<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 14, 1994
REGISTRATION NO. 33-54101
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ACME METALS INCORPORATED
AND OTHER REGISTRANTS
(SEE TABLE OF ADDITIONAL REGISTRANTS BELOW)
DELAWARE 6719 36-3802419
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
13500 SOUTH PERRY AVENUE
RIVERDALE, ILLINOIS 60627
(708) 849-2500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
EDWARD P. WEBER, JR.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
ACME METALS INCORPORATED
13500 SOUTH PERRY AVENUE
RIVERDALE, ILLINOIS 60627
(708) 849-2500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO: DANIEL J. ZUBKOFF
ALTON B. HARRIS, ESQ. CAHILL GORDON & REINDEL
HELEN LEVIN TOAL, ESQ. 80 PINE STREET
JAMES T. EASTERLING, ESQ. NEW YORK, NEW YORK 10005
COFFIELD UNGARETTI & HARRIS (212) 701-3000
3500 THREE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60602
(312) 977-4400 ----------------
<TABLE>
<S> <C> <C>
Name of Additional State or other jurisdiction I.R.S. employer
Registrants of incorporation or organization identification number
- ----------------------------------------- -------------------------------- ----------------------------
Acme Packaging Corporation Delaware 36-3796008
Acme Steel Company Delaware 36-2691236
Acme Steel Company International,
Inc. Barbados 98-0101903
Alabama Metallurgical Corporation Washington 62-0811861
Alpha Tube Corporation Delaware 31-1271541
Alta Slitting Corporation Delaware 36-3718000
Universal Tool and Stamping Company, Inc. Indiana 35-0797817
</TABLE>
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Senior Secured Notes due 2002
of Acme Metals Incorporated..... $175,000,000 $1,000.00 $175,000,000 $60,345 (2)
- -------------------------------------------------------------------------------------------------
% Senior Secured Discount Notes
due 2004 of Acme Metals
Incorporated.................... $137,884,281 $ 725.24 $100,000,000 $34,483 (2)
- -------------------------------------------------------------------------------------------------
Senior Guarantees of % Senior
Secured Notes due 2002 of
Registrants other than Acme
Metals Incorporated............. ---- ---- ---- None (3)
- -------------------------------------------------------------------------------------------------
Senior Guarantees of % Senior
Secured Discount Notes due 2004
of Registrants other than Acme
Metal Incorporated.............. ---- ---- ---- None (3)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
(2) Previously paid.
(3) Pursuant to Rule 457(a), no separate fee is being paid with respect to
these guarantees.
----------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ACME METALS INCORPORATED
CROSS REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED ON FORM S-1
(PURSUANT TO ITEM 501(B) OF REGULATION S-K)
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND HEADING CAPTION OR LOCATION IN PROSPECTUS
-------------------------------- ---------------------------------
<S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of Cover Page of the Registration Statement;
Prospectus................................ Outside Front Cover Page of Prospectus
2. Inside Front Cover and Outside Back Cover
Pages of Prospectus....................... Inside Front Cover and Outside Back Cover
Pages of Prospectus
3. Summary Information, Risk Factors, Ratio
of Earnings to Fixed Charges.............. Prospectus Summary; Risk Factors; The
Company; Pro Forma Selected Consolidated
Financial and Operating Data
4. Use of Proceeds.......................... Use of Proceeds
5. Determination of Offering Price.......... Not Applicable
6. Dilution................................. Not Applicable
7. Selling Security Holders................. Not Applicable
8. Plan of Distribution..................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be Outside Front Cover Page of Prospectus;
Registered................................ Prospectus Summary; Description of Notes
10. Interests of Named Experts and Counsel... Not Applicable
11. Information with Respect to the Prospectus Summary; Risk Factors; The
Registrant................................ Company; Modernization and Expansion
Project; Financing Plan; Use of Proceeds;
Capitalization; Selected Consolidated
Financial and Operating Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Security Ownership
of Certain Beneficial Owners and
Management; Certain Transactions;
Description of Notes; Certain Federal
Income Tax Considerations Relating to an
Investment in the Senior Secured Discount
Notes; Description of Working Capital
Facility; Financial Statements
12. Disclosure of Commission Position on
Indemnification of Securities Act Not Applicable
Liabilities...............................
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS Subject to Completion, dated July 14, 1994
$
LOGO
$175,000,000 % SENIOR SECURED NOTES DUE 2002
$ % SENIOR SECURED DISCOUNT NOTES DUE 2004
-----------
Acme Metals Incorporated (the "Company") is offering $175,000,000 aggregate
principal amount of its % Senior Secured Notes due 2002 (the "Senior
Secured Notes") and $ aggregate principal amount of its % Senior
Secured Discount Notes due 2004 (the "Senior Secured Discount Notes" and,
together with the Senior Secured Notes, the "Notes").
Interest on the Senior Secured Notes will be payable semi-annually on
and of each year, commencing , 1995. The Senior Secured Notes
have no sinking fund provisions. The Senior Secured Notes may be redeemed at
the option of the Company, in whole or in part, on or after , 1998,
at the redemption prices set forth herein, together with accrued and unpaid
interest to the redemption date.
The Senior Secured Discount Notes will be offered at a substantial discount
from their principal amount and will provide gross proceeds of approximately
$100,000,000 to the Company. The issue price of the Senior Secured Discount
Notes will be $ per $1,000 principal amount at maturity, representing a
yield to maturity of % per annum (computed on a semi-annual bond
equivalent basis), calculated from , 1994. Commencing , 1998, cash
interest on the Senior Secured Discount Notes will be payable on and
of each year at a rate of % per annum. The Senior Secured Discount
Notes have no sinking fund provisions. The Senior Secured Discount Notes may be
redeemed at the option of the Company, in whole or in part, on or after
, 1999, at the redemption prices set forth herein, together with
accrued and unpaid interest to the redemption date.
Upon the occurrence of a Change of Control (as defined herein), each holder
of the Notes may require the Company to repurchase such holder's Notes, in
whole or in part, at a repurchase price equal to (i) in the case of the Senior
Secured Notes, 101% of the principal amount thereof, plus accrued interest to
the date fixed for repurchase or (ii) in the case of the Senior Secured
Discount Notes, 101% of the Accreted Value (as defined herein) thereof on the
date fixed for repurchase if prior to , 1997, and 101% of the principal
amount thereof, plus accrued interest to the date fixed for repurchase, if
thereafter.
The Notes will be senior obligations of the Company secured by a pledge of
all of the capital stock of its direct subsidiaries. The Notes will be
unconditionally guaranteed, jointly and severally, on a senior basis by each of
the Company's subsidiaries (the "Guarantors"). The guarantee of the Notes by
Acme Steel Company ("Acme Steel") will be secured by a first priority lien on
substantially all existing and future real property and equipment of Acme
Steel, including substantially all of the assets acquired in connection with
the Modernization Project (as defined herein). The guarantee of the Notes by
Acme Packaging Corporation ("Acme Packaging") will be secured by a pledge of
all of the capital stock of its subsidiaries. At June 26, 1994, on an adjusted
basis after giving effect to the offering of the Notes and the application of
the net proceeds therefrom, the Company and its subsidiaries would have had an
aggregate of approximately $281.0 million of indebtedness (including the Notes)
outstanding.
Prior to this offering (the "Note Offering"), the Company sold, by means of a
private placement (the "Special Warrant Offering"), $117,600,000 of special
common stock purchase warrants ("Special Warrants"), the net proceeds of which
have been placed in escrow. The Note Offering is conditioned upon and is a
condition to the release from escrow of the net proceeds of the Special Warrant
Offering. See "Financing Plan".
-----------
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to Company
Public(1) Discounts(2) (1)(3)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Senior Secured Note............... % % %
Total.................................$ $ $
- ----------------------------------------------------------------------------------------------
Per Senior Secured Discount Note...... % % %
Total.................................$ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Plus accrued interest or accretion, if any, from , 1994.
(2) The Company and the Guarantors have agreed, jointly and severally, to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933. See "Underwriting."
(3) Before deducting expenses payable by the Company, estimated at
$ .
-----------
The Notes offered by this Prospectus are offered by the Underwriters subject
to prior sale, to withdrawal, cancellation or modification of the offer without
notice, to delivery to and acceptance by the Underwriters and to certain
further conditions. It is expected that delivery of the Notes will be made at
the offices of Lehman Brothers Inc., New York, New York, on or about ,
1994.
-----------
LEHMAN BROTHERS
, 1994 BT SECURITIES CORPORATION
<PAGE>
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR SECURED
NOTES AND THE SENIOR SECURED DISCOUNT NOTES OFFERED HEREBY AT LEVELS ABOVE
THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
----------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 and, in accordance therewith, files reports, proxy
material and other information with the Securities and Exchange Commission (the
"Commission"). Reports, proxy material and other information concerning the
Company can be inspected and copied at the offices of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 or at its regional offices, 500 West
Madison Street, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300,
New York, New York 10048. Copies of such material can be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington D.C. 20549 at prescribed rates. Such reports, proxy material and
other information concerning the Company also may be inspected at the offices
of The National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company and the Guarantors have filed with the Commission a registration
statement (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Notes offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
items of which are contained in exhibits to the Registration Statement as
permitted by the rules and regulations of the Commission. Statements made in
this Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus. References to fiscal periods herein are
references to the Company's fiscal periods which end on the last Sunday of the
related calendar period (for example, December 26, 1993 or June 26, 1994).
THE COMPANY
Acme Metals Incorporated (the "Company"), based in Riverdale, Illinois, is a
fully integrated manufacturer and marketer of steel, steel strapping and
strapping tools, steel tubing and automotive and light truck jacks. The
Company's operations are divided into two primary segments, the "Steel Making
Segment" and the "Steel Fabricating Segment." Acme Steel Company ("Acme
Steel"), which is the Company's sole Steel Making Segment operating subsidiary,
accounted for 41% of the Company's consolidated net sales in 1993. The Steel
Fabricating Segment, consisting of Acme Packaging Corporation ("Acme
Packaging"), Alpha Tube Corporation ("Alpha Tube") and Universal Tool &
Stamping Company, Inc. ("Universal"), accounted for the remaining 59% of the
Company's consolidated net sales in 1993.
Over the past eight years, the Company has pursued a downstream integration
strategy, intended to enhance both the value and margins of its steel products.
This strategy, which included the acquisition of Universal and Alpha Tube and
of additional strapping facilities, has helped to moderate the impact of
fluctuating steel demand on Acme Steel's operations by creating captive
businesses that consume approximately 40% to 45% of Acme Steel's steel
production. These businesses allow the Company to sell fabricated steel
products that have a higher value added component. Having implemented its
downstream integration strategy, the Company is now pursuing a business
strategy consisting of the following key elements: reducing production costs,
expanding shipping capability and product range, increasing sales of specialty
products, and improving product quality and customer service.
As the smallest integrated steel producer in the United States, with an
annual shipping capability of approximately 720,000 tons of finished steel,
Acme Steel manufactures and markets flat-rolled sheet and strip steel. Acme
Steel attempts to utilize the flexibility of its small production quantities by
focusing on niche markets and targeting customers with small order sizes and
special metallurgical requirements such as high carbon, special alloy and high-
strength steels. The principal markets served by Acme Steel include the
agricultural equipment, automotive component, industrial equipment, industrial
fastener, pipe and tube, processor and tool manufacturing industries.
Acme Packaging, which represented 33% of the Company's 1993 consolidated net
sales, is one of the two leading U.S. producers of steel strapping and
strapping tools. The Company believes that Acme Packaging's strong market
position is attributable to (i) a broad product line, (ii) high quality, low
cost strapping produced in modern facilities, (iii) the location of its
production facilities in close proximity to a broad customer base and (iv) the
benefits of a close relationship with Acme Steel, which supplies virtually all
of Acme Packaging's steel. Acme Packaging's strapping products are principally
used to unitize (i.e., bind) products for the agricultural, automotive, brick,
construction, fabricated and primary metals, forest products, paper and
wholesale industries.
Alpha Tube, which represented 16% of the Company's 1993 consolidated net
sales, is a leading U.S. producer of high quality welded carbon steel tubing
used for furniture, recreational, construction and automotive applications.
Alpha Tube has developed expertise in certain applications demanding light
gauge tubing and targets customers whose requirements match Alpha Tube's
production capabilities.
3
<PAGE>
Universal, which accounted for 10% of the Company's 1993 consolidated net
sales, produces automotive and light truck jacks, tire wrenches and accessories
for the original equipment manufacturing ("OEM") market. Management estimates
that Universal currently holds a 30% share of the OEM market for auto and light
truck jacks in North America. The Company believes that Universal's strong
market position with U.S. and foreign transplant automotive manufacturers is
principally the result of its product development capability, high quality
products and just-in-time delivery capabilities.
MODERNIZATION AND EXPANSION PROJECT
In 1990 the Company began a study of available business strategies and
technological developments in light of its then operational and competitive
opportunities. In July 1992, the Board of Directors of the Company authorized a
study of the feasibility of constructing a continuous thin slab caster/hot
strip mill complex. In connection with this study, the Company received reports
from the management consulting firm of A.T. Kearney, Inc. Based on the
feasibility study, the Kearney reports and extensive additional analysis
performed by the Company of available technology, market opportunities and
construction requirements, the Board of Directors of the Company has authorized
construction of a new continuous thin slab caster/hot strip mill complex (the
"Modernization Project") at Acme Steel's Riverdale, Illinois plant subject to
the Note Offering.
The Company believes that Acme Steel currently enjoys a position as a low
cost producer of high quality liquid steel. Although Acme Steel sells many of
its products for use in higher-priced specialty applications, its present ingot
pouring and rolling process results in finished steel production costs
significantly above those of certain of its competitors. The Company believes
the Modernization Project will allow Acme Steel to build on its strengths as a
low cost producer of liquid steel by significantly increasing its overall
efficiency and reducing its finished steel production costs, thereby improving
its gross margins. The Modernization Project should also result in finished
steel products with improved physical and metallurgical properties.
Based on the turnkey contract price, without taking into account financing
costs or changes that may be requested by Acme Steel during construction,
management estimates that the cost of the Modernization Project, including
equipment, ancillary facilities, construction, and general contractor fees,
will not exceed $372 million. As a result of the Modernization Project, the
Company expects shipping capability to increase from approximately 720,000 tons
per year to approximately 925,000 tons per year within two years of start-up
and to approximately 970,000 tons per year within four years of start-up. When
the Modernization Project is completed, the Company estimates that it will
provide savings in operating costs, based on full utilization of its expanded
shipping capability of approximately 970,000 tons per year and certain other
material assumptions, of approximately $77 per ton, resulting from the
elimination of many of the production steps utilized in the existing ingot
pouring and rolling process, lower energy consumption, higher labor
productivity and increased production yields. See "Risk Factors--Modernization
and Expansion Project" and "Modernization and Expansion Project--Estimated
Costs and Savings."
FINANCING PLAN
The Company has adopted a plan of financing intended to provide the funds
necessary to complete the Modernization Project, to repay certain indebtedness
currently outstanding and to provide additional liquidity. The Company's plan
of financing includes the following: (i) the Note Offering, (ii) the Special
Warrant Offering, and (iii) the securing of a working capital facility (the
"Working Capital Facility"), which initially will be undrawn. The Special
Warrant Offering occurred prior to the Note Offering, but the net proceeds of
the Special Warrant Offering have been placed in escrow. The Note Offering is
conditioned upon and is a condition to the release from escrow of the net
proceeds of the Special Warrant Offering. For a more complete description of
the material terms of the Notes and the Special Warrants, see "Financing Plan"
and "Description of Notes."
4
<PAGE>
The following table sets forth the Company's sources and immediate uses of
funds as if the foregoing transactions were completed on June 26, 1994:
<TABLE>
<CAPTION>
(DOLLARS
IN
THOUSANDS)
----------
<S> <C>
Sources of Funds
Senior Secured Notes......................................... $175,000
Senior Secured Discount Notes................................ 100,000
Special Warrant Offering(1).................................. 117,600
Working Capital Facility(2).................................. 0
--------
Total...................................................... $392,600
========
Uses of Funds
Increase in cash and cash equivalents(3)..................... $320,600
Repayment of 9.35% Senior Notes.............................. 50,000
Estimated fees and expenses(4)............................... 22,000
--------
Total...................................................... $392,600
========
</TABLE>
- --------
(1) On or before September 14, 1994, the Special Warrants are exercisable on a
one-for-one basis for 5,600,000 shares of the Company's common stock, $1.00
par value ("Common Stock"). Conditions for the Company's receipt of the
proceeds of the sale of the Special Warrants include among other matters
confirmation of the availability of not less than 85% of the remaining
financing needed for construction of the Modernization Project. Successful
completion of the Note Offering will satisfy this condition.
(2) The Company has obtained commitments for an $80 million Working Capital
Facility to provide for additional liquidity. The Working Capital Facility
initially will be undrawn. See "Description of Working Capital Facility."
(3) The increase in cash and cash equivalents, together with cash currently on
hand and cash flow from operations, will be used for the construction and
integration of the Modernization Project. At June 26, 1994 the Company had
cash and cash equivalents of $73.7 million. Sources and Uses of Funds above
do not give effect to the proposed purchase by Raytheon Engineers &
Constructors, Inc. ("Raytheon") of $9 million of newly issued shares of
Common Stock. See "Modernization and Expansion Project--Engineering,
Procurement and Construction Contract."
(4) Estimated fees and expenses include financing fees for the Special Warrant
Offering, the Note Offering, and the registration of 5,600,000 shares of
Common Stock, related offering expenses and a prepayment penalty of $2.5
million, net of taxes, related to repayment of the 9.35% Senior Notes.
NOTE OFFERING
Notes Offered................. $175,000,000 principal amount of % Senior
Secured Notes due 2002 (the "Senior Secured
Notes").
$ principal amount at maturity of
% Senior Secured Discount Notes due 2004
(the "Senior Secured Discount Notes").
SENIOR SECURED NOTES
Interest Rate................. % per annum.
Interest Payment Dates........ and , commencing ,
1995.
Maturity Date................. , 2002.
Sinking Fund.................. None.
5
<PAGE>
Optional Redemption........... The Senior Secured Notes are redeemable at the
option of the Company, in whole or in part, on
or after , 1998, at the redemption
prices set forth herein, together with accrued
and unpaid interest to the redemption date.
SENIOR SECURED DISCOUNT NOTES
Issue Price................... $ per $1,000 principal amount at maturity
(or % of the principal amount at
maturity).
Yield, Interest Rate and
Interest Payment Dates.......
% per annum (computed on a semi-annual
bond equivalent basis) calculated from ,
1994. No cash interest will accrue on the
Senior Secured Discount Notes prior to ,
1997. Thereafter, cash interest on the Senior
Secured Discount Notes will accrue at the rate
of % per annum and will be payable semi-
annually on and , commencing on
, 1998.
Maturity Date................. , 2004.
Sinking Fund.................. None.
Optional Redemption........... The Senior Secured Discount Notes are
redeemable at the option of the Company, in
whole or in part, on or after , 1999,
at the redemption prices set forth herein,
together with accrued and unpaid interest to
the redemption date.
COMMON PROVISIONS OF THE NOTES
Ranking.......................
The Notes will be senior obligations of the
Company. The Notes will be senior to all future
subordinated indebtedness of the Company and
will rank pari passu in right of payment with
all future senior indebtedness of the Company.
At June 26, 1994, on an adjusted basis after
giving effect to the Note Offering and the
application of the proceeds therefrom, the
Company and its subsidiaries would have had an
aggregate of approximately $281.0 million of
indebtedness (including the Notes) outstanding.
Guarantees.................... The Notes will be unconditionally guaranteed,
jointly and severally, on a senior basis (the
"Guarantees") by each of the Company's
subsidiaries (the "Guarantors"). Each of the
Guarantees will be senior to all future
subordinated indebtedness of each of the
Guarantors and will rank pari passu with all
existing and future senior indebtedness of each
of the Guarantors.
6
<PAGE>
Security...................... The Company's obligations under the Notes will
be secured by a pledge of all of the capital
stock of the Company's direct subsidiaries. The
Guarantee of the Notes by Acme Steel will be
secured by a first priority lien on
substantially all existing and future real
property and equipment of Acme Steel, including
substantially all of the assets acquired in
connection with the Modernization Project. The
Guarantee of the Notes by Acme Packaging will
be secured by a pledge of all of the capital
stock of its subsidiaries.
Change of Control.............
Upon the occurrence of a Change of Control (as
defined herein), each holder of Notes will have
the option to cause the Company and its
subsidiaries to repurchase such holder's Notes,
in whole or in part, at a repurchase price
equal to (i) in the case of the Senior Secured
Notes, 101% of the principal amount thereof,
plus accrued interest to the date fixed for
repurchase, or (ii) in the case of the Senior
Secured Discount Notes, 101% of the Accreted
Value thereof on the date fixed for repurchase
if prior to , 1997, and 101% of the
principal amount thereof, plus accrued interest
to the date fixed for repurchase, if
thereafter. There can be no assurance that the
Company and its subsidiaries would have
sufficient funds to satisfy their obligations
to repurchase Notes upon a Change of Control.
See "Description of Notes--Certain Covenants--
Repurchase of Notes Upon Change of Control."
Certain Covenants.............
The Indentures under which the Notes will be
issued will contain certain restrictive
covenants that, among other things, will limit
the ability of the Company and its subsidiaries
to incur additional Indebtedness (as defined
herein), create liens, pay dividends,
repurchase capital stock, make certain other
Restricted Payments (as defined herein), make
Investments (as defined herein) engage in
transactions with affiliates, sell assets,
engage in sale and leaseback transactions and
engage in mergers or consolidations. See
"Description of Notes--Certain Covenants."
Use of Proceeds...............
The net proceeds of the Note Offering, together
with the net proceeds of the Special Warrant
Offering, will be used principally to fund the
construction and integration of the
Modernization Project and for the repayment of
debt. See "Financing Plan" and "Use of
Proceeds."
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth selected historical consolidated financial
data and operating data for the Company for the periods indicated. The
Consolidated Statements of Operations Data and Consolidated Balance Sheet Data
for, and as of the end of, each of the five years in the period ended December
26, 1993 were derived from the consolidated financial statements of the
Company, which have been audited by Price Waterhouse, independent accountants.
The selected historical consolidated financial data for, and as of the end of,
the six months ended June 27, 1993 and June 26, 1994 were derived from
unaudited financial statements for the Company which, in the opinion of
management, reflect all adjustments which are of a normal recurring nature
necessary for a fair presentation of the results of such periods. Results for
interim periods are not necessarily indicative of the results to be expected
for an entire fiscal year. The following table should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the consolidated financial statements and notes thereto
appearing elsewhere herein.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER TON DATA)
FISCAL YEAR FIRST HALF
--------------------------------------------------- ------------------
1989 1990 1991 1992 1993 1993 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net sales................. $439,412 $446,042 $376,951 $391,562 $457,406 $225,032 $256,423
Cost of products sold..... 375,902 396,790 335,503 347,624 397,526 198,327 215,341
Depreciation expense...... 11,624 12,540 13,700 14,392 14,657 7,517 7,596
Selling and administrative
expense.................. 25,751 27,916 29,219 28,901 30,633 13,800 15,304
Restructuring/nonrecurring
charge................... -- -- -- 2,700(1) 1,925(2) -- --
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)... 26,135 8,796 (1,471) (2,055) 12,665 5,388 18,182
Interest expense, net..... (2,116) (4,178) (4,211) (3,869) (3,813) (1,993) (1,620)
Unusual income item....... -- 4,005 1,241 1,047 1,210 -- --
Other non-operating
income................... 2,107 765 1,391 355 370 222 861
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
cumulative effect of
changes in accounting
principles............... 26,126 9,388 (3,050) (4,522) 10,432 3,617 17,423
Income tax provision
(credit)................. 9,926 3,755 (732) (1,673) 4,173 1,447 6,969
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
cumulative effect of
changes in accounting
principles............... 16,200 5,633 (2,318) (2,849) 6,259 2,170 10,454
Cumulative effect of
changes in accounting
principles, net of taxes. -- -- -- (50,323)(3) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)......... $ 16,200 $ 5,633 $ (2,318) $(53,172) $ 6,259 $ 2,170 $ 10,454
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
CONSOLIDATED:
Ratio of earnings to fixed
charges(4)............... 7.5x 1.9x -- -- 2.5x 2.2x 6.9x
EBITDA(5)................. $ 40,273 $ 22,592 $ 14,144 $ 15,705 $ 30,194 $ 13,542 $ 26,937
Pro forma total interest
expense(6)............... 31,344 15,522
Pro forma cash interest
expense(7)............... 18,828 9,415
Ratio of EBITDA to pro
forma total interest
expense.................. 1.0x 1.7x
Ratio of EBITDA to pro
forma cash interest
expense.................. 1.6x 2.9x
Capital expenditures...... $ 14,960 $ 28,604 $ 10,611 $ 7,557 $ 11,749 $ 4,305 $ 5,071
ACME STEEL COMPANY:
Tons shipped-external
customers................ 506,475 436,123 286,385 320,192 413,645 205,419 238,067
Tons shipped-intersegment. 233,374 259,243 273,177 289,946 284,361 154,219 144,063
-------- -------- -------- -------- -------- -------- --------
Total tons shipped........ 739,849 695,366 559,562 610,138 698,006 359,638 382,130
Average price per ton(8).. $ 417 $ 422 $ 423 $ 413 $ 426 $ 411 $ 444
Average production cost
per ton(8)............... 339 355 354 338 349 338 338
Raw steel to finished
product yield............ 76.1% 77.2% 78.0% 78.7% 78.6% 78.5% 78.6%
</TABLE>
<TABLE>
<CAPTION>
JUNE 26, 1994
-----------------------
ACTUAL AS ADJUSTED(9)
-------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 73,651 $394,251
Total assets............................................ 350,628 680,274
Long-term debt (including current portion).............. 56,000 281,000
Stockholders' equity.................................... 96,209 200,309
</TABLE>
(Footnotes on following page)
8
<PAGE>
- --------
(1) See Restructuring Charge in the notes to the consolidated financial
statements.
(2) See Nonrecurring Charge in the notes to the consolidated financial
statements.
(3) Cumulative effect of changes in account principles, net of taxes, includes
the effects of adopting Financial Accounting Standard ("FAS") No. 106
"Accounting for Postretirement Benefits Other Than Pensions" and FAS No.
109 "Accounting for Income Taxes." See Postretirement Benefits Other Than
Pensions and Income Taxes in the notes to the consolidated financial
statements.
(4) The ratio of earnings to fixed charges is computed by dividing (i) the sum
of earnings from continuing operations before income taxes, interest
expense (including amortization of debt issuance costs), the interest
portion of rental expenses and the undistributed income of less than 50
percent owned persons accounted for by the equity method by (ii) fixed
charges, which consist of interest expense (including amortization of debt
issuance costs) and the interest portion of rental expenses. Earnings for
1992 and 1991 were insufficient to cover fixed charges by $4.5 million
($5.5 million if a non-recurring gain of $1 million before income taxes
related to the sale of the Company's interests in coal producing property
is excluded from earnings) and $4.3 million, respectively. Pro forma ratios
of earnings to fixed charges, giving effect solely to the refinancing of
the 9.35% Senior Notes (including the prepayment penalty) with a portion of
the Note Offering would have been 6.0x and 2.2x for the first half of 1994
and the 1993 fiscal year, respectively.
(5) EBITDA is defined as net income plus income taxes, net interest expense,
depreciation and amortization, restructuring and nonrecurring items,
cumulative effect of changes in accounting principles, and less unusual
income. The Company believes EBITDA provides additional information for
determining its ability to meet debt service requirements. EBITDA does not
represent net income or cash flow from operations as determined by
generally accepted accounting principles, and EBITDA is not necessarily an
indication of whether cash flow will be sufficient to fund cash
requirements. EBITDA does not give effect to any investment of the
approximately $394.3 million of cash remaining after application of the net
proceeds of the Note Offering and the Special Warrant Offering to repay
indebtedness and pay related expenses.
(6) Pro forma total interest expense reflects the issuance of the Senior
Secured Notes and the Senior Secured Discount Notes, as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 26, 1993 JUNE 26, 1994
----------------- ----------------
<S> <C> <C>
Issuance of Senior Secured Notes........ $18,375 $ 9,188
Issuance of Senior Secured Discount
Notes.................................. 11,303 5,500
Existing 6.5% to 6.75% Notes payable.... 453 227
Amortization of financing fees on Notes. 1,213 607
------- -------
$31,344 $15,522
======= =======
</TABLE>
In calculating pro forma interest expense, the Company has utilized an
interest rate of 10.5% on the Senior Secured Notes and an effective interest
rate of 11% on the Senior Secured Discount Notes and has assumed that all
interest is expensed in period incurred. Interest on the Notes and related
financing fees will be capitalized as part of the Modernization Project when
(i) the expenditures for the asset have been made, (ii) activities that are
necessary to get the asset ready for its intended use are in progress and
(iii) interest cost is being incurred.
(7) Pro forma cash interest expense represents total interest expense,
excluding the amortization of financing fees on the Notes and the
amortization of the discount of the Senior Secured Discount Notes.
(8) Average price and average production costs per ton, which can be
significantly affected by Acme Steel's product mix in a given period,
include shipments made to external customers and intersegment shipments.
(9) As adjusted to give effect to the transactions described under "Financing
Plan."
9
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully review the following risk factors before deciding
to make an investment in the Notes.
VARIABILITY OF FINANCIAL RESULTS
The consolidated financial performance of the Company, and in particular of
its subsidiary, Acme Steel, is significantly affected by the cyclical nature
of the steel industry. For the years 1990, 1991, 1992 and 1993, Acme Steel
shipped approximately 695,000, 560,000, 610,000 and 698,000 net tons of steel,
respectively, with an average realized price per ton of approximately $422,
$423, $413 and $426. Principally as a result of the impact of these changes in
shipment volumes and, to a lesser extent, steel prices, the Company's
consolidated net sales for the years 1990, 1991, 1992 and 1993 were $446.0
million, $376.9 million, $391.6 million and $457.4 million, respectively, and
its consolidated operating income (or loss) was $8.8 million, ($1.5) million,
($2.1) million and $12.7 million, respectively. For the six months ended June
26, 1994, Acme Steel shipped approximately 382,000 net tons of steel with an
average realized price per ton of $444, compared to shipments of approximately
360,000 net tons of steel and an average realized price per ton of $411 in the
six months ended June 27, 1993. The Company reported consolidated net sales of
$256.4 million and consolidated operating income of $18.2 million for the six
months ended June 26, 1994, compared to consolidated net sales of $225.0
million and consolidated operating income of $5.4 million for the six months
ended June 27, 1993. No assurance can be given that these trends in the
Company's consolidated financial performance will continue or that other
events likely to have an adverse effect on the steel industry or the Company,
such as an economic downturn or an increase in competition, may not occur.
LEVERAGE AND ACCESS TO CAPITAL
After the Note Offering, the Company and its subsidiaries will have
significant amounts of outstanding indebtedness. The indebtedness of the
Company and its subsidiaries and the restrictive covenants contained in
existing and future debt instruments, including the Indentures relating to the
Notes and the loan documents relating to the Working Capital Facility, could
significantly limit the operating and financial flexibility of the Company.
These factors could also limit the ability of the Company and its subsidiaries
to take action in response to competitive pressures or adverse economic
conditions. The Company currently is, and upon the consummation of the Note
Offering will be, in compliance with the restrictive covenants and tests
contained in its debt instruments.
After giving effect to the issuance of the Notes, the Company's ratios of
EBITDA to pro forma total interest expense and EBITDA to pro forma cash
interest expense would have been 1.0:1 and 1.6:1 for the fiscal year ended
December 26, 1993 and 1.7:1 and 2.9:1 for the six months ended June 26, 1994.
The Company believes that internally generated funds, currently available cash
resources, the net proceeds of the Note Offering and the Special Warrant
Offering, and amounts to be available to the Company and its subsidiaries
under the Working Capital Facility will be sufficient to fund the anticipated
capital and other expenditures (including expenses relating to the
Modernization Project) of the Company and meet its fixed charge requirements
for the foreseeable future, including through the completion of the
Modernization Project. However, there can be no assurance that the amounts
available from such sources will be sufficient for such purposes. The Company
may be required to seek additional capital financing from a variety of
potential sources, including additional bank financing and/or debt or equity
securities offerings. No assurance can be given that such sources of funding
will be available if required or, if available, will be on terms satisfactory
to the Company.
CYCLICALITY, COMPETITION, AND OTHER INDUSTRY FACTORS
The U.S. steel industry is a cyclical business characterized by excess
capacity and intense competition. In the first half of the 1980s, many steel
producers sustained large losses which led to several major bankruptcies and
restructurings. Factors such as production overcapacity, increased U.S. and
international
10
<PAGE>
competition, high labor costs, inefficient plants and reduced levels of steel
demand contributed to these losses. Between 1982 and 1993, U.S. steel producers
reduced their raw steel production capacity by approximately 25%. In addition,
in the late 1980s the U.S. steel industry experienced increased demand, lower
levels of steel imports and increased efficiency through modernization of
production facilities. As a result of these and other factors, industry profits
reached record levels in 1988. However, in the latter half of 1989, steel
prices and demand again began to decline, and a number of U.S. producers
reported losses in 1990, 1991 and 1992 in a sluggish U.S. economic environment.
Although many steel producers reported improved results in 1993 compared to
1992, and the first six months of 1994 compared with the same period in 1993,
there can be no assurance that this recovery will continue or that there will
be any future improvement in U.S. steel industry earnings.
Competition among U.S. steelmakers is intense with respect to price, service
and quality. Integrated steel producers have lost market share to mini-mills in
recent years. Mini-mills are generally smaller volume steel producers that use
ferrous scrap as their basic raw material and employ non-union workers. These
mills have recently expanded their product lines from commodity type items to
include larger-size structural products and flat-rolled products, including
those made with new, continuous thin cast technologies. To date, mini-mills are
the only U.S. producers to utilize these technologies. In addition, certain
U.S. integrated steelmakers have gone through reorganizations under Chapter 11
of the U.S. Bankruptcy Code. Following their reorganizations, these companies
generally have reduced costs and become more effective competitors. U.S. steel
producers also have invested heavily in new plants and equipment that have
enabled many companies to improve efficiency and increase productivity.
Foreign competition, from time to time and product line by product line, has
been a significant competitive factor for U.S. integrated steel producers. The
intensity of foreign competition is substantially affected by fluctuations in
the value of the United States dollar against several other currencies. The
Company believes that the attractiveness of the United States steel markets to
certain foreign producers has been diminished somewhat during recent years by a
substantial decline in the value of the United States dollar relative to these
foreign currencies. However, foreign exchange rates are subject to substantial
fluctuations, and there can be no assurance that this condition will continue
to exist. Further, many foreign steel producers are controlled or subsidized by
foreign governments whose decisions concerning production and exports may be
influenced by political and economic policy considerations as well as by
prevailing market conditions and profit opportunities. As a result, despite
relatively low U.S. steel prices and narrow profit margins, many foreign
producers have continued to ship steel products into the U.S. market. Acme
Steel has experienced little foreign competition in recent years in the markets
it serves. There can be no assurance, however, that foreign competition will
not increase in the future, which could adversely affect the Company's
operating results.
Materials such as aluminum, composites, plastics, and ceramics compete as
substitutes for steel in many of Acme Steel's markets. No assurance can be
given that an increase in use of these or other product substitutes will not
occur or, if such substitutions were to occur, that they would not have a
material adverse effect on the Company.
NEED TO MODERNIZE
Over the past decade, the price of steel, adjusted for inflation, has fallen
significantly. Although a significant portion of this decline is the result of
worldwide steelmaking overcapacity, steel pricing is also influenced by low
cost producers in the U.S. steel industry. Many of Acme Steel's competitors
have implemented steelmaking technologies not utilized by Acme Steel. As a
result, Acme Steel's costs to produce a ton of finished steel are substantially
higher than those of certain of its competitors. The Company believes that
foreign and U.S. steel producers will continue to invest heavily to replace
aging or obsolete facilities and to achieve increased production efficiencies
and improved product quality. These investments are expected to be made in
various aspects of the manufacturing process, including continuous casting and
other mill technologies. The Company believes that it must undertake the
Modernization Project and make the
11
<PAGE>
significant capital investments required if Acme Steel is to achieve levels of
cost, productivity and product quality already attained by certain of its
competitors.
MODERNIZATION AND EXPANSION PROJECT
The Company believes the equipment selected for and design of the
Modernization Project are appropriate and well conceived, but there can be no
assurance that the potential benefits of the Modernization Project, including
the anticipated increase in finished steel shipping capability, will actually
be achieved or that sufficient demand will exist for the additional finished
steel production. In particular, the estimated cost savings per ton expected to
be realized from the Modernization Project are based on numerous assumptions
including operation of Acme Steel's facilities at its full expanded capability
of approximately 970,000 tons per year, which assumptions may not prove to be
accurate. In the event that output is less than that which could be generated
at full capacity, the actual cost savings per ton will likely be lower than
anticipated. In addition, continuous thin slab casting is a relatively new
technology, with the first continuous thin slab casting facilities having been
constructed in 1989. At present, there are only two operating continuous thin
slab casting facilities in North America with an estimated combined capacity of
3.8 million tons per year. Unlike Acme Steel's contemplated operation upon
completion of the Modernization Project, the operator of these facilities uses
ferrous scrap as its basic raw material and does not cast certain of the
specialty steels and grades which Acme Steel intends to produce. There can be
no assurance that the Company can successfully implement these aspects of the
Modernization Project in the manner and for the purposes planned.
The Company has signed a Memorandum of Understanding ("MOU") with Raytheon
Engineers & Constructors, Inc. ("Raytheon") a wholly-owned subsidiary of
Raytheon Corporation, outlining the major terms of the Engineering, Procurement
and Construction Contract. The MOU contemplates the assumption by Raytheon of
responsibility for timely and effective completion of the Modernization
Project. Although the contract proposal provides for liquidated damages, there
can be no assurance that the amount of liquidated damages would be sufficient
to cover the Company's damages in the event of a significant delay in the
construction of the Modernization Project or an inability, for any reason, to
complete successfully the Modernization Project. Furthermore, if the
Modernization Project is not completed in a timely manner or for the amounts
budgeted, or there were to be substantial, unexpected production interruptions
or other start-up difficulties, the consolidated results of operations and
competitive position of the Company and its subsidiaries could be materially
adversely affected. In the event of any such difficulties, senior management
may then have to devote substantial time to these matters which could adversely
affect existing operations. See "Modernization and Expansion Project."
POSSIBLE FLUCTUATIONS IN RAW MATERIAL AND ENERGY COSTS
The Company's operations at its Acme Steel subsidiary are heavily dependent
on the supply of various raw materials including iron ore pellets, coal and
energy. Acme Steel is contractually obligated to purchase, at the higher of
production cost or market price, its proportionate share of the iron ore
produced at Wabush Mines, a joint venture project in which Acme Steel has an
approximate 15.1% interest. See "Business--Raw Materials and Energy." In 1993
Acme Steel acquired approximately 56% of its iron ore pellet requirements from
this venture. Production costs at Wabush Mines currently approximate market
price; however, there can be no assurance that the mines' cost structure will
not result in above world market prices in the future. The balance of Acme
Steel's iron ore pellet needs and all of its coal and energy needs are obtained
at market prices. Supply interruptions or cost increases, to the extent that
Acme Steel could not pass on these costs to its customers, could adversely
affect the future consolidated results of operations of the Company and its
subsidiaries.
ENVIRONMENTAL COMPLIANCE AND ASSOCIATED COSTS
U.S. steel producers, including Acme Steel, are subject to stringent Federal,
state and local environmental laws and regulations concerning, among other
things, air emissions, waste water discharge, and solid and hazardous waste
disposal. U.S. steel producers, including Acme Steel, have spent and can be
expected to spend in the future, substantial amounts for compliance with these
environmental laws and regulations. The costs of environmental compliance may
place U.S. steel producers at a competitive disadvantage (1) to foreign steel
producers, which may not be subject to environmental requirements as
12
<PAGE>
stringent as those in the United States and (2) to producers of materials that
compete with steel, which may not be required to bear equivalent costs in
producing their products.
The Company, on a consolidated basis, has incurred substantial costs in
complying with Federal, state and local environmental laws and regulations. The
Company's capital expenditures related to environmental compliance were $6.6
million in 1991, $0.3 million in 1992 and $3.4 million in 1993. The Company
currently estimates that capital expenditures for environmental compliance will
be approximately $6 million and $7 million in 1994 and 1995, respectively. The
Company believes that it is currently in substantial compliance with the
various environmental regulations applicable to its businesses and, in
particular, that its coke ovens currently are in compliance with Clean Air Act
standards anticipated to be in effect through 2007. Nevertheless, there can be
no assurance that environmental requirements will not change in the future or
that the Company will not incur significant costs in the future to comply with
such requirements. The need to comply with even more stringent environmental
laws and regulations could have a material adverse effect on the Company's
financial condition and results of operations. See "Business--Environmental"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
CERTAIN INDEMNIFICATION ARRANGEMENTS
In connection with the spinoff of Acme Steel from The Interlake Corporation
("Interlake") in 1986, Interlake entered into cross-indemnification agreements
with Acme Steel relating to certain environmental, tax and other matters. To
date, Interlake has met all of its obligations under such agreements. In the
event that Interlake for any reason were unable to fulfill its obligations
under such agreements, the Company could have significant increased future
liabilities. See "Business--Other Legal Proceedings."
SECURITY FOR THE NOTES
The Notes will be senior obligations of the Company secured by a pledge of
all of the capital stock of its direct subsidiaries. The Guarantee of the Notes
by Acme Steel will be secured by a first priority lien on substantially all of
its existing and future real property and equipment, including the
Modernization Project, and a pledge of all of the capital stock of its
subsidiary. The Guarantee of the Notes by Acme Packaging will be secured by a
pledge of all of the capital stock of its subsidiaries. No appraisals of the
Collateral have been prepared by or on behalf of the Company. The net book
value of the Collateral (without taking into account cash on hand other than
the net proceeds of the Note Offering and the Special Warrant Offering) will be
substantially lower than the principal amount of the Notes offered hereby.
There can be no assurance that the proceeds of any sale of the Collateral
pursuant to the Indentures and the related Security Documents following an
acceleration after an Event of Default would not be substantially less than
that which would be required to satisfy payments due on the Notes. By its
nature, some or all of the Collateral will be illiquid and may have no readily
ascertainable market value. Accordingly, there can be no assurance that the
Collateral will be able to be sold in a short period of time, if at all.
The right of the Collateral Agent under the Indentures (as the secured party
under the various Security Documents) to foreclose upon and sell Collateral
upon an acceleration after an Event of Default is likely to be significantly
impaired by applicable bankruptcy laws if a bankruptcy proceeding were to be
commenced by or against the Company, Acme Steel and/or Acme Packaging. Under
applicable Federal bankruptcy laws, secured creditors are prohibited from
foreclosing upon collateral held by a debtor in a bankruptcy case, or from
disposing of collateral repossessed from such a debtor, without bankruptcy
court approval. Moreover, applicable Federal bankruptcy laws generally permit a
debtor to continue to retain and to use collateral, including cash collateral,
even if the debtor is in default under the applicable debt instruments,
provided that the secured creditor is given "adequate protection." The
interpretation of the term "adequate protection" may vary according to the
circumstances, but it is intended in general to protect the value of the
secured creditor's interest in collateral. Because the term "adequate
protection" is subject to varying interpretation and because of the broad
discretionary powers of a bankruptcy court, it is impossible to predict (i) if
payments under the Notes would be made following commencement of and during a
bankruptcy case, (ii) whether or when the Collateral Agent could foreclose upon
or sell the Collateral or (iii) whether or to what extent holders of any
13
<PAGE>
Notes would be compensated for any delay in payment or loss of value of
Collateral securing the Notes under the doctrine of "adequate protection."
