timely
disclosure obligations under U.S. Securities Laws and, without
limiting the generality of the foregoing, there has not occurred
any material adverse change, financial or otherwise, in the
assets, liabilities (contingent or otherwise), business, financial
condition, capital or prospects of the Company and its
subsidiaries,
<PAGE>
- 14 -
taken as a whole, since September 30, 1993 which has not been
publicly disclosed;
(f) the audited consolidated financial statements of the Company for
the period ending December 26, 1993 have been prepared in
accordance with generally accepted accounting principles in the
United States and present fully, fairly and correctly the
consolidated assets, liabilities and financial condition of the
Company as at December 26, 1993 and the consolidated results of
its operations and the changes in its financial position for the
period then ended;
(g) this Agreement has been duly authorized, executed and delivered by
the Company and is legally binding upon the Company and is
enforceable in accordance with its terms, subject to bankruptcy,
insolvency and other laws affecting the enforcement of creditors'
rights generally and the availability of equitable remedies and
the qualification that the enforceability of rights of indemnity
and contribution may be limited by applicable law;
(h) at the Special Warrant Closing Time, each of the Escrow Agreement,
the Registration Rights Agreement, the Special Warrant Indenture
and the Special Warrants shall have been duly authorized, executed
and delivered by the Company and shall be legally binding upon the
Company and shall be enforceable in accordance with its terms,
subject to bankruptcy, insolvency and other laws affecting the
enforcement of creditors' rights generally and the availability of
equitable remedies;
(i) at the Special Warrant Closing Time, all necessary corporate
action will have been taken by the Company to allot and authorize
the issuance of the Common Shares which are issuable upon the due
exercise of the Special Warrants, and upon due exercise of the
Special Warrants, the Common Shares will be validly issued, fully
paid and non-assessable; and
(j) at the date hereof, at the Special Warrant Closing Date and the
Common Share Closing Date, all of the outstanding shares of
capital stock of the Company have been and will be duly authorized
and validly issued and are and will be fully paid and
non-assessable; no holder thereof is or will be subject to
personal liability by reason of being such a holder; and none of
the outstanding shares of capital stock of the Company was or will
be issued in violation of the preemptive rights of any stockholder
of the Company .
8. (a) SPECIAL WARRANT CLOSING DELIVERIES. The purchase and sale of
the Special Warrants shall be completed at the Special Warrant Closing Time at
the offices of Gowling, Strathy & Henderson, Suite 4900, Commerce Court West,
Toronto, or at such other place as the Dealer and the Company may agree upon.
At or prior to the Special Warrant Closing Time, the Company shall duly and
validly deliver to the Dealer on behalf of the Purchasers certificates in
definitive form representing Special Warrants registered in
<PAGE>
- 15 -
such names as the Dealer shall have directed not later than two Business Days
prior to the Special Warrant Closing Date, against payment at the direction of
the Company to the Escrow Agent in trust of the aggregate subscription price
therefor in lawful money of the United States by certified cheque or banker's
draft payable at par in the City of Toronto, or by wire transfer to such
account as the Escrow Agent shall have notified the Dealer prior to the
Special Warrant Closing Date. The Company shall contemporaneously pay to the
Dealer the underwriters' fee in respect of the Special Warrants by certified
cheque or banker's draft payable in the City of Toronto or by wire transfer to
such account as the Dealer shall have notified the Company prior to the
Special Warrant Closing Date, against delivery of a receipt therefor.
(b) PAYMENT OF WARRANT AGENT'S FEES. The Company shall pay all fees
and expenses payable to the Warrant Agent in connection with the preparation,
delivery, and certification of the Special Warrants contemplated by subsection
8(a).
9. RELEASE OF ESCROW FUNDS TO THE COMPANY. The parties acknowledge and
agree that, subject to the Escrow Conditions, all funds held by the Escrow
Agent in escrow pursuant to the Escrow Agreement shall be released by the
Escrow Agent to the Company immediately following the Common Share Closing
Time in accordance with the terms and conditions of the Escrow Agreement.
10. SPECIAL WARRANT CLOSING CONDITIONS. The Dealer's, and each
Purchaser's, obligation to purchase the Special Warrants at the Special
Warrant Closing Time shall be conditional upon the fulfilment at or before
the Special Warrant Closing Time of the following conditions:
(a) the Dealer shall have received a certificate, dated as of the
Special Warrant Closing Date, signed by the Chief Executive
Officer and the Chief Financial Officer of the Company, certifying
for and on behalf of the Company, to the best of the knowledge,
information and belief of the persons so signing, after having
made due enquiry, that (i) no order ceasing or suspending trading
in securities of the Company or prohibiting the sale of the
Special Warrants or the issuance of the Common Shares has been
issued and no proceedings for such purpose are pending or
threatened; (ii) since December 26, 1993, there has not been any
material adverse change in the affairs of the Company or its
subsidiaries, financial or otherwise, which requires disclosure
under the timely disclosure provisions of the U.S. Securities
Laws, except as has been publicly disclosed and no such disclosure
has been made on a confidential basis; (iii) except as disclosed
in the financial statements for the year ended December 26, 1993,
the Company and its subsidiaries do not have any contingent
liabilities out of the ordinary course of business which are
material to the Company or its subsidiaries; (iv) there are no
actions, suits, proceedings or inquiries pending or threatened in
writing by a responsible party against or affecting the Company or
any of its subsidiaries at law or in equity or before or by any
federal, provincial, state, municipal or other
<PAGE>
- 16 -
governmental department, commission, board, bureau, agency or
instrumentality in Canada or elsewhere, which could reasonably be
expected to materially and adversely affect the financial
condition or prospects of the Company and its subsidiaries taken
as a whole; (v) there is no order or investigation of or by any
court or regulatory authority in any manner questioning the
validity of any material licences, permits, consents, approvals or
other operating authorities of the Company or its subsidiaries and
which are necessary for the Company or its subsidiaries to carry
on its business as currently conducted; (vi) no default exists or
will exist as a result of the issuance of the Special Warrants or
the Common Shares under any instrument or agreement securing or
otherwise relating to indebtedness for borrowed money (including
indebtedness under title retention agreements) of or guaranteed by
the Company or its subsidiaries and each of the Company and its
subsidiaries has performed each of the covenants on its part to be
performed under any such instrument or agreement, the
non-performance of which could reasonably be expected to have a
material adverse effect on the Company or its subsidiaries; (vii)
the representations and warranties of the Company set out in
Section 7 are true and correct as of the date of the Special
Warrant Closing Date with the same effect as though such
representations and warranties had been made on and as of such
date; and (viii)the Company has complied with all the terms,
covenants and conditions of this Agreement on the Company's part
to be complied with up to the time of the Special Warrant Closing
Date;
(b) the Dealer shall have received certificates dated the Special
Warrant Closing Date, signed by appropriate officers of the
Company, with respect to the articles and by-laws of the Company,
the resolutions of the Company's Board of Directors relevant to
the creation, allotment, issue and sale of the Special Warrants
and the Common Shares, the incumbency and signature of signing
officers and the appointment of Montreal Trust Company of Canada
as the Warrant Agent under the Special Warrant Indenture;
(c) the Registration Rights Agreement shall have been executed and
delivered by the Company and the Purchasers (or their
attorney-in-fact), in form and substance satisfactory to the
Dealer and their counsel, acting reasonably;
(d) the Special Warrant Indenture shall have been executed and
delivered by the Company and Montreal Trust Company of Canada as
Warrant Agent for the holders of the Special Warrants in form and
substance satisfactory to the Dealer and its counsel, acting
reasonably;
(e) the Company shall have permitted the Dealer to conduct all due
diligence investigations which the Dealer may reasonably require
to be conducted and the Dealer shall be satisfied with the results
of such due diligence;
<PAGE>
- 17 -
(f) the Escrow Agreement shall have been executed and delivered by the
Company and Montreal Trust Company of Canada as Escrow Agent in
form and substance satisfactory to the Dealer and its counsel,
acting reasonably;
(g) the Dealer shall have received an opinion from U.S. counsel to the
Company addressed to it and in form and substance satisfactory to
it and its counsel substantially to the effect that:
(i) each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation and is
in good standing under the laws of its jurisdiction of
incorporation and has the corporate power and capacity to
carry on its business as now conducted and the Company has
the corporate power and capacity to perform its obligations
under this Agreement, the Escrow Agreement, the Special
Warrant Indenture and the Registration Rights Agreement
(collectively, the "Agreements");
(ii) none of the execution and delivery of the Agreements, the
performance by the Company of its obligations thereunder,
the sale or issuance of any Special Warrants thereunder or
the issuance of the Common Shares will conflict with or
result in any breach of or invoke the operation of any
adjustment or anti-dilution provision in the constating
documents or by-laws of the Company;
(iii) each of the Agreements has been duly authorized, executed
and delivered by the Company, and constitutes a valid and
legally binding agreement of the Company enforceable against
it in accordance with its terms, subject to applicable
bankruptcy, insolvency, liquidation, reorganization,
reconstruction and other laws affecting creditors' rights
generally and to general principles of equity, and the
qualification that the enforceability of rights of indemnity
and contribution may be limited by applicable law;
(iv) the authorized capital of the Company consists of 20,000,000
shares of common stock, par value $1.00, and 2,000,000
shares of preferred stock, par value $1.00;
(v) the Common Shares have been duly authorized and reserved for
issuance to the holders of the Special Warrants and, upon
the exercise thereof in accordance with the provisions of
the Special Warrant Indenture, such Common Shares will be
validly issued as fully paid and non-assessable;
(vi) the Special Warrants (i) have been validly created and
issued by the Company; (ii) have been duly executed and
delivered by the
<PAGE>
- 18 -
Company; and (iii) are valid, legal and binding obligations
of the Company enforceable in accordance with their terms
subject to qualifications as in paragraph (iii) above;
(vii) the payment of the underwriting fee by the Company to the
Dealer is not subject to U.S. federal, state or local income
taxes or federal withholding taxes;
(viii)there is no stamp, registration or similar tax, fee, duty,
levy or other governmental charge under the laws of the
United States or the State of Delaware in connection with
the execution and delivery of the Agreements or the issuance
and sale of the Special Warrants in the manner contemplated
by the Agreements;
(ix) no registration of the Special Warrants under the U.S.
Securities Act is required for the offer, sale and delivery
of the Special Warrants to the Purchasers;
and in providing such opinion, counsel may, where appropriate,
rely on the opinions of counsel regarding the laws of
jurisdictions other than the United States and Illinois, as the
case may be, and, as to matters of fact or expert matters not
within the knowledge or professional competence of counsel, on
certificates of public officials and of the auditors, transfer
agent and officers of the Company.
(h) the Dealer shall have received an opinion from Canadian counsel to
the Company addressed to it and in form and substance satisfactory
to it and its counsel substantially to the effect that:
(i) the issuance and sale of the Special Warrants by the Company
to the Purchasers are exempt from the prospectus
requirements of Canadian Securities Laws and no documents
are required to be filed (other than certain forms, reports,
certificates and undertakings), proceedings taken or
approvals, permits, consents or authorizations obtained
under the Canadian Securities Laws to permit such issuance
and sale; and the issuance of the Common Shares, prior to
the Common Share Closing, to a purchaser thereof is exempt
from the prospectus and registration requirements of
Canadian Securities Laws subject to certain provisos and
specified resale restrictions;
(ii) upon the filing of the Canadian Final Prospectus (and any
required amendments thereto), the issuance of receipts
therefor under Canadian Securities Laws and delivery of the
Canadian Final Prospectus (and any required amendments
thereto) to the Purchasers, all prior to the exercise of the
Special Warrants, all legal requirements will have been
<PAGE>
- 19 -
fulfilled by the Company under the Canadian Securities Laws
to qualify, without resort to the prospectus exemption
provisions of such applicable laws, the distribution of the
Common Shares in each of the Qualifying Provinces upon the
exercise of Special Warrants in accordance with the Special
Warrant Indenture, and that the issuance of the Common
Shares by the Company upon such exercise is exempt from the
registration requirements of such applicable laws subject to
certain provisos; the Common Shares will not be subject to
any statutory hold period and no other documents will be
required to be filed, proceedings taken, or approvals,
permits, consents, or authorizations obtained under the
Canadian Securities Laws to permit the first trade in the
Qualifying Provinces of such Common Shares, through
registrants registered under applicable laws who have
complied with such applicable laws or in circumstances in
which there is an exemption from the registration
requirements of such applicable laws, subject to usual
exceptions and provided that such first trade is not a
"distribution" by virtue of subparagraph (c) of the
definition thereof set forth in the Securities Act (Ontario)
and analogous provisions of the other Canadian Securities
Laws; and
(iii) the sale of any Special Warrants in Quebec complies with
Quebec language laws;
and in providing such opinion, counsel may, where appropriate,
rely on the opinions of counsel regarding the laws of
jurisdictions other than Canada and Ontario, as the case may be,
and, as to matters of fact or expert matters not within the
knowledge or professional competence of counsel, on certificates
of public officials and of the auditors, the transfer agent and
the officers of the Company;
(i) the Dealer shall have received at the Special Warrant Closing Time
a favourable legal opinion dated the Special Warrant Closing Date
from its U.S. counsel, Shearman & Sterling, with respect to such
matters as the Dealer may reasonably request;
(j) the Dealer shall have received at the Special Warrant Closing Time
a favourable legal opinion dated the Special Warrant Closing Date
from its Canadian counsel, Osler, Hoskin & Harcourt, with respect
to such matters as the Dealer may reasonably request in form and
substance satisfactory to the Dealer acting reasonably; provided
that the Dealer's counsel in providing such opinion shall be
entitled to rely on the opinions of local counsel as to matters
governed by the laws of jurisdictions other than Canada and the
Province of Ontario and provided further that Dealer's counsel may
rely upon the opinion of the corporate counsel for the Company,
with respect to matters specifically relating to the Company and
its subsidiaries and as to
<PAGE>
- 20 -
matters of fact, on certificates of public officials and officers
of the Company; and
(k) the Dealer shall have received on the date hereof and at the
Special Warrant Closing Time, a letter dated the date hereof and a
letter dated the Special Warrant Closing Date, respectively, from
Price Waterhouse, the independent public accountants of the
Company, each letter containing statements and information of the
type customarily included in accountants' "comfort letters" to
underwriters relating to financial statements and certain
financial information contained in the Private Placement
Materials, and with respect to such letter dated the Special
Warrant Closing Date, as to such other matters as the Dealer may
reasonably request and in form and substance satisfactory to the
Dealer.
Any breach or failure to comply with any of the foregoing
conditions shall entitle the Dealer, in its sole discretion, acting
reasonably, to terminate the obligations of the Dealer under this Agreement
and the obligations of the Purchasers under the Subscription Agreements by
written notice to that effect given to the Company prior to the Special
Warrant Closing Time.
