<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1998
REGISTRATION NO.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
ACME METALS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 6719 36-3802419
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation or
organization)
</TABLE>
13500 S. Perry Avenue
Riverdale, Illinois 60827-1182
(708) 849-2500
(Address, including ZIP code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------------
Stephen D. Bennett
President and Chief Executive Officer
Acme Metals Incorporated
13500 S. Perry Avenue
Riverdale, Illinois 60827-1182
(708) 849-2500
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
---------------------------
WITH COPIES TO:
James T. Easterling, Esq.
Ungaretti & Harris
3500 Three First National Plaza
Chicago, Illinois 60602
---------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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=================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------------
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10 7/8% Senior Notes due
2007........................ $200,000,000 99.251% $198,502,000 $58,558.09
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f).
---------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
OFFER TO EXCHANGE
ALL OUTSTANDING
10 7/8% SENIOR NOTES DUE 2007
($200,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
10 7/8% SENIOR NOTES DUE 2007
OF
ACME METALS INCORPORATED
------------------------------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON JUNE 18, 1998, UNLESS EXTENDED
------------------------------
Acme Metals Incorporated, a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal," and, together with this Prospectus, the "Exchange Offer"), to
exchange $1,000 principal amount of its 10 7/8% Senior Notes due December 15,
2007 (the "New Notes"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement
(as defined herein) of which this Prospectus constitutes a part, for each $1,000
principal amount of its outstanding 10 7/8% Senior Notes due December 15, 2007
(the "Old Notes"), of which $200 million principal amount is outstanding. The
New Notes and the Old Notes are collectively referred to herein as the "Notes."
The Company will accept for exchange any and all Old Notes that are validly
tendered on or prior to 5:00 p.m., New York City time, on the date the Exchange
Offer expires, which will be June 18, 1998, unless the Exchange Offer is
extended (the "Expiration Date"). Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the business day prior to the
Expiration Date, unless previously accepted for payment. The Exchange Offer is
not conditioned upon any minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject to certain conditions which
may be waived by the Company and to the terms and provisions of the Registration
Rights Agreement (as defined herein). See "The Exchange Offer." Old Notes may be
tendered only in denominations of $1,000 and integral multiples thereof.
The New Notes will be obligations of the Company entitled to the benefits
of the Indenture (as defined herein). The form and terms of the New Notes are
the same in all material respects as the form and terms of the Old Notes, except
that the New Notes have been registered under the Securities Act and will not
contain terms restricting the transfer thereof. Any Old Notes not tendered and
accepted in the Exchange Offer will remain outstanding and will be entitled to
all the rights and preferences and will be subject to the limitations applicable
thereto under the Indenture. Following the completion of the Exchange Offer, (i)
the holders of the Old Notes will continue to be subject to the existing
restrictions upon transfer thereof; (ii) the Company will have no further
obligation to such holders to provide for the registration under the Securities
Act of the Old Notes held by them; and (iii) neither the New Notes nor the Old
Notes will be entitled to the contingent increase in interest rate provided for
pursuant to the Old Notes. See "The Exchange Offer." The Exchange Offer is being
made pursuant to the terms of the Registration Rights Agreement (the
"Registration Rights Agreement") dated as of December 18, 1997 among the
Company, Morgan Stanley & Co. Incorporated, Salomon Brothers Smith Barney, First
Chicago Capital Markets, Inc. and Nesbitt Burns Securities Inc. (the "Placement
Agents"), pursuant to the terms of the Placement Agreement dated as of December
16, 1997 among the Company and the Placement Agents.
The New Notes will bear interest from December 18, 1997. Holders of Old
Notes whose Old Notes are accepted for exchange will be deemed to have waived
the right to receive any payment in respect of interest on the Old Notes accrued
from December 18, 1997, or the most recent Interest Payment Date (as defined
herein) to which interest has been paid, to the date of the issuance of the New
Notes. Interest on the New Notes is payable semi-annually on June 15 and
December 15 of each year, commencing December 15, 1998, accruing from December
18, 1997, or the most recent Interest Payment Date to which interest has been
paid, at a rate of 10 7/8% per annum.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE NEW NOTES OFFERED HEREBY.
------------------------------
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.
The date of this Prospectus is , 1998.
<PAGE> 3
The Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after December 15, 2002, at the redemption prices set forth
herein plus accrued interest to the date of redemption. In addition, at any time
prior to December 15, 2000, the Company may redeem up to 35% of the principal
amount of the Notes with the proceeds from one or more Public Equity Offerings
(as defined herein) at a redemption price of 110.0% of the principal amount of
the Notes, plus accrued interest to the date of redemption; provided that after
any such redemption at least $125 million aggregate principal amount of Notes
remains outstanding.
Old Notes initially sold to Qualified Institutional Buyers (as defined in
Rule 144A promulgated under the Securities Act) and other institutional
Accredited Investors (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) were represented by a single, global Note in definitive fully
registered form without coupons, registered in the name of a nominee of the
Depository Trust Company ("DTC"), as depositary. The New Notes exchanged for Old
Notes represented by the global Note will be represented by a single, global
Note in definitive fully registered form without coupons, registered in the name
of the nominee of DTC, as depositary, unless the beneficial holders thereof
request otherwise. The global New Note will be exchangeable, in accordance with
the DTC's rules and procedures, for New Notes in definitive fully registered
form without coupons, in denominations of $1,000 and integral multiples thereof.
See "Description of New Notes--Book-Entry Delivery and Form."
The Old Notes are, and the New Notes will be, unsubordinated and unsecured
indebtedness of the Company, ranking pari passu in right of payment with all
existing and future unsubordinated and unsecured indebtedness of the Company and
senior in right of payment to all subordinated indebtedness of the Company. As
of March 29, 1998, the Company had (on an unconsolidated basis and excluding
intercompany payables) $216.4 million of indebtedness other than the Old Notes,
all of which is secured indebtedness. The Old Notes are, and the New Notes will
be, guaranteed on a senior unsecured basis by Acme Steel Company, a Delaware
corporation and a wholly-owned subsidiary of the Company ("Acme Steel"). The
Company, however, is a holding company and the Old Notes were, and the New Notes
will be, effectively subordinated to all existing and future liabilities
(including trade payables) of the Company's subsidiaries other than Acme Steel.
As of March 29, 1998, the subsidiaries of the Company had $188.9 million of
liabilities excluding intercompany payables (including $6.0 million of
indebtedness), none of which is secured.
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the New Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by holders thereof (other than any such holder
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that such New Notes are acquired in
the ordinary course of such holders' business and such holders have no
arrangements with any person to participate in the distribution of such New
Notes. Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus and any amendment or supplement to
this Prospectus available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
The Company will not receive any proceeds from this offering, and no
underwriter is being utilized in connection with the Exchange Offer. See "Use of
Proceeds" and "Plan of Distribution."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS OR EXCHANGES FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
ii
<PAGE> 4
The New Notes are a new issue of securities for which there is currently no
trading market. If the New Notes are traded after their initial issuance, they
may trade at a discount from their principal amount, depending upon prevailing
interest rates, the market for similar securities and other factors, including
general economic conditions and the financial condition and performance of, and
prospects for, the Company. The Placement Agents have advised the Company that
they currently intend to make a market in the Old Notes and the New Notes.
However, they are not obligated to do so, and any market making activity with
respect to the Old Notes and the New Notes may be discontinued at any time
without notice. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Old Notes and the New Notes. The Company does
not intend to apply for listing of the New Notes on any securities exchange or
for quotation through the National Association of Securities Dealers Automated
Quotation System.
No person has been authorized to give any information or make any
representation not contained in this Prospectus and the accompanying Letter of
Transmittal in connection with the matters referred to herein and, if given or
made, such information or representation must not be relied upon as having been
authorized by the Company or the Exchange Agent (as hereinafter defined).
Neither this Prospectus nor the accompanying Letter of Transmittal constitutes
an offer to sell any securities other than the registered securities to which it
relates, or an offer to sell or a solicitation of an offer to buy any securities
covered by this Prospectus or a solicitation of a proxy to or by any person in
any Prospectus nor any distribution of the securities to which this Prospectus
relates shall, under any circumstances, create an implication that there has
been no change in the information contained herein since the date hereof.
iii
<PAGE> 5
TABLE OF CONTENTS
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PAGE
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Summary..................................................... 1
Risk Factors................................................ 12
The Exchange Offer.......................................... 19
Use of Proceeds............................................. 27
Capitalization.............................................. 28
Selected Financial Data..................................... 29
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 31
Business.................................................... 42
Management.................................................. 63
Description of New Notes.................................... 66
Description of Certain Indebtedness......................... 93
Certain United States Income Tax Considerations............. 94
Plan of Distribution........................................ 99
Legal Matters............................................... 100
Independent Accountants..................................... 100
Available Information....................................... 100
Incorporation by Reference.................................. 101
Index to Consolidated Financial Statements.................. F-1
</TABLE>
The Indenture pursuant to which the Old Notes are, and the New Notes will
be, issued (the "Indenture") requires the Company, and the Company intends, to
distribute the holders of Notes annual reports containing consolidated financial
statements of the Company audited by its independent accountants and quarterly
reports containing unaudited consolidated financial statements for each of the
first three quarters of each fiscal year.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT. ALL STATEMENTS OTHER THAN STATEMENTS OF
HISTORICAL FACT INCLUDED IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, THE
STATEMENTS OF THE COMPANY'S FUTURE FINANCIAL RESULTS, FINANCIAL POSITION,
BUSINESS STRATEGY, PROJECTED COSTS AND PLANS AND OBJECTIVES OF MANAGEMENT, ARE
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES ITS EXPECTATIONS ARE
BASED UPON REASONABLE ASSUMPTIONS, NO ASSURANCE CAN BE GIVEN THAT ACTUAL RESULTS
WILL NOT DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS. IN
ADDITION, WHEN USED IN THIS PROSPECTUS, THE WORDS "BELIEVES," "ANTICIPATES,"
"EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES.
ACTUAL RESULTS IN THE FUTURE COULD DIFFER MATERIALLY FROM THOSE DESCRIBED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF THE RISK FACTORS SET FORTH IN THIS
PROSPECTUS AND THE MATTERS SET FORTH IN THIS PROSPECTUS GENERALLY. FOR A MORE
DETAILED DISCUSSION OF THE FACTORS THAT COULD CAUSE ACTUAL RESULTS TO VARY, SEE
"RISK FACTORS."
iv
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, appearing elsewhere or incorporated
by reference in this Prospectus. Unless the context otherwise requires, all
references herein to the "Company" are to Acme Metals Incorporated, a Delaware
corporation ("Acme Metals"), and its wholly-owned subsidiaries, Acme Steel
Company, a Delaware corporation ("Acme Steel"), and its wholly-owned subsidiary,
Alabama Metallurgical Corporation, and Acme Packaging Corporation, a Delaware
corporation ("Acme Packaging"), and its wholly-owned subsidiaries, Universal
Tool & Stamping Company, Inc. ("Universal"), until March 9, 1998, when Universal
was sold, Alpha Tube Corporation ("Alpha Tube") and Acme Steel Company
International, Inc. References to fiscal periods herein are references to the
Company's fiscal periods which end on the last Sunday of the related calendar
period.
BUSINESS
Acme Metals, based in Riverdale, Illinois, is a fully integrated
manufacturer and marketer of steel, steel strapping and strapping tools and
steel tubing. Acme Metals' operations are divided into two primary segments, the
Steel Making Segment and the Steel Fabricating Segment. The Steel Making
Segment's operations are conducted through Acme Steel, which accounted for 42%
of the Company's total sales in 1997, and the Steel Fabricating Segment's
operations are conducted through Acme Packaging and Alpha Tube, which together
accounted for 50% of the Company's total sales in 1997. On March 9, 1998, the
Company sold Universal, a manufacturer of automotive and light truck jacks,
which accounted for 8% of the Company's total sales in 1997. See
"Business--Recent Developments."
In September 1996, the Company completed construction of a new continuous
thin slab caster/hot strip mill complex at Acme Steel's Riverdale, Illinois
plant. This complex was referred to in the Company's previous filings as the
"Modernization and Expansion Project" and is herein referred to as the "New
Facility." The New Facility, which cost approximately $400 million (excluding
capitalized interest and certain internal costs), allows Acme Steel to build on
its strengths as a low cost producer of high quality liquid steel by
significantly increasing its overall efficiency and reducing its finished steel
production costs. The Company continued to run its old ingot making operations
while the New Facility was being brought on line. In June 1997, the Company
completed the decommissioning of its ingot making operations. The Company
anticipates that the New Facility, when fully operational, will reduce Acme
Steel's 1996 cash manufacturing costs by approximately 19%, or $70 per shipped
ton, and will increase Acme Steel's ongoing planned shipping capability to
970,000 tons per year. The New Facility has reduced the average production time
for transforming raw steel into flat rolled steel coils from ten days to 90
minutes by eliminating the extra heating and rolling necessary in the old
ingot-based process. During the quarter ended March 29, 1998, the New Facility
operated on average at approximately 87% of its planned production levels. The
New Facility has incurred, and is expected to continue to incur, ongoing cost
inefficiencies due to, among other factors, a higher than expected rate of
unplanned delays and a slower than expected improvement in material yield
performance (i.e. raw liquid steel to finished steel coil). See "Risk
Factors--Performance of New Facility."
In February 1996, Acme Steel and its joint venture partner began
construction of a $30 million state-of-the-art steel coil processing plant (the
"NACME Facility"). Acme Steel has a 40% equity position in the entity owning the
NACME Facility ("NACME"). The NACME Facility pickles, oils, slits and packages
wide steel coils produced by the New Facility. The NACME Facility will enhance
Acme Steel's ability to provide precise customer specifications of superior
quality steels with highly competitive lead times. Pickling operations at the
NACME Facility began in December 1996 and slitting operations began late in the
second quarter of 1997. The ramp up of the slitting of high carbon products has
been slower than expected, and, during the first quarter of 1998, the NACME
Facility operated on average at approximately 60% of its planned slitting
capability. See "Risk Factors--NACME Facility."
The Company has pursued a downstream integration strategy intended to
enhance both the value and margins of its steel products through its Steel
Fabricating Segment, comprised of Acme Packaging, Alpha Tube and, until March 9,
1998, Universal. See "--Recent Developments." Acme Packaging is one of the two
<PAGE> 7
major domestic producers of steel strapping and strapping tools in the United
States and, by management estimates, shares approximately 80% of the domestic
market equally with its primary competitor. Alpha Tube is a leading producer of
high quality, welded carbon steel tubing used for furniture, recreational,
contractors' and automotive applications.
The downstream integration strategy has helped to moderate the impact of
fluctuating steel demand on Acme Steel's operations by creating captive
businesses which consumed approximately 30% to 40% of Acme Steel's steel
production and, with the New Facility's increased production capability, are
expected to consume 20% to 30% of Acme Steel's steel production. See
"Business--Steel Making Segment."
BUSINESS STRATEGY
Acme Metals' strategy is to enhance its position as a high quality, low
cost producer of hot rolled sheet and strip steel and related value-added
products and to achieve future profitable growth. The key elements of this
strategy include maximizing the performance of the New Facility, continuing to
focus on downstream integration, improving product quality and customer service
and pursuing growth opportunities.
MAXIMIZE THE PERFORMANCE OF THE NEW FACILITY
The Company's objective is to achieve the expected benefits from its
investment in the New Facility thereby enhancing its status as a preeminent
supplier of flat rolled carbon, alloy and HSLA steels in custom sizes and
grades. Key strategic elements to accomplish this objective include the
following:
- Reduce Manufacturing Cost. Acme Steel is a low cost producer of liquid
steel. The Company believes the New Facility, when fully operational,
will enable Acme Steel to significantly reduce finished steel
manufacturing costs and improve operating efficiency. When the New
Facility reaches planned production levels, the Company estimates it will
provide cash savings in manufacturing costs (based on full utilization of
its expanded shipping capability of approximately 970,000 tons per year)
of approximately $70 per shipped ton as compared to 1996 manufacturing
costs. See "Risk Factors--Performance of New Facility."
- Increase Shipping Capability. As a result of the completion of the New
Facility, by the end of 1998 management expects the ongoing shipping
capability of Acme Steel to increase to approximately 970,000 tons, on an
annualized basis. The New Facility's yield from raw liquid steel to
finished coils is currently 86% and is expected to increase to over 90%
when the New Facility achieves planned production levels.
- Increase Sales of Specialty Steels to Niche Markets. Acme Steel expects
to regain and expand its sales of value-added specialty steels to its
niche markets as the New Facility ramps up to planned production levels.
Acme Steel's focus has been and continues to be to produce more
value-added specialty grades of steel, including high and mid carbon,
alloy and HSLA steel. The New Facility produces wider sheets and thinner
gauges than the old ingot-based facility, thus expanding Acme Steel's
product range and allowing the Company to increase sales to its existing
customer base. See "Risk Factors--Niche Customers."
CONTINUE TO FOCUS ON DOWNSTREAM INTEGRATION
The Company has pursued a downstream integration strategy to enhance both
the value and margins of its products by maximizing the benefits of the New
Facility and pursuing additional value-added product lines.
- Maximize Benefits of New Facility. The steel provided by the New Facility
will enable the Company's Steel Fabricating Segment to reduce its
production costs because the wider, larger coils supplied by the New
Facility will reduce changeover costs, improve yields and improve
productivity.
2
<PAGE> 8
- Pursue Additional Value-Added Product Lines. The Company continually
reviews opportunities to expand its product lines in areas which add
value. Examples of recent initiatives include the following:
(i) Acme Packaging recently invested in plastic strapping
manufacturing equipment that is expected to be operational in the
second half of 1998. This investment is in an area that represents
a growing segment of the overall strapping industry. See
"Business--Steel Fabricating Segment."
(ii) As part of a consolidation of Alpha Tube's slitting and tube
making operations into a new, larger facility, Alpha Tube is
upgrading the production capability of two of its five tube mills,
which will give Alpha Tube additional capability to meet growth
opportunities in the higher-margin, larger-diameter tube markets
and will allow for greater overall utilization of all five tube
mills. The consolidation is expected to be completed in the second
quarter of 1998. See "Business--Properties."
IMPROVE PRODUCT QUALITY AND CUSTOMER SERVICE
The Company strives to offer high-quality products to all of its customers
and plans to maintain its commitment to superior customer service and product
quality. The New Facility has improved Acme Steel's product quality and allows
it to meet the requirements of customers that demand continuously cast steel
products and tighter dimensional and physical properties in the finished
products. See "Risk Factors--Niche Customers." In addition, the New Facility has
reduced the average production time for transforming raw steel into flat rolled
steel coils from ten days to 90 minutes, thereby improving Acme Steel's customer
lead times. The fabricating businesses were QS-9000 or ISO-9002 certified in
1997.
PURSUE GROWTH OPPORTUNITIES
The Company plans to pursue growth opportunities through existing capacity
expansion or possible acquisitions to secure the long-term future growth and
profitability of the Company. For example, the Company believes that the flat
rolled steel making capability of the New Facility can be increased by up to one
million tons annually through the addition of additional steel making
facilities, a second caster, a second tunnel furnace and related machinery and
equipment.
RECENT DEVELOPMENTS
On December 18, 1997, in order to take advantage of current interest rates
and to improve its flexibility for future modernization, the Company consummated
a financing plan (the "Financing Plan") comprised of the following elements: (i)
a tender offer for the Company's outstanding 12 1/2% Senior Secured Notes due
2002 (the "Senior Secured Notes") and 13 1/2% Senior Secured Discount Notes due
2004 (the "Senior Secured Discount Notes") (the Senior Secured Notes and the
Senior Secured Discount Notes being collectively referred to herein as the "1994
Notes"), (ii) a new $175 million Senior Secured Credit Agreement with Morgan
Stanley Senior Funding, Inc., as syndication agent and arranger, and Bankers
Trust Company, as administrative agent (the "Senior Secured Credit Agreement"),
(iii) a modification of the Company's existing $80 million working capital
facility with Harris Trust and Savings Bank, as agent (the "Working Capital
Facility"), (iv) repayment of the Company's $50 million term loan facility (the
"Term Loan") and (v) the offering of $200 million principal amount of the Old
Notes. See "Business--Recent Developments" and "Description of Certain
Indebtedness."
On March 9, 1998, the Company sold its wholly owned subsidiary, Universal,
a manufacturer of automotive and light truck jacks. The sale of Universal
generated proceeds to the Company of approximately $18.0 million and a gain of
$12.0 million (approximately $7.8 million, net of tax). Proceeds from the sale
of Universal are restricted by the Indentures pursuant to which the 1994 Notes
were issued (the "1994 Indentures"), and net proceeds of $17.1 million have been
deposited with the trustee under the 1994 Indentures. The Company is permitted
to apply the proceeds to related business investments or to offer to redeem, on
a pro rata basis, the remaining 1994 Notes. To the extent an offer to redeem the
1994 Notes is not accepted, the proceeds become unrestricted.
3
<PAGE> 9
TERMS OF THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $200 million aggregate
principal amount of Old Notes for up to an equal aggregate principal amount of
New Notes. The New Notes will be obligations of the Company entitled to the
benefits of the Indenture. The form and terms of the New Notes are the same as
the form and terms of the Old Notes, except that the New Notes have been
registered under the Securities Act and will not contain terms restricting the
transfer thereof (and hence are not entitled to the benefits of the Registration
Rights Agreement relating to the contingent increases in the interest rate
provided for pursuant thereto). See "Description of New Notes."
Exchange Offer.................. $1,000 principal amount of New Notes will be
issued in exchange for each $1,000 principal
amount of Old Notes validly tendered pursuant
to the Exchange Offer. As of the date hereof,
$200 million in aggregate principal amount of
Old Notes are outstanding. The Company will
issue the New Notes to tendering holders of
Old Notes promptly after the Expiration Date.
See "Exchange Offer--Termination."
Holders of Old Notes whose Old Notes are not
tendered and accepted in the Exchange Offer
will continue to hold such Old Notes and will
be entitled to all the rights and
preferences, and will be subject to the
limitations applicable thereto, under the
Indenture governing the Old Notes and the New
Notes. Following consummation of the Exchange
Offer, the holders of Old Notes will continue
to be subject to the existing restrictions on
the transfer thereof, and the Company will
have no further obligation to such holders to
provide for the registration under the
Securities Act of the Old Notes held by them.
Following the completion of the Exchange
Offer, none of the Notes will be entitled to
the contingent increase in interest rate
provided to the holders of the Old Notes
pursuant to the Registration Rights
Agreement.
Resale.......................... Based on interpretations by the staff of the
Commission set forth in no-action letters
issued to third parties, the Company believes
that the New Notes issued pursuant to the
Exchange Offer generally will be freely
transferable by any holder thereof (other
than broker-dealers, to the extent set forth
below, and any holder that is an "affiliate"
of the Company within the meaning of Rule 405
under the Securities Act) without
registration or any prospectus delivery
requirement under the Securities Act,
provided that such Notes are acquired in the
ordinary course of business of such holder
and that such holder has no arrangement or
understanding with any person to participate
in the distribution of such New Notes. Any
holder who tenders in the Exchange Offer with
the intention to participate, or for the
purpose of participating, in a distribution
of the New Notes or who is an "affiliate" of
the Company may not rely upon such
interpretations of the staff of the
Commission and, in the absence of an
exemption under the Securities Act, must
comply with the registration and prospectus
delivery requirements of the Securities Act
in connection with any secondary resale
transaction. Failure to comply with such
requirements in any such instance may result
in such holder incurring liabilities under
the Securities Act for which such holder is
not indemnified by the
4
<PAGE> 10
Company. Each broker-dealer (other than an
affiliate of the Company) that receives New
Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any
resale of such New Notes. The Letter of
Transmittal states that by so acknowledging
and delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. The Company has agreed that,
for a period of 180 days after the Expiration
Date, it will make the Prospectus available
to any broker-dealer for use in connection
with any such resale. See "The Exchange
Offer--General" and "Plan of Distribution."
Expiration Date................. 5:00 p.m., New York City time, on June 18,
1998, unless the Exchange Offer is extended,
in which case the term "Expiration Date"
means the latest date and time to which the
Exchange Offer is extended. See "The Exchange
Offer--Expiration Date; Extensions;
Amendments."
Accrued Interest on the New
Notes and the Old Notes......... The New Notes will bear interest from
December 18, 1997. Holders of Old Notes whose
Old Notes are accepted for exchange will be
deemed to have waived the right to receive
any payment in respect of interest on such
Old Notes accrued from December 18, 1997, or
the most recent Interest Payment Date to
which interest has been paid, to the date of
the issuance of the New Notes. Consequently,
holders who exchange their Old Notes for New
Notes will receive the same interest payment
on December 15, 1998 (the first interest
payment date with respect to the Old Notes
and the New Notes) as they would have
received had they not accepted the Exchange
Offer. See "The Exchange Offer--Interest on
the New Notes."
Termination of the Exchange
Offer........................... The Company may terminate the Exchange Offer
if it determines that its ability to proceed
with the Exchange Offer could be materially
impaired due to any legal or governmental
action, any new law, statute, rule or
regulation or any interpretation of the staff
of the Commission of any existing law,
statute, rule or regulation or if the Company
deems it advisable to terminate the Exchange
Offer. Holders of Old Notes will have certain
rights against the Company under the
Registration Rights Agreement should the
Company fail to consummate the Exchange
Offer. See "The Exchange Offer--Termination"
and "Description of New Notes--Registration
Rights."
No federal or state regulatory requirements
must be complied with or approvals obtained
in connection with the Exchange Offer, other
than applicable requirements under federal
and state securities laws.
Procedure for Tendering Old
Notes........................... Each holder of Old Notes wishing to accept
the Exchange Offer must complete, sign and
date the accompanying Letter of Transmittal,
or a facsimile thereof, in accordance with
the instructions contained herein and
therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile,
together
5
<PAGE> 11
with the Old Notes to be exchanged and any
other required document to Harris Trust and
Savings Bank, as Exchange Agent, at the
address set forth herein and therein or
effect a tender of Old Notes pursuant to the
procedures for book-entry transfer as
provided for herein. See "The Exchange Offer
--Procedures for Tendering."
Special Procedures for
Beneficial Holders.............. Any beneficial holder whose Old Notes are
registered in the name of his or its broker,
dealer, commercial bank, trust company or
other nominee and who wishes to tender in the
Exchange Offer should contact such registered
holder promptly and instruct such registered
holder to tender on his or its behalf. If
such beneficial holder wishes to tender on
his or its own behalf, such beneficial holder
must, prior to completing and executing the
Letter of Transmittal and delivering his or
its Old Notes, either make appropriate
arrangements to register ownership of the Old
Notes in such holder's name or obtain a
properly completed bond power from the
registered holder. The transfer of record
ownership may take considerable time. See
"The Exchange Offer--Procedures for
Tendering."
Guaranteed Delivery
Procedures...................... Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes (or who cannot complete the
procedure for book-entry transfer on a timely
basis) and a properly completed Letter of
Transmittal or any other documents required
by the Letter of Transmittal to the Exchange
Agent prior to the Expiration Date may tender
their Old Notes according to the guaranteed
delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery
Procedures."
Withdrawal Rights............... Tenders of Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time,
on the business day prior to the Expiration
Date unless previously accepted for exchange.
See "The Exchange Offer--Withdrawal of
Tenders."
Acceptance of Old Notes and
Delivery of New Notes........... Subject to certain conditions (as summarized
above in "Termination of the Exchange Offer"
and described more fully in "The Exchange
Offer--Termination"), the Company will accept
for exchange any and all Old Notes which are
properly tendered in the Exchange Offer prior
to 5:00 p.m., New York City time, on the
Expiration Date. The New Notes issued
pursuant to the Exchange Offer will be
delivered promptly following the Expiration
Date. See "The Exchange Offer--General."
Certain Federal Income Tax
Considerations................ The exchange pursuant to the Exchange Offer
will generally not be a taxable event for
federal income tax purposes. See "Certain
United States Income Tax
Considerations--Sale, Exchange and Retirement
of Notes."
Exchange Agent.................. Harris Trust and Savings Bank, the trustee
under the Indenture, is serving as exchange
agent (the "Exchange Agent") in
6
<PAGE> 12
connection with the Exchange Offer. See "The
Exchange Offer--Exchange Agent."
Use of Proceeds................. There will be no cash proceeds payable to the
Company from the issuance of the New Notes
pursuant to the Exchange Offer. Net proceeds
received by the Company from the sale of the
Old Notes of approximately $198.5 million
were used, together with a portion of the
proceeds from the Senior Secured Credit
Agreement, to repay approximately $107.4
million principal amount of 12 1/2% Senior
Secured Notes due 2002 and approximately
$117.3 million principal amount of 13 1/2%
Senior Secured Discount Notes due 2004,
pursuant to a tender offer by the Company
consummated on December 18, 1997. See "Use of
Proceeds" and "Business--Recent
Developments."
7
<PAGE> 13
SUMMARY OF TERMS OF THE NEW NOTES
The Exchange Offer applies to $200,000,000 aggregate principal amount of
Old Notes. The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that: (i) the New Notes
will be registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof; and (ii) holders of the New Notes will
not be entitled to certain rights of holders of Old Notes under the Registration
Rights Agreement, which will terminate upon consummation of the Exchange Offer.
The New Notes will evidence the same debt as the Old Notes, will be entitled to
the benefits of the Indenture and will be treated as a single class thereunder
with any Old Notes that remain outstanding.
Issuer.......................... Acme Metals.
Securities Offered.............. $200 million aggregate principal amount of
10 7/8% Senior Notes Due 2007 (the "New
Notes").
Maturity........................ December 15, 2007.
Interest........................ Payable semi-annually in cash on June 15 and
December 15 of each year (the "Interest
Payment Dates"), commencing on December 15,
1998.
Optional Redemption............. The New Notes may be redeemed at any time on
or after December 15, 2002, at the option of
the Company, in whole or in part, at 105.438%
of their principal amount, plus accrued
interest, declining ratably to 100% of their
principal amount, plus accrued interest, on
and after December 15, 2004. In addition, at
any time prior to December 15, 2000, the
Company may redeem up to 35% of the principal
amount of the New Notes with the proceeds
from one or more Public Equity Offerings at
110.0% of the principal amount of the New
Notes, plus accrued interest; provided that
after any such redemption at least $125
million aggregate principal amount of New
Notes remains outstanding. See "Description
of New Notes--Optional Redemption."
Change of Control............... Upon a Change of Control (as defined herein),
the Company will be required to make an offer
to purchase the New Notes at a purchase price
equal to 101% of their principal amount, plus
accrued interest. There can be no assurance
that the Company will have sufficient funds
available at the time of any Change of
Control to make any required debt repayment
(including repurchase of the New Notes). See
"Description of New Notes--Repurchase of
Notes Upon a Change of Control."
Guaranty........................ The Notes will be guaranteed on a senior,
unsecured basis by Acme Steel.
Ranking......................... The New Notes will be senior unsecured
indebtedness of the Company ranking pari
passu with the Company's other senior
unsecured indebtedness and senior in right of
payment to all subordinated indebtedness of
the Company. As of March 29, 1998, the
Company had (on an unconsolidated basis and
excluding intercompany payables)
approximately $216.4 million of indebtedness
other than the Old Notes, all of which is
secured. The New Notes will be guaranteed on
a senior, unsecured basis by Acme Steel. The
Company, however, is a
8
<PAGE> 14
holding company and the New Notes will be
effectively subordinated to all existing and
future liabilities (including trade payables)
of the Company's subsidiaries, other than
Acme Steel. As of March 29, 1998 the
subsidiaries of the Company had approximately
$188.9 million of liabilities excluding
intercompany payables (including $6.0 million
of indebtedness), none of which is secured.
See "Risk Factors--Substantial Indebtedness;
Covenant Restrictions; Access to Capital and
Holding Company Structure; Priority of
Secured Debt."
Certain Covenants............... The Indenture contains certain covenants
that, among other things, limit the ability
of the Company to incur indebtedness, pay
dividends, prepay subordinated indebtedness,
repurchase capital stock, make investments,
engage in transactions with shareholders and
affiliates, create liens, sell assets and
engage in mergers and consolidations.
However, these limitations are subject to a
number of important qualifications and
exceptions. See "Description of New
Notes--Covenants."
Governing Law................... The Indenture and the Notes are governed by,
and construed in accordance with, the laws of
the State of New York.
Trustee, Paying Agent and
Registrar....................... Harris Trust and Savings Bank.
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY CERTAIN MATTERS RELATING TO
AN INVESTMENT IN THE NEW NOTES. SEE "RISK FACTORS."
9
<PAGE> 15
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents summary financial data of the Company for the
years ended December 31, 1995, December 29, 1996 and December 28, 1997 and the
three months ended March 30, 1997 and March 29, 1998. The historical financial
data for each of the three years in the period ended December 28, 1997 have been
derived from the audited Consolidated Financial Statements of the Company. The
financial data for the three months ended March 30, 1997 and March 29, 1998 have
been derived from the Company's unaudited Consolidated Financial Statements. The
following information should be read in conjunction with the "Selected Financial
Data" and the Company's Consolidated Financial Statements and notes thereto
presented elsewhere in this Prospectus. Operating results for interim periods
are not necessarily indicative of the results that might be expected for an
entire fiscal year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
-------------------------------------------- ----------------------
DECEMBER 31, DECEMBER 29, DECEMBER 28, MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
------------ ------------ ------------ --------- ---------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............................. $521,619 $498,242 $488,030 $125,331 $144,996
Gross margin.......................... 84,448 50,465 4,151 (4,317) 5,838
Income (loss) before income taxes,
cumulative effect of change in
accounting principle and
extraordinary loss(1)............... 44,135 5,093 (76,642) (24,041) (2,575)
Income tax provision (benefit)........ 15,889 2,426 (29,124) (8,174) (900)
Net income (loss) before extraordinary
loss and cumulative effect of a
change in accounting principle...... 28,246 2,667 (47,518) (15,867) (1,675)
Extraordinary loss, net of tax(2)..... (23,411)
Cumulative effect of change in
accounting principle, net of
tax(3).............................. (6,276)
Net income (loss)..................... 28,246 2,667 (77,205) (15,867) (1,675)
OTHER FINANCIAL DATA:
Net cash provided by (used for)
operating
activities.......................... 59,541 46,034 (60,712) (23,865) 22,949
Net cash used for investing
activities.......................... (83,547) (85,562) (28,599) (873) (27,946)
Net cash provided by financing
activities.......................... 410 19,709 62,541 355 13,212
Net increase (decrease) in cash and
cash equivalents.................... (23,596) (19,819) (26,770) (24,383) 8,215
EBITDA(4)............................. 64,271 22,257 3,892 (4,373) 17,689
Capital expenditures.................. 244,374 199,122 45,929 12,459 6,219
Ratio of earnings to fixed
charges(5).......................... 1.8x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 28, 1997 MARCH 29, 1998
----------------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 6,454 $ 14,669
Total assets................................................ 829,081 818,116
Long term debt (including current maturities)............... 424,743 420,933
Shareholders' equity........................................ 186,343 185,132
</TABLE>
- -------------------------
(1) Income before income taxes and extraordinary loss and cumulative effect of a
change in accounting principle for the year ended December 29, 1996 includes
pre-tax charges for training and pre-start-up costs relating to the New
Facility of $9.9 million.
(2) Includes a pre-tax charge of $37.6 million, $23.4 million after tax, for the
costs, expenses and unamortized financing fees relating to the early
retirement of the debt pursuant to the Financing Plan.
10
<PAGE> 16
(3) Cumulative effect of changes in accounting principle, net of taxes, includes
the effects of adopting EITF No. 97-13 "Accounting for Costs Incurred in
Connection with a Consulting Contract for an Internal Project that combines
Business Process Reengineering and Information Technology Transformation."
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Recently Issued Accounting Pronouncements."
(4) EBITDA represents earnings (losses) before interest, income taxes,
depreciation, amortization and cumulative effect of a change in accounting
principle and the extraordinary loss. EBITDA for the three months ended
March 29, 1998 includes a $12.0 million gain on the sale of Universal. See
"Business--Recent Developments." EBITDA is provided because it is a measure
commonly used in the industry. EBITDA is not a measurement of financial
performance under generally accepted accounting principles and should not be
considered an alternative to net income as a measure of performance or to
cash flow as a measure of liquidity. EBITDA is not necessarily comparable
with similarly titled measures.
(5) Earnings were insufficient to cover fixed charges by approximately $26.3
million, $76.2 million, $24.0 million and $3.0 million for the year ended
December 29, 1996, year ended December 28, 1997, the three months ended
March 30, 1997 and the three months ended March 29, 1998, respectively.
Earnings consist of income before income taxes less earnings for
unconsolidated subsidiaries accounted for under the equity method, plus
fixed charges, except where capitalized. Fixed charges consist of interest
charges and amortization of debt issuance costs, in each case whether
expensed or capitalized, and lease expense under operating leases
representing interest.
11
<PAGE> 17
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully review the following risk factors.
PERFORMANCE OF NEW FACILITY
In September, 1996, the Company completed construction of the New Facility,
which combines highly efficient mini-mill casting and rolling technology with
the traditional high quality liquid steel produced via the blast furnace/basic
oxygen furnace technology. The Company is in the process of ramping up the New
Facility to planned shipping levels of 970,000 tons per year. The New Facility,
however, has incurred, and is expected to continue to incur, cost inefficiencies
due to, among other things, a higher than expected rate of unplanned delays and
a slower than expected improvement in material yield performance (raw liquid
steel to finished steel coils). These factors have adversely affected the
financial performance of Acme Steel and the consolidated results of Company
during 1997 and the first quarter of 1998. Although the Company anticipates it
will be able to satisfactorily address these cost and operational matters and
the planned cost savings and production levels will be realized by the end of
1998, there can be no assurance that the Company will be able to address these
matters within that time frame.
NICHE CUSTOMERS
Historically, the Company has benefited from a higher average flat rolled
carbon steel selling price per ton for external customer sales than the
industry's average selling price per ton for such products. See
"Business--Overview." Due to the slow ramp-up at the New Facility and the delays
in ramping up the slitting operations at the NACME Facility, in 1997 and the
first quarter of 1998 deliveries to customers were delayed. As a result of the
delays in shipments, the Company has experienced a substantial reduction in
orders from its niche customers in the higher margin markets for high and mid
carbon, alloy, HSLA and processed value-added products and an increase in
shipments of lower margin low carbon steel products (i.e., an unfavorable mix).
See "Business--Overview." Due to the reduction in niche customer orders, the
Company has had a substantial reduction in the average selling price per ton for
sales to external customers, which has had a material adverse effect on the
Company's gross margins during 1997 and the first quarter of 1998. In 1997, Acme
Steel shipped 120,000 fewer tons of its traditional higher margin niche products
than in 1996. The late deliveries continue to have an adverse effect on customer
orders, particularly for high margin, value-added processed steel products.
Acme Steel continues to work to improve the operating performance of the
New Facility and to work with the management of the NACME Facility to improve
its slitting performance. These actions should improve delivery performance to
the traditional, higher margin, niche product customers and gradually improve
the product mix margins. Although the Company is aggressively pursuing these
improvements in operations and delivery performance, there can be no assurances
the Company will achieve these improvements as quickly as necessary, or if
achieved, that the Company will be able to regain or increase orders for higher
margin, niche products.
RECENT LOSSES
The Company reported a consolidated net loss of $77.2 million on
consolidated net sales of $488.0 million for the fiscal year ended December 28,
1997. (The net loss for the fiscal year ended December 28, 1997 included an
extraordinary loss and change in accounting principle amounting to $29.7
million. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations.") The financial performance of the Company, and in
particular Acme Steel, was adversely affected by, among other factors, the
ongoing inefficiencies of operating the New Facility at less than planned
production levels, lower material yield performance of the New Facility, slower
than expected ramp up of slitting capabilities of the NACME Facility. These
factors in combination have resulted in delayed deliveries, higher inventories,
lower sales volume, and an adverse mix of lower margin products. See "Risk
Factors--Performance of New Facility,"
12
<PAGE> 18
"--Niche Customers," and "--NACME Facility," "Management's Discussion And
Analysis Of Financial Condition And Results Of Operations" and
"Business--Overview."
The Company reported a consolidated net loss of $1.7 million on
consolidated net sales of $145.0 million for the fiscal quarter ended March 29,
1998 and expects to continue recognizing losses during 1998 as it aggressively
works to optimize the operating performance and cash manufacturing costs of the
New Facility, cooperate with the management of the NACME Facility to achieve
planned slitting capabilities, increase orders for niche products, and improve
deliveries to the higher margin niche product customers. Should the Company
incur greater than anticipated losses in 1998, the Company would be at risk of
breaching certain of the financial covenants in its loan agreements which may
result in an event of default under its loan agreements, and absent relief from
its lenders, the Company would have to consider financial alternatives to enable
it to adequately fund its operations and meet all of its obligations. See "Risk
Factors--Substantial Indebtedness; Covenant Restrictions; Access to Capital" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Although the Company is addressing the foregoing issues, there can be no
assurances the Company will be able to satisfactorily resolve all of these
concerns in the near term. No assurances can be given that the Company will not
continue to experience operational difficulties, will achieve the projected cost
benefits, will improve deliveries, or increase sales, to its traditional niche
market customers, or that financing will be available if required, or if
available, such financing will be on terms satisfactory to the Company.
SUBSTANTIAL INDEBTEDNESS; ACCESS TO CAPITAL; COVENANT RESTRICTIONS
At December 28, 1997 and March 29, 1998, the Company's debt as a percentage
of total capitalization was 69%, representing on a consolidated basis (excluding
intercompany payables) $424.7 million and $420.9 million, respectively, of
indebtedness (including current maturities of long-term indebtedness). The level
of indebtedness may pose risks to holders of the New Notes, including the
possibility the Company may not generate sufficient cash flow to make the
principal and interest payments on the New Notes when due and may preclude the
Company from obtaining additional capital, if needed.
The Company believes its existing cash balances, future internally
generated funds and amounts available under its Working Capital Facility will be
sufficient to fund the Company's anticipated capital and other expenditures and
meet its fixed charge requirements for the foreseeable future. In the event the
Company is unable to accomplish its objectives in a timely manner or there are
economic and market conditions adversely affecting the Company, 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
equity or debt 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.
In addition, the instruments governing the indebtedness of the Company
impose significant operating and financial restrictions on the Company. See
"Description of Certain Indebtedness." Such restrictions will affect, and in
many respects limit or prohibit, among other things, the ability of the Company
to incur additional indebtedness, pay dividends, repay indebtedness prior to its
maturity, sell assets or engage in mergers or acquisitions. These restrictions
could also affect the ability of the Company to effect future financing, make
needed capital expenditures, withstand a future downtown in the Company's
business or the economy in general or otherwise conduct necessary corporate
operations. A failure of the Company to comply with covenant restrictions could
lead to a default under the terms of such indebtedness. In an event of default,
the holders of such indebtedness could elect to declare all of the funds
borrowed pursuant thereto to be due and payable, together with accrued and
unpaid interest. In such event, there can be no assurance that the Company would
be able to make such payments or borrow sufficient funds from alternative
sources to make any such payment. Even if additional financing could be
obtained, there can be no assurance it would be on terms that are favorable or
acceptable to the Company.
13
<PAGE> 19
NACME FACILITY
Construction of the NACME Facility was completed in December 1996. Partial
operations (pickling, oiling, and packaging) commenced shortly thereafter;
however, due to late equipment delivery, slitting operations began late in the
second quarter of 1997 and ramp up of the slitting of high carbon products has
been slower than expected. The late and slow ramp up of the slitting operations
at the NACME Facility led to Acme Steel partially relying upon outside
processors for slitting services in 1997. NACME and Acme Steel are cooperating
in efforts to improve the performance of the slitting operations at the NACME
Facility. While the Company anticipates the NACME's Facility's management, with
Acme Steel's assistance, will be able to achieve the planned levels of slitting
capability in the second half of 1998, there can be no assurances of the NACME
Facility's ability to do so in the near term. See "Risk Factors -- Possible
Fluctuations in Service Providers, Raw Materials and Energy Costs."
CYCLICALITY OF STEEL INDUSTRY AND END USER MARKETS; VARIABILITY OF FINANCIAL
RESULTS
The steel industry is highly cyclical in nature and sensitive to general
economic conditions. The financial condition and results of operations of
companies in the steel industry are generally affected by macroeconomic
fluctuations in the U.S. and global economies. The consolidated financial
performance of the Company, and in particular of its subsidiary, Acme Steel, has
been affected by, among other things, the cyclical nature of the steel industry.
For the years 1995, 1996 and 1997, Acme Steel shipped 619,052, 611,882 and
629,212 net tons of flat rolled steel, respectively, with an average realized
price per ton of approximately $479, $458, and $422, respectively. As a result,
in part, of the impact of these changes in shipment volumes and steel prices,
the Company's consolidated net sales for the years 1995, 1996 and 1997 were
$521.6 million, $498.2 million and $488 million, respectively, and its
consolidated net income (loss) was $28.2 million, $2.7 million and $(77.2)
million, respectively. During the second half of 1997, the steel industry,
including Acme Steel, experienced generally declining prices.
In the early 1980s, U.S. integrated steel producers incurred significant
restructuring charges associated with efforts to reduce excess capacity.
Significant losses, and bankruptcies in certain cases, occurred as a result of a
number of factors, including worldwide production overcapacity, increased U.S.
and global competition, low levels of steel demand, substitution of alternative
materials for steel, high labor costs, inefficient plants and the strength of
the U.S. dollar relative to other currencies. In the late 1980s, earnings of
U.S. steel producers benefited from improved industry conditions. During the
1990 to 1992 downturn, substantial excess worldwide manufacturing capacity for
steel products, combined with a worldwide economic slowdown, resulted in a
substantial decrease in the demand for steel products, increased competition and
a decline in financial performance for the steel industry.
Although demand for steel products recovered from the 1992 downturn and the
profitability of the industry has improved recently, there can be no assurance
that economic conditions will remain favorable to the steel industry. Future
economic downturns, a stagnant economy or currency fluctuations may adversely
affect the Company's business, results of operations and financial condition.
The Company is particularly sensitive to trends in the agricultural equipment,
automotive component, industrial equipment, industrial fastener, pipe and tube
processor and tool manufacturing industries, because these industries are
significant markets for the Company's products and are highly cyclical.
COMPETITION
Competition within the steel industry is intense. The Company competes
primarily on the basis of price, quality, and the ability to meet customers'
product specifications and delivery schedules. The Company's competitors are
integrated steel producers, mini-mills and foreign producers, many of which are
larger and have substantially greater capital resources. The Company also
competes with steel service centers purchasing imported and domestic steel.
Recently developed thin slab casting technologies, such as that utilized in the
New Facility, have allowed some mini-mill producers to enter certain sectors of
the flat rolled market which have traditionally been supplied by integrated
producers. Technological innovation is likely to continue in the steel industry
and producers will be required to achieve significant, sustainable cost
reductions to succeed. The
14
<PAGE> 20
Company's investment of approximately $400 million (excluding capitalized
interest and certain internal costs) in the New Facility is expected to enable
it to compete. However, there can be no assurance that the Company will be able
to compete effectively in the future.
Over the last decade, extensive downsizings necessitated costly
restructuring charges that, when combined with highly competitive market
conditions, resulted at times in substantial losses for some U.S. integrated
steel producers. A number of U.S. integrated steel producers went through
bankruptcy reorganization. These reorganizations resulted in somewhat reduced
capital costs for these producers and may permit them to price their steel
products at levels below those that they could have otherwise maintained.
U.S. steel producers face significant competition from certain non-U.S.
steel producers who may have lower labor costs. In addition, U.S. steel
producers may be adversely affected by fluctuations in the relationship between
the U.S. dollar and non-U.S. currencies. Furthermore, some non-U.S. steel
producers have been owned, controlled or subsidized by their governments, and
their decisions with respect to production and sales may be, or may have been in
the past, influenced more by political and economic policy considerations than
by prevailing market conditions. Some non-U.S. producers of steel and steel
products have continued to ship into the U.S. market despite decreasing profit
margins or losses, including steel companies affected by the Asian economic
downturn. If certain relevant U.S. trade laws are weakened, world demand for
steel eases or the U.S. dollar strengthens, an increase in the market share of
imports may occur, which could adversely affect the pricing of the Company's
products. The costs for current and future environmental compliance may place
U.S. steel producers, including the Company, at a competitive disadvantage with
respect to non-U.S. steel producers, which are not subject to environmental
requirements as stringent as those in the United States.
Over the long-term, steel prices will be set by the lowest cost producers
and the lowest costs will be attained through the implementation of new
technologies. The flat rolled steel market provides strong evidence of this
downward trend in real steel prices due in part to decreasing costs. The highly
competitive nature of the industry, combined with excess production capacity in
some products, may continue to exert downward pressure on prices for the
Company's products. In addition, in the case of certain product applications,
steel competes with other materials, including plastics, aluminum, graphite
composites, ceramics, glass, wood and concrete.
HOLDING COMPANY STRUCTURE; PRIORITY OF SECURED DEBT
Acme Metals is a holding company with no direct operations and no
significant assets other than the stock of its subsidiaries. The Company is
dependent on the cash flows of its subsidiaries to meet its obligations,
including the payment of interest and principal on the New Notes. The Company's
subsidiaries are separate legal entities that have no obligation to pay any
amounts due pursuant to the New Notes or to make any funds available therefor,
whether by dividends, loans or other payments which may be restricted under the
terms of certain debt instruments. Because the Company's subsidiaries, other
than Acme Steel, have not guaranteed the payment of the principal or interest on
the New Notes, any right of the Company to receive assets of any of such
subsidiaries upon its liquidation or reorganization (and consequent right of
holders of the New Notes to participate in the distribution or realize proceeds
from those assets) will be effectively subordinated to the claims of the
creditors of any such subsidiary (including trade creditors and holders of
indebtedness of such subsidiary), except if and to the extent the Company is
itself a creditor of such subsidiary, in which case the claims of the Company
would still be effectively subordinated to any security interest in the assets
of such subsidiary held by other creditors. At March 29, 1998, the subsidiaries
of the Company had approximately $188.9 million of liabilities excluding
intercompany payables, including $6.0 million of indebtedness, none of which is
secured.
The New Notes are unsecured and therefore will be effectively subordinated
in right of payment to any secured indebtedness of the Company to the extent of
such pledged collateral. At March 29, 1998, the Company had on an unconsolidated
basis (excluding intercompany payables) approximately $216.4 million of
outstanding secured indebtedness. In the event of a bankruptcy, liquidation,
dissolution, reorganization or similar proceeding with respect to the Company,
the holders of any secured indebtedness will be entitled to
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proceed against the collateral that secures such indebtedness and such
collateral will not be available for satisfaction of any amounts owed under the
New Notes. In addition, to the extent such assets did not satisfy in full the
secured indebtedness, the holders of such indebtedness would have a claim for
any shortfall that would be pari passu (or effectively senior if the
indebtedness were incurred by a subsidiary other than Acme Steel) with the New
Notes. Accordingly, there may only be a limited amount of assets available to
satisfy any claims of the holders of the New Notes upon an acceleration of the
New Notes.
POSSIBLE FLUCTUATIONS IN SERVICE PROVIDERS, RAW MATERIAL AND ENERGY COSTS
The Company's operations at its Acme Steel subsidiary are heavily dependent
on the supply of various materials, including iron ore pellets, coal, scrap 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 the Wabush Mines, a joint venture project in which Acme Steel has an
approximate 15.1% interest. In fiscal 1996 and 1997, Acme Steel acquired
approximately 41% and 37%, respectively, 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 Company's interest in NACME requires Acme Steel to comply with certain
tonnage provision guarantees and cost plus return on investment payments. Due to
a delay in reaching full operating levels, NACME was not in compliance with
certain financial covenants and obtained a waiver and negotiated modification of
those covenants under its financing arrangements with its lending institution.
NACME currently meets the requirements of its modified financial covenants.
However, there are no assurances NACME will continue to maintain such
compliance, or, if it fails to do so, that it will be able to negotiate further
waivers or amendments of its covenants. Currently, the Company is unable to
determine whether such failure would have an adverse effect on Acme Steel's
operations.
Acme Steel purchases electrical energy from Commonwealth Edison under long
term contracts, a portion of the supply is fixed and the balance is subject to
interruption. The balance of Acme Steel's iron ore pellet needs and all of its
coal, scrap and natural gas needs are generally 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, who may not be subject to environmental requirements as stringent as
those in the United States and (2) to producers of materials that compete with
steel, who 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 $1.3
million in 1995, $.8 million (exclusive of any such expenditures related to the
New Facility) in 1996 and $4.7 million in 1997. The Company currently estimates
that capital expenditures for environmental compliance will be approximately
$3.9 million in fiscal year 1998. 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
2010.
Based upon its experience to date, the Company believes that the future
cost of compliance with existing environmental laws, regulations and ordinances
(or liability for known environmental claims) will not have a material adverse
affect on the Company's business, financial condition or results of operations.
However, future events, such as changes in existing laws and regulations or
interpretation thereof, may give rise to additional compliance costs or
liabilities that could have a material adverse affect on the Company's business,
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financial condition and results of operations. Compliance with more stringent
laws or regulations, as well as more vigorous enforcement policies of regulatory
agencies or stricter or different interpretations of existing laws, may require
additional expenditures by the Company that may be material.
CERTAIN INDEMNIFICATION ARRANGEMENTS
In connection with the spin-off of Acme Steel from The Interlake
Corporation ("Interlake") in 1986 (the "1986 Reorganization"), Interlake entered
into a cross-indemnification agreement with Acme Steel relating to any claims
arising out of pre spin-off businesses and properties (excluding on-going Acme
Steel businesses and properties). Acme Steel and Interlake also entered into a
tax indemnification agreement which governs the handling of pre spin-off federal
and state tax matters and provides for Interlake to indemnify Acme Steel for
certain of these tax matters. To date, Interlake has met all of its obligations
under such agreements. In the event Interlake for any reason were unable to
fulfill its obligations under such agreements, the Company could have
significant increased future liabilities.
UNIONIZED WORKFORCE
Substantially all hourly employees of Acme Steel and Acme Packaging are
covered by a collective bargaining agreement with United Steelworkers which
expires in 1999 and includes a no-strike provision. The Company has not
experienced any work stoppages in the last ten years and considers its
relationship with its employees to be good. However, strikes or work stoppages
and the resultant adverse impact on its relationship with its customers could
have a material adverse effect on the Company's business, financial condition or
results of operations.
FRAUDULENT CONVEYANCE
If a court in a lawsuit brought by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy or the Company as a
debtor-in-possession, were to find under relevant federal or state fraudulent
conveyance statutes that the Company did not receive fair consideration or
reasonably equivalent value for its incurrence of indebtedness, including the
Notes, and that, at the time of such incurrence, the Company (i) was insolvent,
(ii) was rendered insolvent by reason of such incurrence or grant, (iii) was
engaged in a business or transaction for which the assets remaining with the
Company constituted unreasonably small capital or (iv) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as they
matured, then such court, subject to applicable statutes of limitation, could
void the Company's obligations under the Notes, recover payments made under the
Notes, subordinate the Notes to other indebtedness of the Company or take other
action detrimental to the holders of the Notes.
The measure of insolvency for these purposes will depend upon the governing
law of the relevant jurisdiction. Generally, however, a company will be
considered insolvent for these purposes if the sum of that company's debts is
greater than the fair value of all of that company's property or if the present
fair salable value of that company's assets is less than the amount that will be
required to pay its probable liability on its existing debts as they become
absolute and matured or if the Company is not able to pay its debts as they
become due. Moreover, regardless of solvency, a court could void an incurrence
of indebtedness, including the New Notes, if it determined that such transaction
was made with the intent to hinder, delay or defraud creditors. In addition, a
court could subordinate the indebtedness, including the Notes, to the claims of
all existing and future creditors on similar grounds. The Company believes that
it (i) is in possession of sufficient capital to run its business effectively
and (ii) is incurring debts within its ability to pay as the same mature or
become due.