Furthermore, in the event a bankruptcy court were to determine that the value
of the Collateral securing the Notes is not sufficient to repay all amounts due
on the Notes, the holders of the Notes would become holders of "undersecured
claims." Applicable Federal bankruptcy laws do not permit the payment and/or
accrual of interest, costs and attorney's fees for "undersecured claims" during
a debtor's bankruptcy case.
A portion of the Collateral securing Acme Steel's Guarantee of the Notes is
comprised of real property. Real property pledged as security to a lender may
be subject to known and unforeseen environmental risks. Under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), even a lender who does not foreclose on a property may be held
liable, in certain limited circumstances, for the costs of remediating or
preventing releases or threatened releases of hazardous substances at a
mortgaged property. There may be similar risks under various state laws and
common law theories. Such liability has seldom been imposed, and finding a
lender liable generally has been based on the lender's having become
sufficiently involved in the operations of the borrower so that its activities
are deemed to constitute "participation in the management." This is the
standard of liability set forth in CERCLA and elaborated on in a number of
court decisions. A lender may also be considered to be a current owner of a
property who can be held liable under CERCLA if the lender takes title to
property by foreclosure, although certain courts have held that mere
foreclosure on the borrower's property, in order to protect the lender's
security interest, does not make the lender liable under CERCLA.
The EPA promulgated a rule which would have allowed lenders to participate in
work-out situations and foreclosure, and to exercise some control over the
borrower's business following foreclosure, without risking liability under
CERCLA as a current owner or operator. That rule was subsequently declared to
be invalid by the Court of Appeals for the District of Columbia on the grounds
that the rule-making was not within the EPA's statutory authority. While a
number of recent court decisions appear to be consistent with the EPA's
interpretation of CERCLA under the rule, the uncertain state of current law
does not provide an assurance that lenders can avoid the risk of liability
under CERCLA if they foreclose on properties or become involved in work-outs or
similar situations that may entail some involvement in, or influence over,
facility operations.
Under the Indentures, the Trustees may, prior to taking certain actions and
exercising certain remedies on behalf of the holders, request that holders of
the Notes provide an indemnification against their costs, expenses and
liabilities. It is possible that CERCLA (or analogous) cleanup costs could
become a liability of the Trustees and cause a loss to any holders that
provided an indemnification. In addition, holders may act directly rather than
through a Trustee, in specified circumstances, in order to pursue a remedy
under the Indentures. If holders exercise that right, they could be deemed to
be lenders that are subject to the risks discussed above.
See "Description of Notes--Security" for a more detailed description of the
security provisions for the Notes.
FRAUDULENT CONVEYANCE ISSUES
Under applicable provisions of the Federal bankruptcy law and comparable
provisions of state fraudulent transfer laws, if it were found that any
Guarantor had incurred the indebtedness represented by its Guarantee with an
intent to hinder, delay or defraud creditors or had received less than a
reasonably equivalent value or fair consideration for such indebtedness and (i)
was insolvent, (ii) was rendered insolvent by reason of such occurrence, (iii)
was engaged or about to engage in a business or transaction for which its
remaining assets constituted unreasonably small capital to carry on its
business, or (iv) intended to incur or believed that it would incur debts
beyond its ability to pay as such debts matured, the obligations of such
Guarantor under its Guarantee could be avoided or claims in respect of such
Guarantee could be subordinated to all other debts of such Guarantor. A legal
challenge of a Guarantee on fraudulent conveyance grounds could, among other
things, focus on the benefits, if any, realized by a Guarantor as a result of
the issuance by the Company of the Notes. To the extent that a Guarantee were
held to be unenforceable as a fraudulent conveyance or for
14
<PAGE>
any other reason, the holders of the Notes would cease to have any direct claim
in respect of a Guarantor and would be solely creditors of the Company and any
other Guarantors whose Guarantees were not avoided or held unenforceable. In
the event a Guarantee were held to be subordinated, the claims of the holders
of the Notes would be subordinated to claims of other creditors of such
Guarantor.
A substantial majority of the net proceeds from the sale of the Notes will be
contributed to Acme Steel and the remainder of such proceeds will be used by
the Company to repay certain of its existing indebtedness. Each Guarantor will
agree, jointly and severally with the other Guarantors, to contribute to the
obligations of any other Guarantor under a Guarantee of the Notes. Further the
Guarantee of each Guarantor will provide that it is limited to an amount that
would not render the Guarantor thereunder insolvent. The Company believes,
therefore, that the Guarantors will receive equivalent value at the time the
indebtedness is incurred under the Guarantees. In addition, the Company
believes that none of the Guarantors (i) is or will be insolvent, (ii) is or
will be engaged in a business or transaction for which its remaining assets
constitute unreasonably small capital, or (iii) intends or will intend to incur
debt beyond its ability to repay such debts as they mature. Since each of the
components of the question of whether a Guarantee is a fraudulent conveyance is
inherently fact based and fact specific, there can be no assurance that a court
passing on such questions would agree with the Company. Neither counsel for the
Company nor counsel for the Underwriter will express any opinion as to Federal
or state laws relating to fraudulent transfers.
ORIGINAL ISSUE DISCOUNT
The Senior Secured Discount Notes will be issued at a substantial discount
from their principal amount. Consequently, the purchasers of the Senior Secured
Discount Notes generally will be required to include amounts in gross income
for Federal income tax purposes prior to receipt of the cash payments to which
the income is attributable. For a more detailed discussion of the Federal
income tax consequences of the purchase, ownership and disposition of the
Senior Secured Discount Notes. See "Certain Federal Income Tax Considerations
Relating to an Investment in the Senior Secured Discount Notes."
If a bankruptcy case is commenced by or against the Company under the United
States Bankruptcy Code (the "Bankruptcy Code") after the issuance of the Senior
Secured Discount Notes, the claim of a holder of the Senior Secured Discount
Notes with respect to the principal amount thereof may be limited to an amount
equal to the sum of (i) the initial public offering price and (ii) that portion
of the original issue discount which is not deemed to constitute "unmatured
interest" for purposes of the Bankruptcy Code. Any original issue discount that
was not amortized as of any such bankruptcy filing would constitute "unmatured
interest."
NO PRIOR MARKET FOR NOTES
There is no existing market for the Notes. The Underwriters have advised the
Company that they currently intend to make a market in the Notes. However, they
are not obligated to do so, and any market making with respect to the Notes may
be discontinued at any time without notice. The Company does not intend to
apply for the listing of the Notes on any securities exchange. Accordingly,
there can be no assurance as to the liquidity of any market that may develop
for the Notes, the ability of holders of the Notes to sell their Notes, or the
price such holders would receive upon the sale of their Notes. If such a market
were to develop, the Notes could trade at prices that may be lower than their
initial offering price as a result of many factors, including prevailing
interest rates, the Company's operating results and the markets for similar
debt securities.
15
<PAGE>
THE COMPANY
GENERAL
The Company is a fully integrated manufacturer and marketer of steel, steel
strapping and strapping tools, steel tubing and automotive and light truck
jacks. The Company's operations are divided into two primary segments, the
"Steel Making Segment" and the "Steel Fabricating Segment." Through these two
segments, the Company is a leader in the production of steel strapping and
automotive and light truck jacks, as well as a leader in the provision of steel
products to certain niche markets.
Based in Riverdale, Illinois, the Company is the successor to the original
Acme Steel Company (founded in 1884 as the Acme Flexible Clasp Company of
Chicago), which merged in 1964 with the Interlake Iron Company (founded in 1905
in New York as the By-Products Coke Corporation) to form Interlake Steel
Corporation. As a result of a reorganization in 1986 (the "1986
Reorganization"), a holding company was formed, The Interlake Corporation ("New
Interlake"), which became the parent company of Interlake, Inc. ("Old
Interlake"). Old Interlake then transferred its non-steel related operations
and assets to New Interlake. Old Interlake retained the iron, steel and U.S.
steel strapping assets and businesses, was renamed Acme Steel Company, and was
spun off as an independent public company in May 1986.
Acme Steel Company undertook a further reorganization in May 1992 (the "1992
Reorganization"), when the Company was formed and became the parent of Acme
Steel and Acme Steel's former operating subsidiaries, Acme Packaging, Alpha
Tube and Universal. Acme Steel and its successor, the Company, have been traded
on the Nasdaq National Market since 1986 under the symbol "ACME."
The Company's principal executive offices are located at 13500 South Perry
Avenue, Riverdale, Illinois 60627, and the Company's telephone number is
708/849-2500. The Company's registered agent in the State of Delaware is The
Corporation Trust Company, and its registered address in Delaware is
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.
The following chart depicts the organization of the Company and its
subsidiaries. Each of the subsidiaries will unconditionally guarantee the
Company's obligations under the Notes, and the capital stock of each subsidiary
will be pledged to secure the Company's obligations under the Notes.
ACME METALS
INCORPORATED
-----------------------------------------------
100% 100%
ACME PACKAGING
ACME STEEL CORPORATION
COMPANY
100%
ALABAMA -------------------------------------------------
METALLURGICAL 100% 100% 100% 100%
CORPORATION
UNIVERSAL ALPHA TUBE ALTA ACME STEEL
SLITTING
TOOL & CORPORATION COMPANY
STAMPING CORPORATION INTERNATIONAL,
COMPANY, INC.
INC.
Alabama Metallurgical Corporation presently is not engaged in manufacturing
operations. Acme Steel Company International, Inc. is a foreign sales
corporation, formed for the purpose of processing sales to certain non-U.S.
entities. Alta Slitting Corporation ("Alta") performs slitting services for
Alpha Tube, and references in this prospectus to Alpha Tube will be deemed to
include reference to Alta.
16
<PAGE>
MODERNIZATION AND EXPANSION PROJECT
OBJECTIVES
In 1990 the Company began a study of available business strategies and
technological developments in light of its then operational and competitive
opportunities. In July 1992, the Board of Directors of the Company authorized a
study of the feasibility of constructing a continuous thin slab caster/hot
strip mill complex. In connection with this study, the Company received reports
from the management consulting firm of A.T. Kearney, Inc. Based on the
feasibility study, the Kearney reports and extensive additional analysis
performed by the Company of available technology, market opportunities and
construction requirements, the Board of Directors of the Company has authorized
construction of a new continuous thin slab caster/hot strip mill complex (the
"Modernization Project") at Acme Steel's Riverdale, Illinois plant subject to
the Note Offering.
The Company believes that Acme Steel currently enjoys a position as a low
cost producer of high quality liquid steel. Although Acme Steel sells many of
its products for use in higher-priced specialty applications, its present ingot
pouring and rolling process results in finished steel production costs
significantly above those of certain of its competitors. The Company believes
the Modernization Project will allow Acme Steel to build on its strengths as a
low cost producer of liquid steel by significantly increasing its overall
efficiency and reducing its finished steel production costs, thereby improving
its gross margins. The Modernization Project should also result in finished
steel products with improved physical and metallurgical properties.
Based on the turnkey contract price, without taking into account financing
costs or changes that may be requested by Acme Steel during construction,
management estimates that the cost of the Modernization Project, including
equipment, ancillary facilities, construction, and general contractor fees,
will not exceed $372 million. As a result of the Modernization Project, the
Company expects shipping capability to increase from approximately 720,000 tons
per year to approximately 925,000 tons per year within two years of start-up
and to approximately 970,000 tons per year within four years of start-up. When
the Modernization Project is completed, the Company estimates that it will
provide savings in operating costs, based upon full utilization of its expanded
shipping capability of approximately 970,000 tons per year and certain other
material assumptions, of approximately $77 per ton, resulting from elimination
of many of the production steps utilized in the existing ingot pouring and
rolling process, lower energy consumption, higher labor productivity and
increased production yields.
COMPETITIVE PRESSURES FOR MODERNIZATION
Over the past decade, the average price of all steel products, adjusted for
inflation, has fallen significantly. The forces contributing to this downward
price trend have included industry overcapacity, the growth of low cost U.S.
steel producers that make increased use of continuous casting and other
techniques for improved productivity, and lower priced imports that benefit
from foreign government subsidies. The Company believes that in recent years
steel prices have been significantly influenced by producers with the lowest
costs, and that those costs are, in large part, a function of the level of the
producers' technological advancement.
Many U.S. steel producers have sought to reduce their operating costs
significantly through the modernization and rationalization of their
facilities. One of the principal modernization initiatives has been the
development of continuous casting facilities, first for bar products, then for
thick slabs (more than 6 inches) and most recently for thin slabs (less than 4
inches). Continuous casting is a significantly less expensive method of slab
production than the ingot pouring and rolling process currently employed by
Acme Steel.
According to the American Iron and Steel Institute ("AISI") statistics, over
the past decade the U.S. steel industry has increased its continuous cast steel
production to nearly 85% of flat-rolled steel production. Twelve U.S.
facilities now use a continuous casting process to produce thick slabs. On a
combined basis these facilities have an estimated capability of 39 million tons
of flat-rolled steel per year or, based on an assumed yield of 90%,
approximately 76% of total annual flat-rolled steel shipments. In 1989, the
first continuous
17
<PAGE>
thin slab casting facilities were constructed. More technologically advanced
than thick slab continuous casting facilities, thin slab casting eliminates the
extra heating and rolling necessary to flatten thick slabs. At present there
are two operating continuous thin slab casting facilities in North America with
an estimated combined capability of 3.8 million tons per year or, based on an
assumed yield of 90%, approximately 7% of total annual flat-rolled steel
shipments. Two additional thin slab casting facilities are now under
construction with an estimated combined capacity of 2 million tons. In addition
to continuous casting, advanced steel producers are employing other
technologies, including ladle metallurgy furnaces and computer controlled
equipment, to reduce production costs, improve quality, and improve customer
responsiveness.
EXISTING STEELMAKING PROCESS
Acme Steel currently produces steel through an ingot pouring and rolling
process rather than by continuous casting. Because of the variability in ingots
and the additional conditioning and shaping processes needed to produce flat-
rolled steel from them, the ingot process involves more product defects,
greater yield losses, higher energy consumption and lower labor productivity
than continuous casting. Further, Acme Steel's current rolling mill facilities
cannot produce a steel coil that is large enough (more than 550 pounds per inch
of width) and wide enough (more than 30 inches) to supply all of the needs of
its current customers and many other users of flat-rolled steel. In addition,
the physical limitations of its present mill facilities do not allow Acme Steel
to utilize fully the existing raw steel capacity of its steelmaking facilities.
By means of the Modernization Project, Acme Steel expects to bring its
facilities up to world-class standards and eliminate its competitive
disadvantages with respect to more technologically advanced steel producers.
In primary steelmaking, iron ore, coke, limestone and other raw materials are
processed in blast furnaces to produce molten iron or "hot metal." In Acme
Steel's facilities, this hot metal is converted into raw or liquid steel in a
basic oxygen furnace in which impurities are removed and the chemistry or
metallurgy for end use is determined on a batch-by-batch basis. Acme Steel's
basic oxygen furnace facility employs two vessels, with a steelmaking capacity
of 100 tons per heat.
Liquid steel from the basic oxygen furnace flows into ladles, which are then
positioned via an overhead crane above a line of cast iron ingot molds. A
stream of steel flows through an opening in the bottom of the ladle to "teem"
or fill the cast iron molds. When the steel is solid enough to hold its shape,
a stripper crane lifts away the mold while a plunger holds down the steel
ingot. The "stripped" ingots are then taken to furnaces or "soaking pits" where
they are reheated or "soaked" until they reach a uniform temperature
throughout. The reheated ingots are carried to the primary rolling mill where
they are shaped into semi-finished steel slabs 4 1/2 to 6 1/2 inches thick with
the desired width and length.
The slabs are inspected, conditioned, if needed, by scarfing or mechanical
grinding to remove surface imperfections, and then stored. When scheduled for
production, the slabs are reheated to rolling temperature and finished in Acme
Steel's semi-continuous hot strip mill where they are rolled to final
thickness, tempered, and coiled into hot bands. After further processing to
customer specifications, finished products are shipped to external customers
and to the Company's Steel Fabricating Segment in the form of coils.
In the production process Acme Steel currently uses, the loss of material
between the molten steel in the basic oxygen furnace and the finished coil of
steel results in a yield of approximately 78%. In addition, the process, from
the time steel is teemed into the ingot molds until a hot rolled band is
produced, takes, on average, 10 days.
18
<PAGE>
The flow diagram below illustrates the Company's existing steelmaking process
described above. The processes shown exclude the Company's coking and primary
steelmaking operations which will remain in place after completion of the
Modernization Project.
STEELMAKING PROCESS UPON PROJECT COMPLETION
The Modernization Project will involve construction of a state-of-the-art
continuous thin slab caster ("Caster") and a 60" wide seven-stand hot strip
rolling mill ("Rolling Mill"). The Modernization Project will include several
other technologically advanced facilities. Two ladle metallurgy furnaces
("LMFs") will be constructed. The LMFs will use electric arc heating and an
alloy addition system to achieve a high degree of control over the final
temperature and chemistry of the liquid steel. A tunnel-type roller hearth
furnace will be constructed and used to achieve equalized temperature through
the slab's thickness and width for final rolling into coil form. The Rolling
Mill will be constructed with state-of-the-art, computer-operated features to
precisely control the thickness, profile and flatness of the product to world-
class standards. Together with the Caster, this configuration should allow Acme
Steel to produce products across all steel grades that are wider and thinner,
with superior finish quality, than those it is now able to produce. Major
ancillary facilities in the Modernization Project will include air and water
environmental control facilities, mold/segment repair equipment, a roll
grinding shop, and coil storage and shipping facilities. The Modernization
Project will eliminate the processes Acme Steel now employs for teeming,
processing, heating and rolling ingots into slabs, conditioning and reheating
slabs, and transporting and storing ingots and slabs.
19
<PAGE>
CASTER. The Caster will be supplied with high quality liquid steel from Acme
Steel's existing basic oxygen furnace. The Company believes that the liquid
steel it is able to produce in its basic oxygen furnace, because of its lower
nitrogen content and lower incidence of "tramp" elements, will result in a
superior quality finished steel compared to that produced by steel companies
using thin-slab casting technology in conjunction with ferrous scrap and
electric arc furnaces. From the basic oxygen furnaces, the liquid steel will be
transported in ladles by rubber-tired vehicles to the new casting/mill
facility, which will be approximately a half-mile away. At the Caster, the
ladles of liquid steel will be treated in the new LMFs. After treatment, the
steel will flow from the ladles through a hollow ceramic tube ("shroud") into a
refractory lined reservoir ("tundish"), and from there downward into the
Caster's mold. The mold will be constructed with copper alloy-clad walls
through which water will flow at high velocity for cooling. As the molten steel
passes vertically through the water cooled mold a thin skin will form in a
matter of seconds on the outside of a rectangular slab shell measuring
approximately 2 inches thick by 36 to 61 inches wide.
The skin on the slab or strand will become thicker as the slab emerges from
the mold and will extend inward as the slab descends through the strand guide
and air mist water spray system until the slab is solid throughout. The hot
thin slab then will be gradually bent by a series of bending rollers from a
vertical into a horizontal orientation. At the bottom of the withdrawal unit,
the continuous slab will be straightened and sheared into individual slabs of
different lengths depending on the ordered final coil weight.
As planned, the thin slab casting process will be able to run continuously,
terminating only when the last ladle in a planned sequence is fully drained.
The number of ladles cast in continuous sequence will depend upon the
production schedule being followed at any given point in time. The Company
expects that the Caster will improve Acme Steel's finished product yield,
reduce energy and labor costs, increase production capability and improve the
metallurgical and surface quality of its products.
ROLLING MILL. The Caster will be situated such that the finished slabs will
feed directly into the roller-hearth tunnel furnace. As the slabs travel
continuously through the furnace, their temperature will be equalized to the
optimum uniform exit temperature required for final rolling. From the roller-
hearth furnace the slabs will move through jets of high pressure water to
remove a thin layer of iron oxide ("scale"). Once "descaled," the slabs will
pass through an edger and then move directly to the Rolling Mill, which will be
computer-controlled and configured as seven tandem-coupled rolling stands,
power-rated at 7,000 kW each. Each stand will sequentially reduce the thickness
of the slab being rolled. At the exit of the seventh stand, the slab thickness
will have been reduced from 2 inches to the final gauge required by the
customer's order. The hot rolled strip will then pass through a system of
computer-controlled laminar water sprays to precisely and uniformly cool the
steel to the final temperature required to achieve the customer's specified
physical properties (strength and ductility). Following this final temperature
adjustment, the strip will be coiled into a hot rolled band for shipment to the
customer or to other finishing facilities.
Based on information provided by the primary equipment supplier for the
Modernization Project and the Company's own analysis, the Company believes that
when it is fully operational, the Modernization Project will accomplish the
conversion of liquid steel to coils in approximately 1 1/2 hours, rather than
the 10 days it takes at present, and will increase the material yield from
liquid steel to finished coils from 78% to over 90%. In addition, based on the
various studies and estimates available to the Company and subject to the
assumptions on which these studies and estimates are based, the Company
believes the energy requirements for the process will be reduced by
approximately 59% per ton, and, at full capacity operation, the labor cost per
ton of finished steel will be reduced by approximately 48%. Further, based on
these studies and estimates, the Company believes the finished coils will be
able to be rolled wider and thinner, with physical and mechanical properties
produced to more exacting specifications, than Acme Steel can currently
produce. For a discussion of the assumptions underlying the cost reductions
referred to above, see "Estimated Costs and Savings" below.
20
<PAGE>
The flow diagram below illustrates the Company's planned steelmaking process
after completion of the Modernization Project. The diagram excludes the
Company's coking and primary steelmaking operations, which will not be
significantly changed from the existing operations.
IMPACT ON EXISTING OPERATIONS
The Modernization Project will be constructed on a greenfield site which is
near Acme Steel's current steelmaking facilities but physically separate. The
Company believes steel production at Acme Steel's existing facilities will
continue during the construction of the Modernization Project without
disruption or reduction of product available for supply to customers.
Commencement of the Project will not occur until the Company has entered into
an engineering, procurement and construction contract with a general contractor
of the Modernization Project. The Company anticipates that the Modernization
Project will be completed in approximately 27 months following its
commencement. During the Modernization Project's initial testing and phase-in
period, Acme Steel intends to use the excess capability of its existing melting
operation to produce sufficient hot metal both to maintain existing production
operations and to supply the new continuous caster. The construction of the
Modernization Project and the activities of the general contractor will be
monitored by a project management team composed primarily of existing company
officers and employees. In the event there are significant problems with the
construction of the Modernization Project, senior management may have to devote
substantial time to those problems from time to time and, as a result, may
devote substantially less time than is normal to existing operations, which
could adversely affect existing operations.
EXPANDED CAPABILITY
Acme Steel's current raw steel production capability is greater than its
ability to roll slabs into finished steel coils. In addition, Acme Steel's
existing hot strip mill cannot produce a finished coil of steel more than 30
inches wide. The Company believes, based on equipment specifications and its
own analysis, that the Modernization Project will significantly expand the
Company's shipping capability and also allow Acme Steel
21
<PAGE>
to produce wider sheets and thinner gauges, with physical and mechanical
properties produced to more exacting specifications than Acme Steel can
currently produce. This will expand Acme Steel's product range and allow it to
sell to many markets that it currently cannot penetrate as well as to increase
sales to its existing customer base. Further, as detailed below, the Company
believes that, after completion of the Modernization Project, Acme Steel's
productive yield from raw steel to finished coils will increase from
approximately 78% to over 90%. The improvement in yield, together with the
expanded capability of the Rolling Mill, is expected to increase Acme Steel's
shipping capability from approximately 720,000 tons per year to approximately
925,000 tons within two years of start-up and to approximately 970,000 tons per
year within four years of start-up. This increase is an estimate based on
operating rates, product mix and other factors. No assurance can be given that
Acme Steel's actual steel production will not be less than that or that the
additional amount of finished steel, if produced, can be sold.
ESTIMATED COSTS AND SAVINGS
Steel Making Segment
The following table summarizes the costs and estimated savings in operating
expenses associated with the Modernization Project. These cost savings are
based on an increase in the Company's production capability to approximately
970,000 tons and full utilization of the expanded capability. Certain of the
cost savings are related to allocation of fixed operating costs. As a result,
the cost savings would likely be lower at lower rates of production. The
Company estimates that at a production capability of approximately 925,000
tons, the cost savings will be approximately $71 per ton. There can be no
assurance as to the actual annual production volumes that will be achieved
after completion of the Modernization Project. The estimated operating savings
are based on certain additional assumptions, and are subject to associated
qualifications and limitations, as discussed below.
ESTIMATED AVERAGE COST SAVINGS
PER TON OF FINISHED COILS AT FULL UTILIZATION
<TABLE>
<CAPTION>
ESTIMATED
NEW COST
1993 COSTS STRUCTURE CHANGE
---------- --------- ------
<S> <C> <C> <C>
Productive Yield Loss............................... $ 41 $ 16 $25
Labor............................................... 118 61 57
Utilities........................................... 29 12 17
Other............................................... 172 194 (22)
---- ---- ---
$360 $283 $77
==== ==== ===
</TABLE>
The estimated operating cost savings for the Modernization Project do not
take into account increases or decreases in operating costs that are unrelated
to the Modernization Project, such as changes in wage rates and raw material
costs. In addition, the estimated operating cost savings do not take into
account any increased depreciation (estimated to be $12 million per year) or
interest costs, which will be substantially higher as a result of the
Modernization Project. Consequently, the estimated operating cost savings are
not necessarily indicative of the Company's results of operations or expected
financial performance for any period.
Productive Yield Loss. In its existing steelmaking process, Acme Steel has a
yield loss equal to approximately 22% of the liquid steel produced at the basic
oxygen furnace. The uninterrupted flow of liquid steel through the Caster and
Rolling Mill will eliminate several of the steps currently used to improve the
quality of a finished coil but which generate yield loss. In particular, the
Modernization Project is expected to eliminate the shearing of unusable "ingot
butts" at the primary mill, the grinding and "scarfing" of surface
imperfections on slabs before they are processed at the roughing mill, and the
"cutback loss" on coils due to gauge variations inherent in the existing hot
strip mill. Although the scrap generated by these processes can be reused in
Acme Steel's steelmaking process, the improved yields expected to result from
the Modernization Project will allow Acme Steel to produce more prime material
suitable for shipment rather than scrap. Based on internal engineering studies,
Acme Steel expects its yield loss after completion of the Modernization Project
to decrease from approximately 22% to less than 10%.
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<PAGE>
Labor. The existing steelmaking process is labor intensive. Labor is required
to set-up, condition or handle steel at each step before processing.
Significant labor is required to prepare the ingot molds, pour ingots, strip
ingots, convey ingots to the soaking pits, convey the ingots to the primary
mill and convey the slabs to the existing strip mill. All of these production
steps will be eliminated through the use of a continuous thin slab casting
process. As a result, Acme Steel expects to be able to reduce its hourly work
force by approximately 250 people who are currently assigned to processes that
will be eliminated.
Utilities. The existing steelmaking process is energy intensive. The high use
of energy results from the cooling and reheating of the semi-finished steel to
prepare it for further processing. In particular, the ingots, which are allowed
to cool after pouring are subsequently charged in the soaking pit for an
average of approximately 10 hours to increase the temperature for processing
through the primary mill. Steel slabs are allowed to cool to permit
conditioning and then must be reheated for processing in the roughing and hot
strip mills. These steps consume significant amounts of electricity and natural
gas. Based on internal engineering studies, Acme Steel expects the
Modernization Project to significantly reduce its utility costs by eliminating
the need for multiple cooling and reheating cycles and several rolling
procedures.
Other. The Modernization Project will result in additional costs related to
the operations of the ladle metallurgy furnace facility, the purchase of scrap
to supplement internally generated scrap, and the purchase of additional value
added services, such as pickling, from vendors.
The Modernization Project will involve costs in addition to those incurred in
the construction and operation of the facility itself. Upon the successful
completion of the Financing Plan, the Company will record a $2.3 million non-
cash charge to account for the contractual costs associated with its planned
workforce reduction and a $7.2 million non-cash charge to reflect an impairment
in the value of the existing steel finishing facilities which will be replaced
by the Modernization Project. Further, during the Modernization 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 Modernization Project.
Steel Fabricating Segment
The Steel Fabricating Segment is expected to derive certain benefits from the
larger, wider, higher quality, flat-rolled steel coils Acme Steel is expected
to be able to produce as a result of the implementation of the Modernization
Project. Alpha Tube is expected to realize benefits from reduced edge scrap as
well as lower production scrap rates, higher productivity levels and better
yield rates due to more consistent gauge control. Acme Packaging and Universal
are expected to benefit primarily from reduced edge scrap.
ENGINEERING, PROCUREMENT AND CONSTRUCTION CONTRACT
The Company has elected to engage a general contractor to deliver a turnkey
facility subject to a fixed price contract covering engineering, procurement
and construction related to the Modernization Project. The Company has signed a
Memorandum of Understanding ("MOU") with Raytheon Engineers & Constructors,
Inc. ("Raytheon"), a wholly-owned subsidiary of Raytheon Corporation, outlining
the major terms of the Engineering, Procurement and Construction Contract ("EPC
Contract"). The Company and Raytheon expect to execute a final EPC Contract
prior to consummation of the Note Offering.
Pursuant to the MOU, Raytheon will provide design, engineering, site
preparation, procurement, construction, commissioning, start-up, testing and
training for the Modernization Project. In addition, pursuant to the MOU,
subject to certain mutually acceptable adjustments, the total EPC Contract
price shall not exceed $372 million.
Raytheon has also agreed to purchase $9 million of newly issued shares of
Common Stock at market price, on terms to be agreed upon subject to Raytheon's
due diligence review. The Company and Raytheon do not expect to consummate the
sale of common stock by the Company to Raytheon prior to the consummation of
the Note Offering.
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<PAGE>
The Company will rely on Raytheon for on-time completion of a fully
functioning facility. To the extent that there are delays in completion or the
facility is operating at a level of performance below that which is
contractually guaranteed, the Company will have the right to liquidated damages
in the form of a daily penalty fee paid by Raytheon to the Company. This
penalty fee will vary depending upon the nature of the noncompliance but will,
in any case, not be greater in the aggregate than 30% of the total EPC Contract
price.
EQUIPMENT SUPPLIER AND SUPPLY CONTRACT
The Company has selected SMS Schloemann-Siemag AG and its subsidiaries, SMS
Engineering Inc. and SMS Concast Inc. (collectively "SMS"), as the primary
equipment supplier for the Modernization Project. The equipment to be supplied
by SMS includes, but is not limited to, the continuous thin slab caster, the
tunnel roller-hearth furnace and the hot strip rolling mill. The SMS technology
for continuous thin slab casting is currently utilized by Nucor Steel at its
Crawfordsville, Indiana and Hickman, Arkansas facilities and three additional
facilities using this technology currently are under construction.
Although SMS will be engaged by Raytheon to supply the equipment, the Company
expects to negotiate guarantees from SMS via Raytheon, relating to key criteria
for evaluating the equipment in terms of performance and product quality. The
equipment will be subject to an agreed set of performance tests which must be
met in order for SMS to substantiate this contractual performance obligation.
Additionally, SMS will be subject to a liquidated damages charge for any delay
caused by SMS as a result of equipment commissioning or performance.
The Company expects to enter into a separate incentive agreement with SMS
providing it with a monetary incentive to assure that the facility can
successfully produce on a commercial basis certain grades of steel which to
date have only been produced by a continuous thin slab caster pilot plant. This
agreement is expected to provide that in the event that the equipment fails to
produce any of the required grades on a commercial basis, SMS would be liable
to the Company for specified monetary damages.
INDEPENDENT REVIEW OF THE MODERNIZATION PROJECT
On April 20, 1994, Lehman Brothers Inc. retained Hatch Associates Ltd. and
Steltech Ltd. ("Hatch/Steltech"), in their capacity as experts in engineering
and technology, to provide an independent assessment of the Modernization
Project. The scope of this assessment included a review of the Company's market
analysis, the Company's assumptions in arriving at its cost savings estimates,
the existing and proposed technology to be used in connection with the
Modernization Project, the implementation of the project, its integration with
the Company's existing facilities, expected future product quality, project and
start-up costs, project management and environmental issues.
Hatch/Steltech delivered its report (the "Report") in July 1994. The Report
concludes that the Modernization Project is the correct course for the Company
and that, although the time schedule is aggressive, a 27 month implementation
schedule should be achievable. According to the Report, the Company should
attain a shipment capability of 925,000 tons per year in the second full year
after start-up which will probably increase to 969,000 tons by the fourth year
after start-up. Hatch/Steltech calculated the savings per ton (excluding
depreciation expense) from the Company's current cost of goods sold at $71 per
ton at 925,000 tons shipped, increasing to $77 per ton at 969,000 tons shipped.
In addition the Report indicates that there is some risk that the Company may
have difficulty in producing certain of the higher grades of steel. However,
for most of these grades, this risk would be manifested in slower rates of
production and higher production costs, not an inability to produce these
grades.
The foregoing is a summary of certain portions of the Report, and does not
purport to be complete. The Report includes various assumptions, estimates and
assessments, including a review of the risks of the Modernization Project, the
market for various types of steel, competitive factors, the regulatory
environment, raw material availability, technological requirements, the
Company's production plan and other factors in arriving at their conclusions
regarding the Modernization Project in its entirety and particular aspects of
it. The conclusions arrived at by Hatch/Steltech and summarized above reflect
an overall assessment of the various factors considered in the Report.
24
<PAGE>
FINANCING PLAN
The Company has adopted a plan of financing intended to provide the funds
necessary to complete the Modernization Project, to repay certain indebtedness
currently outstanding, and to provide additional liquidity. The Company's plan
of financing includes the following: (i) the Note Offering, (ii) the Special
Warrant Offering and (iii) the Working Capital Facility. The following table
sets forth the Company's sources and immediate uses of funds as if the
foregoing transactions were completed on June 26, 1994:
<TABLE>
<CAPTION>
(DOLLARS
IN
THOUSANDS)
----------
<S> <C>
Sources of Funds
Senior Secured Notes......................................... $175,000
Senior Secured Discount Notes................................ 100,000
Special Warrant Offering(1).................................. 117,600
Working Capital Facility(2).................................. 0
--------
Total...................................................... $392,600
========
Uses of Funds
Increase in cash and cash equivalents(3)..................... $320,600
Repayment of 9.35% Senior Notes.............................. 50,000
Estimated fees and expenses(4)............................... 22,000
--------
Total...................................................... $392,600
========
</TABLE>
- --------
(1) The Special Warrant Offering occurred prior to the Note Offering, but the
net proceeds of the Special Warrant Offering have been placed in escrow.
The Note Offering is conditioned on and is a condition to the release from
escrow of the proceeds of the Special Warrant Offering. On or before
September 14, 1994, the Special Warrants are exercisable on a one-for-one
basis for 5,600,000 shares of the Company's common stock, $1.00 par value
("Common Stock"). Conditions for the Company's receipt of the proceeds of
the sale of the Special Warrants include among other matters confirmation
of the availability of not less than 85% of the remaining financing needed
for construction of the Modernization Project. Successful completion of the
Note Offering will satisfy this condition.
(2) The Company has obtained commitments for an $80 million Working Capital
Facility to provide for additional liquidity. The Working Capital Facility
initially will be undrawn. See "Description of Working Capital Facility."
(3) The increase in cash and cash equivalents, together with cash currently on
hand and cash flow from operations will be used for the construction and
integration of the Modernization Project. At June 26, 1994 the Company had
cash and cash equivalents of $73.7 million. Sources and Uses of Funds above
do not give effect to the proposed purchase by Raytheon of $9 million of
newly issued shares of Common Stock. See "Modernization and Expansion
Project--Engineering, Procurement and Construction Contract."
(4) Estimated fees and expenses includes financing fees for the Special Warrant
Offering, the Note Offering, and the registration of 5,600,000 shares of
Common Stock, related offering expenses and a prepayment penalty of $2.5
million, net of taxes, related to repayment of the 9.35% Senior Notes.
USE OF PROCEEDS
The net proceeds of the Note Offering, estimated at $ , together
with the net proceeds of the Special Warrant Offering, estimated at $112.3
million, will be utilized for the construction of the Modernization Project,
except for approximately $50 million (plus the amount of any prepayment
penalties) which will be used to retire the Company's outstanding Senior Notes.
For information with respect to interest rates and maturity dates of the
Company's indebtedness being retired or refinanced in connection with the
Modernization Project, and certain costs associated with such repayment or
refinancing, see "Capitalization."
25
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company
as of June 26, 1994 and as adjusted to give effect to the Note Offering and the
Special Warrant Offering. This presentation should be read in conjunction with
the Consolidated Financial Statements of the Company and the notes thereto, and
other information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 26, 1994
------------------
(DOLLARS IN
THOUSANDS)
AS
ACTUAL ADJUSTED
-------- --------
<S> <C> <C>
Cash and cash equivalents.......................... $ 73,654 $394,254(6)
======== ========
Long-term debt (including current maturities)
9.35% Senior Notes, Series A due 1999............ $ 40,000 $ 0
9.35% Senior Notes, Series B due 1996............ 10,000 0
Notes payable, 6.5% to 6.75%, due 1998-2008(1)... 6,000 6,000
% Senior Secured Notes due 2002.............. 0 175,000
% Senior Secured Discount Notes due 2004 (net
of original issue discount of $ )....... 0 100,000
-------- --------
Total long-term debt........................... 56,000 281,000
-------- --------
Stockholders' equity
Preferred stock, $1 par value, 2,000,000 shares
authorized, no shares issued.................... 0 0
Common stock, $1 par value, 20,000,000 shares
authorized, 5,559,161 issued and outstanding,
actual; 11,159,161 issued and outstanding as
adjusted(2)(5)(6)............................... 5,559 11,159
Retained earnings(3)............................. 61,202 53,002
Additional paid-in capital(4)(6)................. 50,743 157,443
Minimum pension liability(7)..................... (21,295) (21,295)
-------- --------
Total stockholders' equity..................... 96,209 200,309
-------- --------
Total capitalization........................... $152,209 $481,309
======== ========
</TABLE>
- --------
(1) Notes payable, 6.5% to 6.75%, due 1998-2008 reflects amounts due in
connection with an industrial revenue bond financing completed prior to the
1986 Reorganization. The proceeds from the issuance of the notes payable
were used to fund pollution control facilities at Acme Steel's Riverdale,
Illinois plant.
(2) Reflects an additional $5.6 million from the assumed exercise of the
Special Warrants for Common Stock.
(3) Reflects non-recurring charges, net of taxes, of $5.7 million in
contractual severance and asset impairments from the decision to proceed
with the Modernization Project and a $2.5 million extraordinary expense,
net of taxes, associated with the prepayment of the 9.35% Senior Notes,
Series A and B, and the write off of associated unamortized financing fees.
(4) Reflects an additional $106.7 million from the assumed exercise of the
Special Warrants for Common Stock.
(5) As of June 26, 1994, the Company had 543,000 options outstanding, of which
417,000 were exercisable.
(6) Does not give effect to the proposed purchase of $9 million of Common Stock
by Raytheon. See "The Modernization and Expansion Project--Engineering,
Procurement and Construction Contract."
(7) See Retirement Benefit Plans in the notes to the consolidated financial
statements.
26
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table sets forth selected historical consolidated financial
data and operating data for the Company for the periods indicated. The
Consolidated Statements of Operations Data and Consolidated Balance Sheet Data
for, and as of the end of, each of the five years in the period ended December
26, 1993 were derived from the consolidated financial statements of the
Company, which have been audited by Price Waterhouse, independent accountants.
The selected historical consolidated financial data for, and as of the end of,
the six months ended June 27, 1993 and June 26, 1994 were derived from
unaudited financial statements for the Company which, in the opinion of
management, reflect all adjustments which are of a normal recurring nature
necessary for a fair presentation of the results of such periods. Results for
interim periods are not necessarily indicative of the results to be expected
for an entire fiscal year. The following table should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results
of Operations and the consolidated financial statements and notes thereto
appearing elsewhere herein.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER TON DATA)
FISCAL YEAR FIRST HALF
--------------------------------------------------- ------------------
1989 1990 1991 1992 1993 1993 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net sales................. $439,412 $446,042 $376,951 $391,562 $457,406 $225,032 $256,423
Cost of products sold..... 375,902 396,790 335,503 347,624 397,526 198,327 215,341
Depreciation expense...... 11,624 12,540 13,700 14,392 14,657 7,517 7,596
Selling and administrative
expense.................. 25,751 27,916 29,219 28,901 30,633 13,800 15,304
Restructuring/nonrecurring
charge................... -- -- -- 2,700 (1) 1,925(2) -- --
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)... 26,135 8,796 (1,471) (2,055) 12,665 5,388 18,182
Interest expense, net..... (2,116) (4,178) (4,211) (3,869) (3,813) (1,993) (1,620)
Unusual income item....... -- 4,005 1,241 1,047 1,210 -- --
Other non-operating
income................... 2,107 765 1,391 355 370 222 861
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
cumulative effect of
changes in accounting
principles............... 26,126 9,388 (3,050) (4,522) 10,432 3,617 17,423
Income tax provision
(credit)................. 9,926 3,755 (732) (1,673) 4,173 1,447 6,969
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
cumulative effect of
changes in accounting
principles............... 16,200 5,633 (2,318) (2,849) 6,259 2,170 10,454
Cumulative effect of
changes in accounting
principles, net of taxes. -- -- -- (50,323)(3) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)......... $ 16,200 $ 5,633 $ (2,318) $(53,172) $ 6,259 $ 2,170 $ 10,454
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
Consolidated:
EBITDA(4)................. $ 40,273 $ 22,592 $ 14,144 $ 15,705 $ 30,194 $ 13,542 $ 26,937
Capital expenditures...... 14,960 28,604 10,611 7,557 11,749 4,305 5,071
Acme Steel Company:
Tons shipped-external
customers................ 506,475 436,123 286,385 320,192 413,645 205,419 238,067
Tons shipped-intersegment. 233,374 259,243 273,177 289,946 284,361 154,219 144,063
-------- -------- -------- -------- -------- -------- --------
Total tons shipped........ 739,849 695,366 559,562 610,138 698,006 359,638 382,130
Average price per ton(5).. $ 417 $ 422 $ 423 $ 413 $ 426 $ 411 $ 444
Average production cost
per ton(5)............... 339 355 354 338 349 338 338
Raw steel to finished
product yield............ 76.1% 77.2% 78.0% 78.7% 78.6% 78.5% 78.6%
CONSOLIDATED BALANCE SHEET
DATA:
Total assets.............. $285,275 $286,603 $290,736 $300,702 $333,869 $310,059 $350,628
Long-term debt (including
current portion)......... 59,500 59,500 59,500 59,500 56,000 56,000 56,000
Stockholders' equity...... 147,106 152,370 150,664 89,295 83,203 91,690 96,209
</TABLE>
- -------
(1) See Restructuring Charge in the notes to the consolidated financial
statements.
(2) See Nonrecurring Charge in the notes to the consolidated financial
statements.