11. COMMON SHARE CLOSING CONDITIONS. The release of funds to the Company
under the Escrow Agreement shall be conditional upon the fulfilment at or
before the Common Share Closing Time of the following conditions:
(a) the Dealer shall have received the comfort letter referred to in
clause (iii) of subsection 4(a);
(b) the Dealer shall have received notarial copies of receipts for the
Canadian Final Prospectus issued by the securities regulatory
authorities in each of the Qualifying Provinces;
(c) the Dealer and the Escrow Agent shall have received notarial
copies of a letter from The Toronto Stock Exchange confirming that
the Common Shares have been, or no later than the Common Share
Closing Time will be, listed and posted for trading on such
Exchange, subject only to the filing of documents and evidence of
satisfactory distribution, if necessary, in accordance with the
requirements of the Exchange relating to the listing of securities
of a foreign company;
(d) the Common Shares shall be qualified for inclusion on Nasdaq;
(e) the Dealer shall have received an opinion from U.S. counsel to the
Company addressed to it and in form and substance reasonably
satisfactory to it and its counsel substantially to the effect
that the statements contained in the Canadian Final Prospectus
relating to the U.S. income tax consequences of
<PAGE>
- 21 -
an investment in the Special Warrants and Common Shares fairly
present the United States federal income tax consequences to
holders of Special Warrants who are subject to U.S. federal income
tax with respect to the Special Warrants and, upon exercise of the
Special Warrants into Common Shares, the Common Shares;
(f) the Dealer shall have received an opinion from Canadian counsel to
the Company addressed to it and in form and substance reasonably
satisfactory to it and its counsel substantially to the effect
that:
(i) the statements contained in the Canadian Final Prospectus
relating to the Canadian income tax consequences of an
investment in the Common Shares fairly present the principal
Canadian federal income tax considerations under the Income
Tax Act (Canada) to persons who are residents of Canada and
who acquire Special Warrants and who, for purposes of the
Income Tax Act (Canada), deal at arm's length with the
Company, hold Special Warrants and will hold Common Shares
acquired upon the exercise of Special Warrants as capital
property;
(ii) the Common Shares are qualified investments or are not
precluded as investments under the statutes listed under the
heading "Eligibility For Investment" in the Canadian Final
Prospectus;
(g) the Dealer and the Escrow Agent shall have received at the Common
Share Closing Time a certificate of the Company, executed on
behalf of the Company by the Chief Executive Officer and the Chief
Financial Officer of the Company, dated the day of delivery, based
on the best of the knowledge of the signatories after due enquiry,
stating that at the date of delivery of the certificate (A) all
information and statements (except information and statements
relating solely to or provided solely by the Dealer) contained in
the Canadian Prospectus and Supplementary Material are true and
correct in all material respects and contain no misrepresentation
and constitute full, true and plain disclosure of all material
facts relating to the Company and the Common Shares and that no
material fact has been omitted therefrom (except facts or
information relating solely to or provided by the Dealer) which is
required to be stated therein or is necessary to make the
statements or information contained therein not misleading in
light of the circumstances under which they were made, all as of
the filing of such Canadian Prospectus and Supplementary Material
with the applicable securities regulatory authority in each of the
Qualifying Provinces; (B) the Company is in compliance with all of
its covenants and agreements contained in this Agreement which
survive the completion of the sale and purchase of the Special
Warrants and all of its covenants and agreements contained in the
Registration Rights Agreement, the Escrow Agreement and the
Special
<PAGE>
- 22 -
Warrant Indenture, and it is not in breach or default thereunder
and no event or circumstance exists which, after notice or lapse
of time or both, would constitute a breach or default thereunder
by the Company, provided that such certificate need not confirm
compliance with any such covenants or agreements or the absence of
any such breach, default, event or circumstance to the extent it
is waived by the Dealer; (C) the Company is not bankrupt or
insolvent, has not made any proposal in bankruptcy or assignment
for the benefit of creditors, is not subject to any resolution or
proceeding for its winding-up, liquidation or dissolution,
voluntary or involuntary, and is not subject to any petition in
bankruptcy, receiving order at the instance of any creditor or
appointment (privately or through any court) of a receiver or
receiver-manager; and (D) the Company is not aware of any event,
condition or circumstance which would entitle the Dealer to assert
the rights of indemnity contained herein;
(h) the board of directors of the Company shall have approved the
proposed construction of a continuous thin slab caster/hot strip
mill;
(i) the Company shall have received assurance, reasonably acceptable
in form and substance to the Dealer, that not less than 85% of the
reasonably estimated funds (currently estimated to be between $300
million and $350 million) needed for the construction of a
continuous thin slab caster/hot strip mill (inclusive of the
Company's cash on hand) will be available to the Company upon
terms acceptable to it; and
(j) the Form S-3 shall have been declared effective by the SEC.
12. U.S. RESALE RESTRICTIONS ON THE SPECIAL WARRANTS AND THE COMMON SHARES
(a) The Dealer represents, warrants and covenants to the Company that:
(i) none of the Dealer, its subsidiaries or any persons acting on
their behalf have engaged or will engage in any directed selling
efforts (within the meaning of Regulation S) with respect to the
Special Warrants;
(ii) it acknowledges that the Special Warrants have not been and will
not be registered under the U.S. Securities Act and may not be
offered or sold within the United States or to, or for the account
or benefit of, a U.S. person unless such transfer is to the
Company;
(iii) it agrees that, at or prior to the confirmation of the sale of the
Special Warrants, it will have sent to each distributor, dealer or
person receiving a selling concession, fee or other remuneration
that purchases Special Warrants from it a confirmation or notice
substantially to the following effect:
<PAGE>
- 23 -
"The securities covered hereby have not been registered
under the U.S. Securities Act of 1933 (the "Securities Act")
and may not be offered or sold within the United States, or
for the account of, U.S. persons at any time. Any attempted
transfer of these securities to a U.S. person will be
considered null and void";
(iv) it agrees to obtain undertakings substantially identical to
12(a)(i), (ii) and (iii) above, from each member of any banking or
selling group formed in connection with the distribution of the
Special Warrants contemplated hereby;
(v) other than any banking or selling group agreement, it has not
entered into and will not enter into any contractual arrangements
with respect to the distribution of the Special Warrants, except
with affiliates (as defined under Rule 405 under the U.S.
Securities Act) or with the prior written consent of the Company.
(b) The Dealer acknowledges and agrees with the Company that it shall
cause each Purchaser to represent, warrant and agree in the Subscription
Agreement that:
(i) if such Purchaser decides to offer, sell or otherwise transfer any
of the Special Warrants, it will not make any such transfer,
directly or indirectly, unless the transfer is (A) to the Company
or (B) outside the United States in accordance with Rule 903 or
Rule 904 under the U.S. Securities Act;
(ii) the Special Warrant certificates will be legended, on the
front-side thereof, to the following effect:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING
SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION
THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED ONLY TO THE CORPORATION OR OUTSIDE THE UNITED
STATES IN ACCORDANCE WITH RULE 903 OR RULE 904 UNDER THE
SECURITIES ACT."
(iii) any attempted transfer of Special Warrants to or for the account
or benefit of a U.S. person (other than the Company) will be
considered null and void;
<PAGE>
- 24 -
(iv) consents to the Company making a notation on its records or giving
instructions to the Warrant Agent in order to implement the
restrictions on transfer of the Special Warrants set forth and
described herein;
(v) if the Form S-3 is effective at the time any Special Warrants are
exchanged for Common Shares, such Purchaser will not offer, sell
or otherwise transfer the Common Shares, directly or indirectly,
unless the sale or transfer is made:
(A) to the Company; or
(B) outside the United States in accordance with the
requirements of Rule 904 under the U.S. Securities Act
and in compliance with applicable local laws and
regulations; or
(C) inside the United States so long as the current
prospectus contained in the Form S-3 is delivered to
the subsequent transferee upon such transfer and the
Form S-3 is effective at such time; or
(D) inside the United States pursuant to Rule 144(k) under
the Securities Act, if available.
(vi) if the Form S-3 is effective at the time any Special Warrants are
exchanged for Common Shares, upon original issuance of the Common
Shares, the certificates representing the Common Shares and all
certificates issued in exchange therefor or in substitution
thereof, shall bear the following legend on the front-side
thereof:
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN REGISTERED
UNDER A FORM S-3 SHELF REGISTRATION STATEMENT ("FORM S-3")
FILED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH
SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED ONLY (A) TO THE CORPORATION, (B) OUTSIDE THE
UNITED STATES IN OR THROUGH A DESIGNATED OFFSHORE SECURITIES
MARKET IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(C) INSIDE THE UNITED STATES SO LONG AS THE CURRENT
PROSPECTUS CONTAINED IN THE FORM S-3 IS DELIVERED TO THE
TRANSFEREE UPON SUCH TRANSFER OR (D) INSIDE THE
<PAGE>
- 25 -
UNITED STATES PURSUANT TO RULE 144(K) UNDER THE SECURITIES
ACT, IF AVAILABLE. DELIVERY OF THIS CERTIFICATE MAY NOT
CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON
STOCK EXCHANGES IN CANADA AND THE UNITED STATES. A NEW
CERTIFICATE, BEARING NO LEGEND, DELIVERY OF WHICH WILL
CONSTITUTE GOOD DELIVERY MAY BE OBTAINED FROM FIRST CHICAGO
TRUST COMPANY OF NEW YORK OR MONTREAL TRUST COMPANY OF
CANADA UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED
DECLARATION, IN A FORM SATISFACTORY TO MONTREAL TRUST
COMPANY OF CANADA AND THE CORPORATION";
provided that if the Common Shares are being sold under
subparagraph 12(b)(v)(B) above, the legend may be removed by
providing a declaration to First Chicago Trust Company of New
York, as registrar and transfer agent, or Montreal Trust Company
of Canada, as Canadian registrar and transfer agent, to the
following effect:
"The undersigned (A) acknowledges that the sale of ______________
Common Shares, represented by certificate numbers________, to
which this declaration relates is being made in reliance on Rule
904 of Regulation S under the United States Securities Act of 1933
(the "Securities Act") and (B) certifies that (1) it is not an
"affiliate" of Acme Metals Incorporated (as defined under Rule 405
under the Securities Act), (2) the offer of such securities was
not made to a person in the United States and the transaction was
executed on or through The Toronto Stock Exchange and neither
seller nor any person acting on its behalf knows that the
transaction has been prearranged with a buyer in the United States
and (3) neither the seller nor any person acting on its behalf
engaged in directed selling efforts in connection with the offer
or sale of such securities. Terms used herein have the meanings
given to them under Regulation S";
further provided that if the Common Shares are being sold under
subparagraph 12(b)(v)(C) above, the legend may be removed by
providing a declaration to First Chicago Trust Company of New
York, as registrar and transfer agent, or Montreal Trust Company
of Canada, as Canadian registrar and transfer agent, to the
following effect:
"The undersigned acknowledges that the sale or other transfer of
______________Common Shares, represented by certificate numbers
_________, to which this declaration relates has been registered
under the United States Securities Act of 1933 (the "Securities
Act") and the seller hereby certifies that it has delivered to each
buyer, directly or through a U.S.
<PAGE>
- 26 -
registered broker-dealer, a current prospectus contained in an
effective Form S-3 registration statement relating to the Common
Shares. The undersigned acknowledges that the sale or transfer
will not be consummated until the Prospectus is delivered to the
transferee";
further provided that if the Common Shares are being sold under
subparagraph 12(b)(v)(D) above, the legend may be removed by
delivery to First Chicago Trust Company of New York or Montreal
Trust Company of Canada of an opinion of counsel, of recognized
standing reasonably satisfactory to the Company, that such legend
is no longer required under the applicable requirements of the
U.S. Securities Act or state securities laws.
(vii) if the Form S-3 is not effective at the time any Special Warrants
are exchanged for Common Shares, such Purchaser will not offer,
sell or otherwise transfer the Common Shares, directly or
indirectly, unless the sale or transfer is made:
(A) to the Company; or
(B) outside the United States in compliance with the
requirements of Rule 904 under the U.S. Securities Act and
in compliance with applicable local laws and regulations; or
(C) the Common Shares are sold in a transaction that does not
require registration under the Securities Act or any
applicable United States state laws and regulations
governing the offer and sale of securities, and it has
therefore furnished to the Montreal Trust Company of Canada
an opinion of counsel of recognized standing reasonably
satisfactory to Montreal Trust Company of Canada and the
Company; or
(D) the sale is made pursuant to an exemption from registration
under the U.S. Securities Act provided by Rule 144
thereunder, if available;
(viii) if the Form S-3 is not effective at the time any Special Warrants
are exchanged for Common Shares, upon original issuance of the
Common Shares, the certificates representing the Common Shares and
all certificates issued in exchange therefor or in substitution
thereof, shall bear the following legend on the front-side
thereof:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING SUCH
SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION THAT SUCH
SECURITIES MAY
<PAGE>
- 27 -
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
CORPORATION, (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH RULE
904 OF REGULATION S UNDER THE SECURITIES ACT, (C) PURSUANT TO THE
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY
RULE 144 THEREUNDER, IF AVAILABLE, OR (D) IN COMPLIANCE WITH
CERTAIN OTHER PROCEDURES SATISFACTORY TO THE CORPORATION.
DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE "GOOD DELIVERY" IN
SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA. A NEW
CERTIFICATE, BEARING NO LEGEND, DELIVERY OF WHICH WILL CONSTITUTE
"GOOD DELIVERY" MAY BE OBTAINED FROM MONTREAL TRUST COMPANY OF
CANADA UPON DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED
DECLARATION, IN A FORM SATISFACTORY TO MONTREAL TRUST COMPANY OF
CANADA AND THE CORPORATION, TO THE EFFECT THAT THE SALE OF THE
SECURITIES REPRESENTED HEREBY IS BEING MADE IN COMPLIANCE WITH
RULE 904 OF REGULATION S UNDER THE SECURITIES ACT;
PROVIDED, that if the Special Warrants are being sold under
subparagraph 12(b)(vii)(B) above, the legend may be removed by providing
a declaration to Montreal Trust Company of Canada, as Canadian registrar
and transfer agent, to the following effect:
The undersigned (A) acknowledges that the sale of_______________
Common Shares, represented by certificate numbers_______, to which
this declaration relates is being made in reliance on Rule 904 of
Regulation S under the United States Securities Act of 1933 (the
"Securities Act") and (B) certifies that (1) it is not an
"affiliate" of Acme Metals Incorporated (as defined in Rule 405
under the Securities Act), (2) the offer of such securities was
not made to a person in the United States and either (a) at the
time the buy order was originated, the buyer was outside the
United States, or the seller and any person acting on its behalf
reasonably believe that the buyer was outside the United States or
(b) the transaction was executed on or through the facilities of
The Toronto Stock Exchange and neither the seller nor any person
acting on its behalf knows that the transaction has been
prearranged with a buyer in the United States and (3) neither the
seller nor any person acting on its behalf engaged in any directed
selling efforts in connection with the offer and sale of such
securities. Terms used herein have the meanings given to them by
Regulation S";
further provided that if any Common Shares are being sold under
subparagraph 12(b)(vii)(C) or 12(b)(vii)(D) above, the legend may be
removed by delivery to Montreal Trust Company of Canada of an opinion of
counsel, of recognized
<PAGE>
- 28 -
standing reasonably satisfactory to the Company, that such legend is no
longer required under the applicable requirements of the U.S. Securities
Act or state securities laws.
(ix) consents to the Company making a notation on its records or giving
instructions to First Chicago Trust Company of New York, as
registrar and transfer agent, or Montreal Trust Company of Canada,
as Canadian registrar and transfer agent, in order to implement
the restrictions on transfer of the Common Shares set forth and
described herein.
(c) The Company represents and warrants to the Dealer that:
(i) None of the Company, its subsidiaries or any persons acting
on its or their behalf have engaged or will engage in any directed selling
efforts (within the meaning of Regulation S) with respect to the Special
Warrants; and
(ii) The Company is not an open-end investment company, unit
investment trust or face-amount certificate company that is or is required to
be registered under Section 8 of the United States Investment Company Act of
1940, as amended.
13. EXTENSION OF TERMINATION DATE. In the event that the Escrow
Conditions are not satisfied prior to 5:00 pm on August 25, 1994, the Company
may extend the Termination Date to a date not later than September 14, 1994
provided that (i) holders of Special Warrants of record on August 18, 1994
(the "Record Date") holding a majority of all outstanding Special Warrants
have consented in writing to such extension prior to August 25, 1994 in
accordance with the procedures established for obtaining the approval of
holders of Special Warrants in the Special Warrant Indenture, (ii) the Company
shall have deposited with the Warrant Agent sufficient funds for the payment
to each holder of Special Warrants of record on the Record Date of a sum equal
to the product obtained by multiplying the number of days for which the
Company wishes to extend the Termination Date by $27,500 by the quotient
obtained by dividing the number of Special Warrants held by such holder on the
Record Date by the total number of outstanding Special Warrants on the Record
Date, and (iii) the Company shall have provided the Warrant Agent with an
irrevocable direction to make such payment in the event that the Termination
Date is extended.
14. RIGHTS OF TERMINATION
(a) If any inquiry, investigation or other proceeding should be made,
threatened or announced or any order should be issued under or pursuant to any
statute of Canada or the United States or of any of the provinces or states,
as the case may be, or by any official of any stock exchange or by any other
regulatory authority having jurisdiction over a material portion of the
business and affairs of the Company or its subsidiaries or otherwise, except
for any such inquiry, investigation, proceeding or order based upon the
activities or the alleged activities of the Dealer, which in the reasonable
opinion of the Dealer would
<PAGE>
- 29 -
prevent the distribution of the Special Warrants or the Common Shares, the
Dealer shall be entitled, at its option and in addition to any other remedies
it might have, to terminate its obligations under this Agreement (and the
obligations of Purchasers arranged by them to purchase the Special Warrants)
by written notice to that effect given to the Company at or at any time prior
to the Special Warrant Closing Time. In the event of such termination by the
Dealer there shall be no further liability on the part of the Dealer to the
Company or of the Company to the Dealer except for any liability which may
have arisen or may thereafter arise under Sections 15 and 17.