There can be no assurance as to what standard a court would apply in order
to determine whether the Company was "insolvent" upon the sale of the Notes or
whether, regardless of the method of valuation, a court would not determine that
the Company was insolvent upon consummation of the sale of the Notes.
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<PAGE> 23
CHANGE OF CONTROL
Upon a Change of Control (as defined herein), each holder of New Notes will
have the right to require the Company to repurchase all or any part of such New
Notes at a price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of repurchase. The holders of the 1994
Notes will also have the right to require the Company to repurchase all or any
part of such 1994 Notes at a price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of repurchase. In
addition, the occurrence of a Change of Control may constitute a default under
the Company's Senior Secured Credit Agreement, and the lenders under the Working
Capital Facility will have the right to require the repayment of the loans
thereunder upon a change of control. The inability to repay the indebtedness
under the 1994 Notes, the Working Capital Facility and the Senior Secured Credit
Agreement, if accelerated, would also constitute an event of default under the
Indenture and the indentures pursuant to which the 1994 Notes were issued (the
"1994 Indentures"), which could have adverse consequences for the Company and
the holders of the New Notes. In the event of a Change of Control, there can be
no assurance the Company would have sufficient financial resources available to
satisfy all of its obligations under the 1994 Notes, the Working Capital
Facility, the Senior Secured Credit Agreement and the New Notes. See
"Description of New Notes--Change of Control." A change of control could also
adversely affect the ability of the Company or an acquiror to utilize net
operating losses accumulated prior to such change of control.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
The New Notes will be issued in exchange for Old Notes only after timely
receipt by the Exchange Agent of such Old Notes, a properly completed and duly
executed Letter of Transmittal and all other required documentation. Therefore,
holders of Old Notes desiring to tender such Old Notes in exchange for New Notes
should allow sufficient time to ensure timely delivery. Neither the Exchange
Agent nor the Company is under any duty to give notification of defects or
irregularities with respect to tenders of Old Notes for exchange. In the event
the Exchange Offer is consummated, the Company will not be required to register
any Old Notes not tendered and accepted in the Exchange Offer. In such event,
holders of Old Notes seeking liquidity in their investment will continue to be
subject to existing restrictions on the transfer thereof and will have to rely
on exemptions to the registration requirements under the securities laws,
including the Securities Act. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but not accepted Old Notes could be adversely affected due to the limited
amount, or "float," of the Old Notes that are expected to remain outstanding
following the Exchange Offer. Generally, a lower "float" of a security could
result in less demand to purchase such security and could, therefore, result in
lower prices for such security. Following the Exchange Offer, none of the Notes
will be entitled to the contingent increase in interest rate provided for in the
event of a failure to consummate the Exchange Offer in accordance with the terms
of the Registration Rights Agreement.
ABSENCE OF PUBLIC TRADING MARKET FOR THE NEW NOTES
The New Notes are new issues of securities for which there is currently no
established market, and there can be no assurance that such a market will
develop or, if such a market develops, as to the liquidity of such market. If
any of the New Notes are traded after their initial issuance, they may trade at
a discount from the initial offering price, depending upon prevailing interest
rates, the market for similar securities, and other factors, including general
economic conditions and the financial condition of, performance of, and
prospects of the Company. The Company has been advised by the Placement Agents
that, following the completion of the Exchange Offer, they presently intend to
make a market in the New Notes; however, they are under no obligation to do so
and may discontinue any market-making activities at any time without notice.
Therefore, there can be no assurance that an active market for the New Notes
will develop. If a market for the New Notes develops, any such market may cease
at any time. If a public trading market develops for the New Notes, future
trading prices of the New Notes will depend on many factors, including, among
other things, prevailing interest rates, the Company's results of operations and
the market for similar securities. The Company does not intend to apply for
listing of the New Notes on any securities exchange or for quotation through the
National Association of Securities Dealers Automated Quotation System.
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THE EXCHANGE OFFER
GENERAL
The Old Notes were sold by the Company on December 18, 1997 to the
Placement Agents in reliance on Section 4(2) of the Securities Act. The
Placement Agents offered and sold the Old Notes (A) within the United States
only to (i) "Qualified Institutional Buyers" (as defined in Rule 144A under the
Securities Act) and (ii) other institutional "Accredited Investors" (as defined
in Rule 501 (a)(1), (2), (3) or (7) under the Securities Act) that, prior to
their purchase of the Old Notes, delivered to the Placement Agents a letter
containing certain representations and agreements and (B) outside the United
States in compliance with Regulation S under the Securities Act.
In connection with the sale of the Old Notes, the purchasers thereof became
entitled to the benefits of certain registration rights (the "Registration
Rights"). Pursuant to the agreement governing the Registration Rights (the
"Registration Rights Agreement"), the Company agreed to use its reasonable best
efforts, at its cost, to file and cause to become effective a registration
statement with respect to the Exchange Offer to exchange the Old Notes for the
New Notes. Upon such registration statement being declared effective, the
Company has agreed to offer the New Notes in return for surrender of the Old
Notes. For each Old Note surrendered to the Company under the Exchange Offer,
the holder thereof will receive a New Note of equal principal amount. Interest
on each New Note will accrue from December 18, 1997 or the most recent Interest
Payment Date to which interest has been paid. In the event that applicable
interpretations of the staff of the Commission do not permit the Company to
effect the Exchange Offer or under certain other circumstances, the Company has
agreed, at its cost, to use its reasonable best efforts to cause to become
effective a shelf registration statement (the "Shelf Registration Statement")
with respect to resales of the Old Notes and to keep such registration statement
effective until the expiration of the time period referred to in Rule 144(k)
under the Securities Act after the Closing Date, or such shorter period that
will terminate when all Old Notes covered by the Shelf Registration Statement
have been sold pursuant to the Shelf Registration Statement. The Company shall,
in the event of such a shelf registration, provide to each holder copies of the
prospectus, notify each holder when the Shelf Registration Statement for the Old
Notes has become effective and take certain other actions as are required to
permit resales of the Old Notes.
In the event that the Exchange Offer is not consummated or a Shelf
Registration Statement is not declared effective on or prior to June 18, 1998,
the annual interest rate borne by the Old Notes will be increased by .5% per
annum until the Exchange Offer is consummated or the Shelf Registration
Statement is declared effective.
In the event that the Exchange Offer is consummated, the Company will not
be required under the Registration Rights Agreement to file the Shelf
Registration Statement to register any outstanding Old Notes, and the interest
rate on such Old Notes will remain at its initial level of 10 7/8%. Holders of
Notes will not have any further registration rights, and the Old Notes will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for Old Notes could be adversely affected. See "Risk
Factors--Consequences of Failure to Exchange Old Notes."
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for sale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Based on no-action letters issued by the staff of the Commission
to third parties, the Company believes that the New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by holders thereof (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
requirements of the Securities Act provided that such New Notes are acquired in
the ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of such New
Notes. Any holder of Old Notes who tenders in the Exchange Offer for the purpose
of participating in a distribution of the New Notes may not rely on such
interpretation by the staff of the Commission and, in the absence of an
exemption under the Securities Act, must comply with the registration and
prospectus delivery
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requirements of the Securities Act in connection with any resale transaction.
Failure to comply with such requirements in such instance may result in the
holder incurring liabilities under the Securities Act for which the holder is
not indemnified by the Company. Each broker-dealer that receives New Notes for
its own account in exchange for Old Notes, where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution."
The Exchange Offer is not being made to, nor will the Company accept
surrenders for exchange from, holders of Old Notes in any jurisdiction in which
this Exchange Offer or the acceptance thereof would not be in compliance with
the securities or blue sky laws of such jurisdiction.
By tendering in the Exchange Offer, each holder of Old Notes will represent
to the Company that, among other things, (i) the New Notes acquired pursuant to
the Exchange Offer are being obtained in the ordinary course of business of the
person receiving such New Notes, whether or not such person is the holder; (ii)
neither the holder of the Old Notes nor any such other person has an arrangement
or understanding with any person to participate in the distribution of such New
Notes; (iii) if the holder is not a broker-dealer, or is a broker-dealer but
will not receive New Notes for its own account in exchange for the Old Notes,
neither the holder nor any such other person is engaged in or intends to
participate in the distribution of such New Notes; (iv) if the holder is a
broker-dealer that will receive New Notes for its own account in exchange for
Old Notes that were acquired as a result of market making activities or other
trading activities, such holder will agree to deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of New Notes;
and (v) it is not an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act or, if such holder is an "affiliate," that such holder
will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all Old
Notes properly tendered prior to 5:00 p.m., New York City time, on the
Expiration Date. Subject to the minimum denomination requirements of the New
Notes, the Company will issue $1,000 principal amount of New Notes in exchange
for each $1,000 principal amount of outstanding Old Notes accepted in the
Exchange Offer. Holders may tender some or all of their Old Notes pursuant to
the Exchange Offer in denominations of $1,000 and integral multiples thereof.
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes except that (i) the New Notes
will be registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof; and (ii) holders of the New Notes will
not be entitled to certain rights of holders of Old Notes under the Registration
Rights Agreement, which will terminate upon consummation of the Exchange Offer.
The New Notes will evidence the same debt as the Old Notes, will be entitled to
the benefits of the Indenture and will be treated as a single class thereunder
with any Old Notes that remain outstanding. The Exchange Offer is not
conditioned upon any minimum aggregate principal amount of Old Notes being
tendered for exchange.
As of the date of this Prospectus, $200 million aggregate principal amount
of Old Notes is outstanding. In connection with the issuance of the Old Notes,
the Company arranged for the Old Notes to be eligible for trading in the Private
Offering, Resale and Trading through Automated Linkages (PORTAL) Market, the
National Association of Securities Dealers' screen based, automated market
trading of securities eligible for resale under Rule 144A promulgated under the
Securities Act.
This Prospectus, together with the accompanying letter of transmittal (the
"Letter of Transmittal"), is being sent to all registered holders of Old Notes
as of May 5, 1998 (the "Record Date").
Holders of Old Notes do not have any appraisal or dissenters' rights under
the Delaware General Corporation Law or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the provisions of the Registration Rights Agreement and the applicable
requirements of the Exchange Act, and the rules and regulations of the
Commission thereunder. Old Notes which are not tendered for exchange in the
Exchange Offer will remain outstanding and interest
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<PAGE> 26
thereon will continue to accrue, but such Old Notes will not be entitled to any
rights or benefits under the Registration Rights Agreement.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to Harris
Trust and Savings Bank (the "Exchange Agent"). See "--Exchange Agent." The
Exchange Agent will act as agent for the tendering holders of Old Notes for the
purpose of receiving New Notes from the Company and delivering New Notes to such
holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders of Old Notes who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"The Exchange Offer--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
June 18, 1998, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date to
which the Exchange Offer is extended. Although the Company has no current
intention to extend the Exchange Offer, the Company reserves the right to extend
the Exchange Offer at any time and from time to time by giving written notice to
the Exchange Agent and by timely public announcement communicated, unless
otherwise required by applicable law or regulation, by making a release to the
Dow Jones News Service. During any extension of the Exchange Offer, all Old
Notes previously tendered pursuant to the Exchange Offer and not withdrawn will
remain subject to the Exchange Offer.
The Company reserves the right (i) to delay acceptance of any Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and to refuse to
accept Old Notes not previously accepted, if any of the conditions set forth
herein under "--Termination" shall have occurred and shall not have been waived
by the Company (if permitted to be waived by the Company), by giving oral or
written notice of such delay, extension or termination to the Exchange Agent,
and (ii) to amend the terms of the Exchange Offer in any manner deemed by it to
be advantageous to the holders of the Old Notes. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable,
by oral or written notice thereof. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment in manner reasonably calculated to inform the
holders of the Old Notes of such amendment.
Without limiting the manner in which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, the Company shall have no obligation to publish, advertise
or otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service, unless otherwise required by
applicable law or regulation.
In all cases, issuance of the New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of a properly completed and duly executed Letter of
Transmittal and all other required documents; provided, however, that the
Company reserves the absolute right to waive any conditions of the Exchange
Offer or defects or irregularities in the tender of the Old Notes. If any
tendered Old Notes are not accepted for any reason set forth in the terms and
conditions of the Exchange Offer or if the Old Notes are submitted for a greater
principal amount than the holder desires to exchange, such unaccepted or
non-exchanged Old Notes or substitute Old Notes evidencing the unaccepted
portion, as appropriate, will be returned without expense to the tendering
holder, unless otherwise provided in the Letter of Transmittal, as promptly as
practicable after the expiration or termination of the Exchange Offer.
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INTEREST ON THE NEW NOTES
The New Notes will bear interest from December 18, 1997, payable
semiannually on June 15 and December 15, of each year commencing on December 15,
1998, at the rate of 10 7/8% per annum. Holders of Old Notes whose Old Notes are
accepted for exchange will be deemed to have waived the right to receive any
payment in respect of interest on the Old Notes accrued from December 18, 1997,
or the most recent Interest Payment Date to which interest has been paid, until
the date of the issuance of the New Notes. Consequently, holders who exchange
their Old Notes for New Notes will receive the same interest payment on December
15, 1998 (the first interest payment date with respect to the Old Notes and the
New Notes) that they would have received had they not accepted the Exchange
Offer.
PROCEDURES FOR TENDERING
The tender to the Company of Old Notes by a holder thereof pursuant to one
of the procedures set forth below will constitute an agreement between such
holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal. A holder of the
Old Notes may tender such Old Notes by: (i) completing, signing and dating the
Letter of Transmittal, or a facsimile thereof, having the signatures thereon
guaranteed if required by the Letter of Transmittal, and mailing or otherwise
delivering such Letter of Transmittal or such facsimile, together with the Old
Notes (unless such tender is being effected pursuant to the procedure for book
entry transfer described below) and any other required documents, to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date or
(ii) complying with the guaranteed delivery procedures described below.
If tendered Old Notes are registered in the name of the signer of the
Letter of Transmittal and the New Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in DTC (also referred to as a book-entry facility) whose name
appears on a security listing as the owner of Old Notes), the signature of such
signer need not be guaranteed. In any other case, the tendered Old Notes must be
endorsed or accompanied by written instruments of transfer in form satisfactory
to the Company and duly executed by the registered holder and the signature on
the endorsement or instrument of transfer must be guaranteed by a member firm of
a registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" as
defined by Rule 17Ad-15 under the Exchange Act (any of the foregoing hereinafter
referred to as an "Eligible Institution"). If the New Notes or Old Notes not
exchanged are to be delivered to an address other than that of the registered
holder appearing on the note register for the Old Notes, the signature in the
Letter of Transmittal must be guaranteed by an Eligible Institution.
THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT
TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
The Company understands that the Exchange Agent has confirmed with DTC that
any financial institution that is a participant in DTC's system may utilize
DTC's Automated Tender Offer Program ("ATOP") to tender Old Notes. The Company
further understands that the Exchange Agent will request, within two business
days after the date the Exchange Offer commences, that DTC establish an account
with respect to the Old Notes for the purpose of facilitating the Exchange
Offer, and any participant may make book-entry delivery of Old Notes by causing
DTC to transfer such Old Notes into the Exchange Agent's account in accordance
with the DTC's ATOP procedures for transfer. However, the exchange of the Old
Notes so tendered will only be made after timely confirmation (a "Book-Entry
Confirmation") of such
22
<PAGE> 28
book-entry transfer and timely receipt by the Exchange Agent of an Agent's
Message (as defined in the next sentence), and any other documents required by
the Letter of Transmittal. The term "Agent's Message" means a message,
transmitted by DTC and received by the Exchange Agent and forming part of
Book-Entry Confirmation, which states that DTC has received an express
acknowledgment from a participant tendering Old Notes which are the subject of
such Book-Entry Confirmation and that such participant has received and agrees
to be bound by the terms of the Letter of Transmittal and that the Company may
enforce such agreement against such participant.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at DTC) or (ii) a Notice of
Guaranteed Delivery or letter or facsimile transmission to similar effect (as
provided below) from an Eligible Institution is received by the Exchange Agent.
Issuances of New Notes in exchange for Old Notes tendered pursuant to a Notice
of Guaranteed Delivery or letter of facsimile transmission to similar effect (as
provided below) by an Eligible Institution will be made only against submission
of a duly signed Letter of Transmittal (and any other required documents) and
deposit of the tendered Old Notes.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by appropriate bond powers which authorize such person
to tender the Old Notes on behalf of the registered holder, in either case
signed as the name of the registered holder or holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys in fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the absolute right to waive any irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Neither the Company, the
Exchange Agent nor any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of Old Notes nor shall any
of them incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such irregularities have
been cured or waived. Any Old Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned without cost by the Exchange Agent to the
tendering holder of such Old Notes unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any Old Notes that remain outstanding subsequent to
the Expiration Date, or, as set forth under "--Termination," to terminate the
Exchange Offer and (b) to the extent permitted by applicable law, purchase Old
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers may differ from the terms of the Exchange
Offer.
GUARANTEED DELIVERY PROCEDURES
If the holder desires to accept the Exchange Offer and time will not permit
a Letter of Transmittal or Old Notes to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its office, on or prior to the Expiration Date, a letter or facsimile
transmission from an Eligible Institution setting
23
<PAGE> 29
forth the name and address of the tendering holder, the name(s) in which the Old
Notes are registered and the certificate number(s) of the Old Notes to be
tendered, and stating that the tender is being made thereby and guaranteeing
that, within three New York Stock Exchange trading days after the date of
execution of such letter or facsimile transmission by the Eligible Institution,
such Old Notes, in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at DTC), will be
delivered by such Eligible Institution together with a properly completed and
duly executed Letter of Transmittal (and any other required documents). Unless
Old Notes being tendered by the above-described method are deposited with the
Exchange Agent within the time period set forth above (accompanied or preceded
by a properly competed Letter of Transmittal and any other required documents),
the Company may, at its option, reject the tender. Copies of a Notice of
Guaranteed Delivery which may be used by Eligible Institutions for the purposes
described in this paragraph are available from the Exchange Agent.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Old Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to the Company and irrevocably constitutes
and appoints the Exchange Agent as the Transferor's agent and attorney-in-fact
to cause the Old Notes to be assigned, transferred and exchanged. The Transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the Old Notes and to acquire New Notes issuable
upon the exchange of such tendered Old Notes, and that, when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered Old Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also warrants
that it will, upon request, execute and deliver any additional documents deemed
by the Company to be necessary or desirable to complete the exchange, assignment
and transfer of tendered Old Notes or to transfer ownership of such Old Notes on
the account books maintained by DTC. All authority conferred by the Transferor
will survive the death, bankruptcy or incapacity of the Transferor and every
obligation of the Transferor shall be binding upon the heirs, personal
representatives, executors, administrators, successors, assigns, trustees in
bankruptcy and other legal representatives of such Transferor.
By executing a Letter of Transmittal, each holder will make to the Company
the representations set forth above and under the heading "The Exchange
Offer--General."
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the business day prior to
the Expiration Date, unless previously accepted for exchange.
To withdraw a tender of Old Notes in the Exchange Offer, the person who
deposited the Old Notes to be withdrawn (the "Depositor") must submit a written
or facsimile transmission notice of withdrawal to the Exchange Agent at its
address set forth herein prior to 5:00 p.m., New York City time, on the business
day prior to the Expiration Date and prior to acceptance for exchange thereof by
the Company. Any such notice of withdrawal must (i) specify the name of the
Depositor, (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Old Notes), (iii) be
signed by the Depositor in the same manner as the original signature on the
Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to permit the Trustee with respect to the Old Notes to register the
transfer of such Old Notes into the name of the Depositor withdrawing the tender
and (iv) specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company, whose determination shall be final and binding on all
parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no New Notes will be issued with
respect thereto unless the Old Notes so withdrawn are validly re-tendered. Any
Old Notes which have been tendered
24
<PAGE> 30
but which are not accepted for exchange will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may
be re-tendered by following one of the procedures described above under "The
Exchange Offer--Procedures for Tendering" at any time prior to the Expiration
Date.
TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange New Notes for, any Old Notes not
theretofore accepted for exchange, and may terminate or amend the Exchange Offer
as provided herein before the acceptance of such Old Notes if: (i) any action or
proceeding is instituted or threatened in any court or by or before any
governmental agency with respect to the Exchange Offer, which, in the Company's
judgment, might materially impair the Company's ability to proceed with the
Exchange Offer, (ii) any law, statute, rule or regulation is proposed, adopted
or enacted, or any existing law, statute, rule or regulation is interpreted by
the staff of the Commission in a manner, which, in the Company's judgment, might
materially impair the Company's ability to proceed with the Exchange Offer or
(iii) the Company reasonably deems it advisable to terminate the Exchange Offer.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Old Notes and return any
Old Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the Expiration Date,
subject to the rights of such holders of tendered Old Notes to withdraw their
tendered Old Notes or (iii) waive such termination event with respect to the
Exchange Offer and accept all properly tendered Old Notes that have not been
withdrawn. If such waiver constitutes a material change in the Exchange Offer,
the Company will disclose such change by means of a supplement to this
Prospectus that will be distributed to each registered holder of Old Notes, and
the Company will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the waiver and the manner of disclosure
to the registered holder of the Old Notes, if the Exchange Offer would otherwise
expire during such period. See "Description of New Notes -- Registration Rights
Agreement."
EXCHANGE AGENT
Harris Trust and Savings Bank, the Trustee under the Indenture, has been
appointed as Exchange Agent for the Exchange Offer. Questions and requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Mail:
Harris Trust and Savings Bank
c/o Harris Trust Company of New York
P.O. Box 1010
Wall Street Station
New York, NY 10268
Attention: Mark Zimkind
By Hand or Overnight Courier:
Harris Trust and Savings Bank
c/o Harris Trust Company of New York
77 Water Street
4th Floor
New York, NY 10004
Attention: Mark Zimkind
Facsimile Transmission: (212) 701-7636
Confirm by Telephone: (212) 701-7624
</TABLE>
25
<PAGE> 31
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and employees of the Company and its affiliates in person, by telegraph
or telephone.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company will, however, pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this Prospectus, Letters of Transmittal and related
documents to the beneficial owners of the Old Notes and in handling or
forwarding tenders for exchange.
Other expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. The expenses of the Exchange Offer
will be amortized by the Company over the term of the New Notes under generally
accepted accounting principles.
26
<PAGE> 32
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. In consideration for issuing the New Notes as contemplated
by this Prospectus, the Company will receive in exchange Old Notes in like
principal amount, the terms of which are the same in all material respects as
the form and terms of the New Notes except that the New Notes have been
registered under the Securities Act and will not contain terms restricting the
transfer thereof. The Old Notes surrendered in exchange for the New Notes will
be retired and canceled and cannot be reissued. Accordingly, issuance of the New
Notes will not result in any increase in the indebtedness of the Company.
The net proceeds received by the Company from the offering of the Old Notes
were approximately $198.5 million. The net proceeds received by the Company from
the sale of the Old Notes were used, together with a portion of the proceeds
from the Senior Secured Credit Agreement, to repay approximately $107.4 million
principal amount of Senior Secured Notes due 2002 and approximately $117.3
million principal amount of Senior Secured Discount Notes due 2004, pursuant to
a tender offer by the Company consummated on December 18, 1997. See
"Business--Recent Developments."
27
<PAGE> 33
CAPITALIZATION
The following table sets forth the historical consolidated capitalization
of the Company at March 29, 1998. This presentation should be read in
conjunction with the "Selected Financial Data," the Consolidated Financial
Statements of the Company and the notes thereto incorporated by reference in
this Prospectus, and other information included elsewhere in this Prospectus or
incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
MARCH 29, 1998
--------------
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents................................... $ 14,669
========
Long-term debt:
Note payable, 6.5% to 6.75%, due 1998-2008(1)............. $ 6,000
Senior Secured Notes due 2002............................. 17,623
Senior Secured Discount Notes due 2004.................... 669
Environmental Improvement Bond 7.95% due 2025............. 11,345
Environmental Improvement Bond 7.90% due 2024............. 8,585
Working Capital Facility, expires in 2002.................
10 7/8% Senior Unsecured Notes (net of original issue
discount).............................................. 198,544
Senior Secured Credit Agreement........................... 174,750
Other long-term debt...................................... 3,417
--------
Total long-term debt................................. 420,933
--------
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,
11,680,164 issued and outstanding(2)................... 11,680
Retained earnings......................................... 19,754
Additional paid-in capital................................ 166,017
Accumulated other comprehensive loss(3)................... (12,319)
--------
Total shareholders' equity........................... 185,132
--------
Total capitalization.............................. $606,065
========
</TABLE>
- -------------------------
(1) Note 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 note payable were
used to fund pollution control facilities at Acme Steel's Riverdale,
Illinois plant.
(2) As of March 29, 1998, the Company had 715,650 options outstanding, of which
592,150 were exercisable.
(3) The amount relates to the minimum pension liability. See Retirement Benefit
Plans in the notes to the Consolidated Financial Statements.
28
<PAGE> 34
SELECTED FINANCIAL DATA
The following table presents summary historical consolidated financial data
of the Company for the years ended December 26, 1993, December 25, 1994,
December 31, 1995, December 29, 1996 and December 28, 1997 and the three months
ended March 30, 1997 and March 29, 1998. The historical consolidated financial
data for each of the five years in the period ended December 28, 1997 have been
derived from the audited Consolidated Financial Statements of the Company. The
historical consolidated financial data for the three months ended March 30, 1997
and March 29, 1998 have been derived from the Company's unaudited Consolidated
Financial Statements. The following information should be read in conjunction
with the Company's Consolidated Financial Statements and notes thereto presented
elsewhere in this Prospectus. Operating results for interim periods are not
necessarily indicative of the results that might be expected for an entire
fiscal year. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
------------------------------------------------------------ -----------------------
DEC. 26, DEC. 25, DEC. 31, DEC. 29, DEC. 28, MARCH 30, MARCH 29,
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales....................... $457,406 $ 522,880 $521,619 $498,242 $488,030 $125,331 $144,996
Gross margin.................... 45,223 76,288 84,448 50,465 4,151 (4,317) 5,838
Income (loss) before income
taxes, extraordinary loss and
cumulative effect of changes
in accounting principle(1).... 10,432 28,693 44,135 5,093 (76,642) (24,041) (2,575)
Income tax provision
(benefit)..................... 4,173 9,935 15,889 2,426 (29,124) (8,174) (900)
Net income (loss) before
extraordinary loss and
cumulative effect of changes
in accounting principle....... 6,259 18,758 28,246 2,667 (47,518) (15,867) (1,675)
Extraordinary loss related to
prepayment of debt, net of
tax(2)........................ (1,787) (23,411)
Cumulative effect of change in
accounting principle, net of
tax(3)........................ (6,276)
Net income (loss)............... 6,259 16,971 28,246 2,667 (77,205) (15,867) (1,675)
PER SHARE DATA--DILUTED:(4)
Income (loss) before
extraordinary loss and
cumulative effect of changes
in accounting principle....... $ 1.15 $ 2.38 $ 2.44 $ .23 $ (4.09) $(1.36) $(0.14)
Extraordinary loss, net of
tax........................... (.22) (2.01)
Cumulative effect of change in
accounting principle.......... (.54)
Net income (loss)............... 1.15 2.16 2.44 .23 (6.64) (1.36) (0.14)
Shareholders' equity............ 15.39 19.31 21.42 22.45 16.02
Weighted average shares
outstanding (in thousands).... 5,439 7,873 11,596 11,663 11,628 11,661 11,680
BALANCE SHEET:
Current assets.................. $170,394 $ 273,842 $258,787 $182,837 $192,443 $158,950 $165,759
Property, plant and equipment,
net........................... 115,539 148,829 379,178 560,725 550,350 563,017 547,245
Total assets.................... 333,869 682,330 754,743 805,749 829,081 787,973 818,116
Current liabilities............. 77,197 81,391 108,330 115,940 100,300 103,044 93,714
Long-term debt.................. 49,333 265,055 276,831 310,085 424,743 313,723 419,433
Shareholders' equity(5)......... 83,203 223,278 248,111 260,701 186,343 245,189 185,132
CASH FLOWS:
Net cash provided by (used for)
operating activities.......... $ 16,041 $ 47,422 $ 59,541 $ 46,034 $(60,712) $(23,865) $22,949
Net cash used for investing
activities.................... (11,749) (334,124) (83,547) (85,562) (28,599) (873) (27,946)
Net cash provided by (used for)
financing activities.......... (3,072) 312,897 410 19,709 62,541 355 13,212
Net increase (decrease) in cash
and cash equivalents.......... 1,220 26,195 (23,596) (19,819) (26,770) (24,383) 8,215
EBITDA(6)....................... 29,479 50,526 64,271 22,257 3,852 (4,373) 17,689
</TABLE>
29
<PAGE> 35
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
------------------------------------------------------------ -----------------------
DEC. 26, DEC. 25, DEC. 31, DEC. 29, DEC. 28, MARCH 30, MARCH 29,
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
RATIO ANALYSIS:
Gross margin.................... 9.9% 14.6% 16.2% 10.1% .8% (3.4)% 4.0%
Pre-tax margin.................. 2.3 5.5 8.5 1.0 (15.6) (19.1) (1.8)
Net income (loss) margin........ 1.4 3.3 5.4 .5 (9.7) (12.6) (1.2)
Return on shareholders'
equity(5)..................... 7.3 11.1 12.0 1.1 (34.5) (6.3) (.9)
Debt as a percentage of
capitalization................ 40 54 53 54 69 56 69
Ratio of earnings to fixed
charges(7).................... 2.5x 2.6x 1.8x -- -- -- --
ADDITIONAL INFORMATION:
Depreciation.................... $ 15,234 $ 15,514 $ 13,613 $ 16,591 $ 39,410 $ 10,151 $ 9,466
Capital expenditures............ 11,749 56,339 244,374 199,122 45,929 12,459 6,219
Working capital................. 93,197 192,451 150,457 66,897 92,143 55,906 72,045
</TABLE>
- ------------------------
(1) Income before income taxes, extraordinary loss and cumulative effect of
changes in accounting principle for the year ended December 29, 1996
includes pre-tax charges for training and pre-start-up costs relating to the
New Facility of $9.9 million.
(2) The year ended December 25, 1994 includes a pre-tax charge of $3.0 million,
$1.8 million after tax, for the costs, expenses and unamortized financing
fees relating to the early retirement of the $50.0 million 9.35% senior
notes of the Company due 1994-1999. The year ended December 28, 1997
includes a pre-tax charge of $37.8 million, $23.4 million net of tax, in
connection with the early retirement of debt pursuant to the Financing Plan.
(3) Cumulative effect of changes in accounting principle, net of taxes, includes
the effects of adopting EITF No. 97-13 "Accounting for Costs Incurred in
Connection with a Consulting Contract for an Internal Project that combines
Business Process Reengineering and Information Technology Transformation."
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Recently Issued Accounting Pronouncements."
(4) Earnings per share is presented on a fully-diluted basis, as the difference
in earnings per share information under the basic method for the years
presented is immaterial.
(5) The years ended December 26, 1993, December 25, 1994, December 31, 1995,
December 29, 1996 and December 28, 1997 include a $13.1 million reduction, a
$.7 million increase, a $3.8 million reduction, a $9.5 million increase and
a $2.6 million increase, respectively, in shareholders' equity related to a
minimum pension liability adjustment.
(6) EBITDA represents earnings (losses) before interest, income taxes,
depreciation, amortization, the extraordinary item and cumulative effect of
a change in accounting principle. EBITDA is provided because it is a measure
commonly used in the industry. EBITDA for the three months ended March 29,
1998 includes a $12.0 million gain on the sale of Universal. EBITDA is not a
measurement of financial performance under generally accepted accounting
principles and should not be considered an alternative to net income as a
measure of performance or to cash flow as a measure of liquidity. EBITDA is
not necessarily comparable with similarly titled measures.
(7) Earnings were insufficient to cover fixed charges by approximately $26.3
million, $76.2 million, $24.0 million and $3.0 million for the year ended
December 29, 1996, year ended December 28, 1997, the three months ended
March 30, 1997 and the three months ended March 29, 1998, respectively.
Earnings consist of income before income taxes, less earnings for
unconsolidated subsidiaries accounted for under the equity method, plus
fixed charges, except where capitalized. Fixed charges consist of interest
charges and amortization of debt issuance costs, in each case whether
expensed or capitalized, and lease expense under operating leases
representing interest.
30
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Prospectus or
incorporated by reference in this Prospectus. Unless otherwise noted, dollar
amounts have been rounded.
OVERVIEW
The Company's operations are divided into two segments, the Steel Making
Segment and the Steel Fabricating Segment. The Steel Making Segment consists of
Acme Steel and includes all of the facilities used in the manufacturing and
finishing of flat rolled steel. The Steel Fabricating Segment includes the
operations of Acme Packaging and Alpha Tube, both of which use flat rolled steel
in their respective fabricating processes. Universal, which was sold on March 9,
1998, was an operating subsidiary within the Steel Fabricating Segment prior to
that date.
Steel Making Segment. In September 1996, Acme Steel completed construction
of the New Facility. The New Facility, which cost approximately $400 million
(excluding capitalized interest and certain internal costs), allows Acme Steel
to build on its strengths as a low cost producer of high quality liquid steel by
increasing its overall efficiency and reducing its finished steel production
costs. The first coil was produced at the New Facility on October 3, 1996. The
New Facility is the world's first complex to produce hot rolled steel products
by combining highly efficient mini-mill casting and rolling technology with the
traditional high quality liquid steel produced via the blast furnace/basic
oxygen furnace technology.
In February 1996, Acme Steel and its joint venture partner began
construction of the NACME Facility, adjacent to the New Facility. NACME pickles,
oils, slits and packages steel coils produced by the New Facility. Pickling
operations at the NACME Facility began in December 1997. Due to a five-month
delay in delivery of the slitting equipment to NACME Facility, slitting
operations did not begin until late in the second quarter of 1997.
Commencing in the fourth quarter of 1996, Acme Steel began phasing in the
New Facility and concurrently phasing out the redundant ingot-based operations.
The decommissioning of Acme Steel's old ingot-based steel making facility was
completed in June 1997. During the first quarter of 1998, the New Facility
operated on average at approximately 87 percent of its planned production
levels. As part of ramping up the New Facility, Acme Steel has successfully
produced 99 percent of the steel grades comprising Acme Steel's intended product
mix.
In the second half of 1997, Acme Steel's ability to produce flat rolled
steel outpaced steel finishing capability. A contributing factor was the delayed
start-up of NACME's slitting equipment which resulted in a reliance on outside
processors and adversely affected on-time shipping capabilities and results of
operations. Acme Steel continues to work with NACME and other outside processors
to improve slitting productivity and increase shipping capability.
During 1997 and the first quarter of 1998, Acme Steel's product mix was,
and it continues to be, adversely affected by a substantial reduction of orders
from its traditional niche customers in the high and mid-carbon, alloy, HSLA and
processed, value-added steel product markets principally due to production
start-up issues at the New Facility and the late delivery and slower than
anticipated ramp-up of the slitting capabilities at the NACME Facility. As a
result, in 1997 Acme Steel shipped 120,000 fewer tons of its traditional higher
margin niche products compared to 1996.
The Company had significant net losses in 1997 due to, among other factors,
ongoing production cost inefficiencies resulting from the New Facility operating
at less than planned production levels (as a result of, among other factors,
higher than anticipated unplanned delay rates and a slower than expected
improvement in material yield performance), an adverse mix of products resulting
in lower selling prices, operational issues at the NACME Facility which led to
reduced shipments and higher than desired inventory levels and increased
depreciation and interest expense related to the New Facility. The production
inefficiencies and the inventory buildup significantly reduced cash flow from
operations. The production inefficiencies of the New
31
<PAGE> 37
Facility and adverse mix of products sold in 1997 are expected to continue
throughout 1998, adversely affecting the Company's results of operations and
cash flow. See "--Outlook."
Steel Fabricating Segment. The Steel Fabricating Segment recorded strong
operating results. The operating income of these companies partially offset the
operating losses of Acme Steel during the ramp-up at the New Facility and was
relatively unaffected by the transitional issues faced by the Steel Making
Segment.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED FOR THE YEARS ENDED
--------------------- ------------------------------------------
MARCH 29, MARCH 30, DECEMBER 28, DECEMBER 29, DECEMBER 31,
1998 1997 1997 1996 1995
--------- --------- ------------ ------------ ------------
<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...................... 89.6 95.4 91.3 86.7 81.3
Depreciation expense....................... 6.4 8.0 7.9 3.2 2.5
----- ----- ----- ----- -----
Gross margin................................. 4.0 (3.4) 0.8 10.1 16.2
Training and Pre-start-up--New Facility.... 2.0
Selling and administrative expense......... 6.8 8.1 8.0 7.1 6.8
----- ----- ----- ----- -----
Operating income (loss)...................... (2.8) (11.5) (7.2) 1.0 9.4
Interest expense, net...................... (7.5) (7.6) (8.4) (0.1) (1.3)
Other non-operating income, net............ 8.5 0.1 0.3
Income tax (benefit) provision............... (0.6) (6.5) (5.9) 0.5 3.0
----- ----- ----- ----- -----
Income (loss) before extraordinary item and
cumulative effect of a change in accounting
principle.................................. (1.2) (12.6) (9.7) 0.5 5.4
Extraordinary item, net of taxes............. (4.8)
Cumulative effect of a change in accounting
principle, net of tax...................... (1.3)
----- ----- ----- ----- -----
Net income (loss)............................ (1.2)% (12.6)% (15.8)% 0.5% 5.4%
===== ===== ===== ===== =====
</TABLE>
FIRST QUARTER 1998 AS COMPARED TO FIRST QUARTER 1997
NET SALES. Consolidated net sales of $145.0 million for the first quarter
of 1998 were $19.7 million higher than the prior year. An increase in flat
rolled product shipments as compared to the prior year was the primary reason
for the increase in sales.
Steel Making Segment. In the first three months of 1998, net sales for the
Steel Making Segment were $101.9 million, a $22.8 million or 29 percent increase
over last year. Sales to unaffiliated customers increased 42 percent or $23.0
million while intersegment sales of $24.5 million were consistent with the first
quarter of 1997. The increase in the unaffiliated shipments of flat rolled
products was partially offset by lower selling prices and an adverse product mix
in 1998 versus the prior year. See "--Outlook--Customers and Product Mix."
Steel Fabricating Segment. The Steel Fabricating Segment net sales of $67.6
million in 1998 were $3.4 million, or 5 percent below the comparable period in
the prior year. A decrease in sales volume for the fabricating businesses,
primarily as a result of the sale of Universal on March 9, 1998, was somewhat
offset by slightly higher selling prices.
GROSS MARGIN. The gross margin for the first quarter of 1998 was $5.8
million which was $10.1 million higher than the gross loss of $4.3 million
recorded during last year's comparable period. The increase in gross margin was
due primarily to increased sales volume of flat rolled products, and lower
operating costs at the Steel Making segment.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense was
$9.9 million in the first quarter of 1998, $0.3 million lower than the prior
year. Selling and administrative expenses represented approximately 7 percent of
net sales in 1998 compared to 8 percent for the comparable period in 1997.
32
<PAGE> 38
OPERATING INCOME/LOSS. The operating loss for the Company in the first
quarter of 1998 of $4.0 million represents a $10.5 million improvement from the
$14.5 million loss recorded during the same period in 1997.
Steel Making Segment. The Steel Making Segment recorded a $10.4 million
loss from operations in the first quarter of 1998, which was $9.5 million less
than the loss recorded in the comparable period in 1997 when Acme Steel was
operating both the New Facility and the old ingot based operations.
The decreased loss in the first quarter of 1998 as compared to 1997 was due
to increased flat rolled shipments combined with lower operating costs. The
decrease in operating costs resulted from improved efficiency and increased
production utilization at the New Facility along with the shut-down of Acme
Steel's old ingot based primary rolling and hot-strip mill in mid-year 1997.
Approximately 77 percent of steel shipments and 68 percent of gross margin in
1998 was attributable to external customers, as compared to 62 percent of
shipments and 60 percent gross margin in the prior year. The remainder of sales
in both periods was generated by sales to the Steel Fabricating Segment. See
"--Outlook--Operating Losses."
Steel Fabricating Segment. The Steel Fabricating Segment's operating income
of $6.4 million for the first quarter of 1998 was $1.0 million higher than in
last year's comparable period, due primarily to lower raw material costs.
OTHER NON-OPERATING INCOME. Other non-operating income in March 1998
includes the stock sale of Universal, generating proceeds to the Company of
$18.0 million and a gain of $12.0 million (included in the account caption as
"other-net" on the income statement). Proceeds from the sale of assets are
restricted by the 1994 Indentures and the Senior Secured Credit Agreement and
have been deposited with the trustee. Net proceeds from asset sales (including
the Universal proceeds) of $17.4 million have been classified as restricted cash
on the balance sheet at March 29, 1998. The Company is permitted to apply such
proceeds to related business investments or to offer to redeem, on a pro rata
basis, the remaining 1994 Notes. To the extent an offer to redeem the 1994 Notes
is not accepted, such proceeds become unrestricted.
INTEREST INCOME. The decrease of $0.2 million in interest income is the
result of reduced cash and investment balances.
INTEREST EXPENSE. Interest expense of $10.9 million for the three months
ended March 29, 1998 was $1.1 million higher compared to the same period of the
prior year. The higher interest expense in the first quarter of 1998 resulted
from increased long term debt over the prior period, partially offset by lower
interest rates.
INCOME TAXES. Income tax benefits from operations recorded in the first
quarter of 1998 totaled $0.9 million based on an effective tax rate of 35
percent as compared to $8.2 million of tax benefit in the first quarter 1997,
based on a 34 percent effective tax rate.
NET INCOME (LOSS). The Company recorded a loss of $1.7 million, or $0.14
per share in the first quarter of 1998 versus a loss of $15.9 million, or $1.36
per share, recorded in the first quarter of the prior year. Per share amounts
for 1998 and 1997 are based on the weighted average number of common shares
calculated on both the basic and fully diluted methods, which are equivalent in
amount. Excluding a gain on sale of assets of $12.0 million ($7.8 million net of
tax), or $0.67 per share, the net loss for the first quarter of 1998 would have
been $9.5 million or $0.81 per share. See "Sale of Universal Tool & Stamping
Company, Inc." in Notes to Unaudited Consolidated Financial Statements.
FISCAL 1997 AS COMPARED TO FISCAL 1996
NET SALES. Consolidated net sales of $488.0 million for the year ended
December 28, 1997 were $10.2 million lower than the prior year. An unfavorable
change in product mix and a decrease in non-flat roll product shipments as
compared to the prior year were partially offset by increased sales volume by
the Steel Fabricating Segment.
Steel Making Segment. In 1997, net sales for the Steel Making Segment were
$299.6 million, a $35.8 million, or 11 percent, decrease from last year. Sales
to unaffiliated customers decreased 9 percent or
33
<PAGE> 39
$20.3 million while intersegment sales of $97.2 million fell below the prior
year level by 14 percent. Decreases in the affiliate shipments, an unfavorable
product mix, lower sales of non-flat roll products and lower selling prices
accounted for the decreased sales in 1997 versus the prior year. Sales of
non-flat roll products totaled $34.1 million, which was $21.0 million lower than
the prior year, due to decreased volume.
Steel Fabricating Segment. The Steel Fabricating Segment net sales of
$286.7 million in 1997 were $9.5 million, or 3 percent, above the comparable
period in the prior year. Sales volume gains for the fabricating businesses
along with slightly higher selling prices accounted for the improvement.
COMPARATIVE SALES BY SEGMENT. The table below summarizes the relative sales
contribution of the products comprising the Company's business segments for the
past three years.
<TABLE>
<CAPTION>
FISCAL YEARS
------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Sheet and strip steel.................................... 33% 33% 35%
Semi-finished steel...................................... 4% 2% 1%
Iron products and other.................................. 8% 9% 6%
--- --- ---
Total Steel Making Segment............................... 45% 44% 42%
=== === ===
Steel strapping and strapping tools...................... 32% 33% 33%
Welded steel tube........................................ 15% 16% 17%
Auto and light truck jacks............................... 8% 7% 8%
--- --- ---
Total Steel Fabricating Segment.......................... 55% 56% 58%
=== === ===
</TABLE>
GROSS PROFIT. The gross profit for the year ended December 28, 1997 was
$4.2 million which was $46.3 million lower than the gross profit recorded during
last year's comparable period. The decrease in gross profit was due primarily to
(i) non-recurring expense relating to the phase-out of the redundant ingot-based
operations (completed in June 1997); (ii) continuing product cost inefficiencies
resulting from the New Facility operating at substantially less than optimal
production utilization; (iii) lower revenues and margins associated with an
unfavorable product mix; (iv) lower shipments to affiliates; and (v) delayed
start-up and related operational issues at NACME which have led to reduced
shipments and higher inventory levels. Also, increased depreciation expense
related primarily to the New Facility further reduced gross margin in the year
ended December 28, 1997. The gross profit, as a percentage of sales, was 0.8
percent in 1997 compared to 10.1 percent for the comparable period in 1996.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense was
$39.2 million in the year ended December 28, 1997, $3.7 million higher than the
prior year. Selling and administrative expenses represented approximately 8
percent of net sales in 1997 compared to 7 percent for the comparable period in
1996. The increased expense was principally due to costs related to the upgrade
of the Company's management information systems.
OPERATING INCOME/LOSS. The operating loss for the Company in 1997 of $35.1
million was $40.1 million lower than the $5.0 million of income recorded during
the same period in 1996.
Steel Making Segment. The Steel Making Segment recorded a $61.9 million
loss from operations in the year ended December 28, 1997, an additional loss of
$47.0 million compared to the loss recorded in the comparable period in 1996.
The significant decline in earnings in the year ended December 28, 1997 was
the result of (i) non-recurring expense relating to the phase-out of the
redundant ingot-based operations (completed in June 1997); (ii) continuing
product cost inefficiencies resulting from the New Facility operating at
substantially less than optimal production utilization; (iii) lower revenues and
margins associated with an unfavorable product mix; (iv) lower shipments to
affiliates; (v) delayed start-up and related operational issues at NACME which
have led to reduced shipments and higher inventory levels; and (vi) increased
depreciation expense of $22.9 million over the prior year primarily related to
the New Facility. Sales to external customers were 9 percent lower than last
year's comparable period, and sales to the Steel Fabricating Segment were 14
percent lower than in the comparable period of 1996. Approximately 66 percent of
steel shipments and
34
<PAGE> 40
57 percent of gross margin in 1997 was attributable to external customers while
the remainder was generated by sales to the Steel Fabricating Segment, as
compared to 64 percent of steel shipments and 66 percent of gross margin in the
prior year.
Steel Fabricating Segment. The Steel Fabricating Segment's operating income
of $26.8 million for the year ended December 28, 1997 was $6.9 million higher
than in last year's comparable period, due primarily to a slight increase in
selling prices and lower raw material costs.
INTEREST INCOME/EXPENSE. Interest income for the year ended December 28,
1997 totaled $0.5 million, falling below the prior year's comparable period by
$5.1 million. The decrease in interest income is the result of reduced cash and
investment balances resulting from payments for the construction of the New
Facility and increased operating requirements. Interest expense of $41.6 million
for the year 1997 was $35.4 million higher compared to the same period of the
prior year. During 1997, all interest costs were being charged against earnings
versus 1996 when $31.3 million of these costs was capitalized as part of the New
Facility. The Company ceased capitalization of interest costs relating to the
New Facility mid-way through the fourth quarter of 1996.
INCOME TAXES. Income tax benefits from operations recorded in the year
ended December 28, 1997 totaled $29.1 million based on an effective tax rate of
38 percent as compared to $2.4 million of tax expense in the year ended December
29, 1996, based on a 47.6 percent effective tax rate. In addition, tax benefits
related to extraordinary loss item of $14.3 million and a cumulative effect of a
change in accounting principle of $3.8 million were both based on an effective
tax rate of 38 percent. The Company has net operating losses available through
the year 2012 to reduce the Company's future tax liability by $55.4 million.
NET INCOME (LOSS). The Company recorded a loss of $77.2 million, or $6.64
per share in the year ended December 28, 1997 versus income of $2.7 million, or
$0.23 per share, recorded in the prior year. Per share amounts for 1997 and 1996
are based on the weighted average number of common shares calculated on both the
basic and fully diluted methods, which are equivalent in amount. Net income
includes an extraordinary loss and cumulative effect of an accounting change.
See "Management's Discussion and Analysis of Financial Conditions and Results of
Operations--Recently Issued Accounting Pronouncements."
FISCAL 1996 AS COMPARED TO FISCAL 1995
NET SALES. Consolidated net sales of $498.2 million for the year ended
December 29, 1996 were less than the prior year by $23.4 million. The lower
sales level was a result of lower selling prices, $13.8 million, with decreased
shipments accounting for the remainder.
Steel Making Segment. In 1996, net sales for the Steel Making Segment of
$335.3 million were $21.5 million, or approximately 6% below 1995. Sales to
unaffiliated customers decreased 5% to $222.6 million while inter-segment sales
of $112.7 million were 8% lower than in 1995. The decrease in the Steel Making
Segment's net sales was the result of a 4% decrease in average selling prices
and lower flat rolled and semi-finished shipments. Sales of iron products during
the period of $39.6 million approximated the same amount in the prior year,
while semi-finished product sales decreased $5.9 million compared to the prior
year.
Steel Fabricating Segment. Steel Fabricating Segment net sales of $277.2
million in 1996 were 4% lower than the prior year. Lower shipment volume
accounted for $7.1 million of the sales decline while lower average selling
prices decreased sales by $4.2 million versus last year.
Sales of strapping and strapping tools of $163.5 million in 1996 were $3.4
million lower than sales in the previous year. Lower average selling prices
decreased net sales by $1.0 million, with reduced shipment volume contributing
$2.4 million to the sales decline.
Steel tube sales for 1996 totaled $77.1 million, down 5% from the prior
year. The $3.7 million reduction in sales was due almost entirely to lower
average selling prices as shipments approximated the prior year. Average selling
prices fell 4%, contributing to a decrease of $3.4 million in sales versus 1995.
35
<PAGE> 41
Sales of jacks and lifting tools for cars and light trucks totaled $36.6
million in 1996, a 10% decline from the prior year. The decrease was due almost
entirely to lower sales volume, as selling prices remained consistent with the
prior year.
GROSS MARGIN. The gross margin in 1996 of $50.5 million was $34.0 million
lower than 1995, primarily reflecting lower selling prices for the majority of
the Company's products and significant increases in operating costs in the Steel
Making Segment. Gross margin, as a percentage of net sales, was 10.1% in 1996
versus 16.2% in 1995.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense
totaled $35.5 million (7.1% of net sales) and $35.6 million (6.8% of net sales)
for the years ended 1996 and 1995, respectively.
OPERATING INCOME. Operating income in 1996 was $5.0 million compared to
$48.8 million in 1995. The significant decrease of $43.8 million was primarily
due to lower steel selling prices, higher Steel Making Segment operating costs,
and training and pre-start-up costs related to the New Facility.
Steel Making Segment. The Steel Making Segment recorded an operating loss
of $14.9 million in 1996 compared to the $28.5 million of operating income
recorded during 1995. The loss was driven by a 4% decrease in selling prices
reducing results by $12.6 million as compared to the prior period. Flat rolled
and semi-finished shipments to external customers were approximately 11,000 tons
or 3% lower while shipments to the Steel Fabricating Segment were 13,000 tons or
5% lower than 1995. Also contributing to the Steel Making Segment's loss for
1996 were higher costs relating to the purchase and usage of natural gas and
utilities and other raw material costs along with increased maintenance, repair
and labor costs. Employee training and pre-start-up costs of $9.9 million and
production inefficiencies related to start-up of the New Facility of $4.7
million also decreased income from operations as compared to the prior year.
Finally, the Steel Making Segment began depreciating the New Facility midway
through the fourth quarter of 1996 which resulted in additional depreciation
expense of $3.0 million. Somewhat offsetting the decreased shipments and
increased costs were increased iron product sales contributing $4.0 million of
operating income in 1996 versus $2.2 million in the prior year. Approximately
64% of shipments and 66% of gross margin in 1996 were attributable to external
customers while the remainder was generated by sales to the Steel Fabricating
Segment. In 1995, the Steel Making Segment shipped 61% and derived 65% of its
gross margin from external customers.
Steel Fabricating Segment. Operating income for the Steel Fabricating
Segment of $20.0 million in 1996 was $.4 million lower than in 1995. The slight
decrease was due primarily to lower average selling prices and higher operating
costs at Alpha Tube. Operating income for the remaining fabricating businesses
approximated the prior year.
INTEREST EXPENSE. Interest expense decreased $14.6 million in 1996 from the
prior year. The decrease in interest expense resulted from the increased
capitalization of interest costs associated with the New Facility. The Company
ceased capitalization of interest cost midway through the fourth quarter of 1996
coincident with the start-up of commercial production at the New Facility and
charged these interest costs to current operations. Interest costs totaled $37.5
million in 1996, compared to $35.4 million in the previous year. Interest costs
of $31.3 million were capitalized as part of the New Facility in 1996, compared
to $14.6 million in the prior year. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources
and Long-term Debt and Revolving Credit Agreement in the "Notes to the
Consolidated Financial Statements incorporated by reference herein.
INTEREST INCOME. Interest income was $8.7 million lower than in 1995 due
entirely to reduced cash and investment balances resulting from progress
payments for the construction of the New Facility.
OTHER NON-OPERATING INCOME. Other non-operating income in 1996 was $.6
million which was $1.2 million lower than 1995 due primarily to a $1.6 million
gain on the sale of the Company's interest in a West Virginia coal producing
property during 1995.
INCOME TAX EXPENSE. Income tax expense in 1996 totaled $2.4 million based
on a 47.6% effective tax rate as compared to the $15.9 million expense in 1995,
based on a 36% effective rate. The higher 1996 tax rate
36
<PAGE> 42
is attributable to increased state tax expense resulting from the distribution
of 1996 earnings among the various states in which the Company conducts
business. The 1995 tax rate was favorably impacted by significant earnings on
tax-free investments.
NET INCOME. The Company recorded earnings of $2.7 million, or $.23 per
share in 1996 versus the $28.2 million, or $2.44 per share in 1995.
FISCAL 1995 AS COMPARED TO FISCAL 1994
NET SALES. Consolidated net sales of $521.6 million in 1995 were
essentially even with the prior year. Increased net sales from higher selling
prices of $19.4 million and an increase in sales of iron products of $27.8
million were completely offset by reduced shipments.
Steel Making Segment. In 1995, the Company continued to enjoy improved
selling prices that benefited the steel industry as a whole. Net sales of the
Steel Making Segment advanced slightly to $356.8 million in 1995, a 2%
improvement over 1994. Sales to unaffiliated customers rose 2% to $234.9
million, while intersegment sales of $121.9 million were 3% higher than in 1994.
The Steel Making Segment's net sales benefited from a 3% increase in average
selling prices, resulting principally from a partial realization of price
increases that were announced during 1994.
Steel Fabricating Segment. Steel Fabricating Segment net sales of $288.4
million in 1995 were 2% lower than the prior year. Lower shipment volume
accounted for $19.3 million of the sales decline, partially offset by increased
average selling prices that contributed $14.3 million versus 1994.