(3) Cumulative effect of changes in accounting principles, net of taxes,
includes the effects of adopting FAS No. 106 "Accounting for
Postretirement Benefits Other Than Pensions" and FAS No. 109 "Accounting
for Income Taxes." See Postretirement Benefits Other Than Pensions and
Income Taxes in the notes to the consolidated financial statements.
(4) EBITDA is defined as net income plus income taxes, net interest expense,
depreciation and amortization, restructuring and nonrecurring items,
cumulative effect of changes in accounting principles, and less unusual
income. The Company believes EBITDA provides additional information for
determining its ability to meet debt service requirements. EBITDA does not
represent net income or cash flow from operations as determined by
generally accepted accounting principles, and EBITDA is not necessarily an
indication of whether cash flow will be sufficient to fund cash
requirements. EBITDA does not give effect to any investment of the
approximately $394.3 million of cash remaining after application of the
net proceeds of the Note Offering and the Special Warrant Offering to
repay indebtedness and pay related expenses.
(5) Average price and average production costs per ton, which can be
significantly affected by Acme Steel's product mix in a given period,
include shipments made to external customers and intersegment shipments.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the items in the
Consolidated Statement of Operations as a percentage of net sales.
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE FISCAL YEAR ENDED MONTHS ENDED
-------------------------------------- -----------------
DECEMBER 29, DECEMBER 27, DECEMBER 26, JUNE 27, JUNE 26,
1991 1992 1993 1993 1994
------------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Net Sales................... 100.0% 100.0% 100.0% 100.0% 100.0%
----- ----- ----- ----- -----
Costs and Expenses:
Cost of products sold..... 89.0 88.8 86.9 88.1 84.0
Depreciation expense...... 3.6 3.7 3.2 3.4 2.9
----- ----- ----- ----- -----
Gross profit................ 7.4 7.5 9.9 8.5 13.1
Selling and administrative
expense.................. 7.8 7.4 6.7 6.1 6.0
Restructuring/nonrecurring
charge................... 0.0 0.6 0.4 0.0 0.0
----- ----- ----- ----- -----
Operating income (loss)..... (0.4) (0.5) 2.8 2.4 7.1
Interest expense net...... (1.1) (1.0) (0.9) (0.9) (0.6)
Other non-operating income
net...................... 0.4 0.1 0.1 0.1 0.3
Unusual income item....... 0.3 0.3 0.3 0.0 0.0
Income tax provision
(credit)................... (0.2) (0.4) 0.9 0.6 2.7
----- ----- ----- ----- -----
Net income (loss) before
cumulative effect of
changes in accounting
principles................. (0.6) (0.7) 1.4 1.0 4.1
Cumulative effect of changes
in accounting principles
net of taxes............... 0.0 (12.9) 0.0 0.0 0.0
----- ----- ----- ----- -----
Net income (loss)........... (0.6)% (13.6)% 1.4% 1.0% 4.1%
===== ===== ===== ===== =====
</TABLE>
Six Months Ended June 26, 1994 as compared to Six Months Ended June 27, 1993
NET SALES. Consolidated net sales of $256.4 million for the six months ended
June 26, 1994 were $31.4 million, or 14 percent higher than net sales in the
first six months of 1993. Higher shipment volume represented a $16.0 million
increase in sales supplemented by a 7 percent increase in average selling
prices over last year's comparable period. The increased selling prices had a
$15.4 million favorable impact on sales in comparison to the first six months
of 1993.
Steel Making Segment. Net sales for the Steel Making Segment advanced to
$173.5 million in the first six months of 1994, a $22.4 million, or 15 percent,
improvement over last year's comparable period. Sales to unaffiliated customers
increased 24 percent to $111.5 million while intersegment sales of $62.0
million were 2 percent higher than in the first six months of 1993. The
increase in the Steel Making Segment's net sales was the result of a 7 percent
increase in average selling prices and a 22,000 ton increase in shipments.
Steel Fabricating Segment. Steel Fabricating Segment net sales of $144.9
million in the first six months of 1994 were $10.0 million, or 7 percent higher
than the comparable period in the prior year. A 7 percent increase in average
selling prices accounted for substantially all of the sales improvement while
increased shipments generated the remainder of the increase over last year's
first six months.
GROSS PROFIT. The gross profit for the first six months of 1994 of $33.5
million was $14.3 million higher than the gross profit recorded during last
year's comparable period. The increase in gross profit was due to higher
average selling prices for the Company's products and increased shipment
volume. Operating costs, however, were higher in the first six months of 1994.
Higher material costs, increased expenditures and higher insurance and pension
costs ($1.3 million higher than last year's comparable period) were the primary
reasons
28
<PAGE>
for the increased operating costs. The gross profit, as a percentage of net
sales, was 13.1 percent in the first six months of 1994 versus 8.5 percent in
last year's comparable period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling and administrative
expense totaled $15.3 million (6.0 percent of net sales) and $13.8 million (6.1
percent of net sales) for the first six months of 1994 and 1993, respectively.
OPERATING INCOME. Operating income for the company for the six months ended
June 26, 1994 was $18.2 million as compared to operating income of $5.4 million
in the first six months of 1993.
Steel Making Segment. Operating income for the Steel Making Segment totaled
$9.6 million as compared to the $0.8 million loss recorded in the first six
months of 1993. The earnings improvement was driven by a 7 percent increase in
average selling prices and increased shipments. Shipments to external customers
were 16 percent higher than last year's comparable period while shipments to
the Steel Fabricating Segment were 10,000 tons, or 7 percent, lower than in the
first six months of 1993. Approximately 62 percent of shipments and 64 percent
of gross profit in 1994 was attributable to external customers while the
remainder was generated by sales to the Steel Fabricating Segment. In 1993's
first six months the Steel Making Segment shipped 57 percent and derived 60
percent of its gross profit from external customers. In total, the increased
selling prices generated $10.5 million in increased revenue while the increased
shipments contributed $4.1 million over last year's results. Partially
offsetting the Steel Making Segment's sales-related gains were increased
material costs and higher insurance and pension costs ($1.0 million higher than
last year's comparable period) for the Steel Making Segment's active and
retired employees.
Steel Fabricating Segment. The Steel Fabricating Segment's operating income
of $9.2 million for the first six months of 1994 was $2.7 million higher than
in last year's comparable period with virtually all of the increase derived
from a 7 percent increase in average selling prices. Acme Packaging's operating
income for the first six months of 1994 was 34 percent higher than last year's
comparable period due primarily to a 4 percent increase in average selling
prices for steel strapping. Alpha Tube's results in 1994 more than doubled as a
result of a 14 percent increase in average selling prices for welded tubing,
and Universal's operating income was slightly higher in connection with a 3
percent increase in average selling prices for auto and light truck jacks. The
majority of the price increases for the Steel Fabricating Segment in the first
six months of 1994 was the result of price increases initiated in 1993.
Partially offsetting the Steel Fabricating Segment's sales related gains were
increased raw material costs in the form of higher flat-rolled prices from the
Steel Making Segment and external suppliers.
NON-OPERATING INCOME. Non-operating income in the first six months of 1994
was $0.6 million higher than last year's comparable period due primarily to a
refund of prior years' utility costs recorded in the current period.
INCOME TAX EXPENSE. The income tax expense for the first six months of 1994
totaled $7.0 million based on a 40 percent effective tax rate as compared to
the $1.4 million expense in the first six months of 1993, also based on a 40
percent effective rate.
NET INCOME. The Company recorded earnings of $10.5 million, or $1.84 per
share in the first six months of 1994 versus the $2.2 million, or 40 cents per
share, recorded in the first six months of 1993.
Fiscal 1993 As Compared To Fiscal 1992
NET SALES. In 1993, the Company benefited 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 net sales totaled $457.4 million, up
$65.8 million, or 17 percent, over 1992 sales. Shipments of products were
strong, representing a $57.5 million increase from last year's
29
<PAGE>
shipment 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.
Steel Making Segment. Total net sales for the Steel Making Segment advanced
to $303.8 million in 1993, a $43.7 million, or 17 percent, improvement over the
prior year. Sales to unaffiliated customers increased 29 percent to $187.8
million while intersegment sales of $116.1 million were 1 percent higher than
in 1992. The increase in total net sales was principally the result of a 13
percent jump in shipments. Steel selling prices, on average, were 3 percent
higher than the prior year. Nearly all of the price increases materialized in
the second half of the year as the Steel Making Segment began to benefit from
two $20 per ton (5 percent) increases initiated in the second and third
quarters of 1993.
Sales of sheet and strip steel, which accounted for 94 percent of the Steel
Making Segment's sales in 1993, advanced $41.8 million, or 17 percent over the
prior year. Semi-finished steel sales increased $3.3 million, or 45 percent
over the prior year, while sales of iron products fell $1.5 million, or 18
percent, as compared to a year earlier.
Steel Fabricating Segment. Steel Fabricating Segment net sales of $271.5
million were $24.6 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 $154.1 million in 1993,
an $11.7 million, or 8 percent, increase over a year earlier. Increased
shipping volume accounted for $9.4 million, or 80 percent, of the improvement
over the prior year's results. Average selling prices were 2 percent higher
than the prior year's levels with all of the increase coming in the latter part
of the year.
Steel tube sales for 1993 reached $74.3 million, up 17 percent from the prior
year. The $10.8 million improvement in sales was due mainly to increased
shipping volume. Selling prices rose 4 percent during the year with most of the
increase in the last half of 1993.
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 shipping volume as selling prices, on average, were
slightly below the prior year's levels.
GROSS PROFIT. Gross profit as a percent of consolidated net sales in 1993 was
9.9 percent, the highest percentage since 1989. The gross profit percentage in
1992 was 7.5 percent. Increased sales volume and higher average selling prices
were the primary determinants for the significant increase in gross profit 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 Acme Steel's and Acme Packaging's union workers at
the Riverdale facilities 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 Steel'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 increased $0.5 million over the last year due partially to a
major relining of Acme Steel's blast furnace in 1990.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling and administrative
expenses in 1993 were $1.7 million higher than the prior year. However, on a
percentage of sales basis, selling and administrative expenses improved over
the prior year as expenses totaled 6.7 percent of sales in 1993 versus 7.4
percent in 1992. 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 the Company's 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.
30
<PAGE>
RESTRUCTURING CHARGE. 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.
NON-RECURRING CHARGE. The Company recorded a $1.9 million non-recurring
charge in 1993 in connection with the $1.3 million write-off of Acme Steel's
No. 3 Hot Strip Mill and Billet Mill and a $0.6 million expense to close Acme
Packaging's Pittsburg-East facility in California and write off a strapping
line at its New Britain, Connecticut, facility.
OPERATING INCOME. Operating income for the Company was $12.7 million in 1993
as compared to an operating loss of $2.1 million in 1992.
Steel Making Segment. Operating income for the Steel Making Segment totaled
$0.7 million, a significant improvement over the $9.3 million loss from
operations recorded in 1992. 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 profit was attributable to external
customers while the remaining 40 percent of gross profit was generated by
shipments to the Steel Fabricating Segment. In 1992, the Steel Making Segment
shipped 55 percent of its products to external customers which generated 52
percent of its gross profit while shipments to the Steel Fabricating Segment
produced the remaining 48 percent of gross profit. 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 the prior 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 No. 3 Hot Strip Mill
recorded in the fourth quarter.
Steel Fabricating Segment. Operating income for the Steel Fabricating Segment
of $11.9 million in 1993 was $4.6 million higher than the results recorded in
1992. The Steel Fabricating Segment benefited from the improving economy and
increased average selling prices in 1993.
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 in California and the write-off of a strapping line at
its New Britain, Connecticut facility. Acme 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 U.S. industrial output.
Alpha Tube's results advanced due to the improvement in the housing and
recreational product markets. Alpha Tube's business also benefited 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.
INTEREST EXPENSE AND INCOME. Interest expense was slightly lower than the
prior year. The decrease resulted from a reduced balance on the Companys long-
term debt as the result of a $3.5 million principal payment in May 1993.
Interest income was $0.1 million lower than in 1992 due mainly to reduced
returns on cash balances.
31
<PAGE>
NON-OPERATING INCOME. 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 Steel,
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.
INCOME TAX EXPENSE. The income tax expense for 1993 equaled $4.2 million
based on a 40 percent effective tax rate. Because of a loss in 1992, the
Company recognized income tax benefits of $1.7 million in 1992, based on a 37
percent effective tax rate.
NET INCOME. 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. 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 FAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" and FAS No. 109, "Accounting for
Income Taxes." The cumulative effect of adopting FAS No. 106 resulted in a
$42.2 million after tax charge to 1992 earnings. The cumulative effect of the
adoption of FAS No. 109 increased the 1992 net loss by $8.1 million.
Fiscal 1992 As Compared To Fiscal 1991
NET SALES. As a result of the modest economic recovery that began in 1992,
consolidated net sales of $391.6 million were $14.6 million, or 4 percent,
higher than prior year consolidated net sales. Shipments of products rebounded,
representing a $22 million increase from 1991 levels. However, selling prices
on average declined 2 percent from the 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.
Steel Making Segment. Sales for the Steel Making Segment of $260.1 million in
1992 were up modestly (4 percent) over the year earlier due entirely to
increased shipments as average selling prices were 2 percent lower than 1991
price levels. Sales to unaffiliated customers increased 3 percent to $145.6
million while intersegment sales of $114.5 million were 4 percent higher than
in 1991.
Steel Fabricating Segment. Steel Fabricating Segment sales of $247.0 million
in 1992 were $10.9 million, or 5 percent, higher than the prior year. Steel
strapping sales of $142.3 million in 1992 were unchanged. Sales of steel tubing
amounted to $63.5 million in 1992, up 4 percent from a year earlier while auto
and truck jack sales of $41.2 million increased 20 percent over the 1991
levels.
GROSS PROFIT. Gross profit as a percent of consolidated net sales equaled 7.5
percent in 1992, an improvement over the 7.4 percent registered in 1991. The
improvement in the 1992 gross profit over the prior year was the result of
reduced material costs and lower expenditures in connection with the Company's
aggressive cost control efforts. These cost reduction measures were more than
enough to overcome a combination of unfavorable margin impacts resulting from
lower average selling prices for most of the Company's products, a 12 percent
jump in costs associated with medical and life insurance coverage for the
Company's active and retired employees, increased property and franchise taxes
and expenses for a feasibility study of options for building a new continuous
thin slab caster/hot strip mill complex at Acme Steel's Riverdale facility. The
Company's gross profit margin benefited from a $1 million pension benefit in
1992, compared to no benefit in l991. Depreciation expense increased $0.5
million in 1992 over the prior years' expense partially due to the major
relining of the Company's blast furnace in 1990.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling and administrative
expenses in 1992 were approximately the same as in l991. As a percent of sales,
selling and administrative expenses were 7.4 and 7.8 percent in 1992 and l991,
respectively. The Company began to benefit from lower labor costs resulting
from
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<PAGE>
a program, initiated in the 1992 third quarter and substantially completed by
year end, to reduce its salaried employee work-force by 10 percent. The 1992
savings from this program were sufficient to offset higher medical costs for
selling and administrative employees. Expenses associated with the
reorganization of the Company, completed in June 1992, added about $0.4 million
to selling and administrative costs in 1991.
RESTRUCTURING CHARGE. During 1992, the Company recorded a $2.7 million
restructuring charge in connection with its 10 percent salaried work force
reduction. This charge covered additional pension liability and extra vacation
pay as part of an early retirement offer as well as severance payments in
conjunction with involuntary separations.
OPERATING INCOME (LOSS). The operating loss for the Company was ($2.1)
million in 1992 as compared to a ($1.5) million loss recorded in 1991.
Steel Making Segment. The Steel Making Segment incurred a $9.4 million
operating loss in 1992 as compared to a $4.4 million loss in 1991. The $5.0
million decline in the Steel Making Segment's results was primarily due to a
combination of a two percent decline in average selling prices for sheet, strip
and semifinished steel which decreased sales by $4.8 million partially offset
($2.9 million) by a 9 percent increase in steel shipments, a $2.2 million
reduction in operating income due to a $6 million decline in iron sales as the
result of a one-time spot sale of molten iron to LTV Steel Company, Inc. in
1991 and a $2.7 million restructuring charge in connection with a 10 percent
salaried work force reduction plan. Operating costs, however, were lower than
in 1992 due to reduced material costs and lower expenditures.
Steel Fabricating Segment. Operating income for the Steel Fabricating Segment
of $7.1 million in 1992 was $4.6 million higher than the results recorded in
l991. Acme Packaging's 1992 results were $0.1 million, or 3 percent, lower than
the prior year due almost entirely to a 3 percent drop in average selling
prices. Alpha Tube's results in 1992 were $2.8 million higher than in 1991 as
the result of lower raw material costs and more efficient operations.
Universal's operating income jumped $1.9 million due to a 19 percent increase
in shipments.
INTEREST EXPENSE AND INCOME. Interest expense remained constant from 1991 to
1992. Interest income grew $0.4 million primarily because of higher cash
balances during the year.
NON-OPERATING INCOME. 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, pre-tax income benefited from a one-time gain
of $1.2 million in connection with the assignment to a third party of the
Company's rights in claims allowed in the LTV Steel Company, Inc. Bankruptcy.
Other non-operating income dropped by $1 million from a year earlier stemming
principally from lower royalty income from coal properties and a $0.4 million
loss on disposal of fixed assets recorded in 1992.
INCOME TAX EXPENSE. Because of the Company's 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. The Company adopted FAS No. 109, "Accounting for Income
Taxes" in 1992. The impact of the adoption of this pronouncement on 1992's
results was to increase the credit for taxes by $0.9 million.
NET (LOSS). For 1992, the Company suffered 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 decline in operating earnings was due primarily to
weaker selling prices for steel and steel strapping.
Like other public companies, the Company was required to change its
accounting for retiree health care and life insurance to conform with FAS No.
106, "Employers' Accounting for Postretirement Benefits other than Pensions."
The Company chose to adopt this accounting standard effective December 30,
1991, the first
33
<PAGE>
day of the Company's 1992 fiscal year. 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 Company also elected to adopt FAS No. 109, "Accounting for Income Taxes"
in 1992. This accounting standard prescribes a new method of accounting for
deferred income taxes and requires the restatement of prior year deferred
income taxes. The cumulative effect of the adoption of this pronouncement
increased the 1992 net loss by $8.1 million.
LIQUIDITY AND CAPITAL RESOURCES
As of June 26, 1994, the Company's long-term indebtedness (including the
current portion) was $56 million. Following the Note Offering, the Company's
total indebtedness will be $281 million, which equates to a $225 million
increase consisting of $275 million from the Note Offering less $50 million to
repay currently outstanding Senior Notes. The Company currently has an unused
$60 million revolving credit agreement, which is expected to be terminated
concurrently with consummation of the Note Offering and replaced with a new
Working Capital Facility. The Company has obtained commitments for an $80
million Working Capital Facility with an initial term of three years from the
date of consummation of the Note Offering. See "Description of Working Capital
Facility" At June 26, 1994, the Company's ratio of debt to total capitalization
was .37 to 1. After giving effect to the Note Offering and the Special Warrant
Offering, the Company's ratio of debt to total capitalization at that date
would have been .58 to 1.
On March 28, 1994, the Company sold the Special Warrants on a private
placement basis exclusively in Canada and Europe. On or before September 14,
1994, the Special Warrants are exercisable on a one-for-one basis for 5,600,000
shares of the Company's Common Stock (the "Common Stock"). Conditions for the
Company's receipt of the proceeds of the sale of the Special Warrants include
among other matters confirmation of the availability of not less than 85% of
the remaining financing needed for construction of the Modernization Project.
Successful completion of the Note Offering will satisfy this condition.
The Company's shareholders' equity totaled $96.2 million at June 26, 1994. On
a pro forma basis, following the Special Warrant Offering and the Note
Offering, the Company's total shareholders' equity would have been $200.3
million on June 26, 1994, which equates to a $104.1 million increase consisting
of $112.3 million from the Special Warrant Offering less restructuring costs of
$5.7 million net of taxes and a penalty in connection with prepaying currently
outstanding Senior Notes of $2.5 million net of taxes.
The Company's cash balance at June 26, 1994 was $73.7 million. The Company
historically has financed its operating and investing activities principally
with cash from operations. Net cash provided by operations was $26.1 million in
the first half of 1994 and $16.0 million, $24.0 million and $21.7 million for
1993, 1992, and 1991, respectively.
Capital expenditures totalled $5.1 million in the first half of 1994 and
$11.7, $7.6 and $10.6 million in 1993, 1992 and 1991, respectively. Of the
$35.0 million spent on capital expenditures from 1991 through June 26, 1994,
approximately $12.0 million, or 34 percent, was attributable to compliance with
environmental regulations. The majority of the remainder of the capital project
expenditures was for replacement and rehabilitation of production facilities
throughout the Company. Based on the turnkey contract price, without taking
into account financing costs or changes that may be requested by Acme Steel
during construction, management estimates that the cost of the Modernization
Project, including equipment, ancillary facilities, construction, and general
contractor fees, will not exceed $372 million. The Company expects these
expenditures will be financed exclusively from proceeds from the Note and
Special Warrant Offerings, together with cash on hand and operating cash flow.
The Company also plans to spend approximately $23.5 million in 1998 related to
the relining and upgrading of Acme Steel's A blast furnace at its Chicago
facilities, and the Company is continually evaluating opportunities for
incremental capital expenditures which meet certain financial return criteria.
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<PAGE>
BUSINESS
GENERAL
The Company, based in Riverdale, Illinois, is a fully integrated manufacturer
and marketer of steel, steel strapping and strapping tools, steel tubing and
automotive and light truck jacks. The Company's operations are divided into two
primary segments, the Steel Making Segment and the Steel Fabricating Segment.
The Steel Making Segment's sole operating subsidiary is Acme Steel, and the
Steel Fabricating Segment consists of Acme Packaging, Alpha Tube and Universal.
The table below presents the percentage make-up of the Company's net sales by
the products comprising the Company's business segments, for the past five
years.
<TABLE>
<CAPTION>
FISCAL SIX
YEAR MONTHS
---------- ----------
1989 1990 1991 1992 1993 1993 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Sheet and strip steel........................ 44% 37% 32% 33% 37% 36% 38%
Semi-finished steel.......................... 5 4 1 2 2 2 4
Iron products and other...................... 1 1 4 2 2 2 2
--- --- --- --- --- --- ---
Total Steel Making Segment............... 50 42 37 37 41 40 44
Steel strapping and strapping tools.......... 34 34 38 36 33 34 30
Welded steel tube............................ 8 16 16 16 16 16 17
Auto and light truck jacks................... 8 8 9 11 10 10 9
--- --- --- --- --- --- ---
Total Steel Fabricating Segment.......... 50 58 63 63 59 60 56
</TABLE>
Over the past eight years, the Company has pursued a downstream integration
strategy, intended to enhance both the value and margins of its steel products.
This strategy, which included the acquisition of Universal and Alpha Tube and
of additional strapping facilities, has helped to moderate the impact of
fluctuating steel demand on Acme Steel's operations by creating captive
businesses that consume approximately 40 to 45% of Acme Steel's steel
production. These businesses also allow the Company to sell fabricated steel
products that have a higher value added component.
As the smallest integrated steel producer in the United States, with an
annual shipping capability of approximately 720,000 tons of finished steel,
Acme Steel manufactures and markets primarily flat-rolled sheet and strip
steel. Acme Steel attempts to utilize the flexibility of its small production
quantities by focusing on niche markets and targeting customers with small
order sizes and special metallurgical requirements such as high carbon, special
alloy and high-strength steels. The principal markets served by Acme Steel
include the agricultural equipment, automotive component, industrial equipment,
industrial fastener, pipe and tube, processor and tool manufacturing
industries.
BUSINESS STRATEGY
Having implemented its downstream integration strategy, the Company is now
pursuing a business strategy consisting of the following key elements: reducing
production costs, expanding shipping capability and product range, increasing
sales of specialty products and improving product quality and customer service.
Reducing Production Costs. The Company believes that Acme Steel currently
enjoys a position as a low cost producer of liquid steel. Its finished
production costs, however, are significantly above those of certain of its
competitors. The Company believes that the Modernization Project, which will
enable Acme Steel to eliminate many of the production steps utilized in its
current ingot pouring and rolling process will significantly reduce Acme
Steel's finished steel production costs and improve operating efficiency. When
the Modernization Project is completed, the Company estimates that it will
provide savings in operating costs, based on full utilization of its expanded
shipping capability of approximately 970,000 tons per year and certain other
material assumptions, of approximately $77 per ton. The Company's Steel
Fabricating Segment subsidiaries will also be able to reduce their production
costs because the wider, larger coils supplied by Acme
35
<PAGE>
Steel will reduce scrap and changeover costs and improve yields. See
"Modernization and Expansion Project--Estimated Costs and Savings."
Expanding Shipping Capability and Product Range. The new continuous casting
process is expected to increase Acme Steel's yield from raw liquid steel to
finished coils from approximately 78% to over 90%. In addition, the new Rolling
Mill is expected to eliminate the current capacity restraint imposed by Acme
Steel's existing hot strip mill, which has a rolling capability of only
approximately 720,000 tons per year. As a result, management expects the
shipping capability of Acme Steel to increase to approximately 925,000 tons per
year within two years of start-up and to approximately 970,000 tons per year
within four years of start-up. The completion of the Modernization Project will
also allow Acme Steel to produce wider sheets and thinner gauges than it is now
able to produce, thus expanding Acme Steel's product range and allowing the
Company to sell products in many markets which it currently cannot penetrate as
well as to increase sales to its existing customer base. See "Modernization and
Expansion Project--Expanded Capability."
Increasing Sales of Specialty Products. Acme Steel produces only 100 tons of
liquid steel per heat, among the smallest volumes of any integrated steel
producer. Unlike larger integrated steel producers, which generally produce
large quantities of a specific size and grade, Acme Steel, because of its small
heat size, has substantial flexibility in responding to customer orders for
specific metallurgical requirements in smaller product quantities. As a result
of this flexibility, Acme Steel currently produces over 400 grades of steel for
approximately 600 customers, with particular emphasis on specialty grades
including high carbon, alloy and high strength steels. Acme Steel also offers
narrow width strips and slitting and cut-to-length services. Acme Steel
continually seeks to expand its sales of its specialty products, and the
proportion of specialty steel sold by Acme Steel to external customers has
increased from 22.8% of total shipments in 1991 to 27.5% in 1993.
Certain of the Company's Steel Fabricating Segment subsidiaries also focus on
the sale of specialty products in niche markets. Alpha Tube, which has
developed production expertise in thin-walled tubing applications, targets
customers that are well suited to its production expertise and has developed
new products to further expand its sales in value-added segments. Universal
competes in the OEM automotive market primarily through the development of
proprietary new products, especially lighter weight automotive jacks. Both
Alpha Tube and Universal should benefit from the implementation of the
Modernization Project, as access to Acme Steel's more consistent gauge steel
will allow the development of new products that require such precise gauges.
Improving Product Quality and Customer Service. The Company continuously
strives, through application of its Total Quality Improvement Process and Labor
Management Participation Teams (see "Business--Employee Relations"), to offer
high quality products to its customers. However, Acme Steel is currently
constrained by its ingot pouring and rolling process from achieving the
consistent quality offered by continuous casting. Through the implementation of
the Modernization Project, the Company expects to improve Acme Steel's product
quality and eliminate its competitive disadvantage with respect to customers
that demand continuously cast steel products. The proposed seven stand rolling
mill will also improve the finish quality and gauge control of Acme Steel's
products, which in turn will improve the products offered by the Company's
Steel Fabricating Segment subsidiaries. In addition, based on the Company's
internal engineering studies, the implementation of the Modernization Project
is expected to reduce the production time for transforming raw steel into steel
coils from ten days to 1 1/2 hours, thereby improving Acme Steel's ability to
fill customer orders promptly.
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<PAGE>
ACME STEEL
Product Overview. Acme Steel is a fully integrated producer of steel. The
following table sets forth the tonnage of steel shipped by Acme Steel during
the past three years in various product categories:
<TABLE>
<CAPTION>
NET TONS SHIPPED PERCENT OF TOTAL
--------------------------------------- -----------------------------
FISCAL YEAR SIX MONTHS FISCAL YEAR SIX MONTHS
----------------------- --------------- ----------------- -----------
1991 1992 1993 1993 1994 1991 1992 1993 1993 1994
------- ------- ------- ------- ------- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Specialty Products:
High Carbon............ 36,315 41,042 53,021 27,748 28,317 6.5 6.7 7.6 7.7 7.4
Mid Carbon............. 51,707 55,772 84,539 42,083 50,798 9.2 9.1 12.1 11.7 13.3
Alloy.................. 14,280 16,000 21,462 10,312 10,597 2.6 2.6 3.1 2.9 2.8
HSLA................... 25,815 29,007 34,924 16,358 21,011 4.6 4.8 5.0 4.5 5.5
------- ------- ------- ------- ------- ----- ----- ----- ----- -----
128,117 141,821 193,946 96,501 110,723 22.9 23.2 27.8 26.8 29.0
------- ------- ------- ------- ------- ----- ----- ----- ----- -----
Non-Specialty Products:
Low Carbon............. 132,017 139,447 166,400 80,291 86,685 23.6 22.9 23.9 22.3 22.7
Non Prime.............. 9,690 14,327 15,029 7,764 5,992 1.7 2.3 2.2 2.2 1.6
Semi-Finished.......... 16,285 24,597 33,554 16,147 34,667 2.9 4.0 4.8 4.5 9.1
Other.................. 276 -- 4,716 4,716 -- -- -- 0.6 1.3 --
------- ------- ------- ------- ------- ----- ----- ----- ----- -----
158,268 178,371 219,699 108,918 127,344 28.2 29.2 31.5 30.3 33.4
------- ------- ------- ------- ------- ----- ----- ----- ----- -----
Intersegment Sales...... 273,177 289,946 284,361 154,219 144,063 48.9 47.6 40.7 42.9 37.6
------- ------- ------- ------- ------- ----- ----- ----- ----- -----
559,562 610,138 698,006 359,638 382,130 100.0 100.0 100.0 100.0 100.0
======= ======= ======= ======= ======= ===== ===== ===== ===== =====
</TABLE>
Specialty Products. Acme Steel specializes in manufacturing high carbon,
alloy and high strength steels and marketing these products directly to end
users. Specific metallurgical requirements are met by introducing particular
metals such as molybdenum, manganese, chrome and vanadium into the basic oxygen
furnace during the steelmaking process or additionally through other
steelmaking processes such as annealing and controlled rolling.
Non-Specialty Products. Non-specialty products include hot rolled, low carbon
steel sheet and strip products, as well as semi-finished steel, sold to
external customers. Low-carbon steel sheet and strip is a price-sensitive
product used in a broad array of industrial goods. Semi-finished steel
comprises slabs and billets which are sold to steel converters who further
process steel for resale.
Intersegment Sales. Intersegment sales to the subsidiaries comprising the
Company's Steel Fabricating Segment consist primarily of low and mid carbon
products. Approximately 80% of the intersegment sales are to Acme Packaging,
and consist of cold rolled low and mid carbon steel (which has been further
processed to enhance surface characteristics). The remainder of intersegment
sales are made to Alpha Tube and Universal.
Customers. The Company's Steel Fabricating Segment consumes approximately 40%
to 45% of Acme Steel's steel production. The balance of Acme Steel's production
is sold to external customers, principally in the agricultural equipment,
construction, automotive components, industrial equipment, industrial fastener,
conversion, tube and tool manufacturing industries. The majority of these
customers are located within an approximately 500 mile radius of Acme Steel's
steelmaking facilities. In 1993, finished steel products sold to external
customers accounted for approximately 37% of the Company's consolidated net
sales. Acme also supplies semi-finished steel to converters for further
processing. Semi-finished steel accounted for about 2% of the Company's
consolidated net sales in 1993.
Acme Steel's customers generally are serviced by Acme Steel's own internal
sales staff. Acme's top ten external customers accounted for a combined total
of approximately 19% of Acme Steel's net sales in 1993, and no individual
customer accounted for more than 4% of such sales.
Acme Steel focuses on external customers whose demand levels and
metallurgical requirements, as well as requirements for value-added services
such as slitting, pickling, annealing and cutting-to-length, are a good
37
<PAGE>
match for the small production quantities and high service levels available
from Acme Steel's facilities. Given the nature and quality of the products and
services it provides in the niche markets it serves, Acme Steel has developed
strong, long-standing relationships with its customer base.
ACME PACKAGING
Products and Markets. Acme Packaging, which was incorporated as a separate
entity in December 1991, began manufacturing steel strapping in 1905. Acme
Packaging is one of the two leading U.S. producers of steel strapping and
strapping tools. Sales by Acme Packaging constituted 33% of the Company's 1993
consolidated net sales.
Acme Packaging manufacturers three types of steel strapping: regular duty,
high tensile, and SupraMet(R). High tensile strapping is strapping that has
been heat treated to provide greater strength and elasticity for shock
absorption. SupraMet(R) is a high-strength steel strapping that is used to
unitize heavy materials such as concrete blocks, bricks, fabricated metal
products, aluminum or lead ingot, paper, glass, plastic pipe, lumber, hardboard
and particle board.
Customers. Principal markets served by Acme Packaging include the
agricultural, automotive, brick, construction, fabricated and primary metals,
forest products, paper and wholesale industries. Acme Packaging's sales are
primarily in the U.S. Its export sales have recently declined as a result of
the current weakness of many foreign economies and currently account for less
than 5% of Acme Packaging's net sales.
Acme Packaging sells steel strapping through private label distributors,
independent distributors and its own in-house sales force. No one customer
accounted for more than 10% of Acme Packaging's 1993 net sales.
ALPHA TUBE
Products and Markets. Alpha Tube, which was acquired in May 1989, is a
leading producer of high quality welded carbon steel tubing. Sales by Alpha
Tube constituted 16% of the Company's 1993 consolidated net sales.
Customers. Alpha Tube's products are used in the appliance, automotive, truck
exhaust, construction, heating and cooling equipment, household and leisure
furniture, material handling, recreational products and warehouse industries.
Alpha Tube's manufacturing customers generally are serviced by its own in-house
sales force. However, Alpha Tube also uses exclusive distributors in an effort
to increase sales in certain target markets. Alpha Tube's top ten customers
accounted for approximately 34% of its net sales in 1993, and no one customer
accounted for more than 7% of its net sales in 1993.
UNIVERSAL
Products and Markets. Universal, acquired by the Company in May 1987,
produces automotive and light truck jacks, tire wrenches and accessories.
Management estimates that Universal currently holds a 30% share of the OEM
market for automobile and light truck jacks in North America. Sales by
Universal constituted 10% of the Company's 1993 consolidated net sales.
Customers. Universal markets its products to U.S. and foreign transplant
automotive manufacturers and the automotive aftermarket. Universal's four
largest customers are General Motors, Ford, Chrysler and Honda.
The OEM market and aftermarket in the U.S. are experiencing several trends,
including a continuing demand by the automotive industry for product
development capability and leadership among their suppliers; a continuing move
toward global sourcing capability, continuing pressure by customers to reduce
per unit pricing while maintaining or increasing the quality of each unit, and
an increasing need to perform research and development for alternative
materials to be used in product manufacturing. Universal has a strong product
development, engineering, and technical service capability and has recently
instituted an effective
38
<PAGE>
order, manufacturing and inventory control system. Universal intends to
continue to implement productivity improvements, focus on lightweight jack
designs (which are of increasing importance as automobile manufacturers seek to
reduce the weight and thereby improve the fuel economy of their vehicles), and
pursue sales opportunities with foreign OEM's, particularly OEM's with
manufacturing facilities in the U.S. that are seeking to increase the U.S.
content of their vehicles. Universal also seeks to expand after-market sales of
tire accessory products (e.g., tire tools and wheel chocks).
EMPLOYEE RELATIONS
As of May 1994, the Company had a work force of approximately 2,775
employees, including about 650 salaried employees and about 2,125 hourly
employees. The unionized work force totals approximately 1,970, or
approximately 71% of total employment. None of the salaried work force is
unionized and, except for fewer than 30 employees employed in Alpha Tube's
slitting operations, the hourly work force at Alpha Tube is also non-union.
The Company's relationships with its unions are good. There have been no
strikes or work stoppages at any location since the Company's purchase of Alpha
Tube, Universal and the additional strapping plants. The last strike at the
Riverdale and Chicago locations was in 1959 during a major steel industry work
stoppage. The Company instituted Labor Management Participation Teams in 1982
as a vehicle for problem solving in a team environment and a Total Quality
Improvement Process in 1991 to establish standards to maximize product quality
from the existing facilities. Union members participate extensively in these
two processes.
In 1993, the Company reached a new labor agreement with the United
Steelworkers covering operations in Chicago and Riverdale, Illinois. The
agreement is for a six year term and contains a no-strike provision and a wage
reopener in 1996 which is subject to binding arbitration. The contract,
covering approximately 1,500 employees at the Riverdale, Illinois facilities of
Acme Steel and Acme Packaging, was ratified on October 1, 1993. The contract
will permit Acme Steel to fill positions in the new facility to be constructed
in connection with the Modernization Project with existing employees on the
basis of qualifications rather than strict seniority and provides incentives
for senior employees in Acme Steel's existing facilities to defer retirement
while the new facility is under construction. The contract also eliminates
retirement benefits for new employees hired after February 1, 1993 that will be
terminated as a result of the Modernization Project.
PROPERTIES
Acme Steel's principal properties consist of an iron-producing plant in
Chicago, Illinois and a steelmaking plant in Riverdale, Illinois. These
facilities include coke ovens, blast furnaces, pig casting machine, basic
oxygen furnaces, a primary mill, hot strip rolling mill for the production of
flat-rolled steel, a slab grinder, pickle lines, cold mills, annealing
furnaces, slitter lines and cut-to-length lines. Acme Packaging's principal
properties consist of steel strapping plants, which include slitting and
painting equipment, in Riverdale, Illinois; New Britain, Connecticut; Leeds,
Alabama; and Pittsburg, California. Alpha Tube's three facilities are located
in the Toledo, Ohio metropolitan area. Alpha Tube's facilities include two
manufacturing plants equipped with rolling mills for the production of welded
steel tubing, and a third plant at which steel slitting is performed.
Universal's facilities are located in Butler, Indiana and include a
manufacturing and office building, a computer-assisted design and manufacturing
system, and automated forming and assembly lines.
All of the properties of the Company's subsidiaries are owned in fee and are
unmortgaged, other than the facilities of Alpha Tube, which are leased. As a
non-operating holding company, the Company itself does not own or lease any
properties.
RAW MATERIALS AND ENERGY
Steel Making Segment. Acme Steel's principal raw materials are iron ore and
coal, which are used in the steelmaking process. The Company believes Acme
Steel's sources of iron ore, coal and other raw materials are adequate to
provide for its foreseeable needs.
39
<PAGE>
Acme Steel indirectly owns an interest of approximately 15.1% in an iron ore
mining venture, Wabush Mines ("Wabush"), in Newfoundland (Labrador) and Quebec,
Canada. The managing agent of the venture is Cliffs-Mining Company ("Cliffs"),
a subsidiary of Cleveland-Cliffs Inc. ("Cleveland-Cliffs"). Acme Steel is
contractually obligated to purchase iron ore pellets ("pellets") from Wabush at
the higher of production cost or market. Wabush's production cost currently
approximates market price; however, there can be no assurance that Wabush's
cost structure will not result in above market prices in the future. In some
cases, Acme Steel's blast furnace operations require pellets with different
properties and Acme Steel "trades" a portion of its allocated Wabush output for
alternative pellets. This type of transaction is readily accomplished because
Cliffs is the managing agent for several mining joint ventures. During 1993,
Acme Steel acquired approximately 600,000 tons of pellets, or 56% of its pellet
requirements, from Wabush. Acme Steel is obligated to purchase from Cleveland-
Cliffs 75% of its pellet requirements in excess of 680,000 tons, and Cleveland-
Cliffs has the right of first refusal to supply Acme with the remaining 25% of
its needs. The balance of Acme Steel's pellet requirements is satisfied at a
competitive delivered cost.
Currently there is a world-wide surplus of metallurgical coal. Accordingly,
Acme Steel is able to satisfy its coal requirements at competitive prices
through short-term contracts and purchases on the open market.
Acme Steel's steelmaking operations require substantial amounts of both
natural gas and electricity. Acme Steel purchases natural gas in the open
market and reuses blast furnace gas and coke oven gas. Acme Steel purchases
electricity from Commonwealth Edison Company at standard industrial rates and
is in the process of negotiating a long-term electric supply contract which, if
executed, will result in lower electric rates.
Steel Fabricating Segment. Acme Packaging and Universal purchase virtually
all of their flat-rolled steel from Acme Steel. Alpha Tube purchases from Acme
Steel a substantial portion of its steel needs that Acme Steel is able to
supply and purchases the remainder of its steel from other steel suppliers from
time to time when such purchases are deemed advantageous to the Company on a
consolidated basis. The Steel Fabricating Segment subsidiaries' purchases of
steel from Acme Steel are made at prices that approximate market prices.
COMPETITION
General. The Company's operating subsidiaries have a variety of U.S. and, in
some cases, foreign competitors, many of whom are larger, have greater capital
resources and/or have more modern technology. In general, the operating
subsidiaries compete on the basis of price, quality and service, with
particular competitive strategies adapted to the markets and customers they
serve.
Acme Steel. Acme Steel is the smallest integrated steel producer in the U.S.,
with annual shipping capability of approximately 720,000 tons. This compares
with total 1993 U.S. shipments of carbon flat-rolled steel products, as
reported by AISI, of approximately 46.4 million tons. In the specialty market
that Acme Steel targets, its primary competitors are WCI Steel, Inc. and
Bethlehem Steel at its Sparrows Point Plant, whose operations are similar to
those of Acme Steel except for their larger plant sizes and facilities, and
steel service centers, which participate in this market primarily through
larger integrated mills and overseas suppliers.
Acme Steel operates in a cyclical and intensely competitive industry. Over
the past decade the price of steel, adjusted for inflation, has fallen
significantly. Although a significant portion of this decline is the result of
worldwide steelmaking overcapacity, steel pricing is also influenced by low
cost producers in the U.S. steel industry. Many of Acme Steel's competitors
have implemented steelmaking technologies not utilized by Acme Steel. As a
result, Acme Steel's costs to produce a ton of finished steel are substantially
higher than those of certain of its competitors. The Company believes that it
must undertake the Modernization Project and make the significant capital
investments required if Acme Steel is to achieve levels of cost, productivity
and quality already attained by certain of its competitors. See "Risk Factors--
Modernization and Expansion Project" and "Modernization and Expansion Project."
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Acme Packaging. In the steel strapping market, Acme Packaging's primary
competitor is ITW Signode, a division of Illinois Tool Works, Inc., which
management believes has a market share approximating that of Acme Packaging.
The Company believes that Acme Packaging's strong market position is
attributable to (i) a broad product line, (ii) high quality, low cost strapping
produced in modern facilities, (iii) the location of its production facilities
in close proximity to a broad customer base and (iv) the benefits of a close
relationship with Acme Steel, which supplies virtually all of Acme Packaging's
steel. However, the steel strapping market is a mature market that is not
expected to grow significantly in future years. Furthermore, competition from
plastic strapping, especially the higher strength polyester products, is
expected by the Company to intensify in the traditional steel strapping markets
of lumber, paper, textiles, wood and synthetic fibers, primarily due to
improvements in product strength characteristics.