(b) In the event that at or at any time prior to the Special Warrant
Closing Time there should occur any material adverse change or a change in any
material fact such as is contemplated in Section 6 hereof, or any information
regarding the Company or any of its subsidiaries which was undisclosed as of
the date of this Agreement is disclosed, which, in either case, in the
reasonable opinion of the Dealer would be expected to have a significant
adverse effect on the market price or value of the Common Shares, the Dealer
shall be entitled to terminate its obligations under this Agreement (and the
obligations of Purchasers arranged by them to purchase the Special Warrants)
by written notice to that effect given to the Company prior to the Special
Warrant Closing Time.
(c) If at any time on or prior to the Special Warrant Closing Time
there shall develop, occur or come into effect:
(i) any occurrence of national or international consequence or,
(ii) any event, condition, law, action, government regulation, inquiry
or other occurrence of any nature whatsoever,
which in the reasonable opinion of the Dealer, materially affects or may
materially affect the financial markets of Canada or the United States
generally or the earnings, business, operations, affairs or prospects of the
Company and its subsidiaries taken as a whole, the Dealer shall be entitled to
terminate its obligations contained in this Agreement (and the obligations of
Purchasers arranged by them to purchase the Special Warrants) by written
notice to that effect given to the Company prior to the Special Warrant
Closing Time.
(d) In the event of a termination by the Dealer (and the Purchasers)
pursuant to this Section 14, there shall be no further liability on the part
of the Dealer to the Company or of the Company to such Dealer except any
liability which may have arisen or may thereafter arise under Sections 15 and
17.
(e) Any termination by the Dealer (and the Purchasers) pursuant to the
terms of this Section 14 shall be effected by notice in writing delivered to
the Company at its address as set out herein. The right of the Dealer (and
the Purchasers) to so terminate their respective obligations under this
Agreement is in addition to such other remedies as they have in respect of any
default, act or failure to act of the Company in respect of any of the matters
contemplated by this Agreement.
<PAGE>
- 30 -
15. EXPENSES. Whether or not the sale of the Special Warrants or
the issuance of the Common Shares upon exercise of such Special Warrants shall
be completed, all expenses of or incidental to the issue and delivery of such
Special Warrants and the Common Shares and of or incidental to all matters in
connection with the transactions herein set out shall be borne by the Company
including, without limitation, expenses in connection with the issuance and
sale of the Special Warrants, all private placement fees required under
Canadian Securities Laws, the qualification of the Common Shares for
distribution to the public, the fees (if any) and expenses of counsel to the
Dealer in connection with the qualification of the Common Shares under the
U.S. state securities or blue sky laws, the fees and expenses of counsel to
the Company and all local counsel selected by the Company, and all costs
incurred in connection with the preparation, translation and printing of the
Private Placement Materials, the Form S-3, the U.S. Prospectus, Canadian
Preliminary Prospectus, the Canadian Final Prospectus and any Supplementary
Material. The out-of-pocket expenses of the Dealer, including the fees and
disbursements of its counsel, shall be borne by the Dealer, provided that in
the event that the Special Warrant Closing or the Common Share Closing is not
completed in accordance with the terms hereof, the Company shall assume and
pay the reasonable out-of-pocket expenses of the Dealer (including the fees
and disbursements of its counsel) up to a maximum of $60,000 except that if
such purchase and sale or issuance is not so completed by reason of the
default of the Dealer or the Purchasers arranged by the Dealer or any of them
hereunder, the Company shall not be obligated to assume and pay the expenses
of the Dealer.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All warranties,
representations, covenants and agreements herein contained or contained in any
documents submitted pursuant to this Agreement and in connection with the
transaction herein contemplated shall survive the purchase and sale of the
Special Warrants and the exercise of such Special Warrants for the Common
Shares by the Purchasers and continue in full force and effect for the benefit
of the Dealer for a period of three years from the Common Share Closing Date.
17. (a) INDEMNITY. The Company shall indemnify the Dealer for and on
behalf of itself and for and on behalf of and in trust for its respective
directors, officers, employees, agents and each person not previously listed
who controls the Dealer within the meaning of Section 15 under the U.S.
Securities Act (the foregoing being referred to individually as an
"indemnified party") from and against any and all liabilities, claims,
demands, losses, costs, damages and expenses (including legal fees but
excluding loss of profits) (collectively, "losses") to which it or they or any
of them may be subject or may suffer, incur or be required to pay, whether
under the provisions of any statute or at common law or otherwise, in
connection with or by reason of the transaction contemplated by this Agreement
in consequence of, directly or indirectly: (i) any misrepresentation or
alleged misrepresentation (as such term is defined in the Securities Act
(Ontario)) contained herein, in the Private Placement Materials, or in any
covenant or other document of the Company delivered pursuant hereto or made by
the Company in connection with the sale by the Company of the Special Warrants
or the Common Shares; or (ii) any gross negligence or
<PAGE>
- 31 -
wilful misconduct of the Company relating to or connected with the sale by the
Company of the Special Warrants or the Common Shares; or (iii) the
non-compliance or alleged non-compliance by the Company with any of the
Canadian Securities Laws or the U.S. Securities Laws; provided, however, that
this indemnity may not be relied upon by any indemnified party in respect of
any losses which result from any gross negligence or wilful misconduct in the
performance of any of the provisions herein by the Dealer or its directors,
officers, employees or agents. If any matter or thing contemplated by this
paragraph shall be asserted against the Dealer, it will notify the Company as
soon as possible of the nature of such claim and the Company shall be entitled
to assume the defence of any suit brought to enforce such claim; provided,
however, that no settlement may be made by the Company or the Dealer without
the prior written consent of the other, which consent shall not be
unreasonably withheld. In any such claim, the Dealer shall have the right to
retain other counsel to act on its behalf provided that the fees and
disbursements of such other counsel shall be paid by the Dealer unless (i) the
Company and the Dealer shall have mutually agreed to the retention of the
other counsel or (ii) if counsel representing or proposed to represent both of
the Company and the Dealer, upon the inquiry of the Company or the Dealer or
of its own initiative, is of the opinion that the representation of such
parties by the same counsel would be inappropriate due to the actual or
potential differing interests between them.
(b) CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnity provided for in
subsection 17(a) hereof is, for any reason of policy or otherwise, held to be
unavailable to the Dealer other than in accordance with its terms, the Dealer
and the Company shall contribute to the aggregate losses, claims, damages,
liabilities, costs and expenses of the nature contemplated by the said
indemnity incurred by the Company and the Dealer, in the following
proportions. The Dealer shall be responsible for that portion represented by
the percentage that the Dealer's underwriters' fee bears to the total price of
the Special Warrants and the Company shall be responsible for the balance;
provided, however, that no person guilty of gross negligence or wilful
misconduct in the performance of any of the provisions hereof or fraudulent
misrepresentation shall be entitled to contribution from any person who is not
guilty of such gross negligence or wilful misconduct in the performance of any
of the provisions hereof or fraudulent misrepresentation and provided that in
no case shall the Dealer be responsible for any amount in excess of the total
underwriter's fee. For the purposes of this paragraph, each party shall give
prompt notice to the other party of any action, suit or proceeding threatened
or commenced in respect of which a claim for contribution may be made under
this paragraph. For the purposes of this paragraph, each person, if any, who
controls the Dealer within the meaning of Section 15 under the U.S. Securities
Act shall have the same rights to contribution as the Dealer, and each person,
if any, who controls the Company within the meaning of Section 15 of the U.S.
Securities Act shall have the same rights to contribution as the Company.
18. TERMS AND CONDITIONS. Any breach or failure by the Company to
comply with any term or condition contained herein shall entitle the Dealer to
terminate its obligations hereunder by written notice to that effect given to
the Company at or prior to
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the Special Warrant Closing Time. It is understood that the Dealer may waive,
in whole or in part, or extend the time for compliance with, any of such terms
and conditions without prejudice to its rights in respect of any such terms
and conditions or any other or subsequent breach or non-compliance, provided
that to be binding on the Dealer any such waiver or extension must be in
writing.
19. ADVERTISEMENTS. The Company acknowledges that the Dealer shall
have the right, at its own expense, to place such advertisement or
advertisements relating to the sale of the Special Warrants or the Common
Shares contemplated herein as the Dealer may consider desirable or appropriate
and as may be permitted by applicable law, subject to the prior approval of
such advertisement or advertisements by the Company. The Company and the
Dealer each agree that they will not make or publish any advertisement in any
media whatsoever relating to, or otherwise publicize, the transaction provided
for herein so as to result in any exemption from the prospectus and
registration requirements of the Canadian Securities Laws being unavailable in
respect of the sale of the Special Warrants to prospective purchasers.
20. CONTRACTUAL RIGHT OF ACTION FOR RESCISSION. The Company shall,
at the Special Warrant Closing Time, deliver to the Dealer duly executed
Contractual Rights of Action for Rescission substantially in the form to be
attached as an exhibit to the Subscription Agreements for delivery to each of
the Purchasers (including the Dealer) of Special Warrants at the Special
Warrant Closing Time or subsequent thereto.
21. NOTICES. Any notice or other communication hereunder shall be
in writing and shall be given by delivery or telecopier, if to the Company,
addressed to it at 13500 S. Perry Avenue, Riverdale, Illinois, U.S.A.,
60627-1182, Attention: Jerry F. Williams, Vice-President, Finance and
Administration, (fax: 708-841-6010) and if to the Dealer addressed to it at
Nesbitt Thomson Inc., 150 King Street West, 22nd Floor, Sun Life Tower, Sun
Life Centre, Toronto, Ontario, M5H 3W2, Attention: Joseph F. Conway (fax:
(416) 586-4280). Such notice shall be deemed to have been given when actually
delivered or transmitted.
22. TIME OF THE ESSENCE. Time shall, in all respects, be of the
essence hereof.
23. SUBMISSION TO JURISDICTION. The Company submits to, and agrees
to take all further steps necessary to submit to, the jurisdiction of the
courts of the Province of Ontario and to waive any objection to venue in any
such jurisdiction in the event liability is alleged or any action is commenced
under this Agreement, the Canadian Securities Laws or other laws of Canada
relating to the offering, issuance and sale of the Special Warrants, including
the enforcement of the indemnification provision set forth in paragraph 17
hereof, and hereby irrevocably submits to such jurisdiction and waives any
such objections. The Company hereby irrevocably designates and appoints
Gowling, Strathy & Henderson, Suite 4900, Commerce Court West, Toronto,
Ontario as the Company's authorized agent to accept and acknowledge on its
behalf service of any and all process that may be served in any such action,
suit or proceeding in any such court and agrees that service of process
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upon such agent, and written notice of such service to the Company delivered
to Gowling, Strathy & Henderson, shall be deemed in every respect effective
service of process upon the Company in any such suit, action, or proceeding
and shall be taken and held to be valid personal service upon the Company.
24. UNITED STATES DOLLARS. All references herein to money amounts
are to lawful money of the United States.
25. HEADINGS. The headings contained herein are for convenience
only and shall not affect the meaning or interpretation hereof.
26. SINGULAR AND PLURAL, ETC. Where the context so requires, words
importing the singular number include the plural and vice versa, and words
importing gender shall include the masculine, feminine and neuter genders.
27. ENTIRE AGREEMENT. Except for the Agreements, this Agreement
constitutes the only agreement between the parties with respect to the subject
matter hereof and shall supersede any and all prior negotiations and
understandings including, without limitation, the bid letter dated March 2,
1994 executed by the Dealer and the Company. This Agreement may be amended or
modified in any respect by written instrument only.
28. SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect or limit the validity
or enforceability of the remaining provisions of this Agreement.
29. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Province of Ontario and the laws
of Canada applicable therein.
30. SUCCESSORS AND ASSIGNS. The terms and provisions of this
Agreement shall be binding upon and enure to the benefit of the Company, the
Dealer and the Purchasers and their respective successors and permitted
assigns; provided that, except as provided herein or in the Subscription
Agreements, this Agreement shall not be assignable by any party without the
written consent of the other.
31. FURTHER ASSURANCES. Each of the parties hereto shall do or
cause to be done all such acts and things and shall execute or cause to be
executed all such documents, agreements and other instruments as may
reasonably be necessary or desirable for the purpose of carrying out the
provisions and intent of this Agreement.
32. EFFECTIVE DATE. This Agreement is intended to and shall take
effect as of the date first set forth above, notwithstanding its actual date
of execution or delivery.
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33. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, which taken together shall form one and the same agreement.
If the Company is in agreement with the foregoing terms and
conditions, please so indicate by executing a copy of this letter where
indicated below and delivering the same to Nesbitt Thomson Inc.
Yours very truly,
NESBITT THOMSON INC.
BY: /S/ JOSEPH CONWAY
The foregoing is hereby accepted on the terms and conditions therein set
forth.
DATED this 16th day of March, 1994.
ACME METALS INCORPORATED
By: /S/ BRIAN W. H. MARSDEN
-------------------------------
Chairman and Chief Executive Officer
<PAGE>
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SCHEDULE A
ACME METALS INCORPORATED
OFFERING OF SPECIAL WARRANTS
BY WAY OF PRIVATE PLACEMENT
TERMS OF ISSUE
ISSUER:
Acme Metals Incorporated (the "Company").
ISSUE:
5,000,000 Special Warrants.
PRICE:
US$21.00 per Special Warrant.
AMOUNT:
US$105,000,000.
SPECIAL WARRANTS:
Each Special Warrant will permit the holder, without the payment of any
additional consideration, to acquire at any time on or before the 15th
business date following the issuance of receipts of the final prospectus in
all Canadian provinces and the declaration by the SEC of the effectiveness of
the Form S-3, one Common Share of Acme Metals Inc. (collectively the
"Underlying Securities").
OPTIONAL PURCHASE:
The Company will grant Nesbitt Thomson an election to purchase up to 600,000
additional Special Warrants at the same purchase price set forth herein.
Nesbitt Thomson must exercise the election prior to March 9, 1994.
CLOSING:
The completion of the issue and sale by Acme of the Special Warrants will be
completed within 15 days from the acceptance of offer to purchase Acme Special
Warrants (the "Closing Date").
PRIVATE PLACEMENT:
Special Warrants will be sold by private placement under appropriate
exemptions.
QUALIFICATION OF UNDERLYING SECURITIES:
The Underlying Securities to be issued on the exercise of the Special Warrants
will be qualified by way of a prospectus and a Form S-3 which the Company will
undertake to have cleared in all jurisdictions on or before 160 days following
the Closing Date.
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At the option of the holders of the special warrant, the Company may extend
the escrow period after the 160 days have lapsed to a maximum of an
additional 20 days for a consideration of $550,000 to be paid on a pro rata
per diem basis.
LISTING:
The Underlying Securities to be issued upon exercise of the Special Warrants
shall be listed for trading on the Toronto Stock Exchange and NASDAQ.
ESCROW PROVISIONS:
Net proceeds of the issue will be held in escrow pending the following:
(i) board approval for the construction of the continuous thin slab
caster/hot rolled mill;
(ii) listing of the Underlying Securities on the Toronto Stock Exchange
and NASDAQ;
(iii) written confirmation from lenders or other providers of capital
that substantially all necessary funds have been committed for
the construction of the continuous thin slab caster/hot rolled mill;
(iv) filing of a final prospectus with the Canadian Securities Commissions,
and
(v) declaration of the effectiveness of a Form S-3 shelf registration
statement by the SEC.
TERMINATION PROVISIONS:
The Underwriter shall be entitled, at its option, to terminate and cancel,
without any liability on the Underwriter's part, its obligations under the
Underwriting Agreement or the Letter Agreement and on behalf of the purchasers
arranged by the Underwriter, without any liability on their part, their
obligations to purchase the Special Warrants, by giving written notice to the
Company at any time prior to the Closing Date:
(i) if any inquiry, investigation or other proceeding is commenced
or any other order is issued under or pursuant to any statute
of Canada or the United States or there is any change of law
or the interpretation or administration thereof, which in the
reasonable opinion of the Underwriter, operates to prevent or
restrict the trading in the Warrants or the Underlying Securities
or the distribution of the Warrants or the Underlying Securities;
or
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(ii) if there shall occur any material change in any of the
representations, warranties or convenants of the Company given
in the Underwriting Agreement or Letter Agreement (other than
a change related solely to the Underwriter), or if there shall
occur any material fact or material change in the affairs of the
Company which in the Underwriter's opinion would be reasonably
expected to have a significant adverse effect on the market
price or value of the Warrants or the Underlying Securities;
(iii) if there should develop, occur or come into effect any
occurrence of national or international consequence, or any
action, government law or regulation, inquiry, or other
occurrence of any nature whatsoever which, in the Underwriter's
opinion, seriously affects, or may seriously affect, the
financial markets in Canada or the U.S. or the business of the
Company or the market price or value of the Warrants or the
Underlying Securities; or
(iv) if due deligence identifies a material adverse situation which
exists at the time of making this offer but has not been publicly
disclosed or which occurs after the time of making the offer and
prior to the Closing Date.