Sales of strapping and strapping tools of $166.8 million in 1995 matched
sales in the previous year. Higher average selling prices increased net sales by
$8.3 million, which was completely negated by lower shipment volume.
Alpha Tube's sales for 1995 totaled $80.8 million, down 2% from the prior
year. The $2.0 million reduction in sales was due entirely to lower shipments as
average selling prices increased over last year. Average selling prices rose
10%, contributing an increase of $6.2 million in sales versus 1994. Higher
selling prices were completely offset by a 12% decline in shipments, which was
largely due to ongoing rationalization of the customer base towards higher
margin accounts.
Sales of jacks and lifting tools for cars and light trucks totaled $40.8
million in 1995, a 7% decline from the prior year. The decrease versus 1994 was
due almost entirely to lower sales volume, as selling prices remained consistent
with the prior year.
GROSS MARGIN. The gross margin for 1995 of $84.4 million was $8.2 million
higher than in 1994, primarily reflecting higher selling prices for the majority
of the Company's products. Gross margin, as a percentage of net sales, was 16.2%
in 1995 versus 14.6% in 1994.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense
totaled $35.6 million (6.8% of net sales) and $33.2 million (6.4% of net sales)
in 1995 and 1994, respectively. The increase in expense was principally the
result of higher salaries and increases in other administrative costs.
OPERATING INCOME. Operating income in 1995 was $48.8 million compared to
$33.6 million in 1994.
Steel Making Segment. Operating income for the Steel Making Segment totaled
$28.5 million in 1995, a $14.0 million improvement over 1994. Operating income
in 1994 was reduced by a pre-tax $9.5 million non-cash, nonrecurring charge
recorded to recognize the impairment of existing steel making facilities and
contractual employee reduction costs related to the decision to proceed with the
New Facility. Exclusive of this charge, 1995's operating income increased $4.5
million due almost entirely to higher average selling prices of 3% and increased
sales of iron products of 194%. Offsetting a substantial portion of this benefit
was a decline in shipments, increased retiree and active medical costs,
increased pension expense, and higher administrative expenses. Flat rolled
shipments to external customers decreased 50,000 tons compared to 1994, while
shipments to the Steel Fabricating Segment were 6,000 tons lower. In 1995,
approximately 61% of flat rolled sales and 65% of gross margin were attributable
to external customers. The remaining sales and gross margin
37
<PAGE> 43
were generated by shipments to the Steel Fabricating Segment. In 1994,
approximately 65% of sales and gross margin of the Steel Making Segment resulted
from flat rolled sales to external customers, while shipments to the Fabricating
Segment accounted for the remaining 35% of sales and gross margin.
Steel Fabricating Segment. Operating income for the Steel Fabricating
Segment of $20.4 million in 1995 was $1.3 million higher than 1994. The segment
was aided by the continued strength of the economy and increased average selling
prices in 1995, somewhat offset by lower shipment volumes. The strapping
business benefited from a 6% increase in average selling prices established in
December 1994 which was mostly offset by lower shipment volume. Alpha Tube's
results advanced due to improved mix resulting from a shift away from commodity
markets to specialty value-added tubing products. In addition, Alpha Tube's
business benefited from lower raw material costs for certain of its higher
margin products. Lower demand in 1995 left Universal's operating income lower
than that of 1994.
INTEREST EXPENSE. Interest expense increased $6.8 million over 1994. The
increase in interest expense resulted from the issuance of $255.0 million of
long-term debt in the third quarter of 1994. Interest costs totaled $35.4
million in 1995, compared to $16.0 million in 1994. Interest costs of $14.6
million were capitalized as part of the New Facility in 1995, compared to $2.0
million in the prior year. See "--Liquidity and Capital Resources" and
"Long-term Debt and Revolving Credit Agreement" in the "Notes to the
Consolidated Financial Statements."
INTEREST INCOME. Interest income was $6.6 million higher than in 1994 due
entirely to additional interest income earned on the net proceeds received from
the issuance of debt and equity in the third quarter of 1994, less payments to
the general contractor relating to the New Facility.
OTHER NON-OPERATING INCOME. Other non-operating income in 1995 was $1.8
million due primarily to a $1.6 million gain on the sale of the Company's
interest in a West Virginia coal producing property. The comparable period in
1994 included income of $1.4 million consisting principally of a refund of prior
years' utility costs.
INCOME TAX EXPENSE. Income tax expense in 1995 totaled $15.9 million based
on a 36% effective tax rate as compared to the $9.9 million expense in 1994,
based on a 34.6% effective rate.
NET INCOME. The Company recorded the highest earnings level in its history
posting $28.2 million, or $2.44 per share in 1995 versus the $17.0 million, or
$2.16 per share, recorded in 1994. In 1994, net income per share was reduced by
an extraordinary expense item of $1.8 million, net of tax, or $.22 per share
related to the early extinguishment of debt in the third quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current liquidity requirements include working capital needs,
cash interest payments and capital investments. The Company intends to finance
its current operating and investing activities with existing cash balances, cash
from operations and by borrowing against its $80 million Working Capital
Facility. At March 29, 1998, the Company had no outstanding borrowings against
its Working Capital Facility with $79.4 million available for borrowing.
Operating activities provided $22.9 million of cash in the first quarter of
1998 primarily due to a combination of the receipt of an income tax refund and a
reduction of inventory levels. Investing activities used $27.9 million of cash
due to a reclassification to restricted cash of $17.4 million and $10.5 million
of cash payments for capital expenditures during the first quarter of 1998.
At the end of the first quarter of 1998, the Company's cash and cash
equivalents balance was $14.7 million, up $8.2 million from the December 28,
1997 balance and the Company's long-term indebtedness was $420.9 million.
Long-term debt decreased $3.8 million primarily due to the payment of Working
Capital Facility borrowings.
Capital expenditures totaled $6.2 million (on an accrual basis) during the
first quarter of 1998. Total capital expenditures for the New Facility were $1.5
million. The remaining $4.7 million of capital expenditures
38
<PAGE> 44
were for the Acme Packaging plastic strapping lines, update of the Company's
management information systems and the replacement and rehabilitation of various
production facilities.
Working capital of $72.0 million at the end of the first quarter of 1998
was $20.1 million lower than the December 28, 1997 balance. The Company
currently has a Working Capital Facility through January 2001, which provides
each operating subsidiary borrowing availability with an overall limitation of
$80 million. The Company's ratio of debt to total capitalization as of March 29,
1998 was .69 to 1. The short-term and long-term liquidity of the Company is
dependent upon several factors, including steel selling prices, availability of
capital, competitive and market forces, capital expenditures and general
economic conditions. Moreover, the United States steel market is subject to
cyclical fluctuations which may affect the amount of cash internally generated
by the Company and the ability of the Company to obtain external financing. In
addition, because of the Company's current leverage position, its financial
flexibility is limited.
Since December 28, 1997, the Company and its lenders amended certain
definitions and made other changes under its credit agreements to provide the
Company with greater flexibility under the covenants contained in the
agreements.
Although the Company believes the anticipated cash for future operations
and borrowings under the Working Capital Facility will provide sufficient
liquidity for the Company to meet its debt service requirements and fund ongoing
operations, including required capital expenditures, there can be no assurance
these or other possible sources will be adequate. See "--Outlook--Operating
Losses."
OUTLOOK
The Company expects to continue recognizing losses during 1998 due to the
operating performance of Acme Steel. Acme Steel is aggressively working to
regain and improve orders from and deliveries to the higher margin niche product
customers, optimize performance of the New Facility, reduce manufacturing costs
and achieve design slitting capabilities at the NACME Facility.
CUSTOMERS AND PRODUCT MIX. During 1997 and the first quarter of 1998, Acme
Steel experienced a substantial reduction in the average selling price per ton
for sales to external customers due to competitive pressures and a substantial
reduction in orders from its traditional higher margin niche customers in the
markets for high- and mid-carbon, alloy, HSLA and processed valued-added
products. The loss of orders from niche customers was due, principally, to the
delivery performance caused by the slow ramp-up of the New Facility and of the
slitting capabilities of the NACME Facility. As a result, these customers were
forced to obtain their steel from other sources. Acme Steel continues working to
improve operating performance of the New Facility and slitting performance at
the NACME Facility. These actions are expected to improve delivery performance
to the traditional, higher margin niche product customers and gradually improve
product mix and margins.
PERFORMANCE OF NEW FACILITY. Acme Steel is in the process of ramping up the
New Facility to planned shipping levels of 970,000 tons per year. The New
Facility is operating at less than planned production levels and incurring
ongoing cost inefficiencies due to, among other factors, a higher than expected
rate of unplanned delays and a slower than expected improvement in material
yield performance (raw steel to finished steel coil). These factors will
continue to adversely affect the financial performance of Acme Steel and the
consolidated results of the Company during 1998.
The Company believes it will achieve a substantial portion of the projected
benefits of the New Facility by the end of 1998. When the New Facility reaches
planned production levels, it is expected to reduce cash manufacturing costs by
approximately $70 per ton from 1996 cash manufacturing costs. As of the first
quarter of 1998, the Company had achieved cash cost savings related to the New
Facility of approximately half the expected $70 per ton savings, excluding
additional depreciation associated with the New Facility of approximately $24
per ton.
NACME FACILITY. During the first quarter of 1998, the NACME Facility
operated, on average, at approximately 60% of its planned slitting capability.
NACME and Acme Steel are cooperating in efforts to improve the performance of
the slitting operations.
39
<PAGE> 45
OPERATING LOSSES. Should the Company incur greater than anticipated losses
during 1998, the Company could be at risk of breaching certain of the financial
covenants in its loan agreements (which become more restrictive in future
periods), and absent relief from its lenders, the Company would have to consider
financial alternatives to enable it to adequately fund its operations and meet
all of its obligations.
There can be no assurances the Company will be able to satisfactorily
resolve all of these concerns in the near term. No assurances can be given that
the Company will not continue to experience operational difficulties, will
achieve the projected cost benefits, will improve deliveries, improve material
yield performance, or increase sales to its traditional niche market customers,
or that financing will be available if required, or if available, whether such
financing will be on terms satisfactory to the Company.
STEEL FABRICATING. For 1998, Steel Fabricating Segment earnings (excluding
Universal) are expected to remain relatively steady. Alpha Tube expects to
complete the relocation and consolidation of its tube mills in mid-1998. The
consolidation project will improve material handling capability, provide
increased capacity of large diameter tubing and lower operating costs. Acme
Packaging anticipates installation of the new plastic strapping lines will be
completed during the second quarter of 1998.
FORWARD LOOKING STATEMENTS
Actual events might materially differ from those projected in the above
forward looking statements. The timely and successful ramp-up of the New
Facility and successful installation of new computer systems are important
assumptions in the Company's projection of a fully operational facility and the
related earnings benefits. If there are substantial unexpected production
interruptions or other operating difficulties and if the New Facility fails to
achieve certain production utilization and material yield goals, or NACME fails
to achieve its planned slitting capabilities, the competitive and financial
position of the Company could be materially adversely affected. In addition to
uncertainties with respect to the New Facility, forward looking statements
regarding all of the Company's businesses, but particularly the Steel Making
Segment, are based on various economic assumptions. These assumptions include
projections regarding: selling prices for the Company's products, costs for
labor, energy, raw material, supplies, pensions and active and retiree medical
care, volume or units of product sales, competitive developments in the
marketplace by domestic and foreign competitors, including Asian steel companies
in the midst of the current Asian economic downturn, and the competitive impact
of the facilities which are expected to compete with the Company's products,
general economic developments in the United States or abroad affecting the
business of the Company's customers, including the strength of the U.S. dollar
against other currencies and similar events which may affect the costs, price or
volume of products sold by the Company.
There can be no assurances the results of these factors will conform with
the Company's assumptions and projections. If one or more of these factors fails
to meet the Company's projections, the adverse impact on the Company's business
and financial results could be significant. Similarly, in the event the
Company's assumptions and projections are too conservative, the Company's
performance may exceed these forecasts.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 130, "Reporting Comprehensive Income," issued in June 1997, will
require the Company to disclose, in financial statement format, all non-owner
changes in equity. Such disclosures include, for example, cumulative foreign
currency translation adjustments, certain minimum pension liabilities and
unrealized gains and losses on available-for-sale securities. This Statement is
effective for fiscal years beginning after December 15, 1997 and requires
presentation of prior period financial statements for comparability purposes.
The Company expects to adopt this Statement beginning with its 1998 financial
statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," issued in June 1997, established standards for reporting
information about operating segments in annual financial statements and interim
financial reports. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. Operating segments
are components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. Generally,
financial
40
<PAGE> 46
information is required to be reported on the basis that is used internally for
evaluating segment performance and deciding how to allocate resources to
segments. The Company is currently evaluating its options for disclosure and
will adopt the Statement in its financial statements for the year ending
December 27, 1998.
On November 20, 1997, the Emerging Issues Task Force ("EITF") of the
Financial Accounting Standards Board issued EITF No. 97-13 "Accounting for Costs
Incurred in Connection with a Consulting Contract for an Internal Project that
Combines Business Process Reengineering and Information Technology
Transformation". EITF 97-13 requires that certain costs related to reengineering
be expensed as incurred. Under the Company's previous accounting policy, a
portion of such costs related to ongoing expenditures to upgrade the Company's
management information system were capitalized during 1996 and 1995.
In accordance with EITF No. 97-13, the Company recorded a cumulative effect
adjustment in the fourth quarter of 1997. The Company expensed the unamortized
capitalized portion of related costs as required by the EITF No. 97-13,
recording a cumulative effect of a change in accounting principle of $10.1
million, $6.2 million after tax.
41
<PAGE> 47
BUSINESS
OVERVIEW
Acme Metals, based in Riverdale, Illinois, is a fully integrated
manufacturer and marketer of steel, steel strapping and strapping tools and
steel tubing. Acme Metals' operations are divided into two primary segments, the
Steel Making Segment and the Steel Fabricating Segment. The Steel Making
Segment's operations are conducted through Acme Steel, and the Steel Fabricating
Segment's operations are conducted through Acme Packaging and Alpha Tube. On
March 9, 1998, the Company sold Universal, a manufacturer of automotive and
light truck jacks. The table below presents the percentage make-up of the
Company's net sales for the time periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED ---------------------
--------------------------- MARCH 30, MARCH 29,
1995 1996 1997 1997 1998
---- ---- ---- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sheet and strip steel.................... 33% 33% 35% 36% 48%
Semi-finished steel...................... 4 2 1 2 --
Iron products and other.................. 8 9 6 5 5
-- -- -- -- --
Total Steel Making Segment.......... 45% 44% 42% 43% 53%
== == == == ==
Steel strapping and strapping tools...... 32% 33% 33% 32% 27%
Welded steel tube........................ 15 16 17 17 15
Auto and light truck jacks............... 8 7 8 8 5
-- -- -- -- --
Total Steel Fabricating Segment..... 55% 56% 58% 57% 47%
== == == == ==
</TABLE>
Acme Steel is an integrated steel producer that primarily markets flat
rolled steel products. Acme Steel utilizes the flexibility of small production
quantities to focus on niche markets targeting customers with small order sizes
and special metallurgical requirements such as high and mid carbon, special
alloy and HSLA steels. Unlike large integrated steel producers which focus
primarily on large quantities of a specified size and grade, Acme Steel's niche
market focus allows it to achieve premium pricing for its specialty steels. Acme
Steel's average price per ton of hot rolled sheet and strip steel for sales to
external customers was $469 and $413 in 1996 and 1997, respectively, as compared
to the 1996 and 1997 industry average price per ton of $325 and $342,
respectively. Acme Steel's 1997 external average selling price was adversely
effected by the unfavorable product mix caused by the ramp up of the New
Facility. Acme Steel currently produces a wide variety of steel grades and sizes
to service approximately 400 customers. 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.
In September 1996, the Company completed construction of the New Facility,
a new continuous thin slab caster/hot strip mill complex at Acme Steel's
Riverdale, Illinois plant. The New Facility, which cost approximately $400
million (excluding capitalized interest and certain internal costs), allows Acme
Steel to build on its strengths as a low cost producer of high quality liquid
steel by significantly increasing its overall efficiency and reducing its
finished steel production costs. The Company continued to run the old ingot
making operations while the New Facility was being brought on line. In June
1997, the Company completed the decommissioning of its ingot making operations.
The Company anticipates that the New Facility, when fully operational, will
reduce Acme Steel's 1996 cash manufacturing costs by approximately 19%, or $70
per shipped ton, and will increase Acme Steel's ongoing planned shipping
capability to approximately 970,000 tons per year. The New Facility has reduced
the average production time for transforming raw steel into flat rolled steel
coils from ten days to 90 minutes by eliminating the extra heating and rolling
necessary in the old ingot-based process. Through the first quarter of 1998, the
New Facility operated on average at approximately 87% of its planned production
levels. The New Facility, however, has incurred, and is expected to continue to
incur, ongoing cost inefficiencies due to, among other factors, a higher than
expected rate of unplanned delays and a slower than expected improvement in
material yield performance (i.e. raw liquid steel to finished steel coil). See
"Risk Factors--Performance of New Facility," "--NACME Facility" and "--Niche
Customers."
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<PAGE> 48
In February 1996, Acme Steel and its joint venture partner began
construction of the NACME Facility, located in Chicago, Illinois adjacent to
Acme Steel's Riverdale steel making operations. The NACME Facility pickles,
oils, slits and packages wide steel coils produced by the New Facility. Acme
Steel has a 40% equity position in NACME. The NACME Facility will enhance Acme
Steel's ability to provide precise customer specifications of superior quality
steels with highly competitive lead times. Pickling operations at the NACME
Facility began in December 1996 and slitting operations began late in the second
quarter of 1997. The ramp up of the slitting of high carbon products has been
slower than expected, and, during the first quarter of 1998, the NACME Facility
operated on average at approximately 60% of its planned slitting capability. See
"Risk Factors--NACME Facility."
The Company's interest in NACME requires Acme Steel to comply with certain
tonnage provision guarantees and cost plus return on investment payments. Due to
a delay in reaching full operating levels, NACME was not in compliance with
certain financial covenants and obtained a waiver and negotiated modification of
those covenants under its financing arrangements with its lending institution.
NACME currently meets the requirements of the modified financial covenants.
However, there are no assurances NACME will continue to maintain such
compliance, or, if it fails to do so, that it will be able to negotiate further
waivers or amendments of its covenants. Currently, the Company is unable to
determine whether such failure would have an adverse effect on Acme Steel's
operations.
The Company has pursued a downstream integration strategy intended to
enhance both the value and margins of its steel products through its Steel
Fabricating Segment. Acme Packaging is one of the two major domestic producers
of steel strapping and strapping tools in the United States and, by management
estimates, shares approximately 80% of the domestic market equally with its
primary competitor. Alpha Tube is a leading producer of high quality, welded
carbon steel tubing used for furniture, recreational, contractors' and
automotive applications.
The downstream integration strategy has helped to moderate the impact of
fluctuating steel demand on Acme Steel's operations by creating captive
businesses which have consumed approximately 30% to 40% of Acme Steel's steel
production and, with the New Facility's increased production capability, are
expected to consume 20% to 30% of Acme Steel's steel production.
The Company's principal executive offices are located at 13500 South Perry
Avenue, Riverdale, Illinois 60827-1182, 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.
RECENT DEVELOPMENTS
REFINANCING
In order to take advantage of current interest rates and to improve its
flexibility for future modernization, on December 18, 1997 the Company
consummated the Financing Plan which was comprised of the following elements:
- A tender offer (the "Tender Offer") for the Senior Secured Notes and the
Senior Secured Discount Notes See "Description of Certain
Indebtedness--Senior Secured Notes; Senior Secured Discount Notes."
Holders of 86% of the outstanding Senior Secured Notes and holders of 99%
of the outstanding Senior Secured Discount Notes accepted the Tender
Offer for the principal amount of their respective 1994 Notes.
- Concurrent with the Tender Offer, a solicitation of the consent of the
holders of the 1994 Notes (the "Consent Solicitation") to certain
amendments (the "Amendments") to the indentures pursuant to which the
1994 Notes were issued (the "1994 Indentures"), which eliminated certain
restrictive covenants contained in the 1994 Indentures. The Amendments
were approved by the requisite number of holders of 1994 Notes.
43
<PAGE> 49
- The $175,000,000 Senior Secured Credit Agreement with Morgan Stanley
Senior Funding, Inc., as syndication agent and arranger, and Bankers
Trust Company, as administrative agent which (a) was used to repay, among
other things, the Term Loan; (b) ranks pari passu with the 1994 Notes
remaining outstanding after consummation of the Tender Offer; and (c) is
secured equally and ratably with such 1994 Notes by a senior security
interest in certain real and personal property of Acme Steel and the
stock of the Company's subsidiaries. See "Description of Certain
Indebtedness--Senior Secured Credit Agreement."
- A modification of the Company's existing $80 million Working Capital
Facility with Harris Trust and Savings Bank, as agent. See "Description
of Certain Indebtedness --Working Capital Facility."
- The offering of the Old Notes.
The following table sets forth the Company's sources and immediate uses of
funds after giving effect to the Financing Plan and the application of the net
proceeds therefrom as of December 18, 1997.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Sources of Funds:
Notes..................................................... $198,502
Senior Secured Credit Agreement........................... 175,000
--------
Total.................................................. $373,502
========
Uses of Funds:
Increase in cash and cash equivalents..................... $ 305
Repayment of Senior Secured Notes(1)...................... 122,946
Repayment of Senior Secured Discount Notes(2)............. 142,801
Repayment of Term Loan(3)................................. 50,622
Repayment of Working Capital Facility(4).................. 45,198
Fees and expenses(5)...................................... 11,630
--------
Total.................................................. $373,502
========
</TABLE>
- -------------------------
(1) Repayment of Senior Secured Notes includes Senior Secured Notes prepayment
consideration of $10.5 million and accrued interest through December 18,
1997 of $5.1 million.
(2) Repayment of Senior Secured Discount Notes includes Senior Secured Discount
Notes prepayment consideration of $19.5 million and accrued interest through
December 18, 1997 of $6.0 million.
(3) Repayment of Term Loan includes $.6 million of accrued interest through
December 18, 1997.
(4) Repayment of Working Capital Facility includes $.2 million of accrued
interest through December 18, 1997. At December 17, 1997, $48.0 million was
outstanding under the Working Capital Facility.
(5) Fees and expenses include financing fees in connection with the Financing
Plan.
SALE OF UNIVERSAL
In March of 1998, the Company sold its wholly owned subsidiary Universal.
The sale of Universal generated proceeds to the Company of approximately $18.0
million and a gain of $12.0 million (approximately $7.8 million, net of tax).
Proceeds from the sale of Universal are restricted by the 1994 Indentures and
have been deposited with the trustee under the 1994 Indentures. The Company is
permitted to apply the proceeds to related business investments or to offer to
redeem on a pro rata basis the remaining 1994 Notes. To the extent an offer to
redeem is not accepted by the holders of the 1994 Notes, the proceeds become
unrestricted.
INDUSTRY
OVERVIEW
The steel industry has historically been and continues to be highly
cyclical in nature. The industry is influenced by a combination of factors
including periods of economic growth or recession, strength or weakness of the
U.S. dollar, worldwide production capacity, levels of steel imports and tariffs.
The industry has
44
<PAGE> 50
also been affected by other company-specific factors such as failure to adapt to
technological change, plant inefficiency, and high labor costs. Steel,
regardless of product type, is a commodity that responds to forces of supply and
demand, and prices have been volatile and have fluctuated in reaction to general
and industry-specific economic conditions. Under such conditions, a steel
company must be efficient, flexible, produce quality products, and provide
responsive customer service in order to be profitable. See "Risk Factors--
Cyclicality of Steel Industry and End User Markets; Variability of Financial
Results." There are generally two kinds of primary steel producers, "integrated"
and "mini-mill."
Steel manufacturing by the majority of "integrated" producers involves a
series of distinct but related processes, often separated in time and in plant
geography. This process generally involves ironmaking followed by steel making,
followed by billet or slab making, followed by reheating and further rolling
into steel plate or bar, or flat rolling into sheet steel or coil. These
processes may, in turn, be followed by various finishing processes (including
cold rolling) or various coating processes (including galvanizing). In
integrated-producer steel making, coal is first converted to coke in a coke
oven, then combined in a blast furnace with iron ore (or pellets) and limestone
to produce iron, and then combined with scrap in a "basic oxygen" or other
furnace to produce raw or liquid steel. Once produced, the liquid steel is
metallurgically refined and then transported to a continuous caster for casting
into a billet or slab, which is then further shaped or rolled into its final
form. Typically, though not always, and whether by design or as a result of
downsizing or reconfiguration, many of these processes take place in separate
facilities.
In contrast, a mini-mill employs an electric arc furnace (EAF) to directly
melt scrap steel or steel scrap substitute, thus entirely eliminating the coke
making process and the blast furnace. A mini-mill incorporates the melt shop,
ladle metallurgical station, casting, and rolling into a unified continuous
flow. The melting process begins with the charging of a furnace vessel with
scrap steel, carbon, and lime, then the vessel's top is swung into place and
electrodes are lowered into the scrap through holes in the top of the furnace.
Electricity is then applied to melt the scrap. The liquid steel is then checked
for chemistry and the necessary metallurgical adjustments are made while the
steel is still in the melting furnace or, if the plant has a separate staging
area for that process, the material is transported by a ladle to an area,
commonly known as a ladle metallurgy station. From there, the liquid steel is
transported by ladle to a turret at the continuous caster, wherein it is then
transferred into a tundish, a kind of reservoir, which controls the flow of the
liquid steel into a water-cooled copper-lined mold from which it exits as an
externally solid billet or slab. After a billet is cast, it is then cut to
length and either shipped as billets or stored until needed for further rolling
or processing (which would involve reheating) or it may be sent directly into
the rolling process, after which it may then be cut to length, straightened, or
stacked and bundled. In the case of thin-slab casting, however, the slabs
proceed directly into a tunnel furnace, which maintains and equalizes the slab's
temperature, and then after descaling, into the first stand of the rolling mill
operation. In this rolling process, the steel is progressively reduced in
thickness. In the case of sheet steel, it is wound into coil and may be sold
either directly to end users or to intermediate steel processors or service
centers, where it may be pickled, cold rolled, annealed, tempered, or
galvanized.
Thin slab continuous casting technology was one of the most significant
advances in steel making in the last forty years. The thinner slab greatly
reduces costs, as less reduction is necessary in the hot-strip rolling mill to
create hot rolled bands or coils of steel, and there is substantially less
reheating required prior to rolling. Most important, the development of
thin-slab casting technology, with its lower capital cost requirement, allowed
for the entry of mini-mills into the flat rolled segment of the steel market.
The New Facility of Acme Steel is the world's first complex to produce
steel by combining highly efficient mini-mill casting and rolling technology
with the traditional high quality liquid steel produced via the blast
furnace/basic oxygen furnace technology. The use of integrated steel making
technology, with coke, iron and liquid steel, is the basis of Acme Steel's
MiniGrated(TM) steel quality advantage. The following diagram illustrates the
differences in production methodologies among the typical multi-step integrated
mill production process, the typical continuous mini-mill
melting-casting-rolling process and Acme Steel's new production methodology.
45
<PAGE> 51
Flow Chart
THE FLAT ROLLED MARKET
The flat rolled market represents the largest steel product group,
accounting for approximately 62% of the total annual U.S. steel shipments in
1997. Flat rolled products consist of hot rolled, cold rolled, and coated sheet
and coil. Currently, the Company's products consist primarily of hot rolled
coil. The flat rolled product group has been the fastest growing segment of the
U.S. steel market over the last 40 years, amounting to approximately 65.0
million tons of shipments in 1997. The following table shows the U.S. flat
rolled shipments by hot rolled, cold rolled, and coated production (as reported
by the AISI) for the years 1993 through 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(MILLIONS OF TONS)
<S> <C> <C> <C> <C> <C>
Hot Rolled(1)............................................... 23.0 24.9 26.8 26.7 27.8
Cold Rolled(2).............................................. 14.4 14.7 14.1 15.8 15.2
Coated(3)................................................... 18.3 20.2 19.9 20.7 22.0
---- ---- ---- ---- ----
Total....................................................... 55.7 59.8 60.8 63.2 65.0
==== ==== ==== ==== ====
% Total of Domestic Steel Shipments......................... 62.7% 62.9% 62.4% 62.7% 61.5%
==== ==== ==== ==== ====
</TABLE>
- -------------------------
(1) Includes plates cut lengths, sheet, strip and plate in coils.
(2) Includes blackplate, sheet, strip and electrical.
(3) Includes tin coated, hot dipped galvanized, electrogalvanized and all other
metallic coated.
46
<PAGE> 52
The following chart presents 1997 U.S. industry flat rolled product
shipments by market segment (as reported by the AISI):
<TABLE>
<S> <C>
Other 20
Industrial Equipment/Tools 2
Appliances 2
Electrical Equipment 3
Containers/Packaging 6
Converters/Processors 9
Construction/Contractors' Products 9
Automotive 20
Steel Service Centers 29
</TABLE>
Hot Rolled Products. All coiled flat rolled steel is initially hot rolled,
a process which generally consists of passing a cast slab through a multi-stand
rolling mill to reduce its thickness to less than 1/2 inch and, in some mills
such as Acme Steel's, to less than 1/16 inch. Hot rolled steel is minimally
processed steel coil that is used in the manufacture of various non-surface
critical applications such as automobile suspension arms, frames, wheels, and
other unexposed parts in auto and truck bodies, agricultural equipment,
construction products, machinery, tubing, pipe, tools, lawn care products and
guard rails. The U.S. market for hot rolled steel in 1997 was over 27.0 million
tons, excluding imports. The following chart presents 1997 U.S. industry hot
rolled product shipments by market segment (as reported by the AISI):
<TABLE>
<S> <C>
Oil/Gas 1
Automotive 12
Converters/Processors 16
Steel Service Centers 32
Construction/Contractors' Products 5
Other 31
Industrial Equipment/Tools 3
</TABLE>
Cold Rolled Products. Cold rolled steel is hot rolled steel that has been
further processed through a pickler and then processed through a rolling mill
without reheating until the desired gauge (or thickness) and other physical
properties have been achieved. Cold rolling reduces gauge and hardens the steel
and, when further processed through an annealing furnace and a temper mill,
improves uniformity, ductility and formability. Cold rolling can also impart
various surface finishes and textures. Cold rolled steel is used in
47
<PAGE> 53
applications that demand higher quality or finish, such as exposed automobile
and appliance panels. As a result, cold rolled prices are typically higher than
hot rolled prices. The U.S. market for cold rolled steel in 1997 was
approximately 15.2 million tons, excluding imports. The following chart presents
1997 U.S. industry cold rolled product shipments by market segment (as reported
by the AISI):
<TABLE>
<S> <C>
Construction/Contractors' Products 4
Containers/Packaging 5
Converters/Processors 9
Appliances 7
Electrical Equipment 11
Automotive 18
Steel Service Centers 34
Other 12
</TABLE>
Coated Products. Coated steel is usually cold rolled sheet that has been
coated with a non-ferrous metal to render it corrosion-resistant and to improve
its paintability. Hot dipped galvanized, electrogalvanized and aluminized
products are types of coated steels. These are the highest value-added sheet
products because they require the greatest degree of processing and tend to have
the strictest quality requirements. Coated steel is used in high volume
applications such as automotive components, household appliances, roofing and
siding, heating and air conditioning equipment, air ducts, switch boxes, chimney
flues, awnings, garbage cans and food containers. The use of coated steels in
the U.S. has increased dramatically over the last 40 years. The U.S. market for
coated steel in 1997 was approximately 22.0 million tons, excluding imports. The
following chart presents 1997 U.S. industry coated product shipments by market
segment (as reported by the AISI):
<TABLE>
<S> <C>
Other 12
Containers/Packaging 14
Construction/Contractors' Products 17
Steel Service Centers 22
Automotive 32
Electrical Equipment 1
Appliances 2
</TABLE>
48
<PAGE> 54
BUSINESS STRATEGY
The Company's strategy is to enhance its position as a high quality, low
cost producer of hot rolled sheet and strip steel and related value-added
products and to achieve future profitable growth. The key elements of this
strategy include maximizing the performance of the New Facility, continuing to
focus on downstream integration, improving product quality and customer service
and pursuing growth opportunities.
MAXIMIZE THE PERFORMANCE OF THE NEW FACILITY
The Company's objective is to achieve the expected benefits from its
investment in the New Facility thereby enhancing its status as a preeminent
supplier of flat rolled carbon, alloy and HSLA steels in custom sizes and
grades. Key strategic elements to accomplish this objective include the
following:
- Reduce Manufacturing Cost. Acme Steel is a low cost producer of liquid
steel. The Company believes the New Facility, when fully operational,
will enable Acme Steel to significantly reduce finished steel
manufacturing costs and improve operating efficiency. When the New
Facility reaches planned production levels, the Company estimates it will
provide cash savings in manufacturing costs (based on full utilization of
its expanded shipping capability of approximately 970,000 tons per year)
of approximately $70 per shipped ton as compared to 1996 manufacturing
costs. See "Risk Factors--Performance of New Facility."
- Increase Shipping Capability. As a result of the completion of the New
Facility, by the end of 1998 management expects the ongoing shipping
capability of Acme Steel to increase to approximately 970,000 tons, on an
annualized basis. The New Facility's yield from raw liquid steel to
finished coils is 86% at the end of the first fiscal quarter of 1998 and
is expected to increase to over 90% when the New Facility achieves
planned production levels.
- Increase Sales of Specialty Steels to Niche Markets. Acme Steel expects
to regain and expand its sales of value-added specialty steels to its
niche markets as the New Facility ramps up to planned production levels.
Acme Steel's focus has been and continues to be to produce more
value-added specialty grades of steel, including high and mid carbon,
alloy and HSLA steel. The New Facility produces wider sheets and thinner
gauges than the old ingot-based facility, thus expanding Acme Steel's
product range and allowing the Company to increase sales to its existing
customer base. See "Risk Factors--Niche Customers."
CONTINUE TO FOCUS ON DOWNSTREAM INTEGRATION
The Company has pursued a downstream integration strategy to enhance both
the value and margins of its products by maximizing the benefits of the New
Facility and pursuing additional value-added product lines.
- Maximize Benefits of New Facility. The steel provided by the New Facility
will enable the Company's Steel Fabricating Segment to reduce its
production costs because the wider, larger coils supplied by the New
Facility will reduce changeover costs, improve yields and improve
productivity.
- Pursue Additional Value-Added Product Lines. The Company continually
reviews opportunities to expand its product lines in areas which add
value. Examples of recent initiatives include the following:
(i) Acme Packaging recently invested in plastic strapping
manufacturing equipment that will be installed during the
first half of 1998. This investment is in an area that
represents a growing segment of the overall strapping
industry. See "Business--Steel Fabricating Segment."
(ii) As part of a consolidation of Alpha Tube's slitting and tube
making operations into a new, larger facility, Alpha Tube is
upgrading the production capability of two of its five tube
mills which will give Alpha Tube additional capability to
meet growth opportunities in the higher-margin,
larger-diameter tube markets and will allow for greater
overall utilization of all five tube mills. The
consolidation is expected to be completed in the second
quarter of 1998. See "Business--Properties."
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IMPROVE PRODUCT QUALITY AND CUSTOMER SERVICE
The Company strives to offer high-quality products to all of its customers
and plans to maintain its commitment to superior customer service and product
quality. The New Facility is expected to improve Acme Steel's product quality
and allow it to meet the requirements of customers that demand continuously cast
steel products and tighter dimensional and physical properties in the finished
products. See "Risk Factors--Niche Customers." In addition, the New Facility has
reduced the average production time for transforming raw steel into flat rolled
steel coils from ten days to 90 minutes. The fabricating businesses have been
QS-9000 or ISO-9002 certified in 1997.
PURSUE GROWTH OPPORTUNITIES
The Company plans to pursue growth opportunities through existing capacity
expansion or possible acquisitions to secure the long-term future growth and
profitability of Acme Metals. For example, the Company believes that the flat
rolled steel making capability of the New Facility can be increased by up to one
million tons annually through the addition of additional steel making
facilities, a second caster, a second tunnel furnace and related machinery and
equipment.
STEEL MAKING SEGMENT
ACME STEEL
Acme Steel is a fully integrated producer of high quality steel products.
Acme Steel concentrates on the manufacture of flat rolled steels, particularly
sheet and strip steel. The flexible steel making facilities can produce liquid
steel in small heats of approximately 100 tons per heat. This small production
volume gives Acme Steel a competitive advantage when targeting its niche market
customers who purchase small quantities of steel with special metallurgical
properties. Unlike the large integrated steel producers, Acme Steel is able to
economically serve these customers' special requirements. Acme Steel's focus on
specialty steels, particularly mid and high carbon, HSLA, and alloy steels,
allows it to achieve premium prices on its steel. Acme Steel is working to
further shift its product mix toward specialty steels and to decrease its
production of lower-margin, commodity hot rolled low-carbon steel.
In August 1994, the Company commenced construction of the New Facility, a
new continuous thin slab caster/hot strip mill complex at Acme Steel's
Riverdale, Illinois plant. The New Facility, which cost approximately $400
million (excluding capitalized interest and certain internal costs), allows Acme
Steel to build on its strengths as a low cost producer of high quality liquid
steel by increasing niche market shipments, significantly increasing its overall
efficiency, and reducing its finished steel production costs. Construction of
the New Facility was substantially completed in September 1996, and the New
Facility produced its first coil on October 3, 1996. The New Facility is the
world's first complex to produce steel by combining highly efficient mini-mill
casting and rolling technology with the traditional high quality liquid steel
produced via the blast furnace/basic oxygen furnace technology.
The New Facility has reduced the average production time for transforming
raw steel into hot rolled steel coils from ten days to 90 minutes by eliminating
the extra heating and rolling necessary in the old ingot-based process. The
estimated cash cost savings from the New Facility are expected to be
approximately $70 per shipped ton based on planned annual shipping levels of
970,000 tons. The New Facility, when fully operational, will allow Acme Steel to
further shift its product mix away from low margin, commodity low-carbon steel
to higher margin specialty steels. Finally, the New Facility is expected to
increase Acme Steel's hot rolled shipping capability to approximately 970,000
tons.
Acme Steel's old ingot-based steel-making facility was closed in June 1997,
and the New Facility is expected to be fully operational by the end of 1998. As
part of ramping up the New Facility, the Company has successfully tested and
cast 99% of the steel grades comprising the Company's traditional product mix.
The Company's seven stand hot mill produces steel sheets ranging from 35.4 to
61.5 inches in width and from .040 to .500 of an inch in thickness. In addition,
the seven stand hot mill has rolled steel sheets as thin as .0295 inches and
steel sheets with a combined width and thickness as wide as 53.9 inches and as
thin as .0393 inches.
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During the quarter ended March 29, 1998, the New Facility operated on average at
approximately 87% of its planned production levels. The New Facility, however,
has incurred, and is expected to continue to incur, ongoing cost inefficiencies
due to, among other factors, a higher than expected rate of unplanned delays and
a slower than expected improvement in material yield performance. See "Risk
Factors--Performance of New Facility," "--NACME Facility" and "--Niche
Customers." Once the New Facility is fully operational, the Company believes the
steel making capability of the New Facility can be further increased by up to
one million tons annually through the addition of an electric arc furnace, a
second caster, a second tunnel furnace and related machinery and equipment.
Product Overview. The following table sets forth the tonnage of flat rolled
steel shipped by Acme Steel during the time periods indicated:
<TABLE>
<CAPTION>
NET TONS SHIPPED
----------------------------------------------------------------------------------
FISCAL YEAR ENDED THREE MONTHS ENDED
------------------------------------------------ -------------------------------
1995 1996 1997 MARCH 30, 1997 MARCH 29, 1998
-------------- -------------- -------------- -------------- --------------
TONS % TONS % TONS % TONS % TONS %
---- - ---- - ---- - ---- - ---- -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Specialty Products:
High Carbon................. 46,823 7% 53,176 9% 48,711 8% 13,123 8% 17,322 7%
Mid Carbon.................. 82,018 13 84,932 14 69,157 11 19,156 12 26,928 11
Alloy....................... 17,648 3 17,951 3 11,909 2 3,459 2 3,399 1
HSLA........................ 29,648 5 38,762 6 44,396 7 9,627 6 35,920 14
------- --- ------- --- ------- --- ------- --- ------- ---
Subtotal.................. 176,137 28 194,821 32 174,173 28 45,365 28 83,569 33
------- --- ------- --- ------- --- ------- --- ------- ---
Non-Specialty Products:
Low Carbon.................. 166,776 27 149,800 25 183,181 29 52,695 32 90,765 36
Non Prime................... 11,217 2 15,115 2 51,556 8 9,214 6 21,506 8
------- --- ------- --- ------- --- ------- --- ------- ---
Subtotal.................. 177,993 29 164,915 27 234,737 37 61,909 38 112,271 44
------- --- ------- --- ------- --- ------- --- ------- ---
Inter-Segment Sales........... 264,922 43 252,146 41 220,302 35 57,035 34 56,891 23
------- --- ------- --- ------- --- ------- --- ------- ---
Total Flat Rolled............. 619,052 100% 611,882 100% 629,212 100% 164,309 100% 252,731 100%
======= === ======= === ======= === ======= === ======= ===
</TABLE>
Specialty Products. Acme Steel specializes in manufacturing mid and high
carbon, alloy and HSLA steels and marketing these products directly to end
users. Specific metallurgical requirements are met by introducing particular
alloying metals such as molybdenum, manganese, chrome and vanadium at various
points during the steel making process or additionally through other steel
making processes such as annealing and controlled rolling.
Non-Specialty Products. Non-specialty products include hot rolled, low
carbon steel sheet and strip products sold to external customers. Low carbon
steel sheet and strip is a price sensitive product used in a broad array of
industrial goods. With the shutdown of the old ingot-based mill, Acme Steel no
longer produces and markets semi-finished steel.
Inter-Segment Sales. Inter-segment sales to the Steel Fabricating Segment
consist primarily of low and mid carbon products and have consumed approximately
30% to 40% of Acme Steel's steel production and, with the New Facility's
increased production capability, are expected to consume 20% to 30% of Acme
Steel's steel production. Approximately 31% of total shipments in 1997, or 91%
of inter-segment shipments, were to Acme Packaging, and consisted of cold rolled
low and mid carbon steel (which has been further processed to enhance surface
characteristics). The remainder of inter-segment sales were made to Alpha Tube
and Universal.
Customers. The remaining 66% of Acme Steel's shipments in 1997 was sold to
a diverse group of 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 steel making facilities.
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 match
for the small production quantities and high service levels available from Acme
Steel's facilities. Given
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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. See "Risk Factors--Niche Customers."
Acme Steel's customers generally are serviced by Acme Steel's own internal
sales staff. Acme Steel's customer base is very diversified with the top 25
external customers combined accounting for only 29% of Acme Steel's 1997 total
net sales. No individual external customer accounted for more than 5% of 1997
total sales.
STEEL FABRICATING SEGMENT
ACME PACKAGING
Products and Markets. Acme Packaging is one of the two major domestic
producers of steel strapping and strapping tools in the United States and, by
management estimates, shares approximately 80% of the domestic market equally
with its primary competitor. Acme Packaging constituted 33% of the Company's
total sales in 1997 and 1996 and approximately 32% in 1995.
Acme Packaging manufactures three types of steel strapping: regular duty,
high tensile, and SupraMet(R). High tensile steel strapping 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.
Acme Packaging receives all of its flat rolled steel supply from Acme Steel.
During 1998, Acme Packaging will broaden its product line by installing two new
extrusion lines for the manufacture of plastic strapping products.
Customers. Principal markets served by Acme Packaging include the
agricultural, automotive, brick, construction, fabricated and primary metals,
forest products and paper industries. Acme Packaging's sales are primarily in
the U.S. 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 1997 net sales.
ALPHA TUBE
Products and Markets. Alpha Tube is a leading producer of high quality,
welded carbon steel tubing used for furniture, recreational, contractors' and
automotive applications. Alpha Tube receives a significant portion of its flat
rolled steel supply from Acme Steel. Sales by Alpha Tube constituted
approximately 17% of the Company's total sales in 1997, 16% in 1996 and 15% in
1995.
Customers. Alpha Tube's products are used in the appliance, automotive,
construction, heating and cooling equipment, household and leisure furniture,
material handling, recreational products, service centers and truck exhaust
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. The Company believes
that Alpha Tube has a 10% share of its targeted tubing sales market. Alpha
Tube's top ten customers accounted for approximately 43% of its total net sales
in 1997, and no one customer accounted for more than 10% of its net sales in
1997.
UNIVERSAL
Products and Markets. Universal, a manufacturer of automotive and light
truck jacks, was sold by the Company on March 9, 1998. See "Business--Recent
Developments." Sales by Universal constituted approximately 8% of the Company's
total sales in 1997, 7% in 1996 and 8% in 1995.
EMPLOYEE RELATIONS
As of March 29, 1998, the Company had a work force of 2,107 employees, of
which 605 are salaried employees and 1,502 are paid hourly. The unionized work
force totals approximately 1,400, or approximately
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<PAGE> 58
67% of total employment. None of the salaried work force is unionized, and the
hourly work force at one site, 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 its
plants in Connecticut, Alabama and California. The last strike at the Riverdale
and Chicago locations was in 1959 during a major steel industry work stoppage.
In 1996, the Company instituted Cooperative Partnership (formerly administered
under the Labor Management Participation Team and Total Quality Improvement
Program) as a vehicle for problem solving in a team environment to establish
standards to maximize the highest quality product from the existing facilities.
Union members participate extensively in this program. See "Risk
Factors--Unionized Workforce."
Acme Steel has a contract in place with the United Steelworkers covering
1,272 employees at the Acme Steel and Acme Packaging operations in Chicago and
Riverdale, Illinois. The contract expires in 1999 and contains a no-strike
provision. The six-year contract, which was ratified on October 1, 1993,
provided for a mid-term renegotiation of specific wage and benefit issues. On
October 25, 1996, the Company reached an agreement with the United Steelworkers
on the mid-term wage reopener. The settlement was largely consistent with the
pattern established within the steel industry.
PROPERTIES
Acme Steel's principal properties are located in Chicago, Illinois and in
Riverdale, Illinois. The facilities in Chicago include coke ovens, blast
furnaces and pigging machines. The facilities in Riverdale include the basic
oxygen furnaces, the New Facility, pickle lines, cold mills, annealing furnaces,
slitter lines, and cut-to-length lines. In June 1997, the Company completed
decommissioning the operations of the steel ingot producing and narrow steel
rolling mill facilities which had been made redundant by the operations at the
New Facility. Acme Steel also owns an equity interest in an iron ore mining
venture in Eastern Canada. See "Business--Raw Materials and Energy." In
addition, during 1996 Acme Steel and a joint venture partner began construction
of the NACME Facility in Chicago, adjacent to the Riverdale operations, for the
pickling, oiling and slitting of steel products. The NACME Facility began
limited operations during the fourth quarter of 1996 and is expected to achieve
full capability during 1998. See "Risk Factors--NACME Facility."
Acme Packaging's principal properties consist of four steel strapping
plants, which include slitting and painting equipment, in Riverdale, Illinois;
New Britain, Connecticut; Leeds, Alabama; and Bay Point, California. Two plastic
strapping extrusion lines are currently being installed in an existing facility
in Riverdale, Illinois and are expected to be completed during the first half of
1998.
Alpha Tube currently has two leased facilities, with a lease expiring
February 1999 and a month to month lease, located in the Toledo, Ohio
metropolitan area, which include two manufacturing and office buildings and
rolling mills for the production of welded steel tubing. Alpha Tube is presently
consolidating the two tubing facilities consisting of five tube mills for the
production of steel tube and pipe, and a tube and pipe slitting operation, into
a new larger facility in Walbridge, Ohio where Alpha Tube has entered into a
long term lease. The consolidation will result in an upgrade of tube mill
diameter and capacity and the reduction of various operating costs. This
consolidation is expected to be completed during the second quarter of 1998.
All of these properties are owned in fee simple except for the Alpha Tube
facilities, as discussed above.
In the opinion of management, the manufacturing facilities of the Company's
subsidiaries are properly maintained, and their production capability is
adequate to meet their requirements.
RAW MATERIALS AND ENERGY
STEEL MAKING SEGMENT
Acme Steel's principal raw materials are iron ore, coal and scrap, which
are used in the steel making process. The Company believes Acme Steel's sources
of iron ore, coal, scrap and other raw materials are adequate to provide for its
foreseeable needs. Under Acme Steel's ingot based operations, Acme Steel was not
required to purchase scrap from external sources; however, the operations of the
New Facility will require
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Acme Steel to purchase scrap from external sources, and Acme Steel believes its
sources for the purchase of scrap will be adequate to meet its requirements.
Iron ore requirements are expected to continue to be satisfied through Acme
Steel's indirect equity interest (of approximately 15.1%) in an iron ore mining
venture, Wabush Mines ("Wabush"), in Eastern Canada, and through term contracts
and purchases on the open market. The managing agent of Wabush is Cliffs-Mining
Company, a subsidiary of Cleveland-Cliffs Inc. Acme Steel is required to pay 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. Acme Steel acquired approximately 37%
of its iron ore needs from Wabush under this agreement during 1997 (down from
approximately 41% during 1996), with the balance of ore requirements purchased
on the open market at a competitive delivered cost. In 1997, the Company took
705,914 tons from Wabush of which 447,918 tons were used for the Company's
requirements and the remainder was exchanged for iron ore pellets with other
users.
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 steel making operations require substantial amounts of both
natural gas and electricity. From mid 1995 to December 31, 1997, Acme Steel
purchased all of its natural gas from MidCon Gas Services Corp. pursuant to a
written agreement, and the Company has a one-year contract for the supply of its
natural gas requirements for 1998 and is currently negotiating a long term
natural gas purchasing contract. Acme Steel also uses blast furnace gas and coke
oven gas. Acme Steel purchases electricity from Commonwealth Edison Company
pursuant to written agreements approved by the Illinois Commerce Commission.
STEEL FABRICATING SEGMENT
Acme Packaging purchases virtually all of its flat rolled steel from Acme
Steel. Alpha Tube purchases a portion of its steel needs from Acme Steel 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
COMPETITIVE CONDITIONS FOR THE STEEL MAKING SEGMENT
General Steel Market. U.S. steel producers face intensive competition from
integrated steel producers, mini-mills and foreign producers (often government
subsidized). See "Risk Factors--Competition."
U.S. Despite significant reductions in raw steel production capacity by
major U.S. producers over the last decade, the U.S. industry continues to be
adversely affected, from time to time, by excess world capacity. According to
the AISI, annual U.S. raw steel production capacity was reduced from
approximately 154 million tons in 1982 to approximately 121 million tons in
1996. This reduction resulted in higher utilization rates. Average utilization
of U.S. industry capacity changed from approximately 61% in the 1982 to 1986
period to approximately 83% in the 1987 to 1991 period, to approximately 89% in
1993, to 93% in 1994 and 1995, to 91% in 1996 and to 89% in 1997. Recent
improved production efficiencies and new minimill capacity also have begun to
increase overall production capacity in the United States. Excess production
capacity exists in certain product lines in U.S. markets and, to a greater
extent, worldwide. Increased industry overcapacity, coupled with economic
recession, would intensify an already competitive environment.
Over the last decade, extensive downsizings have necessitated costly
restructuring charges that, when combined with highly competitive market
conditions, have resulted at times in substantial losses for some U.S.
integrated steel producers. A number of U.S. integrated steel producers have
gone through bankruptcy reorganization. These reorganizations have resulted in
somewhat reduced capital costs for these producers and may permit them to price
their steel products at levels below those that they could have otherwise
maintained.
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Non-U.S. U.S. steel producers face significant competition from certain
non-U.S. steel producers who may have lower labor costs. In addition, U.S. steel
producers may be adversely affected by fluctuations in the relationship between
the U.S. dollar and non-U.S. currencies. Furthermore, some non-U.S. steel
producers have been owned, controlled or subsidized by their governments, and
their decisions with respect to production and sales may be, or may have been in
the past, influenced more by political and economic policy considerations than
by prevailing market conditions. Some non-U.S. producers of steel and steel
products have continued to ship into the U.S. market despite decreasing profit
margins or losses, including steel companies affected by the current Asian
economic downturn. If certain relevant U.S. trade laws are weakened, world
demand for steel eases or the U.S. dollar strengthens, an increase in the market
share of imports may occur, which could adversely affect the pricing of the
Company's products. The costs for current and future environmental compliance
may place U.S. steel producers, including the Company, at a competitive
disadvantage with respect to non-U.S. steel producers, which are not subject to
environmental requirements as stringent as those in the United States.
Over the long-term, steel prices will be set by the lowest cost producers
and the lowest costs will be attained through the implementation of new
technologies. The flat rolled steel market provides strong evidence of this
downward trend in real steel prices due in part to decreasing costs. Recently
developed thin slab casting technologies, such as that utilized in the New
Facility, have allowed some mini-mill producers and other steel producers to
enter certain sectors of the flat rolled market which have traditionally been
supplied by integrated producers. Technological innovation is likely to continue
in the steel industry and producers will be required to achieve significant,
sustainable cost reductions to succeed. The Company's investment of
approximately $400 million (excluding capitalized interest and certain internal
costs) in the New Facility is expected to enable it to compete.
Special Grade Market. This component of the hot rolled market represents
the medium-carbon, high-carbon, HSLA and alloy markets. The total annual market
is approximately 3 million tons, of which Acme Steel's current share is
estimated by management to be 6% to 7%. Acme Steel's principal customer markets
are agricultural, industrial, tools, conversion, automotive components and
construction.
Low Carbon Hot Rolled Market. Low carbon hot rolled products comprise
approximately 20% to 25% of the U.S. steel market, or approximately 24 million
tons per year, of which the majority is in low-carbon sheet and strip. Acme
Steel's share is estimated by management to be less than 2%. The key end users
are automotive OEMs, automotive stampers, can and container manufacturers, the
construction industry, appliance makers, tubing manufacturers and steel service
centers.
Acme Steel's Competitive Position. For commercial sales to unaffiliated
customers, Acme Steel currently competes in the low-, mid- and high-carbon and
alloy steel markets. Acme Steel has numerous competitors composed principally of
steel service centers, a substantial portion of which use imported steel and, to
a lesser extent, other small integrated mills and mini-mills.
Acme Steel faces the same challenges as the rest of the steel industry. The
primary factors which have affected competition include price, quality,
delivery, performance and customer service. The Company believes that the New
Facility will significantly enhance its ability to compete in each of these
areas. In addition, the Company believes it is able to differentiate itself from
its competitors by focusing on niche markets and targeting customers with small
order sizes and special metallurgical requirements such as high carbon, alloy
and HSLA steel. See "Risk Factors--Competition."
COMPETITIVE CONDITIONS FOR THE STEEL FABRICATING SEGMENT
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 U.S. market share approximating that of Acme
Packaging. The Company believes 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 all of Acme Packaging's steel. The
steel strapping market, however, is a mature market that is not expected to grow
significantly in future years. Furthermore,
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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. As a result,
Acme Packaging is installing two plastic strapping manufacturing lines to
strengthen its competitive position in the marketplace. The new strapping lines
are expected to be operational in the second half of 1998.
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. To improve Alpha Tube's competitive
position, they have undertaken a consolidation project which will result in an
upgrade of tube mill diameter and capacity and the reduction of various
operating costs.