Alpha Tube. Alpha Tube operates in a highly competitive market characterized
by numerous participants with widely varying capabilities. Alpha Tube's
customers are increasingly demanding products with increased formability,
greater gauge control and lighter weight in combination with higher strength
and different steel chemistries. Customers, especially in the automotive
market, also are increasingly demanding just-in-time inventory delivery, which
has the effect of increasing inventory carrying costs at the tubing
manufacturer level. Unlike Alpha Tube, many of its competitors compete only on
price and generally offer little or no technical service.
Universal. Universal's primary competitor in the automobile and light truck
jack market is the Canadian based Seeburn Division of Ventra Group, which has a
market share similar to that of Universal. Universal competes in a limited
market characterized by large purchasers with significant buying power.
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. 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 environmental laws and
regulations are subject to periodic renewal and revision. The Company expects
this trend will continue and become even more pronounced in future years. The
1990 Federal Clean Air Act amendments, for example, imposed significant
additional environmental control requirements upon Acme Steel's coke plant
facilities.
In prior years, the Company has made substantial capital investments in
environmental control facilities to achieve compliance with environmental laws
and regulations, incurring expenditures of $10.3 million for environmental
projects in the period from 1991 through 1993. The Company anticipates making
further capital expenditures totaling approximately $4.1 million in 1994 for
environmental projects and approximately $7.1 million in 1995 to maintain
compliance with these laws (exclusive of any such expenditures related to the
Modernization 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
environmental laws and regulations, such laws and regulations 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 United States Environmental Protection Agency (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. Although these guidelines were scheduled to be issued in 1991,
due to the complexity of the process and subject matter, they have not yet been
published. When finalized, these guidelines are expected to require
substantially more stringent limitations on industrial discharges into the
water of, or entering, the Great Lakes than those currently applicable to such
discharges. After publication
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of the guidelines, each state is then expected to revise its water discharge
regulations to incorporate the substance of the guidelines.
All of the process waste waters from Acme Steel are discharged to the
Metropolitan Water Reclamation District of Greater Chicago's ("MWRD") sewerage
system for treatment by the MWRD's municipal sewerage plant. Until such time as
the final guidelines are published by the U.S. EPA and specific water effluent
limitations for the MWRD's public sewerage plants are adopted by the Illinois
Environmental Protection Agency ("IEPA"), the Company will be unable to
determine whether or not Acme Steel 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.
The Company (principally through its operating subsidiaries) is from time to
time, and expects that in the future it will be, involved in administrative
proceedings involving the issuance or renewal of environmental permits relating
to the conduct of its business. The issuance of these permits in the past has
been resolved on terms satisfactory to the Company. However, the Company has
been and expects that from time to time in the future it will continue to be
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 that the Company's operations or its disposal of materials at waste
disposal sites have violated certain environmental laws or conditions of
existing permits. 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 ("CERCLA"), 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 waste 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 and its operating
subsidiaries did not dispose of waste materials at the site and was not
properly named as a PRP; or (ii) the Company and such subsidiaries' proportion
of materials disposed of at such sites is of sufficiently small volume and the
material is of such a nature as to qualify them as a de minimis contributor of
waste material at such sites. The Company believes that its de minimis status
has been confirmed at American Chemical Services Site, Griffith, Indiana;
AquaTech Site, Greer, South Carolina; and Thermo-Chem Site, Muskegon County,
Michigan. According to the Company's records, no materials were disposed at
Calumet Containers Site, Hammond, Indiana and PSC Resources Site, Palmer,
Massachusetts. In addition to these Superfund Sites, the Company believes that
claims with respect to U.S. Scrap Site, Chicago, Illinois; 9th Avenue Dump
Site, Gary, Indiana; and the MIDCO I and MIDCO II Site, Gary, Indiana have been
settled. The Company was asked to supply information with respect to U.S. Lead
Refinery Site, East Chicago, Indiana and has not been contacted further about
this site since January 1992.
Although no assurances can be given that new information will not be
uncovered which would cause the Company or its subsidiaries 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 sites, the Company presently
believes its total costs for the sites named above will not be material.
Universal Tool & Stamping Company, Inc., ("Universal"), in the 1970's,
contracted with Wayne Waste and Reclamation ("WWR") to dispose of process waste
generated by Universal. Without Universal's knowledge, WWR improperly disposed
of process waste at its facility located in Columbia City, Whitley
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County, Indiana which is now a Superfund site (the "Site"). Universal and many
others entered into a Consent Agreement with the U.S. EPA regarding settlement
for the cost of remediating the contamination at the Site. The Consent
Agreement was approved by the United States District Court for the Northern
District of Indiana, Fort Wayne Division, in July, 1992 in the form of a
Consent Decree which provided de minimis PRPs would extinguish their potential
liability for a definite sum and that certain other major PRPs, including
Universal, would pay a pro rata percentage of the Site clean-up expenses.
Universal agreed to pay 3.59% of the total expense of remediation. While the
Record of Decision describes the work plan for remediation, no assurances can
be made that the work plan will not be reevaluated and that additional
contamination or adjustments to the work plan will not be required to fully
remediate the Site in order for it to be accepted by the U.S. EPA. For this
reason remediation expense could increase. At the present time, Universal's
final expense is estimated at less than $75,000.
Peoples Gas Light and Coke Company ("Peoples") has contacted the Company in
connection with Peoples' voluntary investigation of a site previously used by
it in the refinement of producer's gas. A continuing investigation has
preliminarily revealed the apparent existence of contamination at this
location. Although a portion of this site is currently owned by and had been
used by the Company for the storage of coke oven gas, it is the Company's
belief that the contamination is the result of Peoples' activities on this
site. There can be no assurance, however, that the investigation will not
reveal contamination of the site with additional compounds or that Peoples or
other entities will not seek recovery from the Company with respect to any
remediation activities.
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 the Resource Recovery
and Conservation Act ("RCRA") was filed on behalf of 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").
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, which required the filing of a Closure Plan ("Closure Plan I") for
areas where hazardous materials had been temporarily stored. Closure Plan I was
submitted by Universal to IDEM. Closure of area 1 was separated from closure of
area 2, 3 and 3-Extended. The revised estimated cost of remediation of Area 1
is approximately $25,000.
In 1988 Universal submitted a closure plan ("Closure Plan II") to IDEM
following a Notice of Violation arising out of the storage of hazardous wastes
for longer than ninety (90) days. Closure Plan II was revised in 1992 and again
in 1993. Closure Plan II 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.
While there are no assurances that the final costs will not exceed these
estimates, they are not expected to be significant.
Environmental Remediation at the Acme Packaging Facility Located at 855 North
Parkside Drive, Pittsburg, California. Litigation related to contamination
discovered prior to the acquisition of the facility located at 855 North
Parkside Drive, Pittsburg, California (the "Pittsburg Facility") 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
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brought to the Pittsburg Facility during the remediation program. The prior
owner is responsible for preparation of a remedial action plan and to verify
that the appropriate local, state and Federal agencies have no objection to the
remedial action plan as completed. The remediation levels are subject to local,
state and Federal laws, rules and regulations. Acme Packaging's participation
includes observation of the former owner's actions and to contribute to the
funding of the remedial action plan costs in a non-material amount.
While the Pittsburg Facility has been closed for business reasons, the
remediation continues, principally in the form of a groundwater extraction and
treatment system which discharges the treated water to a nearby sanitary sewer
under permit. Based on the information available to date, Acme Packaging's
level of financial commitment related to this remediation has not been
significant and the balance of its commitment is not anticipated to be
significant.
Leeds, Alabama--Elevated Levels of Lead. In September, 1992, Acme 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, Acme Packaging advised the seller of this plant site that
the sampling program was initiated in conjunction with filing a Notice of
Intent for the Plan 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 Acme
Packaging's investigation, Acme Packaging advised the seller that all evidence
indicates these conditions were present on the property at the time the seller
owned the property and were present at the time the Leeds, Alabama, facility
was sold to Acme Packaging on March 29, 1989. Pursuant to the terms of the
purchase and sale agreements relating to this property, the seller is
responsible for remediating any lead or other contamination 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.
Acme Packaging is cooperating with the seller regarding the investigation of
the contamination of this property by lead, and/or other substances; however,
Acme Packaging intends to vigorously pursue its remedies under the purchase and
sale agreements with the seller.
Administrative and Litigation Matters.
The Company is 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 IEPA issued Acme Steel a
permit pursuant to the National Pollution Discharge Elimination System
("NPDES") regulating non-contact water discharges to the Calumet River from
Acme Steel's coke and blast furnace plant facilities. The NPDES permit contains
strict temperature and stormwater discharge limitations. On March 24, 1994 Acme
Steel filed an appeal (case no. 94-8) of certain conditions of the permit with
the Illinois Pollution Control Board ("IPCB"). Acme Steel 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 for the IPCB to
grant Acme Steel 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 Steel anticipates
achieving control of Acme Steel's stormwater discharge to an 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 Steel will petition the IPCB for a variance
from the General Use Water Quality Standards. If issued, a
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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. A request for a hearing on the Petition
for Adjusted Standard has been filed on behalf of local citizens. In the event
Acme Steel's Petition for an Adjusted Standard is denied and a variance is
denied, Acme Steel may be subject to penalties until compliance is achieved.
While the Company believes Acme Steel has demonstrated that it is entitled to
the issuance of an Adjusted Standard, or absent an Adjusted Standard, to a
variance allowing Acme Steel sufficient time to install additional capital
equipment to achieve compliance, there are no assurances that either 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 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 Acme Steel 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 Steel 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 4AAP phenol either as a result of the
petition filed by the MWRD or independently, that the MWRD may then resubmit
its application.
Acme Steel filed Comments and a Request for Reconsideration and Clarification
concerning the 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. The Comments and Request for Reconsideration is
pending. Acme Steel filed a motion to stay the petition for review. Pending a
final determination at the administrative level which is subject to appeal, the
U.S. EPA has responded to the motion to stay and does not oppose a stay of the
proceedings. While Acme Steel continues to challenge the U.S. EPA's denial of
the Removal Credits application and is pursuing administrative and legal
remedies, Acme Steel could be subject to allegations that 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 Steel is unsuccessful in its
challenge of the 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 with annual operating and
maintenance costs estimated at approximately $0.3 million.
Although Acme Steel is vigorously pursuing its administrative and judicial
remedies and would vigorously contest any action to assess civil penalties
against Acme Steel, the Company does not have sufficient information to
estimate its potential liability, if any, if Acme Steel's efforts to obtain
such relief, or contest such penalty assessments, are not successful.
1986 REORGANIZATION
Pursuant to the terms of the 1986 Reorganization, Acme Steel entered into a
Cross-Indemnification Agreement with Interlake (the "Indemnification
Agreement") dated May 29, 1986. Pursuant to the terms of the Indemnification
Agreement, for a period of ten (10) years following the date of the "Spin-Off"
(as said
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term is defined in the 1986 Reorganization documents), Acme Steel 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 Indemnification
Agreement, occurring either before or after the date of the 1986 Reorganization
and which arose out of or are related to the "Acme Steel Business." The Acme
Steel Business is more specifically defined in the Indemnification Agreement as
the iron and steel and domestic U.S. steel strapping business as conducted by
Acme Steel on or about May 29, 1986. The indemnification by Acme Steel of
Interlake with respect to any claims includes, but is not limited to, all
claims asserted in connection with Acme Steel'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 Acme Steel;
certain environmental matters relating to the Acme Steel 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 Steel Businesses.
The Agreement designated certain mineral property interests retained by Acme
Steel, including land held for the account of Acme Steel 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 in the
Indemnification Agreement to defend, indemnify and hold Acme Steel and its
affiliates harmless from and against all "Claims," as that term is defined in
the Indemnification Agreement, occurring either before or after the date of the
1986 Reorganization related to the operation of all businesses and properties
currently owned, directly or indirectly, by Interlake or any subsidiary of
Interlake (other than Acme Steel and its affiliates) and relating to the
Transferred Property, as that term is defined in the Indemnification Agreement
(but excluding the Acme Steel 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 Steel Business.
Environmental Indemnification. The indemnification by Interlake with respect
to any Claims incurred in connection with or arising out of or related to
Interlake Business, as the term is defined more specifically in the
Indemnification 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 CH 4016); 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; the Port Monroe Landfill site in Monroe County, Michigan, as a site of
environmental contamination as defined by the Michigan Water Resources
Commission Act; operation of facilities (which have been designated as a
Superfund site) 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.
Pursuant to the Indemnification 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 (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,
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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 CERCLA and RCRA and on the basis of nuisance. The 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.
Tax Indemnification. Pursuant to the 1986 Reorganization, Acme Steel and
Interlake entered into a tax indemnification agreement ("Tax Indemnification
Agreement"). The Tax Indemnification Agreement generally provides for Interlake
to indemnify Acme Steel for certain tax matters. Under the Tax Indemnification
Agreement, Interlake is solely responsible for any additional income taxes Acme
Steel is assessed related to adjustments relating to all tax years prior to
1982. With respect to any additional 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 this term is identified in the 1986 Reorganization
documents), Acme Steel is responsible for taxes relating to "Timing
Differences" in connection with Acme Steel's "Continuing Operations." "Timing
Differences" are defined generally as adjustments to income, and deductions or
credits which are 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 Acme Steel as of the Spin-Off date. Interlake is principally
responsible for any additional income taxes Acme Steel is assessed relating to
all other adjustments prior to the Spin-Off.
While certain issues have been negotiated and settled among Acme Steel,
Interlake and the Internal Revenue Service for the tax years beginning in 1982
through the date of the Spin-Off, certain significant issues for these tax
years remain unresolved. On March 17, 1994, Acme Steel 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 Tax
Indemnification Agreement, for representing Acme Steel 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 Acme Steel is indemnified by Interlake pursuant to the
Tax Indemnification Agreement. Acme Steel has adequate reserves to cover that
portion of the tax for which it believes it may be responsible per the Tax
Indemnification Agreement. Acme Steel is contesting the unresolved issues and
the Notice.
INTERLAKE. To date Interlake has met its obligations under the
Indemnification Agreement and Tax Indemnification Agreement with respect to all
matters covered. In the event that Interlake, for any reason, were unable to
fulfill its obligations under the Indemnification Agreement or Tax
Indemnification Agreement, Acme Steel could have substantially increased future
obligations. Interlake is subject to the informational requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports,
proxy material and other information concerning Interlake with the Commission.
Interlake's 12 1/8% senior subordinated debentures due 2002 are currently rated
CCC+ by Standard & Poor's Corporation and B3 by Moody's Investors Service, Inc.
LEGAL PROCEEDINGS
In addition to the matters referred to above, the Company and its
subsidiaries have from time to time 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.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages as of May
1, 1994 are listed below. Service with Acme Steel Company prior to the 1986
Reorganization and the 1992 Reorganization is considered service with the
Company. All positions described in the table below are with the Company. All
executive officers are elected annually by the Board of Directors of the
Company to serve for a term of one year and until their successors are elected.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Brian W. H. Marsden 62 Chairman and Chief Executive Of-
ficer
Stephen D. Bennett 45 President and Chief Operating Of-
ficer, Director
Richard J. Stefan 57 Vice President--Employee Rela-
tions
Edward P. Weber, Jr. 56 Vice President, General Counsel
and Secretary
Jerry F. Williams 54 Vice President--Finance and
Administration
James W. Hoekwater 47 Treasurer
C.J. Gauthier 72 Director
Edward G. Jordan 64 Director
Andrew R. Laidlaw 47 Director
Frank A. LePage 66 Director
Reynold C. MacDonald 75 Director
Julien L. McCall 73 Director
Carol O'Cleireacain 47 Director
William P. Sovey 60 Director
William R. Wilson 67 Director
</TABLE>
Brian W.H. Marsden. Mr. Marsden, who resides in Palos Heights, Illinois, has
been Chairman since May 1992 and Chief Executive Officer of the Company since
June 1986. From June 1986 to May 1992, Mr. Marsden was also President. He is a
member of the Executive (Chairman) and Finance Committees of the Company's
Board of Directors. Mr. Marsden was President of the Iron and Steel Division of
Interlake from 1981 to 1986 and he joined Interlake in 1976 as Vice President
Steel Operations. Prior to joining Interlake, Mr. Marsden was with Algoma Steel
Corporation in Canada for 24 years, where his last position was Vice President
and Assistant to the President. His current term as a director expires in 1995.
Stephen D. Bennett. Mr. Bennett, who resides in Frankfort, Illinois, has been
President and Chief Operating Officer and a Director of the Company since
January 1, 1993. Prior to that date, he was Group Vice President (from January
1992 through December 1992), and Vice President--Operations (from June 1990
through December 1991). From December 1987 to May 1990, Mr. Bennett was General
Manager of Fairfield Works, USS Division of USX Corporation. Mr. Bennett is a
member of the Company's Executive and Finance Committees. His current term as a
director expires in 1997.
Richard J. Stefan. Mr. Stefan, who resides in Palos Park, Illinois, has been
Vice President--Employee Relations of the Company since June 1986. From 1959 to
1986, Mr. Stefan served in a number of employee relations positions at
Interlake.
Edward P. Weber, Jr. Mr. Weber, who resides in Munster, Indiana, has been
Vice President, General Counsel and Secretary of the Company since June 1986.
Prior to joining Acme in 1986, Mr. Weber held positions in private practice and
elsewhere in the steel industry.
48
<PAGE>
Jerry F. Williams. Mr. Williams, who resides in Hinsdale, Illinois, has been
Vice President--Finance and Administration and Treasurer of the Company since
May of 1986. Mr. Williams also served as Director of Strategic Planning and
Assistant to the Chairman of Interlake from 1981 to 1986. From 1965 to 1981,
Mr. Williams served in a number of financial positions at Interlake.
James W. Hoekwater. Mr. Hoekwater, who resides in Wilton, Connecticut, has
been Treasurer of the Company since July 1, 1994. From December 1989 to October
1993, Mr. Hoekwater served as the Corporate Controller of ITT Rayonier, Inc., a
subsidiary of ITT Corporation having approximately $1 billion in yearly sales.
Mr. Hoekwater is a Certified Public Accountant and a member of the AICPA.
C.J. Gauthier. Mr. Gauthier, who resides in Oak Brook, Illinois, has been a
director of the Company since June 1986. In January 1986, he retired as
Chairman, President and Chief Executive Officer of NICOR Inc. (a public utility
holding company). Mr. Gauthier is a member of the Audit Review, Compensation,
Executive and Nominating Committees of the Company's Board of Directors. His
current term as a director expires in 1996.
Edward G. Jordan. Mr. Jordan, who resides in Carmel, California, has been a
director of the Company since July 1988. From 1982 through 1987, he served as
President and Chief Executive Officer of The American College (a private,
accredited, nontraditional college specializing in financial services and
insurance education) and in 1988 he served as a consultant to its board of
trustees. Mr. Jordan is currently a private investor. He is a director of The
ARA Group, Inc. and The Pittston Company. Mr. Jordan is a member of the Audit
Review, Finance (Chairman) and Nominating Committees of the Company's Board of
Directors. His current term as a director expires in 1995.
Andrew R. Laidlaw. Mr. Laidlaw, who resides in Hinsdale, Illinois, has been a
director of the Company since May 1987. Since 1978, he has been Chairman of the
Executive Committee and a Partner of the law firm of Seyfarth, Shaw,
Fairweather & Geraldson, Chicago, Illinois. Mr. Laidlaw is a member of the
Audit Review (Chairman), Executive and Nominating Committees of the Company's
Board of Directors. His current term as a director expires in 1997.
Frank A. LePage. Mr. LePage, who resides in Palm City, Florida, has been a
director of the Company since May 1987. In 1982, he retired as Director and
Executive Vice President of The Firestone Tire and Rubber Company. He is a
director of Parker-Hannifin Corporation. Mr. LePage is a member of the
Compensation (Chairman), Finance and Nominating Committees of the Company's
Board of Directors. His current term as director expires in 1997.
Reynold C. MacDonald. Mr. MacDonald, who resides in Oak Brook, Illinois, has
been a Director of the Company since June 1986 and was Chairman of the Board of
the Company from June 1986 to May 1992. He is a director of The ARA Group, Inc.
and Kaiser Steel Resources. Mr. MacDonald is a member of the Audit Review,
Executive, Finance and Nominating Committees of the Company's Board of
Directors. His current term as a director expires in 1995.
Julien L. McCall. Mr. McCall, who resides in Hunting Valley, Ohio, has been a
director of the Company since June 1986. In May 1986, he retired as Chairman of
the Board and Chief Executive Officer of National City Corporation (a bank
holding company), positions he held from December 1980 to his retirement. Mr.
McCall is a member of the Compensation, Finance and Nominating Committees of
the Company's Board of Directors. His current term as a director expires in
1996.
Carol O'Cleireacain. Ms. O'Cleireacain, who resides in New York, New York,
has been a director of the Company since April 1994 as a designated union
representative. From September 1976 to February 1990 she was employed as the
Chief Economist for District Counsel 37, American Federation of State, County
and Municipal Employees. From February 1990 to August 1993, she was a
Commissioner of the New York City Department of Finance. From August 1993 to
December 1993, Ms. O'Cleireacain was employed as Director, New York City Office
of Management and Budget. From January 1994 to the present she has worked as a
49
<PAGE>
consultant. Ms. O'Cleireacain is a member of the Company's Audit Review and
Nominating Committees. Her current term as a director expires in 1995.
William P. Sovey. Mr. Sovey, who resides in Rockford, Illinois, has been a
director of the Company since June 1991. He has been Vice Chairman and Chief
Executive Officer of Newell Co. (a manufacturing and marketing company for high
volume hardware and housewares, office and industrial products) since 1992.
From 1986 to 1992, he was President and Chief Operating Officer of Newell Co.
Mr. Sovey is a member of the Compensation, Finance and Nominating (Chairman)
Committees of the Company's Board of Directors. His current term as a director
expires in 1995.
William R. Wilson. Mr. Wilson, who resides in Malvern, Pennsylvania, has been
a director of the Company since July 1992. He served as Chairman and Chief
Executive Officer of Lukens, Inc. from April 1981 until his retirement in
December 1991. Prior to joining Lukens, Inc. he was employed by Inland Steel
Corporation for over 30 years. The last position held with Inland Steel
Corporation was Senior Vice President-Engineering and Corporate Planning. He is
a director of Columbia Gas System, Inc. and Provident Mutual Life Insurance
Company. Mr. Wilson is a member of the Audit Review, Compensation and
Nominating Committees of the Company's Board of Directors. His current term as
a director expires in 1996.
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to the compensation
of the Company's Chief Executive Officer and each of the four other most highly
compensated executive officers for services in all capacities in fiscal years
1991, 1992 and 1993.
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- OTHER ---------------------- ALL
ANNUAL RESTRICTED SECURITIES OTHER
COMPEN- STOCK UNDERLYING COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SATION(1) AWARD(2)(3) OPTIONS SATION(1)(4)
- --------------------------- ---- ------------------- --------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Brian W. H.
Marsden 1993 $380,000 $228,000 $ -0- $ 34,500 15,000 $44,650
Chairman and
Chief Execu-
tive 1992 360,000 -0- -0- -0- 10,000 68,264
Officer 1991 320,000 64,300 -0- 150,000 32,500 -0-
Stephen D.
Bennett 1993 $210,000 $ 94,500 $32,812(5) $ 25,875 10,000 $24,675
President and
Chief Operat-
ing 1992 160,000 -0- -0- 107,250 7,000 25,900
Officer 1991 135,000 25,000 -0- 24,000 7,400 -0-
Richard J.
Stefan 1993 $135,000 $ 60,800 $ -0- $ 17,250 4,000 $15,862
Vice Presi-
dent-- 1992 129,000 -0- -0- 7,375 4,000 20,636
Employee Rela-
tions 1991 122,000 18,400 -0- 30,000 6,500 -0-
Edward P. Web-
er, Jr. 1993 $136,000 $ 61,200 $ -0- $ 17,250 4,000 $15,980
Vice Presi-
dent, General 1992 130,000 -0- 18,972(5) 11,062 4,000 20,776
Counsel and
Secretary 1991 122,000 18,400 -0- 30,000 6,500 -0-
Jerry F. Wil-
liams 1993 $170,000 $ 76,500 $ -0- $ 20,700 5,000 $19,975
Vice Presi-
dent--Finance
and 1992 160,000 -0- 16,448(5) 14,750 5,000 25,564
Administration 1991 150,000 22,600 -0- 37,800 8,200 -0-
</TABLE>
- --------
(1) Amounts of Other Annual Compensation and All Other Compensation have not
been included for fiscal year 1991.
(2) Values of restricted stock awards are based on the closing price on the
date of grant; $17.25 for January 26, 1993, $14.75 for January 22, 1992,
$18.50 for June 12, 1992, and $12.00 for January 25, 1991.
The vesting schedule for stock awards granted on January 26, 1993 is 20% of
the shares granted on July 27, 1993, 1994, 1995, 1996 and 1997. The total
number of shares granted and the number of shares of each installment
follows: Mr. Marsden, 2,000 shares granted in installments of 400 shares
each; Mr. Bennett, 1,500 shares granted in installments of 300 shares each;
Mr. Stefan, 1,000 shares granted in installments of 200 shares each; Mr.
Weber, 1,000 shares granted in installments of 200 shares each; Mr.
Williams, 1,200 shares granted in installments of 240 shares each.
Dividends, if and when declared by the Board of Directors, are payable on
the unvested portion of this stock award.
50
<PAGE>
The vesting schedule for stock awards granted on January 22, 1992 is 20% of
the shares granted on July 23 of 1992, 1993, 1994, 1995 and 1996. The total
number of shares granted and the number of shares of each installment
follows: Mr. Marsden, none; Mr. Bennett, 1,000 shares granted in
installments of 200 shares each; Mr. Stefan, 500 shares, granted in
installments of 100 shares each; Mr. Weber, 750 shares granted in
installments of 150 shares each; Mr. Williams, 1,000 shares granted in
installments of 200 shares each. Dividends are payable on the unvested
portion of the stock award.
The vesting schedule for the stock award granted to Mr. Bennett on June 12,
1992 is 1,000 shares on December 13, 1992 through 1996 for a total grant of
5,000 shares.
The vesting schedule for stock awards granted on January 25, 1991 is 20% of
the shares granted on January 25 of 1991, 1992, 1993, 1994 and 1995. The
total number of shares granted and the number of shares of each installment
follows: Mr. Marsden, 12,500 shares granted in installments of 2,500 shares
each; Mr. Bennett, 2,000 shares granted in installments of 400 shares each;
Mr. Stefan, 2,500 shares granted in installments of 500 shares each; Mr.
Weber, 2,500 shares granted in installments of 500 shares each; Mr.
Williams, 3,150 shares granted in installments of 630 shares each.
Dividends are payable on the unvested portion of the stock award.
(3) The total number and value of the aggregate unearned restricted stock
holdings at December 26, 1993 were as follows: Mr. Marsden, 4,100 shares,
value $71,750; Mr. Bennett, 5,400 shares, value $94,500; Mr. Stefan, 1,600
shares, value $28,000; Mr. Weber, 1,750 shares, value $30,625; Mr.
Williams, 2,190 shares, value $38,325.
(4) Amounts in this column are Company contributions to the SERSP and ESOP (as
defined below), which are defined contribution plans.
(5) The dollar value of perquisites and other personal benefits for executive
officers other than Mr. Bennett was less than the established reporting
thresholds. The amount reported for Mr. Bennett includes $20,499 for
country club initiation fees and dues which are in excess of 25% of the
total perquisites and other personal benefits reported for Mr. Bennett.
Includes $13,336 and $12,876 for Messrs. Weber and Williams, respectively,
for automobile expense. These amounts are in excess of 25% of the total
perquisite and other personal benefits reported for the named executive
officers.
STOCK OPTION GRANTS IN 1993
The following table sets forth certain information relating to options to
purchase common stock granted in the fiscal year 1993 to the five individuals
named in the Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR(1)
INDIVIDUAL GRANTS IN 1993
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NO. OF % OF TOTAL ANNUAL RATE OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(4)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------------
NAME GRANTED FISCAL YEAR(2) PER SHARE(3) DATE 5% 10%
---- ---------- -------------- ----------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
All Shareholders(5)..... N/A N/A N/A N/A $ 48,858,267 $ 123,816,441
B.W.H. Marsden.......... 15,000 16.9% $14.50 5/27/03 136,785 346,639
S.D. Bennett............ 10,000 11.3% 14.50 5/27/03 91,190 231,093
R.J. Stefan............. 4,000 4.5% 14.50 5/27/03 36,476 92,437
E.P. Weber.............. 4,000 4.5% 14.50 5/27/03 36,476 92,437
J.F. Williams........... 5,000 5.6% 14.50 5/27/03 45,595 115,546
Named Executive
Officers' Gains as a %
of All Shareholders'
Gains(6)............... 0.709% 0.709%
</TABLE>
51
<PAGE>
- --------
(1) Stock Appreciation Rights were not granted during 1993. All options were
granted on May 27, 1993. One-half of the options became exercisable on May
27, 1994 and one-half become exercisable on May 27, 1995 unless the vesting
schedule is accelerated so that the options become fully exercisable upon
death, retirement, disability or a change in control as defined in the
Grant of Stock Option Agreement. The options were granted for a term of 10
years, subject to earlier termination in certain events related to
termination of employment.
(2) Based on 88,500 options granted to all employees.
(3) Exercise price is the market value per share on the date of grant,
determined by calculating the average of the high and low prices of the
common stock on the Nasdaq National Market, as reported in The Wall Street
Journal for the date of grant.
(4) Total dollar gains based on the assumed annual rates of appreciation shown
here and calculated on 5,372,505 outstanding shares--the number of shares
outstanding on the date of grant. The dollar amounts in these columns are
the result of calculations at the 5% and 10% rates set by the Commission
and are not intended to forecast future appreciation of the common stock.
As an alternative to the assumed potential realizable values stated in the
5% and 10% columns, SEC rules would permit stating the present value of
such options at the date of grant. Methods of computing present value
suggested by different authorities can produce significantly different
results. Moreover, since stock options granted by the Company are not
transferable, there is no objective criteria by which any computation of
present value can be verified. Consequently, the Company does not believe
there is a reliable method of computing the present value of such stock
options.
(5) "All Shareholders" is shown for comparison purposes only. The potential
realizable value illustrates the gains all shareholders could realize
assuming a hypothetical ten-year option granted at $14.50 per share on May
27, 1993 if the share price of the common stock increases at the assumed
annual rates shown in the table. There can be no assurance that the common
stock will perform at the assumed annual rates shown in the table.
(6) This analysis illustrates the proportion of executive officers' gains as a
percent of all shareholders' gains under the above assumptions.
AGGREGATED OPTION EXERCISES IN 1993 AND FISCAL YEAR END OPTION VALUES
The following table sets forth certain information concerning the exercise of
options in 1993 to purchase common stock by the five individuals named in the
Summary Compensation Table and the unexercised options to purchase common stock
held by such individuals at December 26, 1993.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
NUMBER OF UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
SHARES OPTIONS AT 12/26/93 12/26/93(1)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Brian W.H. Marsden...... -0- N/A 79,300 20,000 $205,588 $39,375
Stephen D. Bennett...... -0- N/A 15,900 13,500 26,363 26,250
Richard J. Stefan....... -0- N/A 21,550 6,000 50,544 10,500
Edward P. Weber, Jr..... -0- N/A 21,650 6,000 50,544 10,500
Jerry F. Williams....... -0- N/A 27,250 7,500 63,344 13,125
</TABLE>
- --------
(1) Calculated on the basis of the fair market value of the underlying
securities at fiscal year end, $17.125, minus the exercise price. Options
granted in 1988, 1989 and 1992 were not in-the-money at fiscal year end.
52
<PAGE>
DEFINED BENEFIT PLAN
<TABLE>
<CAPTION>
AVERAGE ANNUAL EARNINGS
FOR THE 5 HIGHEST 12 MONTH PERIODS
DURING THE LAST 10 CONSECUTIVE 12-MONTH ESTIMATED ANNUAL PENSION PAYABLE
PERIODS BASED ON YEARS OF SERVICE INDICATED
--------------------------------------- -----------------------------------
15 YEARS 20 YEARS 25 YEARS 30 YEARS
-------- -------- -------- --------
<S> <C> <C> <C> <C>
$100,000.................................. $ 14,387 $ 22,262 $ 30,137 $ 38,012
150,000.................................. 26,199 38,012 49,824 61,637
200,000.................................. 38,012 53,762 69,512 85,262
250,000.................................. 49,824 69,512 89,199 108,887
300,000.................................. 61,637 85,262 108,887 132,512
350,000.................................. 73,449 101,012 128,574 156,137
400,000.................................. 85,262 116,762 148,262 179,762
450,000.................................. 97,074 132,512 167,949 203,387
500,000.................................. 108,887 148,262 187,637 227,102
</TABLE>
The Company's Salaried Employees' Past Service Pension Plan (the "Past
Service Plan") provides for benefits based on years of credited service with
Acme Steel Company through December 31, 1981 and average annual earnings for
the 5 highest 12-month periods during the 10 consecutive 12-month periods
preceding retirement. The Company and Mr. Marsden are parties to a Deferred
Compensation Agreement which entitles Mr. Marsden to a supplemental pension
benefit equivalent to ten years of additional credited service under the Past
Service Plan unless (i) his employment with the Company is terminated for
"Cause" (as defined in the Deferred Compensation Agreement) or (ii) he engages
in a "competitive activity" (as defined in the Deferred Compensation Agreement)
for the period and under the circumstances provided in such agreement.
Corporate funds, rather than pension trust assets, will be used for payment of
these supplemental benefits to Mr. Marsden and any pension benefits payable in
excess of the maximum amount permitted under the Internal Revenue Code. Mr.
Marsden was deemed to have approximately 15 years of credited service as of
December 31, 1981, Mr. Williams has approximately 17 years of credited service,
and Mr. Stefan has approximately 22 years of credited service. Messrs. Bennett
and Weber joined the Company after December 31, 1981 and, therefore, do not
participate in the Past Service Plan.
The preceding table is based upon retirement at age 65, a pension payable for
the life of the retiree only, and a social security offset of $8,798.40 per
year. Different benefits under the Past Service Plan may be payable for persons
whose employment terminates prior to age 65. For purposes of the table, average
annual earnings include salaries and bonuses paid or deferred during the
twelve-month period.
The Past Service Plan provides for a transition pension for salaried
employees and certain executive officers who were employed on December 31, 1981
if the benefit attributable to contributions by the Company after December 31,
1981 under the Company's Salaried Employees' Retirement Savings Plan (the
"SERSP") is less than the benefit which would be attributable under the Past
Service Plan to continuous service between January 1, 1982 and the earlier of
December 31, 1991 and termination of employment. The amount attributable to
such Company contributions is contributions to the SERSP in excess of 6 1/2
percent of the participant's earnings for each calendar quarter (which, in the
case of executive officers, are the same for purposes of the SERSP as for
purposes of the Past Service Plan) of continuous service from January 1, 1982
until the earlier of December 31, 1991 and termination of employment, together
with amounts which would have been earned had such contributions been invested
and reinvested in the Diversified Investment Fund provided for in the SERSP.
Future performance of the Diversified Investment Fund and the earnings of
participants during the 10 years preceding retirement will determine whether or
not any transition pension will be payable.
Unless a participant becomes entitled to a transition pension as described in
the preceding paragraph, years of credited service after December 31, 1981 will
have no effect on any estimated annual pension payable pursuant to the Past
Service Plan.
53
<PAGE>
CHANGE IN CONTROL ARRANGEMENTS
On May 25, 1992, the Board adopted the Key Executive Severance Pay Plan (the
"Plan") from Acme Steel Company and designated the executive officers of the
Company and certain other individuals as participants. A participant may be
entitled to severance benefits under the Plan if there is a termination of his
employment without cause at any time within three years after a "Change in
Control" of the Company (as defined in the Plan). In addition, following a
Change in Control a participant may elect to terminate his employment without
loss of severance benefits in certain specified contingencies, including
termination of the participant's position as an officer or director; a good
faith determination by the participant that as a result of the Change in
Control, he is unable to carry out the authorities, powers, functions or duties
attached to his position; a significant adverse change in his position, duties
or compensation; the failure of a successor to assume the Company's obligations
under the Plan; excessive travel requirements or the substantial relocation of
his place of work; or the reorganization, dissolution, liquidation,
consolidation or merger of the Company or the sale of a significant portion of
its assets.
Under the Plan, a Change in Control is deemed to have occurred if (i) the
Company is merged or reorganized into or with, or sells all of its assets to,
another company in a transaction in which former shareholders of the Company
own less than 75 percent of the outstanding securities of the surviving or
acquiring company after the transaction, (ii) a filing is made with the
Commission disclosing the beneficial ownership by any person or group of 25
percent or more of the voting power of the Company, (iii) during any period of
two consecutive years individuals who were directors at the beginning of such
period cease to constitute a majority of the Board without the approval of two-
thirds of the remaining Board members, (iv) the shareholders of the Company
approve a plan or proposal for the liquidation or dissolution of the Company,
or (v) any other event, or events, which the Board shall determine to be a
Change in Control.
A participant who is terminated with rights to severance compensation under
the Plan will be entitled to receive in respect of the "Severance Period" (as
defined in the Plan), in lieu of further salary payments to the participant,
the following: (i) a sum equal to (a) three times the participant's highest
annual aggregate base salary in effect at any time within five years prior to
the date the "Notice of Termination of Employment" (as defined in the Plan) is
given, plus (b) an amount equal to the average compensation paid in the two
calendar years prior to the date said Notice is given to the participant under
the Plan, or any successor plan (provided, however, the participant may elect
to receive said sums in thirty-six (36) equal monthly payments, including
interest, after the date of said Notice); (ii) for a period of thirty-six (36)
months following the date of "Termination of Employment" (as defined in the
Plan), or until a participant's death, if earlier, life, health and accident
insurance benefits and other executive benefits the participant was receiving
immediately prior to the date of Termination of Employment; (iii) all benefits
to which the participant is entitled as a participant under the Salaried
Employees' Past Service Pension Plan, the Salaried Employees Retirement Savings
Plan or other plan or agreement relating to retirement benefits; and, (iv) all
legal fees and expenses incurred by a participant, if any, as a result of such
Termination of Employment or enforcing any right or benefit under the Plan. A
letter of credit has been obtained by the Company for the purpose of securing
the payment of such legal fees and expenses.
The net amount payable to any participant under the Plan, taking into account
payments under Other Plans, (as defined in the Plan) as appropriate, may not
exceed 2.99 times the participant's "base amount" (as defined in Section 280G
of the Internal Revenue Code), which, generally, is the average of the
participant's taxable annual income received from the Company during the five-
year period preceding the Change in Control, to avoid the special tax rules
applicable to "excess parachute payments" under Federal income tax legislation
enacted in 1984.
To protect both the Company and any participant, if the severance
compensation under the Plan, either alone or together with other payments to a
participant, would constitute "excess parachute payments", as defined in
Section 280G of the Internal Revenue Code, such severance compensation payment
would be reduced to the largest amount as would result in no portion of such
payments being disallowed as deductions
54
<PAGE>
to the Company under Section 280G of the Internal Revenue Code and no portion
of such payments subjecting a participant to the excise tax imposed by Section
4999 of the Internal Revenue Code. The determination of such reductions will be
made, in good faith, by the Company's independent accountants and will be
conclusively binding upon the Company and such participant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1993 the Compensation Committee of the Board was comprised of
the following non-employee directors: C. J. Gauthier, Andrew R. Laidlaw, Julien
L. McCall, Frank A. LePage (Chairman), William R. Wilson.
Mr. Laidlaw is a partner in the law firm of Seyfarth, Shaw, Fairweather &
Geraldson which provided $101,973 in legal services to the Company in 1993. Mr.
Laidlaw resigned as a member of the Compensation Committee effective January
27, 1994. Mr. LePage is a director of Parker-Hannifin Corporation to which the
Company sold tubing in the amount of $1,800,692 in 1993. Mr. Wilson is a
director of Columbia Gas System, Inc. from which the Company made purchases of
$79,906 for natural gas in 1993.
DIRECTORS' COMPENSATION
Mr. MacDonald entered into an agreement with the Company effective June 1,
1992 to provide consulting services for a three-year period. Mr. MacDonald is
paid an annual fee of $50,000 in addition to any payments to which he may be
entitled as a non-employee director of the Company. Under the terms of the
contract, he is furnished with an office, secretarial and certain other
business office services which were valued by the Company at approximately
$37,000 in 1993.
Directors who are not also officers of the Company are currently paid an
annual director's fee of $18,000, a fee of $1,000 for attending a meeting of
the Board and a fee of $1,000 for attending a meeting of a committee of the
Board, whether or not more than one meeting is held on the same day. The
Chairmen of the Audit Review, Compensation, Finance and Nominating Committees
are paid an additional annual fee of $2,000. The Company provides accidental
death and dismemberment insurance for all outside directors while on the
business of the Company. All Directors are reimbursed for expenses incurred in
connection with Board and committee meetings.
In addition to the remuneration above, the Company paid fees not material in
amount for services rendered by outside directors outside the scope of normal
Board and committee meetings.
In 1992, the Company adopted the Acme Metals Incorporated Non-Employee
Directors Retirement Plan (the "Directors Retirement Plan") which provides for
benefits to directors who are not employees of the Company and who retire from
the Board after attaining 65 years of age. Four years of services as a non-
employee director is required to be eligible for a minimum retirement benefit
of 40% of the annual retainer in effect at the date of retirement. The benefit
increases 10% for each additional year of service to a maximum of 100% of the
annual retainer in effect at the date of retirement. The Directors Retirement
Plan is an unfunded non-qualified plan and all benefits will be paid out of
current earnings. No benefits are payable to the spouse or dependents of a
retired director.
55
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
As of June 3, 1994, there were 5,556,661 shares of the Company's Common Stock
issued and outstanding and 6,780 registered holders of the Company's Common
Stock. Set forth below is certain information as of that date regarding those
entities known to the Company to be the beneficial owners of more than 5
percent of the Common Stock and information with respect to beneficial
ownership of the Company's Common Stock by all directors, each of the executive
officers named in "Management--Summary Compensation Table" and all directors
and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF CLASS PERCENT OF CLASS AFTER
NAME AND ADDRESS OF COMMON STOCK PRIOR TO SPECIAL SPECIAL
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1)(2) WARRANT OFFERING(3) WARRANT OFFERING(3)(4)
------------------- ------------------------ ------------------- ----------------------
<S> <C> <C> <C>
Dimensional Fund Advisors, 393,514 6.6% 3.3%
Inc.(5).....................
1299 Ocean Avenue
Santa Monica, CA 90401
Brinson Holdings, Inc.(6)... 365,800 6.1% 3.2%
209 South LaSalle Street
Chicago, Illinois 60604
DIRECTORS AND OFFICERS
Stephen D. Bennett(7)....... 37,036 * *
C.J. Gauthier............... 173 * *
Edward G. Jordan............ 1,000 * *
Andrew R. Laidlaw........... 1,000 * *
Frank A. LePage............. 2,500 * *
Reynold C. MacDonald(8)..... 66,301 1.1 *
Brian W.H. Marsden(9)....... 154,360 2.6 1.3
Julien L. McCall............ 1,000 * *
Carol O'Cleireacain......... 0 * *
William P. Sovey............ 1,000 * *
Richard J. Stefan(10)....... 41,756 * *
Edward P. Weber, Jr.(11).... 34,844 * *
Jerry F. Williams(12)....... 59,970 1.0 *
William R. Wilson........... 1,000 * *
All directors and executive
officers
as a group, 15
person(7)(8)(9)(10)(11)(12). 401,940 6.7 3.5
</TABLE>
- --------
*Less than 1% of class
(1) As used in this section, the term beneficial ownership with respect to a
security is defined by Rule 13d-3 under the Securities Exchange Act of 1934
as consisting of sole or shared voting power (including the power to vote
or direct the vote) and/or sole or shared investment power (including the
power to dispose or direct the disposition) with respect to the security
through any contract, arrangement, understanding, relationship or
otherwise. Unless otherwise indicated, beneficial ownership consists of
sole voting and investment power.