TRANSFER RESTRICTIONS ON THE SPECIAL WARRANTS:
Special Warrants will not be registered under the United States Securities Act
of 1933, as amended (the "US Securities Act"), and will not be offered, sold
or delivered within the United States. Offers, sales or transfers of Special
Warrants by a warrantholder may be made only to (A) to Acme Metals
Incorporated or (B) outside the United States in accordance with Rule 903 or
Rule 904 of Regulation S under the US Securities Act.
TRANSFER RESTRICTIONS:
Resales within the United States by initial holders of Underlying Securities
during the three-year period following the exercise of the Special Warrants
are limited to resales by such initial holders, as selling shareholders, under
an effective US shelf registration statement (which includes a shelf
prospectus) prepared and kept current by Acme Metals Incorporated. Such
resales to subsequent purchasers must be accompanied by the delivery of a
shelf prospectus from the selling initial holder of Underlying Securities to
the purchaser of the Underlying Securities. Subject to certain limited
exceptions
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subsequent purchasers need not deliver a prospectus upon resale of such
Underlying Securities within the United States.
Initial holders of Underlying Securities may resell the Underlying Securities
to subsequent purchasers in Canada only across a Canadian stock exchange
(without any shelf prospectus delivery requirement) in accordance with Rule
904 of Regulation S under the US Securities Act. Subsequent purchasers of
Underlying Securities may resell the Underlying Securities freely in Canada
(without any shelf prospectus delivery requirement) in accordance with Rule
903 or Rule 904 under Regulation S.
INDEMNIFICATION:
By Acme Metals Incorporated of Nesbitt Thomson initial holders of Underlying
Securities for liabilities that attach because of their status as selling
shareholders under the shelf registration statement, including indemnification
for any material misstatement or omission in the shelf registration statement
or shelf prospectus.
OTHER CONSIDERATIONS:
The Company shall not, without the prior written consent of the Underwriter,
which shall not be unreasonably withheld, issue, authorize, agree to issue or
approve for issuance and sale any common shares in its share capital or any
securities convertible into or exchangeable for Common Shares from the date
hereof until the 90th day following the date of issuance of the last receipt
for the final prospectus; and the Company shall not publicly announce prior to
the 90th day following the date of issuance of the last receipt for the final
prospectus any intention to issue securities as described above after such
date.
The Underwriter acknowledge the Company's potential requirement for up to an
additional $40 million in equity related financing.
The Underwriter consents to the sourcing of such capital on a private basis
solely to contractors equipment suppliers, or raw material sources
(collectively the "Project Investors") under the following conditions:
(1) The pricing of the common equity related security is no less
than US $21 per share.
(2) Any preferred share offering must be limited to an instrument
with a dividend of not more than 7%.
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(3) The Project Investors must hold the issued securities from
the signing of the Letter Agreement for a minimum of 250 days.
COMMISSION:
4.5% of the Gross Proceeds, payable to the underwriter upon closing of the
Special Warrant Issue.
UNDERWRITER:
Nesbitt Thomson Inc.
<PAGE>
EXHIBIT 10.40
SUBSCRIPTION AGREEMENT
March 11, 1994
To: The Substituted Purchaser of
Special Warrants of Acme Metals Incorporated
named on the signature page hereof
Reference is made to the purchase agreement ("Purchase
Agreement") dated as of March 11, 1994 between Acme Metals
Incorporated (the "Company") and Nesbitt Thomson Inc. (the
"Dealer") providing for the issuance and sale by the Company to
the Dealer of 5,600,000 special common stock purchase warrants
("Special Warrants") for a consideration of U.S. $21.00 per
Special Warrant on the terms and conditions set forth in the
Purchase Agreement. A copy of a term sheet ("Term Sheet")
outlining the features of the Special Warrants is attached hereto
as Exhibit "A". The Special Warrants will be issued pursuant to
an indenture ("Special Warrant Indenture") to be entered into at
or prior to the Closing (as defined below) between the Company
and Montreal Trust Company of Canada ("Warrant Agent"). Each
Special Warrant will entitle the holder to acquire one share of
the common stock of the Company (each, an "Underlying Common
Share") without payment of any additional consideration.
The Purchase Agreement provides that the Company sell the Special
Warrants on a substituted purchaser basis to you on the terms
and conditions set forth in the Term Sheet and the Purchase
Agreement. Your acceptance of this letter, as evidenced by your
signature below, constitutes your irrevocable offer to the
Company to subscribe for and purchase the number of Special
Warrants set forth below beneath your signature at the price of
U.S. $21.00 per Special Warrant, subject to the terms and
conditions contained herein and in the Purchase Agreement. The
Company's acceptance of your offer, as evidenced by the signature
of its officer below, constitutes an agreement between you and
the Company for you to purchase from the Company such Special
Warrants on such terms and conditions.
At the Closing, the net proceeds of issue of the Special Warrants
will be deposited in escrow with the Escrow Agent, at its
principal office in Toronto, Ontario pursuant to the provisions
of the Escrow Agreement. Release of (i) the Underlying Common
Shares and (ii) the net proceeds of issue of the Special Warrants
to the Company will be subject to satisfaction of certain
conditions to be set forth in the Escrow Agreement.
References below to "this agreement" are to be read as references to the
agreement
<PAGE>
- 2 -
resulting from the Company's acceptance of your
offer. You are referred to herein as the Purchaser. Words and
phrases capitalized in this agreement and the exhibits hereto but
not defined have the meanings respectively ascribed to them in
the Purchase Agreement, unless the context is inconsistent
therewith.
1. SUBSCRIPTION. The Purchaser hereby subscribes for that
number of Special Warrants set forth below under its name at a
price of U.S. $21.00 per Special Warrant. The Purchaser
understands that the Special Warrants subscribed for constitute a
portion of the aggregate number of Special Warrants which would
otherwise be purchased by the Dealer under the Purchase
Agreement, but which, as a result of this agreement, will be
purchased directly from the Company by the Purchaser. By its
acceptance of this letter, the Company agrees that the Purchaser
is directly entitled to the benefit of all representations,
warranties, conditions, covenants and agreements to or for the
benefit of the Purchasers set forth in the Purchase Agreement.
2. DELIVERY AND PAYMENT.
(1) Delivery of and payment for the Special Warrants shall be
completed at the offices of the Company's Canadian counsel,
Gowling, Strathy & Henderson, Suite 4900, Commerce Court West at
10:00 a.m. (Toronto time), on March 28, 1994 ("Closing") or at
such other time or place on that or such other date or dates as
may be mutually agreed upon by the Company and the Dealer.
(2) Nesbitt Thomson Inc. is hereby appointed as the Purchaser s
agent and attorney to represent the Purchaser at the Closing for
the purposes of all closing matters and deliveries of documents
and Special Warrants and is hereby authorized for and on behalf
of itself and the Purchaser by the Purchaser to extend such time
periods and modify or waive such conditions as may be
contemplated herein or in the Purchase Agreement or as, in its
absolute discretion, it deems appropriate. Without limiting the
generality of the foregoing, Nesbitt Thomson Inc. is specifically
authorized as the Purchaser's agent and attorney: (a) to
exercise or not to exercise, as it determines in its sole
discretion, the rights of termination in the Purchase Agreement;
(b) to negotiate, settle, execute and deliver the final forms of
the Special Warrant Indenture and the Escrow Agreement; and (c)
to exercise the Special Warrants subscribed for by the Purchaser
herein on the third business day following the date that the Form
S-3 registration Statement is declared effective by the SEC, or
such other date as the Company and the Dealer may agree upon in
writing but in any event not later than the Termination Date (as
defined in the Purchase Agreement).
3. REPRESENTATIONS AND WARRANTIES. The Purchaser represents,
warrants and covenants to the Company and the Dealer that:
(a) The Purchaser is purchasing the Special Warrants as
principal for its own account and not for the benefit
of any other person except as otherwise stated herein;
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(b) In the case of the purchase by the Purchaser as
principal, but not as an underwriter, such purchase is
made as principal for its own account and not for the
benefit of any other person and the Purchaser is:
(i) a bank listed in Schedule I or II to the BANK ACT
(Canada), or the Federal Business Development Bank
incorporated under the FEDERAL BUSINESS
DEVELOPMENT BANK ACT (Canada),
(ii) a loan corporation or trust corporation registered
under the LOAN AND TRUST CORPORATIONS ACT
(Ontario),
(iii) an insurance company licensed under the
INSURANCE ACT (Ontario),
(iv) Her Majesty in right of Canada or any province or
territory of Canada,
(v) any municipal corporation or public board or
commission in Canada,
(vi) recognized as an exempt purchaser under applicable
Securities Laws (as defined below), or
(vii) purchasing a sufficient number of Special
Warrants so that the aggregate acquisition
cost to the Purchaser of the Special Warrants
is not less than $150,000;
(c) In the case of a purchase by the Purchaser as agent for
a disclosed principal, each beneficial purchaser of
Special Warrants for whom it is acting is purchasing,
as principal for its own account and not for the
benefit of any other person, a sufficient number of
Special Warrants so that each such beneficial purchaser
has an aggregate acquisition cost of not less than
$150,000, unless such beneficial purchaser is otherwise
an exempt purchaser under applicable Securities Laws
(as defined below), and the Purchaser is duly
authorized to enter into this agreement and to execute
all documentation in connection with the purchase on
behalf of each such beneficial purchaser;
(d) In the case of a purchase by the Purchaser as trustee,
agent or portfolio manager for a principal which is
undisclosed or identified by account number only, the
Purchaser is purchasing Special Warrants as trustee or
as agent for accounts fully managed by the Purchaser
and the Purchaser is a trust company registered under
applicable legislation and deemed under applicable
securities legislation to be acting as principal when
so acting and the Purchaser is duly authorized to enter
into this agreement and to execute all documentation in
connection with the purchase on behalf of each such
beneficial purchaser;
<PAGE>
- 4 -
(e) The Purchaser has not been formed solely to permit the
purchase of securities without a prospectus by groups
of individuals whose individual share of the aggregate
acquisition cost is less than $150,000 and each member
of a Purchaser which is a partnership, syndicate or
other unincorporated organization and each beneficiary
of a Purchaser which is a trust, as the case may be, is
an individual who has contributed at least $150,000 for
the securities purchased;
(f) If the Purchaser is purchasing pursuant to paragraph
3(b)(vii) or 3(c) above, where the Purchaser is not a
corporation, individual, syndicate, trust, association
or other form of unincorporated association, the
Purchaser is (i) a pension plan; (ii) a group of
pension plans under common management; (iii) an
organization of members of a family fund formed to make
investments of family funds; (iv) a testamentary trust
or estate; (v) an organization which has primary
ongoing business activities other than investing in
securities; (vi) a mutual fund other than a private
mutual fund within the meaning of clause (a) of the
definition of private mutual fund in section 1(1) of
the Securities Act (Ontario) (investment clubs); (vii)
a group RRSP or DPSP; or (viii) a partnership,
interests in which are offered by prospectus, which
invests in securities in reliance upon section 72(1)(d)
of the SECURITIES ACT (Ontario) and section 27 of the
regulation made thereunder or upon section 14(f) of the
regulation made thereunder and, in each case, has not
been created solely to permit the purchase of
securities without a prospectus by groups of
individuals whose individual share of the aggregate
acquisition cost is less than $150,000;
(g) The decision of the Purchaser to enter into this
agreement and to purchase Special Warrants pursuant
hereto has not been made upon any verbal or written
representation as to fact or otherwise made by or on
behalf of the Company, other than as set forth herein,
the Dealer or any other person associated therewith.
The Purchaser has not received or reviewed any material
which appears or purports to describe the business and
affairs of the Company and which was prepared primarily
for delivery to and review by prospective investors in
connection with the offering of Special Warrants;
(h) If the Purchaser or any beneficial purchaser for whom
the Purchaser is acting is resident in or is otherwise
subject to the applicable securities legislation of the
Province of Quebec: (i) the Purchaser is purchasing
pursuant to paragraph 3(b)(vii) above, (ii) the
Purchaser is purchasing pursuant to paragraph 3(c)
above, or (iii) the Purchaser or such beneficial
purchaser, as the case may be, is a "sophisticated
purchaser" as defined in section 44 of the SECURITIES
ACT (Quebec);
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(i) The Purchaser has such knowledge in financial and
business affairs as to be capable of evaluating the
merits and risks of its investment and it is able to
bear the economic risk of loss of its investment;
(j) The Purchaser, whether acting as principal, trustee or
agent is nether a U.S. person or purchasing the Special
Warrants for the account or benefit of a U.S. person or
for resale in the United States.
(k) The address set forth below is the true and correct
address of a place of business of the Purchaser (or, if
the Purchaser is acting as agent for a disclosed
principal, of such person);
(l) The Purchaser will execute and deliver all
documentation as may be required by applicable
Securities Laws;
(m) With respect to Purchasers resident in British
Columbia, such Purchaser is hereby notified that:
(i) with respect to a sale by the Purchaser of any
Special Warrants, the Purchaser must file with the
British Columbia Securities Commission (i) a
report in the form required under the British
Columbia Securities Commission's Blanket Order
#88/5 - "In the Matter of the "Lending of
Certificates" (the "Initial Trade Report"), or
(ii) the report required under the laws of the
jurisdiction in which the Company carries on
business or in which the Company is incorporated,
organized or continued, provided that the report
requires substantially the same information as is
required in the Initial Trade Report (the
"Purchaser's Report"), within ten days of the
initial trade of the Special Warrants by the
Purchaser; and
(ii) where the Purchaser has filed an Initial Trade
Report or a Purchaser's Report with respect to any
of the Special Warrants, the Purchaser is not
required to file a further report in respect of
additional trades of the Special Warrants;
(n) after giving effect to the exercise of all Special
Warrants, the Purchaser and its affiliates (as defined
below), or any person on behalf of whom the Purchaser
is contracting hereunder, will not in the aggregate (i)
own, beneficially own, or otherwise have an economic
interest in, or (ii) have voting or discretionary
trading authority with respect to, more than 1,095,000
shares of common stock of the Company. For this
purpose, "affiliates" means any person controlling,
controlled by or under common control with the
Purchaser and any person with whom the Purchaser has an
agreement or is otherwise acting in concert with
respect to the acquisition, disposition or voting of
the Common Shares; and
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(o) if the Purchaser is a resident of a jurisdiction other
than Canada, the purchase of the Special Warrants by
such Purchaser does not contravene any of the
applicable securities legislation in the jurisdiction
in which it is resident and does not trigger (i) any
obligation to prepare and file a prospectus or similar
documents, or any other report with respect to such
purchase, or (ii) any registration or other obligation
on the part of the Company or the Dealer.
4. PURCHASER'S ACKNOWLEDGEMENTS. The Purchaser acknowledges
(on its own behalf and, if applicable, on behalf of those
for whom the Purchaser is contracting hereunder) that:
(a) RESALE RESTRICTIONS. The Special Warrants (and the
Underlying Common Shares if distributed to the
Purchaser prior to the issuance of a receipt for the
Canadian Final Prospectus in the applicable Qualifying
Province or in the event that such receipt is not
issued, and Underlying Common Shares from the holdings
of any person, company or combination of persons or
companies holding a sufficient number of Common Shares
to affect materially the control of the Company; with
any such holding of more than 20% of the Common Shares
of the Company being deemed to affect materially the
control of the Company) are subject to resale
restrictions under applicable Securities Laws and are
otherwise subject to the terms, conditions and
provisions, including, without limitation, certain
transfer restrictions, of the Purchase Agreement, the
Special Warrant Indenture and the Escrow Agreement.