ENVIRONMENTAL COMPLIANCE
The operations of the Company are subject to numerous federal, state and
local laws and regulations governing the discharge of materials into the
environment, the handling, storage, transport and disposal of solid and
hazardous wastes and the remediation of certain waste disposal sites by
responsible parties for the protection of public health and the environment. In
addition, various federal and state occupational safety and health laws and
regulations apply to the work place environment. See "Business--Legal
Proceedings--Environmental" for a complete discussion of environmental
proceedings.
LEGAL PROCEEDINGS
GENERAL
Pursuant to an Agreement and Plan of Reorganization as of March 5, 1986,
the Company and The Interlake Company ("Interlake"), its former parent company,
entered into a Tax Indemnification Agreement ("TIA"). The TIA generally provides
for Interlake to indemnify the Company for certain tax matters. Per the TIA,
Interlake is solely responsible for any additional income taxes it is assessed
for 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 said term
is identified in the Reorganization documents), the Company is responsible for
taxes relating to "Timing Differences" related to the Company's "Continuing
Operations." A "Timing Difference" is defined generally as an adjustment to
income, deductions or credits which is required to be reported in a tax year
beginning subsequent to 1981 through the Spin-Off, but which will reverse in a
subsequent year. "Continuing Operations" is defined generally as any business
and operations conducted by the Company as of the Spin-Off date. Interlake is
principally responsible for any additional income taxes the Company is assessed
relating to all other adjustments prior to the Spin-Off.
On March 17, 1994, the Company received a Statutory Notice of Deficiency
("Notice") in the amount of $16.9 million in tax as a result of the Internal
Revenue Service's examination of the 1982 through 1984 tax years. During 1997,
Interlake and the Internal Revenue Service settled significantly all issues that
created the additional tax, reducing it to $5.1 million. Certain issues for the
tax years beginning 1984 through the Spin-Off remain unresolved. Interlake has
been principally responsible, pursuant to the TIA, for representing the Company
before the Internal Revenue Service for the 1982 through 1984 tax years.
Substantial interest could also be due (potentially in an amount greater than
the tax claimed). The taxes claimed relate principally to adjustments for which
the Company is indemnified by Interlake pursuant to the TIA. The Company has
adequate reserves to cover that portion of the tax for which it believes it may
be responsible per the TIA. The Company is contesting the unresolved issues and
the Notice.
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To date, Interlake has met its obligations under the TIA with respect to
all covered matters. In the event Interlake for any reason is unable to fulfill
its obligations under the TIA, the Company could have increased future
obligations.
The Company's subsidiaries also have various 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 or results of operations of the
Company.
ENVIRONMENTAL
In addition to the general matters noted above, the operations of the
Company and its subsidiary companies are subject to numerous federal, state and
local laws and regulations providing a comprehensive program of controlling the
discharge of materials into the environment and remediation of certain waste
disposal sites by responsible parties for the protection of public health and
the environment. Various federal and state occupational safety and health laws
and regulations also apply to the work place environment.
These current environmental control requirements are comprehensive and
continue to reflect a long-term trend towards increasing stringency as these
laws and regulations are subject to periodic renewal and revision. The Company
expects these requirements will continue to become even more stringent in future
years. The proposal of the U.S. Environmental Protection Agency ("U.S. EPA") for
revision of the National Ambient Air Quality Standards for particulate matter
and ozone are recent examples of this trend.
The Company, principally through its operating subsidiaries, is and, from
time to time in the future, will be involved in administrative proceedings
involving the issuance, or renewal, of environmental permits relating to the
conduct of its business. The final issuance of these permits is generally
resolved on terms satisfactory to the Company. In the future, the Company
expects such permits will be similarly resolved on satisfactory terms; however,
from time to time, the Company is required to pursue administrative and/or
judicial appeals prior to achieving a resolution of the terms of such permits.
The Company, from time to time, may be involved in administrative or
judicial proceedings with various regulatory agencies or private parties in
connection with claims that the Company's operations have violated certain
environmental laws, conditions of existing permits or with respect to the
disposal of materials at waste disposal sites. The resolution of such matters
may involve the payment of civil penalties, damages, remediation expenses and/or
the expenditure of funds to add or modify pollution control equipment.
The Company has made substantial capital investments in environmental
control facilities to achieve compliance with these laws, incurring expenditures
of $6.8 million for environmental projects (exclusive of any such expenditures
related to the New Facility) in the period from 1995 through 1997. The New
Facility was constructed under a lump sum fixed price contract of which it is
estimated that $9.8 million was capitalized in 1996 for environmental compliance
excluding capitalized interest. A nominal amount was expended during 1997 to
maintain environmental compliance. The Company anticipates making further
capital expenditures of approximately $3.9 million for environmental projects
during 1998. 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 operating subsidiary companies are affected by these laws and
regulations, similar to other steel manufacturing operations, they have had, and
are expected to continue to have, a greater impact upon the Company's steel
manufacturing subsidiary than on the Company's other operating subsidiaries.
Waste Remediation Matters. Pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986, 42 U.S.C., Section 9601 et seq.
("Superfund") and similar state statutes, liability for remediation of property,
including waste disposal sites, contaminated by hazardous materials may be
imposed on present and former owners or operators of such property and
generators or transporters of such materials to a waste disposal site (i.e.,
Potentially Responsible Parties, "PRPs"). The Company and its operating
subsidiaries have been named as PRPs with respect to several such sites. In each
instance, the Company's investigation has evidenced either: i) the Company had
not disposed of waste materials at the site and was not properly named as a PRP;
or,
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ii) the Company's proportion of materials disposed of at such sites is of
sufficiently small volume to qualify the Company as a de minimis contributor of
waste material at such sites. This de minimis status has been confirmed at
essentially all of the applicable sites.
Although no assurances can be given that new information will not be
uncovered which would cause the Company and 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 existing sites will not be material.
In addition to the foregoing Superfund sites, the following waste
remediation matters relating to the Company's subsidiary companies are currently
pending:
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 storm water 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 plant for coverage under the Alabama Department of Environmental
Management's ("Alabama DEM's") General Storm Water 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 indicated 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 the Company on March 29, 1989; and, pursuant to
the terms of the purchase and sale agreements relating to this property, the
seller is responsible for remediating any lead or other contaminants located on
this property. Without admitting or denying its liability, the seller has
retained a consultant to conduct a full investigation, sampling and analysis of
the property.
During the first quarter of 1998, Acme Packaging and seller entered into an
agreement to share the costs to remediate the lead contamination at the Leeds
plant site consistent with the Alabama DEM's regulations. The Company presently
believes, based upon contractor estimates, that Acme Packaging's share of the
total costs for this remediation activity will not be material.
ADMINISTRATIVE AND LITIGATION MATTERS
The Company, or its operating subsidiaries are currently involved in the
following matters relating to administrative regulations which affect, or may
affect, the operations, the permits or the issuance of permits; or litigation
relating to the Company:
Acme Steel Company--NPDES Permit. In 1991, the Illinois Environmental
Protection Agency ("IEPA"), issued 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 storm water
discharge limitations. Acme filed an appeal of certain conditions of the permit
with the Illinois Pollution Control Board ("IPCB"); and on July 7, 1995 the IPCB
granted Acme Steel's Petition for an Adjusted Standard and relief from the
temperature limitations. Subsequent to the IPCB's decision, Acme Steel and IEPA
engaged in negotiations to resolve these permit conditions; and, through
modification of certain provisions in the permit and the implementation of best
management practices, Acme Steel anticipated achieving control of Acme Steel's
storm water discharge to an extent that it will achieve compliance with other
permit conditions. On September 13, 1996, Acme Steel received IEPA's new revised
draft NPDES permit. Although this revised draft permit resolved all prior
issues, it included for the first time additional discharge limits and
biomonitoring requirements for certain chemicals used in the plant's water
treatment system. On June 10, 1997, IEPA issued a draft final NPDES permit for
Acme Steel's comment. Acme Steel and the IEPA continued to exchange data and
comments regarding the interpretation of certain of the revised terms and
conditions of this final
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permit; and, in November, 1997 concluded all issues regarding the terms and
conditions of the permit to Acme Steel's satisfaction. The new NPDES permit
expires May 31, 2002.
Acme Steel Company--Revised Construction Permit for New Facility. Acme
Steel filed a revised construction permit application with the IEPA to correct
certain operating assumptions underlying the original construction permit issued
by IEPA on March 4, 1994. IEPA issued the revised construction permit and
published notice for public comment and hearing on December 18, 1997 in a form
acceptable to Acme Steel. Acme Steel has been advised by IEPA that the U.S. EPA
has raised certain questions with IEPA regarding several of the revised terms of
this revised construction permit. The IEPA and U.S. EPA, with additional
information supplied by Acme Steel, continue to discuss these questions. Acme
Steel believes the revised permit will ultimately be issued by IEPA and approved
by U.S. EPA in a form and with revised terms acceptable to Acme Steel. No
assurances can be given however that any changes required by U.S. EPA to the
revised construction permit issued by will be acceptable to Acme Steel, or that
a delay or failure by IEPA to issue the revised construction permit previously
agreed to by Acme Steel would not have a material adverse effect on Acme Steel's
operations.
Removal Credits and Pretreatment. The Metropolitan Water Reclamation
District of Greater Chicago ("MWRD") is a publicly owned treatment works
("POTW"). The MWRD applied to the U.S. EPA for authority to revise categorical
pretreatment standards to reflect the actual treatment provided by the MWRD for
waste water discharged to the MWRD's POTW by industrial users ("Removal
Credits"). These revised categorical standards, reflecting Removal Credits are
essential for 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, 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 phenol 4AAP, either as a result of the petition
filed by the MWRD or independently, the MWRD may then resubmit its application.
Acme Steel, together with a similarly situated steel company, filed
Comments and a Request for Reconsideration and Clarification concerning the 4AAP
phenol component of U.S. EPA's Standards for Disposal of Sludges with the U.S.
EPA and filed a Petition for Review of the U.S. EPA's decision with the Court of
Appeals for the DC Circuit. Both the Comments and Request for Reconsideration
and the Petition for Review are pending. The steel companies filed a motion with
the DC Circuit Court to stay the appeal pending U.S. EPA's consideration of the
Comments and Administrative Request for Reconsideration and Clarifications. The
Court granted this Motion on September 14, 1994. On September 10, 1996 Acme
Steel filed, along with the other steel company, with U.S. EPA a phenol risk
assessment document supporting the granting of Removal Credits for 4AAP phenol.
To date, there has been no decision by U.S. EPA. Acme Steel continues to
challenge the U.S. EPA's denial of the Removal Credits application and pursue
administrative and legal remedies. U.S. EPA is currently preparing a proposed
administrative rule intended to address the Removal Credits issue, however, at
this time Acme Steel is unable to determine whether such an administrative rule,
if promulgated and adopted, will adequately address Acme Steel's 4AAP phenol
Removal Credits issues. Acme Steel could be subject to allegations it is in
violation of currently applicable pretreatment standards and could be required
to negotiate appropriate resolutions with the U.S. EPA and the MWRD resulting in
the payment of penalties if its administrative and/or legal challenges are
unsuccessful. In the event Acme Steel is unsuccessful in its challenge of U.S.
EPA's actions, capital expenditures required to bring its discharges to the MWRD
into compliance with the current applicable pretreatment standards were
estimated to be approximately $6 million in 1994.
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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.
Illinois State Implementation Plan for Particulates. Acme Steel, together
with other Illinois steel companies, engaged in extensive discussions with the
IEPA leading to the development of regulations governing the emissions of
particulate matter from various steel manufacturing facilities operated by Acme
Steel and others. These regulations were submitted to the U.S. EPA for approval
as part of IEPA's State Implementation Plan ("SIP").
On November 18, 1994, the U.S. EPA conditionally approved these
regulations. The conditions imposed by the U.S. EPA for this SIP approval
required a commitment by the IEPA to adopt more stringent rules for various
sources at Acme Steel and other steel companies. Acme Steel, together with other
steel companies, filed a Petition for Review of U.S. EPA's action in the U.S.
Court of Appeals for the Seventh Circuit on January 4, 1995 (Docket No.
95-1025).
The steel companies, including Acme Steel, are engaged in discussions with
the U.S. EPA and the IEPA regarding the need for these more stringent rules and
what additional particulate emission controls, if any, may be appropriate or
required under Federal law. These discussions and the Petition for Review are
pending and no estimate can be made when U.S. EPA and IEPA will resolve these
issues or whether additional emission controls will be required or the cost of
such controls at this time.
Acme Steel Company-Melt Shop Desulfurization Fugitive and Coke Plant
Pushing Emissions. Following internal reviews of current desulfurization
requirements, Acme Steel determined that existing environmental controls for
desulfurizing molten iron at its Riverdale, Illinois, melt shop were not
satisfactory for the control of fugitive emissions from this process in view of
the higher percentage of molten iron needing desulfurization as a result of
increased market place demands for lower sulfur content in finished steel goods
sold by Acme Steel and future melt shop operations when the New Facility is
operational.
Acme Steel, after completion of its internal review and preliminary
engineering evaluation, requested a meeting and began discussions with the U.S.
EPA and IEPA in August 1994 regarding an improved fugitive emission control
program. During these discussions, concerns were raised regarding fugitive
emissions from the iron transfer station and Acme Steel included this operation
in its new emission control system. The cost of this emission control system,
which was completed in the first quarter of 1996, was approximately $2.8
million.
Although discussions were ongoing with the U.S. EPA and installation of the
new melt shop iron desulfurization, iron transfer and skimming emission control
system was nearing completion, on February 7 and March 1, 1996 U.S. EPA issued
two Notices of Violation ("NOV") seeking penalties for past violations and for
any economic benefit which may have accrued to Acme Steel by reason of a delay
in achieving compliance with fugitive emission regulations for the iron
desulfurization and transfer operations at the melt shop and pushing emissions
at the Coke Plant under U.S. EPA's civil penalties policies. On April 10, 1996,
a civil action was filed by the U.S. Attorney on behalf of U.S. EPA (U.S. vs.
Acme Steel Company, U.S. Dist. C. N.D. Ill. E.D., Case No. 96 C 2076) seeking
recovery of civil penalties with respect to emissions from its Riverdale steel
plant melt shop. During the fourth quarter of 1997 Acme Steel and the U.S.
Attorney's office in Illinois and Region V of U.S. EPA reached agreement upon
the terms and conditions of a settlement of this civil action, subject to review
and approval by the Department of Justice and U.S. EPA headquarters in
Washington, D.C. Under the terms of the settlement agreement, Acme Steel has
agreed to pay a civil penalty in the amount of $410,000 and to construct a
supplemental environmental project ("SEP") in the amount of $2.8 million. The
settlement agreement has been signed by U.S. EPA and lodged with the Court.
Following the administrative procedures for receiving and responding to public
comment, on May 5, 1998 the Court signed and entered the consent decree, without
modification, as a final order in this case.
Bay Point, California--California Proposition 65--Lead. On June 10, 1996,
after service of a 60-day notice of intent to file suit, Communities for a
Better Environment ("CBE") filed an action in the Superior Court of Contra Costa
County, California (Communities for a Better Environment vs. Acme Packaging
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Corporation, et al., Case No. 96-02505) seeking injunctive and declaratory
relief and civil penalties based on Acme Packaging's alleged failure to warn
residents near the plant of exposure to lead emissions from the Bay Point plant
("Proposition 65").
On February 18, 1998 the Court signed and entered an Order in this case
approving a settlement agreement between Acme Packaging and CBE pursuant to
which Acme Packaging agreed to install air pollution control equipment meeting a
specified lead emission limitation commencing within 120 days following issuance
of a permit to construct, pay CBE the sum of $35,000 for CBE's use in its
efforts to further reduce toxic pollution in California and the sum of $175,000
for CBE's costs and attorney's fees.
OTHER MATTERS
1986 Reorganization Matters. Pursuant to an Agreement and Plan of
Reorganization dated as of March 5, 1986, (the "Reorganization") between the
Company and Interlake, both parties entered into a Cross-Indemnification
Agreement, dated May 29, 1986, (the "Agreement") more specifically described in
Exhibit 10.2 to the Company's Annual Report/Form 10-K filed with the U.S.
Securities Exchange Commission for the fiscal year 1992.
Pursuant to the terms of this Agreement, for a period of ten (10) years
following the date of the Spin-Off (as said term is identified in the
Reorganization documents), the Company undertook to defend, indemnify and hold
Interlake and its affiliates harmless from and against any and all Claims, as
that term is defined in the Agreement, occurring either before or after the date
of the Reorganization and which arose out of or are related to the Acme
Business, as that term is defined in the Agreement. The Acme Business is more
specifically defined in the Agreement as the iron and steel and domestic U.S.
steel strapping business as conducted by the Company on or about May 29, 1986.
Similarly, and for the same period of time, Interlake undertook to defend,
indemnify and hold the Company and its affiliates harmless from and against all
Claims, as that term is defined in the Agreement, occurring either before or
after the date of the Reorganization related to the operation of all businesses
and properties currently owned, directly or indirectly, by Interlake or any
subsidiary of Interlake (other than the Company and its affiliates) and relating
to the Transferred Property, as that term is defined in the Reorganization
Agreement (but excluding the Acme Business), and, any business and properties
discontinued or sold by Interlake Inc. prior to May 29, 1986, including any
discontinued or sold businesses or property which, if continued, would be part
of the Acme Business. The indemnification by Interlake with respect to any
Claims incurred in connection with or arising out of or related to the Interlake
Business, as that term is defined more specifically in the Agreement, includes
but is not limited to environmental matters relating to the Interlake Businesses
whether brought by governmental agencies or private entities. These
environmental matters include, without limitation, the lawsuit captioned People
of the State of Illinois v. Waste Management of Illinois, Interlake, Inc. and
First National Bank of Western Springs, Circuit Court of Cook County, Illinois
(No. 85 L 30162); the disposal of materials at the landfill operated by
Conservation Chemical located at Gary, Indiana, to the extent such materials
originated at the plant of Gary Steel Company; and, operation of facilities by
predecessors of Interlake, Inc. at Duluth, Minnesota.
Pursuant to this Agreement, Interlake has provided the defense and paid all
costs in the matter of City of Toledo v. Beazer Materials and Services, Inc.,
Successor-in-interest to Koppers Company, Inc., Toledo Coke Corporation, The
Interlake Corporation, successor-in-interest to Interlake, Inc., The Interlake
Companies, Inc., successor-in-interest to Interlake, Inc., Acme Steel Company,
Successor-in-interest to Interlake, Inc., United States District Court, Northern
District of Ohio, Western Division, Case No. 90 CV 7344, which is an action for
declaratory and injunctive relief by the City of Toledo (the "City") to recover
its past and future costs and damages associated with the presence of and
release of hazardous substances, hazardous wastes, solid waste, industrial waste
and other waste at or about approximately 1.7 acres of property located on Front
Street in Toledo, Ohio which the City acquired from Toledo Coke Corporation for
road widening purposes (the "Site"). On September 30, 1996, the City, Beazer
East, Inc. (successor-in-interest to Beazer Materials and Services, Inc./Koppers
Company, Inc.) and the Toledo-Lucas County Port Authority entered into an
agreement regarding the completion and funding of roadwork and related
environmental work; and, the City,
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Beazer East, Inc. and the Interlake Defendants (Acme Steel Company, The
Interlake Corporation and The Interlake Companies, Inc.) entered into a
settlement agreement wherein the City released Beazer East, Inc. and the
Interlake Defendants from all claims and agreed to dismiss the City's action
against these defendants. On October 10, 1996, the Court entered a consent order
dismissing with prejudice all of the City's claims. The Court did not dismiss
the cross-claims pending between Beazer East, Inc. and the Interlake Defendants.
In November 1995, the Court granted the Interlake defendants' motion for summary
judgment seeking indemnification by Beazer East, Inc. for any environmental
liabilities owed to the City. Beazer filed its appeal of this decision. On
November 22, 1996, the U.S. Sixth Circuit Court of Appeals reversed the District
Court's summary judgment order in favor of the Interlake Defendants and remanded
the indemnification issue back to the District Court for trial. During the
fourth quarter of 1997, the Company was advised that Interlake, on behalf of all
of the Interlake Defendants, and Beazer East, Inc. entered into a settlement
agreement resolving all of the cross-claims between the parties. The settlement
agreement releases the Interlake Defendants from the cross-claims asserted in
the Beazer East, Inc. Cross-claims with respect to the Site and the Interlake
Defendants agreed to indemnify and hold harmless Beazer East, Inc. for certain
claims regarding materials transported off the Site by any Interlake Defendants
prior to acquisition of the Site by Beazer East, Inc.
Interlake also has and continues to provide indemnification to the Company
for the Duluth, Minnesota, facility which has been designated as a Superfund
Site pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. Section 9601, et seq. (the "Duluth
Site"). Interlake's estimate, obtained from publicly filed documents, of the
potential remediation costs of contaminated soils pursuant to a plan approved on
September 25, 1995 by the Minnesota environmental agency ("MPCA"). Interlake
reported the soil remediation was substantially completed in 1997. The MPCA also
requested Interlake to investigate and evaluate remediation alternatives for the
underwater sediments at the Duluth Site. Interlake reports that consultants have
substantially completed an investigation of the sediments; and, based on this
investigation Interlake has commenced reviewing potential remediation
alternatives with MPCA and other parties. Interlake indicates it is unable to
provide meaningful estimates of the potential cost estimates of such
remediation, if any is deemed appropriate, until the investigation is complete
and remediation alternatives are reviewed with the MPCA.
In March 1996, the MPCA named the successors of certain coal tar processors
as additional parties responsible for a portion of the underwater sediments at
the Duluth Site.
To date, Interlake has met its obligations under the Cross-Indemnification
Agreement with respect to all matters covered therein affecting the Company,
including those matters related to litigation and environmental matters. The
Company does not have sufficient information to determine the potential
liability of the Company, if any, for the matters covered by the Agreement in
the event Interlake fails to meet its obligations thereunder in the future. In
the event Interlake, for any reason, was unable to fulfill its obligations under
the Cross-Indemnification Agreement, the Company could have increased future
obligations which could be significant.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages as of
May 14, 1998 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>
Stephen D. Bennett................... 49 President and Chief Executive Officer, Director
Derrick T. Bay....................... 50 Controller and Chief Accounting Officer
Robert W. Dyke....................... 51 Senior Vice President - Fabricating and President of
Acme Packaging Corporation
James W. Hoekwater................... 51 Treasurer
James N. Howell...................... 56 Senior Vice President - Steel and President of Acme
Steel Company
Gerald J. Shope...................... 55 Vice President - Human Resources
Edward P. Weber, Jr. ................ 60 Vice President, General Counsel and Secretary
Jerry F. Williams.................... 58 Vice President - Finance and Administration and Chief
Financial Officer
Brian W. H. Marsden.................. 66 Chairman, Director
Buddy W. Davis....................... 68 Director
Andrew R. Laidlaw.................... 51 Director
John T. Lane......................... 56 Director
Frank A. LePage...................... 70 Director
Reynold C. MacDonald................. 79 Director
Allan L. Rayfield.................... 63 Director
William P. Sovey..................... 64 Director
L. Frederick Sutherland.............. 46 Director
William R. Wilson.................... 71 Director
</TABLE>
Stephen D. Bennett. Mr. Bennett has been President and Chief Executive
Officer of the Company since April 15, 1996. Prior to that date, he was
President and Chief Operating Officer of the Company from January 1, 1993
through April 15, 1996, and Group Vice President of the Company from May 1992
through December 1992. From January 1992 to May 1992, Mr. Bennett was Group Vice
President of Acme Steel Company, and from June 1990 through December 1991, he
served as Vice President - Operations of Acme Steel Company. Mr. Bennett served
as General Manager of Fairfield Works, USS Division of USX Corporation (an
integrated steel producer) from December 1987 through May 1990. Mr. Bennett has
served as a Director of the Company since January 1993.
Derrick T. Bay. Mr. Bay has been Controller and Chief Accounting Officer of
the Company since January 19, 1998. Prior to that date, he was Vice President -
Finance of Acme Steel Company from January 1992 to January 18, 1998. From
September 1989 to January 1992 he was Director of Operational Accounting of Acme
Steel Company. Mr. Bay is a Certified Public Accountant.
Robert W. Dyke. Mr. Dyke has served as Senior Vice President - Fabricating
of the Company since February 1, 1998. Prior to that date, he was Group Vice
President of the Company from August 28, 1997 to January 31, 1998. Mr. Dyke has
been President of Acme Packaging since January 1993. From March 1988 to December
1992, he was Controller of Acme Steel Company. For the fifteen years prior to
1988, Mr. Dyke served in a number of financial positions at Interlake.
James W. Hoekwater. Mr. Hoekwater has served as Treasurer of the Company
since July 1, 1994. From December 1989 through March 1994, he was Corporate
Controller of ITT Rayonier, Inc., a subsidiary of ITT Corporation with
approximately $1 billion in yearly sales (a producer of pulp and wood products).
Mr. Hoekwater is a Certified Public Accountant.
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James N. Howell. Mr. Howell has served as Senior Vice President - Steel of
the Company and President of Acme Steel Company since February 1, 1998. From
September 1, 1997 to January 31, 1998, he was Executive Vice President of Acme
Steel Company. Mr. Howell was Senior Vice President and Chief Operating Officer
of National Steel Company from 1993 to 1994 and Vice President of National Steel
Company from 1975 to 1993.
Gerald J. Shope. Mr. Shope has been Vice President-Human Resources of the
Company since April 1, 1995, and was Vice President-Human Resources of Acme
Steel Company from January 1, 1992 through March 31, 1995. From June 1986 to
December 1991, he was Director-Human Resources of Acme Steel Company.
Edward P. Weber, Jr. Mr. Weber has been Vice President, General Counsel and
Secretary of the Company since May 25, 1992. Prior to that date, he was Vice
President, General Counsel and Secretary of Acme Steel Company from June 1986
through May 25, 1992. Prior to joining the Company in 1986, Mr. Weber held
positions in private practice and elsewhere in the steel industry.
Jerry F. Williams. Mr. Williams has been Vice President-Finance and
Administration and Chief Financial Officer of the Company since May 25, 1992.
From May 1986 to May 25, 1992 he was Vice President-Finance and Administration
and Chief Financial Officer of Acme Steel Company. 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.
Brian W. H. Marsden. Mr. Marsden has served as Chairman of the Company
since January 1, 1993, and also served as Chief Executive Officer of the Company
from January 1, 1993 to April 15, 1996. From May 1992 to December 1992, Mr.
Marsden was Chairman, President and Chief Executive Officer of the Company. He
was President and Chief Executive Officer of Acme Steel Company from June 1986
to May 1992. 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.
Buddy W. Davis. Mr. Davis has served as a Director of the Company since
June 1996. From 1977 to 1993, he was District 34 Director of the United
Steelworkers of America, AFL-CIO-CLC.
Andrew R. Laidlaw. Mr. Laidlaw has served as a Director of the Company
since May 1987 and has been the Chairman of the Executive Committee or Partner
at the firm of Seyfarth, Shaw, Fairweather & Geraldson (law firm) since 1978.
John T. Lane. Mr. Lane has served as a Director of the Company since April
1997. He served as Managing Director and Head of U.S. Private Banking of J.P.
Morgan & Co. (investment banking firm) from 1990 to 1994 and in various other
positions at J.P. Morgan & Co. from 1973 to 1990 and has been an Organizational
Consultant since 1995.
Frank A. LePage. Mr. LePage has served as a Director of the Company since
May 1987. He retired in 1982 as a director and Executive Vice President of the
Firestone Tire & Rubber Company (manufacturer of tires and related products).
Reynold C. MacDonald. Mr. MacDonald has served as a Director of the Company
since June 1986. He was Chairman of the Board of Acme Steel Company from June
1986 to May 1992. He is also a director of ARAMARK Corporation (diversified
services management company) and Kaiser Ventures, Inc.
Allan L. Rayfield. Mr. Rayfield has served as a Director of the Company
since April 1996. He was Chief Executive Officer and Director of M/A Com, Inc.
(microwave manufacturer) from November 1993 to December 1994, and President and
Chief Operating Officer and Director of M/A Com, Inc. from March 1991 to
November 1993. From April 1990 to March 1991, he was Chairman of the Board and
Chief Executive Officer of International Telecharge Inc. (telecommunications
operator service company). He is also a director of Parker-Hannifin Corporation
and Arch Communications Group, Inc.
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William P. Sovey. Mr. Sovey has served as Director of the Company since
June 1991. He has been Chairman of the Board of Newell Co. (manufacturing and
marketing company for high volume hardware and housewares, office and industrial
products) since January 1, 1998. Mr. Sovey was Vice Chairman of the Board and
Chief Executive Officer of Newell Co. from 1992 to December 31, 1997. From 1986
to 1992, he served as President and Chief Operating Officer of Newell Co. He is
also a director of Teco Energy, Inc.
L. Frederick Sutherland. Mr. Sutherland has served as a Director of the
Company since January 1995. Since May 1997, he has served as Executive Vice
President and Chief Financial Officer of ARAMARK Corporation. From April 1993 to
May 1997, he was President of the Uniform Services Group of ARAMARK Corporation,
from February 1991 to April 1993, he served as Senior Vice President, Finance of
ARAMARK Corporation, and from August 1988 to February 1991, he served as Vice
President of Corporate Finance and Development of ARAMARK Corporation.
William R. Wilson. Mr. Wilson has served as a Director of the Company since
July 1992. He retired as Chairman of the Board and Chief Executive Officer of
Lukens Inc. (manufacturer and seller of plate steel and stainless steel
products) in December 1991. From April 1981 to December 1991, he served as
Chairman of the Board and Chief Executive Officer of Lukens Inc. He is also a
director of Columbia Gas System, Inc. and Provident Mutual Life Insurance
Company.
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DESCRIPTION OF NEW NOTES
The Old Notes were, and the New Notes will be, issued under an Indenture,
dated as of December 18, 1997, between the Company, as issuer, and Harris Trust
and Savings Bank (the "Trustee"). A copy of the Indenture is available upon
request from the Company. The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part thereof by the
Trust Indenture Act of 1939, as amended. Whenever particular defined terms of
the Indenture not otherwise defined herein are referred to, such defined terms
are incorporated herein by reference. For definitions of certain capitalized
terms used in the following summary, see "--Certain Definitions." The Old Notes
and New Notes are herein referred to collectively as the "Notes."
The New Notes will be issued solely in exchange for an equal principal
amount of Old Notes pursuant to the Exchange Offer. The terms of the New Notes
will be the same in all material respects as the form and terms of the Old Notes
except that (i) interest thereon will accrue from the last date on which
interest was paid on the Old Notes or, if no such interest has been paid, from
December 18, 1997, (ii) the New Notes will not contain restrictions on transfer
and (iii) the New Notes will not contain provisions relating to an increase in
their interest rate under certain circumstances. The New Notes will evidence the
same debt as the Old Notes and will be treated as a single class under the
Indenture with any Old Notes that remain outstanding.
GENERAL
The Old Notes are, and the New Notes will be, unsecured senior obligations
of the Company, initially limited to $200 million aggregate principal amount,
and will mature at par on December 15, 2007. The Old Notes bear interest at
10 7/8% per annum from the Closing Date or from the most recent Interest Payment
Date to which interest has been paid or provided for, payable semiannually (to
Holders of record at the close of business on the June 1 or December 1
immediately preceding the Interest Payment Date) on June 15 and December 15 of
each year, commencing June 15, 1998. The interest rate on the Old Notes is
subject to increase in certain circumstances as described under "--Registration
Rights Agreement." The New Notes will bear interest at 10 7/8% per annum from
the last day on which interest was paid on the Old Notes or, if no such interest
has been paid, from December 18, 1997, or from the most recent Interest Payment
Date to which interest has been paid or provided for, payable semi-annually (to
Holders of record at the close of business on the June 1 or December 1
immediately preceding the Interest Payment Date) on June 15 and December 15 of
each year, commencing December 15, 1998.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, the City of New York (which initially will
be the corporate trust office of the Trustee or its affiliate at 88 Pine Street,
19th Floor, New York, New York 10005, Attention: Corporate Trust and Agency
Group); provided that, at the option of the Company, payment of interest may be
made by check mailed to the Holders at their addresses as they appear in the
Security Register.
The New Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 of principal amount and any integral
multiple thereof. No service charge will be made for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any transfer tax or other similar governmental charge
payable in connection therewith.
Subject to the covenants described below under "Covenants" and applicable
law, the Company may issue additional Notes under the Indenture. The New Notes
offered hereby and any additional Notes subsequently issued would be treated as
a single class for all purposes under the Indenture.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part,
at any time or from time to time, on or after December 15, 2002 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's last address as it appears in the Security
Register, at the
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following Redemption Prices (expressed in percentages of principal amount), plus
accrued and unpaid interest, if any, to the Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date that is on or
prior to the Redemption Date to receive interest due on an Interest Payment
Date), if redeemed during the 12-month period commencing December 15, of the
years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2002........................................................ 105.438%
2003........................................................ 102.719
2004 and thereafter......................................... 100.000
</TABLE>
In addition, at any time prior to December 15, 2000, the Company may redeem
up to 35% of the principal amount of Notes with the proceeds from one or more
Public Equity Offerings, at any time as a whole or from time to time in part, at
a redemption price (expressed as a percentage of principal amount) of 110.0%;
provided that after any such redemption at least $125 million aggregate amount
of Notes remains outstanding.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not listed on a national securities exchange, by lot
or by such other method as the Trustee in its sole discretion shall deem to be
fair and appropriate; provided that no Note of $1,000 in principal amount or
less shall be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
SINKING FUND
There will be no sinking fund payments for the Notes.
GUARANTEE
The Company's obligations under the Notes are fully and unconditionally
guaranteed on a senior unsecured basis by Acme Steel; provided that such
guarantee shall not be enforceable against Acme Steel in an amount in excess of
the net worth of Acme Steel at the time that determination of such net worth is,
under applicable law, relevant to the enforceability of such guarantee.
RANKING
The Indebtedness evidenced by the Old Notes ranks, and the New Notes will
rank, pari passu in right of payment with all existing and future unsubordinated
and unsecured indebtedness of the Company and senior in right of payment to all
existing and future subordinated indebtedness of the Company. As of March 29,
1998, the Company had (on an unconsolidated basis and excluding intercompany
payables) approximately $216.4 million of indebtedness other than the Old Notes,
all of which is secured. The 1994 Indentures, the Senior Secured Credit
Agreement and the Working Capital Facility together are secured by substantially
all of the assets of the Company and its subsidiaries. The Old Notes are and the
New Notes will be, effectively subordinated to such indebtedness to the extent
of such security interests. The Old Notes are, and the New Notes will be,
guaranteed on a senior, unsecured basis by Acme Steel. However, all existing and
future liabilities (including trade payables) of the Company's subsidiaries,
other than Acme Steel, will be effectively senior to the Notes. As of March 29,
1998, the Company's subsidiaries had approximately $188.6 million of liabilities
excluding intercompany payables (including $6.0 million of indebtedness), none
of which is secured. See "Risk Factors--Substantial Indebtedness; Access to
Capital; Covenant Restrictions" and "--Holding Company Structure; Priority of
Secured Debt."
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
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"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by the Company or a Restricted Subsidiary and not Incurred in
connection with, or in anticipation of, such Person becoming a Restricted
Subsidiary or such Asset Acquisition; provided that Indebtedness of such Person
which is redeemed, defeased, retired or otherwise repaid at the time of or
immediately upon consummation of the transactions by which such Person becomes a
Restricted Subsidiary or such Asset Acquisition shall not be Acquired
Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income of any Person (other than Wabash and the joint venture in
connection with the NACME Facility) that is not a Restricted Subsidiary, except
to the extent of the amount of dividends or other distributions actually paid to
the Company or any of its Restricted Subsidiaries by such Person during such
period; (ii) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described below (and in such case,
except to the extent includable pursuant to clause (i) above), the net income
(or loss) of any Person accrued prior to the date it becomes a Restricted
Subsidiary or is merged into or consolidated with the Company or any of its
Restricted Subsidiaries or all or substantially all of the property and assets
of such Person are acquired by the Company or any of its Restricted
Subsidiaries; (iii) the net income of any Restricted Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by the
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Restricted Subsidiary; (iv) any gains or losses (on an after-tax basis)
attributable to Asset Sales; (v) except for purposes of calculating the amount
of Restricted Payments that may be made pursuant to clause (C) of the first
paragraph of the "Limitation on Restricted Payments" covenant described below,
any amount paid or accrued as dividends on Preferred Stock of the Company or any
Restricted Subsidiary owned by Persons other than the Company and any of its
Restricted Subsidiaries; and (vi) all extraordinary gains and extraordinary
losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its Restricted
Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, all as set forth on the most recent quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries,
prepared in conformity with GAAP and filed with the Commission or provided to
the Trustee pursuant to the "Commission Reports and Reports to Holders"
covenant.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person; provided that an Affiliate of the Company or any of
its Restricted Subsidiaries shall not include (i) Wabush, (ii) NACME or (iii)
any other Restricted Subsidiary. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries; provided that such Person's
primary business is related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such investment or (ii)
an acquisition by the Company or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute all or substantially all of a division
or line of business of such Person; provided that
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the property and assets acquired are related, ancillary or complementary to the
businesses of the Company and its Restricted Subsidiaries on the date of such
acquisition.
"Asset Disposition" means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary or (ii) all or substantially all of the assets that
constitute a division or line of business of the Company or any of its
Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one transaction
or a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets (other than the Capital Stock or other
Investment in an Unrestricted Subsidiary) of the Company or any of its
Restricted Subsidiaries outside the ordinary course of business of the Company
or such Restricted Subsidiary and, in each case, that is not governed by the
provisions of the Indenture applicable to mergers, consolidations and sales of
assets of the Company; provided that "Asset Sale" shall not include (a) sales or
other dispositions of inventory, receivables and other current assets, (b)
sales, transfers or other dispositions of assets constituting a Restricted
Payment permitted to be made under the "Limitation on Restricted Payments"
covenant, (c) sales, transfers or other dispositions of assets with a fair
market value not in excess of $1.0 million in any transaction or series of
related transactions or (d) sales or other dispositions of assets for
consideration at least equal to the fair market value of the assets sold or
disposed of, to the extent that the consideration received would satisfy clause
(B) of the "Limitation on Asset Sales" covenant.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Borrowing Base" means, with respect to the Company and its Restricted
Subsidiaries, the Borrowing Base as defined in (i) the Working Capital Facility
so long as such definition is based on percentages of accounts receivable and
inventories and if such definition is not based on accounts receivable and
inventories, then (ii) the Amended and Restated Credit Agreement to be dated as
of December 18, 1997 among the Company, Harris Trust and Savings Bank, as agent,
The First National Bank of Chicago, as co-agent, and the lenders thereto, as
amended on the Closing Date.
"Capital Expenditure" means expenditures (whether paid in cash or accrued
as liabilities and including Capital Lease Obligations) of the Company and its
Restricted Subsidiaries relating to the acquisition of equipment used or useful
in the business of the Company or any Restricted Subsidiary.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.
"Change of Control" means such time as (i) a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the
ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
more than 35% of the total voting power of the Voting Stock of the Company on a
fully diluted basis; or (ii) individuals who on the Closing Date constitute the
Board of Directors (together with any new directors whose election by the Board
of Directors or whose nomination by
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the Board of Directors for election by the Company's stockholders was approved
by a vote of at least two-thirds of the members of the Board of Directors then
in office who either were members of the Board of Directors on the Closing Date
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the members of the Board of Directors
then in office.
"Closing Date" means the date on which the Old Notes were originally issued
under the Indenture.
"Commodity Agreement" means forward contracts, options, future contracts,
future options or similar agreements or arrangements entered into by the Company
or any of its Restricted Subsidiaries to protect the Company or any of its
Restricted Subsidiaries from fluctuations in the price of iron, iron ore,
natural gas, oil, coal or any other commodity of a nature or type that is used
in the business of the Company and its Restricted Subsidiaries existing on the
date any such agreements or arrangements are entered into.
"Company" means Acme Metals Incorporated.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income, (i) Consolidated Interest
Expense, (ii) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary and non-recurring gains or losses or
sales of assets), (iii) depreciation expense, (iv) amortization expense and (v)
all other non-cash items reducing Adjusted Consolidated Net Income (other than
items that will require cash payments and for which an accrual or reserve is, or
is required by GAAP to be, made), less all non-cash items increasing Adjusted
Consolidated Net Income, all as determined on a consolidated basis for the
Company and its Restricted Subsidiaries in conformity with GAAP; provided that,
if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in
accordance with GAAP) by an amount equal to (A) the amount of the Adjusted
Consolidated Net Income attributable to such Restricted Subsidiary multiplied by
(B) the percentage ownership interest in the income of such Restricted
Subsidiary not owned on the last day of such period by the Company or any of its
Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by the Company and its Restricted Subsidiaries during such
period; excluding, however, (i) any amount of such interest of any Restricted
Subsidiary if the net income of such Restricted Subsidiary is excluded in the
calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the
definition thereof (but only in the same proportion as the net income of such
Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated
Net Income pursuant to clause (iii) of the definition thereof), (ii) any
premiums, fees and expenses (and any amortization thereof) payable in connection
with the offering of the Notes, the consummation of the Credit Agreement and any
amendment to the Working Capital Facility and in connection with any financing
for Phase II to the extent permitted under the "Limitation on Indebtedness"
covenant described below, all as determined on a consolidated basis (without
taking into account Unrestricted Subsidiaries) in conformity with GAAP and (iii)
the interest portion of any amount deposited with the trustee to defease any
outstanding 1994 Notes pursuant to the 1994 Indentures.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Disqualified Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its Restricted Subsidiaries, each item to
be determined in conformity with GAAP (excluding the
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effects of foreign currency exchange adjustments under Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 52).
"Credit Agreement" means the credit agreement entered into on or prior to
the Closing Date among the Company, the lenders named therein, Morgan Stanley
Senior Funding, Inc., as syndication agent and arranger, and Bankers Trust
Company, as administrative agent, together with all other agreements,
instruments and documents executed or delivered pursuant thereto (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and restatement
thereof), supplemented, replaced or otherwise modified from time to time,
including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring (including by way of adding Subsidiaries of the Company
as additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other agent, lender or group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in "Limitation on Asset Sales" and
"Repurchase of Notes upon a Change of Control" covenants described below and
such Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Company's
repurchase of such Notes as are required to be repurchased pursuant to the
"Limitation on Asset Sales" and "Repurchase of Notes upon a Change of Control"
covenants described below.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those 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 approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
the Indenture shall be computed in conformity with GAAP applied on a consistent
basis, except that calculations made for purposes of determining compliance with
the terms of the covenants and with other provisions of the Indenture shall be
made without giving effect to (i) the amortization of any expenses incurred in
connection with the offering of the Old Notes or the Exchange Offer for the New
Notes, the consummation of the Credit Agreement and any amendment to the Working
Capital Facility and in connection with any financing for Phase II to the extent
permitted under the "Limitation on Indebtedness" covenant described below and
(ii) except as otherwise provided, the amortization of any amounts required or
permitted by Accounting Principles Board Opinion Nos. 16 and 17.
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"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Holder" means the registered holder of any Note.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of Acquired Indebtedness; provided that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if drawn upon, to the
extent such drawing is reimbursed no later than the third Business Day following
receipt by such Person of a demand for reimbursement), (iv) all obligations of
such Person to pay the deferred and unpaid purchase price of property or
services, which purchase price is due more than six months after the date of
placing such property in service or taking delivery and title thereto or the
completion of such services, except Trade Payables, (v) all Capitalized Lease
Obligations, (vi) all Indebtedness of other Persons secured by a Lien on any
asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided that the amount of such Indebtedness shall be the lesser of (A)
the fair market value of such asset at such date of determination and (B) the
amount of such Indebtedness, (vii) all Indebtedness of other Persons Guaranteed
by such Person to the extent such Indebtedness is Guaranteed by such Person and
(viii) to the extent not otherwise included in this definition, obligations
under Currency Agreements, Interest Rate Agreements and Commodity Agreements.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation, provided (A) that
the amount outstanding at any time of any Indebtedness issued with original
issue discount is the face amount of such Indebtedness less the remaining
unamortized portion of the original issue discount of such Indebtedness at such
time as determined in conformity with GAAP, (B) that money borrowed and set
aside at the time of the Incurrence of any Indebtedness in order to prefund the
payment of the interest on such Indebtedness shall not be deemed to be
"Indebtedness" so long as such money is held to secure the payment of such
interest and (C) that Indebtedness shall not include any liability for federal,
state, local or other taxes.
"Interest Coverage Ratio" means, on any Transaction Date, the ratio of (i)
the aggregate amount of Consolidated EBITDA for the then most recent four fiscal
quarters prior to such Transaction Date for which reports have been filed with
the Commission or the Trustee pursuant to the "Commission Reports and Reports to
Holders" covenant (the "Four Quarter Period") to (ii) the aggregate Consolidated
Interest Expense during such Four Quarter Period. In making the foregoing
calculation, (A) pro forma effect shall be given to any Indebtedness Incurred or
repaid during the period (the "Reference Period") commencing on the first day of
the Four Quarter Period and ending on the Transaction Date (other than
Indebtedness Incurred or repaid under a revolving credit or similar arrangement
to the extent of the commitment thereunder (or under any predecessor revolving
credit or similar arrangement) in effect on the last day of such Four Quarter
Period
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unless any portion of such Indebtedness is projected, in the reasonable judgment
of the senior management of the Company, to remain outstanding for a period in
excess of 12 months from the date of the Incurrence thereof), in each case as if
such Indebtedness had been Incurred or repaid on the first day of such Reference
Period; (B) Consolidated Interest Expense attributable to interest on any
Indebtedness (whether existing or being Incurred) computed on a pro forma basis
and bearing a floating interest rate shall be computed as if the rate in effect
on the Transaction Date (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months or, if shorter, at least equal to the remaining term
of such Indebtedness) had been the applicable rate for the entire period; (C)
pro forma effect shall be given to Asset Dispositions and Asset Acquisitions
(including giving pro forma effect to the application of proceeds of any Asset
Disposition) that occur during such Reference Period as if they had occurred and
such proceeds had been applied on the first day of such Reference Period; and
(D) pro forma effect shall be given to asset dispositions and asset acquisitions
(including giving pro forma effect to the application of proceeds of any asset
disposition) that have been made by any Person that has become a Restricted
Subsidiary or has been merged with or into the Company or any Restricted
Subsidiary during such Reference Period and that would have constituted Asset
Dispositions or Asset Acquisitions had such transactions occurred when such
Person was a Restricted Subsidiary as if such asset dispositions or asset
acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the
first day of such Reference Period; provided that to the extent that clause (C)
or (D) of this sentence requires that pro forma effect be given to an Asset
Acquisition or Asset Disposition, such pro forma calculation shall be based upon
the four full fiscal quarters immediately preceding the Transaction Date of the
Person, or division or line of business of the Person, that is acquired or
disposed for which financial information is available.
"Interest Payment Date" means each semiannual interest payment date on June
15 and December 15 of each year.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Company or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock (or any other Investment), held by the Company
or any of its Restricted Subsidiaries, of (or in) any Person that has ceased to
be a Restricted Subsidiary, including without limitation, by reason of any
transaction permitted by clause (iii) of the "Limitation on the Issuance and
Sale of Capital Stock of Restricted Subsidiaries" covenant. For purposes of the
definition of "Unrestricted Subsidiary" and the "Limitation on Restricted
Payments" covenant described below, (i) "Investment" shall include the fair
market value of the assets (net of liabilities (other than liabilities to the
Company or any of its Restricted Subsidiaries)) of any Restricted Subsidiary at
the time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary, (ii) the fair market value of the assets (net of liabilities (other
than liabilities to the Company or any of its Restricted Subsidiaries)) of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary shall be considered a reduction in
outstanding Investments and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
"Moody's" means Moody's Investors Service, Inc. and its successors.
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"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel, accountants and investment bankers)
related to such Asset Sale, (ii) provisions for all taxes (whether or not such
taxes will actually be paid or are payable) as a result of such Asset Sale
without regard to the consolidated results of operations of the Company and its
Restricted Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (iv) appropriate amounts to be
provided by the Company or any Restricted Subsidiary as a reserve against any
liabilities associated with such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as determined in conformity with GAAP and
(b) with respect to any issuance or sale of Capital Stock, the proceeds of such
issuance or sale in the form of cash or cash equivalents, including payments in
respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"Offer to Purchase" means an offer to purchase Notes by the Company from
the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that all
Notes validly tendered will be accepted for payment on a pro rata basis; (ii)
the purchase price and the date of purchase (which shall be a Business Day no
earlier than 20 days nor later than 60 days from the date such notice is mailed)
(the "Payment Date"); (iii) that any Note not tendered will continue to accrue
interest pursuant to its terms; (iv) that, unless the Company defaults in the
payment of the purchase price, any Note accepted for payment pursuant to the
Offer to Purchase shall cease to accrue interest on and after the Payment Date;
(v) that Holders electing to have a Note purchased pursuant to the Offer to
Purchase will be required to surrender the Note, together with the form entitled
"Option of the Holder to Elect Purchase" on the reverse side of the Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day immediately preceding the Payment
Date; (vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (vii) that Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered; provided
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or integral multiples thereof. On the Payment Date, the Company shall
(i) accept for payment on a pro rata basis Notes or portions thereof tendered
pursuant to an Offer to Purchase; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Notes
or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the Company.
The Paying Agent shall promptly mail to the Holders of Notes so accepted payment
in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. The Company will publicly announce the results of an
Offer to Purchase as soon as practicable after the Payment Date. The Trustee
shall act as the Paying Agent for an Offer to Purchase. The Company will comply
with Rule 14e-1 under the Exchange Act and any other securities laws
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and regulations thereunder to the extent such laws and regulations are
applicable, in the event that the Company is required to repurchase Notes
pursuant to an Offer to Purchase.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; provided that such person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment; (ii) Temporary Cash
Investments; (iii) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP; (iv) stock, obligations or securities received in
satisfaction of judgments or pursuant to any plan of reorganization or similar
arrangement or upon any bankruptcy or insolvency of any Person; (v) Investments
in Interest Rate Agreements, Currency Agreements or Commodity Agreements to the
extent permitted under "Limitation on Indebtedness" covenant described below;
(vi) Investments received in connection with Asset Sales meeting the
requirements of clauses (i) and (ii) of the "Limitation on Asset Sales" covenant
described below, Investments received in connection with sales, transfers or
other dispositions of assets with a fair market value not in excess of $1.0
million in any transaction or series of related transactions or Investments
received in connection with the sale of all of the Capital Stock or all or
substantially all of the property and assets of Universal for a consideration at
least equal to the fair market value of the assets sold or disposed of; (vii)
Guarantees of Indebtedness to the extent permitted under the "Limitation on
Indebtedness" covenant described below; (viii) obligations received by the
Company from the employees of the Company or its Restricted Subsidiaries, to the
extent the consideration therefor consists solely of the Capital Stock of the
Company and (ix) purchase of shares of Common Stock in connection with the
funding of the Company's directors deferred compensation program in an aggregate
principal amount not to exceed $5 million.
"Permitted Liens" means, with respect to the Company or any of its
Restricted Subsidiaries, (i) Liens for taxes, assessments, governmental charges
or claims not yet delinquent or that are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made; (ii) statutory and common law
Liens of landlords and carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen or other similar Liens arising in the ordinary course of
business and with respect to amounts not yet delinquent or being contested in
good faith by appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made; (iii) Liens
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security; (iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of a similar nature incurred in the
ordinary course of business (exclusive of obligations for the payment of
borrowed money); (v) easements, rights-of-way, municipal and zoning ordinances
and similar charges, encumbrances, title defects or other irregularities that do
not materially interfere with the ordinary course of business of the Company or
any of its Restricted Subsidiaries; (vi) Liens (including extensions and
renewals thereof) upon real or personal property acquired after the Closing
Date; provided that (a) such Lien is created solely for the purpose of securing
Indebtedness Incurred, in accordance with the "Limitation on Indebtedness"
covenant described below, to finance the cost (including the cost of improvement
or construction) of the item of property or assets subject thereto and such Lien
is created prior to, at the time of or within six months after the later of the
acquisition, the completion of construction or the commencement of full
operation of such property, (b) the principal amount of the Indebtedness secured
by such Lien does not exceed 100% of such cost and (c) any such Lien shall not
extend to or cover any property or assets other than such item of property or
assets and any improvements on such item; (vii) licenses, leases or subleases
granted to others that do not materially interfere with the ordinary course of
business of the Company and its Restricted Subsidiaries, taken as a whole;
(viii) Liens encumbering property or assets under construction arising from
progress or partial payments by a customer of the Company or its Restricted
Subsidiaries relating to such property or assets; (ix) any interest or title of
a lessor in the property subject to any Capitalized Lease or operating lease;
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(x) Liens arising from filing Uniform Commercial Code financing statements
regarding leases; (xi) Liens on property of, or on shares of Capital Stock or
Indebtedness of, any Person existing at the time such Person becomes, or becomes
a part of the Company or, any Restricted Subsidiary; provided that such Liens do
not extend to or cover any property or assets of the Company or any Restricted
Subsidiary other than the property or assets acquired; (xii) Liens in favor of
the Company or any Restricted Subsidiary; (xiii) Liens arising from the
rendering of a final judgment or order against the Company or any Restricted
Subsidiary that does not give rise to an Event of Default; (xiv) Liens securing
reimbursement obligations with respect to letters of credit that encumber
documents and other property relating to such letters of credit and the products
and proceeds thereof; (xv) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in connection
with the importation of goods; (xvi) Liens encumbering customary initial
deposits and margin deposits, and other Liens that are incurred in the ordinary
course of business, in each case, securing Indebtedness under Interest Rate
Agreements, Currency Agreements and Commodity Agreements and forward contracts,
options, future contracts, futures options or similar agreements or arrangements
designed solely to protect the Company or any of its Restricted Subsidiaries
from fluctuations in interest rates, currencies or the price of commodities;
(xvii) Liens arising out of conditional sale, title retention, consignment or
similar arrangements for the sale of goods entered into by the Company or any of
its Restricted Subsidiaries in the ordinary course of business in accordance
with the past practices of the Company and its Restricted Subsidiaries prior to
the Closing Date; and (xviii) Liens on or sales of receivables.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Phase II" means an expansion of the Company's facilities in Riverdale,
Illinois to more fully utilize the available capacity of the Company's existing
hot mill, which expansion may involve the addition of an electric arc furnace, a
second caster, a second tunnel furnace and related machinery and equipment.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's preferred or preference equity, whether
outstanding on the Closing Date or issued thereafter, including, without
limitation, all series and classes of such preferred or preference stock.
"Public Equity Offering" means an underwritten primary public offering of
Common Stock of the Company pursuant to an effective registration statement
under the Securities Act.
A "Public Market" shall be deemed to exist if (i) a Public Equity Offering
has been consummated and (ii) at least 15% of the total issued and outstanding
Common Stock of the Company has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Revised Consolidated EBITDA" means, for any period, Adjusted Consolidated
Net Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income, (i) Consolidated Interest
Expense, (ii) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary and non-recurring gains or losses or
sales of assets), (iii) depreciation expense, (iv) amortization expense, (v) all
other non-cash items reducing Adjusted Consolidated Net Income (other than items
that will require cash payments and for which an accrual or reserve is, or is
required by GAAP to be, made) and (vi) expenses in connection with the start-up
of Phase II not to exceed $8.0 million in any fiscal quarter, less all non-cash
items increasing Adjusted Consolidated Net Income, all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries in conformity
with GAAP; provided that, if any Restricted Subsidiary is not a Wholly Owned
Restricted Subsidiary, Revised Consolidated EBITDA shall be reduced (to the
extent not otherwise reduced in accordance with GAAP) by an amount equal to (A)
the amount of the Adjusted Consolidated Net Income attributable to such
Restricted Subsidiary multiplied by (B) the percentage ownership interest in the
income of such Restricted Subsidiary not owned on the last day of such period by
the Company or any of its Restricted Subsidiaries.