(2) On June 3, 1994, Harris Trust & Savings Bank, Trustee for the Company's
Salaried Employees Retirement Savings Plan, the Company's Employee Stock
Ownership Plan, and the Alpha Tube Corporation Employees 401(k) Retirement
Plan, held 873,523 shares, or 15.7%, of Common Stock then outstanding.
Shares held by the Trustee on account of each of the participating
employees will be voted by the Trustee in accordance with written
instructions from the participants and where no instructions are received,
the Trustee will vote in accordance with the recommendations set forth by
the Board in the proxy statement of the Company. In addition, on June 3,
1994 Harris Trust and Savings Bank, as Trustee under the Company's Pension
and Retirement Plans Trust ("Trust"), held 207,092 shares, or 3.7%, of
Common Stock then outstanding. Under the terms of the Trust, absent
direction from the Company, the Trustee is authorized to exercise voting
rights as it deems proper.
56
<PAGE>
(3) The shares owned by each person or entity, or by the group, and the shares
included in the total number of shares outstanding have been adjusted and
the percent owned has been computed in accordance with Rule 13d-3(d)(1)
under the Securities and Exchange Act.
(4) Upon satisfaction of all conditions to the release from escrow of the net
proceeds of the Special Warrant Offering and the deemed exercise of the
Special Warrants, an additional 5,600,000 shares of the Company's Common
Stock will be issued to the warrant holders.
(5) Dimensional Fund Advisors, Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 393,514 shares of Common
Stock as of December 31, 1993 by reason of its sole or shared voting power
and sole dispositive power over such shares. All of the shares are held in
portfolios of DFA Investment Dimensions Group, Inc., a registered open-end
investment company, or in series of The DFA Investment Trust Company, a
Delaware business trust, or the DFA Group Trust and the DFA Participating
Group Trust, investment vehicles for qualified employee benefit plans, all
of which Dimensional Fund Advisors Inc. serves as investment manager.
Dimensional disclaims beneficial ownership of all such shares.
(6) The number of shares of Common Stock beneficially owned was determined by a
review of Schedule 13G furnished to the Company which states that Brinson
Holdings, Inc. beneficially owns the shares solely through its ownership of
Brinson Partners, Inc., which owns 178,630 shares, which in turn owns
Brinson Trust Company, which owns 187,170 shares. Brinson Partners, Inc.
and Brinson Trust Company have sole voting power and sole dispositive power
with respect to the shares owned by them.
(7) Includes 24,400 shares which are not now owned but could be acquired by
exercise of stock options, 6,700 shares which are subject to conditions of
forfeiture and restrictions on sale, transfer or other disposition, and
2,140 shares held by the trustee of the Company's Employee Stock Ownership
Plan ("ESOP") which are attributable to Mr. Bennett's account.
(8) Includes 16,301 shares held in a trust to which Mr. MacDonald disclaims
beneficial ownership except to the extent of his pecuniary interest
therein.
(9) Includes 91,800 shares which are not now owned but could be acquired by
exercise of stock options, 4,100 shares which are subject to conditions of
forfeiture and restrictions on sale, transfer or other disposition, 2,500
shares owned by a family member to which Mr. Marsden disclaims beneficial
ownership, and 4,080 shares held by the trustee of the ESOP which are
attributable to Mr. Marsden's account.
(10) Includes 25,550 shares which are not now owned but could be acquired by
exercise of stock options, 1,600 shares which are subject to conditions of
forfeiture and restrictions on sale, transfer or other disposition, 1,789
shares held by the trustee of the Company's Salaried Employees Retirement
Savings Plan (SERSP) which are attributable to Mr. Stefan's account and
2,592 shares held by the trustee of the ESOP which are attributable to Mr.
Stefan's account.
(11) Includes 25,650 shares which are not now owned but could be acquired by
exercise of stock options, 2,750 shares which are subject to conditions of
forfeiture and restrictions on sale, transfer or other disposition, 100
shares held by family members, and 2,669 shares held by the trustee of the
ESOP which are attributable to Mr. Weber's account.
(12) Includes 32,250 shares which are not now owned but could be acquired by
exercise of stock options, 3,390 shares which are subject to conditions of
forfeiture and restriction on sale, transfer or other disposition, 11,287
shares held by the trustee of the SERSP which are attributable to Mr.
Williams' account, and 3,309 shares held by the trustee of the ESOP which
are attributable to Mr. Williams' account.
57
<PAGE>
CERTAIN TRANSACTIONS
The following is a year by year listing of all transactions and any proposed
transactions which have materially affected or will materially affect the
Company and any of its subsidiaries in which the following have or had a
material interest during the fiscal years 1991, 1992 and 1993 and the current
fiscal year to date: directors and senior officers of the Company, any security
holders named in "Security Ownership of Certain Beneficial Owners and
Management," and any associate or affiliate of any of the foregoing persons or
companies. The Company believes that all transactions were in the ordinary
course of business, at competitive prices and terms and at arm's length.
SIX MONTHS 1994
Through June 26, 1994, the Company made sales to and purchases from
corporations (including subsidiaries) certain executive officers and directors
of which are also directors of the Company, as follows: Messrs. MacDonald and
Jordan are directors of The ARA Group, Inc., from which the Company made
purchases of $85,820 for food services; Mr. Laidlaw is a partner of the law
firm of Seyfarth, Shaw, Fairweather and Geraldson, to which firm the Company
paid $38,248 for professional services on behalf of the Company; Mr. LePage is
a director of Parker-Hannifin Corporation, to which the Company made sales of
$1,358,823; and Mr. Wilson is a director of Columbia Gas System, Inc., from
which the Company made purchases of $54,740 for natural gas. There were also
purchases from one other company which did not exceed $50,000.
FISCAL YEAR 1993
In the fiscal year 1993, the Company made sales to and purchases from
corporations (including subsidiaries) certain executive officers and directors
of which are also directors of the Company, as follows: Messrs. MacDonald and
Jordan are directors of The ARA Group, Inc., from which the Company made
purchases of $167,527 for food services; Mr. Laidlaw is a partner in the law
firm of Seyfarth, Shaw, Fairweather and Geraldson, to which firm the Company
paid $101,973 for professional services on behalf of the Company; Mr. LePage is
a director of Parker-Hannifin Corporation, to which the Company made sales of
$1,800,692 for tubing; and Mr. Wilson is a director of Columbia Gas System,
Inc., from which the Company made purchases of $76,906 for natural gas. There
were also sales to one other company which did not exceed $50,000.
FISCAL YEAR 1992
In the fiscal year 1992, the Company made sales to and purchases from
corporations (including subsidiaries) certain executive officers and directors
of which are also directors of the Company, as follows: Messrs. MacDonald and
Jordan are directors of The ARA Group, Inc. from which the Company made
purchases of $182,331; Mr. Laidlaw is a partner in the law firm of Seyfarth,
Shaw, Fairweather and Geraldson, to which firm the Company paid $68,865 for
professional services on behalf of the Company; and Mr. LePage is a director of
Parker-Hannifin Corporation, to which the Company made sales of $1,047,724 for
tubing. There were also purchases from and sales to several other like
companies, the transaction amounts of which, in the aggregate, did not exceed
$50,000.
FISCAL YEAR 1991
In the fiscal year 1991, the Company made sales to and purchases from
corporations (including subsidiaries) certain executive officers and directors
of which are also directors of the Company, as follows: Mr. Gauthier is a
director of Nalco Chemical Company from which the Company made purchases of
$146,315; Messrs. MacDonald and Jordan are directors of The ARA Group, Inc.,
from which the Company made purchases of $161,713; Mr. Laidlaw is a partner in
the law firm of Seyfarth, Shaw, Fairweather & Geraldson, to which the Company
paid $108,096 for professional services performed on behalf of the Company; and
Mr. LePage is a director of Parker-Hannifin Corporation, to which a subsidiary
of Acme sold tubing in the amount of $805,611. There were also purchases from
and sales to several other like companies, the transaction amounts of which, in
the aggregate, did not exceed $50,000.
58
<PAGE>
DESCRIPTION OF NOTES
The Senior Secured Notes will be issued under an indenture (the "Note
Indenture") dated as of , 1994 by and among Acme Metals Incorporated, a
Delaware corporation (for purposes of this Description of Notes, the
"Company"), the Guarantors and Shawmut Bank Connecticut, National Association,
as trustee (the "Note Trustee"). The Senior Secured Discount Notes will be
issued under an indenture (the "Discount Note Indenture"; and together with the
Note Indenture, the "Indentures") dated as of , 1994, by and among the
Company, the Guarantors (as defined below) and Shawmut Bank Connecticut,
National Association, as trustee (the "Discount Note Trustee"; and together
with the Note Trustee, the "Trustees"). The terms of the Notes will include
those stated in the Indentures and those made part of the Indentures by
reference to the Trust Indenture Act of 1939 (the "Trust Indenture Act"), as in
effect on the date of each of the Indentures. The Notes will be subject to all
such terms, and prospective investors are referred to the respective Indenture
and the Trust Indenture Act for a statement of such terms.
The statements under this caption relating to the Notes, the Indentures and
the Security Documents (as defined below) are summaries and do not purport to
be complete. Such summaries make use of certain terms defined in the Indentures
and are qualified in their entirety by express reference to the Indentures,
copies of which are filed as exhibits to the Registration Statement of which
this Prospectus is a part.
General
The Senior Secured Notes will bear interest from the date the Senior Secured
Notes are first issued under the Note Indenture at the rate shown on the cover
page of this Prospectus, payable semiannually on and of each year,
commencing , 1994, to holders of record at the close of business on
or immediately preceding each such interest payment date. The
Senior Secured Notes will be due on , 2002, and will be issued only in
registered form, without coupons, in denominations of $1,000 and integral
multiples thereof. The Senior Secured Notes will be senior obligations of the
Company limited to an aggregate amount of $175 million.
The Senior Secured Discount Notes will bear interest from , 1997 at
the rate shown on the cover page of this Prospectus, payable semiannually on
and of each year, commencing , 1998, to holders of record at
the close of business on or immediately preceding each such interest
payment date. The Senior Secured Discount Notes will be due on , 2004,
and will be issued only in registered form, without coupons, in denominations
of $1,000 and integral multiples thereof. The Senior Secured Discount Notes
will be senior obligations of the Company limited to an aggregate amount of $
million which will produce gross proceeds of $100 million.
The Company may seek to raise up to $50 million of debt which will bear
interest at a floating rate. If the Company is successful in raising such debt,
it would replace a portion of the Notes. Any such debt would be pari passu with
the Notes and would share the same security and guarantees.
The Senior Secured Notes and the Senior Secured Discount Notes will be pari
passu with one another and will be secured ratably by the Collateral in
relation to the outstanding principal amount of the Senior Secured Notes and
the Accreted Value of the Senior Secured Discount Notes. The Notes will be
senior in right of payment to all subordinated indebtedness of the Company and
pari passu in right of payment with all future senior indebtedness of the
Company. At June 26, 1994, on an adjusted basis after giving effect to the
offering of the Notes and the application of the estimated net proceeds
therefrom, the Company and its Subsidiaries would have had an aggregate of
approximately $281 million indebtedness outstanding including the Notes. The
Notes will be guaranteed on a senior basis by the Company's Subsidiaries (the
"Guarantors"). See "-- Guarantee of Notes." In addition, all of the Company's
obligations on the Notes and under the Indentures will be secured by a pledge
of all of the capital stock of the Company's direct Subsidiaries, the Guarantee
by Acme Packaging of the Notes will be secured by a pledge of all of the
capital stock of its Subsidiaries and the Guarantee by Acme Steel of the Notes
will be secured by a pledge of all of the capital stock of its subsidiary and a
mortgage on substantially all of its assets other than inventory and accounts
59
<PAGE>
receivable and certain non-material assets. In addition, to the extent that
Acme Steel finances the acquisition of assets constituting a part of the
Modernization Project out of the proceeds of industrial revenue bonds or
similar governmental authority obligations, such assets shall not constitute
security for its Guarantee. See "--Security." The Company has obtained
commitments for an $80 million Working Capital Facility which will be secured
by inventory and accounts receivable of the Company and its Subsidiaries. See
"Description of Working Capital Facility." The ability of the Company and its
Subsidiaries to incur additional Indebtedness will be limited by the
"Limitations on Indebtedness" covenant of each of the Indentures, and the
ability of the Company and its Subsidiaries to incur additional secured
Indebtedness will be limited by the "Limitations on Liens" covenant of each of
the Indentures.
Redemption
Optional Redemption of the Senior Secured Notes. The Senior Secured Notes may
not be redeemed prior to , 1998. On or after , 1998, the Company
may, at its option, redeem the Senior Secured Notes in whole or in part, from
time to time, at the following redemption prices (expressed in percentages of
the principal amount thereof), in each case together with accrued interest, if
any, to the date of redemption.
If redeemed during the twelve-month period beginning ,
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
</TABLE>
Optional Redemption of the Senior Secured Discount Notes. The Senior Secured
Discount Notes may not be redeemed prior to , 1999. On or after ,
1999, the Company may, at its option, redeem the Senior Secured Discount Notes
in whole or in part, from time to time, at the following redemption prices
(expressed in percentages of the principal amount thereof), in each case
together with accrued interest, if any, to the date of redemption.
If redeemed during the twelve-month period beginning ,
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
</TABLE>
Selection and Notice of Redemption. In the event that less than all of the
Notes are to be redeemed at any time, selection of Senior Secured Notes or
Senior Secured Discount Notes (or portions thereof) for redemption will be made
by the respective Trustee pro rata, by lot or by any other method such Trustee
shall deem fair and reasonable; provided, however, that no Notes of $1,000 or
less shall be redeemed in part. Notice of redemption to the holders of Notes to
be redeemed in whole or in part shall be given by mailing notice of such
redemption by first-class mail, postage prepaid, at least 30 days and not more
than 60 days prior to the date fixed for redemption to such holders of Notes at
their addresses as they shall appear upon the registry books. On and after the
redemption date, interest ceases to accrue on Notes or portions thereof called
for redemption.
Sinking Fund. There will be no sinking fund for the Senior Secured Notes or
Senior Secured Discount Notes.
60
<PAGE>
Guarantee of Notes
Each Guarantor unconditionally guarantees, jointly and severally, to each
holder and the Trustees, the full and prompt performance of the Company's
obligations under the Indentures and the Notes, including the payment of
principal of and interest on the Notes. The obligations of each Guarantor are
limited to the maximum amount which, after giving effect to all other
contingent and fixed liabilities of such Guarantor and after giving effect to
any collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indentures, will result in
the obligations of such Guarantor under the Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Guarantor in an amount pro rata,
based on the net assets of each Guarantor, determined in accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company or another Guarantor without limitation, or with other Persons upon the
terms and conditions set forth in the Indentures. See "--Limitations on
Mergers, Consolidations and Sales of Assets." In the event all of the capital
stock of a Guarantor is sold by the Company and the sale complies with the
"Limitation on Disposition of Assets" covenant, the Guarantor's Guarantee will
be released and the pledge of the Guarantor's capital stock as security for the
Notes or a Guarantee, as the case may be, shall also be released.
Separate financial statements of the Guarantors are not included herein
because such Guarantors are jointly and severally liable with respect to the
Company's obligations pursuant to the Notes, and the aggregate net assets,
earnings and equity of the Guarantors and the Company are substantially
equivalent to the net assets, earnings and equity of the Company on a
consolidated basis.
Security
All of the obligations of the Company under the Notes and the Indentures will
be secured by a pledge by the Company of all of the capital stock of its direct
Subsidiaries whether now existing or hereafter acquired, the Guarantee by Acme
Packaging of the Notes will be secured by a pledge by Acme Packaging of all of
the capital stock of its subsidiaries whether now existing or hereafter
acquired, and the Guarantee by Acme Steel of the Notes will be secured by a
pledge by Acme Steel of all of the capital stock of its subsidiaries whether
now existing or hereafter acquired, and a first priority Lien on substantially
all existing and future real property, equipment, intellectual property and
related intangibles of Acme Steel, including the Modernization Project, and the
proceeds thereof, but excluding inventory, accounts receivable, certain non-
material assets and Permitted Liens (collectively including all other property
and assets that are from time to time subject to the Security Documents, the
"Collateral"). Collateral consisting of real property and fixtures will be
mortgaged by Acme Steel pursuant to mortgages or deeds of trust (the
"Mortgages"). Collateral constituting personal property will be pledged by Acme
Steel pursuant to security agreements (the "Security Agreements"). Collateral
constituting capital stock will be pledged by the Company, Acme Steel and Acme
Packaging pursuant to securities pledge agreements (the "Securities Pledge
Agreements"). The Working Capital Facility will be secured by inventory and
accounts receivable of the Company and its Subsidiaries. In addition, to the
extent that Acme Steel finances the acquisition of assets constituting a part
of the Modernization Project out of the proceeds of industrial revenue bonds or
similar governmental authority obligations, such assets shall not constitute
security for its Guarantee.
The collateral release provisions of the Indenture permit the release of
items of Collateral which are the subject of an Asset Sale (as defined below)
and in other circumstances upon compliance with certain conditions. See "--
Possession, Use and Release of Collateral." The Available Proceeds Amount (as
defined below) of any such Asset Sale would be required to be applied to an
Unapplied Proceeds Offer (as defined below) in the circumstances and manner
described under "--Certain Covenants of the Company-- Limitation on Disposition
of Assets." To the extent an Unapplied Proceeds Offer is not fully subscribed
to by
61
<PAGE>
holders of Notes, the unutilized Available Proceeds Amount may be retained by
the Company, free and clear of the Lien of the Indentures and the Security
Documents. See "--Possession, Use and Release of Collateral."
To the extent that third parties enjoy Permitted Liens, such third parties
may have rights and remedies with respect to the Property subject to such Lien
that, if exercised, could adversely affect the value of the Collateral.
No appraisals of the Collateral have been prepared by or on behalf of the
Company. There can be no assurance that the proceeds of any sale of the
Collateral pursuant to the Indentures and the related Security Documents
following an acceleration after an Event of Default under the Indentures would
not be substantially less than that which would be required to satisfy payments
due on the Notes. By its nature, some or all of the Collateral will be illiquid
and may have no readily ascertainable market value. Accordingly, there can be
no assurance that the Collateral will be able to be sold in a short period of
time, if saleable. Pending application of the net proceeds of the Note Offering
as set forth in "Use of Proceeds" above, unused net proceeds of the Note
Offering will be deposited in the Collateral Account and will be released to
the Company in accordance with the terms of the Indentures.
For a discussion of certain risks associated with the ability of the
Collateral Agent to foreclose upon and sell Collateral under applicable
bankruptcy laws if a bankruptcy proceeding were to be commenced by or against
the Company or any of the Guarantors, see "Risk Factors--Security for the
Notes."
Collateral Agency Agreement. Prior to the consummation of the offering of the
Notes, the Note Trustee, the Discount Note Trustee, Shawmut Bank Connecticut,
National Association, as collateral agent (the "Collateral Agent"), the
Company, Acme Steel and Acme Packaging will enter into a collateral agency
agreement (the "Collateral Agency Agreement"). The Collateral Agency Agreement
will provide generally that decisions in respect of (i) administering the
Collateral (not including decisions relating to the release of the Collateral);
(ii) releasing portions of the Collateral in circumstances not otherwise
permitted by the Indentures; and (iii) foreclosing on or otherwise pursuing
remedies with respect to such Collateral generally may be made by the holders
of not less than a majority in aggregate principal amount of any issue of
Indebtedness covered by the Collateral Agency Agreement and secured by the
Collateral. If an Event of Default occurs under the Note Indenture or the
Discount Note Indenture the applicable Trustee will notify the other Trustee.
In the event of a declaration of acceleration of the Senior Secured Notes or
the Senior Secured Discount Notes, as the case may be, occurs as a result
thereof, the Note Trustee or the Discount Note Trustee, as the case may be, on
behalf of their respective holders, in addition to any rights or remedies
available to it under the Note Indenture or Discount Note Indenture, as the
case may be, may, subject to the provisions of the Collateral Agency Agreement,
cause the Collateral Agent to take such action as the Note Trustee or the
Discount Note Trustee, as the case may be, deems advisable to protect and
enforce its rights in the Collateral, including the institution of foreclosure
proceedings. The proceeds received by the Collateral Agent from any foreclosure
will be applied by the Collateral Agent first to pay the expenses of such
foreclosure and fees and other amounts then payable to the Collateral Agent and
the Trustees under the Indentures and the Collateral Agency Agreement, and
thereafter to pay, pro rata, the principal of, premium, if any, and interest on
the Notes or any other Indebtedness covered by the Collateral Agency Agreement
and secured by the Collateral.
Intercreditor Agreement
Prior to the consummation of the Note Offering, the Collateral Agent, on
behalf of the holders of the Notes, will enter into an intercreditor agreement
(the "Intercreditor Agreement") with the Company, Acme Steel, and Harris Trust
and Savings Bank, as agent for the lenders under the Working Capital Facility
(in such capacity, the "Agent"). The Intercreditor Agreement will provide,
among other things, that (i) the Collateral Agent and the Agent will provide
notices to each other with respect to the acceleration of the Notes or the
Indebtedness under the Working Capital Facility, as the case may be, and the
commencement of any action to enforce the rights of the holders of the Notes,
the Collateral Agent, the lenders under the Working Capital Facility, or the
Agent and (ii) for a period following the issuance of a notice of enforcement,
62
<PAGE>
the Agent may enter upon all or any portion of the Company's or Guarantor's
premises, use the Collateral to the extent necessary to complete the
manufacture of inventory, collect accounts and sell or otherwise dispose of the
collateral securing the Indebtedness under the Working Capital Facility.
Certain Covenants
The following is a summary of certain covenants that will be contained in
each of the Indentures. Such covenants will be applicable (unless waived or
amended as permitted by the Indentures) so long as any of the Notes are
outstanding.
Reports to Holders of the Notes. So long as the Company is subject to the
periodic reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), it will continue to furnish the information
required thereby to the Commission and to the Trustees. The Indentures provide
that even if the Company is entitled under the Exchange Act not to furnish such
information to the Commission, it will nonetheless continue to file such
reports with the Commission and the Trustees and mail such reports to holders
of the Notes as if it were subject to such periodic reporting requirements so
long as any of the Notes remain outstanding; provided that the Company shall
not be obligated to furnish such information to the Commission if less than 10%
of the original principal amount of each class of the Notes is then
outstanding.
Repurchase of Notes Upon Change of Control. In the event that there shall
occur a Change of Control, each holder of the Notes shall have the right, at
the holder's option, to require the Company to repurchase all or any part of
such holder's Notes on the date (the "Repurchase Date") that is no later than
60 days after notice of the Change of Control, at a repurchase price equal to,
(i) in the case of the Senior Secured Notes, 101% of the principal amount
thereof, plus accrued interest to the Repurchase Date or (ii) in the case of
the Senior Secured Discount Notes, 101% of the Accreted Value thereof on the
Repurchase Date if repurchased prior to , 1997 and at the principal
amount thereof, plus accrued interest to the Repurchase Date, thereafter.
On or before the thirtieth day after the Change of Control, the Company is
obligated to mail, or cause to be mailed, to all holders of record of such
Notes a notice regarding the Change of Control and the repurchase right. The
notice shall state the Repurchase Date (which shall be the same date for both
the Senior Secured Notes and the Senior Secured Discount Notes), the date by
which the repurchase right must be exercised, the price for such Notes and the
procedure which the holder must follow to exercise such right. Substantially
simultaneously with mailing of the notice, the Company shall cause a copy of
such notice to be published in a newspaper of general circulation in the
Borough of Manhattan, The City of New York. To exercise such right, the holder
of such Note must deliver at least ten days prior to the Repurchase Date
written notice to the Company (or an agent designated by the Company for such
purpose) of the holder's exercise of such right, together with the Note with
respect to which the right is being exercised, duly endorsed for transfer;
provided that, if mandated by applicable tender offer rules and regulations a
holder may be permitted to deliver such written notice nearer to the Repurchase
Date as may be specified by the Company.
The Company will comply with all applicable tender offer rules and
regulations, including Section 14(e) of the Exchange Act and the rules
thereunder, if the Company is required to give a notice of a right of
repurchase as a result of a Change of Control.
"Change of Control" means (i) any sale, lease or other transfer (in one
transaction or a series of related transactions) by the Company or any of its
Subsidiaries of all or substantially all of the consolidated assets of the
Company to any Person (other than a Wholly Owned Subsidiary of the Company);
(ii) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2)
of the Exchange Act (other than the Company)) becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act) of Capital Stock of the
Company representing 40% or more of the voting power of such Capital Stock;
(iii) Continuing Directors cease to constitute at least a majority of the Board
of Directors of the Company; or (iv) the stockholders of the Company approve
any plan or proposal for the liquidation or dissolution of the Company.
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"Continuing Director" means a director who either was a member of the Board
of Directors of the Company on the Issue Date or who became a director of the
Company subsequent to such date and whose election, or nomination for election
by the Company's stockholders, was duly approved by a majority of the
Continuing Directors then on the Board of Directors of the Company, either by a
specific vote or by approval of the proxy statement issued by the Company on
behalf of the entire Board of Directors of the Company in which such individual
is named as nominee for director.
With respect to the disposition of assets, the phrase "all or substantially
all" as used in the Indentures (including as set forth under "--Limitations on
Mergers, Consolidations and Sales of Assets" below) varies according to the
facts and circumstances of the subject transaction, has no clearly established
meaning under New York law (which governs the Indenture) and is subject to
judicial interpretation. Accordingly, in certain circumstances there may be a
degree of uncertainty in ascertaining whether a particular transaction would
involve a disposition of "all or substantially all" of the assets of the
Company, and therefore it may be unclear as to whether a Change of Control has
occurred and whether the holders have the right to require the Company to
repurchase Notes.
None of the provisions relating to a repurchase upon a Change of Control are
waivable by the Board of Directors of the Company. The Company could, in the
future, enter into certain transactions, including certain recapitalizations of
the Company, that would not constitute a Change of Control with respect to the
Change of Control purchase feature of the Notes, but would increase the amount
of indebtedness outstanding at such time.
The Indentures will require the payment of money for Notes or portions
thereof validly tendered to and accepted for payment by the Company pursuant to
a Change of Control offer. If a Change of Control were to occur, there can be
no assurance that the Company would have sufficient funds to pay the purchase
price for all Notes that the Company is required to repurchase. After giving
effect to the offering of the Notes and the application of the estimated net
proceeds therefrom as set forth under "Use of Proceeds," the Company would not
have sufficient funds available to repurchase all of the outstanding Notes
pursuant to a Change of Control offer. In the event that the Company were
required to repurchase outstanding Notes pursuant to a Change of Control offer,
the Company expects that it would need to seek third-party financing to the
extent it does not have available funds to meet its repurchase obligations.
However, there can be no assurance that the Company would be able to obtain
such financing.
Failure by the Company to repurchase the Notes when required upon a Change of
Control will result in an Event of Default with respect to the Notes.
These provisions could have the effect of deterring hostile or friendly
acquisitions of the Company where the person attempting the acquisition views
itself as unable to finance the repurchase of the principal amount of Notes
which may be tendered to the Company upon the occurrence of a Change of
Control.
Limitations on Indebtedness. The Company will not, and will not permit any of
its Subsidiaries, directly or indirectly, to create, incur, assume, become
liable for or guarantee the payment of (collectively, an "incurrence") any
Indebtedness (including Acquired Indebtedness); provided the Company and its
Subsidiaries may incur Indebtedness, including Acquired Indebtedness, if (i) at
the time of such event and after giving effect thereto, on a pro forma basis,
the ratio of Consolidated Cash Flow Available for Fixed Charges to Consolidated
Fixed Charges for the four full fiscal quarters immediately preceding such
event, taken as one period and calculated using the assumptions and adjustments
set forth in the following sentence, would have been greater than 2.0 to 1.0,
and (ii) no Default or Event of Default shall have occurred and be continuing
at the time of or occur as a consequence of the incurrence of such
Indebtedness. The following assumptions and adjustments shall be used in
calculating the ratio of Consolidated Cash Flow Available for Fixed Charges to
Consolidated Fixed Charges for the four-quarter period preceding the incurrence
of Indebtedness giving rise to such determination: (a) the Indebtedness being
incurred will be assumed to have been incurred on the first day of such four-
quarter period; (b) any other Indebtedness incurred during, and
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remaining outstanding at the end of, such four-quarter period or incurred
subsequent to such four-quarter period will be assumed to have been incurred on
the first day of such four-quarter period; (c) with respect to the incurrence
of Acquired Indebtedness, the related acquisition (whether by means of
purchase, merger or otherwise) and any related repayment of any Indebtedness
will be assumed to have occurred on the first day of such four-quarter period
with the appropriate adjustments with respect to such acquisition and repayment
being included in such pro forma calculations; (d) with respect to Indebtedness
repaid (other than a repayment of revolving credit obligations) during such
four-quarter period (or subsequent thereto) out of the proceeds of sales of
Capital Stock or operating cash flows in such four-quarter period, such
Indebtedness will be assumed to have been repaid on the first day of such four-
quarter period; and (e) any permanent reduction in the committed amount of a
revolving credit facility during such four-quarter period (or subsequent
thereto) will be deemed to have occurred on the first day of such four-quarter
period and interest paid on any amounts drawn on such revolving credit facility
during such four-quarter period in excess of such reduced committed amount
shall, for the period during which such drawn amounts were actually
outstanding, be excluded from such calculation.
The foregoing limitations will not apply to the incurrence of (i) Permitted
Indebtedness, (ii) Refinancing Indebtedness and (iii) additional Indebtedness
of the Company or any of its Subsidiaries the aggregate principal amount of
which does not exceed $35 million outstanding at any one time.
Limitations on Restricted Payments. The Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, make any Restricted Payment
unless:
(i) no Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such Restricted Payment;
(ii) immediately after giving effect to such Restricted Payment, the
Company could incur at least $1.00 of Indebtedness (other than Permitted
Indebtedness) pursuant to the first paragraph of the "Limitations on
Indebtedness" covenant; and
(iii) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments (the fair market value of any
such Restricted Payment if other than cash as determined in good faith by
the Company's Board of Directors and evidenced by a resolution of such
Board) declared or made after the Issue Date does not exceed the sum of (a)
50% of the Consolidated Net Income of the Company on a cumulative basis
during the period (taken as one accounting period) from and including the
first full fiscal quarter of the Company commencing after the Issue Date
and ending on the last day of the Company's last fiscal quarter ending
prior to the date of such Restricted Payment (or in the event such
Consolidated Net Income shall be a deficit, minus 100% of such deficit),
plus (b) 100% of the aggregate net cash proceeds of, and the fair market
value of marketable securities (as determined in good faith by the
Company's Board of Directors and evidenced by a resolution of such Board)
received by the Company from (1) the issue or sale after the Issue Date of
Capital Stock of the Company (other than the issue or sale of (A)
Disqualified Stock or (B) Capital Stock of the Company to any Subsidiary of
the Company or (C) the exercise of the Special Warrants) and (2) the issue
or sale after the Issue Date of any Indebtedness or other securities of the
Company convertible into or exercisable for Capital Stock (other than
Disqualified Stock) of the Company which has been so converted or
exercised, as the case may be.
The foregoing clauses (ii) and (iii) will not prohibit: (A) the payment of
any dividend within 60 days of its declaration if such dividend could have been
made on the date of its declaration without violation of the provisions of the
Indenture; (B) the repurchase, redemption or retirement of any shares of
Capital Stock of the Company or any of its Subsidiaries in exchange for, or out
of the net proceeds of the substantially concurrent sale (other than to a
Subsidiary of the Company) of, other shares of Capital Stock (other than
Disqualified Stock) of the Company; (C) the repurchase, redemption or
retirement of subordinated Indebtedness of the Company or any of its
Subsidiaries in exchange for, by conversion into, or out of the net proceeds
of, a substantially concurrent (x) issue or sale of Capital Stock (other than
Disqualified Stock) of
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the Company or (y) incurrence of Refinancing Indebtedness with respect to such
subordinated Indebtedness; (D) the purchase of options on Common Stock issued
to members of management of the Company pursuant to the terms of their
employment agreements upon termination of employment, death or disability of
any such person in an amount not to exceed $1,000,000 per annum; and (E)
payments to taxing authorities by the Company or any Subsidiary of the Company
on behalf of a holder of Common Stock of the Company (or an option to purchase
such Common Stock) pursuant to certain arrangements in existence on the date of
the Indentures; provided, that, without duplication, each Restricted Payment
described in clauses (A) through (D) (other than subclause (y) of clause (C))
of this sentence shall be taken into account for purposes of computing the
aggregate amount of all Restricted Payments pursuant to clause (iii) of the
immediately preceding paragraph.
The prior sale of the 5,600,000 special stock purchase warrants by the
Company in March 1994, and the subsequent exercise of such warrants for the
Company's common stock, will not be deemed an issuance of Capital Stock for
purposes of calculations made pursuant to this covenant.
Limitations on Investments, Loans and Advances. The Company will not make and
will not permit any of its Subsidiaries to make any Investments in any Person,
except (i) Investments by the Company in or to any Subsidiary (or an entity
which, following and as a result of such Investment, becomes a Subsidiary of
the Company) and Investments in or to the Company or a Subsidiary (or an entity
which, following and as a result of such Investment, becomes a Subsidiary of
the Company) by any Subsidiary, (ii) Investments represented by accounts
receivable created or acquired in the ordinary course of business, (iii)
advances to employees, officers and directors in the ordinary course of
business, (iv) Investments under or pursuant to Interest Protection Agreements,
(v) Permitted Investments, (vi) Restricted Investments made pursuant to the
"Limitations on Restricted Payments" covenant above, (vii) Investments in
Wabush and (viii) other Investments in Persons other than Subsidiaries or
Affiliates of the Company or any of the Company's Subsidiaries not to exceed
$10,000,000 at any one time outstanding. For purposes of calculating the amount
of any outstanding Investment pursuant to clause (viii), any return of capital
or repayment of a loan or advance constituting all or a portion of the original
amount of the Investment shall be deducted.
Limitations on Transactions with Affiliates. The Company will not, and will
not permit any of its Subsidiaries to, make any loan, advance, guarantee or
capital contribution to, or for the benefit of, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or for the benefit of,
or purchase or lease any property or assets from, or enter into or amend any
contract, agreement or understanding with, or for the benefit of, any Affiliate
of the Company or any Affiliate of any of the Company's Subsidiaries or any
holder of 10% or more of any class of Capital Stock of the Company (including
any Affiliates of such holders) (each, an "Affiliate Transaction") except for
any Affiliate Transaction the terms of which are fair and reasonable to the
Company or such Subsidiary, as the case may be, and are at least as favorable
as the terms which could be obtained by the Company or such Subsidiary, as the
case may be, in a comparable transaction made on an arm's length basis with
Persons who are not such a holder, an Affiliate of such holder or an Affiliate
of the Company or any of the Company's Subsidiaries.
In addition, the Company will not, and will not permit any Subsidiary of the
Company to, enter into an Affiliate Transaction, or any series of related
Affiliate Transactions, unless with respect to such Transaction or Transactions
involving or having a value of more than $1,000,000, the Company has (x)
obtained the approval of a majority of the Board of Directors of the Company in
the exercise of their fiduciary duties and (y) either obtained the approval of
a majority of the Company's disinterested directors or obtained an opinion of a
qualified independent financial advisor to the effect that such Transaction or
Transactions are fair to the Company or such Subsidiary, as the case may be,
from a financial point of view.
Limitation on Disposition of Assets. Each of the Indentures will provide
that:
(a) the Company will not, and will not cause or permit any of its
Subsidiaries to, consummate any Asset Sale unless (i) the consideration in
respect of such Asset Sale is at least equal to the fair market
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value of the assets subject to such Asset Sale, (ii) at least 75% of the
value of the consideration therefrom received by the Company or such
Subsidiary is in the form of cash or cash equivalents, and (iii) to the
extent such Asset Sale involves Collateral, (x) such Asset Sale is not
between the Company and any of its Subsidiaries or between Subsidiaries of
the Company and (y) the Company shall cause the cash consideration received
in respect thereof to be deposited in the Collateral Account as and when
received by the Company or by any Subsidiary of the Company and shall
otherwise comply with the provisions of the Indentures and the Collateral
Agency Agreement applicable to such Collateral and Asset Sale. The Company
may, for so long as no Default or Event of Default exists under the
applicable Indenture or would be caused thereby, apply Net Cash Proceeds
held by it (or in compliance with the provisions of the applicable
Indenture, direct the Collateral Agent to release Net Cash Proceeds held in
the Collateral Account and the Collateral Agency Agreement for application)
to the acquisition or construction of property constituting a Related
Business Investment; provided, however, that if such application is not
made in the manner and within the times contemplated by the definition of
Available Proceeds Amount, the Company shall be required to make an
Unapplied Proceeds Offer (as defined below) pursuant to paragraph (b)
below.
(b) In the event there shall be any Available Proceeds Amount, the
Company shall make an offer to purchase (the "Unapplied Proceeds Offer") to
all holders of the Notes on the Unapplied Proceeds Offer Payment Date, a
principal amount (expressed as an integral multiple of $1,000) of the
Senior Secured Notes and the Senior Secured Discount Notes equal to their
respective Applicable Portion of such Available Proceeds Amount. In each
case of an Unapplied Proceeds Offer, the purchase price for the Notes shall
be equal to (i) in the case of the Senior Secured Notes, 100% of the
principal amount thereof plus accrued and unpaid interest to the Unapplied
Proceeds Offer Payment Date, or (ii) in the case of the Senior Secured
Discount Notes, 100% of the Accreted Value thereof, if repurchased prior to
, 1997, and of the principal amount thereof plus accrued and unpaid
interest to the Unapplied Proceeds Offer Payment Date if repurchased
thereafter. Notwithstanding the foregoing (A) the Company may defer the
Unapplied Proceeds Offer until there is an aggregate unutilized Available
Proceeds Amount equal to or in excess of $5,000,000 (at which time, the
entire unutilized Available Proceeds Amount, and not just the amount in
excess of $5,000,000, shall be applied as required pursuant to the
Indentures), (B) in connection with any Asset Sale, the Company and its
Subsidiaries will not be required to comply with the requirements of clause
(ii) of paragraph (a) to the extent that the aggregate non-cash
consideration received in connection with such Asset Sale, together with
the sum of all non-cash consideration received in connection with all prior
Asset Sales that has not yet been converted into cash, does not exceed $5
million, provided that when any non-cash consideration is converted into
cash, such cash shall constitute Net Cash Proceeds and be subject to clause
(ii) of paragraph (a) and (C) in connection with any Asset Sale relating to
the Company's interest in Wabush, the Company need not comply with the
provisions of clauses (i) and (ii) of paragraph (a). To the extent the
Unapplied Proceeds Offer is not fully subscribed to by holders, the Company
may, subject to the terms of the Indentures and the Collateral Agency
Agreement, obtain a release of the unutilized portion of the Available
Proceeds Amount relating to such Unapplied Proceeds Offer from the Lien of
the Security Documents.
(c) If at any time any non-cash consideration is received by the Company
or by any Subsidiary of the Company, as the case may be, in connection with
any Asset Sale involving Collateral, such non-cash consideration shall be
made subject to the Lien of the Security Documents in the manner
contemplated in the Indentures and the Collateral Agency Agreement. If and
when any non-cash consideration received from any Asset Sale (whether or
not relating to Collateral) is converted into or sold or otherwise disposed
of for cash, then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall
be applied in accordance with this covenant.
(d) All Net Proceeds and all Net Awards required to be delivered to the
Collateral Agent pursuant to any Security Document shall constitute trust
monies and shall be delivered by the Company to the Collateral Agent
contemporaneously with receipt by the Company and be deposited in the
Collateral Account. Net Proceeds and Net Awards so deposited that are
required to be applied or may be applied
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by the Company to effect a Restoration of the affected Collateral under the
applicable Security Document may be withdrawn from the Collateral Account
under the Indentures and the Collateral Agency Agreement, only in
accordance with the Indentures. Net Proceeds and Net Awards so deposited
that are not required to be applied to effect a Restoration of the affected
Collateral under the applicable Security Document may only be withdrawn in
accordance with the Indentures and the Collateral Agency Agreement.
(e) The Company shall provide the Trustees and the Collateral Agent with
prompt notice of the occurrence of an Unapplied Proceeds Offer. Such notice
shall be accompanied by an Officers' Certificate setting forth (i) a
statement to the effect that (x) the Company or a Subsidiary of the Company
has made an Asset Sale and/or (y) there has occurred a destruction or
condemnation in respect of Collateral resulting in Net Proceeds or Net
Awards which are not required to be applied to effect a Restoration of such
affected Collateral under the applicable Security Document and (ii) the
aggregate principal amount of Senior Secured Notes and Senior Secured
Discount Notes offered to be purchased and the basis of calculation in
determining such aggregate principal amount. The Company is obligated with
respect to the Senior Secured Notes and the Senior Secured Discount Notes
(i) to give notice of an Unapplied Proceeds Offer at the same time and in
the same manner to each holder, (ii) to set the same expiration date for
each Unapplied Proceeds Offer arising out of each event giving rise to an
Available Proceeds Amount and (iii) to establish identical Unapplied
Proceeds Offer Payment Dates for each such Unapplied Proceeds Offer.
In the event of the transfer of substantially all (but not all) of the
Property of the Company and its Subsidiaries as an entirety to a person in
a transaction permitted under "Limitations on Mergers, Consolidations and
Sales of Assets" below, the successor corporation shall be deemed to have
sold the Properties of the Company and its Subsidiaries not so transferred
for purposes of this covenant, and shall comply with the provisions of this
covenant with respect to such deemed sale as if it were an Asset Sale. In
addition, the fair market value of such properties and assets of the
Company or its Subsidiaries deemed to be sold shall be deemed to be Net
Cash Proceeds for purposes of this covenant.
Notice of an Unapplied Proceeds Offer will be sent by first class mail to
all holders of Notes not less than 30 days nor more than 60 days before the
payment date for the Unapplied Proceeds Offer, with a copy to each of the
Trustees and the Collateral Agent, and shall comply with the procedures set
forth in the Indentures. Upon receiving notice of the Unapplied Proceeds
Offer, holders may elect to tender their Notes in whole or in part in
integral multiples of $1,000 principal amount in exchange for cash. Each
Indenture provides that the Applicable Portion to be applied under such
Indenture with respect to any Unapplied Proceeds Offer shall be applied to
the repurchase of the Notes issued thereunder that are validly tendered and
not withdrawn prior to the expiration of such offer pro rata based upon the
amount of such Notes tendered by the holders of such Notes. In the event
that there shall be an Unapplied Proceeds Offer made under an Indenture and
the holders of the Notes under the other Indenture shall have validly
tendered Notes in an amount less than their Applicable Portion, the amount
of such Applicable Portion in excess of the aggregate principal amount of
Notes so tendered shall be added to the Applicable Portion in respect of
the other Notes and applied pursuant to the preceding sentence. An
Unapplied Proceeds Offer shall remain open for a period of 20 business days
or such longer period as may be required by law.