For the purposes hereof, "Securities Laws" means the
Securities Act (Ontario) or applicable laws,
regulations, orders and published policy statements of
the provinces of Canada ("Qualifying Provinces");
(b) NO ADVERTISEMENT. Your purchase of the Special
Warrants has not been made through or as a result of
and the distribution of the Special Warrants is not
being accompanied by an advertisement;
(c) NO PROSPECTUS OR OFFERING MEMORANDUM. No prospectus or
"offering memorandum" within the meaning of the
Securities Laws has been delivered to the Purchaser in
connection with the offering of Special Warrants;
(d) PRIVATE PLACEMENT. The Special Warrants are being
offered for sale only to residents of Canada and Europe
of which the Purchaser is one, on a "private placement"
basis;
(e) RELIANCE ON PUBLIC INFORMATION/NO RESPONSIBILITY OF
DEALER OR THEIR COUNSEL. In purchasing Special
Warrants, the Purchaser has relied solely upon the Term
Sheet and publicly available information relating to
the Company and not upon any verbal or written
representation as to any fact or otherwise
<PAGE>
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made by or on behalf of the Company or the Dealer or any other
person associated therewith. Such other publicly
available information has been delivered to the
Purchaser without independent investigation or
verification by the Dealer or by Osler, Hoskin &
Harcourt, as counsel retained by the Dealer. Neither
the Dealer nor Osler, Hoskin & Harcourt assumes any
responsibility or liability of any nature whatsoever
for the accuracy or adequacy of the publicly available
information upon which the Purchaser's investment
decision has been made or as to whether all information
concerning the Company required to be disclosed by the
Company has been disclosed. Osler, Hoskin & Harcourt
are acting as counsel to the Dealer ("Dealer's
Counsel") and not as counsel to the Purchasers. The
relationship of Dealer's Counsel with the Purchaser is
limited solely to the provision of customary commercial
legal opinions at Closing and to responding to any
questions which the Purchasers may have regarding the
terms of the documents to be delivered in connection
with this Special Warrant transaction;
(f) LIMITED TRANSFER. The Purchaser s ability to transfer
Special Warrants and the Underlying Common Shares in
certain circumstances described above in paragraph 4(a)
is limited, among other things, by applicable
Securities Laws and by the provisions of the Special
Warrant Indenture which require certain
acknowledgements to be obtained from the transferee;
(g) CONTRACTUAL RIGHTS. The Company will deliver a
Contractual Right of Action for Rescission to the
Purchaser at Closing substantially in the form attached
hereto as Exhibit "B";
(h) RELIANCE ON PURCHASER'S STATEMENTS. In accepting this
subscription the Dealer and the Company are relying
upon the representations and warranties and
acknowledgements of the Purchaser set out in Sections
3, 4 and 5 and, in accepting the Special Warrants on
the Closing, the Purchaser will be representing and
warranting that such are true as at the Closing with
the same force and effect as if they had been made at
such time.
5. U.S. SELLING RESTRICTIONS. The Purchaser represents,
warrants and agrees (on its own behalf and, if applicable, on
behalf of those for whom the Purchaser is contracting hereunder)
that:
(a) if such Purchaser decides to offer, sell or otherwise
transfer any of the Special Warrants, it will not make
any such transfer, directly or indirectly, unless the
transfer is (i) to the Company or (ii) outside the
United States in accordance with Rule 903 or Rule 904
under the U.S. Securities Act;
(b) the Special Warrant certificates will be legended, on
the front-side thereof, to the following effect:
<PAGE>
- 8 -
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED ("THE SECURITIES ACT"). THE
HOLDER HEREOF, BY PURCHASING SUCH SECURITIES,
AGREES FOR THE BENEFIT OF THE CORPORATION THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED ONLY TO THE CORPORATION OR OUTSIDE THE
UNITED STATES IN ACCORDANCE WITH RULE 903 OR RULE
904 UNDER THE SECURITIES ACT."
(c) any attempted transfer of Special Warrants to or for
the account or benefit of a U.S. person (other than the
Company) will be considered null and void;
(d) it consents to the Company making a notation on its
records or giving instructions to the Warrant Agent in
order to implement the restrictions on transfer of the
Special Warrants set forth and described herein;
(e) if the Form S-3 is effective at the time any Special
Warrants are exchanged for Common Shares, such
Purchaser will not offer, sell or otherwise transfer
the Common Shares, directly or indirectly, unless the
sale or transfer is made:
(i) to the Company; or
(ii) outside the United States in accordance with
the requirements of Rule 904 under the U.S.
Securities Act and in compliance with
applicable local laws and regulations; or
(iii) inside the United States so long as the
current prospectus contained in the Form
S-3 is delivered to the subsequent
transferee upon such transfer and the
Form S-3 is effective at such time; or
(iv) inside the United States pursuant to Rule
144(k) under the Securities Act, if
available.
(f) if the Form S-3 is effective at the time any Special
Warrants are exchanged for Common Shares, upon original
issuance of the Common Shares, the certificates
representing the Common Shares and all certificates
issued in exchange therefor or in substitution thereof,
shall bear the following legend on the front-side
thereof:
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN
REGISTERED UNDER A FORM S-3 SHELF REGISTRATION
<PAGE>
- 9 -
STATEMENT ("FORM S-3") FILED WITH THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
("SECURITIES ACT"). THE HOLDER HEREOF, BY
PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT
OF THE CORPORATION THAT SUCH SECURITIES MAY BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO
THE CORPORATION, (B) OUTSIDE THE UNITED STATES IN
OR THROUGH A DESIGNATED OFFSHORE SECURITIES MARKET
IN ACCORDANCE WITH RULE 904 UNDER THE SECURITIES
ACT, (C) INSIDE THE UNITED STATES SO LONG AS THE
CURRENT PROSPECTUS CONTAINED IN THE FORM S-3 IS
DELIVERED TO THE TRANSFEREE UPON SUCH TRANSFER OR
(D) INSIDE THE UNITED STATES PURSUANT TO RULE
144(K) UNDER THE SECURITIES ACT, IF AVAILABLE.
DELIVERY OF THIS CERTIFICATE MAY NOT CONSTITUTE
"GOOD DELIVERY" IN SETTLEMENT OF TRANSACTIONS ON
STOCK EXCHANGES IN CANADA AND THE UNITED STATES.
A NEW CERTIFICATE, BEARING NO LEGEND, DELIVERY OF
WHICH WILL CONSTITUTE GOOD DELIVERY MAY BE
OBTAINED FROM FIRST CHICAGO TRUST COMPANY OF NEW
YORK OR MONTREAL TRUST COMPANY OF CANADA UPON
DELIVERY OF THIS CERTIFICATE AND A DULY EXECUTED
DECLARATION, IN A FORM SATISFACTORY TO FIRST
CHICAGO TRUST COMPANY OF NEW YORK OR MONTREAL
TRUST COMPANY OF CANADA, AS THE CASE MAY BE, AND
THE CORPORATION";
provided that if the Common Shares are being sold under
subparagraph 5(e)(ii) above, the legend may be removed
by providing a declaration to First Chicago Trust
Company, as registrar and transfer agent, or Montreal
Trust Company of Canada, as Canadian registrar and
transfer agent, to the following effect:
"The undersigned (A) acknowledges that the sale of
Common Shares, represented by certificate
numbers _________, to which this declaration relates is
being made in reliance on Rule 904 of Regulation S
under the United States Securities Act of 1933 (the
"Securities Act") and (b) certifies that (1) it is not
an "affiliate" of Acme Metals Incorporated (as defined
under Rule 405 under the Securities Act), (2) the offer
of such securities was not made to a person in the
United States and the transaction was executed on or
through The Toronto Stock Exchange and neither seller
nor any person acting on its behalf knows that the
transaction has been
<PAGE>
- 10 -
prearranged with a buyer in the United States
and (3) neither the seller nor any person
acting on its behalf engaged in directed selling
efforts in connection with the offer or sale of such
securities. Terms used herein have the meanings given
to them under Regulation S";
further provided that if the Common Shares are being
sold under subparagraph 5(e) (iii) above, the legend
may be removed by providing a declaration to First
Chicago Trust Company of New York, as registrar and
transfer agent, or Montreal Trust Company of Canada, as
Canadian registrar and transfer agent, to the following
effect:
"The undersigned acknowledges that the sale or other
transfer of _______ Common Shares, represented by
certificate numbers ______, to which this
declaration relates has been registered under the
United States Securities Act of 1933 (the "Securities
Act") and the seller hereby certifies that it has
delivered to each buyer, directly or through a U.S.
registered broker-dealer, a current prospectus
contained in an effective Form S-3 registration
statement relating to the Common Shares. The
undersigned acknowledges that the sale or transfer will
not be consummated until the Prospectus is delivered to
the transferee";
further provided that if the Common Shares are being
sold under subparagraph 5(e)(iv) above, the legend may
be removed by delivery to First Chicago Trust Company
of New York or Montreal Trust Company of Canada of an
opinion of counsel, of recognized standing reasonably
satisfactory to the Company, that such legend is no
longer required under the applicable requirements of
the U.S. Securities Act or state securities laws.
(g) if the Form S-3 is not effective at the time any
Special Warrants are exchanged for Common Shares, such
Purchaser will not offer, sell or otherwise transfer
the Common Shares, directly or indirectly, unless the
sale or transfer is made:
(i) to the Company; or
(ii) outside the United States in compliance with the
requirements of Rule 904 under the U.S. Securities
Act and in compliance with applicable local laws
and regulations; or
(iii) the Common Shares are sold in a transaction
that does not require registration under the
Securities Act or any applicable United
States state laws and regulations governing
the offer and sale of securities, and it has
therefore furnished to First Chicago Trust
Company of New York or Montreal Trust Company
of Canada an opinion of counsel of recognized
standing reasonably satisfactory to First
<PAGE>
- 11 -
Chicago Trust Company of New York or Montreal
Trust Company of Canada, as the case may be,
and the Company; or
(iv) the sale is made pursuant to an exemption from
registration under the U.S. Securities Act
provided by Rule 144 thereunder, if available;
(h) if the Form S-3 is not effective at the time any
Special Warrants are exchanged for Common Shares, upon
original issuance of the Common Shares, the
certificates representing the Common Shares and all
certificates issued in exchange therefor or in
substitution thereof, shall bear the following legend
on the front-side thereof:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE
BENEFIT OF THE CORPORATION THAT SUCH SECURITIES MAY BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
CORPORATION, (B) OUTSIDE THE UNITED STATES IN
ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT, (C) PURSUANT TO THE EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE
144 THEREUNDER, IF AVAILABLE, OR (D) IN COMPLIANCE WITH
CERTAIN OTHER PROCEDURES SATISFACTORY TO THE
CORPORATION. DELIVERY OF THIS CERTIFICATE MAY NOT
CONSTITUTE "GOOD DELIVERY" IN SETTLEMENT OF
TRANSACTIONS ON STOCK EXCHANGES IN CANADA. A NEW
CERTIFICATE, BEARING NO LEGEND, DELIVERY OF WHICH WILL
CONSTITUTE "GOOD DELIVERY" MAY BE OBTAINED FROM
MONTREAL TRUST COMPANY OF CANADA UPON DELIVERY OF THIS
CERTIFICATE AND A DULY EXECUTED DECLARATION, IN A FORM
SATISFACTORY TO MONTREAL TRUST COMPANY OF CANADA AND
THE CORPORATION, TO THE EFFECT THAT THE SALE OF THE
SECURITIES REPRESENTED HEREBY IS BEING MADE IN
COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT;
PROVIDED, that if the Special Warrants are being sold under
subparagraph 5(g)(ii) above, the legend may be removed by
providing a declaration to Montreal Trust Company of Canada,
as Canadian registrar and transfer agent, to the following
effect:
The undersigned (A) acknowledges that the sale of________
Common Shares, represented by certificate numbers _______,
to which this declaration relates is
being made in reliance on Rule 904 of Regulation S
<PAGE>
- 12 -
under the United States Securities Act of 1933 (the
"Securities Act") and (B) certifies that (1) it is not
an "affiliate" of Acme Metals Incorporated (as defined
in Rule 405 under the Securities Act), (2) the offer of
such securities was not made to a person in the United
States and either (a) at the time the buy order was
originated, the buyer was outside the United States, or
the seller and any person acting on its behalf
reasonably believe that the buyer was outside the
United States or (b) the transaction was executed on or
through the facilities of The Toronto Stock Exchange
and neither the seller nor any person acting on its
behalf knows that the transaction has been prearranged
with a buyer in the United States and (3) neither the
seller nor any person acting on its behalf engaged in
any directed selling efforts in connection with the
offer and sale of such securities. Terms used herein
have the meanings given to them by Regulation S";
further provided that if any Common Shares are being sold
under subparagraph 5(g)(iii) or 5(g)(iv) above, the legend
may be removed by delivery to First Chicago Trust Company of
New York or Montreal Trust Company of Canada of an opinion
of counsel, of recognized standing reasonably satisfactory
to the Company, that such legend is no longer required under
the applicable requirements of the U.S. Securities Act or
state securities laws.
(i) consents to the Company making a notation on its
records or giving instructions to First Chicago Trust
Company of New York, as registrar and transfer agent,
or Montreal Trust Company of Canada as Canadian
registrar and transfer agent of the Common Shares, in
order to implement the restrictions on transfer of the
Common Shares set forth and described herein.
6. POWER OF ATTORNEY RELATING TO REGISTRATION RIGHTS AGREEMENT.
The Purchaser hereby appoints Joseph F. Conway and Wayne Huhtanen
its attorneys-in-fact, each of them with full power of
substitution, to act severally, in its name, place and stead in
any way which the Purchaser itself could act, if a duly
authorized representative of the Purchaser were personally
present, in connection with the acquisition of shelf registration
rights under the U.S. Securities Act on behalf of the Purchaser
with respect to the Underlying Common Shares, including the
preparation, negotiation, execution and delivery of a
registration rights agreement (the "Registration Rights
Agreement") among the Purchaser, the Company and other purchasers
of Special Warrants in substantially the form previously
delivered to the Purchaser (receipt of which is hereby
acknowledged by the Purchaser). The Purchaser acknowledges and
agrees that by the execution and delivery of the Registration
Rights Agreement by either Joseph F. Conway or Wayne Huhtanen on
the Purchaser's behalf, the Purchaser will be deemed to have
agreed to be bound by and to perform all of the terms and
provisions of the Registration Rights Agreement and shall be
entitled to receive the benefits of the Registration Rights
Agreement.
7. PROSPECTUS EXEMPTIONS. The sale and delivery of the Special
Warrants to you or
<PAGE>
- 13 -
to any purchaser on whose behalf you are contracting are
conditional upon such sale being exempt from the
requirement to file a prospectus and the requirement to deliver
an offering memorandum under any applicable statute relating to
the sale of the Special Warrants or upon the issuance of such
orders, consents or approvals as may be required to permit such
sale without the requirement of filing a prospectus or delivering
an offering memorandum. You acknowledge and agree that the
Dealer and/or the Company will be required to provide applicable
securities regulatory authorities with a list setting forth the
identities of the beneficial purchasers of the Special Warrants
(on a confidential basis except in the Provinces of Quebec and
British Columbia). Notwithstanding that you may be purchasing
Special Warrants as agent on behalf of an undisclosed principal,
you agree to provide, on request, particulars as to the identity
of such undisclosed principal as may be required by the Dealer
and/or the Company in order to comply with the foregoing.
8. WAIVER. The Purchaser expressly waives and releases the
Company and the Dealer from, to the fullest extent permitted by
law, all rights of withdrawal to which it might otherwise be
entitled pursuant to section 71(2) of the Securities Act
(Ontario) or equivalent provisions of the Securities Laws of any
applicable Qualifying Province.
9. FEE TO THE DEALER. The Purchaser understands that, in
connection with the issue and sale of Special Warrants, the
Dealer will receive fees from the Company as contemplated in the
Purchase Agreement.
10. TIME OF THE ESSENCE. Time shall, in all respects, be of the
essence hereof.
11. U.S. DOLLARS. All references herein to money amounts are to
lawful money of the United States.
12. HEADINGS. The headings contained herein are for convenience
only and shall not affect the meaning or interpretation hereof.
13. ENTIRE AGREEMENT. This agreement constitutes the only
agreement between the parties with respect to the subject matter
hereof and shall supersede any and all prior negotiations and
understandings. This agreement may be amended or modified in any
respect by written instrument only.
14. SUCCESSORS AND ASSIGNS. The terms and provisions of this
agreement shall be binding upon and enure to the benefit of the
Purchaser, the Company and the Dealer and their respective
successors and assigns; provided that, except as herein provided,
this agreement shall not be assignable by any party without the
written consent of the others.