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"Revised Interest Coverage Ratio" means, on any Transaction Date, the ratio
of (i) the aggregate amount of Revised Consolidated EBITDA for the then most
recent fiscal quarter prior to such Transaction Date for which reports have been
filed with the Commission or the Trustee pursuant to the "Commission Reports and
Reports to Holders" covenant (the "Single Quarter Period") to (ii) the aggregate
Consolidated Interest Expense during such Single Quarter Period. In making the
foregoing calculation, (A) pro forma effect shall be given to any Indebtedness
Incurred or repaid during the period (the "Single Reference Period") commencing
on the first day of the Single Quarter Period and ending on the Transaction Date
(other than Indebtedness Incurred or repaid under a revolving credit or similar
arrangement to the extent of the commitment thereunder (or under any predecessor
revolving credit or similar arrangement) in effect on the last day of such
Single Quarter Period unless any portion of such Indebtedness is projected, in
the reasonable judgment of the senior management of the Company, to remain
outstanding for a period in excess of 12 months from the date of the Incurrence
thereof), in each case as if such Indebtedness had been Incurred or repaid on
the first day of such Single Reference Period; (B) Consolidated Interest Expense
attributable to interest on any Indebtedness (whether existing or being
Incurred) computed on a pro forma basis and bearing a floating interest rate
shall be computed as if the rate in effect on the Transaction Date (taking into
account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months or, if
shorter, at least equal to the remaining term of such Indebtedness) had been the
applicable rate for the entire period; (C) pro forma effect shall be given to
Asset Dispositions and Asset Acquisitions (including giving pro forma effect to
the application of proceeds of any Asset Disposition) that occur during such
Single Reference Period as if they had occurred and such proceeds had been
applied on the first day of such Single Reference Period; and (D) pro forma
effect shall be given to asset dispositions and asset acquisitions (including
giving pro forma effect to the application of proceeds of any asset disposition)
that have been made by any Person that has become a Restricted Subsidiary or has
been merged with or into the Company or any Restricted Subsidiary during such
Single Reference Period and that would have constituted Asset Dispositions or
Asset Acquisitions had such transactions occurred when such Person was a
Restricted Subsidiary as if such asset dispositions or asset acquisitions were
Asset Dispositions or Asset Acquisitions that occurred on the first day of such
Single Reference Period; provided that to the extent that clause (C) or (D) of
this sentence requires that pro forma effect be given to an Asset Acquisition or
Asset Disposition, such pro forma calculation shall be based upon the then most
recent fiscal quarter immediately preceding the Transaction Date of the Person,
or division or line of business of the Person, that is acquired or disposed for
which financial information is available.
"Senior Indebtedness" means the following obligations of the Company or any
of its Restricted Subsidiaries, whether outstanding on the Closing Date or
thereafter incurred: (i) all Indebtedness of the Company or any of its
Restricted Subsidiaries under the Credit Agreement, the Working Capital Facility
or any Interest Rate Agreement and (ii) all Indebtedness of the Company or any
of its Restricted Subsidiaries under any other credit agreement or similar
agreement, whether a term loan or revolving credit facility, with federally or
state chartered banks, state chartered savings and loan associations or other
financial institutions that offer investment banking services.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"S&P" means Standard & Poor's Ratings Service and its successors.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
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"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means (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: S&P, Moody's,
Duff & Phelps Credit Rating Co., Fitch Investor Service, Inc., IBCA Ltd. and
Thomson Bankwatch, Inc.; (iii) money market preferred stocks which, at the date
of acquisition are accorded ratings of at least A- or A3 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 A3 (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 held by a third-party agent;
(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; (vii) time deposits with,
and certificates of deposit and banker's acceptances issued by, any bank having
capital surplus and undivided profits aggregating at least $50,000,000; and
(viii) money market funds. In no event shall any of the Temporary Cash
Investments described in clauses (i) through (vii) above have a final maturity
more than one year from the date of purchase.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below; and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary; provided that (A) any Guarantee by the Company or any
Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated
shall be deemed an "Incurrence" of such Indebtedness and an "Investment" by the
Company or such Restricted Subsidiary (or both, if applicable) at the time of
such designation; (B) either (I) the Subsidiary to be so designated has total
assets of $1,000 or less or (II) if such Subsidiary has assets greater than
$1,000, such designation would be permitted under the "Limitation on Restricted
Payments" covenant described below and (C) if applicable, the Incurrence of
Indebtedness and the Investment referred to in clause (A) of this proviso would
be permitted under the "Limitation on Indebtedness" and "Limitation on
Restricted Payments" covenants described below. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that (i) no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such designation and (ii) all Liens and
Indebtedness of such Unrestricted Subsidiary outstanding immediately after such
designation would, if Incurred at such time, have been permitted to be Incurred
(and shall be deemed to have been Incurred) for all purposes of the Indenture.
Any such designation by the Board of Directors shall be evidenced to the Trustee
by promptly filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
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"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wabush Agreements" means Wabush Mine General Provisions Agreement among
Interlake Steel Corporation, et. al., and the Royal Trust Company, as trustee,
dated as of January 1, 1967 and the other agreements executed in connection
therewith.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
"Working Capital Facility" means the working capital facility pursuant to
the Amended and Restated Credit Agreement to be dated as of December 18, 1997
among the Company, Harris Trust and Savings Bank, as agent, The First National
Bank of Chicago, as co-agent, and the lenders thereto, together with any
agreements, instruments and documents executed or delivered pursuant to or in
connection with such Credit Agreement, in each case as such Credit Agreement or
such agreements, instruments or documents may be amended (including any
amendment and restatement thereof), supplemented, extended, renewed, replaced,
refinanced or otherwise modified from time to time.
COVENANTS
Limitation on Indebtedness
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes and Indebtedness
existing on the Closing Date); provided that the Company and any of its
Restricted Subsidiaries may Incur Indebtedness if, after giving effect to the
Incurrence of such Indebtedness and the receipt and application of the proceeds
therefrom, the Interest Coverage Ratio would be greater than 2:1.
Notwithstanding the foregoing, the Company and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following: (i)
Indebtedness of the Company or any of its Restricted Subsidiaries outstanding at
any time in an aggregate principal amount not to exceed $175 million Incurred
under the Credit Agreement less any amount of such Indebtedness permanently
repaid as provided under the "Limitation on Asset Sales" covenant described
below; (ii) Indebtedness owed (A) by a Restricted Subsidiary to the Company
evidenced by an unsubordinated promissory note or (B) by the Company or a
Restricted Subsidiary to any Restricted Subsidiary; provided that any event
which results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of such Indebtedness (other than to the
Company or another Restricted Subsidiary) shall be deemed, in each case, to
constitute an Incurrence of such Indebtedness not permitted by this clause (ii);
(iii) Indebtedness issued in exchange for, or the net proceeds of which are used
to refinance or refund, then outstanding Indebtedness (other than Indebtedness
Incurred under clause (i), (ii), (iv), (vi), (vii), (viii), (xi) or (xii) of
this paragraph) and any refinancings thereof in an amount not to exceed the
amount so refinanced or refunded (plus premiums, accrued interest, fees and
expenses); provided that Indebtedness the proceeds of which are used to
refinance or refund the Notes or Indebtedness that is pari passu with, or
subordinated in right of payment to, the Notes shall only be permitted under
this clause (iii) if (A) in case the Notes are refinanced in part or the
Indebtedness to be refinanced is pari passu with the Notes, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is outstanding, is expressly made pari
passu with, or subordinate in right of payment to, the remaining Notes, (B) in
case the Indebtedness to be refinanced is subordinated in right of payment to
the Notes, such new Indebtedness, by its terms or by the terms of any agreement
or instrument pursuant to which such new Indebtedness is issued or remains
outstanding, is expressly made subordinate in right of payment to the Notes at
least to the extent that the Indebtedness to be refinanced is subordinated to
the Notes and (C) such new Indebtedness, determined as of the date of Incurrence
of such new Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of such new
Indebtedness is at least equal to the remaining
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Average Life of the Indebtedness to be refinanced or refunded; and provided
further that in no event may Indebtedness of the Company be refinanced by means
of any Indebtedness of any Restricted Subsidiary pursuant to this clause (iii);
(iv) Indebtedness (A) in respect of performance, surety or appeal bonds provided
in the ordinary course of business, (B) under Currency Agreements, Interest Rate
Agreements and Commodity Agreements; provided that such agreements (a) are
designed solely to protect the Company or its Restricted Subsidiaries against
fluctuations in foreign currency exchange rates, interest rates or commodity
prices and (b) do not increase the Indebtedness of the obligor outstanding at
any time other than as a result of fluctuations in foreign currency exchange
rates, interest rates or commodity prices or by reason of fees, indemnities and
compensation payable thereunder; and (c) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
Guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of the Company or any of its Restricted Subsidiaries pursuant to
such agreements, in any case Incurred in connection with the disposition of any
business, assets or Restricted Subsidiary (other than Guarantees of Indebtedness
Incurred by any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition), in a
principal amount not to exceed the gross proceeds actually received by the
Company or any Restricted Subsidiary in connection with such disposition; (v)
Indebtedness of the Company, to the extent the net proceeds thereof are promptly
(A) used to purchase Notes tendered in an Offer to Purchase made as a result of
a Change in Control or (B) deposited to defease the Notes as described below
under "Defeasance"; (vi) Guarantees of the Notes and Guarantees of Indebtedness
of the Company or any of its Restricted Subsidiaries by the Company or any
Restricted Subsidiary provided the Guarantee of such Indebtedness, in the case
of the Restricted Subsidiary, is permitted by and made in accordance with the
"Limitation on Issuance of Guarantees by Restricted Subsidiaries" covenant
described below; (vii) Indebtedness of the Company and any of its Restricted
Subsidiaries (in addition to Indebtedness permitted under clauses (i) through
(vi) above and (viii) through (xii) below) in an aggregate principal amount
outstanding at any time not to exceed $50 million, less any amount of such
Indebtedness permanently repaid as provided under the "Limitation on Asset
Sales" covenant described below provided that each time the Company issues and
sells its Capital Stock (other than Disqualified Stock) to Persons that are not
Subsidiaries of the Company, to the extent such sale of Capital Stock has not
been used (A) pursuant to clause (iii), (iv) or (vi) of the second paragraph of
the "Limitation on Restricted Payments" covenant to make a Restricted Payment or
(B) pursuant to clause (ix)(B) of the second paragraph of the "Limitation on
Indebtedness" covenant to incur Indebtedness, the Indebtedness that is available
to the Company pursuant to this clause (vii) at such time shall be increased by
the Net Cash Proceeds received by the Company from such sale but in no event
shall such available Indebtedness be increased to an amount greater than $50
million, less any amount of such Indebtedness permanently repaid as provided
under the "Limitation on Asset Sales" covenant described below; (viii)
Indebtedness of the Company and any of its Restricted Subsidiaries Incurred
under the Working Capital Facility outstanding at any time in an aggregate
amount not to exceed the greater of (A) $80 million or (B) the Borrowing Base;
(ix) Indebtedness of the Company and any of its Restricted Subsidiaries Incurred
to finance Phase II, in an aggregate amount not to exceed at any one time
outstanding the greater of (A) $100 million provided the Revised Interest
Coverage Ratio is greater than 1.70:1 ($0 if the Revised Interest Coverage Ratio
is less than or equal to 1.70:1) or (B) an amount, up to $100 million, equal to
the aggregate Net Cash Proceeds received by the Company after the Closing Date
from the issuance and sale of its Capital Stock (other than Disqualified Stock)
to Persons that are not Subsidiaries of the Company, to the extent such sale of
Capital Stock has not been used pursuant to clause (iii), (iv) or (vi) of the
second paragraph of the "Limitation on Restricted Payments" covenant to make a
Restricted Payment; (x) Indebtedness of the Company and any of its Restricted
Subsidiaries Incurred to finance Capital Expenditures in an aggregate amount not
to exceed $50 million; (xi) Capital Lease Obligations of the Company or Acme
Packaging Incurred to finance plastic strapping manufacturing equipment of Acme
Packaging in an aggregate amount not to exceed $5.3 million and (xii) deferred
payment obligations of the Company or any of its Restricted Subsidiaries in
connection with the Company's or Acme Steel's contracts with Raytheon Engineers
& Constructors, Incorporated and SMS Schloemann-Siemag AG in an aggregate amount
not to exceed $7 million.
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(b) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness that the Company or a
Restricted Subsidiary may Incur pursuant to this "Limitation on Indebtedness"
covenant shall not be deemed to be exceeded, with respect to any outstanding
Indebtedness due solely to the result of fluctuations in the exchange rates of
currencies.
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) Indebtedness Incurred under the
Credit Agreement on or prior to the Closing Date shall be treated as Incurred
pursuant to clause (i) of the second paragraph of this "Limitation on
Indebtedness" covenant, (2) Indebtedness Incurred under the Working Capital
Facility up to an aggregate amount of the greater of (A) $80 million or (B) the
Borrowing Base shall be treated as Incurred pursuant to clause (viii) of the
second paragraph of this "Limitation on Indebtedness" covenant, (3) Guarantees,
Liens or obligations with respect to letters of credit supporting Indebtedness
otherwise included in the determination of such particular amount shall not be
included and (4) any Liens granted pursuant to the equal and ratable provisions
referred to in the "Limitation on Liens" covenant described below shall not be
treated as Indebtedness. For purposes of determining compliance with this
"Limitation on Indebtedness" covenant, in the event that an item of Indebtedness
meets the criteria of more than one of the types of Indebtedness described in
the above clauses (other than Indebtedness referred to in clauses (1) and (2) of
the preceding sentence), the Company, in its sole discretion, shall classify
such item of Indebtedness and only be required to include the amount and type of
such Indebtedness in one of such clauses.
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any distribution
on or with respect to its Capital Stock (other than (x) dividends or
distributions payable solely in shares of its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to acquire shares of
such Capital Stock and (y) pro rata dividends or distributions on Common Stock
of Restricted Subsidiaries held by minority stockholders) held by Persons other
than the Company or any of its Restricted Subsidiaries, (ii) purchase, redeem,
retire or otherwise acquire for value any shares of Capital Stock of (A) the
Company or an Unrestricted Subsidiary (including options, warrants or other
rights to acquire such shares of Capital Stock) held by any Person or (B) a
Restricted Subsidiary (including options, warrants or other rights to acquire
such shares of Capital Stock) held by any Affiliate of the Company (other than a
Wholly Owned Restricted Subsidiary) or any holder (or any Affiliate of such
holder) of 5% or more of the Capital Stock of the Company, (iii) make any
voluntary or optional principal payment, or voluntary or optional redemption,
repurchase, defeasance, or other acquisition or retirement for value, of
Indebtedness of the Company that is subordinated in right of payment to the
Notes or (iv) make any Investment, other than a Permitted Investment, in any
Person (such payments or any other actions described in clauses (i) through (iv)
above being collectively "Restricted Payments") if, at the time of, and after
giving effect to, the proposed Restricted Payment: (A) a Default or Event of
Default shall have occurred and be continuing, (B) the Company could not Incur
at least $1.00 of Indebtedness under the first paragraph of the "Limitation on
Indebtedness" covenant or (C) the aggregate amount of all Restricted Payments
(the amount, if other than in cash, to be determined in good faith by the Board
of Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) made after the Closing Date shall exceed the sum of (1) 50% of the
aggregate amount of the Adjusted Consolidated Net Income (or, if the Adjusted
Consolidated Net Income is a loss, minus 100% of the amount of such loss)
(determined by excluding income resulting from transfers of assets by the
Company or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a
cumulative basis during the period (taken as one accounting period) beginning on
the first day of the fiscal quarter immediately following the Closing Date and
ending on the last day of the last fiscal quarter preceding the Transaction Date
for which reports have been filed with the Commission or provided to the Trustee
pursuant to the "Commission Reports and Reports to Holders" covenant plus (2)
the aggregate Net Cash Proceeds received by the Company after the Closing Date
from the issuance and sale permitted by the Indenture of its Capital Stock
(other than Disqualified Stock) to a Person who is not a Subsidiary of the
Company, including an issuance or sale permitted by the Indenture of
Indebtedness of the Company for cash subsequent to the Closing Date upon the
conversion of such Indebtedness into Capital Stock (other than Disqualified
Stock) of the Company, or from the issuance to a Person who is not a Subsidiary
of the Company
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of any options, warrants or other rights to acquire Capital Stock of the Company
(in each case, exclusive of any Disqualified Stock or any options, warrants or
other rights that are redeemable at the option of the holder, or are required to
be redeemed, prior to the Stated Maturity of the Notes) plus (3) an amount equal
to the net reduction in Investments (other than reductions in Permitted
Investments) in any Person resulting from payments of interest on Indebtedness,
dividends, repayments of loans or advances, or other transfers of assets, in
each case to the Company or any Restricted Subsidiary or from the Net Cash
Proceeds from the sale of any such Investment (except, in each case, to the
extent any such payment or proceeds are included in the calculation of Adjusted
Consolidated Net Income), or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed, in each case, the amount of Investments
previously made by the Company or any Restricted Subsidiary in such Person or
Unrestricted Subsidiary plus (4) $10 million.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at said
date of declaration, such payment would comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or retirement
for value of Indebtedness that is subordinated in right of payment to the Notes
including premium, if any, and accrued and unpaid interest, with the proceeds
of, or in exchange for, Indebtedness Incurred under clause (iii) of the second
paragraph of part (a) of the "Limitation on Indebtedness" covenant; (iii) the
repurchase, redemption or other acquisition of Capital Stock of the Company or
an Unrestricted Subsidiary (or options, warrants or other rights to acquire such
Capital Stock) in exchange for, or out of the proceeds of a substantially
concurrent offering of, shares of Capital Stock (other than Disqualified Stock)
of the Company (or options, warrants or other rights to acquire such Capital
Stock); (iv) the making of any principal payment or the repurchase, redemption,
retirement, defeasance or other acquisition for value of Indebtedness of the
Company which is subordinated in right of payment to the Notes in exchange for,
or out of the proceeds of, a substantially concurrent offering of, shares of the
Capital Stock (other than Disqualified Stock) of the Company (or options,
warrants or other rights to acquire such Capital Stock); (v) payments or
distributions, to dissenting stockholders pursuant to applicable law, pursuant
to or in connection with a consolidation, merger or transfer of assets that
complies with the provisions of the Indenture applicable to mergers,
consolidations and transfers of all or substantially all of the property and
assets of the Company; (vi) Investments acquired in exchange for Capital Stock
(other than Disqualified Stock) of the Company; (vii) the redemption, repurchase
or defeasance of the 1994 Notes outstanding after the Closing Date in accordance
with the 1994 Indentures, including accrued and unpaid interest, if any; (viii)
Investments in or payments to Wabush pursuant to the Company's or its Restricted
Subsidiaries' obligations under the Wabush Agreement; (ix) the purchase,
redemption, retirement or other acquisition for value of shares of Capital Stock
of the Company, or options to purchase such shares, held by directors,
employees, or former directors or employees of the Company or any Restricted
Subsidiary (or their estates or beneficiaries under their estates) upon their
death, disability, retirement, termination of employment or pursuant to the
terms of any agreement under which such shares of Capital Stock or options were
issued; provided that the aggregate consideration paid for such purchase,
redemption, retirement or other acquisition for value of such shares of Capital
Stock or options after the Closing Date does not exceed $5 million in the
aggregate; or (x) Investments in a joint venture or joint ventures that is or
are similar or related to the nature or type of the business of the Company and
its Restricted Subsidiaries existing on the date of such investment with any
Person or Persons by the Company or any of its Restricted Subsidiaries in an
aggregate amount not to exceed $15 million; provided that, except in the case of
clauses (i) and (iii), no Default or Event of Default shall have occurred and be
continuing or occur as a consequence of the actions or payments set forth
therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof, an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof and an Investment referred to in clause (vi)
thereof), and the Net Cash Proceeds from any issuance of Capital Stock referred
to in clauses (iii) and (iv), shall be included in calculating whether the
conditions of clause (C) of the first paragraph of this "Limitation on
Restricted Payments" covenant have been met with respect to any subsequent
Restricted Payments. In the event the proceeds of an issuance of Capital Stock
of the Company are used for the redemption, repurchase or other acquisition of
the Notes, or Indebtedness that is pari passu with the Notes, then the Net Cash
Proceeds of
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such issuance shall be included in clause (C) of the first paragraph of this
"Limitation on Restricted Payments" covenant only to the extent such proceeds
are not used for such redemption, repurchase or other acquisition of
Indebtedness.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by the
Company or any other Restricted Subsidiary, (ii) pay any Indebtedness owed to
the Company or any other Restricted Subsidiary, (iii) make loans or advances to
the Company or any other Restricted Subsidiary or (iv) transfer any of its
property or assets to the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Credit Agreement, the
Indenture, the Working Capital Facility or any other agreements in effect on the
Closing Date, and any extensions, refinancings, renewals or replacements of such
agreements; provided that the encumbrances and restrictions in any such
extensions, refinancings, renewals or replacements are no less favorable in any
material respect to the Holders than those encumbrances or restrictions that are
then in effect and that are being extended, refinanced, renewed or replaced;
(ii) existing under or by reason of applicable law; (iii) existing with respect
to any Person or the property or assets of such Person acquired by the Company
or any Restricted Subsidiary, existing at the time of such acquisition and not
incurred in contemplation thereof, which encumbrances or restrictions are not
applicable to any Person or the property or assets of any Person other than such
Person or the property or assets of such Person so acquired; (iv) in the case of
clause (iv) of the first paragraph of this "Limitation on Dividend and Other
Payment Restrictions Affecting Restricted Subsidiaries" covenant, (A) that
restrict in a customary manner the subletting, assignment or transfer of any
property or asset that is a lease, license, conveyance or contract or similar
property or asset, (B) existing by virtue of any transfer of, agreement to
transfer, option or right with respect to, or Lien on, any property or assets of
the Company or any Restricted Subsidiary not otherwise prohibited by the
Indenture or (C) arising or agreed to in the ordinary course of business, not
relating to any Indebtedness, and that do not, individually or in the aggregate,
detract from the value of property or assets of the Company or any Restricted
Subsidiary in any manner material to the Company or any Restricted Subsidiary;
(v) with respect to a Restricted Subsidiary and imposed pursuant to an agreement
that has been entered into for the sale or disposition of all or substantially
all of the Capital Stock of, or property and assets of, such Restricted
Subsidiary; or (vi) contained in the terms of any Indebtedness or any agreement
pursuant to which such Indebtedness was issued if (A) the encumbrance or
restriction applies only in the event of a payment default or a default with
respect to a financial covenant contained in such Indebtedness or agreement, (B)
the encumbrance or restriction is not materially more disadvantageous to the
Holders of the Notes than is customary in comparable financings (as determined
by the Company) and (C) the Company determines that any such encumbrance or
restriction will not materially affect the Company's ability to make principal
or interest payments on the Notes. Nothing contained in this "Limitation on
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries"
covenant shall prevent the Company or any Restricted Subsidiary from (1)
creating, incurring, assuming or suffering to exist any Liens otherwise
permitted in the "Limitation on Liens" covenant or (2) restricting the sale or
other disposition of property or assets of the Company or any of its Restricted
Subsidiaries that secure Indebtedness of the Company or any of its Restricted
Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
The Company will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to the Company or a Wholly Owned
Restricted Subsidiary; (ii) issuances of director's qualifying shares or sales
to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law; (iii) if, immediately
after giving effect to
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such issuance or sale, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary and any Investment in such Person remaining after giving
effect to such issuance or sale would have been permitted to be made under the
"Limitation on Restricted Payments" covenant if made on the date of such
issuance or sale; or (iv) if, immediately after giving effect to such issuance
or sale, the Company and/or any of its Restricted Subsidiaries would own at
least 80% of shares of each class of Capital Stock of such Restricted Subsidiary
and the Net Cash Proceeds, if any, of any such sale are applied in accordance
with clause (A) or (B) of the "Limitation on Asset Sales" covenant described
below.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness, other than the Notes or Senior
Indebtedness of the Company or any of its Restricted Subsidiaries permitted
under the "Limitation on Indebtedness" covenant, which is pari passu with or
subordinate in right of payment to the Notes ("Guaranteed Indebtedness"), unless
(i) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a Guarantee (a "Subsidiary
Guarantee") of payment of the Notes by such Restricted Subsidiary and (ii) such
Restricted Subsidiary waives and will not in any manner whatsoever claim or take
the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Company or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Subsidiary Guarantee, until the Notes have been indefeasibly paid in full;
provided that this paragraph shall not be applicable to any Guarantee of any
Restricted Subsidiary (x) that existed at the time such Person became a
Restricted Subsidiary and was not Incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary or (y) of the
1994 Notes outstanding on the Closing Date. If the Guaranteed Indebtedness is
(A) pari passu with the Notes, then the Guarantee of such Guaranteed
Indebtedness shall be pari passu with, or subordinated to, the Subsidiary
Guarantee or (B) subordinated to the Notes, then the Guarantee of such
Guaranteed Indebtedness shall be subordinated to the Subsidiary Guarantee at
least to the extent that the Guaranteed Indebtedness is subordinated to the
Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the Guarantee
which resulted in the creation of such Subsidiary Guarantee, except a discharge
or release by or as a result of payment under such Guarantee.
Limitation on Transactions with Shareholders and Affiliates
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with any holder (or any Affiliate of such
holder) of 5% or more of any class of Capital Stock of the Company or with any
Affiliate of the Company or any Restricted Subsidiary, except upon fair and
reasonable terms no less favorable to the Company or such Restricted Subsidiary
than could be obtained, at the time of such transaction or, if such transaction
is pursuant to a written agreement, at the time of the execution of the
agreement providing therefor, in a comparable arm's-length transaction with a
Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized investment
banking firm stating that the transaction is fair to the Company or such
Restricted Subsidiary from a financial point of view; (ii) any transaction
solely between the Company and any of its Wholly Owned Restricted Subsidiaries
or solely between Wholly Owned Restricted Subsidiaries; (iii) the payment of
reasonable and customary regular fees to directors of the Company who are not
employees of the Company; (iv) any payments or other transactions pursuant to
any tax-sharing agreement between the Company and any other Person with which
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the Company files a consolidated tax return or with which the Company is part of
a consolidated group for tax purposes; or (v) any Restricted Payments not
prohibited by the "Limitation on Restricted Payments" covenant. Notwithstanding
the foregoing, any transaction or series of related transactions covered by the
first paragraph of this "Limitation on Transactions with Shareholders and
Affiliates" covenant and not covered by clauses (ii) through (v) of this
paragraph, (a) the aggregate amount of which exceeds $2 million in value, must
be approved or determined to be fair in the manner provided for in clause (i)(A)
or (B) above and (b) the aggregate amount of which exceeds $10 million in value,
must be determined to be fair in the manner provided for in clause (i)(B) above.
Limitation on Liens
The Company will not, and will not permit any Restricted Subsidiary to,
create, incur, assume or suffer to exist any Lien on any of its assets or
properties of any character, or any shares of Capital Stock or Indebtedness of
any Restricted Subsidiary, without making effective provision for all of the
Notes and all other amounts due under the Indenture to be directly secured
equally and ratably with (or, if the obligation or liability to be secured by
such Lien is subordinated in right of payment to the Notes, prior to) the
obligation or liability secured by such Lien.
The foregoing limitation does not apply to (i) Liens existing on the
Closing Date; (ii) Liens securing obligations under the Credit Agreement, the
Working Capital Facility and other Senior Indebtedness of the Company or any of
its Restricted Subsidiaries permitted under the "Limitation on Indebtedness"
covenant, (iii) Liens securing obligations under any industrial revenue bonds or
purchase money liens; (iv) Liens granted after the Closing Date on any assets or
Capital Stock of the Company or its Restricted Subsidiaries created in favor of
the Holders; (v) Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a Wholly Owned
Restricted Subsidiary to secure Indebtedness owing to the Company or such other
Restricted Subsidiary; (vi) Liens securing Indebtedness which is Incurred to
refinance secured Indebtedness which is permitted to be Incurred under clause
(iii) of the second paragraph of the "Limitation on Indebtedness" covenant;
provided that such Liens do not extend to or cover any property or assets of the
Company or any Restricted Subsidiary other than the property or assets securing
the Indebtedness being refinanced; (vii) Liens on any property or assets of a
Restricted Subsidiary securing Indebtedness of such Restricted Subsidiary
permitted under the "Limitation on Indebtedness" covenant; (viii) Permitted
Liens; or (ix) Liens on plastic strapping manufacturing equipment of Acme
Packaging securing Indebtedness Incurred under clause (xi) of the second
paragraph of the "Limitations on Indebtedness" covenant.
Limitation on Sale-Leaseback Transactions
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any sale-leaseback transaction involving any of its assets or
properties now owned, whereby the Company or a Restricted Subsidiary sells or
transfers such assets or properties and then or thereafter leases such assets or
properties or any part thereof or any other assets or properties which the
Company or such Restricted Subsidiary, as the case may be, intends to use for
substantially the same purpose or purposes as the assets or properties sold or
transferred. The foregoing restriction does not apply to any sale-leaseback
transaction if (i) the lease is for a period, including renewal rights, of not
in excess of three years; (ii) the lease secures or relates to industrial
revenue or pollution control bonds; (iii) the transaction is solely between the
Company and any Wholly Owned Restricted Subsidiary or solely between Wholly
Owned Restricted Subsidiaries; or (iv) the Company or such Restricted
Subsidiary, within 12 months after the sale or transfer of any assets or
properties is completed, applies an amount not less than the net proceeds
received from such sale in accordance with clause (A) or (B) of the first
paragraph of the "Limitation on Asset Sales" covenant described below.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale (other than the sale of all of the Capital Stock or
all or substantially all of the property and assets of Universal for a
consideration at least equal to the fair market value of the assets sold or
disposed of), unless (i) the
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consideration received by the Company or such Restricted Subsidiary is at least
equal to the fair market value of the assets sold or disposed of and (ii) at
least 75% of the consideration received consists of cash or Temporary Cash
Investments. In the event and to the extent that the Net Cash Proceeds received
by the Company or any of its Restricted Subsidiaries from one or more Asset
Sales (other than the sale of all of the Capital Stock or all or substantially
all of the property and assets of Universal for a consideration at least equal
to the fair market value of the assets sold or disposed of), occurring on or
after the Closing Date in any period of 12 consecutive months, exceed $10
million or 10% of Adjusted Consolidated Net Tangible Assets (determined as of
the date closest to the commencement of such 12-month period for which a
consolidated balance sheet of the Company and its Subsidiaries has been filed
with the Commission or provided to the Trustee pursuant to the "Commission
Reports and Reports to Holders" covenant), then the Company shall or shall cause
the relevant Restricted Subsidiary to (i) within twelve months after the date
Net Cash Proceeds so received exceed such amount or 10% of Adjusted Consolidated
Net Tangible Assets (A) apply an amount equal to such excess Net Cash Proceeds
to permanently repay unsubordinated Indebtedness of the Company or any
Restricted Subsidiary in each case owing to a Person other than the Company or
any of its Restricted Subsidiaries or (B) invest an equal amount, or the amount
not so applied pursuant to clause (A) (or enter into a definitive agreement
committing to so invest within 12 months after the date of such agreement), in
property or assets (other than current assets) of a nature or type or that are
used in a business (or in a company having property and assets of a nature or
type, or engaged in a business) similar or related to the nature or type of the
property and assets of, or the business of, the Company and its Restricted
Subsidiaries existing on the date of such investment and (ii) apply (no later
than the end of the 12-month period referred to in clause (i)) such excess Net
Cash Proceeds (to the extent not applied pursuant to clause (i)) as provided in
the following paragraph of this "Limitation on Asset Sales" covenant. The amount
of such excess Net Cash Proceeds required to be applied (or to be committed to
be applied) during such 12-month period as set forth in clause (i) of the
preceding sentence and not applied as so required by the end of such period
shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $10 million, the Company
must commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate principal amount of Notes equal to the Excess Proceeds on such date,
at a purchase price equal to 100% of the principal amount of the Notes, plus, in
each case, accrued interest (if any) to the Payment Date.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
The Company must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Notes then outstanding, at
a purchase price equal to 101% of the principal amount thereof, plus accrued
interest (if any) to the Payment Date.
There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Company which might be outstanding
at the time). The above covenant requiring the Company to repurchase the Notes
will, unless consents are obtained, require the Company to repay all
indebtedness then outstanding which by its terms would prohibit such Note
repurchase, either prior to or concurrently with such Note repurchase.
COMMISSION REPORTS AND REPORTS TO HOLDERS
Whether or not the Company is then required to file reports with the
Commission, the Company shall file with the Commission all such reports and
other information as it would be required to file with the Commission by
Sections 13(a) or 15(d) under the Exchange Act if it were subject thereto. The
Company shall supply the Trustee and each Holder or shall supply to the Trustee
for forwarding to each such Holder, without cost to such Holder, copies of such
reports and other information.
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EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; (b) default in the payment of interest on any Note when
the same becomes due and payable, and such default continues for a period of 30
days; (c) default in the performance or breach of the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the assets of the Company or the failure to make or
consummate an Offer to Purchase in accordance with the "Limitation on Asset
Sales" or "Repurchase of Notes upon a Change of Control" covenant; (d) the
Company defaults in the performance of or breaches any other covenant or
agreement of the Company in the Indenture or under the Notes (other than a
default specified in clause (a), (b) or (c) above) and such default or breach
continues for a period of 30 consecutive days after written notice by the
Trustee or the Holders of 25% or more in aggregate principal amount of the
Notes; (e) there occurs with respect to any issue or issues of Indebtedness of
the Company or any Significant Subsidiary having an outstanding principal amount
of $10 million or more in the aggregate for all such issues of all such Persons,
whether such Indebtedness now exists or shall hereafter be created, (I) an event
of default that has caused the holder thereof to declare such Indebtedness to be
due and payable prior to its Stated Maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or annulled
within 30 days of such acceleration and/or (II) the failure to make a principal
payment at the final (but not any interim) fixed maturity and such defaulted
payment shall not have been made, waived or extended within 30 days of such
payment default; (f) any final judgment or order (not covered by insurance) for
the payment of money in excess of $10 million in the aggregate for all such
final judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against the
Company or any Significant Subsidiary and shall not be paid or discharged, and
there shall be any period of 60 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final judgments
or orders outstanding and not paid or discharged against all such Persons to
exceed $10 million during which a stay of enforcement of such final judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; (g) a
court having jurisdiction in the premises enters a decree or order for (A)
relief in respect of the Company or any Significant Subsidiary in an involuntary
case under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (B) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary and, in
each case, such decree or order shall remain unstayed and in effect for a period
of 30 consecutive days; or (h) the Company or any Significant Subsidiary (A)
commences a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an order for
relief in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) effects any general
assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to the Company) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes, then outstanding, by written notice to
the Company (and to the Trustee if such notice is given by the Holders), may,
and the Trustee at the request of such Holders shall, declare the principal of,
premium, if any, and accrued interest on the Notes to be immediately due and
payable. Upon a declaration of acceleration, such principal of, premium, if any,
and accrued interest shall be immediately due and payable. In the event of a
declaration of acceleration because an Event of Default set forth in clause (e)
above has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (e) shall be remedied or cured by the
Company or the relevant Significant Subsidiary or waived by the holders of the
relevant Indebtedness within 60 days after the declaration of acceleration with
respect thereto. If an Event of Default specified in clause (g) or (h) above
occurs with respect to the Company, the principal of, premium, if any, and
accrued interest on the Notes then outstanding shall ipso facto become and be
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immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. The Holders of at least a majority in principal
amount of the outstanding Notes by written notice to the Company and to the
Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the principal of, premium, if any, and interest on the
Notes that have become due solely by such declaration of acceleration, have been
cured or waived and (ii) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction. For information as to the waiver of
defaults, see "--Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes. A Holder
may not pursue any remedy with respect to the Indenture or the Notes unless: (i)
the Holder gives the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of outstanding
Notes make a written request to the Trustee to pursue the remedy; (iii) such
Holder or Holders offer the Trustee indemnity satisfactory to the Trustee
against any costs, liability or expense; (iv) the Trustee does not comply with
the request within 60 days after receipt of the request and the offer of
indemnity; and (v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations do
not apply to the right of any Holder of a Note to receive payment of the
principal of, premium, if any, or interest on, such Note or to bring suit for
the enforcement of any such payment, on or after the due date expressed in the
Notes, which right shall not be impaired or affected without the consent of the
Holder.
The Indenture will require certain officers of the Company to certify, on
or before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and its Restricted
Subsidiaries and the Company's and its Restricted Subsidiaries' performance
under the Indenture and that the Company has fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. The
Company will also be obligated to notify the Trustee of any default or defaults
in the performance of any covenants or agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its property
and assets (as an entirety or substantially an entirety in one transaction or a
series of related transactions) to, any Person or permit any Person to merge
with or into the Company unless: (i) the Company shall be the continuing Person,
or the Person (if other than the Company) formed by such consolidation or into
which the Company is merged or that acquired or leased such property and assets
of the Company shall be a corporation organized and validly existing under the
laws of the United States of America or any jurisdiction thereof and shall
expressly assume, by a supplemental indenture, executed and delivered to the
Trustee, all of the obligations of the Company on all of the Notes and under the
Indenture; (ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing; (iii) immediately
after giving effect to such transaction on a pro forma basis, the Company or any
Person becoming the successor obligor of the Notes shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction; (iv) immediately after giving effect to
such transaction on a pro forma basis the Company, or any Person becoming the
successor obligor of the Notes, as the case may be, could Incur at least $1.00
of Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant; provided that this clause (iv) shall not apply to a consolidation or
merger with or into a Wholly Owned Restricted Subsidiary with a positive net
worth; provided that, in connection with any such merger or consolidation, no
consideration (other than Capital Stock (other than Disqualified Stock) in the
surviving Person or the Company) shall be issued or
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distributed to the stockholders of the Company; and (v) the Company delivers to
the Trustee an Officers' Certificate (attaching the arithmetic computations to
demonstrate compliance with clauses (iii) and (iv)) and Opinion of Counsel, in
each case stating that such consolidation, merger or transfer and such
supplemental indenture complies with this provision and that all conditions
precedent provided for herein relating to such transaction have been complied
with; provided, however, that clauses (iii) and (iv) above do not apply if, in
the good faith determination of the Board of Directors of the Company, whose
determination shall be evidenced by a Board Resolution, the principal purpose of
such transaction is to change the state of incorporation of the Company; and
provided further that any such transaction shall not have as one of its purposes
the evasion of the foregoing limitations.
DEFEASANCE
Defeasance and Discharge. The Indenture will provide that the Company will
be deemed to have paid and will be discharged from any and all obligations in
respect of the Notes on the 123rd day after the deposit referred to below, and
the provisions of the Indenture will no longer be in effect with respect to the
Notes (except for, among other matters, certain obligations to register the
transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things, (A) the Company has deposited with the Trustee, in trust, money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Notes on the Stated Maturity of such payments in accordance with
the terms of the Indenture and the Notes, (B) the Company has delivered to the
Trustee (i) either (x) an Opinion of Counsel to the effect that Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
the Company's exercise of its option under this "Defeasance" provision and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit, defeasance and
discharge had not occurred, which Opinion of Counsel must be based upon (and
accompanied by a copy of) a ruling of the Internal Revenue Service to the same
effect unless there has been a change in applicable federal income tax law after
the Closing Date such that a ruling is no longer required or (y) a ruling
directed to the Trustee received from the Internal Revenue Service to the same
effect as the aforementioned Opinion of Counsel and (ii) an Opinion of Counsel
to the effect that the creation of the defeasance trust does not violate the
Investment Company Act of 1940 and after the passage of 123 days following the
deposit, the trust fund will not be subject to the effect of Section 547 of the
United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor
Law, (C) immediately after giving effect to such deposit on a pro forma basis,
no Event of Default, or event that after the giving of notice or lapse of time
or both would become an Event of Default, shall have occurred and be continuing
on the date of such deposit or during the period ending on the 123rd day after
the date of such deposit, and such deposit shall not result in a breach or
violation of, or constitute a default under, any other agreement or instrument
to which the Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound and (D) if at such time the Notes
are listed on a national securities exchange, the Company has delivered to the
Trustee an Opinion of Counsel to the effect that the Notes will not be delisted
as a result of such deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further will provide that the provisions of the Indenture will no
longer be in effect with respect to clauses (iii) and (iv) under "Consolidation,
Merger and Sale of Assets" and all the covenants described herein under
"Covenants," clause (C) under "Events of Default" with respect to such clauses
(iii) and (iv) under "Consolidation, Merger and Sale of Assets," clause (d)
under "Events of Default" with respect to such other covenants and clauses (e)
and (f) under "Events of Default" shall be deemed not to be Events of Default
upon, among other things, the deposit with the Trustee, in trust, of money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Notes on the Stated Maturity of such payments in accordance with
the terms of the Indenture and the Notes, the satisfaction of the provisions
described in clauses (B)(ii), (C) and (D) of the preceding paragraph and the
delivery by the Company to the Trustee of an Opinion of Counsel to the effect
that, among other things, the Holders will not
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recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance of certain covenants and Events of Default and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred.
Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated Maturity
but may not be sufficient to pay amounts due on the Notes at the time of the
acceleration resulting from such Event of Default. However, the Company will
remain liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee and any existing default or compliance with any provision may be
waived with the consent of the Holders of not less than a majority in aggregate
principal amount of the outstanding Notes; provided, however, that no such
modification, amendment or waiver may, without the consent of each Holder
affected thereby, (i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, (ii) reduce the principal amount of, or
premium, if any, or interest on, any Note, (iii) change the place or currency of
payment of principal of, or premium, if any, or interest on, any Note, (iv)
impair the right to institute suit for the enforcement of any payment on or
after the Stated Maturity (or, in the case of a redemption, on or after the
Redemption Date) of any Note, (v) reduce the above-stated percentage of
outstanding Notes the consent of whose Holders is necessary to modify or amend
the Indenture, (vi) waive a default in the payment of principal of, premium, if
any, or interest on the Notes or (vii) reduce the percentage or aggregate
principal amount of outstanding Notes the consent of whose Holders is necessary
for waiver of compliance with certain provisions of the Indenture or for waiver
of certain defaults; provided, further, amendments and supplements of the
Indenture may be made without the consent of the Holders to, among other things,
cure any ambiguity, defect or inconsistency or make any change that does not
adversely affect the rights of any Holder.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture, or in any of
the Notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator, stockholder, officer, director, employee
or controlling person of the Company or of any successor Person thereof. Each
Holder, by accepting the Notes, waives and releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in its
exercise of the rights and powers vested in it under the Indenture as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, however, that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
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GOVERNING LAW
The Indenture and the Notes are governed by the laws of the State of New
York. The Trustee, the Company and the Holders agree to submit to the
jurisdiction of the courts of the State of New York in any action or proceeding
arising out of or relating to the Indenture or the Notes.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the New Notes will be issued in fully
registered form without interest coupons. New Notes exchanged in offshore
transactions in reliance on Regulation S under the Securities Act will initially
be represented by one or more permanent global Notes in definitive, fully
registered form without interest coupons (each a "Regulation S Global Note") and
will be deposited with the Trustee as custodian for, and registered in the name
of a nominee of, DTC for the accounts of Euroclear and Cedel Bank.
New Notes received in the Exchange Offer in exchange for Old Notes
originally issued in reliance on Rule 144A will be represented by one or more
permanent global New Notes in definitive, fully registered form without interest
coupons (each a "New Global Note"; and together with the Regulation S Global
Note, the "Global Notes") and will be deposited with the Trustee as custodian
for, and registered in the name of, DTC.
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Qualified institutional buyers may hold their
interests in a New Global Note directly through DTC if they are participants in
such system, or indirectly through organizations which are participants in such
system.
Investors may hold their interests in a Regulation S Global Note directly
through Cedel Bank or Euroclear, if they are participants in such systems, or
indirectly through organizations that are participants in such systems.
As long as DTC, or its nominee, is the registered owner or holder of a
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the New Notes represented by such Global Note for all
purposes under the Indenture and the New Notes. No beneficial owner of an
interest in a Global Note will be able to transfer that interest except in
accordance with DTC's procedures, in addition to those provided for under the
Indenture and, if applicable, those of Euroclear and Cedel Bank.
Payments of the principal of, and interest on, a Global Note will be made
to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial interests.
The Company expects DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such global Note as shown on the records of
DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in such Global Note held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of the participants.
Transfers between participants in DTC will be effected in the ordinary
manner in accordance with DTC rules and will be settled in same-day funds.
Transfers between participants in Euroclear and Cedel Bank will be effected in
the ordinary manner with their respective rules and operating procedures.
The Company expects that DTC will take any action permitted to be taken by
a holder of New Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interest in a Global Note is credited and only in respect of
such
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portion of the aggregate principal amount of New Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Notes, DTC will exchange the applicable Global
Note for certificated Notes.
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by the Company
within 90 days, the Company will issue certificated Notes in exchange for Global
Notes. Holders of an interest in a Global Note may receive certificated Notes in
accordance with the DTC's rules and procedures in addition to those provided for
under the Indenture.
DEPOSITORY TRUST COMPANY
The Company understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a clearing corporation within the meaning of the New York Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical movement
of certificates and certain other organizations. Indirect access to the DTC
system is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").
Although DTC, Euroclear and Cedel Bank are expected to follow the foregoing
procedures in order to facilitate transfers of interests in a Global Note among
participants of DTC, Euroclear and Cedel Bank, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC, Euroclear or Cedel Bank or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
REGISTRATION RIGHTS
The Company is a party to the Registration Rights Agreement with the
Placement Agents, pursuant to which the Company has agreed, for the benefit of
the Holders, to use its best efforts, at its cost, to file and cause to become
effective a registration statement with respect to the Exchange Offer to
exchange the Old Notes for the New Notes. Upon such registration statement being
declared effective, the Company has agreed to offer the New Notes in return for
surrender of the Old Notes. For each Old Note surrendered to the Company under
the Exchange Offer, the Holder will receive a New Note of equal principal
amount. Interest on each New Note shall accrue from the last Interest Payment
Date on which interest was paid on the Old Notes so surrendered or, if no
interest has been paid on such Old Notes, from the Closing Date. In the event
that applicable interpretations of the staff of the Commission do not permit the
Company to effect the Exchange Offer, or under certain other circumstances, the
Company has agreed, at its cost, to use its best efforts to cause to become
effective the Shelf Registration Statement with respect to resales of the Old
Notes and to keep such Shelf Registration Statement effective until the
expiration of the time period referred to in Rule 144(k) under the Securities
Act after the Closing Date, or such shorter period that will terminate when all
Old Notes covered by the Shelf Registration Statement have been sold pursuant to
the Shelf Registration Statement. The Company shall, in the event of such a
shelf registration, provide to each Holder copies of the prospectus, notify each
Holder when the Shelf Registration Statement for the Old Notes has become
effective and take certain other actions as are required to permit resales of
the Old Notes. A Holder that sells its Old Notes pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such a
Holder (including certain indemnification obligations).
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In the event that the Exchange Offer is not consummated and a Shelf
Registration Statement is not declared effective on or prior to the date that is
six months after the Closing Date, the annual interest rate borne by the Old
Notes will be increased by .5% per annum until the Exchange Offer is consummated
or the Shelf Registration Statement is declared effective.
If the Company effects the Exchange Offer, the Company will be entitled to
close the Exchange Offer 20 business days after the commencement thereof,
provided that it has accepted all Notes theretofore validly surrendered in
accordance with the terms of the Exchange Offer. Old Notes not tendered in the
Exchange Offer shall bear interest at the rate set forth on the cover page of
this Prospectus and be subject to all of the terms and conditions specified in
the Indenture and to transfer restrictions.
This summary of certain provisions of the Registration Rights Agreement
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available from the Company upon request.
DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR SECURED CREDIT AGREEMENT
On December 18, 1997, the Company entered into a $175 million credit
agreement (the "Senior Secured Credit Agreement"). The Senior Secured Credit
Agreement matures on December 1, 2005 with annual principal payments of $1
million payable in equal quarterly installments for the first six years and the
remaining principal amount amortized in equal installments over the final eight
quarters, subject to additional mandatory prepayments from Excess Cash Flow (as
defined therein) and under certain other circumstances. The Company's
obligations under the Senior Secured Credit Agreement are guaranteed on a senior
basis by all of the Company's subsidiaries and are secured by a pledge of the
capital stock of the Company's subsidiaries and a security interest in certain
existing and future real estate, equipment, fixtures and intellectual property
owned by Acme Steel (which lien on such capital stock and real and personal
property is pari passu to the lien of the holders of the 1994 Notes). Loans
under the Senior Secured Credit Agreement bear interest from time to time at a
rate of, at the Company's option, (i) prime plus a margin ranging from 1.250% to
2.250%, or (ii) LIBOR plus a margin ranging from 2.250% to 3.250%, depending
upon the Company's leverage ratio of debt to EBITDA. In 1997, the Company
entered into an extendable (at the option of the bank) interest rate swap
agreement through September 1999, effectively fixing the base rate at 5.8
percent.
The Senior Secured Credit Agreement includes, among other things,
limitations on the incurrence of indebtedness, limitations on mergers, asset
sales, joint ventures, limitations on sale-leaseback transactions, limitations
on capital expenditures, limitations on the payment of dividends, limitations on
investments, limitations on transactions with affiliates, prohibitions on
voluntary prepayments or redemptions of other indebtedness and amendments
thereto, limitations on liens, and financial maintenance covenants including,
minimum interest coverage, minimum EBITDA, minimum fixed charge coverage and
maximum leverage.
Events of default under the Senior Secured Credit Agreement, which entitle
the Lenders to terminate the facility and declare all amounts outstanding
thereunder immediately due and payable and exercise their remedies as a secured
party, include, but are not limited to: failure to pay principal when due;
failure to pay interest or fees for more than five days after the date due;
failure to meet any covenant or agreement (subject to a specified grace period
for certain covenants); the untruth of any representation or warranty; certain
bankruptcy or other insolvency proceedings; certain defaults in other
indebtedness; the invalidity of any security document or any subsidiary
guarantee; entry of certain final judgments not paid or otherwise covered by
insurance; or the occurrence of a change of control (as defined therein).
The Senior Secured Credit Agreement refinanced the Company's outstanding
obligations under a $50 million Term Loan Facility (the "Term Loan") which bore
interest at a floating rate of reserve adjusted LIBOR plus 4% and which was
scheduled to mature on August 1, 2001.
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SENIOR SECURED NOTES -- In 1994, the Company issued $125 million of 12 1/2%
Senior Secured Notes due 2002. 85.9% of the existing Senior Secured Notes were
retired in connection with the refinancing in December 1997, and $17,623,000
principal amount of Senior Secured Notes is currently outstanding. See
"Business -- Recent Developments." The Company has the option to redeem the
remaining Senior Secured Notes, in whole or in part, on or after August 1, 1998,
at fixed redemption prices equivalent to or in excess of par, plus accrued
interest to the date of redemption. The Senior Secured Notes contain certain
restrictive covenants, rank pari passu with and share collateral and guarantees
with the Senior Secured Credit Agreement.
SENIOR SECURED DISCOUNT NOTES -- In 1994, the Company issued $117.9 million
of 13 1/2% Senior Secured Discount Notes due 2004. 99.4% of the existing Senior
Secured Discount Notes were retired in connection with the refinancing in
December 1997, and $669,000 principal amount of Senior Secured Discount Notes is
currently outstanding. See "Business -- Recent Developments." The Company has
the option to redeem the remaining Senior Secured Discount Notes, in whole or in
part, on or after August 1, 1999, at fixed redemption prices equivalent to or in
excess of par, plus accrued interest to the date of redemption. The Senior
Secured Discount Notes contain certain restrictive covenants, rank pari passu
with and share collateral and guarantees with the Senior Secured Credit
Agreement.
WORKING CAPITAL FACILITY -- The Company's subsidiaries have a Working
Capital Facility through January, 2002 with a group of banks which provides
aggregate commitments of $80.0 million secured by the inventories and accounts
receivable of the Company's subsidiaries of which approximately $79.4 million
was available for borrowing at March 29, 1998 as calculated under the borrowing
base calculation. The Company pays an annual commitment fee of one-half of one
percent on the unused portion of the Working Capital Facility. Interest on
borrowings under the facility are subject at the option of the Company to either
LIBOR plus a margin ranging from 1.5% to 2.25% or prime plus a margin ranging
from 0.50% to 1.25% determined by the Company's consolidated leverage ratio.
The Working Capital Facility includes, among other things, limitations on
the incurrence of indebtedness, limitations on mergers, asset sales and joint
ventures, limitations on leases, limitations on the payment of dividends,
limitations on transactions with affiliates, prohibitions on voluntary
prepayments or redemptions of other indebtedness and amendments thereto,
limitations on liens and certain financial maintenance covenants, including
tangible net worth, maximum leverage and a minimum cash flow coverage. The
Company and each of its subsidiaries are guarantors on a senior basis of amounts
outstanding under the Working Capital Facility. As of March 29, 1998, there were
no borrowing's outstanding under the Working Capital Facility.
ENVIRONMENTAL IMPROVEMENT BONDS--The Environmental Improvement Bonds were
issued in April and September of 1996, with the Company receiving gross proceeds
of $11.3 million and $8.6 million at interest rates of 7.95% and 7.90%,
respectively. The gross proceeds of the Environmental Improvement Bonds were
reduced by debt issuance costs of $0.6 million which are being amortized over
the lives of the respective notes. The Environmental Improvement Bonds are due
April 1, 2025 and April 1, 2024, respectively. The Environmental Improvement
Bonds may be redeemed at the option of the Company in whole or in part, on or
after April 1, 2006, at fixed redemption prices equivalent to or in excess of
par, together with accrued and unpaid interest to the redemption date. The
Environmental Improvement Bonds are secured by a lien on certain personal
property and fixtures of Acme Steel.
NOTE PAYABLE--The Note Payable of $6.0 million is an unsecured obligation
assumed by Acme Steel on May 29, 1986 as a result of the reorganization of The
Interlake Corporation. The assumed debt was incurred in connection with the
financing of certain facilities which were retained by the Company in the
Spin-Off. The Note Payable bears an interest rate of 6.5% to 6.75% and principal
payments are due in varying installments from 1998-2008.
CERTAIN UNITED STATES INCOME TAX CONSIDERATIONS
The following summary describes certain United States federal income tax
consequences of the acquisition, ownership and disposition of the Notes. The
summary is based on the Internal Revenue Code of 1986, as amended (the "Code"),
and regulations, rulings and judicial decisions as of the date hereof, all of
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which may be repealed, revoked or modified so as to result in federal income tax
consequences different from those described below. Such changes could be applied
retroactively in a manner that could adversely affect holders of the Notes. In
addition, the authorities on which this summary is based are subject to various
interpretations. It is therefore possible that the consequences of the
acquisition, ownership and disposition of the Notes may differ from the
treatment described below.
The tax treatment of a holder of the Notes may vary depending upon the
particular situation of the holder. This summary is limited to investors who
will hold the Notes as capital assets within the meaning of Section 1221 of the
Code and does not deal with holders that may be subject to special tax rules
(including, but not limited to, insurance companies, tax-exempt organizations,
financial institutions, dealers in securities or currencies, holders whose
functional currency is not the U.S. dollar or holders who will hold the Notes as
a hedge against currency risks or as part of a straddle, synthetic security,
conversion transaction or other integrated investment comprised of the Notes and
one or more other investments). The summary is applicable only to purchasers of
Notes in this Offering and does not address other purchasers.