If an offer is made to repurchase the Notes pursuant to an Unapplied
Proceeds Offer, the Company will and will cause its Subsidiaries to comply
with all tender offer rules under state and Federal securities laws,
including, but not limited to, Section 14(e) under the Exchange Act and
Rule 14e-1 thereunder, to the extent applicable to such offer.
Limitations on Liens. The Company will not, and will not permit any
Subsidiary of the Company to, issue, assume, guarantee or suffer to exist any
Indebtedness secured by a Lien (other than a Permitted Lien) of or upon any
Property of the Company or any Subsidiary of the Company or any shares of stock
or debt of any Subsidiary of the Company, whether such Property is owned at the
Issue Date or thereafter acquired.
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Limitations on Sale and Leaseback Transactions. The Company will not, and
will not permit any Subsidiary of the Company to, enter into any sale and
leaseback transaction with respect to any Property (whether now owned or
hereafter acquired) unless (i)(a) the Property that is the subject of such sale
and leaseback transaction does not constitute Collateral and (b) the sale or
transfer of the Property to be leased complies with the requirements of the
"Limitations on Dispositions of Assets" covenant and (ii) the Company or such
Subsidiary would be entitled under the "Limitations on Indebtedness" covenant
to incur any Capitalized Lease Obligations in respect of such sale and
leaseback transaction.
Limitations on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction on the ability of
any Subsidiary of the Company to (i)(a) pay dividends or make any other
distributions on its Capital Stock, or any other interest or participation in
or measured by its profits, owned by the Company or any other Subsidiary of the
Company, or (b) pay any Indebtedness owed to the Company or any other
Subsidiary of the Company, (ii) make loans or advances to the Company or a
Subsidiary of the Company or (iii) transfer any of its properties or assets to
the Company or any other Subsidiary of the Company, except for Permitted Liens
and such other encumbrances or restrictions existing under or by reason of (a)
any restrictions, with respect to a Subsidiary that is not a Subsidiary of the
Company on the Issue Date, under any agreement in existence at the time such
Subsidiary becomes a Subsidiary of the Company (unless such agreement was
entered into in connection with, or in contemplation of, such entity becoming a
Subsidiary of the Company on or after the Issue Date), (b) any restrictions
under any agreement evidencing any Acquired Indebtedness of a Subsidiary of the
Company incurred pursuant to the provisions of the "Limitations on
Indebtedness" covenant; provided that such restrictions shall not restrict or
encumber any assets of the Company or its Subsidiaries other than such
Subsidiary, (c) terms relating to the non-assignability of any operating lease,
(d) any restrictions under the Working Capital Facility, (e) any encumbrance or
restriction existing under any agreement that refinances or replaces the
agreements containing restrictions described in clauses (a)-(d), provided that
the terms and conditions of any such restrictions are not materially less
favorable to the holders of the Notes than those under the agreement so
refinanced or replaced, or (f) any encumbrance or restriction due to applicable
law.
Limitations on Mergers, Consolidations and Sales of Assets. The Company will
not consolidate or merge with or into any Person, and the Company will not, and
will not permit any of its Subsidiaries to, sell, lease, convey or otherwise
dispose of all or substantially all of the Company's consolidated assets (as an
entirety or substantially an entirety in one transaction or a series of related
transactions, including by way of liquidation or dissolution) to, any Person
unless, in each such case: (i) the entity formed by or surviving any such
consolidation or merger (if other than the Company), or to which sale, lease,
conveyance or other disposition shall have been made (the "Surviving Entity"),
is a corporation organized and existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the Surviving Entity
assumes by supplemental indenture all of the obligations of the Company on the
Notes and under each of the Indentures and the Security Documents; (iii)
immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; (iv) immediately after giving
effect to such transaction and the use of any net proceeds therefrom on a pro
forma basis, the Consolidated Tangible Net Worth of the Company or the
Surviving Entity, as the case may be, would be at least equal to the
Consolidated Tangible Net Worth of the Company immediately prior to such
transaction; and (v) immediately after giving effect to such transaction and
the use of any net proceeds therefrom on a pro forma basis, the Company or the
Surviving Entity, as the case may be, could incur at least $1.00 of
Indebtedness (other than Permitted Indebtedness) pursuant to the first
paragraph of the "Limitations on Indebtedness" covenant.
Upon any such conveyance, lease or transfer in accordance with the foregoing,
the successor Person to which such conveyance, lease or transfer is made will
succeed to, and be substituted for, and may exercise every right and power of,
the Company under each of the Indentures with the same effect as if such
successor had been named as the Company therein, and thereafter the predecessor
corporation will be relieved of all further obligations and covenants under the
Indentures, the Notes and the Security Documents to which it was a party or
bound.
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Each Guarantor (other than any Guarantor whose Guarantee is to be released in
accordance with the terms of the Guarantee and the Indentures in connection
with any transaction complying with the "Limitation on Disposition of Assets"
covenant) will not, and the Company will not cause or permit any Guarantor to,
consolidate with or merge with or into any Person other than the Company or any
of the Guarantors unless: (i) the entity formed by or surviving any such
consolidation or merger (if other than the Guarantor), or to which sale, lease,
conveyance or other disposition shall have been made, is a corporation
organized and existing under the laws of the United States, any state thereof
or the District of Columbia; (ii) such entity assumes by supplemental indenture
all of the obligations of the Guarantor on the Guarantee and under each of the
Indentures and the Security Documents; (iii) immediately after giving effect to
such transaction, no Default or Event of Default shall have occurred and be
continuing; (iv) immediately after giving effect to such transaction and the
use of any net proceeds therefrom on a pro forma basis, the Consolidated
Tangible Net Worth of the Company and its Subsidiaries would be at least equal
to the Consolidated Tangible Net Worth of the Company and its Subsidiaries
immediately prior to such transaction; and (v) immediately after giving effect
to such transaction and the use of any net proceeds therefrom on a pro forma
basis, the Company could incur at least $1.00 of Indebtedness (other than
Permitted Indebtedness) pursuant to the first paragraph of the "Limitations on
Indebtedness" covenant.
Limitations on Actions Affecting Security for the Notes. The Company shall
not, and shall not permit any Subsidiary of the Company to, take or omit to
take any action, which action or omission would have the result of adversely
affecting or impairing the Liens and security interests in the Collateral in
favor of the Collateral Agent on behalf of the holders of the Notes and the
other secured parties thereunder, nor shall the Company or any such Subsidiary
grant any interest whatsoever in the Collateral except as expressly permitted
by the Indentures and the Security Documents.
Additional Subsidiary Guarantees. If the Company or any of its Subsidiaries
transfers or causes to be transferred, in one of a series of related
transactions, any Property having a book value in excess of $500,000 to any
Subsidiary that is not a Guarantor, or if the Company or any of its
Subsidiaries shall organize, acquire or otherwise invest in another Subsidiary
having total assets with a book value in excess of $500,000, then such
transferee or acquired or other Subsidiary shall (i) execute and deliver to
each of the Trustees a supplemental indenture in form reasonably satisfactory
to each of the Trustees pursuant to which such Subsidiary shall unconditionally
guarantee all of the Company's obligations under the Notes and each of the
Indentures on the terms set forth in the Indentures and (ii) deliver to each of
the Trustees an opinion of counsel that such supplemental indenture has been
duly authorized, executed and delivered by such Subsidiary and constitutes a
legal, valid, binding and enforceable obligation of such Subsidiary.
Thereafter, such Subsidiary shall be a Guarantor for all purposes of the
Indentures.
Insurance. The Company shall maintain, and shall cause its Subsidiaries to
maintain, insurance with responsible carriers against such risks and in such
amounts, and with such deductibles, retentions, self-insured amounts and co-
insurance provisions, as are customarily carried by similar businesses of
similar size, including property and casualty loss, workers' compensation and
interruption of business insurance. The Company shall provide, and shall cause
its Subsidiaries to provide, an Officers' Certificate as to compliance with the
foregoing requirements to each of the Trustees prior to the anniversary or
renewal date of each such policy, together with satisfactory evidence of such
insurance, which certificate shall expressly state such expiration date for
each policy listed.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in each of
the Indentures. Reference is made to the Indentures for the full definition of
all such terms as well as any other capitalized terms used herein for which no
definition is provided.
"Accreted Value" means, as of any date of determination prior to ,
1997, the sum of (a) the initial offering price of each Senior Secured Discount
Note and (b) the portion of the excess of the principal
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amount of each Senior Secured Discount Note over such initial offering price
which shall have been amortized through such date, such amount to be so
amortized on a daily basis and compounded semi-annually on each and
at the rate of % per annum from the date of issuance of the Senior Secured
Discount Notes through the date of determination computed on the basis of a
360-day year of twelve 30-day months.
"Acquired Indebtedness" means (i) with respect to any Person that becomes a
Subsidiary of the Company (or is merged into the Company or any of its
Subsidiaries) after the Issue Date, Indebtedness of, or Preferred Stock issued
by, such Person or any of its Subsidiaries existing at the time such Person
becomes a Subsidiary of the Company (or is merged into the Company or any of
its Subsidiaries) whether or not such Indebtedness was incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary of the Company
(or being merged into the Company or any of its Subsidiaries) and (ii) with
respect to the Company or any of its Subsidiaries, any Indebtedness assumed by
the Company or any of its Subsidiaries in connection with the acquisition of
any assets from another Person (other than the Company or any of its
Subsidiaries), whether or not such Indebtedness was incurred by such other
Person in connection with, or in contemplation of, such acquisition.
"Affiliate" means, when used with reference to a specified Person, any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Person specified. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
Notwithstanding the foregoing, the term "Affiliate" shall not include, (i) with
respect to the Company, any Subsidiary of the Company, (ii) with respect to any
Subsidiary of the Company, the Company or any other Subsidiary of the Company,
(iii) with respect to the Company or any Subsidiary of the Company, any benefit
plan in existence on the date of the Indentures, or any comparable plans
established subsequent thereto or (iv) Wabush.
"Applicable Portion" with respect to any Available Proceeds Amount shall mean
(i) in the case of the Senior Secured Notes, such Available Proceeds Amount
times a fraction the numerator of which shall be the aggregate principal amount
of Senior Secured Notes then outstanding plus all accrued and unpaid interest
thereon to the Unapplied Proceeds Offer Payment Date and the denominator of
which shall be the sum of (x) such amount and either (y) if the Unapplied
Proceeds Offer Payment Date is prior to , 1997, the Accreted Value of the
then outstanding Senior Secured Discount Notes through such payment date or (z)
on and after , 1997 the aggregate principal amount of the then
outstanding Senior Secured Discount Notes plus all accrued and unpaid interest
thereon to the Unapplied Proceeds Offer Payment Date and (ii) in the case of
the Senior Secured Discount Notes, the excess of such Available Proceeds Amount
over the amount calculated pursuant to clause (i) of this definition.
"Asset Sale" means any sale, transfer, conveyance, lease or other disposition
(including, without limitation, by way of merger, consolidation or sale and
leaseback or sale of shares of Capital Stock in any Subsidiary) of any Property
(each, a "transaction") by the Company or any of its Subsidiaries to any
Person; provided, that, (i) transactions involving Property other than
Collateral between the Company and a Subsidiary of the Company or transactions
involving Property other than Collateral between Subsidiaries of the Company;
and (ii) transactions (including sales or other transfers or dispositions of
receivables relating to the incurrence of Indebtedness otherwise permitted to
be incurred under the Indentures) in the ordinary course of business (including
such a transaction with or between Subsidiaries) shall not constitute "Asset
Sales." In addition, for purposes of this definition, the term "Asset Sale"
shall not include any sale, transfer, conveyance, lease or other disposition of
assets and properties of the Company that is governed by the provisions
relating to "Limitations on Mergers, Consolidations and Sales of Assets"
(except to the extent indicated therein) and "Limitations on Restricted
Payments."
"Available Proceeds Amount" means the amount of funds (whether held in the
Collateral Account or by the Company or any of its Subsidiaries) constituting:
(i) the portion of any Net Award or Net Proceeds that,
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pursuant to the Security Documents, the Company is not required to, or that the
Company has elected not to, apply to a Restoration of the affected Collateral
or (ii) the portion, if any, of the Net Cash Proceeds of an Asset Sale (net, in
the case of an Asset Sale of property that does not constitute Collateral, of
any Indebtedness repaid with the proceeds of such Asset Sale to the extent so
applied within 180 days of such Asset Sale to the repayment of such
Indebtedness; provided, that, Indebtedness subordinated to (a) the Notes or (b)
any other Indebtedness of the Company or any of its Subsidiaries may not be so
repaid; provided, further, that with respect to any Indebtedness so repaid
outstanding under a revolving credit facility there shall be an equivalent
permanent reduction in the committed amount thereof), that have not been
applied by the Company, within 180 days after the date of the Asset Sale giving
rise to such Net Cash Proceeds, to either (x) the acquisition or construction
of property constituting a Related Business Investment, in the case of Net Cash
Proceeds of property not constituting Collateral or (y) the acquisition or
construction of property constituting a Related Business Investment, which
property has been made subject to the Liens of the Security Documents as
contemplated by the Indenture and the Collateral Agency Agreement within such
180-day period, in the case of Net Cash proceeds of property constituting
Collateral; provided, however, that Net Cash Proceeds shall be deemed to have
been so applied, and the Liens contemplated above shall be deemed to have been
granted, within such 180-day period if (A) within such 180-day period, the
board of directors of the Company shall have adopted a capital expenditure plan
contemplating the application of such Net Cash Proceeds in a Related Business
Investment and the Company shall have taken significant steps to implement such
plan, (B) such plan shall have been fully implemented within 180 days after the
date of adoption of such plan and (C) to the extent such plan involves the
acquisition or construction of property required to be made subject to the
Liens of the Security Documents, as contemplated above, such Liens shall have
been granted in accordance with the provisions of the applicable Indenture and
the Collateral Agency Agreement within 180 days after the date of adoption of
such plan.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, or other equivalents (however designated) of or in
such Person's capital stock, and options, rights or warrants to purchase such
capital stock, whether now outstanding or issued after the Issue Date,
including, without limitation, all Common Stock and Preferred Stock.
"Capitalized Lease Obligations" of any Person means the obligations of such
Person to pay rent or other amounts under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP; and the
amount of such obligation shall be the capitalized amount thereof determined in
accordance with GAAP.
"Collateral" means, collectively, all of the property and assets that are
from time to time subject to the Lien of any of the Security Documents.
"Collateral Account" means the collateral account to be established by the
Collateral Agent pursuant to the Indentures.
"Commodity Agreement" of any Person means any option or futures contract or
similar agreement or arrangement designed to protect such Person or any of its
Subsidiaries against fluctuations in commodity prices.
"Consolidated Cash Flow Available for Fixed Charges" means, for any period,
on a consolidated basis for the Company and its Subsidiaries, the sum for such
period of (i) Consolidated Net Income, (ii) income taxes with respect to such
period determined in accordance with GAAP, (iii) interest expense for such
period determined in accordance with GAAP and (iv) depreciation and
amortization expenses (including, without duplication, amortization of debt
discount and debt issue costs and amortization of previously capitalized
interest to cost of sales) and other non-cash charges to earnings which reduced
Consolidated Net Income (excluding any non-cash charge to the extent that such
non-cash charge requires an accrual of or a reserve for cash charges for any
future period), determined in accordance with GAAP.
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"Consolidated Fixed Charges" of the Company for any period means the sum of:
(i) the aggregate amount of interest which, in conformity with GAAP, would be
set forth opposite the caption "interest expense" or any like caption on a
consolidated income statement for the Company and its Subsidiaries (including,
but not limited to, imputed interest included on Capitalized Lease Obligations,
all commissions, discounts and other fees and charges owed with respect to
letters of credit and banker's acceptance financing, the net costs associated
with Commodity Agreements, Currency Agreements and Interest Protection
Agreements, amortization of other financing fees and expenses, the interest
portion of any deferred payment obligation, amortization of discount, premium,
if any, and all other non-cash interest expense other than previously
capitalized interest amortized to cost of sales), plus (ii) interest incurred
during the period and capitalized by the Company and its Subsidiaries, on a
consolidated basis in accordance with GAAP, plus (iii) the amount of Preferred
Stock Dividends declared by the Company and any of its Subsidiaries on any
Disqualified Stock (other than such Preferred Stock Dividends payable to the
Company or any Wholly Owned Subsidiary) whether or not paid during such period;
provided that, in making such computation, the Consolidated Fixed Charges
attributable to interest on any Indebtedness computed on a pro forma basis and
bearing a floating interest rate shall be computed as if the rate in effect
(after giving effect to any Interest Protection Agreement) on the date of
computation will be the applicable rate for the entire period.
"Consolidated Net Income" of the Company for any period means the net income
(or loss) of the Company and its Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP; provided that there shall be
excluded from the computation of net income (loss) (to the extent otherwise
included therein) without duplication: (i) the net income (or loss) of any
Person (other than a Subsidiary of the Company) in which any Person other than
the Company or any of its Subsidiaries has an ownership interest, except to the
extent that any such income has actually been received by the Company or any of
its Subsidiaries in the form of cash dividends or similar cash distributions
during such period; (ii) the net income (or loss) of any Person that accrued
prior to the date that (a) such Person becomes a Subsidiary of the Company or
is merged into or consolidated with the Company or any of its Subsidiaries or
(b) the assets of such Person are acquired by the Company or any of its
Subsidiaries, except, for purposes of a pro forma calculation pursuant to
clause (c) of the second sentence of the first paragraph of the "Limitations on
Indebtedness" covenant, the net income (or loss) of such Person shall be taken
into account for the full four-quarter period for which the calculation is
being made; (iii) the net income of any Subsidiary of the Company to the extent
that (but only as long as) the declaration or payment of dividends or similar
distributions by such Subsidiary of that income is not permitted by operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to the Subsidiary
during such period; (iv) any gain or loss, together with any related provisions
for taxes on any such gain or loss, realized during such period by the Company
or any of its Subsidiaries upon (a) the acquisition of any securities, or the
extinguishment of any Indebtedness, of the Company or any of its Subsidiaries
or (b) any Asset Sale by the Company or any of its Subsidiaries; (v) any
extraordinary gain or loss, together with any related provision for taxes on
any such extraordinary gain or loss, realized by the Company or any of its
Subsidiaries during such period; and (vi) in the case of a successor to the
Company by consolidation, merger or transfer of its assets, any earnings of the
successor prior to such merger, consolidation or transfer of assets.
"Consolidated Tangible Net Worth" means, with respect to any Person, the
consolidated stockholder's equity (including any Preferred Stock that is
classified as equity under GAAP, other than Disqualified Stock) of such Person
and its Subsidiaries, as determined in accordance with GAAP, less the book
value of all Intangible Assets reflected on the consolidated balance sheet of
the Company and its Subsidiaries as of such date.
"Currency Agreement" of any Person means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect such Person or any of its Subsidiaries against fluctuations in currency
values.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, (i) matures or is
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mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the final maturity date of the Senior Secured Notes or the Senior
Secured Discount Notes, as the case may be, or (ii) is convertible into or
exchangeable for (whether at the option of the issuer or the holder thereof)
(a) debt securities or (b) any Capital Stock referred to in (i) above, in each
case, at any time prior to the final maturity date of the Senior Secured Notes
or the Senior Secured Discount Notes, as the case may be.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, as in effect on the Issue Date.
"Guarantor" means each of (i) Acme Steel Company, a Delaware corporation,
Alabama Metallurgical Corporation, a Washington corporation, Acme Packaging
Corporation, a Delaware corporation, Alpha Tube Corporation, a Delaware
corporation, Universal Tool & Stamping Co., Inc., an Indiana corporation, Alta
Slitting Corporation, a Delaware corporation and Acme Steel Company
International, Inc. a Barbados corporation and (ii) each of the Company's
Subsidiaries that becomes a guarantor of the Notes pursuant to the provisions
of the Indentures.
"Indebtedness" of any Person means, without duplication, (i) any liability of
such Person (a) for borrowed money, or under any reimbursement obligation
relating to a letter of credit, (b) evidenced by a bond, note, debenture or
similar instrument (including a purchase money obligation) given in connection
with the acquisition of any businesses, properties or assets of any kind or
with services incurred in connection with capital expenditures, or (c) in
respect of Capitalized Lease Obligations, (ii) any Indebtedness of others that
such Person has guaranteed or that is otherwise its legal liability, (iii) to
the extent not otherwise included, obligations under Currency Agreements,
Commodity Agreements or Interest Protection Agreements, (iv) Disqualified Stock
of such Person and (v) all Indebtedness of others secured by a Lien on any
asset of such Person, and which is not otherwise assumed by such Person,
provided that Indebtedness shall not include accounts payable (including,
without limitation, accounts payable to such Person by any of its Subsidiaries
or to any such Subsidiary by such Person or any of its other Subsidiaries, in
each case, in accordance with customary industry practice) or liabilities to
trade creditors of such Person arising in the ordinary course of business. The
amount of Indebtedness of any Person at any date shall be (a) the outstanding
balance at such date of all unconditional obligations as described above, (b)
the maximum liability of such Person for any contingent obligations under
clause (ii) above at such date and (c) in the case of clause (v) above, the
lesser of (l) the fair market value of any asset subject to a Lien securing the
Indebtedness of others on the date that the Lien attaches and (2) the amount of
the Indebtedness secured.
"Intangible Assets" of any Person means all unamortized debt discount and
expense, unamortized deferred charges, goodwill, patents, trademarks, service
marks, trade names, copyrights, write-ups of assets over their prior carrying
values (other than write-ups which occurred prior to the Issue Date and other
than, in connection with the acquisition of an asset, the write-up of the value
of such asset (within one year of its acquisition) to its fair market value in
accordance with GAAP) and all other items which would be treated as intangibles
on the consolidated balance sheet of the Company and its Subsidiaries prepared
in accordance with GAAP.
"Interest Protection Agreement" of any Person means any interest rate swap
agreement, interest rate collar agreement, option or future contract or other
similar agreement or arrangement designed to protect such Person or any of its
Subsidiaries against fluctuations in interest rates.
"Investment" of any Person means (i) all investments by such Person in any
other Person in the form of loans, advances or capital contributions, (ii) all
guarantees of Indebtedness or other obligations of any other Person by such
Person, (iii) all purchases (or other acquisitions for consideration) by such
Person of
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Indebtedness, Capital Stock or other securities of any other Person and (iv)
all other items that would be classified as investments (including, without
limitation, purchases of assets outside the ordinary course of business) on a
balance sheet of such Person prepared in accordance with GAAP.
"Issue Date" means the date on which the Notes are originally issued under
the Indentures.
"Lien" means, with respect to any Property, any mortgage, deed of trust,
lien, pledge, lease, easement, restriction, covenant, right-of-way, charge,
security interest or encumbrance of any kind or nature in respect of such
Property. For purposes of this definition, the Company shall be deemed to own
subject to a Lien any Property which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such Property.
"Net Award" has the meaning assigned to such term in the Security Documents
but generally means the proceeds award or payment from any condemnation or
other eminent domain proceeding regarding all or any portion of the Collateral
less collection expenses.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or cash equivalents including payments in respect of deferred
payment obligations when received in the form of cash or cash equivalents
received by the Company or by any of its Subsidiaries from such Asset Sale
(except to the extent that such obligations are sold with recourse to the
Company or to any Subsidiary of the Company) net of (a) reasonable out-of-
pocket expenses and fees relating to such Asset Sale (including, without
limitation, brokerage, legal, accounting and investment banking fees and sales
commissions) to the extent actually paid, (b) taxes paid or payable ((1)
including, without limitation, income taxes reasonably estimated to be actually
payable as a result of any disposition of property within two years of the date
of disposition and (2) after taking into account any reduction in tax liability
due to available tax credits or deductions and any tax sharing arrangements),
(c) in the case of any Asset Sale that does not involve any portion of the
Collateral, repayment of Indebtedness that is required by the terms thereof to
be repaid in connection with such Asset Sale to the extent so repaid in cash
and (d) appropriate amounts to be provided by the Company or by any Subsidiary
of the Company, as the case may be, as a reserve, in accordance with GAAP
consistently applied, against any liabilities associated with such Asset Sale
and retained by the Company or by any Subsidiary of the Company, as the case
may be, after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale.
"Net Proceeds" has the meaning assigned to such term in the Security
Documents but generally means the insurance proceeds paid as the result of the
destruction or condemnation of all or any portion of the Collateral less
collection expenses.
"Permitted Indebtedness" means (i) Indebtedness of the Company and its
Subsidiaries outstanding immediately following the Issue Date; (ii)
Indebtedness under the Working Capital Facility which does not exceed $80
million principal amount outstanding at any one time; (iii) the Notes; (iv) the
Guarantees; (v) Indebtedness in respect of obligations of the Company to each
of the Trustees under the Indentures; (vi) intercompany debt obligations
(including intercompany notes) of the Company and each of its Subsidiaries;
provided, however, that the obligations of the Company to any of its
Subsidiaries with respect to such Indebtedness shall be subject to a
subordination agreement between the Company and its Subsidiaries providing for
the subordination of such obligations in right of payment from and after such
time as all Notes issued and outstanding shall become due and payable (whether
at stated maturity, by acceleration or otherwise) to the payment and
performance of the Company's obligations under each of the Indentures and the
Notes; provided further, that any Indebtedness of the Company or any of its
Subsidiaries owed to any other Subsidiary of the Company that ceases to be such
a Subsidiary shall be deemed to be incurred and shall be treated as an
incurrence for purposes of the first paragraph of the covenant described under
"Limitations on Indebtedness" at the time the Subsidiary in question ceases to
be a Subsidiary of the Company; and (vii) Indebtedness of the Company or its
Subsidiaries under any Currency Agreements, Commodity Agreements or Interest
Protection Agreements.
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"Permitted Investments" means (a) (i) obligations of or guaranteed by the
U.S. government, its agencies or government-sponsored enterprises; (ii) short-
term commercial bank and corporate obligations that have received the highest
rating from two of the following rating organizations: Standard & Poor's
Corporation ("S&P"), Moody's Investor Services, Inc. ("Moody's"), Duff & Phelps
Credit Rating Co., Fitch Investor Service, Inc., IBCA Inc. and Thomson
Bankwatch, Inc.; (iii) money market preferred stocks which, at the date of
acquisition and at all times thereafter, are accorded ratings of at least AA-
or Aa3 by S&P or Moody's, respectively; (iv) tax-exempt obligations that are
accorded ratings at the time of purchase of at least A or A2 (or equivalent
short-term ratings) by S&P or Moody's, respectively; (v) master repurchase
agreements with foreign or domestic banks having a capital and surplus of not
less than $250,000,000 or primary dealers so long as such agreements are
collateralized with obligations of the U.S. government or its agencies at a
ratio of 102%, or with other collateral rated at least AA or Aa2 by S&P or
Moody's, respectively, at a ratio of 103% and, in either case, marked-to-market
weekly and so long as such securities shall be held by a third-party agent; and
(vi) guaranteed investment contracts and/or agreements of a bank, insurance
company or other institution whose unsecured, uninsured and unguaranteed
obligations (or claims-paying ability) have at the time of purchase ratings of
at least AAA or Aaa by S&P or Moody's, respectively. In no event shall any of
the Permitted Investments described in clauses (i) through (vi) above have a
final maturity more than two years from the date of purchase; provided,
however, that in the event of a Qualified Defeasance Transaction, Permitted
Investments used to defease the defeased Indebtedness may have a final maturity
up to the date of the final maturity of the Indebtedness so defeased.
"Permitted Liens" means (i) (x) with respect to Property other than
Collateral, Liens existing on the Issue Date to the extent and in the manner
such Liens are in effect on the Issue Date and (y) with respect to Collateral,
Liens existing on the Issue Date to the extent specifically permitted in the
appropriate Security Document, (ii) Liens on accounts receivable and inventory
of the Company and its Subsidiaries securing any Indebtedness incurred under
the Working Capital Facility, (iii) Liens securing Indebtedness collateralized
by Property of, or any shares of stock of or debt of, any corporation existing
at the time such corporation becomes a Subsidiary of the Company or at the time
such corporation is merged into the Company or any of its Subsidiaries,
provided that such Liens are not incurred in connection with, or in
contemplation of, such corporation becoming a Subsidiary of the Company or
merging into the Company or any of its Subsidiaries and the Acquired
Indebtedness could have been incurred pursuant to the first paragraph of the
"Limitations on Indebtedness" covenant (other than as Permitted Indebtedness),
(iv) Liens securing Refinancing Indebtedness used to refund, refinance or
extend Indebtedness referred to in the preceding clause (iii) provided that any
such Lien does not extend to or cover any Property, shares or debt other than
the Property, shares or debt securing the Indebtedness so refunded, refinanced
or extended, (v) Liens other than on Collateral in favor of the Company or any
of its Subsidiaries, (vi) Liens on Property (other than Collateral) of the
Company or any of its Subsidiaries acquired after the Issue Date in favor of
governmental bodies to secure progress or advance payments relating to such
Property, (vii) Liens on Property (other than Collateral) of the Company or any
of its Subsidiaries acquired after the Issue Date securing industrial revenue
or pollution control or other tax exempt bonds issued in connection with the
acquisition or refinancing of such Property to the extent the incurrence of
such Indebtedness is permitted pursuant to the provisions of the "Limitations
on Indebtedness" covenant, (viii) Liens to secure certain Indebtedness that is
otherwise permitted under the Indentures and that is used to finance the cost
of Property of the Company or any of its Subsidiaries acquired after the Issue
Date, provided that (a) any such Lien is created solely for the purpose of
securing Indebtedness representing, or incurred to finance, refinance or
refund, the cost (including sales and excise taxes, installation and delivery
charges and other direct costs of, and other direct expenses paid or charged in
connection with, such purchase or construction) of such Property, (b) the
principal amount of the Indebtedness secured by such Lien does not exceed 100%
of such cost, (c) the Indebtedness secured by such Lien is incurred by the
Company or its Subsidiary within 90 days of the acquisition of such Property by
the Company or its Subsidiary, as the case may be, (d) such Lien does not
extend to or cover any Property other than such item of Property and any
improvements on such item, (e) no Net Cash Proceeds derived from Collateral are
used to fund all or any portion of the cost of acquisition of such Property,
(f) prior to completion of the Modernization Project, Acme Steel shall not
incur or permit any Lien otherwise permitted under this clause (viii) and (g)
no Liens at any time may relate to assets which comprise the Modernization
Project, (ix) Liens
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on Property (other than the Collateral) to secure Indebtedness that is
otherwise permitted under each of the Indentures the aggregate principal amount
of which does not exceed $35 million outstanding at any one time, (x) statutory
liens or landlords', carriers', warehousemen's, mechanics', suppliers',
materialmen's, repairmen's or other like Liens arising in the ordinary course
of business and with respect to amounts not yet delinquent or being contested
in good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor and, with respect to any such Liens arising in respect of any of
the Collateral, only to the extent specifically permitted under the provisions
of the appropriate Security Document, (xi) Liens on the Collateral for the
benefit of (a) holders of the Senior Secured Notes or Senior Secured Discount
Notes, as the case may be, or (b) holders of Indebtedness arising at any time
after retirement of either series of Notes; provided, that the principal amount
of such Indebtedness does not exceed the original principal amount of such
retired series of Notes and the holders of such replacement Indebtedness
(acting through a designated representative) enter into a supplement to the
Collateral Agency Agreement in substantially the form annexed thereto and the
Company and such holders otherwise comply with the applicable provisions
thereof, (xii) Liens on the Collateral for the benefit of the holders of the
Notes and (xiii) easements, restrictions, reservations or rights of others for
right-of-way, sewers, electric lines, telegraph and telephone lines and other
similar purposes and other similar charges or encumbrances not interfering in
any material respect with the conduct of the business of the Company or any of
its Subsidiaries or, in the case of such charges or encumbrances which affect
the Collateral, to the extent permitted by the provisions of the Mortgage.
"Person" means any individual, corporation, limited or general partnership,
joint venture, association, joint stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
"Preferred Stock" of any Person means all Capital Stock of such Person which
has a preference in liquidation or a preference with respect to the payment of
dividends.
"Preferred Stock Dividend" of any Person means, for any dividend payable with
regard to Preferred Stock issued by such Person, the amount of such dividend
multiplied by a fraction, the numerator of which is one and the denominator of
which is one minus the maximum statutory combined federal, state and local
income tax rate (expressed as a decimal number between 1 and 0) then applicable
to such Person.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in
the most recent consolidated balance sheet of such Person and its Subsidiaries
under GAAP.
"Qualified Defeasance Transaction" means any transaction by the Company or
any of its Subsidiaries in which Indebtedness (and in the case such
Indebtedness is subordinate to any other Indebtedness of such Person the
Company has complied with the "Limitations on Restricted Payments" covenant) is
defeased; provided, however, that in order for such defeasance to be a
Qualified Defeasance Transaction the net present value of the cost of such
defeasance, including but not limited to the actual costs of any Permitted
Investments, the cost of any trustee or agent overseeing such defeasance and
any costs associated with the closing of such transaction, must be less than
the net present value of all present and future payments on the Indebtedness to
be defeased including but not limited to principal, interest and premium, if
any.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances or
extends any Indebtedness of the Company or its Subsidiaries outstanding on the
Issue Date or other Indebtedness permitted to be incurred by the Company or its
Subsidiaries pursuant to the terms of each of the Indentures, but only to the
extent that (i) the Refinancing Indebtedness is subordinated to the Notes to
the same extent as the Indebtedness being refunded, refinanced or extended, if
at all, (ii) the Refinancing Indebtedness is scheduled to mature either (a) no
earlier than the Indebtedness being refunded, refinanced or extended, or (b)
after the maturity date of the Senior Secured Notes or the Senior Secured
Discount Notes as the case may be, (iii) the portion, if any, of the
Refinancing Indebtedness that is scheduled to mature on or prior to the
maturity date of the
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Senior Secured Notes or Senior Secured Discount Notes as the case may be has a
weighted average life to maturity at the time such Refinancing Indebtedness is
incurred that is equal to or greater than the weighted average life to maturity
of the portion of the Indebtedness being refunded, refinanced or extended that
is scheduled to mature on or prior to the maturity date of the Senior Secured
Notes or the Senior Secured Discount Notes, as the case may be, and (iv) such
Refinancing Indebtedness is in an aggregate principal amount that is equal to
or less than the sum of (a) the aggregate principal amount then outstanding
under the Indebtedness being refunded, refinanced or extended, (b) the amount
of accrued and unpaid interest, if any, on such Indebtedness being refunded,
refinanced or extended and (c) the amount of customary fees, expenses and costs
related to the incurrence of such Refinancing Indebtedness; provided, that,
Indebtedness which is in an aggregate principal amount greater than the sum of
(a), (b) and (c) of this clause (iv) shall constitute Refinancing Indebtedness
to the extent of the sum of (a), (b) and (c) if the amount of Indebtedness in
excess of the sum of (a), (b) and (c) could otherwise be incurred under the
"Limitations on Indebtedness" covenant.
"Related Business Investment" means any Investment, capital expenditure or
other expenditure by the Company or any Subsidiary of the Company in Property
or assets (other than the Property or assets subject to any Lien except for (1)
with respect to any Available Proceeds Amount resulting from an Asset Sale
involving Collateral, the Lien of the Security Documents and (2) with respect
to any Available Proceeds Amount resulting from an Asset Sale not involving
Collateral, the Lien of any instruments or documents that secured Indebtedness
that was secured by the assets subject to such Asset Sale) which is related to
the business of the Company and its Subsidiaries as it is conducted on the date
of the Asset Sale giving rise to the Asset Sale Proceeds to be reinvested.
"Restoration" has the meaning assigned to such term in each of the Mortgages
but generally means the restoration of all or any portion of the Collateral in
connection with any destruction or condemnation thereof.
"Restricted Investment" means, with respect to any Person, any Investment by
such Person in any (i) of its Affiliates or in any Person that becomes an
Affiliate as a result of such Investment, (ii) executive officer or director of
such Person, and (iii) executive officer or director of any Affiliate of such
Person; provided that loans or advances made in the ordinary course of business
for travel, relocation or similar purposes, shall not constitute Restricted
Investments.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution on Capital Stock of the
Company or any Subsidiary of the Company or any payment made to the direct or
indirect holders (in their capacities as such) of Capital Stock of the Company
or any Subsidiary of the Company (other than (a) dividends or distributions
payable solely in Capital Stock (other than Disqualified Stock) and (b) in the
case of Subsidiaries of the Company, dividends or distributions payable to the
Company or to a Subsidiary of the Company); (ii) the purchase, redemption or
other acquisition or retirement for value of any Capital Stock, or any option,
warrant or other right to acquire shares of Capital Stock, of the Company or
any of its Subsidiaries; (iii) the making of any principal payment on, or the
purchase, defeasance, repurchase, redemption or other acquisition or retirement
for value, prior to any scheduled maturity, scheduled repayment or scheduled
sinking fund payment, of any Indebtedness of the Company or any of its
Subsidiaries which is subordinated in right of payment to the Notes (including
any guarantees thereof); and (iv) the making of any Restricted Investment or
guarantee of any Restricted Investment in any Person.
"Security Documents" means, collectively, the Security Agreement, the
Mortgage, the Stock Pledge Agreements (described under "Security" above), the
Disbursement Agreement, the Collateral Agency Agreement and the Intercreditor
Agreement and all security agreements, mortgages, deeds of trust, collateral
assignments, or other instruments evidencing or creating any security interest
in favor of the Collateral Agent in all or any portion of the Collateral, in
each case as amended, amended and restated, supplemented or otherwise modified
from time to time.
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"Significant Subsidiary" mean any Subsidiary of the Company which would
constitute a "significant subsidiary" as defined in Rule 1.02 of Regulation S-X
under the Securities Act and the Exchange Act.
"Subsidiary" means, with respect of any Person, any corporation or other
entity of which a majority of the Capital Stock or other ownership interests
having ordinary voting power to elect a majority of the Board of Directors or
other persons performing similar functions are at the time directly or
indirectly owned or controlled by such Person.
"Unapplied Proceeds Offer Payment Date" means, with respect to any Available
Proceeds Amount from an Asset Sale, the earlier of (x) the 180th day following
receipt of such Available Proceeds Amount or (y) such earlier date on which an
Unapplied Proceeds Offer shall expire; provided, however, that to the extent
that the board of directors of the Company shall have adopted a capital
expenditure plan contemplating the application of Net Cash Proceeds from an
Asset Sale to a Related Business Investment and the Company shall have taken
significant steps to implement such plan within 180 days of an Asset Sale, the
Unapplied Proceeds Offer Payment Date with respect thereto shall be the 180th
day after the adoption of such plan.
"Wabush" means the entity called Wabush Mines, a Canadian joint venture,
including Wabush Iron Co. Ltd., an Ohio corporation and one of the joint
venturers of Wabush Mines, which is engaged in the mining, beneficiation and
pelletizing of iron ore or any successor to either such entity, any entity of
approximately equivalent value substituted therefor or any investment of
approximately equivalent value and purpose.
"Wholly Owned Subsidiary" of any Person means, at any time, a Subsidiary all
of the Capital Stock of which (except directors' qualifying shares, if any) are
at the time owned directly or indirectly by such Person.
"Working Capital Facility" means the revolving credit facility, as the same
may be amended or supplemented from time to time, and any refinancing or
replacement of such credit facility or any successor credit facility so long as
the aggregate amount permitted to be borrowed under any such amended,
supplemented, refinanced, replaced or successor credit facility does not exceed
the lesser of (i) $80 million outstanding at any time or (ii) an amount equal
to the sum of 85% of the face value of all "eligible receivables" of the
Company and its Subsidiaries party to such credit facility plus 50% of the
lower of the fair market value or cost of their "eligible inventory" (as such
terms are defined for purposes of such credit facility).
EVENTS OF DEFAULT AND NOTICE THEREOF
The term "Event of Default" when used in each of the Indentures will mean any
one of the following: (1) failure of the Company to pay interest on the
applicable Notes when due and continuance of such failure for 30 days; (ii)
failure of the Company to pay principal of or premium on the applicable Notes
when due, whether at maturity, upon acceleration, redemption or otherwise;
(iii) cessation of any Guarantee to be in full force and effect or the
declaration of any Guarantee to be null and void and unenforceable or the
finding of any Guarantee to be invalid or the denial of any Guarantor of its
liability under its Guarantee (other than by reason of release of a Guarantor
in accordance with the terms of the Indentures); (iv) failure of the Company or
any Guarantor to perform any other covenant in the applicable Indenture or in
any of the Security Documents for 60 days after notice from the applicable
Trustee or the holders of 25% in principal amount of the applicable Notes
outstanding (except in the case of a default with respect to the "Change of
Control" and "Limitations on Mergers, Consolidations and Sales of Assets"
covenants, which will constitute Events of Default with notice but without
passage of time); (v) failure of the Company or any of its Subsidiaries to make
any payment when due (after giving effect to any applicable grace period) under
the Senior Secured Notes or the Senior Secured Discount Notes, as the case may
be, and any other senior Indebtedness in excess of $5,000,000; (vi) failure of
the Company or any of its Subsidiaries to perform any term, covenant, condition
or provision of the Senior Secured Notes or the Senior Secured Discount Notes,
as
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the case may be, or any other Indebtedness in excess of $5,000,000 individually
or $10,000,000 in the aggregate, which failure results in the acceleration of
the maturity of such Indebtedness; (vii) a final judgment or judgments for the
payment of money not fully covered by valid and collectable insurance, which
judgments exceed $5,000,000 individually or $10,000,000 in the aggregate, is
entered against the Company or any of its Subsidiaries and is not satisfied,
stayed, annulled or rescinded within 60 days of being entered; and (viii)
certain events of bankruptcy, insolvency or reorganization of the Company or
any of the Guarantors.
Each of the Indentures will provide that the applicable Trustee shall, within
90 days after the occurrence of any Default (the term "Default" to include the
events specified above without grace or notice) known to it, give to the
holders of the applicable Notes notice of such Default; provided that, except
in the case of a Default in the payment of principal of or interest on any of
the Notes, the applicable Trustee shall be protected in withholding such notice
if it in good faith determines that the withholding of such notice is the
interest of the holders of the applicable Notes. The Indentures will require
the Company to certify to each of the Trustees annually as to whether any
Default occurred during such year.
In case an Event of Default (other than an Event of Default described in
clause (viii) above with respect to the Company and any Significant
Subsidiaries) shall occur and be continuing, the Trustees or the holders of at
least 25% in aggregate principal amount of the applicable Notes then
outstanding, by notice in writing to the Company (and to the applicable Trustee
if given by the holders of Notes), may declare all unpaid principal and accrued
interest on the applicable Notes then outstanding to be due and payable
immediately. Such acceleration may be annulled and past Defaults (except,
unless theretofore cured, a Default in payment of principal of or interest on
the applicable Notes) may be waived by the holder of a majority in principal
amount of the applicable Notes then outstanding, upon the conditions provided
in the applicable Indenture. If an Event of Default described in clause (viii)
above occurs with respect to the Company or any Significant Subsidiaries and is
continuing, then the principal of, premium, if any, and accrued interest on,
all the Notes will be due and payable immediately without any declaration or
other act on the part of either of the Trustees or any holder of a Note.