15. LANGUAGE. The parties hereto confirm their express wish
that this Subscription Agreement and all documents and agreements
directly or indirectly relating thereto be drawn up in the
English language. Notwithstanding such express wish, the parties
agree that this Subscription Agreement or any such document or
agreement or any part thereof may be drawn up in the French
language. Les parties reconnaissent leur volonte express
<PAGE>
- 14 -
que la presente Entente de Subscription ainsi que tous les documents
et contrats s'y rattachant directement ou indirectement soient
rediges en anglais. Nonobstant cette volonte expresse, les
parties conviennent que tout document ou contrat, ou toute
parties de ces derniers ou de la presente Entente de
Subscription, puisse etre redigee en francais.
16. GOVERNING LAW. This agreement shall be governed by and
construed in accordance with the laws of the Province of Ontario
and the laws of Canada applicable therein.
17. EFFECTIVE DATE. This agreement is intended to and shall
take effect on the effective date of the Purchase Agreement,
notwithstanding its actual date of execution or delivery by any
of the parties.
18. METHOD OF PAYMENT. The undersigned will make payment in the
amount of U.S. $21.00 per Special Warrant by means of a bank
draft or certified cheque payable in U.S. funds to:
Nesbitt Thomson Inc. at: 150 King Street West
20th Floor, Sun Life Tower
Sun Life Centre
Toronto, Ontario, M5H 3W2
Attention: Joseph F. Conway
prior to 9:00 a.m. on the date of Closing.
<PAGE>
- 15 -
19. SUBSCRIPTION PARTICULARS.
(a) The aggregate price of the Special Warrants being
subscribed for is $_______________________________ .
(b) If the Purchaser is signing as agent for or otherwise
on behalf of any other person or persons, other than as
agent for a fully-managed account, the name and address
of each such persons is:
________________________________________________________________________
________________________________________________________________________
(c) The Special Warrants and the Underlying Common Shares
are to be registered in the name of:
________________________________________________________________________
________________________________________________________________________
(d) The certificate representing the Special Warrants and
the certificate representing the Underlying Common
Shares are to be delivered to:
________________________________________________________________________
________________________________________________________________________
at its office at:
________________________________________________________________________
________________________________________________________________________
______________________________
Name of Purchaser
By: __________________________
__________________________
Office or Title
________________________ __________________________
Address of Purchaser Number of Special Warrants
________________________
The Subscription Agreement is confirmed and accepted by the Company.
ACME METALS INCORPORATED
By:________________________________
<PAGE>
SCHEDULE A
ACME METALS INCORPORATED
OFFERING OF SPECIAL WARRANTS
BY WAY OF PRIVATE PLACEMENT
TERMS OF ISSUE
ISSUER:
Acme Metals Incorporated (the "Company").
ISSUE:
5,000,000 Special Warrants.
PRICE:
US$ 21.00 per Special Warrant.
AMOUNT:
US$105,000,000.
SPECIAL WARRANTS:
Each Special Warrant will permit the holder, without
the payment of any additional consideration, to acquire
at any time on or before the 15th business date
following the issuance of receipts of the final
prospectus in all Canadian provinces and the
declaration by the SEC of the effectiveness of the Form
S-3, one Common Share of Acme Metals Inc. (collectively
the "Underlying Securities").
OPTIONAL PURCHASE:
The Company will grant Nesbitt Thomson an election to
purchase up to 600,000 additional Special Warrants at
the same purchase price set forth herein. Nesbitt
Thomson must exercise the election prior to
March 9, 1994.
CLOSING:
The completion of the issue and sale by Acme of the
Special Warrants will be completed within 15 days from
the acceptance of offer to purchase Acme Special
Warrants (the "Closing Date").
PRIVATE PLACEMENT:
Special Warrants will be sold by private placement under appropriate
exemptions.
QUALIFICATION OF UNDERLYING SECURITIES:
The Underlying Securities to be issued on the exercise
of the Special Warrants will be qualified by way of a
prospectus and a Form S-3 which the Company will
undertake to have cleared in all jurisdictions on or
before 160 days following the Closing Date.
<PAGE>
- 2 -
At the option of the holders of the special warrant,
the Company may extend the escrow period after the 160
days have lapsed to a maximum of an additional 20 days
for a consideration of $550,000 to be paid on a pro
rata per diem basis.
LISTING:
The Underlying Securities to be issued upon exercise of
the Special Warrants shall be listed for trading on the
Toronto Stock Exchange and NASDAQ.
ESCROW PROVISIONS:
Net proceeds of the issue will be held in escrow pending the following:
(i) board approval for the construction of the
continuous thin slab caster/hot rolled mill;
(ii) listing of the Underlying Securities on the
Toronto Stock Exchange and NASDAQ;
(iii) written confirmation from lenders or other
providers of capital that substantially all
necessary funds have been committed for the
construction of the continuous thin slab
caster/hot rolled mill:
(iv) filing of a final prospectus with the Canadian
Securities Commissions; and
(v) declaration of the effectiveness of a Form S-3
shelf registration statement by the SEC.
TERMINATION PROVISIONS:
The Underwriter shall be entitled, at its option, to
terminate and cancel, without any liability on the
Underwriter's part, its obligations under the
Underwriting Agreement or the Letter Agreement and on
behalf of the purchasers arranged by the Underwriter,
without any liability on their part, their obligations
to purchase the Special Warrants, by giving written
notice to the Company at any time prior to the Closing
Date:
(i) if any inquiry, investigation or other proceeding
is commenced or any other order is issued under or
pursuant to any statute of Canada or the United
States or there is any change of law or the
interpretation or administration thereof, which in
the reasonable opinion of the Underwriter,
operates to prevent or restrict the trading in the
Warrants or the Underlying Securities or the
distribution of the Warrants or the Underlying
Securities; or
<PAGE>
- 3 -
(ii) if there shall occur any material change in any of
the representations, warranties or covenants of
the Company given in the Underwriting Agreement or
Letter Agreement (other than a change related
solely to the Underwriter), or if there shall
occur any material fact or material change in the
affairs of the Company which in the Underwriter's
opinion would be reasonably expected to have a
significant adverse effect on the market price or
value of the Warrants or the Underlying
Securities;
(iii) if there should develop, occur or come into
effect any occurrence of national or
International consequence, or any action,
government law or regulation, inquiry, or
other occurrence of any nature whatsoever
which, in the Underwriter's opinion,
seriously affects, or may seriously affect,
the financial markets in Canada or the U.S.
or the business of the Company or the market
price or value of the Warrants or the
Underlying Securities; or
(iv) if due diligence identifies a material adverse
situation which exists at the time of making this
offer but has not been publicly disclosed or which
occurs after the time of making the offer and
prior to the Closing Date.
TRANSFER RESTRICTIONS ON THE SPECIAL WARRANTS:
Special Warrants will not be registered under the
United States Securities Act of 1933, as amended (the
"US Securities Act"), and will not be offered, sold or
delivered within the United States. Offers, sales or
transfers of Special Warrants by a warrantholder may be
made only to (A) to Acme Metals Incorporated or (B)
outside the United States in accordance with Rule 903
or Rule 904 of Regulation S under the US Securities
Act.
TRANSFER RESTRICTIONS:
Resales within the United States by initial holders of
Underlying Securities during the three-year period
following the exercise of the Special Warrants are
limited to resales by such initial holders, as selling
shareholders, under an effective US shelf registration
statement (which includes a shelf prospectus) prepared
and kept current by Acme Metals Incorporated. Such
resales to subsequent purchasers must be accompanied by
the delivery of a shelf prospectus from the selling
initial holder of Underlying Securities to the
purchaser of the Underlying Securities. Subject to
certain limited exceptions subsequent purchasers need
not deliver a prospectus upon resale of such Underlying
Securities within the United States.
<PAGE>
- 4 -
Initial holders of Underlying Securities may resell the
Underlying Securities to subsequent purchasers in
Canada only across a Canadian stock exchange (without
any shelf prospectus delivery requirement) in
accordance with Rule 904 of Regulation S under the US
Securities Act. Subsequent purchasers of Underlying
Securities may resell the Underlying Securities freely
in Canada (without any shelf prospectus delivery
requirement) in accordance with Rule 903 or Rule 904
under Regulation S.
INDEMNIFICATION:
By Acme Metals Incorporated of Nesbitt Thomson initial
holders of Underlying Securities for liabilities that
attach because of their status as selling shareholders
under the shelf registration statement, including
indemnification for any material misstatement or
omission in the shelf registration statement or shelf
prospectus.
OTHER CONSIDERATIONS:
The Company shall not, without the prior written
consent of the Underwriter, which shall not be
unreasonably withheld, issue, authorize, agree to issue
or approve for issuance and sale any common shares in
its share capital or any securities convertible into or
exchangeable for Common Shares from the date hereof
until the 90th day following the date of issuance of
the last receipt for the final prospectus; and the
Company shall not publicly announce prior to the 90th
day following the date of issuance of the last receipt
for the final prospectus any intention to issue
securities as described above after such date.
The Underwriter acknowledges the Company's potential
requirement for up to an additional $40 million in
equity related financing.
The Underwriter consents to the sourcing of such
capital on a private basis solely to contractors
equipment suppliers, or raw material sources
(collectively the "Project Investors") under the
following conditions:
(1) The pricing of the common equity related security
is no less than US $21 per share.
(2) Any preferred share offering must be limited to an
instrument with a dividend of not more than 7%.
(3) The Project Investors must hold the issued
securities from the signing of the Letter
Agreement for a minimum of 250 days.
COMMISSION:
4.5% of the Gross Proceeds, payable to the underwriter
upon closing of the Special Warrant issue.
UNDERWRITER:
Nesbitt Thomson Inc.
<PAGE>
EXHIBIT "B"
CONTRACTUAL RIGHT OF ACTION FOR RESCISSION
(1) In the event that the Purchaser has acquired Common Shares
and is or becomes entitled under applicable Securities Laws to
the remedy of rescission by reason of the Canadian Final
Prospectus or any amendment thereto containing a
misrepresentation, the Purchaser shall be entitled to rescission
with respect to both the Common Shares and the purchase of
Special Warrants pursuant to this agreement, and shall be
entitled in connection with such rescission to a full refund from
the Company of the amount of the purchase price paid for such
Special Warrants on closing by the Purchaser to the Company. The
provisions of this section are a direct contractual right
extended by the Company alone (but specifically not by the
directors or officers of the Company or by the Dealer) to holders
of Special Warrants (including the Dealer), permitted assignees
of such holders and to holders of Common Shares acquired by such
holders on exercise of Special Warrants, and are in addition to
any other right or remedy available to a holder of Special
Warrants under section 130 of the Securities Act (Ontario),
equivalent provisions of the Securities Laws of any applicable
Qualifying Province or otherwise at law and are subject to the
defences described under such Securities Laws or are otherwise
available.
(2) The Company agrees that the benefit of the covenant
contained in Section (1) above shall be deemed to have passed
with any permitted and lawful assignment or transfer of Special
Warrants in accordance with the Special Warrant Indenture and the
Purchaser agrees to explicitly extend the benefit of such
covenant (but without liability to the Purchaser) to any
permitted and lawful assignee or transferee of Special Warrants
registered in the name of the Purchaser.
(3) All capitalized terms herein which are defined in the
subscription agreement between the Purchaser and the Company
shall have the meanings ascribed thereto in such agreement.
Acme Metals Incorporated
By: ______________________________
<PAGE>
Exhibit 13
Acme Metals Incorporated 1993 Annual Report and Form 10-K
WE'RE GRATIFIED THAT ACME METALS RETURNED TO SUBSTANTIAL PROFITABILITY IN 1993.
WE ANTICIPATE CONTINUED IMPROVEMENT IN 1994. BUT OUR PLANNING HORIZON MUST
EXTEND FURTHER THAN ONE YEAR, AND LONGER TERM, WE SEE INTENSIFYING CHALLENGES IN
ALL OF OUR MARKETS. TO ADDRESS THEM AND TO COMPETITIVELY POSITION THE COMPANY
FOR A PROFITABLE FUTURE, WE ARE CONSIDERING THE LARGEST CAPITAL SPENDING PROGRAM
IN ACME'S HISTORY.
[FRONT COVER]
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE, EMPLOYEE AND SHAREHOLDER DATA
1993 1992 %Change
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $457,406 $391,562 17%
- ------------------------------------------------------------------------------------------------------------------------
Gross profit margin 9.9% 7.5% -
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and cumu-
lative effect of changes in accounting principles 10,432 (4,522) -
- ------------------------------------------------------------------------------------------------------------------------
Income tax provision (credit) 4,173 (1,673) -
- ------------------------------------------------------------------------------------------------------------------------
Cumulative effect of changes in accounting
principles, net of taxes - (50,323) -
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) after cumulative effect
of changes in accounting principles 6,259 (53,172) -
- ------------------------------------------------------------------------------------------------------------------------
Net margin (computed before cumulative
effect of changes in accounting principles) 1.4% -0.7% -
- ------------------------------------------------------------------------------------------------------------------------
Capital expenditures 11,749 7,557 55%
- ------------------------------------------------------------------------------------------------------------------------
Average shares outstanding 5,440 5,396 1%
- ------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) before cumulative effect
of changes in accounting principles 1.15 (0.53) -
- ------------------------------------------------------------------------------------------------------------------------
Cumulative effect of changes in accounting
principles - (9.32) -
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) after cumulative effect
of changes in accounting principles 1.15 (9.85) -
- ------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 15.29 16.55 -8%
- ------------------------------------------------------------------------------------------------------------------------
AT YEAR-END
- ------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 83,203 89,295 -7%
- ------------------------------------------------------------------------------------------------------------------------
Return on equity 7.3% -59.5% -
- ------------------------------------------------------------------------------------------------------------------------
Debt as a percentage of capitalization 40% 40% -
- ------------------------------------------------------------------------------------------------------------------------
Number of common shareholders 7,000 7,600 -8%
- ------------------------------------------------------------------------------------------------------------------------
Number of employees 2,800 2,800 -
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
[GRAPH OMITTED]
A CAPSULE LOOK AT 1993
- - SALES ROSE 17 PERCENT TO A RECORD $457.4 MILLION, AND ACME METALS EARNED
$6.3 MILLION, OR $1.15 PER COMMON SHARE.
- - INCREASED SALES IN AN IMPROVING ECONOMY, ALONG WITH PRICE INCREASES IN
ACME'S STEEL, STEEL STRAPPING, AND TUBE AND PIPE OPERATIONS, LED TO THE
FINANCIAL TURNAROUND.
- - THE COMPANY'S 1992 REORGANIZATION PERMITTED ITS FOUR OPERATING SUBSIDIARIES
TO FOCUS MORE CLOSELY ON THEIR MARKETS AND BUSINESSES. ALL FOUR ACHIEVED
IMPROVED FINANCIAL, QUALITY, AND PRODUCTIVITY PERFORMANCE DURING 1993.
- - CAPITAL SPENDING OF $11.7 MILLION WAS TARGETED TO REDUCE COSTS, ENHANCE
PRODUCT QUALITY, AND IMPROVE ENVIRONMENTAL PERFORMANCE.
<TABLE>
<CAPTION>
- ----------------------------------------
QUARTERLY STOCK PRICES
- ----------------------------------------
QUARTER 1991
- ----------------------------------------
<S> <C>
First 10 1/4 - 14 1/2
- ----------------------------------------
Second 12 - 15 3/4
- ----------------------------------------
Third 12 1/2 - 15
- ----------------------------------------
Fourth 13 1/4 - 15 1/4
- ----------------------------------------
1992
- ----------------------------------------
First 13 1/4 - 18 3/4
- ----------------------------------------
Second 14 1/4 - 19 3/4
- ----------------------------------------
Third 12 3/4 - 18 1/4
- ----------------------------------------
Fourth 11 - 13 1/2
- ----------------------------------------
1993
- ----------------------------------------
First 12 1/4 - 17 1/4
- ----------------------------------------
Second 14 - 18
- ----------------------------------------
Third 13 - 20 3/4
- ----------------------------------------
Fourth 13 3/4 - 18 3/4
- ----------------------------------------
</TABLE>
ABOUT THE COVER: STRANDS OF STEEL STRAPPING PASS THROUGH THE PRECISELY
CONTROLLED HEAT TREATING CHAMBER ON THE NEWLY MODERNIZED PRODUCTION LINE AT ACME
PACKAGING CORPORATION'S PLANT IN LEEDS, ALABAMA. HEATING THE STRAPPING TO 1,600
DEGREES F, THEN QUICKLY COOLING IT, LOCKS IN CRITICAL METALLURGICAL PROPERTIES
SUCH AS HIGH STRENGTH, DUCTILITY AND TOUGHNESS, AND PRODUCES A PACKAGING
PRODUCT WITH HIGH IMPACT RESISTANCE.