This summary is for general information only and does not address all
aspects of federal income taxation that may be relevant to holders of the Notes
in light of their particular circumstances, and it does not address any tax
consequences arising under the laws of any state, local or foreign taxing
jurisdiction. Prospective holders should consult their own tax advisors as to
the particular tax consequences to them of acquiring, holding or disposing of
the Notes.
As used herein, a "United States Holder" of a Note means an individual that
is a citizen or resident of the United States (including certain former citizens
and former long-term residents), a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, an estate the income of which is subject to United States
federal income taxation regardless of its source, or a trust if (i) a U.S. court
is able to exercise primary supervision over the administration of the trust and
(ii) one or more U.S. persons have the authority to control all substantial
decisions of the trust. A "Non-United States Holder" is a holder that is not a
United States Holder.
STATED INTEREST ON NOTES
Except as set forth below, interest on a Note will generally be taxable to
a United States Holder as ordinary income from U.S. sources at the time it is
paid or accrued in accordance with the United States Holder's method of
accounting for tax purposes.
The issue price of the Notes (99.251%) represents a discount that produces
original issue discount in an amount that is considered de minimis under
applicable regulations. As a result, the amount of original issue discount is
treated as zero (unless the interest rate on the Notes changes as described in
the following paragraph) and will be treated as income (generally characterized
as capital gain) at the time of payment of the principal amount of the Notes.
Failure of the Company to consummate the Exchange Offer or to file or cause
to be declared effective the Shelf Registration Statement as described under
"Description of the Notes--Registration Rights" will cause additional interest
to accrue on the Notes in the manner described therein. According to U.S.
Treasury regulations, the possibility of a change in the interest rate will not
affect the amount of interest income recognized by a United States Holder (or
the timing of such recognition) if the likelihood of the change, as of the date
the Notes are issued, is remote. The Company believes that the likelihood of a
change in the interest rate on the Notes is remote and does not intend to treat
the possibility of a change in the interest rate as affecting the yield to
maturity of any Note. In the unlikely event that the interest rate on the Notes
is increased, such increased interest may be treated as original issue discount,
includable by a United States Holder in income as such interest accrues, in
advance of receipt of any cash payment thereof.
MARKET DISCOUNT
If a United States Holder purchases a Note for an amount that is less than
its principal amount, the amount of the difference will be treated as "market
discount" for U.S. federal income tax purposes, unless
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such difference is less than a specified de minimis amount. Under the market
discount rules, a United States Holder will be required to treat any partial
principal payment on, or any gain on the sale, exchange, retirement or other
disposition (including a gift) of, a Note as ordinary income to the extent of
the market discount which has not previously been included in income and is
treated as having accrued on such Note at the time of such payment or
disposition. In addition, the United States Holder may be required to defer,
until the maturity of the Note or its earlier disposition in a taxable
transaction, the deduction of all or a portion of the interest expense on any
indebtedness incurred or continued to purchase or carry such Note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Note, unless the United
States Holder elects to accrue on a constant interest method. A United States
Holder may elect to include market discount in income currently as it accrues
(on either a ratable or constant interest method), in which case the rule
described above regarding deferral of interest deductions will not apply. This
election to include market discount in income currently, once made, applies to
all market discount obligations acquired on or after the first taxable year to
which the election applies and may not be revoked without the consent of the
Internal Revenue Service (the "IRS").
AMORTIZABLE BOND PREMIUM
A United States Holder that purchases a Note for an amount in excess of the
principal amount will be considered to have purchased the Note at a "premium"
equal to such excess and may elect to amortize the premium over the remaining
term of the Note on a constant yield method. However, if the Note is purchased
at a time when the Note may be optionally redeemed by the Company for an amount
that is in excess of its principal amount, special rules would apply that could
result in a deferral of the amortization of bond premium until later in the term
of the Note. The amount amortized in any year will be treated as a reduction of
the United States Holder's interest income from the Note. A United States Holder
that elects to amortize bond premium must elect to reduce its tax basis in the
Note by the premium amortized. Bond premium on a Note held by a United States
Holder that does not make such an election will decrease the gain or increase
the loss otherwise recognized on disposition of the Note. The election to
amortize premium on a constant yield method, once made, applies to all debt
obligations held or subsequently acquired by the electing United States Holder
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.
SALE, EXCHANGE AND RETIREMENT OF NOTES
Upon the sale, exchange, redemption, retirement or other disposition of a
Note, a United States Holder generally will recognize gain or loss equal to the
difference between the amount realized upon the sale, exchange, redemption,
retirement or other disposition and such holder's adjusted tax basis of the
Note. A United States Holder's adjusted tax basis in a Note will, in general, be
the United States Holder's cost therefor, increased by market discount
previously included in income by the United States Holder and reduced by any
amortized premium previously deducted from income by the United States Holder.
Except as described above with respect to market discount or except to the
extent the gain or loss is attributable to accrued but unpaid stated interest,
such gain or loss will be capital gain or loss. For certain noncorporate
taxpayers (including individuals), the rate of taxation of capital gains will
depend upon (i) the taxpayer's holding period in the capital asset (with
preferential rates available for capital assets held more than 12 months or 18
months) and (ii) the taxpayer's marginal tax rate for ordinary income. The
deductibility of capital losses is subject to limitations.
The exchange of an Old Note by a United States Holder for a New Note should
not constitute a taxable exchange. A United States Holder will have the same tax
basis and holding period in the New Note as it did in the Old Note.
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NON-UNITED STATES HOLDERS
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) no United States federal withholding tax will be imposed with
respect to the payment by the Company or its paying agent of principal,
premium, if any, or interest on a Note owned by a Non-United States Holder
(the "Portfolio Interest Exception"), provided (i) that such Non-United
States Holder does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled
to vote within the meaning of section 871(h)(3) of the Code and the
regulations thereunder, (ii) such Non-United States Holder is not a
controlled foreign corporation that is related, directly or indirectly, to
the Company through stock ownership, (iii) such Non-United States Holder is
not a bank whose receipt of interest on a Note is described in section
881(c)(3)(A) of the Code and (iv) such Non-United States Holder satisfies
the statement requirement (described generally below) set forth in section
871(h) and section 881(c) of the Code and the regulations thereunder.
(b) no United States federal withholding tax will be imposed generally
with respect to any gain or income realized by a Non-United States Holder
upon the sale, exchange, redemption, retirement or other disposition of a
Note; and
(c) a Note beneficially owned by an individual who at the time of
death is a Non-United States Holder will not be subject to United States
federal estate tax as a result of such individual's death, provided that
such individual does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the Company entitled
to vote within the meaning of section 871(h)(3) of the Code and provided
that the interest payments with respect to such Note would not have been,
if received at the time of such individuals death, effectively connected
with the conduct of a United States trade or business by such individual.
To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of such Note, or a financial institution holding the Note on behalf of
such owner, must provide, in accordance with specified procedures, a paying
agent of the Company with a statement to the effect that the beneficial owner is
not a United States Holder. Pursuant to current temporary U.S. Treasury
regulations, which generally apply to interest on a Note before January 1, 1999
and to payments before such date of proceeds from a sale, exchange or other
disposition of a Note, these requirements will be met if (1) the beneficial
owner provides his name and address, and certifies, under penalties of perjury,
that he is not a United States Holder (which certification may be made on an IRS
Form W-8 (or substitute form)) or (2) a financial institution holding the Note
on behalf of the beneficial owner certifies, under penalties of perjury, that
such statement has been received by it and furnishes a paying agent with a copy
thereof.
If a Non-United States Holder cannot satisfy the requirements of the
Portfolio Interest Exception described in (a) above, payments on a Note made to
such Non-United States Holder will be subject to a 30% withholding tax unless
the beneficial owner of the Note provides the Company or its paying agent, as
the case may be, with a properly executed (1) IRS Form 1001 (or substitute form)
claiming an exemption from or reduction of withholding under the benefit of a
tax treaty or (2) IRS Form 4224 (or substitute form) stating that interest paid
on the Note is not subject to withholding tax because it is effectively
connected with the beneficial owner's conduct of a trade or business in the
United States.
Recently issued Treasury regulations modify certain of the certification
requirements described above. These modifications will become generally
effective for interest payments made beginning January 1, 2000. The Company or
its paying agent may request new withholding exemption forms from holders in
order to qualify for continued exemption from withholding under the Treasury
regulations when they become effective. For example, under recently issued
Treasury regulations, a Non-United States Holder will be required to provide a
Form W-8 (or substitute form) to the withholding agent on which such holder
provides its name, address and taxpayer identification number and states, under
penalty of perjury, that the interest paid on a Note and the gain on the sale,
exchange or other disposition of a Note is effectively connected with such
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holder's United States trade or business in order to obtain an exemption from
withholding tax on such payments made beginning January 1, 2000.
If a Non-United States Holder is engaged in a trade or business in the
United States and if interest on a Note is effectively connected with the
conduct of such trade or business, the Non-United States Holder, although exempt
from United States federal withholding tax as discussed above, will be subject
to United States federal income tax on such interest and on gain realized on the
sale, exchange or other disposition of a Note on a net income basis in the same
manner as if the holder were a United States Holder. In addition, if such holder
is a foreign corporation, it may be subject to a branch profits tax equal to 30%
or applicable lower tax treaty rate of its effectively connected earnings and
profits for the taxable year, subject to adjustments. For this purpose, interest
on a Note will be included in such foreign corporation's effectively connected
earnings and profits.
Any gain or income realized upon the sale, exchange, retirement or other
disposition of a Note by a Non-United States Holder generally will not be
subject to United States federal income tax unless (i) such gain or income is
effectively connected with a trade or business in the United States of the
Non-United States Holder or (ii) in the case of a Non-United States Holder who
is an individual, such individual is present in the United States for 183 days
or more in the taxable year of such sale, exchange, retirement or other
disposition, and certain other conditions are met.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments on a
Note and to the proceeds of the sale of a Note made to United States Holders
other than certain exempt recipients (such as corporations). A 31% backup
withholding tax will apply to such amounts if the United States Holder fails to
provide a taxpayer identification number or certification of foreign or other
exempt status or fails to report in full dividend and interest income.
No information reporting or backup withholding will be required with
respect to payments made by the Company or its paying agent to Non-United States
Holders if a statement described in (a)(iv) under "--Non-United States Holders"
has been received and the payor does not have actual knowledge that the
beneficial owner is a United States person.
In addition, backup withholding and information reporting will not apply if
payments on a Note are paid or collected by a foreign office of a custodian,
nominee or other foreign agent on behalf of the beneficial owner of such Note,
or if a foreign office of a broker (as defined in applicable U.S. Treasury
regulations) pays the proceeds of the sale of a Note to the owner thereof. If,
however, such nominee, custodian, agent or broker is, for United States federal
income tax purposes, a United States person, a controlled foreign corporation or
a foreign person that derives 50% or more of its gross income for certain
periods from the conduct of a trade or business in the United States, such
payments will be subject to information reporting (but not backup withholding),
unless (1) such custodian, nominee, agent or broker has documentary evidence in
its records that the beneficial owner is not a United States person and certain
other conditions are met or (2) the beneficial owner otherwise establishes an
exemption.
Payments on a Note paid to the beneficial owner of a Note by a United
States office of a custodian, nominee or agent, or the payment by the United
States office of a broker of the proceeds of sale of a Note, will be subject to
both backup withholding and information reporting unless the beneficial owner
provides the statement referred to in (a)(iv) above and the payor does not have
actual knowledge that the beneficial owner is a United States person or
otherwise establishes an exemption.
Recently issued Treasury regulations modify certain of the certification
requirements for backup withholding. These modifications will become generally
effective for interest payments made beginning January 1, 2000. It is possible
that the Company or its paying agent may request new withholding exemption forms
from holders in order to qualify for continued exemption from backup withholding
under Treasury regulations when they become effective.
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Any amounts withheld under the backup withholding rules will be credited
toward such Holder's United States federal income tax liability, if any. To the
extent that the amounts withheld exceed the Holder's tax liability, the excess
may be refunded to the Holder provided the required information is furnished to
the IRS. In addition to providing the necessary information, the Holder must
file a United States tax return in order to obtain a refund of the excess
withholding.
THE FEDERAL INCOME TAX SUMMARY SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. PROSPECTIVE UNITED STATES HOLDERS AND NON-UNITED STATES HOLDERS OF
THE NOTES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NOTES,
INCLUDING THE TAX CONSEQUENCES UNDER FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE EFFECTS OF CHANGES IN SUCH LAWS.
PLAN OF DISTRIBUTION
Except as described below, (i) a broker-dealer may not participate in the
Exchange Offer in connection with a distribution of the New Notes, (ii) such
broker-dealer would be deemed an underwriter in connection with such
distribution and (iii) such broker-dealer would be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transactions. A broker-dealer may, however,
receive New Notes for its own account pursuant to the Exchange Offer in exchange
for Old Notes when such Old Notes were acquired as a result of market-making
activities or other trading activities. Each such broker-dealer must acknowledge
that it will deliver a prospectus meeting the requirements of the Securities Act
in connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer (other
than an "affiliate" of the Company) in connection with resales of such New
Notes. The Company has agreed that for a period of 180 days after the Exchange
Date, it will make this Prospectus, as amended or supplemented, available to any
such broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer may be deemed to be an "underwriter" within the meaning of
the Securities Act, and any profit on any such resale of the New Notes may be
deemed underwriting compensation under the Securities Act. The Letter of
Transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Exchange Date, the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in a Letter of
Transmittal. The Company has agreed to pay all expenses incident to the Exchange
Offer other than commissions or concessions of any brokers or dealers and
transfer taxes and will indemnify the holders of the Old Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
The New Notes will constitute a new issue of securities with no established
trading market. The Company does not intend to list the New Notes on any
national securities exchange, or to seek approval for quotation through any
automated quotation system. The Company has been advised by the Placement Agents
that following completion of the Exchange Offer, the Placement Agents intend to
make a market in the New
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Notes. However, the Placement Agents are not obligated to do so, and any
market-making activities with respect to the New Notes may be discontinued at
any time without notice. Accordingly, no assurance can be given that an active
public or other market will develop for the New Notes or as to the liquidity of
or the trading market for the New Notes. If a trading market does not develop or
is not maintained, holders of the New Notes may experience difficulty in
reselling the New Notes or may be unable to sell them at all. If a market for
the New Notes develops, any such market may cease to continue at any time. If a
public trading market develops for the New Notes, future trading prices of the
New Notes will depend on many factors, including, among other things, prevailing
interest rates, the Company's results of operations and the market for similar
securities.
LEGAL MATTERS
The validity of the New Notes and certain other legal matters regarding the
New Notes will be passed upon for the Company by Ungaretti & Harris, Chicago,
Illinois.
INDEPENDENT ACCOUNTANTS
The consolidated balance sheets of the Company at December 29, 1996 and
December 28, 1997, and the related consolidated statements of operations,
changes in shareholders' equity and cash flows for the years ended December 31,
1995, December 29, 1996 and December 28, 1997 included in this Prospectus have
been audited by Price Waterhouse LLP, independent accountants, as set forth in
their report thereon appearing herein.
With respect to the unaudited consolidated financial information of the
Company for the three-month period ended March 29, 1998, included in this
Prospectus, Price Waterhouse LLP reported that they have applied limited
procedures in accordance with professional standards for a review of such
information. However, their separate report dated May 7, 1998 appearing herein,
states that they did not audit and they do not express an opinion on that
unaudited consolidated financial information. Price Waterhouse LLP has not
carried out any significant or additional audit tests beyond those which would
have been necessary if their report had not been included. Accordingly, the
degree of reliance on their report on such information should be restricted in
light of the limited nature of the review procedures applied. Price Waterhouse
LLP is not subject to the liability provisions of section 11 of the Securities
Act of 1933 for their report on the unaudited consolidated financial information
because that report is not a "report" or a "part" of the registration statement
prepared or certified by Price Waterhouse LLP within the meaning of sections 7
and 11 of the Act.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company may be inspected and copied at the public reference facilities of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices: Seven World Trade Center,
13th Floor, New York, New York 10048; and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and copies of such material
can be obtained from the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In
addition, materials filed by the Company can be inspected at the offices of the
New York Stock Exchange, 20 Broad Street, New York, New York 10005. Electronic
filings made by the Company through the Electronic Data Gathering, Analysis and
Retrieval System are publicly available through the Commission's Web Site
(http://www.sec.gov).
This Prospectus constitutes a part of a Registration Statement on Form S-4
filed by the Company with the Commission under the Securities Act. As permitted
by the rules and regulations of the Commission, this Prospectus does not contain
all of the information contained in the Registration Statement and the exhibits
and schedules thereto and reference is hereby made to the Registration Statement
and the exhibits and
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schedules thereto for further information with respect to the Company and the
securities offered hereby. Statements contained herein concerning the provisions
of any documents filed as an exhibit to the Registration Statement or otherwise
filed with the Commission are not necessarily complete, and in each instance
reference is made to the copy of such document so filed. Each such statement is
qualified in its entirety by such reference.
INCORPORATION BY REFERENCE
The Company hereby incorporates by reference into this Prospectus the
following documents or information filed with the Commission:
(a) the Company's Annual Report on Form 10-K for the fiscal year ended
December 28, 1997;
(b) the Company's Current Report on Form 8-K filed with the Commission
on March 20, 1998; and
(c) the Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 29, 1998.
In addition, all documents filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus
and prior to the Expiration Date shall be deemed to be incorporated by reference
in this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement herein or in any document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part of this Prospectus except as so modified or superseded. The information
relating to the Company contained in this Prospectus should be read together
with the information in the documents incorporated by reference.
Copies of the above documents (other than exhibits not specifically
incorporated by reference into the text of such documents) may be obtained upon
written or oral request without charge to each person to whom this Prospectus is
delivered from the Company at 13500 South Perry Avenue, Riverdale, Illinois
60827-1182, Attention: Edward P. Weber, Jr., Vice President, General Counsel and
Secretary. Requests for such information should be received by June 11, 1998 to
ensure timely delivery.
101
<PAGE> 107
ACME METALS INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
The following Consolidated Financial Statements of Acme Metals Incorporated
and the related Report of Independent Accountants are included in Item 12:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Report of Management........................................ F-3
Consolidated Statements of Operations for the fiscal years
ended December 28, 1997, December 29, 1996 and December
31, 1995.................................................. F-4
Consolidated Balance Sheets at December 28, 1997 and
December 29, 1996......................................... F-5
Consolidated Statements of Cash Flows for the fiscal years
ended December 28, 1997, December 29, 1996 and December
31, 1995.................................................. F-6
Consolidated Statements of Changes in Shareholders' Equity
for the fiscal years ended December 28, 1997, December 29,
1996 and December 31, 1995................................ F-7
Notes to Consolidated Financial Statements.................. F-8
Quarterly Results (Unaudited)............................... F-33
Schedule VIII -- Valuation and Qualifying Accounts and
Reserves.................................................. F-34
Unaudited Consolidated Statements of Operation for the three
months ended March 29, 1998 and March 30, 1997............ F-35
Unaudited Consolidated Balance Sheets at March 29, 1998 and
December 28, 1997......................................... F-36
Unaudited Consolidated Statements of Cash Flows for the
three months ended March 29, 1998 and March 30, 1997...... F-37
Notes to Consolidated Financial Statements for the three
months ended March 29, 1998 and March 30, 1997............ F-38
</TABLE>
All other schedules have been omitted because they are not applicable, or
not required, or because the required information is shown in the Consolidated
Financial Statements or notes thereto.
F-1
<PAGE> 108
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Acme Metals Incorporated
In our opinion, the accompanying consolidated financial statements listed
in the accompanying index present fairly, in all material respects, the
financial position of Acme Metals Incorporated and its subsidiaries at December
28, 1997 and December 29, 1996 and the results of their operations and their
cash flows for each of the three years in the period ended December 28, 1997, 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 Note entitled "Cumulative Effect of a Change in
Accounting Principle" to the consolidated financial statements, the Company
changed its method of accounting for expenditures associated with the upgrade of
its management information systems.
/s/ PRICE WATERHOUSE LLP
- ------------------------------------------------------------
Price Waterhouse LLP
January 23, 1998, except as to the Note entitled "Assets Held for Sale", which
is as of March 10, 1998, and except as to the Note entitled "Summary of
Significant Accounting Policies -- Comprehensive Income", which is as of May 6,
1998.
Chicago, Illinois
F-2
<PAGE> 109
REPORT OF MANAGEMENT
The management of Acme Metals Incorporated has prepared and is responsible
for the consolidated financial statements and other financial information
included in this Form 10-K Annual Report. The consolidated financial statements
have been prepared in conformity with generally accepted accounting principles
and include amounts that are based upon informed judgments and estimates by
management. The other financial information in this annual report is consistent
with the consolidated financial statements.
The Company maintains a system of internal accounting controls. Management
believes the internal accounting controls provide reasonable assurance that
transactions are executed and recorded in accordance with Company policy and
procedures and that the accounting records may be relied on as a basis for
preparation of the consolidated financial statements and other financial
information.
The financial statements have been audited by Price Waterhouse LLP, the
Company's independent accountants, whose report is included herein. In addition,
the Company has a professional staff of internal auditors who coordinate their
financial audits with the procedures performed by the independent accountants
and conduct operational and special audits.
The Audit Review Committee of the Board of Directors, composed of directors
who are not employees of the Company, meets periodically with management, the
internal auditors and the independent accountants to discuss the adequacy of
internal accounting controls and the quality of financial reporting. Both the
independent accountants and internal auditors have full and free access to the
Audit Review Committee.
<TABLE>
<S> <C>
/s/ S. D. BENNETT /s/ J. F. WILLIAMS
- --------------------------------------------------- ---------------------------------------------------
Stephen D. Bennett Jerry F. Williams
President and Chief Executive Officer Vice President Finance and Administration and Chief
Financial Officer
</TABLE>
F-3
<PAGE> 110
ACME METALS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
--------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES................................................... $ 488,030 $ 498,242 $ 521,619
COSTS AND EXPENSES:
Cost of products sold..................................... 445,256 431,957 424,158
Depreciation.............................................. 38,623 15,820 13,013
---------- ---------- ----------
Gross profit................................................ 4,151 50,465 84,448
Selling and administrative................................ 39,208 35,496 35,636
Training and Pre-Start-up -- New Facility................. 9,933
---------- ---------- ----------
Operating income (loss)..................................... (35,057) 5,036 48,812
NON-OPERATING INCOME (EXPENSE):
Interest expense.......................................... (41,632) (6,193) (20,801)
Interest income........................................... 508 5,620 14,278
Other -- net.............................................. (461) 630 1,846
---------- ---------- ----------
Income (loss) before income taxes, extraordinary loss and
cumulative effect of a change in accounting principle..... (76,642) 5,093 44,135
Income tax provision (benefit).............................. (29,124) 2,426 15,889
---------- ---------- ----------
(47,518) 2,667 28,246
Extraordinary loss, net of tax.............................. (23,411)
Cumulative effect of a change in accounting principle, net
of tax.................................................... (6,276)
---------- ---------- ----------
Net income (loss)........................................... $ (77,205) $ 2,667 $ 28,246
========== ========== ==========
EARNINGS (LOSS) PER SHARE:
BASIC:
Income (loss) before extraordinary loss and cumulative
effect of a change in accounting principle.............. $ (4.09) $ 0.23 $ 2.44
Extraordinary loss, net of tax............................ (2.01)
Cumulative effect of a change in accounting principle, net
of tax.................................................. (0.54)
---------- ---------- ----------
Net income (loss)......................................... $ (6.64) $ 0.23 $ 2.44
---------- ---------- ----------
Weighted average shares outstanding......................... 11,628,497 11,597,675 11,573,642
========== ========== ==========
DILUTED:
Income (loss) before extraordinary loss and cumulative
effect of a change in accounting principle.............. $ (4.09) $ 0.23 $ 2.44
Extraordinary loss, net of tax............................ (2.01)
Cumulative effect of a change in accounting principle, net
of tax.................................................. (0.54)
---------- ---------- ----------
Net income (loss)......................................... $ (6.64) $ 0.23 $ 2.44
---------- ---------- ----------
Weighted average shares outstanding......................... 11,628,497 11,662,643 11,595,886
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE> 111
ACME METALS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 6,454 $ 33,224
Short-term investments.................................... 11,817
Accounts receivable trade, less allowances of $1,296, and
$1,320, respectively................................... 59,646 52,502
Inventories............................................... 81,630 68,884
Income tax receivable..................................... 24,936
Net assets held for sale.................................. 3,808
Deferred income taxes..................................... 14,082 14,957
Other current assets...................................... 1,887 1,453
--------- ---------
Total current assets................................. 192,443 182,837
--------- ---------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies....................... 17,395 17,862
Noncurrent cash
Other assets.............................................. 20,357 19,028
Deferred income taxes..................................... 48,536 25,297
--------- ---------
Total investments and other assets................... 86,288 62,187
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment............................. 854,445 841,034
Construction in progress.................................. 9,747 6,319
Accumulated depreciation.................................. (313,842) (286,628)
--------- ---------
Total property, plant and equipment.................. 550,350 560,725
--------- ---------
$ 829,081 $ 805,749
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 64,691 $ 73,796
Accrued expenses.......................................... 34,109 39,966
Current installments of long-term debt.................... 1,500
Income taxes payable...................................... 2,178
--------- ---------
Total current liabilities............................ 100,300 115,940
--------- ---------
LONG-TERM LIABILITIES:
Long-term debt............................................ 423,243 310,085
Other long-term liabilities............................... 17,791 13,026
Postretirement benefits other than pensions............... 95,814 93,247
Retirement benefit plans.................................. 5,590 12,750
--------- ---------
Total long-term liabilities.......................... 542,438 429,108
--------- ---------
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, 11,627,380 and 11,610,723
shares issued and outstanding, respectively............... 11,627 11,611
Additional paid-in capital................................ 165,608 165,342
Retained earnings......................................... 21,427 98,632
Accumulated other comprehensive loss...................... (12,319) (14,884)
--------- ---------
Total shareholders' equity........................... 186,343 260,701
--------- ---------
$ 829,081 $ 805,749
========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 112
ACME METALS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (77,205) $ 2,667 $ 28,246
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Gain on sale of assets..................................
Depreciation............................................ 39,410 16,591 13,613
Accretion of senior discount notes...................... 8,803 13,324 11,776
Loss on early extinguishment of debt.................... 37,759
Cumulative effect of a change in accounting principle,
net of tax............................................ 6,276
Deferred income taxes................................... (19,506) (2,073) (7,100)
Pension contribution.................................... (3,691) (1,988)
CHANGE IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable................................... (10,880) 2,842 5,534
Income tax receivable................................. (24,936)
Inventories........................................... (14,050) (16,952) (6,950)
Accounts payable...................................... (8,478) 18,345 6,761
Other current accounts................................ (7,051) (3,429) 1,066
Other, net.............................................. 12,837 14,719 8,583
--------- --------- ---------
Net cash (used for) provided by operating activities...... (60,712) 46,034 59,541
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments.................................. (331) (26,929) (459,749)
Sales and/or maturities of investments.................... 12,148 149,173 603,469
Investments in associated companies....................... (1,750) (1,754)
Reclass as restricted case................................
Capital expenditures...................................... (16,852) (27,909) (27,664)
Capital expenditures -- New Facility...................... (23,564) (178,147) (197,849)
--------- --------- ---------
Net cash used for investing activities.................... (28,599) (85,562) (83,547)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from 10.875 percent Unsecured Senior Notes, net
of discount............................................. 198,502
Proceeds from Senior Secured Credit Agreement............. 175,000
Redemption of 13.5 percent Senior Secured Discount
Notes................................................... (117,289)
Redemption of 12.5 percent Senior Secured Notes........... (107,377)
Payment long term debt....................................
Proceeds from sale of assets..............................
Debt redemption costs..................................... (29,947)
Payment of Term Loan...................................... (50,000)
Borrowings under revolving credit line agreement.......... 269,000
Repayments of revolving credit line agreement............. (264,000)
Issuance of Environmental Improvement Bonds, net of
discount................................................ 19,873
Debt issuance costs and fees.............................. (11,630) (550)
Exercise of stock options and other....................... 282 386 41
--------- --------- ---------
Net cash provided by financing activities................. 62,541 19,709 410
--------- --------- ---------
Net (decrease) in cash and cash equivalents............... (26,770) (19,819) (23,596)
Cash and cash equivalents at beginning of period.......... 33,224 53,043 76,639
--------- --------- ---------
Cash and cash equivalents at end of period................ $ 6,454 $ 33,224 $ 53,043
========= ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE> 113
ACME METALS INCORPORATED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON STOCK, PAID-IN RETAINED COMPREHENSIVE COMPREHENSIVE
$1 PAR VALUE CAPITAL EARNINGS INCOME/(LOSS) INCOME/(LOSS)
------------- ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE -- DECEMBER 25, 1994..... $11,558 $164,599 $67,719 $(20,598)
------- -------- ------- -------- --------
Net income..................... 28,246 $ 28,246
Stock plans -- issuance of
shares...................... 22 382
Tax benefit arising from stock
plan transactions........... 6
Comprehensive (loss)........... (3,823) (3,823)
------- -------- ------- -------- --------
BALANCE -- DECEMBER 31, 1995..... 11,580 164,987 95,965 (24,421) 24,423
------- -------- ------- -------- --------
Net income..................... 2,667 2,667
Stock plans -- issuance of
shares...................... 31 325
Tax benefit arising from stock
plan transactions........... 30
Comprehensive income........... 9,537 9,537
------- -------- ------- -------- --------
BALANCE -- DECEMBER 29, 1996..... 11,611 165,342 98,632 (14,884) 12,204
------- -------- ------- -------- --------
Net loss....................... (77,205) (77,205)
Stock plans -- issuance of
shares...................... 16 266
Comprehensive income........... 2,565 2,565
------- -------- ------- -------- --------
BALANCE -- DECEMBER 28, 1997..... $11,627 $165,608 $21,427 $(12,319) $(74,640)
======= ======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-7
<PAGE> 114
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of Acme Metals
Incorporated and its wholly-owned subsidiaries (the "Company" or "Acme").
Investments in associated companies 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. Fiscal year
1995 contained 53 weeks as compared to 52 weeks for fiscal years 1997 and 1996.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Accounts receivable from sales to customers are unsecured. The Company
recognizes revenue upon shipment of products.
Comprehensive Income
During the quarter ended March 29, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income," which requires the Company to disclose, in
financial statement format, all non-owner changes in equity. The Consolidated
Statements of Changes in Shareholders' Equity for the years ended December 28,
1997, December 29, 1996 and December 28, 1997 have been reclassified to reflect
the adoption of this standard. All changes in equity resulted from minimum
pension liability adjustments.
Cash and Cash Equivalents
Cash and cash equivalents include cash balances and highly liquid
investments with an original maturity of three months or less. The funds are
invested in compliance with the Company's debt instruments which restrict the
type, quality and maturity of investments.
Short-Term Investments
Short-term investments have an original maturity of more than three months
and a remaining maturity of less than one year. These investments are stated at
cost as it is the intent of the Company to hold these securities until maturity.
The funds are invested in compliance with the Company's debt instruments which
restrict the type, quality and maturity of investments.
Inventories
Inventories are stated at the lower of cost or market using the last-in,
first-out ("LIFO") method to determine inventory costs.
Property, Plant, and Equipment
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. Estimated useful lives of plant and equipment range
from 3 to 50 years with the majority of assets having 18 year lives.
Expenditures for maintenance, repairs and minor renewals and betterments are
charged to expense as incurred. Furnace relines and major renewals and
betterments are capitalized.
F-8
<PAGE> 115
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
Construction in Progress
Construction in progress includes all costs related to capital projects
which were not completed at the end of the reporting period.
Training and Pre-Start-up -- New Facility
During the fourth quarter of 1996, the Company's continuous caster and hot
strip mill facility ("New Facility") was completed. Prior thereto, training and
ramp-up related costs were expensed as incurred within the Consolidated
Statements of Operations as "Training and Pre-Start-up -- New Facility."
Retirement Benefit Plans
Pension costs include service cost, interest cost, return on plan assets
and amortization of unrecognized gains and losses. The Company's policy is to
fund not less than the minimum funding required under ERISA.
The Company has unfunded postretirement health care and life insurance
plans. Provisions for postretirement costs are determined pursuant to the
provisions of Financial Accounting Standard ("FAS") No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions."
Income Taxes
Income taxes are determined pursuant to the provisions of FAS No. 109,
"Accounting for Income Taxes." Under this standard, the benefit 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.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE:
On November 20, 1997 the Emerging Issues Task Force ("EITF") of the
Financial Accounting Standards Board issued EITF No. 97-13 "Accounting for Costs
Incurred in Connection with a Consulting Contract for an Internal Project that
Combines Business Process Reengineering and Information Technology
Transformation." EITF No. 97-13 requires that certain costs related to
reengineering, as defined, be expensed as incurred. Under the Company's previous
accounting policy, a portion of such costs related to ongoing expenditures to
upgrade the Company's management information systems were capitalized during
1996 and 1995 and amortized over the estimated life of the systems.
In accordance with EITF No. 97-13, the Company changed its policy on
October 1, 1997 and recorded a cumulative effect adjustment in the fourth
quarter of 1997 of $10.1 million, $6.2 million after tax.
Pro forma amounts assuming the new accounting method is applied
retroactively are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Income (loss) before extraordinary loss......... $(53,106) $(1,008) $24,957
Earnings (loss) per share..................... $ (4.57) $ (.09) $ 2.16
Net Income (loss)............................... $(76,517) $(1,008) $24,957
Earnings (loss) per share..................... $ (6.58) $ (.09) $ 2.16
</TABLE>
F-9
<PAGE> 116
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EARNINGS PER SHARE:
During 1997, the Company adopted FAS No. 128, "Earnings per share," which
requires the presentation of basic and diluted earnings per share. Basic
earnings (loss) per share excludes dilution and is computed by dividing income
(loss) by the weighted average number of common shares outstanding during each
period. Diluted earnings (loss) per share reflects the potential dilution that
could occur if common stock options are exercised and is computed by dividing
income (loss) by the weighted average number of common shares outstanding,
including common stock equivalent shares, issuable upon exercise of outstanding
stock options, to the extent that they would have a dilutive effect on the per
share amounts. During the periods presented, the Company's common stock
equivalents did not have a dilutive effect on the earnings (loss) per share
amounts.
INVENTORIES:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................. $13,510 $15,642
Semi-finished and finished products....................... 62,126 46,493
Supplies.................................................. 5,994 6,749
------- -------
$81,630 $68,884
======= =======
</TABLE>
On December 28, 1997 and December 29, 1996, inventories valued on the LIFO
method were less than the current costs of such inventories by $52.7 million and
$57.6 million, respectively.
ASSETS HELD FOR SALE:
In March 1998, the Company completed the sale of Universal Tool & Stamping
Company, Inc., through a stock sale generating proceeds to the Company of
approximately $18.0 million and a gain of approximately $12.0 million. At
December 28, 1997, the net assets of Universal (excluding cash and intercompany
accounts) were $3.8 million and were classified as a current asset.
Proceeds from the sale of Universal are restricted by the Indentures
covering the Company's Senior Secured Notes issued in 1994 and have been
deposited with the Trustee. The Company is permitted to apply the proceeds to
related business investments or to offer to redeem on a pro rata basis the
remaining 1994 Notes. To the extent an offer to redeem is not accepted, the
proceeds become unrestricted.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Land.................................................. $ 4,140 $ 4,250
Buildings............................................. 104,532 106,334
Equipment............................................. 745,773 730,450
Construction in progress.............................. 9,747 6,319
--------- ---------
864,192 847,353
Less accumulated depreciation......................... (313,842) (286,628)
--------- ---------
$ 550,350 $ 560,725
========= =========
</TABLE>
The difference between depreciation expense presented in the Consolidated
Statements of Cash Flows and the Consolidated Statements of Operations
represents the portion of depreciation expense classified in selling and
administrative expense on the Consolidated Statements of Operations.
F-10
<PAGE> 117
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Cumulative capitalized expenditures related to the New Facility totaled
$459.5 million at December 28, 1997, including $48.0 million of capitalized
interest. The New Facility commenced depreciation at a rate of approximately
$2.0 million per month beginning in mid-November 1996. Although the New Facility
has been placed in service, a limited amount of additional expenditures are
expected before the entire project is completed.
Accounts payable at December 28, 1997 includes an accrual of $15.5 million
for services rendered in 1997 in relation to the New Facility which due to its
non-cash nature has been excluded from the Statement of Cash Flows. At December
29, 1996, accounts payable included a similar accrual of $12.0 million.
At December 28, 1997, construction in progress primarily included
expenditures for Acme Packaging's plastic strapping lines and expenditures to
upgrade the Company's management information system.
INVESTMENTS IN ASSOCIATED COMPANIES:
The Company has a 39.9 percent equity interest (15.1 percent participation)
as a member of an iron ore mining venture. The Company's carrying value is $14.3
million at December 28, 1997 and December 29, 1996, respectively. In 1997, 1996
and 1995, the Company made iron ore purchases of $27.3 million, $23.8 million,
and $21.8 million, respectively, from the venture. At December 28, 1997, $6.3
million was owed to the venture for iron ore purchases, ($4.0 million at
December 29, 1996).
The Company has a 37 percent 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. During the first quarter of 1998, the
Bankruptcy Court approved the Chapter 11 Plan of Liquidation for Olga, including
a direction for the dissolution of Olga under the West Virginia corporation
laws. Olga's Trustee is currently implementing Olga's Plan of Liquidation. The
coal mining investment is carried at no value in the Consolidated Balance
Sheets.
During 1996 and 1995, the Company invested capital of $1.7 million and $1.8
million, respectively, in a joint venture which performs processing of certain
of the Company's steel products. The Company's cumulative invested capital of
$3.5 million represents a total interest of 40 percent. The investment is
accounted for by the equity method of accounting and has a carrying value of
$3.1 million at December 28, 1997.
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 the ESOP are based upon 7.5
percent and 3.5 percent, respectively, of eligible compensation. Contributions
were suspended during the last four months of 1997 and were restored early in
1998. Amounts charged to operations under these plans were $2.5 million in 1997,
$3.7 million and $3.5 million in 1996 and 1995, respectively.
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-11
<PAGE> 118
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The net periodic defined benefit pension cost, as determined pursuant to
the provisions of FAS No. 87, "Employer's Accounting for Pensions," included the
following components:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................. $ 2,347 $ 2,830 $ 2,492
Interest cost on projected benefit
obligation................................. 15,955 15,489 15,924
Actual return on plan assets................. (38,544) (26,232) (34,304)
Net amortization and deferral................ 22,441 11,161 18,120
-------- -------- --------
Net periodic defined benefit pension cost.... $ 2,199 $ 3,248 $ 2,232
======== ======== ========
</TABLE>
Actuarial assumptions used for the Company's pension plan valuations were
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Weighted average discount rate:
For defined benefit pension cost................... 7.75% 7.5% 8.5%
For projected benefit obligation................... 7.25% 7.75% 7.5%
Expected rate of increase in future compensation
levels............................................. 5.0% 5.0% 5.0%
Expected long-term 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 sheets. Plan
assets are invested primarily in the publicly traded companies and U.S.
government bonds and notes.
<TABLE>
<CAPTION>
1997 1996
----------- -----------
UNDERFUNDED UNDERFUNDED
PLANS PLANS
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $204,918 and $186,489, respectively................. $ 221,788 $ 207,817
Effect of increase in compensation levels................. 3,160 3,564
--------- ---------
Projected benefit obligation for service rendered to
date................................................... 224,948 211,381
Plan assets at fair value................................... (216,244) (195,042)
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions........ (28,624) (36,058)
Unrecognized prior service cost............................. (3,742) (4,232)
Unrecognized net asset at December 30, 1985 being recognized
over 15 years............................................. 5,776 7,702
Minimum pension liability adjustment........................ 23,476 28,999
--------- ---------
Accrued pension cost........................................ $ 5,590 $ 12,750
========= =========
</TABLE>
In accordance with FAS No. 87, the Company has recorded an adjustment, as
shown in the table above, to recognize a minimum pension liability relating to
certain underfunded pension plans. This liability is offset by an intangible
asset in the amounts of $3.6 million and $4.2 million for the years ended
December 28, 1997 and December 29, 1996, respectively, included in the
Consolidated Balance Sheets caption "Other assets", with the remainder reflected
as a net-of-tax reduction of equity.
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.
F-12
<PAGE> 119
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The net periodic postretirement benefit cost for 1997, 1996, and 1995, net
of retiree contributions of approximately 10 percent of costs, included the
following components:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost......................................... $2,040 $ 2,230 $1,696
Interest cost........................................ 7,800 8,248 8,131
Net amortization and deferral........................ (192) 679 (144)
------ ------- ------
Net periodic postretirement benefit cost............. $9,648 $11,157 $9,683
====== ======= ======
</TABLE>
The following table sets forth the plans' combined unfunded status at
December 28, 1997 and December 29, 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees............................................... $ 77,926 $ 63,710
Fully eligible active plan participants................ 14,431 26,180
Other active plan participants......................... 24,036 24,141
-------- --------
116,393 114,031
Unrecognized net loss and prior service cost............. (13,514) (14,646)
-------- --------
Accrued postretirement benefit cost...................... $102,879 $ 99,385
======== ========
</TABLE>
The accumulated postretirement benefit 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 8 percent in 1996 to 5 percent through 1999
and beyond. The effect of a 1 percent annual increase in these assumed cost
trend rates would increase the accumulated postretirement benefit obligation by
approximately $13.7 million and the net periodic postretirement benefit cost by
approximately $1.6 million. The obligation for postretirement benefits as of
December 28, 1997 was determined using a 7.25 percent discount rate, as compared
to the 7.75 percent discount rate used at December 29, 1996. The decrease in the
discount rate resulted in an increase in the obligation of approximately $6.1
million.
ACCRUED EXPENSES:
Accrued expenses include the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Accrued salaries and wages................................. $12,075 $13,941
Accrued postretirement benefits other than pensions........ 7,067 6,138
Accrued taxes other than income taxes...................... 4,837 5,834
Accrued worker's compensation.............................. 2,446 2,222
Accrued interest........................................... 2,466 7,357
Other current liabilities.................................. 5,218 4,474
------- -------
$34,109 $39,966
======= =======
</TABLE>
F-13
<PAGE> 120
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INCOME TAXES:
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Taxes on income:
Current provision (benefit):
Federal...................................... $ (9,215) $ 4,018 $18,510
State........................................ (403) 481 4,479
-------- ------- -------
(9,618) 4,499 22,989
Deferred benefit............................... (19,506) (2,073) (7,100)
-------- ------- -------
$(29,124) $ 2,426 $15,889
======== ======= =======
</TABLE>
The 38 percent effective income tax rate for 1997 is used to compute the
income tax benefit on the Company's loss from operations, extraordinary item and
cumulative effect of a change in accounting principle.
The effective income tax rates for the years ended 1997, 1996 and 1995 are
reconciled to the Federal statutory tax rate in the following table:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory income tax rate...................... 35.0% 35.0% 35.0%
Change in tax rate due to:
Federal audit adjustment............................. 2.5
State income taxes -- net of Federal tax effect...... 3.6 9.6 5.0
Municipal bond interest.............................. (1.0) (7.8)
Disallowed meals and entertainment................... (0.1) 1.9 0.2
Penalties............................................ (0.1)
Employee life insurance premiums..................... (0.1) 2.0 0.2
Other -- net......................................... (0.3) 0.1 0.9
---- ---- ----
38.0% 47.6% 36.0%
==== ==== ====
</TABLE>
F-14
<PAGE> 121
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Significant components of the Company's deferred tax liabilities and assets
at December 28, 1997 and December 29, 1996 are summarized below:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX LIABILITIES
Property, plant and equipment............................. $ 53,897 $28,077
Other assets.............................................. 432
-------- -------
Gross deferred tax liabilities.......................... 53,897 28,509
-------- -------
DEFERRED TAX ASSETS
Postretirement benefits other than pensions............... 39,988 38,442
Pensions.................................................. 2,517 3,752
Other employee benefits................................... 1,025 3,176
Inventories............................................... 8,111 5,224
Interest expense.......................................... 11,249
Other assets.............................................. 922
Other liabilities......................................... 1,771 2,832
Net operating loss carryforward........................... 55,414
Alternative minimum tax credits........................... 6,767 4,088
-------- -------
Gross deferred tax assets............................... 116,515 68,763
-------- -------
Net deferred tax asset............................... $ 62,618 $40,254
======== =======
</TABLE>
The change in deferred tax asset primarily represents the effect of the
Company's inability to currently utilize net operating losses as well as changes
in the amounts of temporary differences from the prior year. Significant changes
in such temporary differences related to: (i) the use of accelerated
depreciation methods in relation to the New Facility resulting in a larger
deferred tax liability; (ii) a reduction in the deferred tax asset for pensions
associated with a lower minimum pension liability; (iii) an increase in the
deferred tax asset for inventories due to additional capitalization of indirect
costs required by Internal Revenue Code Section 263A; and (iv) the elimination
of the deferred tax asset for interest related to the deduction of previously
nondeductible interest on the Company's Senior Secured Discount Notes.
The Company had available, at December 28, 1997, a net operating loss
carryforward for regular federal income tax purposes of $138.7 million which
will expire in the year 2012. Additionally, in conjunction with the Alternative
Minimum Tax ("AMT") rules, the Company had available AMT credit carryforwards at
December 28, 1997 and December 29, 1996, of $6.8 million and $4.1 million,
respectively. AMT credits may be used indefinitely to reduce regular federal
income taxes.
The Company believes it is more likely than not that it will 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 benefit 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 achievement of the benefits
associated with the New Facility and return to profitable operations.
F-15
<PAGE> 122
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DEBT REFINANCING AND LONG-TERM DEBT:
The Company's long-term debt at March 29, 1998, December 28, 1997 and
December 29, 1996 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
10.875 percent Senior Unsecured Notes, net of
discount(A)............................................ $198,506 $
Senior Secured Credit Agreement(B)....................... 175,000
12.5 percent Senior Secured Notes(C)..................... 17,623 125,000
13.5 percent Senior Secured Discount Notes(D)............ 669 109,155
Term Loan(E)............................................. 50,000
Note Payable(F).......................................... 6,000 6,000
Environmental Improvement Bonds 7.95 percent(G).......... 11,345 11,345
Environmental Improvement Bonds 7.90 percent(G).......... 8,585 8,585
Working Capital Facility(H).............................. 5,000
Other long-term debt..................................... 2,015
-------- --------
$424,743 $310,085
======== ========
</TABLE>
In December 1997, the Company completed a refinancing to lower its interest
rates, extend maturities and provide financial flexibility. As part of the
refinancing, the Company entered into a new $175 million Senior Secured Credit
Agreement, and issued $200 million of Senior Unsecured Notes. The proceeds from
these transactions were used to: (i) retire 85.9 percent of the existing 12.5
percent Senior Secured Notes, and 99.4 percent of the existing 13.5 percent
Senior Secured Discount Notes (collectively, the "1994 Notes"), which were
successfully tendered; (ii) retire the existing $50 million Term Loan; and (iii)
pay borrowings under its Working Capital Facility.
In connection with the repurchase of the 1994 Notes, the Company paid
premiums aggregating $30.0 million and incurred expense of $7.8 million relating
primarily to the write-off of previously capitalized debt issuance costs. These
amounts are recorded as an Extraordinary Loss ($23.4 million net of tax) for the
year ended December 28, 1997.
The Company capitalized $11.6 million of debt issuance costs related to the
refinancing which will be amortized over the lives of the applicable debt
instruments. The Company amortized deferred debt issuance costs of $2.1 million
in 1997, and $1.9 million in 1996 and 1995, a portion of which in 1996 and 1995
was capitalized.
A. 10.875 Percent Senior Unsecured Notes -- In December 1997, the Company
issued $200 million of 10.875 percent Senior Unsecured Notes at a discount
(0.749 percent) to yield 11 percent, due December 15, 2007. The Senior Unsecured
Notes are redeemable at the option of the Company, in whole or in part, on or
after December 15, 2002 at fixed redemption prices equivalent to or in excess of
par, plus accrued interest to the date of redemption. In addition, at any time
prior to December 15, 2000 the Company may redeem up to 35 percent of the
principal amount of the Senior Unsecured Notes with the proceeds from one or
more public equity offerings at 110 percent of the principal amount of the
Senior Unsecured Notes, plus accrued interest, provided that $125 million
aggregate principal amount of the Senior Unsecured Notes remains outstanding
after any such redemption. The Senior Unsecured Notes are guaranteed on a
senior, unsecured basis by the Company's subsidiary, Acme Steel Company (see
footnote entitled "Guarantor's Financial Statements").
B. Senior Secured Credit Agreement -- In December 1997, the Company entered
into a $175 million Senior Secured Credit Agreement, which matures in December,
2005. At the option of the Company, the Senior Secured Credit Agreement provides
for interest at prime plus a margin ranging from 1.25 percent to 2.25 percent,
or LIBOR plus a margin ranging from 2.25 percent to 3.25 percent determined by
the leverage ratio of debt to earnings before interest, taxes and depreciation.
The effective interest rate under the Senior
F-16
<PAGE> 123
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Secured Credit Agreement was 8.7 percent at December 28, 1997. The Senior
Secured Credit Agreement requires annual payments of $1.0 million from 1998
through 2003; the remaining principal balance is due in equal quarterly
installments over the final two years. In addition to customary mandatory
repayment provisions, beginning in 2000 based on the prior year, 75 percent of
excess cash flow as defined in the Senior Secured Credit Agreement is required
to be repaid. In 1998, the Company entered into an extendable (at the option of
the bank) interest rate swap agreement through September, 1999 effectively
fixing the base rate at 5.8 percent. The Senior Secured Credit Agreement
contains certain restrictive financial covenants. The Agreement ranks pari passu
with the 1994 Notes and is secured by a senior security interest in certain real
and personal property of Acme Steel Company and the stock of the Company's
subsidiaries. Each of the Company's subsidiaries is a guarantor under the
Agreement.
C. 12.5 Percent Senior Secured Notes -- The Company issued $125 million of
12.5 percent Senior Secured Notes in 1994. 85.9 percent of the existing Senior
Secured Notes were retired in connection with the refinancing in December 1997.
The Company has the option to redeem the remaining Senior Secured Discount
Notes, in whole or in part, on or after August 1, 1998, at fixed redemption
prices equivalent to or in excess of par, plus accrued interest to the date of
redemption. The Senior Secured Discount Notes rank pari passu and share
collateral and guarantees with the Senior Secured Credit Agreement.
D. 13.5 Percent Senior Secured Discount Notes -- The Company issued $117.9
million of 13.5 percent Senior Secured Discount Notes in 1994. 99.4 percent of
the existing Senior Secured Discount Notes were retired in connection with the
refinancing in December 1997. The Company has the option to redeem the remaining
Senior Secured Discount Notes, in whole or in part, on or after August 1, 1999,
at fixed redemption prices equivalent to or in excess of par, plus accrued
interest to the date of redemption. The Senior Secured Discount Notes rank pari
passu and share collateral and guarantees with the Senior Secured Credit
Agreement.
E. Term Loan -- The Company retired the Term Loan issued in 1994 in
connection with the refinancing.
F. Note Payable -- The Note Payable of $6.0 million is an unsecured
obligation assumed by the Acme Steel Company on May 29, 1986 as a result of the
reorganization of The Interlake Corporation. The assumed debt was incurred in
connection with the financing of certain facilities which were retained by the
Company in the Spin-Off. The Note Payable bears an interest rate of 6.5 percent
to 6.75 percent and principal payments are due in varying installments from
1998-2008.
G. Environmental Improvement Bonds -- The Environmental Improvement Bonds
were issued in April and September of 1996, with the Company receiving gross
proceeds of $11.3 million and $8.6 million at interest rates of 7.95 percent and
7.90 percent, respectively. The gross proceeds of the Environmental Improvement
Bonds were reduced by debt issuance costs of $0.6 million which are being
amortized over the lives of the respective notes. The Environmental Improvement
Bonds are due April 1, 2025 and April 1, 2024, respectively. The Environmental
Improvement Bonds may be redeemed at the option of the Company in whole or in
part, on or after April 1, 2006, at fixed redemption prices equivalent to or in
excess of par, together with accrued and unpaid interest to the redemption date.
The Environmental Improvement Bonds are secured by a lien on certain personal
property and fixtures of Acme Steel Company.
H. Working Capital Facility -- The Company's subsidiaries have a Working
Capital Facility agreement through January, 2002 with a group of banks which
provides aggregate commitments of $80.0 million secured by the inventories and
accounts receivable of the Company's subsidiaries of which approximately $72.0
million was available for borrowing at December 28, 1997 as calculated under the
borrowing base calculation. The Company pays an annual commitment fee of
one-half of one percent on the unused portion of the Working Capital Facility.
Interest on borrowings under the facility are subject at the option of the
Company to either LIBOR plus a margin ranging from 1.5 percent to 2.25 percent
or prime plus a margin ranging from 0.50 percent to 1.25 percent determined by
the Company's consolidated leverage ratio. The Working Capital
F-17
<PAGE> 124
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Facility contains certain restrictive financial covenants. The Company and each
of its subsidiaries are guarantors of amounts outstanding under the Working
Capital Facility.
The debt instruments contain certain restrictive covenants that limit the
Company's ability to incur additional indebtedness, lease property, create
liens, pay dividends, repurchase capital stock, engage in transactions with
affiliates, purchase or sell assets, make capital expenditures, engage in sale
or leaseback transactions and engage in mergers or consolidations.
The maturities, excluding excess cash flow payments required under the
Senior Secured Credit Agreement, during the five years ending December 2002 are
as follows: $1.5 million in 1998; $1.2 million in 1999; $1.2 million in 2000;
$1.3 million in 2001; and $18.9 million in 2002. Cash flows from operating
activities were reduced by cash paid for interest on debt of $35.5 million in
1997, $21.8 million in 1996 and $21.6 million in 1995. Increased cash payments
during 1997 for interest were primarily due to $11.9 million of accrued interest
paid in connection with the refinancing for the 1994 Notes, the Term Loan and
the Working Capital Facility.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Cash and Cash Equivalents, Short-term Investments and Restricted Cash and
Investments
The carrying value of cash and cash equivalents and short-term investments
approximates fair value.
Long-term Debt
The fair value of the Company's Senior Unsecured Notes, Senior Secured
Notes and Senior Secured Discount Notes is determined by using the quoted market
price at the end of the reporting period.
The fair value of the Senior Secured Credit Agreement, the Term Loan
Facility, the Term Loan, the Environmental Improvement Bonds and the Note
Payable is estimated by calculating the present value of the remaining interest
and principal payments on the debt to maturity. The present value of the Term
Loan and the Note Payable in 1996 was calculated based upon a discount rate
equal to the three month LIBOR rate plus 400 basis points at the end of each
reporting period. The present value of the Senior Secured Credit Agreement and
the Note Payable in 1997 is calculated based upon a discount rate equal to the
base rate plus the current margin. The Environmental Improvement Bonds present
value computation uses a discount rate equal to the 30 year U.S. Treasury Bond
rate at the end of the reporting period plus or minus the spread between the
U.S. Treasury bond rate and the rate negotiated at the inception of the loans.