Each of the Indentures will provide that no holder of a Note may pursue any
remedy under the applicable Indenture unless the applicable Trustee shall have
failed to act after notice of an Event of Default and request by holders of at
least 25% in principal amount of the applicable Notes and the offer to the
applicable Trustee of indemnity satisfactory to it; provided, however, that
such provision does not affect the right to sue for enforcement of any overdue
payment on the Notes.
POSSESSION, USE AND RELEASE OF COLLATERAL
Unless an Event of Default shall have occurred and be continuing, the Company
will have the right to remain in possession and retain exclusive control of the
Collateral, to operate the Collateral and to collect, invest and dispose of any
income thereon (subject to applicable limitations in each of the Indentures).
Upon compliance by the Company with the conditions set forth below in respect
of any Asset Sale, the Collateral Agent will release the Released Interests (as
defined below) from the Lien of the Security Documents and reconvey the
Released Interests to the Company.
The Company will have the right to obtain a release of items of Collateral
(the "Released Interests") subject to an Asset Sale upon compliance with the
condition that the Company deliver to the Collateral Agent the following:
(a) A notice from the Company requesting the release of Released
Interests, (i) describing the proposed Released Interests, (ii) specifying
the value of such Released Interests on a date within 60 days of such
Company notice (the "Valuation Date"), (iii) stating that the purchase
price to be received is at least equal to the fair market value of the
Released Interests, (iv) stating that the release of such Released
Interests will not interfere with the Collateral Agent's ability to realize
the value of the remaining
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Collateral and will not impair the maintenance and operation of the
remaining Collateral, (v) confirming the sale of, or an agreement to sell,
such Released Interests in a bona fide sale to a person that is not an
Affiliate of the Company or, in the event that such sale is to a person
that is an Affiliate, confirming that such sale is made in compliance with
the provisions set forth in the "Limitation on Transactions with
Affiliates" covenant, (vi) certifying that such Asset Sale complies with
the terms and conditions of each of the Indentures with respect thereto,
and (vii) in the event there is to be a substitution of Property for the
Collateral subject to the Asset Sale, specifying the Property intended to
be substituted for the Collateral to be disposed of;
(b) An Officers' Certificate of the Company stating that (i) such Asset
Sale covers only the Released Interests and complies with the terms and
conditions of each of the Indentures with respect to Asset Sales, (ii) all
Net Cash Proceeds from the sale of any of the Released Interests will be
applied pursuant to the provisions of the Indentures in respect of Asset
Sales, (iii) there is no Default or Event of Default in effect or
continuing on the date thereof, the Valuation Date or the date of such
Asset Sale, (iv) the release of the Collateral will not result in a Default
or Event of Default under either of the Indentures, and (v) all conditions
precedent in each of the Indentures relating to the release in question
have been complied with; and
(c) All documentation required by the Trust Indenture Act, if any, prior
to the release of Collateral by the Trustee and, in the event there is to
be a substitution of Property for the Collateral subject to the Asset Sale,
all documentation necessary to effect the substitution of such new
Collateral.
So long as no Event of Default shall have occurred and be continuing, the
Company may, without any release or consent by the Collateral Agent, sell or
otherwise dispose of any machinery, equipment, furniture, apparatus, tools or
implements or other similar property subject to the Lien of the Security
Documents, which (i) in any single transaction has a fair market value of
$25,000 or less or (ii) shall have become worn out, obsolete or otherwise in
need of replacement or repair; provided that, in the case of this clause (ii)
such sale or other disposition is in conjunction with a substantially
concurrent transaction whereby additional personal property is made subject to
the Lien of the Security Documents.
MODIFICATION AND WAIVER
Modification and amendment of each of the Indentures or any Security Document
may be made by the Company and the applicable Trustee with the consent of the
holders of not less than a majority in principal amount of the applicable Notes
outstanding, provided that no such modification or amendment may, without the
consent of the holder of each Note affected thereby, (i) reduce the rate, or
change the time or place for payment, of interest on any Note, or reduce any
amount payable on the redemption thereof or upon a Change of Control, (ii)
reduce the principal, or change the fixed maturity or place of payment, of any
Note, (iii) change the currency of payment of principal of or interest on any
Note, (iv) impair the right to institute suit for the enforcement of any
payment on or with respect to any Note, (v) reduce the principal amount of
outstanding Notes necessary to modify or amend the Indenture or any Security
Document, (vi) modify any of the applicable provisions under the "Repurchase of
Notes Upon Change of Control" covenant, (vii) affect adversely the ranking or
security of the Notes, or (viii) modify any of the foregoing provisions or
reduce the principal amount of outstanding Notes necessary to waive any
covenant or past Default. Holders of not less than a majority in principal
amount of the applicable Notes outstanding may waive certain past Defaults. See
"--Events of Default and Notice Thereof".
The Indentures, the Security Documents or the Notes may be amended or
supplemented, without the consent of any holder of the Notes, (i) to cure any
ambiguity, defect or inconsistency, (ii) to give effect to the release of any
Released Interests, (iii) to evidence the succession of another Person to the
Company or any Subsidiary of the Company and the assumption by any such
successor of the covenants of the Company or such Subsidiary, as the case may
be, (iv) to evidence the release and discharge of the obligations of any
Subsidiary of the Company the Capital Stock of which has been sold or otherwise
disposed of in accordance with the applicable provisions of each of the
Indentures or (v) to make any change that does not have a material adverse
effect on the rights of any holder of the Notes.
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DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the obligations
of the Company discharged in accordance with the provisions set forth below
with respect to the Senior Secured Notes and/or the Senior Secured Discount
Notes then outstanding. Such defeasance means that the Company shall be deemed
to have paid and discharged the entire indebtedness represented by such
outstanding Notes and to have satisfied all its other obligations under such
Notes, the applicable Indenture and the Security Documents, except for (i) the
rights of holders of such outstanding Notes to receive payments in respect of
the principal of, premium, if any, and interest on such Notes when such
payments are due, (ii) the Company's obligations with respect to such Notes
concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights,
powers, trusts, duties and immunities of the applicable Trustee, and (iv) the
defeasance provisions of the applicable Indenture. In addition, the Company
may, at its option and at any time, elect to have the obligations of the
Company released with respect to certain covenants that are described in the
Note Indenture and/or the Discount Note Indenture ("covenant defeasance") and
any omission to comply with such obligations shall not constitute a Default or
an Event of Default with respect to the applicable Notes. In the event covenant
defeasance occurs, certain events (not including non-payment, bankruptcy and
insolvency events) described under "Events of Default and Notice Thereof" will
no longer constitute an Event of Default with respect to such Notes.
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the applicable Notes, cash in U.S. dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm
of independent public accountants, to pay the principal of, premium, if any,
and interest on such outstanding Notes on the stated maturity of such principal
or installment of principal or interest; (ii) in the case of defeasance, the
Company shall have delivered to the applicable Trustee an opinion of counsel in
the United States stating that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the Issue
Date, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such defeasance had not
occurred; (iii) in the case of covenant defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States to the
effect that the holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
covenant defeasance had not occurred; (iv) no Default or Event of Default shall
have occurred and be continuing on the date of such deposit; (v) such
defeasance or covenant defeasance shall not result in a breach or violation of,
or constitute a default under, the Indentures or any other material agreement
or instrument to which the Company is a party or by which it is bound; (vi) in
the case of defeasance or covenant defeasance, the Company shall have delivered
to the applicable Trustee an opinion of counsel to the effect that after the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; (vii) the Company shall have delivered
to the applicable Trustee an officers' certificate stating that the deposit was
not made by the Company with the intent of preferring the holders of the
applicable Notes over the other creditors of the Company with the intent of
defecting, hindering, delaying or defrauding creditors of the Company or
others; and (viii) the Company shall have delivered to the applicable Trustee
an officers' certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to either the defeasance or the
covenant defeasance, as the case may be, have been complied with.
SATISFACTION AND DISCHARGE
Each of the Indentures will cease to be of further effect (except as to
surviving rights of registration of transfer or exchange of the applicable
Notes, as expressly provided for in the applicable Indenture) as to all
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outstanding Notes issued thereunder when (i) either (a) all such Notes
theretofore authenticated and delivered (except lost, destroyed or wrongfully
taken Notes which have been replaced or paid) have been delivered to the
applicable Trustee for cancellation or (b) all such Notes not theretofore
delivered to the applicable Trustee for cancellation have become due and
payable or will become due and payable within one year and the Company has
irrevocably deposited or caused to be deposited with the applicable Trustee
funds in an amount sufficient to pay and discharge the entire indebtedness for
principal of, premium, if any, and interest to the date of deposit (in the case
of the Notes that have become due and payable) or to maturity or the redemption
date on the Notes not theretofore delivered to the applicable Trustee for
cancellation; (ii) the Company has paid all other sums payable under the
applicable Indenture by the Company; and (iii) the Company has delivered to the
applicable Trustee an officers' certificate and an opinion of counsel each
stating that (A) all conditions precedent under the applicable Indenture
relating to the satisfaction and discharge of such Indenture have been complied
with and (B) such satisfaction and discharge will not result in a breach or
violation of, or constitute a default under, such Indenture or any other
material agreement or instrument to which the Company is a party or by which it
is bound.
CONCERNING THE TRUSTEES
Each of the Indentures will contain certain limitations on the rights of the
Trustees, should it become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. Each of the Trustees will be
permitted to engage in other transactions; provided, however, if it acquires
any conflicting interest (as defined in Section 310(b) of the Trust Indenture
Act), it must eliminate such conflict or resign.
The holders of a majority in principal amount of all outstanding Senior
Secured Notes or Senior Secured Discount Notes, as the case may be, will have
the right to direct the time, method and place of conducting any proceeding for
exercising any remedy or power available to the applicable Trustee, provided
that such direction does not conflict with any rule of law or with the
applicable Indenture.
In case an Event of Default shall occur (and shall not have been cured or
waived), each of the Trustees will be required to exercise its powers with the
degree of care and skill of a prudent person in the conduct of his own affairs.
Subject to such provisions, each of the Trustees will be under no obligation to
exercise any of its rights or powers under the applicable Indenture at the
request of any of the holders of the applicable Notes, unless they shall have
offered to the applicable Trustee security and indemnity satisfactory to it.
GOVERNING LAW
Each of the Indentures will provide that such Indenture and the Notes issued
thereunder will be governed by and construed in accordance with the internal
laws of the State of New York.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
RELATING TO AN INVESTMENT IN THE SENIOR SECURED DISCOUNT NOTES
The following is a summary of certain United States Federal income tax
consequences of an investment in the Senior Secured Discount Notes. The summary
is based upon the provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), existing and proposed regulations thereunder, published rulings
and judicial decisions, all as in effect and existing on the date hereof, and
all of which are subject to change (including retroactive change) at any time.
Except where noted, the summary deals only with Senior Secured Discount Notes
held as capital assets by initial purchasers who are United States Holders (as
defined) and does not deal with special situations, such as those of dealers in
securities, financial institutions, life insurance companies, holders whose
functional currency is not the U.S. dollar, or special rules with respect to
integrated transactions of which the ownership of the Senior Secured Discount
Notes is a part such as certain hedging transactions, or certain straddle or
conversion transactions.
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PROSPECTIVE PURCHASERS CONSIDERING AN INVESTMENT IN THE SENIOR SECURED
DISCOUNT NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE FEDERAL
INCOME TAX CONSIDERATIONS THAT MAY BE SPECIFIC TO THEM AS WELL AS ANY TAX
CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
UNITED STATES HOLDERS
"United States Holder" means a holder of Senior Secured Discount Notes that
is an individual who is a citizen or resident of the United States, a
corporation or partnership created or organized in or under the laws of the
United States or any political subdivision thereof, or an estate or trust the
income of which is includible in gross income for United States Federal income
tax purposes, regardless of source.
PAYMENTS OF INTEREST; ORIGINAL ISSUE DISCOUNT
The Senior Secured Discount Notes will be considered to bear original issue
discount ("OID"). Holders of the Senior Secured Discount Notes will be required
to include OID in gross income on the basis of a constant yield to maturity
over the term of the Senior Secured Discount Notes. As a result, a holder will
generally recognize taxable income with respect to the Senior Secured Discount
Notes as the OID accrues, whether or not cash payments of interest are made and
regardless of the holder's general method of accounting. Cash payments on the
Senior Secured Discount Notes will be treated first as payments of accrued OID
and then as payments of principal.
In accordance with Sections 1271 through 1275 of the Code and certain final
Treasury regulations published thereunder on February 2, 1994 (the "OID
Regulations"), a debt instrument bears OID if its "stated redemption price at
maturity" exceeds its "issue price" by more than a de minimis amount. The issue
price of a Senior Secured Discount Note will be the initial price at which a
substantial portion of the Senior Secured Discount Notes are sold (not
including sales to bond houses, brokers or similar persons or organizations
acting in the capacity of underwriters or wholesalers).
Under the OID Regulations, all payments under a debt instrument are included
in the "stated redemption price at maturity" except those unconditionally
required to be paid at least annually at a single fixed rate over the term of
the instrument ("qualified stated interest"). Because the Company is not
required to make cash interest payments on the Senior Secured Discount Notes
prior to , 1998, all payments thereon (including interest payments) will
be included in the Senior Secured Discount Notes' "stated redemption price at
maturity" as defined in the OID Regulations.
A holder of Senior Secured Discount Notes will be required to include in
gross income an amount equal to the sum of the daily portions of OID for each
day during the taxable year in which the instrument is held. The daily portions
of OID are determined by allocating to each day in an accrual period (any six-
month period, or shorter initial period, that ends on or ) the pro
rata portion of the OID allocable to the accrual period. The OID allocable to a
full accrual period will be the product of (i) the Senior Secured Discount
Notes' adjusted issue price at the beginning of the accrual period (the issue
price determined as described above, increased by prior accruals of OID and
decreased by prior cash payments) and (ii) the Senior Secured Discount Notes'
yield to maturity. In the case of the final accrual period, the allocable OID
is the difference between the amount payable at maturity and the adjusted issue
price at the beginning of the accrual period.
In general, the yield to maturity of a debt obligation is the discount rate
that, when applied to all payments made under the obligation, results in a
present value equal to the issue price of the obligation. In accordance with
the OID Regulations, this determination will be made (1) on the assumption that
the Company will not exercise its option to redeem the Senior Secured Discount
Notes, because this assumption results in a smaller yield to maturity, and (2)
on the assumption that a redemption will not occur as a result of a Change in
Control, because a Change in Control is not an event that is considered more
likely than not to occur. If a partial redemption in fact occurs, the
redemption payment will be treated as a payment in retirement of a portion of
the Senior Secured Discount Notes (as to which holders may recognize capital
gain or loss).
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The Company will furnish annually to the Internal Revenue Service (the "IRS")
and to record holders (other than certain exempt holders, including
corporations) information with respect to OID accruing while they hold the
Senior Secured Discount Notes. Such information will reflect the OID that would
accrue to an original holder of Senior Secured Discount Notes. Subsequent
holders may be required to adjust the OID, if any, they are required to report.
Acquisition Premium. If a holder (including an original purchaser) purchases
a Senior Secured Discount Note at a price that is less than or equal to its
stated redemption price at maturity but in excess of its adjusted issue price
(i.e., its issue price increased by any OID previously includible in the gross
income of prior holders, and reduced by any prior cash payments to prior
holders), the includible OID (as otherwise determined) will be reduced by an
amount equal to the OID multiplied by a fraction, the numerator of which is
such excess and the denominator of which is the OID for the period remaining to
maturity after the holder's purchase.
Election. A holder of a Senior Secured Discount Note, subject to certain
limitations, may elect to include in gross income all interest accruing thereon
under the constant yield method. For this purpose, interest includes stated and
unstated interest, acquisition discount, OID, de minimis OID, market discount
and de minimis market discount, as adjusted by any acquisition premium. If made
for an obligation that has "market discount" (see below), this election will
apply to all market discount obligations acquired by such holder on or after
the first day of the first taxable year to which the election applies.
Market Discount. The market discount provisions of the Code may affect the
tax consequences of holding or disposing of Senior Secured Discount Notes.
Those rules generally provide that if a holder purchases a debt instrument at a
market discount, any gain recognized upon disposition will constitute ordinary
interest income (rather than capital gain) to the extent that such gain does
not exceed the accrued market discount on such debt instrument at the time of
the disposition. "Market discount" generally means the excess, if any, of a
debt instrument's adjusted issue price over the price paid by the holder
therefor, subject to a de minimis exception. In addition, a holder acquiring a
Senior Secured Discount Note at a market discount may be required to defer the
deduction of a portion of the interest paid or accrued during the taxable year
on indebtedness incurred or maintained to purchase or carry such debt
instrument.
Any principal payment on a Senior Secured Discount Note acquired by a holder
at a market discount will constitute ordinary income (generally, interest
income) to the extent that it does not exceed the accrued market discount at
the time of such payment. For purposes of determining the tax treatment of
subsequent payments on, or dispositions of, Senior Secured Discount Notes,
accrued market discount will be reduced by amounts previously treated as
ordinary income.
A holder of a Senior Secured Discount Note acquired at a market discount may
elect to include market discount in gross income as such market discount
accrues, either on a straight-line basis or on a constant interest rate basis.
If made, this current-inclusion election will apply to all market discount
obligations acquired on or after the first day of the first taxable year to
which the election applies, and may not be revoked without the consent of the
IRS. If a holder of a Senior Secured Discount Note makes this election, the
foregoing rules with respect to (i) the recognition of ordinary interest income
on sales and other dispositions of such debt instruments, and (ii) the deferral
of interest deductions on indebtedness incurred or maintained to purchase or
carry such debt instruments, will not apply.
SALE OR OTHER DISPOSITION OF SENIOR SECURED DISCOUNT NOTES
A holder will generally recognize gain or loss upon the sale, exchange,
redemption, retirement or other disposition of a Senior Secured Discount Note
equal to the difference between the amount realized on the disposition and the
holder's adjusted tax basis in the Senior Secured Discount Note. A holder's
adjusted tax basis in a Senior Secured Discount Note generally will be the cost
of the Senior Secured Discount Note, increased by any OID or market discount
previously included in income by such holder, and decreased by cash payments
made to such holder with respect to the Senior Secured Discount Note.
85
<PAGE>
Subject to the market discount rules discussed above, a holder will recognize
long-term capital gain or loss on the disposition of a Senior Secured Discount
Note held for more than one year.
HIGH-YIELD DISCOUNT OBLIGATIONS
Sections 163(e) and 163(i) of the Code provide rules that affect the tax
treatment of certain high-yield debt obligations ("HYDOs"). The Senior Secured
Discount Notes will constitute HYDOs if their yield to maturity exceeds by more
than five percentage points the applicable federal rate (the "AFR") for
instruments with a similar maturity in effect for the calendar month in which
the Senior Secured Discount Notes are issued (7.38% compounded semiannually for
a ten-year debt instrument issued in June, 1994). If the Senior Secured
Discount Notes are HYDOs, the Company may not deduct any OID that accrues with
respect to the Senior Secured Discount Notes until it pays such amounts in
cash.
In addition, to the extent the Senior Secured Discount Notes' yield to
maturity exceeds the relevant AFR by more than six percentage points, some or
all of the OID will be "disqualified." Special rules apply to the "disqualified
portion" of OID: (i) the Company may not deduct such amounts, and (ii)
corporate holders may treat such amounts as a distribution for purposes of the
dividends received deduction provided by Section 243 of the Code (subject to
applicable limitations).
BACKUP WITHHOLDING
Certain holders may be subject to backup withholding at a rate of 31% with
respect to any OID paid on and proceeds derived from the disposition of the
Senior Secured Discount Notes. Backup withholding will apply only if the holder
(i) fails to furnish its taxpayer identification number ("TIN") which, for an
individual would be the holder's Social Security number, (ii) furnishes an
incorrect TIN, (iii) is notified by the IRS that it has failed to properly
report payments of interest and dividends or (iv) under certain circumstances,
fails to certify, under penalty of perjury, that it has furnished a correct TIN
and has not been notified by the IRS that it is subject to backup withholding
for failure to report interest and dividend payments. A holder that does not
provide a correct TIN may be subject to penalties imposed by the IRS. Any
amount withheld under these rules will be creditable against the holder's
United States Federal income tax liability.
DESCRIPTION OF WORKING CAPITAL FACILITY
The Company has accepted, subject to the negotiation and execution of the
final documentation, the principal terms and conditions of the Working Capital
Facility to replace the Company's existing revolving credit facility. It is
intended that final documentation of the Working Capital Facility will be
executed prior to the Note Offering and will contain customary conditions to
closing. Harris Trust and Savings Bank ("HTSB") and Lehman Commercial Paper
Inc., an affiliate of one of the Underwriters, will act as co-agents and HTSB
will act as administrative agent. The Working Capital Facility will provide
Acme Steel, Acme Packaging, Alpha Tube and Universal (the "Borrowers") with up
to $80 million to accommodate their ongoing working capital requirements and
for general corporate purposes. Within this overall limitation, borrowing
availability to each Borrower is limited to an amount equal to the sum of 85%
of the face value of eligible accounts receivable plus 50% of the loan value of
eligible inventory; provided, however, that the total loans outstanding at any
one time to any Borrower against eligible inventory may not exceed 40% of such
amount. The obligations of the Borrowers under the Working Capital Facility
will be guaranteed by the Company and will be secured by a first priority
security interest in all present and future accounts receivable and inventory
of the Borrowers and a negative pledge applicable to all assets of the
Borrowers other than the Collateral. Borrowing under the Working Capital
Facility will bear interest at a floating rate equal to, at the Company's
option, either (a) the greater of the applicable federal funds rate plus 1/2 of
1% or the prime rate announced by HTSB ("Base Rate Loans") or (b) reserve
adjusted LIBOR plus 2% ("LIBOR Rate Loans"). Base Rate Loans will be payable
monthly in arrears and LIBOR Rate Loans will be available for fixed periods of
30, 60, 90 or 180 days, payable on the last day of the applicable period, but
in any case, at least quarterly. The Working Capital facility will continue in
effect for three years after the date of execution thereof, subject to two one-
year extensions upon the agreement of all parties.
86
<PAGE>
The Working Capital Facility will require the Company to maintain a minimum
consolidated tangible net worth. The Company will also be obligated to maintain
at all times a ratio of consolidated current assets (including all funds held
by the Collateral Agent to fund the construction of the Modernization Project)
to consolidated current liabilities of at least 1.5. The Working Capital
Facility will also require the Company to maintain a ratio of funded
Indebtedness to capital of no more than .65 at all times and a ratio of the sum
of EBITDA, project expenses and non-restricted cash to the sum of cash interest
and 30% of the average loans outstanding under the Working Capital Facility of
not less than 1.05 calculated cumulatively on a rolling quarter basis. In
addition, the Working Capital Facility will limit the ability of the Company
and its subsidiaries to incur additional indebtedness, pay dividends or other
distributions or make loans or advances, merge, consolidate or sell assets or
pay dividends on subsidiary stock or make any other distributions or make loans
or advances to the Company in excess of 100% of each Subsidiary's EBITDA (as
defined therein) less maintenance capital expenditures as well as certain other
covenants and agreements typical in such facilities. The Borrowers will be
required to repay all loans outstanding under the Working Capital Facility upon
a change of control (as defined therein).
Events of default under the Working Capital Facility, which would entitle the
lenders thereunder to terminate the facility and to declare all amounts
outstanding thereunder to be immediately due and payable, will include, but not
be limited to, failure to pay any interest, principal or fees when due under
the Working Capital Facility; failure to meet any covenant or other agreement
contained in the Working Capital Facility or the untruth of any representation
or warranty made by the Company or the Borrowers therein; the attachment of
certain involuntary liens pursuant to ERISA, or the entry of certain final
judgments, upon the Company or any Borrowers; certain bankruptcy or other
insolvency proceedings, and certain defaults in other indebtedness of the
Company and the Borrowers. Any such event of default gives HTSB the right to
possess and sell the collateral securing the Borrowers' obligations.
UNDERWRITING
The Underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions of the Underwriting Agreement (the form of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part), to purchase from the Company, and the Company has agreed
to sell to each Underwriter, the respective principal amount of Senior Secured
Notes and Senior Secured Discount Notes set forth opposite their respective
names below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
PRINCIPAL AMOUNT OF SENIOR
OF SENIOR SECURED DISCOUNT
UNDERWRITERS SECURED NOTES NOTES
------------ ---------------- ----------------
<S> <C> <C>
Lehman Brothers Inc.................... $ $
BT Securities Corporation..............
------------ ----------
Total.............................. $175,000,000 $
============ ==========
</TABLE>
The Company has been advised that the Underwriters propose to offer the Notes
initially at the public offering prices set forth on the cover page of this
Prospectus, and to certain selected dealers at such public offering prices less
selling concessions of % of the principal amount of the Senior Secured
Notes and % of the principal amount of the Senior Secured Discount Notes.
The selected dealers may reallow concessions to certain dealers of % of the
principal amount of the Senior Secured Notes and % of the principal amount
of the Senior Secured Discount Notes. After the initial public offering of the
Notes, the public offering prices, the concessions to selected dealers and the
reallowances to other dealers may be changed by the Underwriters.
87
<PAGE>
The Company and the Guarantors, jointly and severally, have agreed in the
Underwriting Agreement to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments that the Underwriters may be required to make in respect thereof.
The Company has agreed to reimburse Lehman Brothers Inc. for a portion of the
fees and expenses of Hatch Associates Ltd. and Steltech Ltd. for the
preparation of the Report referred to herein. See "Modernization and Expansion
Project--Independent Review of the Modernization Project."
The Company has no plans to list the Notes on any securities exchange. The
Company has been advised by each Underwriter that it presently intends to make
a market in the Notes, however, they are not obligated to do so. Any such
market-making activity may be discontinued at any time, for any reason, without
notice. If each Underwriter ceases to act as a market maker for the Notes for
any reason, there can be no assurance that an active market for the Notes will
develop or, if a market does develop, at what prices the Notes will trade.
Lehman Brothers Inc. has from time to time provided financial advisory
services to the Company, including in connection with the Modernization
Project, for which it has received customary compensation. The Company has
agreed that Lehman Brothers Inc. may act as the Company's exclusive underwriter
for public offerings of securities of the Company until the second anniversary
of the completion of the Modernization Project. In addition, an affiliate of
Lehman Brothers Inc. will act as co-agent under the Working Capital Facility.
See "Description of Working Capital Facility."
LEGAL MATTERS
The validity of the authorization and issuance of the Notes will be passed
upon for the Company by Coffield Ungaretti & Harris, 3500 Three First National
Plaza, Chicago, Illinois 60602. Certain legal matters will be passed upon for
the Underwriter by Cahill Gordon & Reindel (a partnership including a
professional corporation), 80 Pine Street, New York, New York 10005.
EXPERTS
The audited financial statements included in this Prospectus have been so
included in reliance upon the report of Price Waterhouse, independent
accountants, and upon the authority of said firm as experts in auditing and
accounting. Hatch Associates Ltd. and Steltech Ltd., experts in engineering,
have consented to references to themselves and their Report in this Prospectus.
88
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Accountants' Report.......................................... F-2
Consolidated Statements of Operations for the Six Months Ended June 26,
1994 and June 27, 1993 (Unaudited) and for the Years Ended December 26,
1993, December 27, 1992 and December 29, 1991 (Audited)................. F-3
Consolidated Balance Sheets as of June 26, 1994 (Unaudited), December 26,
1993 and December 27, 1992 (Audited).................................... F-4
Consolidated Statements of Cash Flows for the Six Months Ended June 26,
1994 and June 27, 1993 (Unaudited) and for the Years Ended December 26,
1993, December 27, 1992 and December 29, 1991 (Audited)................. F-5
Consolidated Statements of Changes in Shareholders' Equity for the Six
Months Ended June 26, 1994 (Unaudited) and for the Years Ended December
26, 1993, December 27, 1992, December 29, 1991 and December 30, 1990
(Audited)............................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Acme Metals Incorporated
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of changes in
shareholders' equity 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 the Consolidated Financial Statements, Acme
Metals Incorporated changed its method of accounting for postretirement
benefits other than pensions and income taxes in 1992.
PRICE WATERHOUSE
March 21, 1994
Chicago, Illinois
F-2
<PAGE>
ACME METALS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEARS ENDED
----------------------- --------------------------------------
JUNE 26 JUNE 27, DECEMBER 26, DECEMBER 27, DECEMBER 29,
1994 1993 1993 1992 1991
----------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $256,423 $225,032 $457,406 $391,562 $376,951
Costs and expenses:
Cost of products sold. 215,341 198,327 397,526 347,624 335,503
Depreciation expense.. 7,596 7,517 14,657 14,392 13,700
-------- -------- -------- -------- --------
Gross profit............ 33,486 19,188 45,223 29,546 27,748
Selling and
administrative
expense.............. 15,304 13,800 30,633 28,901 29,219
Restructuring charge.. 2,700
Nonrecurring charge... 1,925
-------- -------- -------- -------- --------
Operating income (loss). 18,182 5,388 12,665 (2,055) (1,471)
Non-operating income
(expense):
Interest expense...... (2,666) (2,734) (5,384) (5,569) (5,533)
Interest income....... 1,046 741 1,571 1,700 1,322
Unusual income item... 1,210 1,047 1,241
Other--net............ 861 222 370 355 1,391
-------- -------- -------- -------- --------
Income (loss) before
income taxes and
cumulative effect of
changes in accounting
principles............. 17,423 3,617 10,432 (4,522) (3,050)
Income tax provision
(credit)............... 6,969 1,447 4,173 (1,673) (732)
-------- -------- -------- -------- --------
10,454 2,170 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)....... $ 10,454 $ 2,170 $ 6,259 $(53,172) $ (2,318)
======== ======== ======== ======== ========
Per share:
Income (loss) before
cumulative effect of
changes in accounting
principles........... $ 1.84 $ 0.40 $ 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)....... $ 1.84 $ 0.40 $ 1.15 $ (9.85) $ (0.43)
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-3
<PAGE>
ACME METALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 26, DECEMBER 26, DECEMBER 27,
ASSETS 1994 1993 1992
------ ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............. $ 73,651 $ 50,444 $ 49,224
Receivables, less allowances of $1,234
in 1994 (unaudited), $1,155 in 1993
and $1,081 in 1992.................... 62,327 58,479 47,091
Inventories............................ 41,037 47,867 39,488
Deferred income taxes.................. 12,337 12,337 11,754
Other current assets................... 944 1,267 1,303
--------- --------- ---------
Total current assets................. 190,296 170,394 148,860
--------- --------- ---------
Investments and other assets:
Investments in associated companies.... 14,701 14,701 14,105
Other assets........................... 13,493 13,389 7,197
Deferred income taxes.................. 19,846 19,846 9,851
--------- --------- ---------
Total investments and other assets... 48,040 47,936 31,153
--------- --------- ---------
Property, plant and equipment:
Property, plant and equipment, at cost. 412,945 408,556 405,684
Accumulated depreciation............... (300,653) (293,017) (284,995)
--------- --------- ---------
Total property, plant and equipment.. 112,292 115,539 120,689
--------- --------- ---------
$ 350,628 $ 333,869 $ 300,702
========= ========= =========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable....................... $ 32,503 $ 32,800 $ 25,985
Accrued expenses....................... 38,334 34,089 28,641
Income taxes payable................... 2,961 3,641 1,299
Current maturities of long-term debt... 6,667 6,667 3,500
--------- --------- ---------
Total current liabilities............ 80,465 77,197 59,425
--------- --------- ---------
Long-term liabilities:
Long-term debt......................... 49,333 49,333 56,000
Other long-term liabilities............ 9,983 10,543 7,951
Postretirement benefits other than
pensions.............................. 83,675 82,630 80,959
Retirement benefit plans............... 30,963 30,963 7,072
--------- --------- ---------
Total long-term liabilities.......... 173,954 173,469 151,982
--------- --------- ---------
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, 5,559,161,
5,406,387 and 5,357,870 shares issued
in 1994 (unaudited), 1993 and 1992,
respectively.......................... 5,559 5,406 5,358
Additional paid-in capital............. 50,743 48,344 47,679
Retained earnings...................... 61,202 50,748 44,489
Minimum pension liability adjustment... (21,295) (21,295) (8,231)
--------- --------- ---------
Total shareholders' equity........... 96,209 83,203 89,295
--------- --------- ---------
$ 350,628 $ 333,869 $ 300,702
========= ========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-4
<PAGE>
ACME METALS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE YEARS ENDED
----------------------- --------------------------------------
JUNE 26, JUNE 27, DECEMBER 26, DECEMBER 27, DECEMBER 29,
1994 1993 1993 1992 1991
----------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income (loss)..... $10,454 $ 2,170 $ 6,259 $(53,172) $ (2,318)
Adjustments to
reconcile net income
(loss) to net cash
provided by (used
for) operating
activities:
Depreciation........ 7,894 7,831 15,234 14,705 14,224
Deferred income
taxes.............. (1,629) (1,848) 1,049
Cumulative effect of
changes in
accounting
principles......... 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....... (3,848) (8,608) (11,388) 1,403 741
Inventories....... 6,830 (1,950) (8,379) 1,698 7,922
Accounts payable.. (505) 6,004 6,815 4,843 (2,242)
Other current
accounts......... 4,096 2,380 7,826 3,170 (2,475)
Other, net.......... 1,188 2,198 (26) 3,943 4,820
------- ------- -------- -------- --------
Net cash provided by
(used for) operating
activities........... 26,109 10,025 16,041 24,018 21,721
------- ------- -------- -------- --------
Cash flows from
investing activities:
Capital expenditures.. (5,071) (4,305) (11,749) (7,557) (10,611)
Proceeds from sales of
assets............... 995
------- ------- -------- -------- --------
Net cash used for
investing activities. (5,071) (4,305) (11,749) (6,562) (10,611)
------- ------- -------- -------- --------
Cash flows from
financing activities:
Payment of long-term
debt................. (3,500) (3,500)
Purchase of common
stock for treasury... (79) (462)
Other................. (99) (20) 428 113 19
Proceeds from the
exercise of stock
options.............. 2,268
------- ------- -------- -------- --------
Net cash provided by
(used for) financing
activities........... 2,169 (3,520) (3,072) 34 (443)
------- ------- -------- -------- --------
Net increase
(decrease) in cash
and cash equivalents. 23,207 2,200 1,220 17,490 10,667
Cash and cash
equivalents at
beginning of year.... 50,444 49,224 49,224 31,734 21,067
------- ------- -------- -------- --------
Cash and cash
equivalents at end of
year................. $73,651 $51,424 $ 50,444 $ 49,224 $ 31,734
======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-5
<PAGE>
ACME METALS INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON
STOCK, ADDITIONAL MINIMUM
$1 PAR PAID-IN RETAINED PENSION TREASURY
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
------ ------- -------- -------- --------
Net income (unaudited)...... 10,454
Tax benefit arising from
stock plan transactions....
Stock plans--issuance of
shares (unaudited)......... 153 2,399
------ ------- -------- -------- --------
BALANCE--JUNE 26, 1994
(UNAUDITED).................. $5,559 $50,743 $ 61,202 $(21,295) $ 0
====== ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-6
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS AND DISCLOSURES FOR THE SIX MONTHS ENDED JUNE 26, 1994 AND JUNE 27,
1993 ARE UNAUDITED)
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.
Interim Financial Data
The interim financial data is unaudited; however, in the opinion of the
Company, the interim data includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
interim period.
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 Statement of
Financial Accounting Standards (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 was 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.
F-7
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS AND DISCLOSURES FOR THE SIX MONTHS ENDED JUNE 26, 1994 AND JUNE 27,
1993 ARE UNAUDITED)
Per Share Data
Amounts per common share are based on the weighted average number of common
and dilutive common equivalent shares outstanding of 5,678,661 and 5,409,761 in
the first six months of 1994 (unaudited) and 1993 (unaudited), respectively;
5,439,784 in 1993, 5,396,311 in 1992 and 5,373,564 in 1991.
Consolidated Statements of Cash Flows
For purposes of the Consolidated Statements 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.
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 nonrecurring charge in 1993 including
$1.3 million in connection with a decision made during the year to permanently
idle Acme Steel Company's No. 3 Hot Strip Mill and Billet Mill and a $0.6
million charge to close Acme Packaging Corporation'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 Inc., a former participant in WabIron, the
Company 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 its 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.
F-8
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS AND DISCLOSURES FOR THE SIX MONTHS ENDED JUNE 26, 1994 AND JUNE 27,
1993 ARE UNAUDITED)
INVENTORIES:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
JUNE 26, DECEMBER 26, DECEMBER 27,
1994 1993 1992
----------- ------------ ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials $ 3,583 $ 6,201 $ 4,594
Semi-finished and finished products....... 29,358 32,364 26,540
Supplies.................................. 8,096 9,302 8,354
------- ------- -------
$41,037 $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.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
JUNE 26, DECEMBER DECEMBER 27,
1994 26, 1993 1992
----------- --------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Land........................................ $ 3,786 $ 3,786 $ 3,786
Buildings................................... 49,126 49,578 48,530
Equipment................................... 352,717 352,306 349,494
Construction in progress.................... 7,316 2,886 3,874
--------- --------- ---------
412,945 408,556 405,684
Less accumulated depreciation............... (300,653) (293,017) (284,995)
--------- --------- ---------
$ 112,292 $ 115,539 $ 120,689
========= ========= =========
</TABLE>
The difference between depreciation expense presented in the Consolidated
Statements of Cash Flows and the Consolidated Statements of Operations
represents that portion of depreciation expense that is classified in selling
and administrative expense on the Consolidated Statements 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.
F-9
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS AND DISCLOSURES FOR THE SIX MONTHS ENDED JUNE 26, 1994 AND JUNE 27,
1993 ARE UNAUDITED)
The net defined benefit pension credit (cost) 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 net defined benefit pension
credit (cost) 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>
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> <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>
F-10
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS AND DISCLOSURES FOR THE SIX MONTHS ENDED JUNE 26, 1994 AND JUNE 27,
1993 ARE UNAUDITED)
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 underfunded 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 sheets include 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.
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.
F-11
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS AND DISCLOSURES FOR THE SIX MONTHS ENDED JUNE 26, 1994 AND JUNE 27,
1993 ARE UNAUDITED)
The reduction in the discount rate contributed to a net increase in the
obligation of approximately $5 million. As the measurement of net periodic
postretirement benefit 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.
ACCRUED EXPENSES:
Included in the Consolidated Balance Sheets caption accrued expenses are the
following:
<TABLE>
<CAPTION>
JUNE 26, DECEMBER 26, DECEMBER 27,
1994 1993 1992
----------- ------------ ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Accrued salaries and wages....... $15,620 $16,235 $11,177
Accrued postretirement health
care and life insurance......... 5,328 5,328 4,450
Accrued taxes other than income
taxes........................... 5,354 4,970 4,736
Other current liabilities........ 12,032 7,556 8,278
------- ------- -------
$38,334 $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 Sheets.
INCOME TAXES:
The provision (credit) for taxes consisted of the following:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <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>
F-12
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS AND DISCLOSURES FOR THE SIX MONTHS ENDED JUNE 26, 1994 AND JUNE 27,
1993 ARE UNAUDITED)
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
statements 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 statements 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.
Significant components of the Company's deferred tax liabilities and assets
at December 26, 1993 and December 27, 1992 are summarized below.
<TABLE>
<CAPTION>
LIABILITIES 1993 1992
----------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Property, plant and equipment......................... $21,319 $21,535
------- -------
Gross deferred tax liabilities........................ 21,319 21,535
------- -------
<CAPTION>
ASSETS
------
<S> <C> <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.
F-13
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS AND DISCLOSURES FOR THE SIX MONTHS ENDED JUNE 26, 1994 AND JUNE 27,
1993 ARE UNAUDITED)
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.
For the first six months of 1994 (unaudited) and 1993 (unaudited), cash flows
were reduced by $7.6 million and $2.6 million for payment of income taxes. 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 June 26, 1994 (unaudited), December 26, 1993
and December 27, 1992 is summarized as follows:
<TABLE>
<CAPTION>
JUNE 26, DECEMBER 26, DECEMBER 27,
1994 1993 1992
----------- ------------ ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Senior notes, 9.35%, due 1994-1999....... $50,000 $50,000 $50,000
Note payable, 6.50% to 6.75%, due 1998-
2008.................................... 6,000 6,000 9,500
------- ------- -------
56,000 56,000 59,500
Less current portion..................... 6,667 6,667 3,500
------- ------- -------
$49,333 $49,333 $56,000
======= ======= =======
</TABLE>
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.
F-14
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS AND DISCLOSURES FOR THE SIX MONTHS ENDED JUNE 26, 1994 AND JUNE 27,
1993 ARE UNAUDITED)
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>
JUNE 26, 1994 DECEMBER 26, 1993 DECEMBER 27, 1992
----------------- ----------------- -----------------
(UNAUDITED)
(IN THOUSANDS)
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............. $ 73,651 $ 73,651 $ 50,444 $ 50,444 $ 49,224 $ 49,224
Long-term debt
. Senior notes, 9.35%,
due 1994-1999.......... 50,000 54,165 50,000 56,130 50,000 57,992
. Note payable, 6.50% to
6.75%, due 1998-2008... 6,000 6,433 6,000 7,021 9,500 10,524
-------- -------- -------- -------- -------- --------
$129,651 $134,249 $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.
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
Granted (unaudited)................................. 83,500
Exercised (unaudited)............................... (144,300) $ 8.375-$24.25
Canceled (unaudited)................................ (4,550) $17.875-$24.25
--------
OUTSTANDING AT JUNE 26, 1994 (unaudited).............. 543,000
========
</TABLE>
F-15
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS AND DISCLOSURES FOR THE SIX MONTHS ENDED JUNE 26, 1994 AND JUNE 27,
1993 ARE UNAUDITED)
At June 26, 1994 (unaudited), 416,750 options were exercisable; at December
26, 1993, 490,850 options were exercisable; at December 27, 1992, 447,650
options were exercisable.
Stock awards granted in 1994 (unaudited) totaled 13,000 at a value of either
$22.88 or $23.19 per share depending on the start date. 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.
Additionally, the U.S. EPA and the eight Great Lakes States are currently
developing guidelines for discharge standards in the Great Lakes basin. These
guidelines, when issued, are expected to require substantially more stringent
limitations than currently in effect for discharges into the Great Lakes basin.
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 to date has been
resolved on terms satisfactory to the Company; and, in the future, the Company
expects such permits will similarly be resolved on satisfactory terms. However,
if the Company is not successful in obtaining certain variances and revised
regulatory standards for water discharges from its coke and blast furnace
facilities through administrative proceedings as expected, it may be subject to
civil penalties. The Company does not currently have sufficient information to
estimate its potential liabilities, if any, should such actions occur. If the
above matters are not resolved through administrative procedures, the Company
could achieve compliance through capital expenditures approximating $10 million
in the aggregate, with annual estimated operating costs of approximately $.9
million.