[INSIDE FRONT COVER]
<PAGE>
A LETTER TO OUR SHAREHOLDERS
ACME METALS INCORPORATED RETURNED TO PROFITABILITY DURING 1993, AS INCREASED
SHIPMENTS AND HIGHER AVERAGE SELLING PRICES HELPED US EARN $6.3 MILLION, OR
$1.15 PER COMMON SHARE. THAT REPRESENTS A SUBSTANTIAL TURNAROUND FROM 1992,
WHEN THE COMPANY REGISTERED A NET LOSS OF $2.8 MILLION, OR 53 CENTS PER
SHARE, BEFORE THE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES.
WE ARE ENCOURAGED BY ACME'S 1993 PERFORMANCE. WE ACHIEVED SIGNIFICANTLY
IMPROVED FINANCIAL RESULTS, EVEN THOUGH OUR DOMESTIC MARKETS SAW AN ECONOMIC
RECOVERY THAT WAS MODEST AT BEST FOR MUCH OF THE YEAR, AND MOST MAJOR ECONOMIES
IN EUROPE AND ASIA REMAINED IN RECESSION.
OUR CONTINUED EMPHASIS ON CONTROLLING COSTS THROUGH MODERNIZING,
CONSOLIDATING, AND RATIONALIZING OUR OPERATIONS, TOGETHER WITH ENHANCING QUALITY
AND PRODUCTIVITY AND IMPROVING CUSTOMER SERVICE IN EACH OF OUR FOUR
SUBSIDIARIES, PLAYED A CRITICAL ROLE IN THE COMPANY'S FINANCIAL TURNAROUND. WE
ALSO ENJOYED BENEFITS FROM OUR LONG-STANDING STRATEGY OF INVESTING TO MODERNIZE
OUR OPERATIONS AND ACQUIRE DOWNSTREAM USERS OF OUR STEEL.
BUT WHILE ACME METALS' OVERALL 1993 PERFORMANCE ENCOURAGED US, IT ALSO
STIMULATED OUR STUDIES OF THE LONG-TERM COMPETITIVENESS OF ACME STEEL COMPANY,
OUR STEEL MAKING SEGMENT. SIMPLY PUT, DESPITE SUBSTANTIALLY IMPROVED PRICING AND
VOLUME IN ITS MARKETS, THE STEEL COMPANY'S 1993 FINANCIAL PERFORMANCE WAS
MARGINAL. THIS PERFORMANCE, VIEWED AGAINST A BACKDROP OF PREVIOUS FINANCIAL
LOSSES AND INTENSIFYING COMPETITION DOMESTICALLY AND IN WORLD STEEL MARKETS, IS
A MAJOR FACTOR IN OUR CONTINUING STUDY OF WHETHER THE INVESTMENT OF $300 MILLION
TO $350 MILLION TO RADICALLY MODERNIZE OUR STEEL OPERATIONS WOULD BE IN THE BEST
INTERESTS OF ACME METALS' STAKEHOLDERS. THIS INVESTMENT WOULD ENHANCE FUTURE
COMPETITIVENESS THROUGH INSTALLATION OF A THIN SLAB CONTINUOUS CASTER AND HOT
STRIP MILL.
MODEST ECONOMIC GROWTH
IN 1993, IT WAS CRITICAL FOR US TO CONTINUE THE INITIATIVES WE BEGAN EARLIER TO
COUNTER THE RECESSION OF 1991-1992, NOT TO SIMPLY RELY ON AN IMPROVING ECONOMY
TO RETURN ACME METALS TO PROFITABILITY.
WE HAVE BEEN LARGELY SUCCESSFUL IN THIS EFFORT. AT ALL FOUR ACME METALS
SUBSIDIARIES, WE REDUCED UNIT MANUFACTURING COSTS, INCREASED PRODUCTIVITY, AND
IMPROVED THE QUALITY OF OUR PRODUCTS AND SERVICES. WE CONTINUED COMPANY-WIDE
EFFORTS TO UPGRADE PRODUCT LINES TO SERVE HIGHER VALUE-ADDED MARKETS. WE
DISCONTINUED SOME LESS EFFICIENT OPERATIONS AND MODESTLY INCREASED CAPITAL
EXPENDITURES TO OPEN NEW MARKETS, IMPROVE COMPETITIVENESS, AND MEET
ENVIRONMENTAL STANDARDS.
WE EXPANDED THE TOTAL QUALITY IMPROVEMENT (TQI) PROCESS IN OUR ACME STEEL
AND ACME PACKAGING OPERATIONS, AND INITIATED SIMILAR QUALITY ENHANCEMENT EFFORTS
AT ALPHA TUBE AND UNIVERSAL TOOL UNDER THE TQI UMBRELLA. WE NEGOTIATED A NEW,
SIX-YEAR LABOR AGREEMENT AT OUR LARGE CHICAGO-AREA STEEL AND PACKAGING
OPERATIONS; AND WE CONTINUED TO REFINE THE ACME METALS ORGANIZATION PUT IN
PLACE IN 1992.
AS A RESULT OF CONTINUING CAPITAL INVESTMENTS AND OPERATING PRACTICE
IMPROVEMENTS TO MEET NEW ENVIRONMENTAL STANDARDS, WE REMAIN IN COMPLIANCE WITH
MANDATED GOVERNMENT ENVIRONMENTAL STANDARDS. THE INSTALLATION OF NEW JAMBS AND
OVEN DOORS AND IMPROVEMENTS TO THE GAS COLLECTING SYSTEM AT OUR CHICAGO COKE
PLANT, TOGETHER WITH OTHER IMPROVEMENTS THERE, WILL HELP KEEP THIS CRITICAL
FACILITY IN COMPLIANCE WITH FUTURE ENVIRONMENTAL REQUIREMENTS.
MAJOR GAINS AT ALPHA TUBE
ALL THREE SUBSIDIARIES IN OUR STEEL FABRICATING SEGMENT HAD STRONG 1993
PERFORMANCES. WHEN WE ACQUIRED ALPHA TUBE IN 1989, IT WAS A MODESTLY PROFITABLE
MANUFACTURER OF WELDED STEEL TUBE AND PIPE, SERVING COMMODITY MARKETS. SINCE
THEN, WE HAVE SUCCESSFULLY SHIFTED NEARLY TWO-THIRDS OF ITS SALES TO SPECIFIC,
HIGHER VALUE-ADDED END-USE MARKETS. IN THESE, WE CAN TAKE FULL ADVANTAGE OF
SYNERGIES BETWEEN ALPHA AND ACME STEEL COMPANY, WHICH SUPPLIES A LARGE PORTION
OF THE HOT-ROLLED STEEL ALPHA PURCHASES.
REFLECTING THIS IMPROVED PRODUCT MIX, ALPHA'S SALES WERE UP MORE THAN 15
PERCENT IN 1993.
CONTINUED GROWTH AT ACME PACKAGING
WE INCREASED SALES, SHIPMENTS, AND MARKET SHARE AT OUR ACME PACKAGING
CORPORATION SUBSIDIARY DURING 1993. WE BENEFITED FROM INCREASED SHIPMENTS AND
IMPROVED PRICING IN DOMESTIC MARKETS, BUT THE STRENGTH OF THE U.S. DOLLAR
COMPARED TO MAJOR FOREIGN CURRENCIES, COUPLED WITH CONTINUED ECONOMIC
WEAKNESS OVERSEAS, REDUCED EXPORTS OF STEEL STRAPPING.
ACME PACKAGING OPTIMIZED ITS STRAPPING MANUFACTURING CAPABILITY DURING
1993. WE CLOSED ONE UNDERUTILIZED PLANT AND SHIFTED ITS PRODUCTION TO OUR
LEEDS, ALABAMA, PLANT, WHERE WE HAVE INVESTED MORE THAN $1 MILLION TO UPGRADE
OPERATIONS AND SUPPORT THE BUSINESS STRATEGY.
THIS INVESTMENT, PLUS CONTINUED IMPROVEMENTS AT OTHER PLANTS, PRODUCED A
RECORD YEAR IN TERMS OF PRODUCTIVITY, COST PERFORMANCE, AND QUALITY AT ACME
PACKAGING, THE NATION'S LARGEST PRODUCER OF STEEL STRAPPING AND STRAPPING TOOLS.
1
<PAGE>
RECORD PERFORMANCE AT UNIVERSAL TOOL
AS A SUPPLIER TO THE AUTOMOTIVE INDUSTRY, OUR UNIVERSAL TOOL SUBSIDIARY HAS MADE
COST REDUCTION AND QUALITY IMPROVEMENT A WAY OF LIFE. AS A RESULT, DESPITE
CONTINUED PRESSURE ON PRODUCT PRICES DURING 1993, UNIVERSAL ACHIEVED RECORD
SALES. THE SUBSIDIARY IMPROVED ITS COST, QUALITY, AND PRODUCTIVITY PERFORMANCE
FOR THE THIRD YEAR IN A ROW.
PRIOR CAPITAL INVESTMENTS AND IMPROVED MANAGEMENT TECHNIQUES HELPED
IMPROVED MANUFACTURING EFFICIENCY AND PRODUCT QUALITY, WHILE ONGOING PRODUCT
DEVELOPMENT ACTIVITIES YIELDED NEW JACKS AND CUSTOMERS FOR THE 1994 AND 1995
MODEL YEARS. UNIVERSAL TOOL ALSO SIGNED AN AGREEMENT TO LICENSE ITS TECHNOLOGY
TO A FOREIGN PRODUCER OF AUTO JACKS, AS AN INITIAL STEP TOWARD POSSIBLE JOINT-
VENTURE MANUFACTURING.
GAINS, QUESTIONS IN STEEL
THE IMPROVING ECONOMY, THE WEAKENED U.S. DOLLAR, SUPPLY UNCERTAINTIES BECAUSE OF
1993'S IMPORT TRADE CASES AGAINST UNFAIR STEEL DUMPING AND SUBSIDIZATION, AND
IMPROVED PRODUCT QUALITY PERMITTED U.S. STEEL PRODUCERS, INCLUDING ACME STEEL,
TO SIGNIFICANTLY INCREASE SHIPMENTS AND RAISE PRICES DURING 1993. IN ADDITION,
WE CONTINUED OUR STRATEGY OF INCREASING MARKET SHARE IN THE HIGHER VALUE-ADDED
NICHE-MARKET STEELS THAT ARE ACME STEEL'S SPECIAL STRENGTH.
INTERNALLY, ACME STEEL IDLED TWO SMALL, OUTDATED, AND MARGINALLY
COMPETITIVE STEEL ROLLING FACILITIES, FURTHER OPTIMIZING PRODUCTION AND
IMPROVING CUSTOMER SERVICE AND SATISFACTION.
QUALITY AND PRODUCTIVITY PERFORMANCE IMPROVED OVERALL, WITH ACME STEEL'S
MAN-HOURS PER TON OF STEEL PRODUCED AT THE LOWEST LEVEL EVER.
IN MANY RESPECTS, THEN, OUR STEEL SUBSIDIARY ACHIEVED MAJOR ACCOMPLISHMENTS
DURING 1993, YET ITS FINANCIAL PERFORMANCE, IN ABSOLUTE TERMS, WAS MARGINAL.
THE PROBLEM, EXTENSIVE STUDY HAS DETERMINED, IS SIMPLY THE COST AND QUALITY
COMPETITIVENESS OF ACME STEEL'S RIVERDALE, ILLINOIS, INGOT-PRODUCING AND NARROW
STRIP ROLLING OPERATIONS. AS WE'VE EXPLAINED IN PREVIOUS REPORTS, THE
DEVELOPMENT OF LOWER-COST STEELMAKING AND ROLLING TECHNOLOGY, INTENSIFYING
COMPETITION FROM OTHER STEEL PRODUCERS AND MATERIALS, AND MARKET PRESSURES
FACING OUR CUSTOMERS ARE SEVERELY LIMITING THE STEEL INDUSTRY'S ABILITY TO
ACHIEVE AND SUSTAIN HIGHER PRICES. EVEN THE PRICE INCREASES IMPLEMENTED IN
1993'S STRONGER MARKET BARELY BROUGHT AVERAGE STEEL PRICE REALIZATIONS BACK TO
1988 LEVELS, AND, IN REAL TERMS, THE LONG-TERM TREND LINE IS DOWN.
AGAINST THIS BACKDROP OF INTENSIFYING COMPETITION, WE BELIEVE ACME STEEL'S
EXISTING STEELMAKING AND ROLLING TECHNOLOGY WILL CONTINUE TO PRODUCE ACCEPTABLE
FINANCIAL RESULTS IN STRONG MARKETS, BUT YIELD ERODING PROFITABILITY AND BECOME
AN INTENSIFYING PROBLEM IN ECONOMIC DOWNTURNS.
SINCE JULY OF 1992, ACME METALS' MANAGEMENT AND ITS BOARD OF DIRECTORS HAVE
CONDUCTED AN EXHAUSTIVE ANALYSIS OF ALL OPTIONS AVAILABLE TO US IN THE STEEL
BUSINESS, RANGING FROM FACILITY SHUTDOWNS TO COMPLETE MODERNIZATION OF OUR
OPERATIONS.
WE BELIEVE MODERNIZATION, WITH THE INSTALLATION OF A NEW $300 MILLION TO
$350 MILLION CONTINUOUS THIN SLAB CASTER AND HOT STRIP MILL, OFFERS THE BEST
LONG-TERM RETURNS FOR OUR SHAREHOLDERS. AS AN IMPORTANT FIRST STEP IN OBTAINING
THE NECESSARY FINANCING FOR THIS INVESTMENT, ACME METALS ON MARCH 3, 1994,
SUBJECT TO CERTAIN CONDITIONS, AGREED TO SELL ON A PRIVATE PLACEMENT BASIS
EXCLUSIVELY IN CANADA, AN ISSUE OF 5,600,000 SECURITIES, AT A PRICE OF $21.00
PER SECURITY, EXCHANGEABLE ON A ONE-FOR-ONE BASIS, FOR 5,600,000 COMMON SHARES
OF ACME METALS INCORPORATED.
THE CONDITIONS FOR ACME'S FINAL ISSUANCE OF THE COMMON SHARES AND RECEIPT
OF THE PROCEEDS INCLUDE CONFIRMATION OF THE AVAILABILITY OF DEBT FINANCING
SUFFICIENT FOR THE CONSTRUCTION OF THE NEW FACILITY AND APPROVAL OF THE PROJECT
BY ACME'S BOARD OF DIRECTORS. YOU'LL FIND MORE DETAIL ON THE SECURITIES AND THE
PROJECT IN THE ACCOMPANYING FORM 10-K.
1994'S OUTLOOK
THE ECONOMIC RECOVERY CONTINUES TO GAIN STRENGTH GRADUALLY, AND WE ENTER THE NEW
YEAR WELL POSITIONED TO BUILD ON 1993'S PROFITABILITY.
MOST MARKETS FOR OUR SUBSIDIARIES' PRODUCTS LOOK ENCOURAGING, AND WE
ANTICIPATE CONTINUED IMPROVEMENT IN PRICING IN MOST OF THOSE MARKETS.
IN 1994, WE FACE HIGHER PENSION AND INSURANCE COSTS, AND EXPENSES TO COMPLY
WITH CLEAN AIR ACT PROVISIONS WILL BE HIGHER THAN IN 1993.
AT THIS POINT, I BELIEVE THE IMPROVING ECONOMY AND RESULTING DEMAND FOR THE
PRODUCTS OUR CUSTOMERS MANUFACTURE, TOGETHER WITH OUR CONTINUING IMPROVEMENTS IN
PRODUCTIVITY, QUALITY, AND COST PERFORMANCE, WILL SERVE TO MORE THAN OFFSET THE
HIGHER EXPENSES. AS RESULT, 1994 SHOULD BE AN EVEN BETTER YEAR FOR ACME METALS
INCORPORATED.
/S/ BRIAN W.H. MARSDEN
Brian W.H. Marsden
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
MARCH 11, 1994
[PHOTO OMITTED]
2
<PAGE>
ACME METALS AT A GLANCE
ACME METALS INCORPORATED, THROUGH ITS OPERATING SUBSIDIARIES, IS A FULLY
INTEGRATED MANUFACTURER OF STEEL AND STEEL PRODUCTS. HEADQUARTERED IN
RIVERDALE, ILLINOIS, ACME IS A LEADER IN EACH OF ITS MAJOR PRODUCT LINES,
ENJOYING STRONG NICHE MARKET POSITIONS.