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
anticipates making capital expenditures for environmental projects of
approximately $6 million in 1994 and $7 million in 1995 to maintain compliance
with current 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 or its subsidiaries have been identified as
a Potentially Responsible Party ("PRP") or are otherwise made aware of a
possible exposure to incur costs associated with an environmental matter,
management determines (i) whether, in fact, the Company or its subsidiaries
have been properly named or are otherwise obligated, (ii) the extent to which
the Company or its subsidiaries 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 or its
subsidiaries are parties to, and
F-16
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS AND DISCLOSURES FOR THE SIX MONTHS ENDED JUNE 26, 1994 AND JUNE 27,
1993 ARE UNAUDITED)
(iv) an estimate, if one can be made, of the costs associated with the clean-up
efforts or settlement costs that are the responsibility of the Company or its
subsidiaries. It is the Company's policy to make provisions for environmental
clean-up costs at the time that a reasonable estimate can be made. Certain of
the Company's operating subsidiaries have been named as PRPs at eleven
Superfund sites. Company investigations have evidenced that in all of these
cases, either the subsidiary had not disposed of waste materials and was
therefore not properly named a PRP, or that the subsidiary's proportion of
materials disposed at such sites was of sufficiently small volume to qualify
the subsidiary as a de minimis contributor. The de minimis status has been
confirmed at essentially all of the applicable sites. The Company believes,
based on all currently available information, that the total costs related to
the eleven Superfund sites will not be material to the Company's financial
position or its results of operations.
At June 26, 1994 (unaudited), 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 or its subsidiaries, 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 The Interlake Corporation (Interlake) on
May 29, 1986, Acme Steel Company (a subsidiary of the Company) entered into
certain indemnification agreements with Interlake. Pursuant to the terms of the
indemnification agreements, Interlake undertook to defend, indemnify and hold
Acme Steel Company harmless from any claims, as defined, relating to Acme Steel
Company operations or predecessor operations occurring before May 29, 1986, the
inception of Acme Steel Company. The indemnification agreements cover certain
environmental matters including certain litigation and Superfund sites in
Duluth, Minnesota and Gary, Indiana for which either Interlake or Acme Steel
Company's predecessor operations have been named as defendents or PRPs, as
applicable. To date, Interlake has met its obligations under the
indemnification agreements and has provided the defense and paid all costs
related to these environmental matters. The Company does not have sufficient
information to determine the potential liability, if any, for the matters
covered by the indemnification agreements in the event Interlake fails to meet
its obligations thereunder in the future. In the event that Interlake, for any
reason, were unable to fulfill its obligations under the indemnification
agreements, the Company could have increased future obligations which could be
significant.
Also in connection with the spin-off from Interlake, Acme Steel Company
entered into a Tax Indemnification Agreement (TIA) which generally provides for
Interlake to indemnify Acme Steel Company for certain tax matters. While
certain issues have been negotiated and settled between the Company, Interlake
and the Internal Revenue Service, certain significant issues for the tax years
beginning in 1982 through 1986 remain unresolved.
On March 17, 1994, Acme Steel 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 1982-1984 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 Acme Steel Company is indemnified
by Interlake pursuant to the TIA. The Company has adequate reserves to cover
that portion which it believes it may be responsible per the TIA. The Company
is contesting the unresolved issues and the Notice. In the event that
Interlake, for any reason, were unable to fulfill its obligations under the
TIA, the Company could have increased future obligations.
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.
F-17
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS AND DISCLOSURES FOR THE SIX MONTHS ENDED JUNE 26, 1994 AND JUNE 27,
1993 ARE UNAUDITED)
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 Company, Inc.). 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.
SEGMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FOR THE YEARS ENDED
----------------------- --------------------------------------------
JUNE 26, JUNE 27, DECEMBER 26, DECEMBER 27, DECEMBER 29,
1994 1993 1993 1992 1991
----------- ----------- ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales
Steel Making
Sales to unaffiliated
customers........... $111,510 $ 90,084 $ 187,750 $ 145,627 $ 140,877
Intersegment sales... 62,034 61,108 116,094 114,517 110,184
-------- -------- --------- --------- ---------
173,544 151,192 303,844 260,144 251,061
Steel Fabricating:
Sales to unaffiliated
customers........... 144,913 134,948 269,656 245,935 236,074
Intersegment sales... 968 922 1,873 1,023 --
-------- -------- --------- --------- ---------
145,881 135,870 271,529 246,958 236,074
Eliminations......... (63,002) (62,030) (117,967) (115,540) (110,184)
-------- -------- --------- --------- ---------
Total.............. $256,423 $225,032 $ 457,406 $ 391,562 $ 376,951
======== ======== ========= ========= =========
Income (loss) from
Operations
Steel Making........... $ 9,554 $ (785) $ 736 (1) $ (9,264)(3) $ (4,403)
Steel Fabricating...... 9,238 6,530 11,926 (2) 7,350 (4) 2,561
Eliminations and
adjustments........... (610) (357) 3 (141) 371
-------- -------- --------- --------- ---------
18,182 5,388 12,665 (2,055) (1,471)
======== ======== ========= ========= =========
Identifiable Assets:
Steel Making........... $212,712 $187,407 $ 203,366 $ 185,743 $ 171,389
Steel Fabricating...... 115,209 105,651 108,254 94,514 84,100
Corporate.............. 22,707 17,001 22,249 20,445 35,247
-------- -------- --------- --------- ---------
Total.............. $350,628 $310,059 $ 333,869 $ 300,702 $ 290,736
======== ======== ========= ========= =========
Depreciation:
Steel Making........... $ 5,899 $ 5,705 $ 11,285 $ 10,805 $ 10,010
Steel Fabricating...... 1,942 2,074 3,842 3,804 4,124
Corporate.............. 53 52 107 96 90
-------- -------- --------- --------- ---------
Total.............. $ 7,894 $ 7,831 $ 15,234 $ 14,705 $ 14,224
======== ======== ========= ========= =========
Capital Expenditures:
Steel Making........... $ 4,004 $ 3,268 $ 9,368 $ 5,661 $ 8,402
Steel Fabricating...... 1,040 946 2,283 1,823 2,027
Corporate.............. 27 91 98 73 182
-------- -------- --------- --------- ---------
Total.............. $ 5,071 $ 4,305 $ 11,749 $ 7,557 $ 10,611
======== ======== ========= ========= =========
</TABLE>
F-18
<PAGE>
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(AMOUNTS AND DISCLOSURES FOR THE SIX MONTHS ENDED JUNE 26, 1994 AND JUNE 27,
1993 ARE UNAUDITED)
- --------
(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.
SUBSEQUENT EVENT:
On March 11, 1994, Acme Metals Incorporated (the "Company") agreed to sell an
issue of securities on a private placement basis. Within 160 days of the
closing of this transaction (March 28, 1994), the securities will be
exercisable for 5,600,000 common shares of the Company (the "Shares").
Conditions for the release of escrowed proceeds include the approval by the
Board of Directors of the Company of the construction of a continuous thin slab
caster-hot rolled mill, the effectiveness of the Registration Statement for the
Shares 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.
On a proforma basis, assuming the conditions satisfying the exchange of the
securities occurred at the beginning of the period, earnings per share for the
six month period ended June 26, 1994 would have been $.92 compared to $.20 for
the first six months of 1993 (unaudited).
F-19
<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>
1994
Net sales.............................. $123,560 $132,863
Gross profit........................... 13,519 19,967
Net income............................. 3,598 6,856
Net income per share................... $ 0.64 $ 1.20
-------- -------- -------- --------
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 the $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.
F-20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person has been authorized in connection with
the offering made hereby to give any information or to make any representation
not contained in this Prospectus and, if given or made, such information or
representation must not be relied upon as having been authorized by the
Company, any Guarantor or the Underwriters. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy any of the securities
offered hereby to any person or by anyone in any jurisdiction where such an
offer or solicitation would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information contained herein is correct as of any time
subsequent to the date hereof.
-------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information..................................................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 10
The Company............................................................... 16
Modernization and Expansion Project....................................... 17
Financing Plan............................................................ 25
Use of Proceeds........................................................... 25
Capitalization............................................................ 26
Selected Consolidated Financial and Operating Data........................ 27
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 28
Business.................................................................. 35
Management................................................................ 48
Security Ownership of Certain Beneficial Owners and Management............ 56
Certain Transactions...................................................... 58
Description of Notes...................................................... 59
Certain Federal Income Tax Considerations Relating to an Investment in the
Senior Secured Discount Notes............................................ 83
Description of Working Capital Facility................................... 86
Underwriting.............................................................. 87
Legal Matters............................................................. 88
Experts................................................................... 88
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$
LOGO
$175,000,000
% SENIOR SECURED
NOTES DUE 2002
$
% SENIOR SECURED DISCOUNT NOTES DUE 2004
-------------
PROSPECTUS
, 1994
-------------
LEHMAN BROTHERS
BT SECURITIES CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a list of the estimated expenses to be incurred by the
Company in connection with the issuance and distribution of the Notes being
registered hereby, other than underwriting discounts and commissions. The
following items are estimated except for the SEC registration fee, the NASD
filing fee.
<TABLE>
<S> <C>
SEC registration fee............................................ $94,828
NASD filing fee................................................. $28,000
Transfer Agent's and Registrar's fees........................... *
Printing costs.................................................. *
Accounting fees and expenses.................................... *
Legal fees and expenses (not including Blue Sky)................ *
Blue Sky fees and expenses...................................... *
Miscellaneous expenses.......................................... *
---------
Total....................................................... $ *
=========
</TABLE>
- --------
*To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933. The Company's Certificate
of Incorporation and By-laws provide for indemnification of its directors,
officers and employees to the maximum extent permitted by the Delaware General
Corporation Law. In addition, the Company has Indemnification Agreements with
its officers and directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On March 28, 1994, the Company sold 5,600,000 special common stock purchase
warrants (the "Special Warrants") on a private placement basis in Canada and
Europe, at a price of U.S. $21.00 per Special Warrant, for an aggregate price
of $117,600,000. Each Special Warrant is exercisable for one share of the
Company's Common Stock without the payment of any additional consideration on
or before August 25, 1994. Nesbitt Thomson Inc. served as the Underwriter for
the Special Warrant Offering and received commissions in the aggregate amount
of $5,292,000.
The sale of the Special Warrants described in the foregoing paragraph is
claimed to be exempt from the registration requirements of the Securities Act
of 1933 by reason of its compliance with Rule 903(b)(2) of Regulation S ("Rules
Governing Offers and Sales Made Outside of the United States Without
Registration Under the Securities Act of 1933"). Concurrently with the filing
of this Registration Statement, the Company has filed a Registration Statement
on Form S-3 relating to the secondary offering of the Common Stock issuable
upon exercise of the Special Warrants.
ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C> <C> <C> <C>
1. Underwriting Agreement
***1.1 Form of Underwriting Agreement dated , 1994 among the
Registrants, Lehman Brothers Inc. and BT Securities Corporation
3. Articles of Incorporation and By-Laws
</TABLE>
- --------
*Previously filed.
**Filed herewith.
***To be filed by Amendment.
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C> <C> <C>
*3.1 Restated Certificate of Incorporation of the Company. 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.
*3.2 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.
*3.3(a) Certificate of Incorporation of Acme Packaging Corporation
*3.3(b) Certificate of Incorporation of Acme Steel Company
*3.3(c) Certificate of Incorporation of Acme Steel Company International,
Inc.
*3.3(d) Articles of Incorporation of Alabama Metallurgical Corporation
*3.3(e) Certificate of Incorporation of Alpha Tube Corporation
*3.3(f) Certificate of Incorporation of Alta Slitting Corporation
*3.3(g) Articles of Incorporation of Universal Tool and Stamping Company,
Inc.
*3.4(a) Bylaws of Acme Packaging Corporation
*3.4(b) Bylaws of Acme Steel Company
*3.4(c) Bylaws of Acme Steel Company International, Inc.
*3.4(d) Bylaws of Alabama Metallurgical Corporation
*3.4(e) Bylaws of Alpha Tube Corporation
*3.4(f) Bylaws of Alta Slitting Corporation
*3.4(g) Bylaws of Universal Tool and Stamping Company, Inc.
4. Instruments defining rights of holders of Notes
***4.1 Form of Indenture dated , 1994 among the Registrants and
Shawmut Bank Connecticut, National Association as trustee, relating
to the % Senior Secured Notes due 2002
***4.2 Form of % Senior Secured Note due 2002 (Included in Exhibit 4.1)
***4.3 Form of Indenture dated , 1994 among the Registrants and
Shawmut Bank Connecticut, National Association as trustee, relating
to the % Senior Secured Discount Notes due 2004
***4.4 Form of % Senior Secured Discount Note due 2004 (Included in
Exhibit 4.3)
***4.5 Form of Collateral Agency Agreement dated , 1994 among the
Company, the Trustees and the Collateral Agent
***4.6 Form of Securities Pledge Agreement dated , 1994 between the
Company and the Collateral Agent
***4.7 Form of Securities Pledge Agreement dated , 1994 among Acme
Steel, Acme Packaging and the Collateral Agent
***4.8 Form of Security Agreement dated , 1994 between Acme Steel and
the Collateral Agent
***4.9 Form of Mortgage dated , 1994 from Acme Steel to the
Collateral Agent
***4.10 Form of Intercreditor Agreement dated , 1994 among Acme Steel,
Harris Trust and Savings Bank and the Collateral Agent
***4.11 Form of Disbursement Agreement dated , 1994 between the Company
and the Collateral Agent
</TABLE>
- --------
*Previously filed.
**Filed herewith.
***To be filed by Amendment.
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C> <C> <C>
5. Opinion Regarding Legality
***5.1 Opinion of Coffield Ungaretti & Harris
10. Material contracts
*10.1 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)
*10.2 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)
*10.3 Agreement between the Registrant and Reynold C. MacDonald dated June
1, 1992 (Filed as Exhibit 10.3 to the 1992 10-K and incorporated by
reference herein)
*10.4 Non-Employee Directors Retirement Plan dated February 22, 1990 as
adopted May 25, 1992 (Filed as Exhibit 10.4 to the 1992 10-K and
incorporated by reference herein)
*10.5 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)
*10.6 First Amendment to Credit Agreement dated September 15, 1992 (Filed
as Exhibit 10.6 to the 1992 10-K and incorporated by reference
herein)
*10.7 Second Amendment to Credit Agreement dated January 15, 1993 (Filed
as Exhibit 10.7 to the 1992 10-K and incorporated by reference
herein)
*10.8 Third Amendment to credit Agreement dated February 1, 1993 (Filed as
Exhibit 10.8 to the 1992 10-K and incorporated by reference herein)
*10.9 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)
*10.10 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)
*10.11 Second Amendment to Note Agreements dated February 1, 1993 (Filed as
Exhibit 10.11 to the 1992 10-K and incorporated by reference herein)
*10.12 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)
*10.13 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)
*10.14 1986 Executive Incentive Compensation Plan of Acme Metals
Incorporated as adopted May 25, 1992 (Filed as Exhibit 10.14 to the
1992 10-K and incorporated by reference herein)
</TABLE>
- --------
*Previously filed.
**Filed herewith.
***To be filed by Amendment.
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C> <C> <C> <C>
*10.15 Deferred Compensation Agreement dated May 24, 1986 between the
Registrant and Brian W. H. Marsden as adopted May 25, 1992 (Filed as
Exhibit 10.15 to the 1992 10-K and incorporated by reference herein)
*10.16 Acme Metals Incorporated Deferred Compensation Plan as Amended and
Restated effective January 1, 1987 as adopted May 25, 1992 (Filed as
Exhibit 10.16 to the 1992 10-K and incorporated by reference herein)
*10.17 Key Executive Severance Pay Plan dated January 22, 1987, as adopted
May 25, 1992, with Exhibit 1 amended through May 25, 1992 (Filed as
Exhibit 10.17 to the 1992 10-K and incorporated by reference herein)
*10.18 Acme Metals Incorporated 1986 Stock Incentive Program, Amended and
Restated as of January 22, 1992 as adopted May 25, 1992 (Filed as
Exhibit 10.18 to the 1992 10-K and incorporated by reference herein)
*10.19 Form of Grant of Stock Option including Form of First Amendment
dated October 30, 1986--10 executive officers, 30 other employees
(Filed as Exhibit 10.19 to the 1992 10-K and incorporated by
reference herein)
*10.20 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 (Filed as Exhibit 10.20 to the 1992 10-K and
incorporated by reference herein)
*10.21 Form of Grant of Stock Option dated May 26, 1988--10 executive
officers, 49 other employees (Filed as Exhibit 10.21 to the 1992 10-
K and incorporated by reference herein)
*10.22 Form of Grant of Stock Option dated June 1, 1989--10 executive
officers, 48 other employees (Filed as Exhibit 10.22 to the 1992 10-
K and incorporated by reference herein)
*10.23 Grant of Stock Option Agreement dated June 1, 1990--S.D. Bennett
(Filed as Exhibit 10.23 to the 1992 10-K and incorporated by
reference herein)
*10.24 Form of Grant of Stock Option dated June 7, 1990--9 executive
officers, 50 other employees (Filed as Exhibit 10.24 to the 1992 10-
K and incorporated by reference herein)
*10.25 Form of Grant of Stock Option dated May 20, 1991--10 executive
officers, 54 other employees (Filed as Exhibit 10.24 to the 1992 10-
K and incorporated by reference herein)
*10.26 Form of Grant of Stock Option dated June 12, 1992--5 executive
officers, 10 other employees (Filed as Exhibit 10.26 to the 1992 10-
K and incorporated by reference herein)
*10.27 Form of Grant of Stock Option dated May 27, 1993--5 executive
officers, 26 other employees (Filed as Exhibit 10.27 to the 1992 10-
K and incorporated by reference herein)
*10.28 Stock Award Agreement dated June 1, 1990--S.D. Bennett (Filed as
Exhibit 10.28 to the 1992 10-K and incorporated by reference herein)
*10.29 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 (Filed as Exhibit 10.29 to the 1992 10-K and
incorporated by reference herein)
*10.30 Form of Grant of Stock Award dated January 22, 1992--5 executive
officers, 10 other employees (Filed as Exhibit 10.30 to the 1992 10-
K and incorporated by reference herein)
</TABLE>
- --------
* Previously filed.
** Filed herewith.
***To be filed by Amendment.
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C> <C> <C> <C>
*10.31 Stock Award Agreement dated June 12, 1992--S.D. Bennett (Filed as
Exhibit 10.31 to the 1992 10-K and incorporated by reference herein)
*10.32 Form of Grant of Stock Award dated January 26, 1993--5 executive
officers, 16 other employees (Filed as Exhibit 10.32 to the 1992 10-
K and incorporated by reference herein)
***10.33 Form of Grant of Stock Award dated January 26, 1994--5 executive
officers, 14 other employees.
*10.34 Acme Metals Incorporated Employee Stock Ownership Plan ("ESOP")
including amendments 1 through 4, as adopted June 1, 1992 (Filed as
Exhibit 10.34 to the 1992 10-K and incorporated by reference herein)
*10.35 Fifth Amendment to the ESOP (Filed as Exhibit 10.35 to the 1993 10-K
and incorporated by reference herein)
*10.36 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 (Filed as Exhibit 10.36 to the 1992 10-K and
incorporated by reference herein)
*10.37 Acme Metals Incorporated Salaried Employees' Past Service Pension
Plan ("Past Service Pension Plan") dated June 1, 1992 (Filed as
Exhibit 10.37 to the 1992 10-K and incorporated by reference herein)
*10.38 Amendment No. 1 to the Past Service Pension Plan (Filed as Exhibit
10.38 to the 1993 10-K and incorporated by reference herein)
*10.39 Purchase Agreement dated as of March 11, 1994 between the Registrant
and Nesbitt Thompson Inc. for the purchase of 5.6 million Special
Warrants exercisable for common stock of the Registrant (Filed as
Exhibit 10.39 to the 1993 10-K and incorporated by reference herein)
*10.40 Subscription Agreement for Special Common Stock Purchase Warrants
(Filed as Exhibit 10.40 to the 1993 10-K and incorporated by
reference herein)
11. Statement Regarding Computation of Per Share Earnings
*11.1 Computation of Primary and Fully Diluted Earnings Per Share
12. Statement Regarding Computation of Ratios
*12.1 Computation of Ratio of Earnings to Fixed Charges
21. Subsidiaries of the Registrants
*21.1 Subsidiaries of the Company
*21.2 Subsidiaries of Acme Packaging Corporation
*21.3 Subsidiary of Acme Steel
23. Consent of Experts and Counsel
***23.1 Consent of Coffield Ungaretti & Harris (included in Exhibit 5.1)
**23.2 Consent of Price Waterhouse
**23.3 Consent of Hatch Associates Ltd.
**23.4 Consent of Steltech Ltd.
24. Powers of Attorney
*24.1 Powers of Attorney of Directors of Acme Metals Incorporated
</TABLE>
- --------
* Previously filed.
** Filed herewith.
*** To be filed by Amendment.
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C> <C> <C> <C>
25. Statement of Eligibility of Trustee
***25.1 Statement of Eligibility of Shawmut Bank Connecticut, National
Association to act as Trustee under the Indenture among the
Registrants and as trustee, relating to the % Senior Secured
Notes due 2002 and the % Senior Secured Discount Notes due 2004
</TABLE>
- --------
*Previously filed.
**Filed herewith.
***To be filed by Amendment.
(b) Financial Statement Schedules
The information required by Schedules V, VI, VIII and X for the three years
ended December 26, 1993 is incorporated herein by reference to the Company's
Annual Report on Form 10-K filed with the Securities and Exchange Commission
for the fiscal year ended December 26, 1993.
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or the
notes thereto.
ITEM 17. UNDERTAKINGS
The Registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrants pursuant to the foregoing
provisions, or otherwise, the Registrants have been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrants of expenses incurred or
paid by a director, officer or controlling person of the Registrants in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE VILLAGE OF
RIVERDALE, STATE OF ILLINOIS, ON THE 13TH OF JULY, 1994.
Acme Metals Incorporated
(Registrant)
/s/ Brian W. H. Marsden
By___________________________________
Brian W. H. Marsden
Chairman of the Board of Directors
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Brian W. H. Marsden
- ------------------------------------
Brian W. H. Marsden Director, Chairman of the Board of
Directors and Chief Executive
Officer (Principal Executive July 13,
Officer) 1994
/s/ Jerry F. Williams
- ------------------------------------
Jerry F. Williams Vice President/Finance and
Administration (Principal July 13,
Financial and Accounting Officer) 1994
/s/ Stephen D. Bennett
- ------------------------------------
Stephen D. Bennett Director, President and Chief
Operating Officer (Principal July 13,
Operating Officer) 1994
- ------------------------------------
C.J. Gauthier Director
/s/ Edward G. Jordan
- ------------------------------------
Edward G. Jordan Director July 13,
1994
/s/ Andrew R. Laidlaw*
- ------------------------------------
Andrew R. Laidlaw Director July 13,
1994
/s/ Frank A. LePage
- ------------------------------------
Frank A. LePage Director July 13,
1994
/s/ Reynold C. MacDonald
- ------------------------------------
Reynold C. MacDonald Director July 13,
1994
/s/ Julien L. McCall
- ------------------------------------
Julien L. McCall Director July 13,
1994
/s/ Carol O'Cleireacain
- ------------------------------------
Carol O'Cleireacain Director July 13,
1994
/s/ William P. Sovey
- ------------------------------------
William P. Sovey Director July 13,
1994
/s/ William R. Wilson
- ------------------------------------
William R. Wilson Director July 13,
1994
</TABLE>
/s/ Jerry F. Williams
_______________________________
(Attorney-in-Fact) July 13, 1994
*Signed for by the Attorney-in-Fact.
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE VILLAGE OF
RIVERDALE, STATE OF ILLINOIS, ON THE 13TH DAY OF JULY, 1994.
Acme Packaging Corporation
(Registrant)
/s/ Brian W. H. Marsden
By:__________________________________
Brian W. H. Marsden
Chairman of the Board of Directors
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Brian W. H. Marsden
- ------------------------------------
Brian W. H. Marsden Director, Chairman of the Board of
Directors and Chief Executive
Officer (Principal Executive July 13,
Officer) 1994
/s/ Jerry F. Williams
- ------------------------------------
Jerry F. Williams Director and Treasurer July 13,
(Principal Financial Officer) 1994
/s/ Robert W. Dyke
- ------------------------------------
Robert W. Dyke President (Principal Operating July 13,
Officer) 1994
/s/ William H. Sweeney
- ------------------------------------
William H. Sweeney Vice President--Finance July 13,
(Principal Accounting Officer) 1994
/s/ Stephen D. Bennett
- ------------------------------------
Stephen D. Bennett Director and Vice Chairman July 13,
1994
</TABLE>
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE VILLAGE OF
RIVERDALE, STATE OF ILLINOIS, ON THE 13TH DAY OF JULY, 1994.
Acme Steel Company
(Registrant)
/s/ Brian W. H. Marsden
By:__________________________________
Brian W. H. Marsden
Chairman of the Board of Directors
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Brian W. H. Marsden
- ------------------------------------
Brian W. H. Marsden Director, Chairman of the Board of
Directors and Chief Executive
Officer (Principal Executive July 13,
Officer) 1994
/s/ Jerry F. Williams
- ------------------------------------
Jerry F. Williams Director and Treasurer July 13,
(Principal Financial Officer) 1994
/s/ Stephen D. Bennett
- ------------------------------------
Stephen D. Bennett Director, President and Chief
Operating Officer (Principal July 13,
Operating Officer) 1994
/s/ Derrick T. Bay
- ------------------------------------
Derrick T. Bay Vice President--Finance July 13,
(Principal Accounting Officer) 1994
</TABLE>
II-9
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE VILLAGE OF
RIVERDALE, STATE OF ILLINOIS, ON THE 13TH DAY OF JULY, 1994.
Acme Steel Company International,
Inc.
(Registrant)
/s/ Jerry F. Williams
By:__________________________________
Jerry F. Williams
Chairman of the Board of Directors
and Chairman of the Registrant
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Jerry F. Williams
- ------------------------------------
Jerry F. Williams Director, Chairman of the Board of July 13,
Directors and Chairman of the 1994
Registrant (Principal Executive and
Financial Officer)
/s/ George T. Siedlecki
- ------------------------------------
George T. Siedlecki Director July 13,
(Principal Accounting Officer) 1994
/s/ Edward P. Weber, Jr.
- ------------------------------------
Edward P. Weber, Jr. Director July 13,
1994
</TABLE>
II-10
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE VILLAGE OF
RIVERDALE, STATE OF ILLINOIS, ON THE 13TH DAY OF JULY, 1994.
Alabama Metallurgical Corporation
(Registrant)
/s/ Stephen D. Bennett
By:__________________________________
Stephen D. Bennett
Chairman of the Board of Directors
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Stephen D. Bennett
- ------------------------------------
Stephen D. Bennett Director, Chairman of the Board of
Directors and Chief Executive
Officer (Principal Executive July 13,
Officer) 1994
/s/ Jerry F. Williams
- ------------------------------------
Jerry F. Williams President and Director July 13,
(Principal Financial Officer) 1994
/s/ George T. Siedlecki
- ------------------------------------
George T. Siedlecki Director and Treasurer (Principal July 13,
Accounting Officer) 1994
</TABLE>
II-11
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE VILLAGE OF
RIVERDALE, STATE OF ILLINOIS, ON THE 14TH DAY OF JULY, 1994.
Alpha Tube Corporation
(Registrant)
/s/ Brian W. H. Marsden
By:__________________________________
Brian W. H. Marsden
Chairman of the Board of Directors
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Brian W. H. Marsden
- ------------------------------------
Brian W. H. Marsden Director, Chairman of the Board of
Directors and Chief Executive
Officer (Principal Executive July 13,
Officer) 1994
/s/ Jerry F. Williams
- ------------------------------------
Jerry F. Williams Director and Treasurer July 13,
(Principal Financial Officer) 1994
/s/ Edward J. Urbaniak
- ------------------------------------
Edward J. Urbaniak Vice President--Finance July 14,
(Principal Accounting Officer) 1994
/s/ Steven G. Jansto
- ------------------------------------
Steven G. Jansto Director and President July 13,
(Principal Operating Officer) 1994
/s/ Stephen D. Bennett
- ------------------------------------
Stephen D. Bennett Director and Vice Chairman July 13,
1994
</TABLE>
II-12
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE VILLAGE OF
RIVERDALE, STATE OF ILLINOIS, ON THE 14TH DAY OF JULY, 1994.
Alta Slitting Corporation
(Registrant)
/s/ Brian W. H. Marsden
By:__________________________________
Brian W. H. Marsden
Chairman of the Board of Directors
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Brian W. H. Marsden
- ------------------------------------
Brian W. H. Marsden Director, Chairman of the Board of
Directors and Chief Executive
Officer (Principal Executive July 13,
Officer) 1994
/s/ Jerry F. Williams
- ------------------------------------
Jerry F. Williams Director and Treasurer July 13,
(Principal Financial Officer) 1994
/s/ Edward J. Urbaniak
- ------------------------------------
Edward J. Urbaniak Vice President--Finance July 14,
(Principal Accounting Officer) 1994
/s/ Steven G. Jansto
- ------------------------------------
Steven G. Jansto Director and President July 13,
(Principal Operating Officer) 1994
/s/ Stephen D. Bennett
- ------------------------------------
Stephen D. Bennett Director and Vice Chairman July 13,
1994
</TABLE>
II-13
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE VILLAGE OF
RIVERDALE, STATE OF ILLINOIS, ON THE 14TH DAY OF JULY, 1994.
Universal Tool and Stamping Co.,
Inc.
(Registrant)
/s/ Brian W. H. Marsden
By:__________________________________
Brian W. H. Marsden
Chairman of the Board of Directors
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Brian W. H. Marsden
- ------------------------------------
Brian W. H. Marsden Director, Chairman of the Board of
Directors and Chief Executive
Officer (Principal Executive July 13,
Officer) 1994
/s/ Jerry F. Williams
- ------------------------------------
Jerry F. Williams Director and Treasurer July 13,
(Principal Financial Officer) 1994
/s/ Dennis A. Dukes
- ------------------------------------
Dennis A. Dukes Vice President--Finance and
Assistant Secretary July 13,
(Principal Accounting Officer) 1994
/s/ Larry C. Kipp
- ------------------------------------
Larry C. Kipp Director and President July 14,
(Principal Operating Officer) 1994
/s/ Stephen D. Bennett
- ------------------------------------
Stephen D. Bennett Director and Vice Chairman July 13,
1994
</TABLE>
II-14
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
EXHIBITS
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ACME METALS INCORPORATED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <C> <S> <C>
1. Underwriting Agreement
***1.1 Form of Underwriting Agreement dated , 1994
among the Registrants and Lehman Brothers............
3. Articles of Incorporation and By-Laws
*3.1 Restated Certificate of Incorporation of the Company.
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.
*3.2 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.................
*3.3(a) Certificate of Incorporation of Acme Packaging
Corporation..........................................
*3.3(b) Certificate of Incorporation of Acme Steel Company...
*3.3(c) Certificate of Incorporation of Acme Steel Company
International, Inc...................................
*3.3(d) Articles of Incorporation of Alabama Metallurgical
Corporation..........................................
*3.3(e) Certificate of Incorporation of Alpha Tube
Corporation..........................................
*3.3(f) Certificate of Incorporation of Alta Slitting
Corporation..........................................
*3.3(g) Articles of Incorporation of Universal Tool and
Stamping Company Inc.................................
*3.4(a) Bylaws of Acme Packaging Corporation.................
*3.4(b) Bylaws of Acme Steel Company.........................
*3.4(c) Bylaws of Acme Steel Company International, Inc......
*3.4(d) Bylaws of Alabama Metallurgical Corporation..........
*3.4(e) Bylaws of Alpha Tube Corporation.....................
*3.4(f) Bylaws of Alta Slitting Corporation..................
*3.4(g) Bylaws of Universal Tool and Stamping Company Inc....
4. Instruments defining rights of holders of Notes
***4.1 Form of Indenture dated , 1994 among the
Registrants and Shawmut Bank Connecticut, National
Association as trustee, relating to the % Senior
Secured Notes due 2002...............................
***4.2 Form of % Senior Secured Note due 2002 (Included
in Exhibit 4.1)......................................
***4.3 Form of Indenture dated , 1994 among the
Registrants and Shawmut Bank Connecticut, National
Association as trustee, relating to the % Senior
Secured Discount Notes due 2004......................
***4.4 Form of % Senior Secured Discount Note due 2004
(Included in Exhibit 4.3)............................
***4.5 Form of Collateral Agency Agreement dated , 1994
among the Company, the Trustees and the Collateral
Agent................................................
***4.6 Form of Securities Pledge Agreement dated ,
1994 between the Company and the Collateral Agent....
</TABLE>
- --------
*Previously filed.
**Filed herewith.
***To be filed by Amendment.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <C> <S> <C>
***4.7 Form of Securities Pledge Agreement dated , 1994
among Acme Steel, Acme Packaging and the Collateral
Agent.................................................
***4.8 Form of Security Agreement dated , 1994 between
Acme Steel and the Collateral Agent...................
***4.9 Form of Mortgage dated , 1994 from Acme Steel
to the Collateral Agent...............................
***4.10 Form of Intercreditor Agreement dated , 1994
among Acme Steel, Harris Trust and Savings Bank and
the Collateral Agent..................................
***4.11 Form of Disbursement Agreement dated , 1994
between the Company and the Collateral Agent..........
5. Opinion Regarding Legality
***5.1 Opinion of Coffield Ungaretti & Harris................
10. Material contracts
*10.1 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).....................................
*10.2 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).....................................
*10.3 Agreement between the Registrant and Reynold C.
MacDonald dated June 1, 1992 (Filed as Exhibit 10.3 to
the 1992 10-K and incorporated by reference herein)...
*10.4 Non-Employee Directors Retirement Plan dated February
22, 1990 as adopted May 25, 1992 (Filed as Exhibit
10.4 to the 1992 10-K and incorporated by reference
herein)...............................................
*10.5 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).....................................
*10.6 First Amendment to Credit Agreement dated September
15, 1992 (Filed as Exhibit 10.6 to the 1992 10-K and
incorporated by reference herein).....................
*10.7 Second Amendment to Credit Agreement dated January 15,
1993( Filed as Exhibit 10.7 to the 1992 10-K and
incorporated by reference herein).....................
*10.8 Third Amendment to credit Agreement dated February 1,
1993 (Filed as Exhibit 10.8 to the 1992 10-K and
incorporated by reference herein).....................
*10.9 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)...............................................
</TABLE>
- --------
*Previously filed.
**Filed herewith.
***To be filed by Amendment.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <C> <S> <C>
*10.10 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)..............
*10.11 Second Amendment to Note Agreements dated February 1,
1993 (Filed as Exhibit 10.11 to the 1992 10-K and
incorporated by reference herein).......................
*10.12 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).........
*10.13 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).................................................
*10.14 1986 Executive Incentive Compensation Plan of Acme
Metals Incorporated as adopted May 25, 1992 (Filed as
Exhibit 10.14 to the 1992 10-K and incorporated by
reference herein).......................................
*10.15 Deferred Compensation Agreement dated May 24, 1986
between the Registrant and Brian W. H. Marsden as
adopted May 25, 1992 (Filed as Exhibit 10.15 to the 1992
10-K and incorporated by reference herein)..............
*10.16 Acme Metals Incorporated Deferred Compensation Plan as
Amended and Restated effective January 1, 1987 as
adopted May 25, 1992 (Filed as Exhibit 10.16 to the 1992
10-K and incorporated by reference herein)..............
*10.17 Key Executive Severance Pay Plan dated January 22, 1987,
as adopted May 25, 1992, with Exhibit 1 amended through
May 25, 1992 (Filed as Exhibit 10.17 to the 1992 10-K
and incorporated by reference herein)...................
*10.18 Acme Metals Incorporated 1986 Stock Incentive Program,
Amended and Restated as of January 22, 1992 as adopted
May 25, 1992 (Filed as Exhibit 10.18 to the 1992 10-K
and incorporated by reference herein)...................
*10.19 Form of Grant of Stock Option including Form of First
Amendment dated October 30, 1986--10 executive officers,
30 other employees (Filed as Exhibit 10.19 to the 1992
10-K and incorporated by reference herein)..............
*10.20 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 (Filed
as Exhibit 10.20 to the 1992 10-K and incorporated by
reference herein).......................................
*10.21 Form of Grant of Stock Option dated May 26, 1988--10
executive officers, 49 other employees (Filed as Exhibit
10.21 to the 1992 10-K and incorporated by reference
herein).................................................
*10.22 Form of Grant of Stock Option dated June 1, 1989--10
executive officers, 48 other employees (Filed as Exhibit
10.22 to the 1992 10-K and incorporated by reference
herein).................................................
*10.23 Grant of Stock Option Agreement dated June 1, 1990--S.D.
Bennett (Filed as Exhibit 10.23 to the 1992 10-K and
incorporated by reference herein).......................
</TABLE>
- --------
*Previously filed.
**Filed herewith.
***To be filed by Amendment.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <C> <S> <C>
*10.24 Form of Grant of Stock Option dated June 7, 1990--9
executive officers, 50 other employees (Filed as
Exhibit 10.24 to the 1992 10-K and incorporated by
reference herein).....................................
*10.25 Form of Grant of Stock Option dated May 20, 1991--10
executive officers, 54 other employees (Filed as
Exhibit 10.24 to the 1992 10-K and incorporated by
reference herein).....................................
*10.26 Form of Grant of Stock Option dated June 12, 1992--5
executive officers, 10 other employees (Filed as
Exhibit 10.26 to the 1992 10-K and incorporated by
reference herein).....................................
*10.27 Form of Grant of Stock Option dated May 27, 1993--5
executive officers, 26 other employees (Filed as
Exhibit 10.27 to the 1992 10-K and incorporated by
reference herein).....................................
*10.28 Stock Award Agreement dated June 1, 1990--S.D. Bennett
(Filed as Exhibit 10.28 to the 1992 10-K and
incorporated by reference herein).....................
*10.29 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 (Filed
as Exhibit 10.29 to the 1992 10-K and incorporated by
reference herein).....................................
*10.30 Form of Grant of Stock Award dated January 22, 1992--5
executive officers, 10 other employees (Filed as
Exhibit 10.30 to the 1992 10-K and incorporated by
reference herein).....................................
*10.31 Stock Award Agreement dated June 12, 1992--S.D.
Bennett (Filed as Exhibit 10.31 to the 1992 10-K and
incorporated by reference herein).....................
*10.32 Form of Grant of Stock Award dated January 26, 1993--5
executive officers, 16 other employees (Filed as
Exhibit 10.32 to the 1992 10-K and incorporated by
reference herein).....................................
***10.33 Form of Grant of Stock Award dated January 26, 1994--5
executive officers, 14 other employees................
*10.34 Acme Metals Incorporated Employee Stock Ownership Plan
("ESOP") including amendments 1 through 4, as adopted
June 1, 1992 (Filed as Exhibit 10.34 to the 1992 10-K
and incorporated by reference herein).................
*10.35 Fifth Amendment to the ESOP (Filed as Exhibit 10.35 to
the 1993 10-K and incorporated by reference herein)...
*10.36 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
(Filed as Exhibit 10.36 to the 1992 10-K and
incorporated by reference herein).....................
*10.37 Acme Metals Incorporated Salaried Employees' Past
Service Pension Plan ("Past Service Pension Plan")
dated June 1, 1992 (Filed as Exhibit 10.37 to the 1992
10-K and incorporated by reference herein)............
*10.38 Amendment No. 1 to the Past Service Pension Plan
(Filed as Exhibit 10.38 to the 1993 10-K and
incorporated by reference herein).....................
</TABLE>
- --------
*Previously filed.
**Filed herewith.
***To be filed by Amendment.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <C> <S> <C>
*10.39 Purchase Agreement dated as of March 11, 1994 between
the Registrant and Nesbitt Thompson Inc. for the
purchase of 5.6 million Special Warrants exercisable
for common stock of the Registrant (Filed as Exhibit
10.39 to the 1993 10-K and incorporated by reference
herein)...............................................
*10.40 Subscription Agreement for Special Common Stock
Purchase Warrants (Filed as Exhibit 10.40 to the 1993
10-K and incorporated by reference herein)............
11. Statement Regarding Computation of Per Share Earnings
*11.1 Computation of Primary and Fully Diluted Earnings Per
Share.................................................
12. Statement Regarding Computation of Ratios
*12.1 Computation of Ratio of Earnings to Fixed Charges.....
21. Subsidiaries of the Registrants
*21.1 Subsidiaries of the Company...........................
*21.2 Subsidiaries of Acme Packaging Corporation............
*21.3 Subsidiary of Acme Steel..............................
23. Consent of Experts and Counsel
***23.1 Consent of Coffield Ungaretti & Harris (included in
Exhibit 5.1)..........................................
**23.2 Consent of Price Waterhouse...........................
**23.3 Consent of Hatch Associates Ltd.......................
**23.4 Consent of Steltech Ltd...............................
24. Powers of Attorney
*24.1 Powers of Attorney of Directors of Acme Metals
Incorporated..........................................
25. Statement of Eligibility of Trustee
***25.1 Statement of Eligibility of Shawmut Bank Connecticut,
National Association to act as Trustee under the
Indenture among the Registrants and as trustee,
relating to the % Senior Secured Notes due 2002 and
the % Senior Secured Discount Notes Due 2004.......
</TABLE>
- --------
*Previously filed.
**Filed herewith.
***To be filed by Amendment.
<PAGE>
GRAPHIC MATERIAL CROSS-REFERENCE PAGE
DIAGRAM ILLUSTRATING COMPANY'S EXISTING STEEL-MAKING PROCESS ON
PAGE 19.
DIAGRAM ILLUSTRATING COMPANY'S STEEL-MAKING PROCESS FOLLOWING
COMPLETION OF THE MODERNIZATION PROJECT ON PAGE 21.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 21, 1994 relating
to the consolidated financial statements of Acme Metals Incorporated, which
appear in such Prospectus. We also consent to the incorporation by reference in
the Prospectus constituting part of this Registration Statement on Form S-1 of
our report dated March 21, 1994, which appears on page 33 of Acme Metals
Incorporated's 1993 Annual Report on Form 10-K, and the application of such
report to the Financial Statement Schedules for the three years ended December
26, 1993 listed under Item 16(b) of this Registration Statement when such
schedules are read in conjunction with the financial statements referred to in
our report. The audits referred to in such report also included these
schedules. We also consent to the references to us under the headings
"Experts", "Summary Consolidated Financial and Operating Data" and "Selected
Consolidated Financial and Operating Data" in such Prospectus. However, it
should be noted that Price Waterhouse has not prepared or certified such
"Summary Consolidated Financial and Operating Data" and "Selected Consolidated
Financial and Operating Data".
Price Waterhouse
July 14, 1994
Chicago, Illinois
<PAGE>
EXHIBIT 23.3
------------
CONSENT OF EXPERTS
------------------
The undersigned hereby consents to the use of its name and references to its
report to Lehman Brothers Inc. in the prospectus constituting part of the
registration statement on form S-1 of Acme Metals Incorporated filed with the
Securities and Exchange Commission (the "Registration Statement") and to being
named therein as an expert.
The undersigned further consents to filing of this letter as an exhibit to the
Registration Statement.
HATCH ASSOCIATES LTD.
/S/ LESLIE C. McLEAN
--------------------
Leslie C. McLean
Director
<PAGE>
EXHIBIT 23.4
------------
CONSENT OF EXPERTS
------------------
The undersigned hereby consents to the use of its name and references to its
report to Lehman Brothers Inc. in the prospectus constituting part of the
registration statement on form S-1 of Acme Metals Incorporated filed with the
Securities and Exchange Commission (the "Registration Statement") and to being
named therein as an expert.
The undersigned further consents to filing of this letter as an exhibit to the
Registration Statement.
STELTECH LTD.
/S/ LESLIE C. McLEAN
--------------------
Leslie C. McLean
President