ACME STEEL COMPANY
[PHOTO OMITTED]
DESCRIPTION
Acme, the smallest integrated steel producer in the U.S., has an ability to
custom produce and process steel in small order lots, in special chemistries
and widths, and with exact product consistency unmatched by other mills.
PRODUCTS
Sheet, strip and semifinished steel in low-, mid-, and high-carbon; alloy; and
special grades
PRODUCTION FACILITIES
Riverdale, IL
Chicago, IL
PRINCIPAL MARKETS
Agricultural, automotive, industrial equipment, industrial fastener, pipe and
tube processor, and tool manufacturing industries
ACME PACKAGING CORPORATION
[PHOTO OMITTED]
DESCRIPTION
The industry's most modern manufacturing facilities, located in every major
region; its broadest product line; a strong sales and distribution network; and
the unique synergies provided by strapping's "steel mill connection" make the
Acme Packaging subsidiary an industry leader.
PRODUCTS
Steel strapping, strapping tools, and industrial packaging products
PRODUCTION FACILITIES
Riverdale, IL
New Britain, CT
Pittsburg, CA
Leeds, AL
PRINCIPAL MARKETS
Agricultural, automotive, brick construction, fabricated and primary metals,
forest products, paper, and wholesale industries
ALPHA TUBE CORPORATION
[PHOTO OMITTED]
DESCRIPTION
Strong product quality and technical support, a broad value-added product line
sold to a diverse customer base, and important steel mill/steel user synergies
make Acme's Alpha Tube Corporation subsidiary a leader in the steel tube and
pipe market.
PRODUCTS
Welded steel tube and pipe
PRODUCTION FACILITIES
Toledo, OH(3)
PRINCIPAL MARKETS
Appliance, automotive, construction, household and leisure furniture, material
handling, recreational products and, warehouse industries
UNIVERSAL TOOL & STAMPING COMPANY, INC.
[PHOTO OMITTED]
DESCRIPTION
Strong manufacturing planning and control systems, unmatched new product
development and customer technical support, and a midwestern location convenient
to automotive assembly plants make Universal the nation's premier manufacturer
of automotive lifting equipment.
PRODUCTS
Auto and light truck jacks
PRODUCTION FACILITIES
Butler, IN
PRINCIPLE MARKETS
Automotive and truck industries
3
<PAGE>
ACME STEEL COMPANY
- - 1993 BROUGHT IMPROVING DEMAND FOR STEEL IN ACME'S MARKETS. AS A RESULT,
SALES ROSE 29%. FINANCIAL PERFORMANCE ALSO IMPROVED, LARGELY BECAUSE OF
INCREASED VOLUME AND SUCCESSFUL PRICE INCREASES.
- - ACME STEEL CEASED PRODUCTION ON TWO OLDER, HIGH-COST ROLLING MILLS DURING
1993, SHIFTING TONNAGE TO HIGHER-MARGINED NICHE STEELS.
- - KEY QUALITY GAUGES--REJECTIONS, CUSTOMER COMPLAINTS, SCRAP RATES--SURPASSED
CHALLENGING TARGETS FOR THE SECOND YEAR IN A ROW.
- - PRODUCTIVITY, AS MEASURED BY MAN-HOURS TO PRODUCE A TON OF STEEL,
REGISTERED RECORD PERFORMANCE.
- - A SIX-YEAR LABOR AGREEMENT OFFERS THE PROMISE OF A LONG-TERM
LABOR/MANAGEMENT PARTNERSHIP AND FURTHER IMPROVEMENTS IN PRODUCTIVITY.
- - CAPITAL INVESTMENTS TO INCREASE QUALITY AND EFFICIENCY AND TO MEET
ENVIRONMENTAL STANDARDS INCLUDED A NEW STEEL SLITTER AND PACKAGING LINE, A
RELINED BLAST FURNACE STOVE, AND NEW COKE OVEN DOORS AND GAS COLLECTING
SYSTEM.
- - DEMAND FOR STEEL IN 1994 IS EXPECTED TO REMAIN STRONG, AND ACME STEEL
EXPECTS CONTINUED IMPROVEMENT IN MARKET PRICING, LEADING TO A SECOND YEAR
OF IMPROVED RESULTS.
ACME PACKAGING CORPORATION
- - RECORD 1993 WITH SALES UP 8%. STRONG U.S. DOLLAR REDUCED EXPORT SALES,
BUT GAINS IN DOMESTIC MARKET MORE THAN OFFSET THE REDUCTION.
- - ACME PACKAGING INCREASED MARKET SHARE IN THE STEEL STRAPPING INDUSTRY
DURING 1993.
- - IMPLEMENTED NEW DISTRIBUTOR TRAINING PROGRAMS AND ADDED NEW DISTRIBUTORS
TO STRENGTHEN THIS GROWING MARKET CHANNEL.
- - IN ADDITION TO SALES GAINS, ACME PACKAGING REGISTERED ITS BEST-EVER
PERFORMANCE IN PRODUCT QUALITY, EMPLOYEE SAFETY AND PRODUCTIVITY, AND
MANUFACTURING COSTS.
- - COMPLETED A $1 MILLION INVESTMENT TO MODERNIZE ALABAMA PLANT SERVING
GROWING SOUTHEASTERN MARKETS AND CLOSED REDUNDANT AND MARGINAL FACILITIES
IN CALIFORNIA AND CONNECTICUT.
- - 1994 OUTLOOK IS FOR CONTINUED IMPROVEMENT IN DOMESTIC SALES AND
INTRODUCTION OF NEW PLASTIC STRAPPING PRODUCTS TO CAPITALIZE ON GROWTH IN
THIS MARKET.
ALPHA TUBE CORPORATION
- - 1993 SALES UP 17%, AND UP 30% IN TARGET MARKETS--AIR CONDITIONING/HEATING,
AUTO COMPONENTS, FLUE TUBES, RECREATIONAL PRODUCTS, TRUCK EXHAUST SYSTEMS
AND SERVICE CENTERS.
- - CONTINUED PROGRESS IN REPOSITIONING BUSINESS FROM LOW-MARGIN COMMODITY
PRODUCTS TO THOSE REQUIRING GREATER TECHNOLOGICAL AND MANUFACTURING
SOPHISTICATION, THEREBY OFFERING HIGHER MARGINS.
- - MAJOR GAINS IN PRODUCT QUALITY, PRODUCTIVITY, AND COST PERFORMANCE.
- - NEW ENTRY-END FEEDERS AND CUTTING PRESSES HELPED IMPROVE PERFORMANCE AND
COMPETITIVENESS.
- - PRODUCT DEVELOPMENTS INCLUDES SUPRATUBE-TM-, A WELDED TUBE THAT MEETS
DIMENSIONAL STANDARDS PREVIOUSLY ACHIEVED ONLY WITH MORE COSTLY PRODUCTION
PROCESSES. ALPHA TUBE ALSO ADDED NEW SHAPES TO ITS PRODUCTLINE AND IS
WORKING TO DEVELOP A TUBING PRODUCT TO REPLACE THE MORE COSTLY, FABRICATED
SIDE-DOOR IMPACT BEAMS NOW USED IN AUTOMOTIVE APPLICATIONS.
- - IN 1994, ALPHA TUBE WILL CONTINUE ITS PROGRESS IN BECOMING A HIGH-QUALITY,
LOW-COST NICHE PRODUCER OF PRODUCTS THAT PROVIDE ADDED VALUE TO CUSTOMERS
AND IMPROVED OPERATING RETURNS FOR ALPHA TUBE AND ACME METALS.
UNIVERSAL TOOL & STAMPING COMPANY
- - 1993 PERFORMANCE SAW SALES UP NEARLY 5%, DESPITE CONTINUED PRESSURE ON
SELLING PRICES.
- - THIRD CONSECUTIVE YEAR OF IMPROVED MANUFACTURING PRODUCTIVITY AND PLANT
EFFICIENCY.
- - NEW PRODUCT DEVELOPMENT BUOYS LONG-TERM OUTLOOK.
- ULTRALITE-TM- JACK FOR 1995-MODEL VEHICLES USES ACME HIGH-STRENGTH,
LIGHTWEIGHT STEELS TO REDUCE WEIGHT AND HELP IMPROVE FUEL ECONOMY.
- NEW JACK DESIGN ALLOWING INSIDE TIRE RIM STOWAGE SAVES VALUED TRUCK
SPACE AND IS ADAPTABLE TO BOTH FULL-SIZED RIMS AND MINI-SPARES.
- IN THE WORKS IS A "FEMALE-FRIENDLY" SYSTEM PROVIDING EASIER REMOVAL OF
WHEEL LUG NUTS WHEN CHANGING A TIRE.
- - IMPROVED STOCK FEEDING EQUIPMENT AND TOOLING PREPARATION HELPED INCREASE
PRODUCTIVITY AND QUALITY AND REDUCE COSTS.
- - MAJOR QUALITY AWARDS FROM CHRYSLER, FORD AND NISSAN.
- - TO SERVE GROWING MEXICAN MARKET, UNIVERSAL SIGNED A LONG-TERM AGREEMENT TO
LICENSE ITS TECHNOLOGY TO GRUPO TEKNO, A MEXICAN AUTOMOTIVE COMPONENTS
COMPANY.
- - 1994 OUTLOOK IS FOR CONTINUED GOOD PERFORMANCE, BUT PRICE NEGOTIATIONS WITH
A MAJOR CUSTOMER WILL LIKELY CAUSE MID-YEAR LOSS OF SOME SALES, PARTIALLY
OFF-SET BY GAINS WITH OTHER CUSTOMERS.
<PAGE>
- -------------------------------------------------------------------------------
BOARD OF DIRECTORS
- -------------------------------------------------------------------------------
BRIAN W.H. MARSDEN 3,4
Chairman and Chief Executive Officer of Acme Metals Incorporated
STEPHEN D. BENNETT 3,4
President and Chief Operating Officer of Acme Metals Incorporated
EUGENE P. BERG 1,2,3,5
Chairman of the Board of Automatic Spring Coiling Company (manufacturer of
precision mechanical springs)
C.J. GAUTHIER 1,2,3,5
Retired Chairman, President and Chief Executive Officer of NICOR, Inc. (public
utility holding company)
EDWARD G. JORDAN 1,4,5
Retired Chairman of Consolidated Rail Corporation (Conrail)
ANDREW R. LAIDLAW 1,2,3,5
Chairman of the Executive Committee of the law firm of Seyfarth, Shaw,
Fairweather & Geraldson
FRANK A. LEPAGE 2,4,5
Retired Director and Executive Vice President of The Firestone Tire and Rubber
Company
REYNOLD C. MACDONALD 1,3,4,5
Retired Chairman of the Board of Acme Steel Company
JULIEN L. MCCALL 2,4,5
Retired Chairman of the Board and Chief Executive Officer of National City
Corporation (bank holding company)
WILLIAM P. SOVEY 1,4,5
Vice Chairman and Chief Executive Officer of the Newell Co. (diversified
manufacturer of hardware, housewares, office, and industrial products)
WILLIAM R. WILSON 1,2,5
Retired Chairman of the Board and Chief Executive Officer of Lukens, Inc.
(diversified metals manufacturer)
BOARD COMMITTEES
1 Audit Review
2 Compensation
3 Executive
4 Finance
5 Nominating
- -------------------------------------------------------------------------------
EXECUTIVE OFFICERS
- -------------------------------------------------------------------------------
BRIAN W.H. MARSDEN
Chairman and Chief Executive Officer
STEPHEN D. BENNETT
President and Chief Operating Officer
RICHARD J. STEFAN
Vice President--Employee Relations
EDWARD P. WEBER, JR.
Vice President, General Counsel, and Secretary
JERRY F. WILLIAMS
Vice President--Finance and Administration, Treasurer, and Chief Financial
Officer
- -------------------------------------------------------------------------------
PRINCIPAL OFFICERS OF SUBSIDIARY COMPANIES
- -------------------------------------------------------------------------------
ACME STEEL COMPANY
Stephen D. Bennett, President
ACME PACKAGING CORPORATION
Robert W. Dyke, President
ALPHA TUBE CORPORATION
Steven G. Jansto, President
UNIVERSAL TOOL & STAMPING COMPANY, INC.
Larry C. Kipp, President
- -------------------------------------------------------------------------------
INVESTOR INFORMATION
- -------------------------------------------------------------------------------
ANNUAL MEETING
The Annual Meeting of Shareholders will be held at 10:00 a.m., Central Time,
April 28, 1994, in the 8th-floor auditorium of Harris Trust & Savings Bank, 111
West Monroe Street, Chicago, Illinois.
STOCK MARKET INFORMATION
Acme Metals Incorporated common stock is traded on the NASDAQ National Market
System under the symbol: ACME. As of March 15, 1994, there were 5,547,592
shares of common stock outstanding, held by 6,895 shareholders of record.
DIVIDENDS
No dividends on the common stock have been declared or paid since Acme became a
public company. The company's Board of Directors, which establishes and
regularly reviews dividend policy, has, to this time, determined that
shareholders' interests have been best served by reinvesting available funds to
modernize the company's existing operations, to acquire profitable and growing
plants and companies, and to maintain financial strength.
- -------------------------------------------------------------------------------
SHAREHOLDER QUESTIONS
- -------------------------------------------------------------------------------
Shareholders with questions concerning Acme Metals and its operations should
direct inquiries to Charles A. Nekvasil, director, Public and Investor
Relations, Acme Metals Incorporated. Phone 708-841-8383, Ext. 2266.
Shareholders with questions concerning the transfer of shares, lost stock
certificates, duplicate mailings, or changes of address should contact the
Transfer Agent and Registrar:
First Chicago Trust Company of New York
Shareholder Services
P.O. Box 2500
Jersey City, N.J. 07303-2500
201-324-0498 or 800-446-2617.
INDEPENDENT ACCOUNTANTS
Price Waterhouse
200 East Randolph Drive
Chicago, Illinois
[INSIDE BACK COVER]
<PAGE>
[LOGO]
ACME METALS INCORPORATED
13500 SOUTH PERRY AVENUE
RIVERDALE ILLINOIS 60627-1182
708-849-2500
[OUTSIDE BACK COVER]
<PAGE>
APPENDIX TO ANNUAL REPORT
* The first graph on the inside front cover is a chart showing the company's net
sales for the last three years. Sales shown are $376,951,000 for 1991,
$391,562,000 for 1992, and $457,406,000 for 1993.
* The second graph on the inside front cover is a chart showing the company's
net income (loss) for the last three years. Shown are a loss ($2,318,000) for
1991, a loss ($2,849,000) before cumulative effect of changes in accounting
principles for 1992, and net income of $6,259,000 for 1993.
* The third graph on the inside front cover is a chart showing shareholders'
equity for the last three years. Equity shown is $150,664,000 for 1991,
$89,295,000 for 1992, and $83,203,000 for 1993.
* The photo on Page 2 is a picture of Brian W.H. Marsden, Chairman of the Board
and Chief Executive Officer.
* The first photo on Page 3 is a picture of hot-rolled sheet steel.
* The second photo on Page 3 is a picture of steel strapping.
* The third photo on Page 3 is a picture of welded steel tube.
* The fourth photo on Page 3 is a picture of an automotive jack.
<PAGE>
EXHIBIT 21
ACME METALS INCORPORATED
SUBSIDIARY LISTING
AS OF MARCH 1, 1994
-----------------------
<TABLE>
<CAPTION>
Subsidiary Name, D/B/A, State or Country of
AND ITS SUBSIDIARIES INCORPORATION TYPE OF BUSINESS
- ----------------------------- ------------------ ----------------
<S> <C> <C>
Acme Steel Company Delaware Integrated steel
producer
(d/b/a Acme Steel Company, Inc.,
State of Alabama)
(d/b/a Acme Steelstrapping
Company, State of Texas)
Alabama Metallurgical Washington Leases real estate and
Corporation equipment
Acme Packaging Corporation Delaware Manufacture and sale
(d/b/a Acme Steel Packaging of steel strapping and
Corporation, State of related tools
California)
Acme Steel Company Barbados Foreign trading
International, Inc. company
Alpha Tube Corporation Delaware Manufacture and sale
of welded carbon steel
tubing
Alta Slitting Corporation Delaware Slitting and
processing of steel
products
Universal Tool & Stamping Indiana Manufacture and sale
Company, Inc. of auto and truck jacks
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-17235, 33-19437, 33-38747 and 33-30841) of
Acme Metals Incorporated of our report dated March 21, 1994 appearing on
page 33 in this Annual Report on Form 10-K.
PRICE WATERHOUSE
March 25, 1994
Chicago, Illinois