The following table presents information on the Company's financial
instruments:
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents........................... $ 6,454 $ 6,454 $ 33,224 $ 33,224
Short-term investments.............................. 11,817 11,817
Long-term debt
- Senior Secured Notes............................ 17,623 19,209 125,000 135,312
- Senior Secured Discount Notes................... 669 746 109,155 112,429
- Term Loan....................................... 50,000 50,000
- Note Payable.................................... 6,000 5,194 6,000 4,958
- Environmental Improvement Bonds................. 19,930 22,166 19,930 20,389
- Senior Unsecured Notes.......................... 198,506 197,000
- Senior Secured Credit Agreement................. 175,000 175,000
- Other long-term debt............................ 2,015 2,015
</TABLE>
F-18
<PAGE> 125
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STOCK COMPENSATION PLANS:
The Company has a Fixed Stock Incentive Program which, among other
benefits, allows for the granting of stock options and stock awards to its
officers and key employees.
The Company has a 1986 and a 1994 Stock Incentive Program which reserves
shares of common stock for issuance to officers and employees of the Company and
its subsidiaries. Both Programs provide for the issuance of stock options, stock
appreciation rights, stock awards and restricted stock to officers and employees
of the Company and its subsidiaries; since inception of the Programs, only stock
options and stock awards have been granted. The 1986 Stock Incentive Program,
which reserved 1,080,000 shares for issuance, granted 805,700 stock options and
249,925 stock awards, was frozen in 1994. Some of the stock options and stock
awards granted under this Program prior to April 1994 are still outstanding. No
stock options or stock awards have been granted from this Program since April
1994. The 1994 Stock Incentive Program provided for the reservation of 550,000
shares for issuance; to date, 402,000 stock options and 57,800 stock awards have
been granted under this Program in the form of stock options and awards. Through
December 28, 1997, a total of 42,100 stock options and stock awards have been
canceled and returned to the 1994 Stock Incentive Program for future issuance,
leaving a total of 132,300 shares available for issuance. In addition, the
Company has a Non-Employee Directors' Stock Option Plan which reserves shares
for issuance to non-employee directors of the Company. Each non-employee
director is granted 2,000 options at the Annual Meeting of the Board of
Directors, commencing April 24, 1997. Under this plan 150,000 shares were
reserved for issuance and through December 27, 1997, 22,000 stock options have
been granted.
Under all three plans, the exercise price of stock options is fixed and
equals the market value of the stock on the date of grant. Vesting of options
granted prior to April 1997 occurs in two equal installments on the first and
second anniversaries of the date of grant; vesting of options granted during or
after April 1997 occurs in four equal installments on the first four
anniversaries of the date of grant. Stock options expire ten years after the
date of grant.
The Company has adopted the disclosure-only provisions of FAS No. 123
"Accounting for Stock-Based Compensation." No compensation cost has been
recognized under the provisions of FAS No. 123 for the fixed stock options
granted under its Fixed Stock Incentive Program. Had compensation cost for
options granted under the program been determined based on the fair value at the
grant date for awards in 1997, 1996 and 1995 consistent with the provisions of
FAS No. 123, the Company's net income (loss) and net income (loss) per share
would have been as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income (loss) -- pro-forma..................... $(77,699) $2,040 $27,758
Net income (loss) per share -- pro-forma........... $ (6.68) $ 0.18 $ 2.39
</TABLE>
The fair value of options at the date of grant were estimated using the
Black-Scholes option pricing model with the following weighted average
assumptions used for option grants in each year:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expected life of options............................ 7 years 7 years 7 years
Risk-free interest rate............................. 5.75% 6.00% 6.00%
Expected stock price volatility..................... 42.0% 37.6% 37.6%
Expected dividend yield............................. -- -- --
Forfeiture rate..................................... 14% 11% 11%
</TABLE>
The assumption regarding the vesting of stock options relating to
executive's compensation in 1997, 1996 and 1995 is calculated on a pro-rata
basis determined by specific issuance dates. Options granted during the
F-19
<PAGE> 126
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
years 1997, 1996, 1995, 1994 and 1993 were considered in the appropriate period,
using a two-year vesting schedule.
Option groups outstanding and option life information at December 28, 1997
is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- ------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
RANGE OF OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$13.65 to $14.50...................... 201,300 5.3 years $13.95 162,300 $13.99
$16.625 to $17.875.................... 347,950 4.3 years $16.67 228,950 $17.24
$18.75 to $24.25...................... 186,100 4.7 years $22.35 179,100 $22.50
------- -------
735,350 570,350
------- -------
</TABLE>
Information regarding stock options outstanding and changes in option
activity for the three years ended December 28, 1997 is summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- -------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
OPTION EXERCISE OPTION EXERCISE OPTION EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Stock options outstanding at
beginning of year................. 685,150 $17.86 606,950 $17.71 520,700 $17.79
Options granted..................... 127,000 $14.66 105,000 $16.90 108,500 $17.28
Options exercised................... (10,500) $13.92 (22,150) $ 8.37 (7,600) $14.18
Options canceled.................... (66,300) $17.84 (4,650) $21.32 (14,650) $19.40
------- ------ ------- ------ ------- ------
Stock options outstanding at end of
year.............................. 735,350 $17.36 685,150 $17.86 606,950 $17.71
------- ------ ------- ------ ------- ------
Options exercisable at end of
year.............................. 570,350 $17.97 528,650 $18.11 466,450 $17.31
------- ------ ------- ------ ------- ------
Weighted-average fair value of
options granted during the year... $ 7.58 $ 8.52 $ 8.84
------- ------- -------
</TABLE>
Compensation cost related to stock awards was $0.2 million in 1997, 1996
and 1995. Stock awards granted in 1997 totaled 15,100 shares at a value of
$12.81, $13.88 or $18.125 per share depending on the date of grant. Stock awards
granted in 1996 totaled 20,000 shares at a value of $17.25. Stock awards granted
in 1995 totaled 22,700 shares at a value of either $17.25 or $18.375 per share,
depending on the grant date. The compensation expense for the value of stock
awards granted is generally recognized ratably over the vesting period of 5
years except in the case of 4,200 awards granted in 1995 for which the
compensation expense for the value of the stock awards is recognized ratably
over a vesting period of 3 years.
SHAREHOLDER RIGHTS PLAN:
On July 15, 1994, the Company adopted a shareholders' rights plan ("Rights
Plan") to protect shareholders against unsolicited attempts to acquire control
of the Company that do not offer what the Company believes to be an adequate
price to all shareholders. Preferred Share Purchase Rights ("Rights") were
issued to holders of record of the Company's Common Stock on August 5, 1994, and
will expire on August 5, 2004.
The Rights Plan provides for the issuance of one Right for each outstanding
share of the Company's Common Stock on and after August 5, 1994, until
expiration. The Rights will become exercisable after the tenth day following the
earlier to occur of (i) the date on which public disclosure is made that a
person or affiliated persons are the beneficial owner of 15 percent or more of
the Company's Common Stock or (ii) the
F-20
<PAGE> 127
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
commencement or disclosure of intention to commence a tender or exchange offer
by a person or affiliated persons which could result in the acquisition by such
person or persons of 30 percent or more of the Company's Common Stock. Each
Right entitles the holder to purchase from the Company one one-hundredth of a
share of the Company's Series A Preferred Share Stock at an exercise price of
$80 per one one-hundredth of a share. The purchase price is subject to
adjustment, to prevent dilution, in the event of certain merger/business
combination situations involving the Company and in the event of other
circumstances more specifically described in the Rights Agreement dated as of
July 15, 1994 between the Company and First Chicago Trust Company of New York,
which was filed in its entirety as Exhibit 1 to the Company's Form 8-A dated
August 8, 1994, and to the Company's Form 8-A/A dated August 12, 1994.
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. During 1997, the Company
obtained approximately 37 percent of its iron ore needs from the joint venture.
The Company's interest in NACME requires Acme to comply with certain
tonnage provision guarantees and cost plus return on investment payments. Due to
a delay in reaching full operating levels, NACME was not in compliance with
certain financial covenants and obtained a waiver and negotiated modification of
those covenants under its financing arrangements with its lending institution.
The Company expects NACME will meet the requirements of the financial covenants.
However, there are no assurances NACME will achieve such compliance, or, if it
fails to do so, that it will be able to negotiate further waivers or amendments
of its covenants. Currently, the Company is unable to determine whether such
failure would have an adverse effect on Acme's operations.
During 1994, the Company entered into a turnkey contract with Raytheon
Engineers & Constructors, Inc. ("Raytheon") to build the New Facility at its
steel making facilities located in Riverdale, Illinois. Based on the turnkey
contract without taking into account financing costs, internally generated costs
directly related to the New Facility or additional changes that may be requested
by Acme during construction, management estimates the cost of the New Facility,
including ancillary facilities, construction, general contractor fees and
certain other project costs that will be paid by the Company will approximate
$400 million.
The Company has long term operating lease commitments, principally for
building space for its Alpha Tube Subsidiary and for various computer hardware
and software. A current lease agreement relating to building space for the Alpha
Tube subsidiary contains provisions for the Company to guarantee the lessor a
recovery of a fixed percentage of its interest in the property upon termination
of the lease. In the event the Company does not maintain compliance with
financial covenants which are consistent with those of the Working Capital
Facility, the Company could be required to purchase the lessors' interest in the
property. Lease terms cover periods from 3 to 6 years. Rental expense under
operating lease agreements amounted to $3.0 million in 1997, $1.4 million in
1996, and $1.2 million in 1995. The approximate minimum rental commitments under
noncancelable leases at December 28, 1997 were as follows: 1998 $3.2 million;
1999 $2.8 million; 2000 $1.5 million; 2001 $1.1 million; and 2002 $12.5 million.
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 Environmental Protection Agency, for
example, is currently evaluating changes to the National Air Quality Standards
for particulate matter and ozone.
F-21
<PAGE> 128
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
From time to time, the Company is also involved in administrative
proceedings involving the issuance, or renewal, of environmental permits
relating to the conduct of its business. The final issuance of these permits
have been resolved on terms satisfactory to the Company; and, in the future, the
Company expects such permits will similarly be resolved on satisfactory terms.
Although management believes it will be required to make further
expenditures for pollution abatement facilities in future years, because of the
continuous revision of these regulatory and statutory requirements, the Company
is not able to reasonably estimate the specific pollution abatement
requirements, the amount or timing of such expenditures to maintain compliance
with these environmental laws. While such expenditures in future years may be
substantial, management does not presently expect they will have a material
adverse effect on the Company's future ability to compete within its markets.
In those cases where the Company has been identified as a Potentially
Responsible Party ("PRP") or is otherwise made aware of a possible exposure to
incur costs associated with an environmental matter, management determines (i)
whether, in fact, the Company has been properly named or is otherwise obligated,
(ii) the extent to which the Company may be responsible for costs associated
with the site in question, (iii) an assessment as to whether another party may
be responsible under various indemnification agreements or insurance policies
the Company is a party to, and (iv) an estimate, if one can be made, of the
costs associated with the clean-up efforts or settlement costs. It is the
Company's policy to make provisions for environmental clean-up costs at the time
that a reasonable estimate can be made. In December 1997 and 1996, the Company
had recorded reserves of $1.0 million and $0.2 million, respectively, for
environmental clean-up matters. While it is not possible to predict the ultimate
costs of resolving environmental related issues facing the Company, based upon
information currently available, they are not expected to have a material effect
on the consolidated financial condition or results of operations of the Company.
In connection with the Company's Spin-Off from Interlake on May 29, 1986,
Acme entered into certain indemnification agreements with Interlake. Pursuant to
the terms of the indemnification agreements, Interlake undertook to defend,
indemnify and hold Acme harmless from any claims, as defined, relating to Acme
operations or predecessor operations occurring before May 29, 1986, the
inception of Acme. 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's predecessor operations
have been named as defendants or PRP's, 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, was 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 entered into a
Tax Indemnification Agreement ("TIA") which generally provides for Interlake to
indemnify Acme 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 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. During 1997 Interlake
and the Internal Revenue Service settled significantly all issues that created
the additional tax, reducing the additional tax to $5.1 million. Substantial
interest could also be due (potentially in an amount greater than the tax
claimed). The taxes claimed relate principally to adjustments for which Acme is
indemnified by Interlake pursuant to the TIA. The Company has adequate reserves
to cover that portion for which it believes it may be responsible per the TIA.
To date, Interlake has met its obligations under the TIA
F-22
<PAGE> 129
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
with respect to all covered matters. In the event that Interlake, for any
reason, were unable to fulfill its obligations under the TIA, the Company could
have increased future obligations.
The Company's subsidiaries also have various 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.
BUSINESS SEGMENTS:
The Company presents its operations in two segments, Steel Making and Steel
Fabricating.
Steel Making operations include the manufacture of sheet, strip and
semifinished steel in low-, mid-, and high-carbon alloy and specialty grades.
Principal markets include agricultural, automotive, industrial equipment,
industrial fasteners, welded steel tubing, processor and tool manufacturing
industries.
The Steel Fabricating segment processes and distributes steel strapping,
strapping tools and industrial packaging (Acme Packaging Corporation), welded
steel tubing (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 from operations does not include other
non-operating income or expense, interest income or expense, income taxes,
extraordinary items, or a cumulative effect of a change in accounting principle.
Identifiable assets are those that are associated with each business segment.
Corporate assets are principally cash and cash equivalents, short-term
investments and restricted cash, other investments and income tax assets.
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.
F-23
<PAGE> 130
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEGMENT INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE FISCAL YEARS
----------------------------------
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Net Sales:
Steel Making
Sales to unaffiliated customers........................ $202,331 $ 222,642 $ 234,903
Intersegment sales..................................... 97,233 112,700 121,929
-------- --------- ---------
299,564 335,342 356,832
Steel Fabricating
Sales to unaffiliated customers........................ 285,699 275,600 286,716
Intersegment sales..................................... 984 1,553 1,703
-------- --------- ---------
286,683 277,153 288,419
Eliminations........................................... (98,217) (114,253) (123,632)
-------- --------- ---------
Total................................................ $488,030 $ 498,242 $ 521,619
======== ========= =========
Income (loss) from Operations:
Steel Making........................................... $(61,897) $ (14,921) $ 28,461
Steel Fabricating...................................... 26,840 19,957 20,351
-------- --------- ---------
Total................................................ $(35,057) $ 5,036 $ 48,812
======== ========= =========
Identifiable Assets:
Steel Making.............................................. $685,712 $ 660,672 $ 495,338
Steel Fabricating......................................... 95,100 107,652 115,332
Corporate................................................. 48,269 37,425 144,073
-------- --------- ---------
Total................................................ $829,081 $ 805,749 $ 754,743
======== ========= =========
Depreciation:
Steel Making.............................................. $ 35,511 $ 12,572 $ 9,749
Steel Fabricating......................................... 3,883 3,696 3,747
Corporate................................................. 16 323 117
-------- --------- ---------
Total................................................ $ 39,410 $ 16,591 $ 13,613
======== ========= =========
Capital Expenditures:
Steel Making.............................................. $ 34,861 $ 195,297 $ 238,177
Steel Fabricating......................................... 11,053 3,778 6,078
Corporate................................................. 15 47 119
-------- --------- ---------
Total................................................ $ 45,929 $ 199,122 $ 244,374
======== ========= =========
Operating Data (in tons)
Steel production (hot band)............................... 749,526 685,595 672,610
Steel shipments (flat roll)............................... 629,212 611,882 619,052
</TABLE>
F-24
<PAGE> 131
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
GUARANTOR'S FINANCIAL STATEMENTS:
In December 1997, Acme Metals Incorporated, as issuer, and Acme Steel
Company, a wholly owned subsidiary of the Company, as guarantor, entered into an
offering pursuant to which $200 million of 10.875 percent Senior Unsecured Notes
due 2007 were offered pursuant to Rule 144A under the Securities Act of 1933, as
amended (the "Act"). The Company intends to register the Senior Unsecured Notes
under the Act.
Following is consolidating condensed financial information pertaining to
the Company and its subsidiary guarantor and its subsidiary nonguarantors.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 28, 1997
-------------------------------------------------------------------
SUBSIDIARY SUBSIDIARY TOTAL
PARENT GUARANTOR NONGUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET SALES............................. $ $ 299,564 $286,683 $(98,217) $488,030
COST AND EXPENSES..................... 342,684 239,412 (98,217) 483,879
-------- --------- -------- -------- --------
Gross Profit.......................... (43,120) 47,271 4,151
Selling and administrative............ 18,777 20,431 39,208
-------- --------- -------- -------- --------
Operating income (loss)............... (61,897) 26,840 (35,057)
Net interest income (expense) and
other............................... 16,860 (54,493) (3,952) (41,585)
-------- --------- -------- -------- --------
Income (loss) before income taxes,
extraordinary loss and cumulative
effect of a change in accounting
principle........................... 16,860 (116,390) 22,888 (76,642)
Income tax provision (benefit)........ 6,415 (44,235) 8,696 (29,124)
-------- --------- -------- -------- --------
10,445 (72,155) 14,192 (47,518)
Extraordinary loss, net of tax........ (23,411) (23,411)
Cumulative effect of a change in
accounting principle, net of tax.... (4,821) (1,455) (6,276)
-------- --------- -------- -------- --------
Net income (loss) before equity
adjustment.......................... (12,966) (76,976) 12,737 (77,205)
Equity loss in subsidiaries........... (64,239) 64,239
-------- --------- -------- -------- --------
Net income (loss)..................... $(77,205) $ (76,976) $ 12,737 $ 64,239 $(77,205)
======== ========= ======== ======== ========
</TABLE>
F-25
<PAGE> 132
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 29, 1996
---------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET SALES............................ $335,342 $277,153 $(114,253) $498,242
COST AND EXPENSES.................... 325,326 236,704 (114,253) 447,777
------ -------- -------- --------- --------
Gross profit......................... 10,016 40,449 50,465
Training and Pre-Start-up -- New
Facility........................... 9,933 9,933
Selling and administrative........... 15,004 20,492 35,496
------ -------- -------- --------- --------
Operating income (loss).............. (14,921) 19,957 5,036
Net interest income (expense) and
other.............................. 9,903 (7,461) (2,385) 57
------ -------- -------- --------- --------
Income (loss) before income taxes.... 9,903 (22,382) 17,572 5,093
Income tax provision (benefit)....... 4,106 (8,850) 7,170 2,426
------ -------- -------- --------- --------
Net income (loss) before equity
adjustment......................... 5,797 (13,532) 10,402 2,667
Equity loss in subsidiaries.......... (3,130) 3,130
------ -------- -------- --------- --------
Net income (loss).................... $2,667 $(13,532) $ 10,402 $ 3,130 $ 2,667
====== ======== ======== ========= ========
</TABLE>
F-26
<PAGE> 133
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET SALES........................... $ $356,832 $288,419 $(123,632) $521,619
COST AND EXPENSES................... 314,517 246,286 (123,632) 437,171
------- -------- -------- --------- --------
Gross profit........................ 42,315 42,133 84,448
Selling and administrative.......... 13,854 21,782 35,636
------- -------- -------- --------- --------
Operating income.................... 28,461 20,351 48,812
Net interest income (expense) and
other............................. (1,571) (818) (2,288) (4,677)
------- -------- -------- --------- --------
Income (loss) before income taxes... (1,571) 27,643 18,063 44,135
Income tax provision (benefit)...... (1,415) 10,599 6,705 15,889
------- -------- -------- --------- --------
Net income (loss) before equity
adjustment........................ (156) 17,044 11,358 28,246
Equity income in subsidiaries....... 28,402 (28,402)
------- -------- -------- --------- --------
Net income.......................... $28,246 $ 17,044 $ 11,358 $ (28,402) $ 28,246
======= ======== ======== ========= ========
</TABLE>
F-27
<PAGE> 134
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 28, 1997
----------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ $ 3,016 $ 3,438 $ $ 6,454
Accounts receivable, net.......... 33,154 26,492 59,646
Income tax receivable............. 24,936 24,936
Inventories....................... 58,657 23,990 (1,017) 81,630
Net assets held for sale.......... 3,808 3,808
Deferred income taxes............. 14,082 14,082
Other current assets.............. 614 1,145 128 1,887
Due to (from) affiliates.......... 460,541 (434,649) (26,909) 1,017
-------- --------- -------- -------- --------
Total current assets...... 500,173 (338,677) 30,947 192,443
-------- --------- -------- -------- --------
INVESTMENTS AND OTHER ASSETS:
Investments in associated
companies...................... 60,882 17,395 (60,882) 17,395
Other assets...................... 14,629 4,391 1,337 20,357
Deferred income taxes............. 48,536 48,536
-------- --------- -------- -------- --------
Total investments and
other assets............ 124,047 21,786 1,337 (60,882) 86,288
-------- --------- -------- -------- --------
PROPERTY, PLANT AND EQUIPMENT....... 217 522,096 28,037 550,350
-------- --------- -------- -------- --------
$624,437 $ 205,205 $ 60,321 $(60,882) $829,081
======== ========= ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses....................... $ 5,157 $ 79,310 $ 14,333 $ $ 98,800
Current installments of long-term
debt........................... 1,000 500 1,500
-------- --------- -------- -------- --------
Total current
liabilities............. 6,157 79,810 14,333 100,300
-------- --------- -------- -------- --------
LONG-TERM LIABILITIES:
Long-term debt.................... 412,743 10,500 423,243
Other long-term liabilities....... 14,939 2,852 17,791
Postretirement benefits other than
pensions....................... 1,731 79,803 14,280 95,814
Retirement benefit plans.......... 2,524 4,186 (1,120) 5,590
-------- --------- -------- -------- --------
Total long-term
liabilities............. 431,937 97,341 13,160 542,438
-------- --------- -------- -------- --------
SHAREHOLDERS' EQUITY:............... 186,343 28,054 32,828 (60,882) 186,343
-------- --------- -------- -------- --------
$624,437 $ 205,205 $ 60,321 $(60,882) $829,081
======== ========= ======== ======== ========
</TABLE>
F-28
<PAGE> 135
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 29, 1996
----------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............... $ 24,306 $ 6,307 $ 2,611 $ $ 33,224
Short-term investments.................. 11,817 11,817
Accounts receivable, net................ 439 22,162 29,901 52,502
Inventories............................. 47,394 22,396 (906) 68,884
Deferred income taxes................... 14,957 14,957
Other current assets.................... 609 662 182 1,453
Due to (from) affiliates................ 436,651 (419,369) (18,188) 906 0
-------- -------- ------- --------- --------
Total current assets............ 488,779 (342,844) 36,902 182,837
======== ======== ======= ========= ========
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies..... 66,025 17,862 (66,025) 17,862
Other assets............................ 12,589 5,278 1,161 19,028
Deferred income taxes................... 25,297 25,297
-------- -------- ------- --------- --------
Total investments and other
assets........................ 103,911 23,140 1,161 (66,025) 62,187
-------- -------- ------- --------- --------
PROPERTY, PLANT AND EQUIPMENT............. 218 531,549 28,958 560,725
-------- -------- ------- --------- --------
$592,908 $211,845 $67,021 $ (66,025) $805,749
======== ======== ======= ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses... $ 10,500 $ 87,820 $15,442 $ $113,762
Income taxes payable.................... 2,178 2,178
-------- -------- ------- --------- --------
Total current liabilities....... 12,678 87,820 15,442 115,940
-------- -------- ------- --------- --------
LONG-TERM LIABILITIES:
Long-term debt.......................... 304,085 6,000 310,085
Other long-term liabilities............. 2,614 10,641 (229) 13,026
Postretirement benefits other than
pensions............................. 1,655 78,009 13,583 93,247
Retirement benefit plans................ 11,175 1,575 12,750
-------- -------- ------- --------- --------
Total long-term liabilities..... 319,529 96,225 13,354 429,108
-------- -------- ------- --------- --------
SHAREHOLDERS' EQUITY:..................... 260,701 27,800 38,225 (66,025) 260,701
-------- -------- ------- --------- --------
$592,908 $211,845 $67,021 $ (66,025) $805,749
======== ======== ======= ========= ========
</TABLE>
F-29
<PAGE> 136
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 28, 1997
---------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS (USED FOR) PROVIDED BY
OPERATING ACTIVITIES................... $ 521 $ (79,760) $ 18,527 $ $ (60,712)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and/or maturities of investments,
net of purchases..................... 11,817 11,817
Capital expenditures................... (16) (31,362) (9,038) (40,416)
--------- --------- --------- --------- ---------
Net cash (used for) provided by
investing activities................. 11,801 (31,362) (9,038) (28,599)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from 10.875 percent Senior
Unsecured Notes, net of discount..... 198,502 198,502
Proceeds from Senior Secured Credit
Agreement............................ 175,000 175,000
Redemption of 13.5 percent Senior
Secured Discount Notes............... (117,289) (117,289)
Redemption of 12.5 percent Senior
Secured Notes........................ (107,377) (107,377)
Debt redemption costs.................. (29,947) (29,947)
Payment of Term Loan................... (50,000) (50,000)
Borrowings under revolving credit
agreement............................ 134,250 134,750 269,000
Repayments of revolving credit
agreement............................ (129,250) (134,750) (264,000)
Intercompany cash transactions......... (112,469) 102,831 9,638 --
Debt issuance costs and fees........... (11,630) (11,630)
Payment of intercompany dividend....... 18,300 (18,300)
Exercise of stock options and other.... 282 282
--------- --------- --------- --------- ---------
Net cash (used for) provided by
financing activities................. (36,628) 107,831 (8,662) 62,541
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
cash equivalents..................... (24,306) (3,291) 827 (26,770)
Cash and cash equivalents at beginning
of period............................ 24,306 6,307 2,611 33,224
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of
period............................... $ $ 3,016 $ 3,438 $ $ 6,454
========= ========= ========= ========= =========
</TABLE>
F-30
<PAGE> 137
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 29, 1996
---------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES................ $ 26,130 $ 6,208 $ 13,696 $ $ 46,034
--------- --------- -------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and/or maturities of
investments, net of purchases.... 122,244 122,244
Investment in associated
companies........................ (1,750) (1,750)
Capital expenditures................ (47) (202,231) (3,778) (206,056)
--------- --------- -------- --------- ---------
Net cash (used for) provided by
investing activities............. 122,197 (203,981) (3,778) (85,562)
--------- --------- -------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Environmental
Improvement Bonds, net of
discount......................... 19,873 19,873
Intercompany cash transactions...... (237,630) 229,925 7,705 --
Debt issuance costs and fees........ (550) (550)
Exercise of stock options and
other............................ 386 386
Intercompany dividend payment....... 49,000 (33,000) (16,000)
--------- --------- -------- --------- ---------
Net cash (used for) provided by
financing activities............. (168,921) 196,925 (8,295) 19,709
--------- --------- -------- --------- ---------
Net increase (decrease) in cash and
cash equivalents................. (20,594) (848) 1,623 (19,819)
Cash and cash equivalents at
beginning of period.............. 44,900 7,155 988 53,043
--------- --------- -------- --------- ---------
Cash and cash equivalents at end of
period........................... $ 24,306 $ 6,307 $ 2,611 $ $ 33,224
========= ========= ======== ========= =========
</TABLE>
F-31
<PAGE> 138
ACME METALS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES................ $ 9,513 $ 31,846 $18,182 $ $ 59,541
--------- --------- ------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and/or maturities of
investments, net of purchases.... 143,720 143,720
Investment in associated
companies........................ (1,754) (1,754)
Capital expenditures................ (119) (219,316) (6,078) (225,513)
--------- --------- ------- --------- ---------
Net cash (used for) provided by
investing activities............. 143,601 (221,070) (6,078) (83,547)
--------- --------- ------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany cash transactions...... (146,983) 169,072 (22,089) --
Exercise of stock options and
other............................ 410 410
--------- --------- ------- --------- ---------
Net cash provided by (used for)
financing activities............. (146,573) 169,072 (22,089) 410
--------- --------- ------- --------- ---------
Net increase (decrease) in cash and
cash equivalents................. 6,541 (20,152) (9,985) (23,596)
Cash and cash equivalents at
beginning of period.............. 38,359 27,307 10,973 76,639
--------- --------- ------- --------- ---------
Cash and cash equivalents at end of
period........................... $ 44,900 $ 7,155 $ 988 $ $ 53,043
========= ========= ======= ========= =========
</TABLE>
F-32
<PAGE> 139
QUARTERLY RESULTS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Net Sales......................................... $125,331 $123,471 $115,250 $123,978
Gross margin...................................... (4,317) 846 286 7,336
Net loss.......................................... (15,867) (12,753) (10,540) (38,045)
Net loss per share................................ (1.36) (1.10) (0.91) (3.27)
Net loss before extraordinary loss and accounting
change......................................... (15,867) (12,753) (10,540) (8,358)
Net loss per share before extraordinary loss and
accounting change.............................. $ (1.36) $ (1.10) $ (0.91) $ (0.72)
- ----------------------------------------------------------------------------------------------------
1996
Net Sales......................................... $125,865 $127,268 $125,174 $119,935
Gross profit...................................... 14,445 14,257 16,345 5,418
Net income (loss)................................. 3,436 3,190 2,859 (6,818)
Net income (loss) per share....................... $ 0.30 $ 0.27 $ 0.25 $ (0.59)
- ----------------------------------------------------------------------------------------------------
1995
Net Sales......................................... $131,548 $136,171 $122,211 $131,689
Gross profit...................................... 23,132 25,140 17,911 18,265
Net income........................................ 8,046 8,781 5,256 6,163
Net income per share.............................. $ 0.69 $ 0.75 $ 0.45 $ 0.53
- ----------------------------------------------------------------------------------------------------
</TABLE>
The first quarter of 1995 includes a $1.6 million gain on the sale of the
Company's interest in Virginia coal properties.
The first quarter of 1998 includes a $12.0 million gain on the sale of its
wholly owned subsidiary universal tool and stamping.
F-33
<PAGE> 140
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
FISCAL YEAR OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
----------- ---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
1997
Allowance for doubtful accounts
receivable.......................... $1,320 $ 61 $100(a) $(185)(b) $1,296
====== ==== ==== ===== ======
1996
Allowance for doubtful accounts
receivable.......................... $1,335 $144 $ 12(a) $(171)(b) $1,320
====== ==== ==== ===== ======
1995
Allowance for doubtful accounts
receivable.......................... $1,301 $123 $ 60(a) $(149)(b) $1,335
====== ==== ==== ===== ======
</TABLE>
- -------------------------
(a) Consists principally of recoveries of accounts charged off in prior years.
(b) Uncollectible accounts charged off.
F-34
<PAGE> 141
ACME METALS INCORPORATED
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------
MARCH 29, MARCH 30,
1998 1997
--------- ---------
<S> <C> <C>
NET SALES................................................... $ 144,996 $ 125,331
COSTS AND EXPENSES:
Cost of products sold..................................... 129,899 119,609
Depreciation expense...................................... 9,259 10,039
---------- ----------
Gross margin................................................ 5,838 (4,317)
Selling and administrative expense........................ 9,872 10,192
---------- ----------
Operating loss.............................................. (4,034) (14,509)
NON-OPERATING INCOME (EXPENSE):
Interest expense.......................................... (10,937) (9,870)
Interest income........................................... 139 353
Other -- net.............................................. 12,257 (15)
---------- ----------
Loss before income taxes.................................... (2,575) (24,041)
Income tax benefit.......................................... (900) (8,174)
---------- ----------
Net loss.................................................... $ (1,675) $ (15,867)
========== ==========
LOSS PER SHARE:
BASIC:
Net loss.................................................. $ (0.14) $ (1.36)
Weighted average outstanding shares....................... 11,680,164 11,661,447
========== ==========
DILUTED:
Net loss.................................................. $ (0.14) $ (1.36)
---------- ----------
Weighted average outstanding shares....................... 11,680,164 11,661,447
========== ==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-35
<PAGE> 142
ACME METALS INCORPORATED
UNAUDITED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MARCH 29, DECEMBER 28,
1998 1997
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 14,669 $ 6,454
Accounts receivable trade, less allowances of $1,305, and
$1,296, respectively .................................. 68,785 59,646
Inventories............................................... 64,408 81,630
Income tax receivable..................................... 1,252 24,936
Net assets held for sale.................................. 3,808
Deferred income taxes..................................... 14,082 14,082
Other current assets...................................... 2,563 1,887
--------- ---------
Total current assets................................. 165,759 192,443
--------- ---------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies....................... 17,774 17,395
Restricted cash and investments........................... 17,361
Other assets.............................................. 20,539 20,357
Deferred income taxes..................................... 49,438 48,536
--------- ---------
Total investments and other assets................... 105,112 86,288
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment............................. 856,598 854,445
Construction in progress.................................. 13,765 9,747
Accumulated depreciation.................................. (323,118) (313,842)
--------- ---------
Total property, plant and equipment.................. 547,245 550,350
--------- ---------
$ 818,116 $ 829,081
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 51,109 $ 64,691
Accrued expenses.......................................... 41,105 34,109
Current installments of long-term debt.................... 1,500 1,500
--------- ---------
Total current liabilities............................ 93,714 100,300
--------- ---------
LONG-TERM LIABILITIES:
Long-term debt............................................ 419,433 423,243
Other long-term liabilities............................... 17,739 17,791
Postretirement benefits other than pensions............... 96,548 95,814
Retirement benefit plans.................................. 5,550 5,590
--------- ---------
Total long-term liabilities.......................... 539,270 542,438
--------- ---------
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, 11,680,164 and
11,627,380 shares issued and outstanding,
respectively........................................... 11,680 11,627
Additional paid-in capital................................ 166,017 165,608
Retained earnings......................................... 19,754 21,427
Accumulated other comprehensive loss...................... (12,319) (12,319)
--------- ---------
Total shareholders' equity........................... 185,132 186,343
--------- ---------
$ 818,116 $ 829,081
========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-36
<PAGE> 143
ACME METALS INCORPORATED
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
----------------------
MARCH 29, MARCH 30,
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (1,675) $(15,867)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH FROM
OPERATING ACTIVITIES:
Gain on sale of net assets held for sale............. (12,000)
Depreciation......................................... 9,466 10,151
Deferred income taxes................................ (900) (8,174)
Accretion of Senior Discount Notes................... 3,638
CHANGE IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable.................................. (5,656) (1,508)
Income tax receivable................................ 23,684
Inventories.......................................... 18,526 3,233
Accounts payable..................................... (11,939) (12,713)
Other current accounts............................... 4,756 (5,816)
Other, net........................................... (1,313) 3,191
--------- --------
Net cash (used for) provided by operating activities... 22,949 (23,865)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments.................................. (331)
Sales and/or maturities of investments.................... 6,690
Reclassification of restricted cash....................... (17,361)
Capital expenditures...................................... (3,352) (2,902)
Capital expenditures -- New Facility...................... (7,233) (4,330)
--------- --------
Net cash used for investing activities.................... (27,946) (873)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long term debt................................. (250)
Proceeds from net assets held for sale.................... 18,000
Borrowings under revolving credit line agreement.......... 129,750
Repayments of revolving credit line agreement............. (134,750)
Exercise of stock options and other....................... 462 355
--------- --------
Net cash provided by financing activities................. 13,212 355
--------- --------
Net (decrease) increase in cash and cash equivalents...... 8,215 (24,383)
Cash and cash equivalents at beginning of period.......... 6,454 33,224
--------- --------
Cash and cash equivalents at end of period................ $ 14,669 $ 8,841
========= ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-37
<PAGE> 144
ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION:
The accompanying consolidated financial statements for the periods ended
March 29, 1998 and March 30, 1997 are unaudited. The statements should be read
in conjunction with the audited financial statements included in the Company's
1997 Annual Report on Form 10-K. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of such financial statements have been included. The financial
statements have been subjected to a limited review by Price Waterhouse LLP, the
Company's independent accountants, whose report appears on page 11 of this
filing. Such report is not a "report" or "part of the Registration Statement"
within the meaning of Sections 7 and 11 of the Securities Act of 1933 and the
liability provisions of Section 11 of such Act do not apply.
The Company's fiscal year ends on December 27, 1998 and will contain 52
weeks. First quarter results for 1998 and 1997 cover 13-week periods.
SEGMENT INFORMATION:
The Company presents its operations in two segments, Steel Making and Steel
Fabricating.
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 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.) (see footnote entitled "Sale of Universal Tool &
Stamping Company, Inc."). The Steel Fabricating Segment sells to a number of
markets.
All sales between segments are recorded at contractual prices determined on
an annual basis and reviewed periodically to reflect current market conditions.
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 from operations does not
include other non-operating income or expense, interest income or expense, or
income taxes, or extraordinary items.
F-38
<PAGE> 145
ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 periods presented.
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
----------------------
MARCH 29, MARCH 30,
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT FOR
OPERATING DATA)
<S> <C> <C>
Net Sales:
Steel Making:
Sales to unaffiliated customers........................ $ 77,373 54,367
Intersegment sales..................................... 24,520 24,754
-------- --------
101,893 79,121
Steel Fabricating:
Sales to unaffiliated customers........................ 67,623 70,964
Intersegment sales..................................... 207 298
-------- --------
67,830 71,262
Eliminations........................................... (24,727) (25,052)
-------- --------
Total................................................ $144,996 $'125,331
-------- --------
Income (loss) from Operations:
Steel Making........................................... $(10,419) $(19,925)
Steel Fabricating...................................... 6,385 5,416
-------- --------
Total................................................ $ (4,034) $(14,509)
-------- --------
Depreciation:
Steel Making........................................... $ 8,485 $ 9,224
Steel Fabricating...................................... 964 922
Corporate.............................................. 17 5
-------- --------
Total................................................ $ 9,466 $ 10,151
-------- --------
Capital Expenditures:
Steel Making........................................... $ 2,044 $ 10,565
Steel Fabricating...................................... 4,103 1,849
Corporate.............................................. 72 45
-------- --------
Total................................................ $ 6,219 $ 12,459
-------- --------
Operating Data (in tons)
Steel Production (hot band)............................... 221,454 191,878
Steel Shipments (flat rolled)............................. 252,731 164,309
</TABLE>
F-39
<PAGE> 146
ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INVENTORIES:
Inventories as determined on the last-in first-out method are summarized as
follows:
<TABLE>
<CAPTION>
MARCH 29, DECEMBER 28,
1998 1997
--------- ------------
<S> <C> <C>
Raw materials........................................... $ 7,441 $13,510
Semi-finished and finished products..................... 49,257 62,126
Supplies................................................ 7,711 5,994
------- -------
$64,409 $81,630
======= =======
</TABLE>
PROPERTY, PLANT AND EQUIPMENT:
The Company has capitalized expenditures related to the construction of a
continuous thin slab caster and hot strip mill (the "New Facility") totaling
$461.0 million at March 29, 1998, including total cash payments for the New
Facility in the first quarter of 1998 of $7.2 million. Payments to the general
contractor at March 29, 1998 and December 28, 1997 are $9.7 million and $17.2
million, respectively. Due to the non-cash nature of such payables at each date
they have been excluded from the Statements of Cash Flows. The remainder of
capital expenditures classified as construction in progress at March 29, 1998
was primarily for Acme Packaging's plastic strapping lines, and an upgrade of
the Company's management information systems.
LONG-TERM DEBT:
The Company's long-term debt (including current maturities) at March 29,
1998 and December 28, 1997 is summarized as follows:
<TABLE>
<CAPTION>
MARCH 29, DECEMBER 28,
1998 1997
--------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
10.875 percent Senior Unsecured Notes, net of
discount.............................................. $198,544 $198,506
Senior Secured Credit Agreement......................... 174,750 175,000
12.5 percent Senior Secured Notes....................... 17,623 17,623
13.5 percent Senior Secured Discount Notes.............. 669 669
Note Payable............................................ 6,000 6,000
Environmental Improvement Bonds 7.95 percent............ 11,345 11,345
Environmental Improvement Bonds 7.90 percent............ 8,585 8,585
Working Capital Facility................................ 5,000
Other long-term debt.................................... 3,417 2,015
-------- --------
$420,933 $424,743
======== ========
</TABLE>
SALE OF UNIVERSAL TOOL & STAMPING COMPANY, INC.:
In March 1998, the Company completed the stock sale of Universal Tool &
Stamping Company, Inc. ("Universal"), generating proceeds to the Company of
$18.0 million and a gain of $12.0 million (classified under the account caption
as "Other-net" on the Statement of Operation). At December 28, 1997, the net
assets of Universal (excluding cash and intercompany accounts) were $3.8 million
and were classified as a current asset, "Net assets held for sale."
Proceeds from the sale of Universal are restricted by the Indentures
covering the Company's Senior Secured Notes issued in 1994 and have been
deposited with the Trustee. The sale proceeds of net closing costs of $17.3
million have been classified as restricted cash on the balance sheet at March
29, 1998. The Company is permitted to apply the proceeds to related business
investments or to offer to redeem on a pro rata basis the remaining 1994 Notes.
To the extent an offer to redeem is not accepted, the proceeds become
unrestricted.
F-40
<PAGE> 147
ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CASH FLOWS:
Cash payments for interest expense were $5.2 million during the first three
months of 1998 and $9.8 million in the first three months of 1997. Cash
transactions in the first quarter of 1998 for the New Facility are discussed
above in the footnote entitled "Property, Plant and Equipment."
COMPREHENSIVE INCOME:
During the quarter ended March 29, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income," which requires the Company to disclose, in
financial statement format, all non-owner changes in equity. As of the quarter
ended March 29, 1998, there was no effect on equity due to the adoption of SFAS
No. 130.
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. During 1997, the Company
obtained approximately 37 percent of its iron ore needs from the joint venture.
The Company's interest in NACME requires Acme to comply with certain
tonnage provision guarantees and cost plus return on investment payments. Due to
a delay in reaching full operating levels, NACME was not in compliance with
certain financial covenants and obtained a waiver and negotiated modification of
those covenants under its financing arrangements with its lending institution.
The Company expects NACME will meet the requirements of the financial covenants.
However, there are no assurances NACME will achieve such compliance, or, if it
fails to do so, that it will be able to negotiate further waivers or amendments
of its covenants. Currently, the Company is unable to determine whether such
failure would have an adverse effect on Acme's operations.
During 1994, the Company entered into a turnkey contract with Raytheon
Engineers & Constructors, Inc. ("Raytheon") to build the New Facility at its
steel making facilities located in Riverdale, Illinois. Based on the turnkey
contract without taking into account financing costs, internally generated costs
directly related to the New Facility or additional changes that may be requested
by Acme during construction, management estimates the cost of the New Facility,
including ancillary facilities, construction, general contractor fees and
certain other project costs that will be paid by the Company will approximate
$400 million.
The Company has long term operating lease commitments, principally for
building space for its Alpha Tube subsidiary and for various computer hardware
and software. A current lease agreement relating to building space for the Alpha
Tube subsidiary contains provisions for the Company to guarantee the lessor a
recovery of a fixed percentage of its interest in the property upon termination
of the lease. In the event the Company does not maintain compliance with
financial covenants which are consistent with those of the Working Capital
Facility, the Company could be required to purchase the lessors' interest in the
property.
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 Environmental Protection Agency, for
example, is currently evaluating changes to the National Air Quality Standards
for particulate matter and ozone.
From time to time, the Company is also involved in administrative
proceedings involving the issuance, or renewal, of environmental permits
relating to the conduct of its business. The final issuance of these permits
have been resolved on terms satisfactory to the Company; and, in the future, the
Company expects such permits will similarly be resolved on satisfactory terms.
F-41
<PAGE> 148
ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Although management believes it will be required to make further
expenditures for pollution abatement facilities in future years, because of the
continuous revision of these regulatory and statutory requirements, the Company
is not able to reasonably estimate the specific pollution abatement
requirements, the amount or timing of such expenditures to maintain compliance
with these environmental laws. While such expenditures in future years may be
substantial, management does not presently expect they will have a material
adverse effect on the Company's future ability to compete within its markets.
In those cases where the Company has been identified as a Potentially
Responsible Party ("PRP") or is otherwise made aware of a possible exposure to
incur costs associated with an environmental matter, management determines (i)
whether, in fact, the Company has been properly named or is otherwise obligated,
(ii) the extent to which the Company may be responsible for costs associated
with the site in question, (iii) an assessment as to whether another party may
be responsible under various indemnification agreements or insurance policies
the Company is a party to, and (iv) an estimate, if one can be made, of the
costs associated with the clean-up efforts or settlement costs. It is the
Company's policy to make provisions for environmental clean-up costs at the time
that a reasonable estimate can be made. At March 29, 1998, the Company had
recorded reserves of $1.0 million for environmental clean-up matters. While it
is not possible to predict the ultimate costs of resolving environmental related
issues facing the Company, based upon information currently available, they are
not expected to have a material effect on the consolidated financial condition
or results of operations of the Company.
In connection with the Company's Spin-Off from Interlake on May 29, 1986,
Acme entered into certain indemnification agreements with Interlake. Pursuant to
the terms of the indemnification agreements, Interlake undertook to defend,
indemnify and hold Acme harmless from any claims, as defined, relating to Acme
operations or predecessor operations occurring before May 29, 1986, the
inception of Acme. 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's predecessor operations
have been named as defendants 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, was 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 entered into a
Tax Indemnification Agreement ("TIA") which generally provides for Interlake to
indemnify Acme 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 received a Statutory Notice of Deficiency 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. During 1997 Interlake and the Internal
Revenue Service settled significantly all issues that created the additional
tax, reducing the additional tax to $5.1 million. Substantial interest could
also be due (potentially in an amount greater than the tax claimed). The taxes
claimed relate principally to adjustments for which Acme is indemnified by
Interlake pursuant to the TIA. The Company has adequate reserves to cover that
portion for which it believes it may be responsible per the TIA. To date,
Interlake has met its obligations under the TIA with respect to all covered
matters. In the event that Interlake, for any reason, were unable to fulfill its
obligations under the TIA, the Company could have increased future obligations.
The Company's subsidiaries also have various 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.
F-42
<PAGE> 149
ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
GUARANTORS FINANCIAL STATEMENTS
In December 1997, Acme Metals Incorporated, as issuer, and Acme Steel
Company, a wholly owned subsidiary of the Company, as guarantor, entered into an
offering pursuant to which $200 million of 10.875 percent Senior Unsecured Notes
due 2007 (the "Senior Unsecured Notes") were offered pursuant to Rule 144A under
the Securities Act of 1933, as amended (the "Act"). The Company intends to
register the Senior Unsecured Notes under the Act.
Following is consolidating condensed financial information pertaining to
the Company and its subsidiary guarantor and its subsidiary nonguarantors.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS MARCH 29, 1998
---------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET SALES.................................. $ $101,893 $67,830 $(24,727) $144,996
COST AND EXPENSES.......................... 107,180 56,705 (24,727) 139,158
------- -------- ------- -------- --------
Gross Profit............................... (5,287) 11,125 5,838
Selling and administrative expense......... 5,132 4,740 9,872
------- -------- ------- -------- --------
Operating income (loss).................... (10,419) 6,385 (4,034)
Other...................................... 257 12,000 12,257
Net Interest income (expense).............. 3,817 (13,728) (887) (10,798)
------- -------- ------- -------- --------
Income (loss) before income taxes.......... 3,817 (23,890) 17,498 (2,575)
Income tax provision (benefit)............. 1,455 (8,234) 5,879 (900)
------- -------- ------- -------- --------
Net income (loss) before equity
adjustment............................... 2,362 (15,656) 11,619 (1,675)
Equity loss in subsidiaries................ (4,037) 4,037
------- -------- ------- -------- --------
Net income (loss).......................... $(1,675) $(15,656) $11,619 $ 4,037 $ (1,675)
======= ======== ======= ======== ========
</TABLE>
F-43
<PAGE> 150
ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 30, 1997
----------------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET SALES........................... $ $ 79,121 $71,262 $(25,052) $125,331
COST AND EXPENSES................... 94,214 60,486 (25,052) 129,648
-------- -------- ------- -------- --------
Gross profit........................ (15,093) 10,776 (4,317)
Selling and administrative.......... 4,832 5,360 10,192
-------- -------- ------- -------- --------
Operating income (loss)............. (19,925) 5,416 (14,509)
Net interest income (expense) and
other............................. 4,556 (13,473) (615) (9,532)
-------- -------- ------- -------- --------
Income (loss) before income taxes... 4,556 (33,398) 4,801 (24,041)
Income tax provision (benefit)...... 1,433 (11,296) 1,689 (8,174)
-------- -------- ------- -------- --------
Net income (loss) before equity
adjustment........................ 3,123 (22,102) 3,112 (15,867)
Equity loss in subsidiaries......... (18,990) 18,990
-------- -------- ------- -------- --------
Net income (loss)................... $(15,867) $(22,102) $ 3,112 $ 18,990 $(15,867)
======== ======== ======= ======== ========
</TABLE>
F-44
<PAGE> 151
ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF MARCH 29, 1998
----------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ 14,285 $ $ 384 $ $ 14,669
Accounts receivable, net.......... 198 39,091 29,496 68,785
Income tax receivable............. 1,252 1,252
Inventories....................... 40,353 25,706 (1,651) 64,408
Deferred income taxes............. 14,082 14,082
Other current assets.............. 586 1,844 133 2,563
Due to (from) affiliates.......... 459,879 (446,367) (15,163) 1,651
-------- --------- -------- -------- --------
Total current assets......... 490,282 (365,079) 40,556 165,759
-------- --------- -------- -------- --------
INVESTMENTS AND OTHER ASSETS:
Investments in associated
companies...................... 56,845 17,774 (56,845) 17,774
Restricted cash and investments... 17,361 17,361
Other assets...................... 15,002 3,996 1,541 20,539
Deferred income taxes............. 49,438 49,438
-------- --------- -------- -------- --------
Total investments and
other assets.............. 138,646 21,770 1,541 (56,845) 105,112
-------- --------- -------- -------- --------
PROPERTY, PLANT AND EQUIPMENT
Net:.............................. 272 515,639 31,334 547,245
-------- --------- -------- -------- --------
$629,200 $ 172,330 $ 73,431 $(56,845) $818,116
======== ========= ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses....................... $ 9,943 $ 66,359 $ 15,912 $ $ 92,214
Current maturities of long term
debt........................... 1,000 500 1,500
-------- --------- -------- -------- --------
Total current liabilities.... 10,943 66,859 15,912 93,714
-------- --------- -------- -------- --------
LONG-TERM LIABILITIES:
Long-term debt.................... 413,933 5,500 419,433
Other long-term liabilities....... 14,956 2,783 17,739
Postretirement benefits other than
pensions....................... 1,731 80,522 14,295 96,548
Retirement benefit plans.......... 2,505 4,268 (1,223) 5,550
-------- --------- -------- -------- --------
Total long-term
liabilities............... 433,125 93,073 13,072 539,270
-------- --------- -------- -------- --------
SHAREHOLDERS' EQUITY:............... 185,132 12,398 44,447 (56,845) 185,132
-------- --------- -------- -------- --------
$629,200 $ 172,330 $ 73,431 $(56,845) $818,116
======== ========= ======== ======== ========
</TABLE>
F-45
<PAGE> 152
ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 28, 1997
----------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ $ 3,016 $ 3,438 $ $ 6,454
Accounts receivable, net.......... 33,154 26,492 59,646
Income tax receivable............. 24,936 24,936
Inventories....................... 58,657 23,990 (1,017) 81,630
Net assets held for sale.......... 3,808 3,808
Deferred income taxes............. 14,082 14,082
Other current assets.............. 614 1,145 128 1,887
Due to (from) affiliates.......... 460,541 (434,649) (26,909) 1,017
-------- --------- -------- -------- --------
Total current assets...... 500,173 (338,677) 30,947 192,443
-------- --------- -------- -------- --------
INVESTMENTS AND OTHER ASSETS:
Investments in associated
companies...................... 60,882 17,395 (60,882) 17,395
Other assets...................... 14,629 4,391 1,337 20,357
Deferred income taxes............. 48,536 48,536
-------- --------- -------- -------- --------
Total investments and
other assets............ 124,047 21,786 1,337 (60,882) 86,288
-------- --------- -------- -------- --------
PROPERTY, PLANT AND
EQUIPMENT -- NET.................. 217 522,096 28,037 550,350
-------- --------- -------- -------- --------
$624,437 $ 205,205 $ 60,321 $(60,882) $829,081
======== ========= ======== ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses....................... $ 5,157 $ 79,310 $ 14,333 $ $ 98,800
Current installments of long-term
debt........................... 1,000 500 1,500
-------- --------- -------- -------- --------
Total current
liabilities............. 6,157 79,810 14,333 100,300
-------- --------- -------- -------- --------
LONG-TERM LIABILITIES:
Long-term debt.................... 412,743 10,500 423,243
Other long-term liabilities....... 14,939 2,852 17,791
Postretirement benefits other than
pensions....................... 1,731 79,803 14,280 95,814
Retirement benefit plans.......... 2,524 4,186 (1,120) 5,590
-------- --------- -------- -------- --------
Total long-term
liabilities............. 431,937 97,341 13,160 542,438
-------- --------- -------- -------- --------
SHAREHOLDERS' EQUITY:............... 186,343 28,054 32,828 (60,882) 186,343
-------- --------- -------- -------- --------
$624,437 $ 205,205 $ 60,321 $(60,882) $829,081
======== ========= ======== ======== ========
</TABLE>
F-46
<PAGE> 153
ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 29, 1998
--------------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS (USED FOR) PROVIDED BY
OPERATING ACTIVITIES.................... $ 30,845 $ (1,922) $ (6,607) $ 633 $ 22,949
-------- --------- -------- ----- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Reclassification to restricted cash..... (17,361) (17,361)
Capital expenditures.................... (72) (7,812) (2,701) (10,585)
-------- --------- -------- ----- ---------
Net cash (used for) provided by
investing activities.................. (17,433) (7,812) (2,701) (27,946)
-------- --------- -------- ----- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit
agreement............................. 129,750 129,750
Repayments of revolving credit
agreement............................. (134,750) (134,750)
Payment of long term debt............... (250) (250)
Intercompany cash transactions.......... 661 11,718 (11,746) (633)
Proceeds from net assets held for
sale.................................. 18,000 18,000
Exercise of stock options and other..... 462 462
-------- --------- -------- ----- ---------
Net cash (used for) provided by
financing activities.................. 873 6,718 6,254 (633) 13,212
-------- --------- -------- ----- ---------
Net increase (decrease) in cash and cash
equivalents........................... 14,285 (3,016) (3,054) 8,215
Cash and cash equivalents at beginning
of period............................. 3,016 3,438 6,454
-------- --------- -------- ----- ---------
Cash and cash equivalents at end of
period................................ $ 14,285 $ $ 384 $ $ 14,669
======== ========= ======== ===== =========
</TABLE>
F-47
<PAGE> 154
ACME METALS INCORPORATED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 30, 1997
----------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
NET CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES.................. $ (4,919) $(23,111) $ 4,288 $(123) $(23,865)
-------- -------- ------- ----- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales and/or maturities of
investments, net of purchases...... 6,359 6,359
Capital expenditures.................. (45) (5,338) (1,849) (7,232)
-------- -------- ------- ----- --------
Net cash (used for) provided by
investing activities............... 6,314 (5,338) (1,849) (873)
-------- -------- ------- ----- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Intercompany cash transactions........ (19,996) 22,142 (2,269) 123
Exercise of stock options and other... 355 355
-------- -------- ------- ----- --------
Net cash (used for) provided by
financing activities............... (19,641) 22,142 (2,269) 123 355
-------- -------- ------- ----- --------
Net increase (decrease) in cash and
cash equivalents................... (18,246) (6,307) 170 (24,383)
Cash and cash equivalents at beginning
of period.......................... 24,306 6,307 2,611 33,224
-------- -------- ------- ----- --------
Cash and cash equivalents at end of
period............................. $ 6,060 $ $ 2,781 $ $ 8,841
======== ======== ======= ===== ========
</TABLE>
F-48
<PAGE> 155
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Acme Metals Incorporated
We have reviewed the accompanying consolidated balance sheet as of March
29, 1998, the consolidated statements of operations for the three-month periods
ended March 29, 1998 and March 30, 1997, and the consolidated statements of cash
flows for the three-month periods ended March 29, 1998 and March 30, 1997 (the
"consolidated financial information") of Acme Metals Incorporated and its
subsidiaries. This consolidated financial information is the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated financial information for it to
be in conformity with generally accepted accounting principles.
We previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 28, 1997, and the
related consolidated statements of operations, of shareholders' equity, and of
cash flows for the year then ended (not presented herein), and in our report
dated January 23, 1998, except as to the Note entitled "Assets Held for Sale",
which is as of March 10, 1998, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet information as of December 28, 1997,
is fairly stated in all material respects in relation to the consolidated
balance sheet from which it has been derived.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Chicago, Illinois
May 7, 1998
F-49
<PAGE> 156
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys fees), judgments, fines and
amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation--a "derivative action"), if
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with defense or settlement of such
action, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
rights to which those seeking indemnification may be entitled under any by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
payments of unlawful dividends or unlawful stock repurchases or redemptions, or
(iv) for any transaction from which the director derived an improper personal
benefit. The Company's Certificate of Incorporation provides for such limitation
of liability.
It is the position of the Securities and Exchange Commission (the
"Commission") that indemnification of trustees for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"), is against public
policy and is unenforceable pursuant to Section 14 of the Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C> <C>
3. Articles of Incorporation and By-Laws
3(i) Restated Certificate of Incorporation of the Registrant, as
amended by the Certificate of Designation of Junior
Participating Preferred Stock, Series A. Filed as Exhibit
3(i) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 (the "1995 10-K") and
incorporated by reference herein.
3(ii) Amended and Restated By-Laws of the Registrant as adopted
February 27, 1997. Filed as Exhibit 3(ii) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 29, 1996 (the "1996 10-K") and incorporated
by reference herein.
4. Instruments Defining the Rights of Security Holders, Including
Indentures
4.1 Rights Agreement dated as of July 15, 1994 between the
Registrant and First Chicago Trust Company of New York,
Rights Agent. Filed as Exhibit 1 to the Form 8-A dated
August 8, 1994 and Form 8-A/A dated August 12, 1994 and
incorporated by reference herein.
4.2 Indenture dated as of August 11, 1994 among the Registrant
and Guarantors and Shawmut Bank Connecticut, National
Association as trustee, relating to the 12 1/2% Senior
Secured Notes due 2002. Filed as Exhibit 4.2 to Amendment
No. 2 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 25, 1994 (Amendment No. 2 to the
"1994 10-K") and incorporated by reference herein.
</TABLE>
II-1
<PAGE> 157
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C> <C>
4.3 Form of 12 1/2% Senior Secured Note due 2002 (included as
Exhibit A to Exhibit 4.2). Filed as Exhibit 4.3 to Amendment
No. 2 to the 1994 10-K and incorporated by reference herein.
4.4 First Supplemental Indenture dated as of December 3, 1997
among the Registrant and Guarantors and State Street Bank
and Trust Company, as Trustee, relating to the 121/2% Senior
Secured Notes due 2002. Filed as Exhibit 4.4 to the
Registrant's Annual Report on Form 10-K for the Fiscal Year
ended December 28, 1997 (the "1997 10-K") and incorporated
by reference herein.
4.5 Indenture dated as of August 11, 1994 among the Registrant
and Guarantors and Shawmut Bank, Connecticut, National
Association as trustee, relating to the 13 1/2% Senior
Secured Discount Notes due 2004. Filed as Exhibit 4.4 to
Amendment No. 2 to the 1994 10-K and incorporated by
reference herein.
4.6 Form of 13 1/2% Senior Secured Discount Note due 2004
(included as Exhibit A to Exhibit 4.4). Filed as Exhibit 4.5
to Amendment No. 2 to the 1994 10-K and incorporated by
reference herein.
4.7 First Supplemental Indenture dated as of December 3, 1997
among the Registrant and Guarantors and State Street Bank
and Trust Company, as Trustee, relating to the 13 1/2%
Senior Secured Discount Notes due 2004. Filed as Exhibit 4.7
to the 1997 10-K and incorporated by reference herein.
4.8 Collateral Agency Agreement dated as of August 11, 1994
among the Registrant, Acme Steel Company ("Acme Steel"),
Acme Packaging Corporation ("Acme Packaging"), the Trustees,
the Term Loan Agent and the Collateral Agent. Filed as
Exhibit 4.6 to Amendment No. 2 to the 1994 10-K and
incorporated by reference herein.
4.9 Amended and Restated Collateral Agency Agreement dated as of
December 18, 1997 by and among the Registrant, Acme Steel,
Acme Packaging, Bankers Trust Company and State Street Bank
and Trust Company, as Collateral Agents. Filed as Exhibit
4.9 to the 1997 10-K and incorporated by reference herein.
4.10 Company Stock Pledge Agreement dated as of August 11, 1994
between the Registrant and the Collateral Agent. Filed as
Exhibit 4.7 to Amendment No. 2 to the 1994 10-K and
incorporated by reference herein.
4.11 Subsidiary Stock Pledge Agreement dated as of August 11,
1994 among Acme Steel, Acme Packaging and the Collateral
Agent. Filed as Exhibit 4.8 to Amendment No. 2 to the 1994
10-K and incorporated by reference herein.
4.12 Security Agreement dated as of August 11, 1994 between Acme
Steel and the Collateral Agent. Filed as Exhibit 4.9 to
Amendment No. 2 to the 1994 10-K and incorporated by
reference herein.
4.13 Mortgage dated as of August 11, 1994 from Acme Steel to the
Collateral Agent. Filed as Exhibit 4.10 to Amendment No. 2
to the 1994 10-K and incorporated by reference herein.
4.14 Intercreditor Agreement dated as of August 11, 1994 among
the Registrant, Acme Steel, Harris Trust and Savings Bank
and the Collateral Agent. Filed as Exhibit 4.11 to Amendment
No. 2 to the 1994 10-K and incorporated by reference herein.
4.15 Disbursement Agreement dated as of August 11, 1994 between
the Registrant and the Collateral Agent. Filed as Exhibit
4.12 to Amendment No. 2 to the 1994 10-K and incorporated by
reference herein.
4.16 Form of Registration Rights Agreement dated March 28, 1994
among the Registrant and The Substituted Purchasers. Filed
as Exhibit 4.13 to the Registrant's Annual Report on Form
10K for the fiscal year ended December 25, 1994 (the "1994
10-K") and incorporated by reference herein.
</TABLE>
II-2
<PAGE> 158
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C> <C>
4.17 Indenture dated as of December 18, 1997 between the
Registrant, as Issuer, Acme Steel, as Guarantor, and Harris
Trust and Savings Bank, as Trustee, relating to the 10 7/8%
Senior Notes due 2007. Filed as Exhibit 4.17 to the 1997
10-K and incorporated by reference herein.
4.18 Registration Rights Agreement dated December 18, 1997
between the Registrant, Morgan Stanley & Co. Incorporated,
Salomon Brothers, Inc., First Chicago Capital Markets, Inc.,
and Nesbitt Burns Securities Inc., as placement agent. Filed
as Exhibit 4.18 to the 1997 10-K and incorporated by
reference herein.
*4.19 Amended and Restated Intercreditor Agreement dated as of
December 18, 1997 among the Registrant, Acme Steel, Harris
Trust and Savings Bank and State Street Bank and Trust
Company.
*5. Opinion of Ungaretti & Harris
*8. Tax Opinion of Ungaretti & Harris
10. Material contracts
10.1 Tax Indemnification Agreement between Acme Steel and The
Interlake Corporation ("Interlake") dated May 30, 1986.
Filed as Exhibit 10.1 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 27, 1992, SEC
File# 0-14727 (the "1992 Form 10-K") and incorporated by
reference herein.
10.2 Cross-Indemnification Agreement between Acme Steel and
Interlake dated May 29,1986. Filed as Exhibit 10.2 to the
1992 Form 10-K and incorporated by reference herein.
10.3 $80,000,000 Credit Agreement by and among Acme Group and
Harris Trust and Savings Bank individually and as Agent and
the Lenders which are or become parties hereto dated as of
August 11, 1994 (the "Credit Agreement"). Filed as Exhibit
10.3 to the 1994 10-K and incorporated by reference herein.
10.4 First Amendment to the Credit Agreement dated as of May 21,
1995. Filed as Exhibit 10.4 to the 1995 10-K and
incorporated by reference herein.
10.5 Second Amendment to the Credit Agreement dated August, 1995.
Filed as Exhibit 10.5 to the 1995 10-K and incorporated by
reference herein.
10.6 Third Amendment to the Credit Agreement dated April 5, 1996.
Filed as Exhibit 10.6 to the 1996 10-K and incorporated by
reference herein.
10.7 Fourth Amendment to the Credit Agreement dated April 1,
1997. Filed as Exhibit 10.7 to the 1997 10-K and
incorporated by reference herein.
10.8 Fifth Amendment to the Credit Agreement dated September 27,
1997. Filed as Exhibit 10.8 to the 1997 10-K and
incorporated by reference herein.
10.9 Assignment and Acceptance dated August 24, 1994 relating to
the Credit Agreement (National City Bank, Assignee). Filed
as Exhibit 10.4 to the 1994 10-K and incorporated by
reference herein.
10.10 Assignment and Acceptance dated August 24, 1994 relating to
the Credit Agreement (NBD Bank, N.A., Assignee). Filed as
Exhibit 10.5 to the 1994 10-K and incorporated by reference
herein.
10.11 Assignment and Acceptance dated August 24, 1994 relating to
the Credit Agreement (Mercantile Bank of St. Louis National
Association, Assignee). Filed as Exhibit 10.6 to the 1994
10-K and incorporated by reference herein.
10.12 Assignment and Acceptance dated September 1, 1994 relating
to the Credit Agreement (General Electric Capital
Corporation, Assignee). Filed as Exhibit 10.7 to the 1994
10-K and incorporated by reference herein.
</TABLE>
II-3
<PAGE> 159
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <C> <S>
10.13 Amended and Restated $80,000,000 Credit Agreement dated as
of December 18, 1997 by and among Acme Group and Harris
Trust and Savings Bank and The First National Bank of
Chicago, as Co-Agents (the "Working Capital Facility").
Filed as Exhibit 10.13 to the 1997 10-K and incorporated by
reference herein.
10.14 First Amendment to the Working Capital Facility effective as
of December 18, 1997. Filed as Exhibit 10.14 to the 1997
10-K and incorporated by reference herein.
10.15 Second Amendment to Working Capital Facility, dated May 11,
1998. Filed as Exhibit 10.1 to the Form 10-Q filed on May
13, 1998 (the "1998 First Quarter 10-Q") and incorporated by
reference herein.
10.16 Term Loan Agreement dated August 4, 1994 among the
Registrant, the Lenders and Lehman Commercial Paper Inc.
(the "Term Loan"). Filed as Exhibit 10.8 to Amendment No. 2
to the 1994 10-K and incorporated by reference herein.
10.17 Amendment to the Term Loan dated as of December 15, 1994.
Filed as Exhibit 10.9 to the 1994 10-K and incorporated by
reference herein.
10.18 $175,000,000 Credit Agreement dated as of December 18, 1997
among the Registrant, Various Lenders, Bankers Trust
Company, as Administrative Agent, and Morgan Stanley Senior
Funding, Inc., as Syndication Agent and Arranger, and
ancillary documents. Filed as Exhibit 10.17 to the 1997 10-K
and incorporated by reference herein.
10.19 First Amendment to $175,000,000 Credit Agreement dated May
12, 1998. Filed as Exhibit 10.2 to the 1998 First Quarter
10-Q and incorporated by reference herein.
10.20 Form of Engineering, Procurement and Construction Contract
dated July 28, 1994 between Acme Steel and Raytheon
Engineers & Constructors, Inc. Filed as Exhibit 10.41 to
Amendment No. 3 to Form S-1 Registration Statement, No.
33-54101, and incorporated by reference herein.
10.21 Amendment 1 to Engineering, Procurement and Construction
Contract between Acme Steel and Raytheon Engineers &
Constructors, Inc. dated as of July 28, 1994. Filed as
Exhibit 10.11 to the 1994 10-K and incorporated by reference
herein.
10.22 Amendment 2 to Engineering, Procurement and Construction
Contract between Acme Steel and Raytheon Engineers &
Constructors, Inc. dated as of March 21, 1995. Filed as
Exhibit 10.12 to the 1994 10-K and incorporated by reference
herein.
10.23 Joint Development Program Agreement dated July 28, 1994
between Acme Steel and SMS Schloemann-Siemag, AG. Filed as
Exhibit 10.13 to the 1994 10-K and incorporated by reference
herein.
10.24 Agreement between the Registrant and Reynold C. MacDonald
dated June 1, 1992.(1) Filed as Exhibit 10.3 to the 1992
10-K and incorporated by reference herein.
10.25 Amendment to the Agreement between Registrant and Reynold C.
MacDonald dated June 1, 1995. Filed as Exhibit 10.17 to the
1995 10-K and incorporated by reference herein.
10.26 Retainer Agreement between Registrant and Brian W. H.
Marsden dated March 1, 1997. Filed as Exhibit 10.19 to the
1996 10-K and incorporated by reference herein.
10.27 Non-Employee Directors Retirement Plan dated February 22,
1990 as adopted May 25, 1992.(1) Filed as Exhibit 10.4 to
the 1992 10-K and incorporated as reference herein.
10.28 Form of Indemnification Agreement for directors and certain
officers of the Registrant. Filed as Exhibit 10.20 to the
1995 10-K and incorporated as reference herein.
10.29 Amendment and Restatement of the 1994 Executive Incentive
Compensation Plan of Acme Metals Incorporated as adopted
April 24, 1997.(1) Filed as Appendix B to the Proxy
Statement for the Annual Meeting of Shareholders held on
April 24, 1997 (the "1997 Proxy Statement") and incorporated
by reference herein.
</TABLE>
II-4
<PAGE> 160
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C> <C>
10.30 Deferred Compensation Agreement dated May 24, 1986 between
the Registrant and Brian W. H. Marsden as adopted May 25,
1992.(1) Filed as Exhibit 10.15 to the 1992 10-K and
incorporated by reference herein.
10.31 Acme Metals Incorporated Deferred Compensation Plan as
Amended and Restated effective January 1, 1994 and adopted
November 21, 1994.(1) Filed as Exhibit 10.23 to the 1994
10-K and incorporated by reference herein.
10.32 Key Executive Severance Pay Plan dated January 22, 1987, as
adopted May 25, 1992.(1) Filed as Exhibit 10.24 to the 1995
10-K and incorporated by reference herein. Exhibit 1 amended
through January 29, 1998.(1) Filed as Exhibit 10.30 to the
1997 10-K and incorporated by reference herein.
10.33 Acme Metals Incorporated 1994 Stock Incentive Program as
adopted April 28, 1994.(1) Filed as Exhibit 10.25 to the
1994 10-K and incorporated by reference herein.
10.34 Acme Metals Incorporated 1997 Non-Employee Directors' Stock
Option Plan.(1) Filed as Appendix A to the 1997 Proxy
Statement and incorporated by reference herein.
10.35 Acme Metals Incorporated Employee Stock Ownership Plan
Restated effective September 1, 1995. Filed as Exhibit 10.27
to the 1996 10-K and incorporated by reference herein.
10.36 Acme Metals Incorporated Salaried Employees' Retirement
Savings Plan Restated effective September 1, 1995. Filed as
Exhibit 10.28 to the 1996 10-K and incorporated by reference
herein.
10.37 Consolidated Pension Plan for Acme Salaried and Hourly
Employees as Amended and Restated effective November 1, 1994
("Consolidated Pension Plan") with Appendix A to the
Consolidated Pension Plan as Amended and Restated effective
July 31, 1994.(1) Filed as Exhibit 10.44 to the 1994 10-K
and incorporated by reference herein.
10.38 Appendix B to the Consolidated Pension Plan as Amended and
Restated effective September 1, 1993.(1) Filed as Exhibit
10.30 to the 1995 10-K and incorporated by reference herein.
10.39 Appendix C to the Consolidated Pension Plan effective
December 31, 1993.(1) Filed as Exhibit 10.31 to the 1995
10-K and incorporated by reference herein.
10.40 First Amendment to the Consolidated Pension Plan dated
September 19, 1995.(1) Filed as Exhibit 10.32 to the 1995
10-K and incorporated by reference herein.
10.41 Acme Metals Incorporated Supplemental Benefits Plan
effective January 1, 1994.(1) Filed as Exhibit 10.45 to the
1994 10-K and incorporated by reference herein.
10.42 Acme Metals Incorporated Salaried Employees; Past Service
Pension Plan ("Past Service Pension Plan") dated June
1,1992.(1) Filed as Exhibit 10.37 to the 1992 10-K and
incorporated by reference herein.
10.43 Amendment No. 1 to the Past Service Pension Plan.(1) Filed
as Exhibit 10.38 to the 1993 10-K and incorporated by
reference herein.
10.44 Amendment No. 2 to the Past Service Pension Plan.(1) Filed
as Exhibit 10.48 to the 1994 10-K and incorporated by
reference herein.
*12. Statement re: Computation of Ratios.
21. Subsidiaries of the Registrant. Filed as Exhibit 21 to the 1997 10-K
and incorporated by reference herein.
23. Consent of experts and counsel
*23.1 Consent of Price Waterhouse LLP.
*23.2 Consent of Ungaretti & Harris (included in Exhibit 5).
*23.3 Price Waterhouse LLP Awareness Letter.
*24. Power of Attorney (see signature page).
*25. Statement of Eligibility of Trustee.
</TABLE>
II-5
<PAGE> 161
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <C> <S>
27. Financial Data Schedule. Filed as Exhibit 27 to the 1997 Form 10-K
and as Exhibit 27 to the 1998 First Quarter 10-Q and incorporated by
reference herein.
99. Additional Exhibits
*99.1 Form of Letter of Transmittal.
*99.2 Form of Notice of Guaranteed Delivery.
*99.3 Form of Letter to Nominees.
*99.4 Form of Letter to Clients of Nominees.
</TABLE>
- -------------------------
* Filed herewith.
(b) Financial Statement Schedules:
Not applicable.
(c) Item 4(b) Information:
Not applicable.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that
is incorporated by reference in this Registration Statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(2) That, prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to other information called for by the other
Items of the applicable form.
(3) That every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as part of an
amendment to this Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment 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.
(4) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of this Registration Statement through the date of
responding to the request.
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this Registration Statement
when it became effective.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid
II-6
<PAGE> 162
by a director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-7
<PAGE> 163
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this 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 May, 1998.
ACME METALS INCORPORATED
By: /s/ STEPHEN D. BENNETT
------------------------------------
Stephen D. Bennett, Director
President and Chief Executive
Officer
(Principal Executive Officer)
By: /s/ JERRY F. WILLIAMS
------------------------------------
Jerry F. Williams, Vice President -
Finance and Administration and Chief
Financial Officer (Principal
Financial Officer)
By: /s/ DERRICK T. BAY
------------------------------------
Derrick T. Bay, Controller
and Chief Accounting Officer
(Principal Accounting Officer)
II-8
<PAGE> 164
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated. Each of the following persons does hereby authorize and
designate Edward P. Weber, Jr. and Jerry F. Williams, or either of them, as
attorneys-in-fact with full power of substitution, to execute in the name and on
behalf of such person, individually and in each capacity stated below, and to
file any and all amendments to this Registration Statement, including any and
all pre-effective and post-effective amendments.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <C> <S>
/s/ BUDDY W. DAVIS Director May 14, 1998
- ------------------------------------------------
Buddy W. Davis
/s/ ANDREW R. LAIDLAW Director May 14, 1998
- ------------------------------------------------
Andrew R. Laidlaw
/s/ JOHN T. LANE Director May 14, 1998
- ------------------------------------------------
John T. Lane
/s/ FRANK A. LEPAGE Director May 14, 1998
- ------------------------------------------------
Frank A. LePage
/s/ REYNOLD C. MACDONALD Director May 14, 1998
- ------------------------------------------------
Reynold C. MacDonald
/s/ BRIAN W.H. MARSDEN Director May 14, 1998
- ------------------------------------------------
Brian W.H. Marsden
/s/ ALLAN L. RAYFIELD Director May 14, 1998
- ------------------------------------------------
Allan L. Rayfield
/s/ WILLLIAM P. SOVEY Director May 14, 1998
- ------------------------------------------------
William P. Sovey
/s/ L. FREDERICK SUTHERLAND Director May 14, 1998
- ------------------------------------------------
L. Frederick Sutherland
/s/ WILLIAM R. WILSON Director May 14, 1998
- ------------------------------------------------
William R. Wilson
</TABLE>
II-9
<PAGE> 1
AMENDED AND RESTATED INTERCREDITOR AGREEMENT
AMENDED AND RESTATED INTERCREDITOR AGREEMENT (the "Agreement"), dated
as of December 18, 1997, by and among ACME METALS INCORPORATED, a Delaware
corporation, having its principal place of business at 13500 South Perry Avenue,
Riverdale, Illinois 60827 (together with its successors and assigns, "AMI"),
ACME STEEL COMPANY, a Delaware corporation having its principal place of
business at 13500 South Perry Avenue, Riverdale, Illinois 60827 (together with
its successors and assigns, the "Company"), Harris Trust and Savings Bank, an
Illinois banking corporation with its mailing address at 111 West Monroe Street,
Chicago, Illinois 60690, as agent (in such capacity and together with its
successors and assigns in such capacity, the "Working Capital Facility Agent")
for the Banks (as hereinafter defined), and State Street Bank and Trust Company,
a national banking association, having an address at Goodwin Square, 225 Asylum
Street, 23rd Floor, Hartford, Connecticut 06103, as collateral agent (in such
capacity and together with its successor and assigns in such capacity, the
"Collateral Agent") for the Senior Note Secured Parties (as hereinafter
defined).
R E C I T A L S :
1. Pursuant to that certain indenture (as amended by the First
Supplemental Indenture dated as of December 3, 1997 (the "First Supplemental
Note Indenture") and as otherwise amended and restated, supplemented or
otherwise modified from time to time, the "Note Indenture"), dated as of August
11, 1994, by and among AMI, the Company, as subsidiary guarantor of AMI's
obligations, each of the other subsidiaries of AMI, as guarantors (collectively,
the "Guarantors") of AMI's obligations, and State Street Bank and Trust Company
(as successor to Shawmut Bank Connecticut), as trustee (in such capacity and
together with its successors and assigns in such capacity, the "Note Trustee")
for the holders of the Senior Secured Notes (as hereinafter defined), AMI issued
its 12 1/2% senior secured notes due 2002 (as amended, amended and restated,
supplemented or otherwise modified from time to time, the "Senior Secured
Notes") in the aggregate principal amount of $125,000,000.
2. Pursuant to that certain indenture (as amended by the First
Supplemental Indenture dated December 3, 1997 (together with the First
Supplemental Note Indenture, the "First Supplemental Indentures") and as
otherwise amended and restated, supplemented or otherwise modified from time to
time, the "Discount Note Indenture"; together with the Note Indenture, the
"Indentures"), dated as of August 11, 1994, by and among AMI, the Company, the
other Guarantors and State Street Bank and Trust Company (as successor to
Shawmut Bank Connecticut), as trustee (in such capacity and together with its
successors and assigns in such capacity, the "Discount Note Trustee"; together
with the Note Trustee, the "Trustees") for the holders of the Senior Secured
Discount Notes (as hereinafter defined), AMI issued its 13 1/2% senior secured
discount notes due 2004 (as amended, amended and restated, supplemented or
otherwise modified from time to time, the "Senior Secured Discount Notes";
together with the Senior Secured Notes, the "Notes") in the initial aggregate
principal amount of $117,958,000.
3. Pursuant to that certain Credit Agreement (the "Working Capital
Facility Credit Agreement"), dated as of August 11, 1994, among the Working
Capital Facility Agent, the
<PAGE> 2
lenders party thereto (collectively, including parties subsequently becoming
lenders pursuant thereto, the "Banks"), AMI, the Company, Acme Packaging
Corporation, a Delaware corporation, Alpha Tube Corporation, a Delaware
corporation, and Universal Tool and Stamping Company, Inc., an Indiana
corporation (together with the other agreements executed in connection with the
Working Capital Facility Credit Agreement referred to above among such entities,
and as amended, amended and restated, supplemented or otherwise modified from
time to time, the "Working Capital Facility"), the Banks agreed to make certain
loans and advances from time to time to the borrowers under the Working Capital
Facility.
4. Pursuant to that certain term loan agreement (as amended, amended
and restated, supplemented or otherwise modified from time to time, the
"Existing Term Loan Agreement"), dated as of August 4, 1994, by and among AMI,
Harris Trust and Savings Bank, as agent, and the lenders party thereto, AMI
borrowed $50,000,000.
5. AMI has purchased, pursuant to a Tender Offer and Consent
Solicitation Statement dated November 13, 1997, a portion of the Senior Secured
Notes and a portion of the Senior Secured Discount Notes and, as of the date
hereof, the outstanding principal amount of Senior Secured Notes is $117,513,000
and the outstanding principal amount of Senior Secured Discount Notes is
$669,000.
6. The parties to the Working Capital Facility Credit Agreement have
entered into an Amended and Restated Working Capital Facility Credit Agreement,
dated as of December 18, 1997 (together with the other agreements executed in
connection with the Amended and Restated Working Capital Facility Credit
Agreement referred to above among such entities, and as amended, amended and
restated, supplemented or otherwise modified from time to time, the "New Working
Capital Facility").
7. The Existing Term Loan Agreement and all related instruments and
agreements have been paid in full and AMI has been discharged of all its
obligations thereunder and in accordance with the terms thereof.
8. Pursuant to the First Supplemental Indentures, AMI is permitted to
grant liens securing indebtedness ranking pari passu with the Notes and, in
accordance therewith, AMI entered into that certain credit agreement (as
amended, amended and restated, supplemented or otherwise modified from time to
time, the "Credit Agreement"), dated as of December 18, 1997, by and among AMI,
the lenders from time to time party thereto (the "Lenders"), Bankers Trust
Company, as administrative agent (the "Administrative Agent"), and Morgan
Stanley Senior Funding, Inc., as Syndication Agent and Arranger, under which AMI
is borrowing $175,000,000.
9. The Collateral Agent is the collateral agent under that certain
amended and restated collateral agency agreement (the "Collateral Agency
Agreement"), dated as of December 18, 1997, for the Trustees (for the benefit of
the holders of the Notes), the Administrative Agent (for the benefit of the
Lenders) and such other parties which may from time to time become additional
lenders to AMI, the Company and/or the other Guarantors (each such lender, an
"Additional Secured Party" and collectively, the "Additional Secured Parties";
together with the
2
<PAGE> 3
Trustees, the Administrative Agent and the Collateral Agent, the "Senior Note
Secured Parties") which may, in accordance with the provisions of the definition
of "Permitted Liens" in each Indenture and the Credit Agreement as all are in
effect on the date hereof, take a security interest in the Shared Collateral (as
defined in the Collateral Agency Agreement) to secure the financing provided by
the Additional Secured Parties (such financing as described in the Credit
Agreement, the "Additional Senior Debt").
10. To secure the payment and performance of the Noteholder Claim (as
hereinafter defined), the Company has granted mortgage liens on and security
interests in the Noteholder Collateral (as hereinafter defined) to the
Collateral Agent for the benefit of the Senior Note Secured Parties.
11. To secure the payment and performance of the Bank Claim (as
hereinafter defined), the Company has granted security interests in and liens on
the Bank Collateral (as hereinafter defined) to the Working Capital Facilities
Agent for the benefit of the Banks.
12. AMI, the Company, the Working Capital Facility Agent and the
Collateral Agent executed and delivered a certain intercreditor agreement (the
"Intercreditor Agreement"), dated August 11, 1994, to evidence their agreement
in respect of their relative rights with respect to the Collateral (as
hereinafter defined) and certain other rights, priorities and interests under
the Working Capital Facility, the Indentures and the Term Loan Agreement and the
other documents executed in connection therewith.
13. The parties hereto are executing and delivering this Amended and
Restated Intercreditor Agreement to amend and restate the terms and conditions
of the Intercreditor Agreement to reflect (i) the termination of the Existing
Term Loan Agreement, (ii) the establishment of the New Working Capital Facility
and (iii) the execution and delivery of the Credit Agreement and the instruments
and agreements related thereto.
A G R E E M E N T :
In consideration of the foregoing and the mutual covenants herein
contained, and for other good and valuable consideration, the parties hereby
agree as follows:
I. DEFINITIONS
Definitions. Unless otherwise defined herein, the following terms shall
have the meanings specified below:
"Accounts" shall mean all of the Company's presently existing and
hereafter arising or acquired accounts, accounts receivable, margin accounts,
futures positions, book debts, instruments, documents, contracts, contract
rights, choses-in-action, notes, drafts, acceptances, chattel paper, and other
forms of obligations and receivables now or hereafter owned or held by or
payable to the Company relating in any way to Inventory or arising from the sale
of Inventory or the rendering of services by the Company, including the right to
payment of any interest or
3
<PAGE> 4
finance charge with respect thereto, together with all merchandise represented
by any of the accounts; all such merchandise that may be reclaimed or
repossessed or returned to the Company; all of the Company's rights as an unpaid
vendor, including stoppage in transit, reclamation, replevin and sequestration;
all pledged assets and all letters of credit, guaranty claims, liens, and
security interests held by or granted to the Company to secure payment of any
accounts and which are delivered for or on behalf of any account debtor; all
accessions to all of the foregoing described properties and interests in
properties; all guarantees, endorsements and indemnifications on, or of, any of
the foregoing; and all customer lists, invoices, ledgers, books of account,
records, files (whether in printed form or stored electronically), computer
programs, computer disks or tape files, computer print-outs, computer runs and
other computer-prepared information relating to any of the foregoing.
"Bank Claim" shall mean all obligations of the Company to the Working
Capital Facility Agent and the Banks as set forth in the New Working Capital
Facility or in the documents evidencing or securing any Permitted Bank
Refinancing, all sums loaned, advanced to or for the benefit of the borrowers
thereunder at any time, any interest thereon, any future advances, any costs of
collection or enforcement, including, without limitation, reasonable attorneys'
and paralegals' costs and fees, and any prepayment fees with respect thereto.
"Bank Collateral" shall mean the Collateral in which the Working
Capital Facility Agent has a lien or security interest as described in and
provided by subsection 2.1(a).
"Bank Intangibles" shall mean all of the Company's now owned or
hereafter acquired contract rights relating to Bank Collateral, goodwill,
descriptions, name plates, choses-in-action, causes of action, catalogs,
confidential information, consulting agreements, engineering contracts, and such
other assets which relate to the goodwill of the business of the Company and
rights to refunds or indemnification to the extent the foregoing relate to Bank
Collateral, deposit accounts, letters of credit, documents, instruments, chattel
paper, and income tax refunds to the extent relating to Bank Collateral, claims
for tax or other refunds against any city, county, state, or federal government,
or any agency or authority or other subdivision thereof relating to Bank
Collateral, lease agreements relating to Bank Collateral, corporate or other
business records relating to Bank Collateral and all other general intangibles
of every kind and description relating to Bank Collateral; provided, however,
that Bank Intangibles shall in no event include Intellectual Property.
"Bank Primary Collateral" shall mean, collectively, the Accounts,
Inventory and Bank Intangibles.
"Collateral" shall mean all of the Noteholder Collateral and Bank
Collateral.
"Copyrights" shall mean all of the Company's now owned or hereafter
acquired copyrights of the United States or any other country, and all
registrations and recordings thereof, including, without limitation,
applications, registrations and recordings in the United States Copyright Office
or in any similar office or agency of the United States or in any similar office
4
<PAGE> 5
or agency of any other country or any political subdivision thereof and all
copyrights in derivative works, extensions or renewals thereof.
"Enforcement" shall mean, collectively or individually, for either of
the Working Capital Facility Agent or the Collateral Agent to make demand for
payment or accelerate the indebtedness of the Company (other than any
acceleration which may occur automatically upon the filing of a bankruptcy
petition by the Company) held by such person, repossess any Collateral or
commence the judicial or other enforcement of any of the rights and remedies of
the Secured Party under the Indentures, the Credit Agreement, the New Working
Capital Facility, the instruments evidencing any Additional Senior Debt any
related mortgages, guarantees or agreements or under applicable law.
"Enforcement Notice" shall mean a written notice delivered, at a time
when an "Event of Default" (as defined in the Indentures, the Credit Agreement
or the New Working Capital Facility, as applicable) or any event of default as
set forth in the documents evidencing or securing Additional Senior Debt or
Permitted Bank Refinancing has occurred and is continuing, by either the
Collateral Agent or the Working Capital Facility Agent to the other Secured
Party announcing that Enforcement has commenced, specifying the relevant Event
of Default (as defined in the Indentures, the Credit Agreement or the New
Working Capital Facility, as applicable) or event of default (as set forth in
the documents evidencing or securing such Additional Senior Debt or Permitted
Bank Refinancing, as applicable), stating the current amount of the Noteholder
Claim or Bank Claim and requesting the current amount of the others' claims.
"Enforcement Period" shall mean the period of time following the giving
by a Secured Party of an Enforcement Notice to the other Secured Party until
either (i) the final payment or satisfaction in full of either the Noteholder
Claim or the Bank Claim, or (ii) the Collateral Agent and the Working Capital
Facility Agent agree in writing to terminate the Enforcement Period.
"Equipment" shall mean all of the Company's now owned or hereafter
acquired machinery, apparatus, equipment, fittings, fixtures, improvements and
articles of personal property of every kind and nature whatsoever attached or
affixed to, or located on, the Real Property or used in connection with the use
and enjoyment of the Real Property or the maintenance or preservation thereof,
including, without limitation, all equipment comprising the Modernization
Project (as defined in each Indenture), all manufacturing, storage, handling and
other equipment utilized in connection with the production and marketing of
steel, semi-finished steel, steel ingots, slabs, steel strips and coils, tools,
utility systems, fire sprinkler and alarm systems, HVAC equipment, boiler,
electronic data processing, telecommunications or computer equipment,
refrigeration, electronic monitoring, water or lighting systems, power,
sanitation, waste removal, pollution abatement or control, elevators, window
cleaning, maintenance or other systems or equipment, all indoor or outdoor
furniture, appliances or supplies, and all other articles used or useful in
connection with the use, operation, maintenance or repair of any part of the
Real Property, together with any and all parts, improvements, additions,
replacements, accessions, and substitutions thereto or therefor, and all
licenses and other rights of the Company relating thereto, whether in the
possession and
5
<PAGE> 6
control of the Company, or in the possession and control of a third party for
the account of the Company and all maintenance and warranty records relating
thereto.
"Intellectual Property" shall mean, collectively, all Copyrights,
Patents and Trademarks and all licenses therefor and all licenses under the
patents, trademarks, copyrights and trade secrets of third parties to the
Company.
"Inventory" shall mean all now owned or hereafter acquired inventory of
the Company including, without limitation, all goods, merchandise, raw
materials, work-in-process and finished goods intended for sale or lease, of
every kind and description now or at any time hereafter owned by the Company,
together with all the containers, packing, packaging, shipping and similar
materials related thereto, and including such inventory as is temporarily out of
the Company's custody or possession and items in transit and including any
returns and repossessions upon any accounts, documents, instruments or chattel
paper relating to or arising from the sale of inventory (as such documents,
instruments or chattel paper relate to the sale of such inventory) and
including, without limitation, all other classes of merchandise, materials,
parts, supplies, work-in-process, inventories and finished products intended for
sale by the Company and all substitutions therefor or replacements thereof, and
all additions and accessions thereto, and all invoices, ledgers, books of
account, records, files (whether in printed form or stored electronically),
computer programs, computer disks or tape files, computer printouts, computer
runs and other computer-prepared information relating to any of the foregoing.
"Noteholder Claim" shall mean all obligations of the Company to the
Collateral Agent and the other Senior Note Secured Parties under the Indentures,
the Credit Agreement, the Notes, any instruments evidencing or securing
Additional Senior Debt and any mortgages or other security instruments securing
the Company's obligations in respect of its guarantee of the Notes, including in
each case, without limitation, all principal and interest owing by AMI, any
future advances, any costs of collection or enforcement, and reasonable
attorneys' and paralegals' costs and fees.
"Noteholder Collateral" shall mean the Collateral in which the
Collateral Agent and the Secured Parties have a lien or security interest as
described in and provided by subsection 2.1(b).
"Noteholder Intangibles" shall mean all of the Company's now owned or
hereafter acquired contract rights relating to Noteholder Collateral, goodwill,
descriptions, name plates, choses-in-action, causes of action, catalogs,
confidential information, consulting agreements, engineering contracts, and such
other assets which relate to the goodwill of the business of the Company and
rights to refund or indemnification to the extent the foregoing relate to
Noteholder Collateral, deposit accounts, letters of credit, documents,
instruments, chattel paper, and income tax refunds to the extent relating to
Noteholder Collateral, claims for tax or other refunds against any city, county,
state, or federal government, or any agency or authority or other subdivision
thereof relating to Noteholder Collateral, lease agreements relating to
Noteholder Collateral, corporate or other business records relating to
Noteholder Collateral and all other general intangibles of every kind and
description relating to Noteholder Collateral.
6
<PAGE> 7
"Noteholder Primary Collateral" shall mean, collectively, the Real
Property, Equipment, Noteholder Intangibles, Securities and Intellectual
Property.
"Patents" shall mean all of the Company's now owned or hereafter
acquired letters patent of the United States or any other country, and all
patent applications therefor, including, without limitation, patents and patent
applications in the United States Patent and Trademark Office (the "PTO") or in
any similar office or agency of the United States or in any similar office or
agency of any other country or any political subdivision thereof, and all
reissues, re-examinations, continuations, divisionals, continuations-in-part or
extensions thereof and all associated priority rights.
"Permitted Bank Refinancing" means any amendment, supplement,
refinancing or replacement of the New Working Capital Facility as permitted by
the Credit Agreement in accordance with the definition of "Working Capital
Facility" therein that is secured by a lien on the Bank Collateral; provided,
however, that a representative of the lenders thereunder executes a supplement
to this Agreement under which it becomes the "Working Capital Facility Agent"
for all purposes hereunder, and agrees to comply with all the terms hereof.
"Proceeds" shall have the meaning assigned to the term "proceeds" under
the UCC and, in any event, shall include, without limitation, any and all (i)
proceeds of any insurance, indemnity, warranty or guarantee payable to the
Collateral Agent, to the Working Capital Facility Agent or to the Company from
time to time with respect to any of the Collateral, (ii) payments (in any form
whatsoever) made or due and payable to the Company from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental authority
(or any person acting under color of a governmental authority), (iii) products
of the Collateral and (iv) other amounts from time to time paid or payable under
or in connection with any of the Collateral.
"Real Property" shall mean the real property described on Schedule I
hereto and mortgaged to the Collateral Agent pursuant to a certain mortgage to
be recorded as soon as practicable following the execution and delivery of this
Agreement and all other real property mortgaged to the Collateral Agent, and all
improvements and fixtures on and interests in such real property, including,
without limitation, such improvements and fixtures on and interests in such real
property as to which security interests are perfected by UCC-1 financing
statements for fixtures.
"Secured Party" shall mean any of the Collateral Agent (for the benefit
of the Senior Note Secured Parties) or the Working Capital Facility Agent (for
the benefit of the Banks).
"Securities" shall mean all present and future securities owned by the
Company, including but not limited to, the capital stock of Alabama
Metallurgical Corporation, a Washington corporation, held by the Collateral
Agent pursuant to a certain stock pledge agreement dated as of the date hereof
and all dividends, cash, options, warrants, rights, instruments, distributions,
returns of capital, income, profits and other property or interests from
7
<PAGE> 8
time to time received, receivable or otherwise distributed to the Company in
respect of or in exchange for any or all of the foregoing.
"Trademarks" shall mean all of the Company's now owned or hereafter
acquired trademarks, trade names, trade styles, service marks, designs and
general intangibles of like nature, and all registrations and recordings
thereof, including, without limitation, applications, registrations and
recordings in the PTO or in any similar office or agency of the United States or
any State thereof, or in any similar office or agency of any other country or
any political subdivision thereof, together with the goodwill associated
therewith, and all reissues, amendments, extensions or renewals thereof.
"UCC" shall mean the Uniform Commercial Code as in effect in any
relevant jurisdiction.
II. INTERCREDITOR PROVISIONS
2.1. Liens. Notwithstanding the date, manner or order of perfection of
the security interests and liens granted to the Working Capital Facility Agent
or the Collateral Agent, and notwithstanding any provisions of the UCC, or any
applicable law or decision or the New Working Capital Facility, the Indentures,
the Credit Agreement or any instruments evidencing any Additional Senior Debt,
or whether the Working Capital Facility Agent or the Collateral Agent holds
possession of all or any part of the Collateral, or the granting provisions of
any mortgage or security instrument or the provisions of any financing
statement, the following, as between the Working Capital Facility Agent and the
Collateral Agent, shall be the relative rights with respect to the various
security interests and liens of the Working Capital Facility Agent and the
Collateral Agent in the Collateral:
(a) The Working Capital Facility Agent shall have a first and
prior security interest in or lien on the Bank Primary Collateral and
Proceeds thereof and the Collateral Agent shall have no lien thereon or
security interest therein.
(b) The Collateral Agent shall have a first and prior security
interest in or mortgage lien on the Noteholder Primary Collateral and
Proceeds thereof and the Working Capital Facility Agent shall have no
lien thereon or security interest therein.
2.2. Distribution of Proceeds of Collateral. All Proceeds of Collateral
shall be distributed in accordance with the following procedure:
(a) Proceeds of the Noteholder Collateral shall be applied to
the Noteholder Claim (to be distributed pro rata among the Trustees,
the Working Capital Facility Agent and any Additional Secured Party to
the extent that such Noteholder Collateral secures Additional Senior
Debt of such Additional Secured Party, on the basis of the respective
outstanding principal amounts of the Notes, the Loans (as defined in
the Credit Agreement) and the applicable Additional Senior Debt or as
may be otherwise determined pursuant to the Collateral Agency
Agreement). After the Noteholder Claim is
8
<PAGE> 9
paid in full or otherwise satisfied, any remaining proceeds of the
Noteholder Collateral shall be paid over to the Company or as otherwise
required by applicable law.
(b) Proceeds of the Bank Collateral shall be applied to the
Bank Claim. After the Bank Claim is paid in full or otherwise
satisfied, any remaining proceeds of the Bank Collateral shall be paid
over to the Company or as otherwise required by applicable law.
2.3. Enforcement Actions. The Working Capital Facility Agent agrees not
to commence Enforcement with respect to the New Working Capital Facility and/or
any security instrument relating thereto or any instrument evidencing or
securing any Permitted Bank Refinancing until an Enforcement Notice has been
given to and received by the Collateral Agent. The Collateral Agent agrees not
to commence Enforcement with respect to the Indentures, the Notes, the Credit
Agreement and/or any security instrument relating thereto or any instrument
evidencing or securing any Additional Senior Debt until an Enforcement Notice
has been given to and received by the Working Capital Facility Agent. The
Working Capital Facility Agent, on the one hand, and the Collateral Agent, on
the other hand, agree that during an Enforcement Period:
(a) The Working Capital Facility Agent may, at its option,
take any action to accelerate payment of the Bank Claim and to
foreclose or realize upon or enforce any of its rights with respect to
the Bank Collateral, without the prior written consent of the
Collateral Agent.
(b) The Collateral Agent may, at its option, take any action
to accelerate payment of the Noteholder Claim and to foreclose or
realize upon or enforce any of its rights with respect to the
Noteholder Collateral, without the prior written consent of the Working
Capital Facility Agent.
(c) For up to one-hundred and twenty (120) days following the
issuance of an Enforcement Notice, the Working Capital Facility Agent
may (i) enter upon any or all of the Company's premises, whether leased
or owned, without force or process of law and without obligation to pay
rents, royalties or compensation to the Collateral Agent or the Company
(except that the Working Capital Facility Agent shall pay rents payable
to lessors of leased Real Property used or occupied by the Working
Capital Facility Agent); and (ii) use the Equipment, Intellectual
Property, Noteholder Intangibles and the Real Property to the extent
necessary to complete the manufacture of the Inventory, collect the
Accounts and sell or otherwise dispose of the Bank Collateral. In the
event any occurrence beyond the reasonable control of the Working
Capital Facility Agent shall prevent or otherwise prohibit the Working
Capital Facility Agent or its designees from taking any action with
respect to the Bank Collateral as contemplated in this subsection
2.3(c), including, without limitation, any bankruptcy, insolvency or
similar proceeding with respect to the Company or its properties, such
120-day period shall be extended by the number of days that the Working
Capital Facility Agent's or its designees' access to the Bank
Collateral shall have been prevented thereby; provided, however, that
the number of days within such extension period shall in no event
exceed sixty (60) days.
9
<PAGE> 10
During such 120-day period and thereafter, as applicable, if the
Working Capital Facility Agent has entered upon the Company's premises
as provided herein, the Working Capital Facility Agent shall use its
best efforts to complete the manufacture of the Inventory and sell or
otherwise dispose of the Bank Collateral, and the Collateral Agent and
their designees shall have unrestricted access to the Noteholder
Collateral for the purpose of evaluating the Noteholder Collateral and
showing it to potential purchasers.
2.4. Additional Credit Extensions. Subject to any restrictions on the
Company contained in the Indentures, the Credit Agreement, the New Working
Capital Facility or the instruments evidencing or securing any Additional Senior
Debt or Permitted Bank Refinancing, any Secured Party shall have the right,
without the consent of the other, to extend credit to the Company in excess of
the maximum amounts set forth in the New Working Capital Facility, the
Indentures, the Credit Agreement or the instruments evidencing or securing any
Additional Senior Debt or Permitted Bank Refinancing, as applicable, and whether
under such agreements or under any other agreements with the Company, secured by
the Bank Collateral or the Noteholder Collateral, as the case may be, and
otherwise having the same rights as herein contained. Notwithstanding the
foregoing, if any such advance(s) are secured by collateral other than the
Collateral, the Secured Party making such advances shall have no obligation to
marshal the assets of the Company before enforcing its rights in the Collateral
hereunder. Each Secured Party shall use its best efforts to give to the others
notice of its intent to extend credit, but the failure to do so shall not affect
the validity of the extension of credit, create a cause of action against the
party failing to give such notice or create any claim or right on behalf of any
third party.
2.5. Notices of Default. The Working Capital Facility Agent, on the one
hand, and the Collateral Agent, on the other hand, agree to use their best
efforts to give to the other copies of any notice of the occurrence or existence
of an Event of Default, an event of default under the Credit Agreement or any
event of default under the instruments evidencing or securing any Additional
Senior Debt or Permitted Bank Refinancing sent to the Company and/or AMI
simultaneously with the sending of such notice to the Company and/or AMI, but
the failure to do so shall not affect the validity of such notice or create a
cause of action against the Secured Party failing to give such notice or create
any claim or right on behalf of any third party. The sending of such notice
shall not give the recipient the obligation to cure such Event of Default or
event of default.
2.6. Working Capital Facility Agent for Perfection; Actions with
Respect to Collateral. The Working Capital Facility Agent and the Collateral
Agent hereby appoint each other as agent for purposes of perfecting their
respective security interests in and liens on Collateral which is of a type such
that perfection of a security interest therein may be accomplished only by
possession thereof by the secured party. To the extent that either the
Collateral Agent, on the one hand, or the Working Capital Facility Agent, on the
other hand, obtains possession of the other's Collateral, the Secured Party
having possession shall notify the other Secured Party of such fact and shall
deliver such Collateral to the Secured Party having the claims in respect
thereof under Section 2.1 upon request of such Secured Party.
10
<PAGE> 11
2.7. Insurance. Notwithstanding anything to the contrary herein or in
any agreement referred to herein, the Company shall obtain satisfactory lender's
loss payable endorsements naming the Secured Parties, as their interests may
appear, with respect to policies which insure Collateral, or with such other
designation as the Working Capital Facility Agent, on the one hand, and the
Collateral Agent, on the other hand, may agree. Each of the Working Capital
Facility Agent, on the one hand, and the Collateral Agent, on the other hand,
shall have the sole and exclusive right, as against the other, to adjust
settlement of such insurance policy in the event of any loss to its Collateral
and to exercise the rights provided in any security instrument to waive or amend
insurance requirements or to give consents relating to the application of any
proceeds of insurance, including, without limitation, consents relating to
restoration of Collateral following a casualty. All proceeds of such policy
shall be paid to the Secured Party named in the applicable loss payable
endorsement and having the claim as set forth herein and disbursed in accordance
with the applicable provisions of the relevant governing documents.
2.8. UCC Notices. In the event that any Secured Party shall be required
by the UCC or any other applicable law to give notice to any other Secured Party
of any intended disposition of Collateral, such notice shall be given in
accordance with Section 3.1 hereof and ten (10) days' notice shall be deemed to
be commercially reasonable.
III. MISCELLANEOUS
3.1. Notices. All notices hereunder shall be effective upon receipt,
and shall be in writing and sent by certified mail, return receipt requested,
courier service guaranteeing next day delivery, telegram or telex, to: (a) the
Company or AMI, at the address set forth above, Attention: Corporate Secretary
with a copy to the Treasurer, (b) the Working Capital Facility Agent, at the
address set forth above, Attention: Mr. Richard H. Robb, or (c) the Collateral
Agent, at the address set forth above, Attention: Corporate Trust Administration
or to such other address or person as any of the parties hereto may designate in
writing to the other parties.
3.2. Contesting Liens or Security Interest. Neither the Working Capital
Facility Agent, on the one hand, nor the Collateral Agent, on the other hand,
shall contest the validity, perfection or enforceability of any lien or security
interest granted to the other or others and each shall cooperate in the defense
of any action contesting the validity, perfection or enforceability of such
liens or security interests brought by the Company or any third party; provided,
however, that such cooperation shall not include the expenditure of amounts
other than de minimis amounts; and provided, further, that the cooperating
Secured Party shall, upon the reasonable request of the other Secured Party,
continue to cooperate in the defense of any such action notwithstanding that
such cooperation shall include the expenditure of amounts in excess of de
minimis amounts so long as the requesting Secured Party advances to the
cooperating Secured Party sufficient amounts, in cash, to cover any and all
costs and expenses reasonably incurred by the cooperating Secured Party in
compliance with such request. Each Secured Party shall also use its best efforts
to notify the other Secured Party of any change in the location of any of the
Collateral or the business operations of the Company or of any change in law
which would make it necessary or advisable for any other Secured Party to file
additional financing statements in another location as against the Company, but
the failure to do so shall not create a cause of action
11
<PAGE> 12
against the Secured Party failing to give such notice or create any claim or
right on behalf of any third party.
3.3. No Additional Rights for Company Hereunder. If any Secured Party
shall enforce its rights or remedies in violation of the terms of this
Agreement, the Company agrees that it shall not raise such violation as a
defense to the enforcement by any other Secured Party under the New Working
Capital Facility, the Indentures, the Credit Agreement and/or any instrument
evidencing or securing any Additional Senior Debt or Permitted Bank Refinancing,
nor assert such violation as a counterclaim or basis for setoff or recoupment
against any Secured Party.
3.4. Independent Credit Investigations. None of the Working Capital
Facility Agent, the Collateral Agent, any Additional Secured Party or their
respective directors, officers, agents or employees, shall be responsible to the
other or to any other person, firm or corporation, for the Company's solvency,
financial condition or ability to repay the Bank Claim or the Noteholder Claim,
or for statements of the Company, oral or written, or for the validity,
sufficiency or enforceability of the Bank Claim, the Noteholder Claim, the New
Working Capital Facility, the Indentures, the Credit Agreement, the instruments
evidencing any Additional Senior Debt or any liens or security interests granted
by the Company in connection therewith. Each Secured Party has entered into its
respective financing agreements with the Company based upon its own independent
investigation, and makes no warranty or representation to the other Secured
Party nor does it rely upon any representation of any other Secured Party with
respect to matters identified or referred to in this Section.
3.5. Limitation of Liability. Except as provided in this Agreement,
neither the Working Capital Facility Agent, on the one hand, nor the Collateral
Agent, on the other hand, shall have any liability to the other or others except
for gross negligence or willful misconduct.
3.6. Amendments to Financing Arrangements or to this Agreement. The
Working Capital Facility Agent, on the one hand, and the Collateral Agent, on
the other hand, shall each use their best efforts to notify the other of any
amendment or modification to the New Working Capital Facility or any related
security instrument, the Credit Agreement or any related security instrument or
the Indentures or any related security instrument or the instruments evidencing
or securing any Additional Senior Debt or Permitted Bank Refinancing, but the
failure to do so shall not create a cause of action against the party failing to
give such notice or create any claim or right on behalf of any third party. The
Working Capital Facility Agent, on the one hand, and the Collateral Agent, on
the other hand, shall, upon request of the other or others, provide copies of
all such modifications or amendments and copies of all other documentation
relevant to the Collateral except as prohibited by the Indentures or the Credit
Agreement. All modifications or amendments of this Agreement must be in writing
and duly executed by an authorized officer of each party to be binding and
enforceable.
3.7. Marshaling of Assets. The Working Capital Facility Agent hereby
waives any and all rights to have the Noteholder Collateral, or any part
thereof, marshaled upon any foreclosure of any liens of the Collateral Agent.
The Collateral Agent hereby waives any and all
12
<PAGE> 13
rights to have the Bank Collateral, or any part thereof, marshaled upon any
foreclosure of any liens of the Working Capital Facility Agent.
3.8. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the respective successors and assigns of each of the
parties hereto, but does not otherwise create, and shall not be construed as
creating, any rights enforceable by any other person not a party to this
Agreement.
3.9. Information. Upon the request of either the Working Capital
Facility Agent, on the one hand, or the Collateral Agent, on the other hand,
each of the Secured Parties shall use its best efforts to provide the others
with all information relating to the transactions contemplated by the New
Working Capital Facility, the Indentures, the Credit Agreement and any
Additional Senior Debt and with any credit or other information with respect to
any of the Collateral except as prohibited by the Indenture or the Credit
Agreement.
3.10. Permitted Bank Refinancing. The Company shall have the right from
time to time to effect a Permitted Bank Refinancing. The Working Capital
Facility Agent shall cooperate in all reasonable respects upon request made from
time to time by the Company to accomplish and document any Permitted Bank
Refinancing. Such cooperation shall include, without limitation, (i) the
execution and delivery of estoppel letters and counsel opinions in customary
form, as may reasonably be requested by the Company or the counterparty to any
Permitted Bank Refinancing or any title insurer in connection therewith, (ii)
the execution and delivery of supplements or amendments to this Agreement and
the delivery of any related certificates, notices or other instruments
reasonably requested to be executed in connection with such Permitted Bank
Refinancing or refinancing thereof and (iii) attendance at meetings relating to,
and any closing of, a Permitted Bank Refinancing. Notwithstanding the foregoing,
no action requested and no document required to be executed and delivered
hereunder shall adversely affect the Working Capital Facility Agent's
substantive rights hereunder. All reasonable expenses incurred by any Secured
Party in complying with the provisions of this Section shall be reimbursed by
the Company.
3.11. Termination. This Agreement will terminate contemporaneously with
the earlier to occur of (i) the termination of the Collateral Agency Agreement,
when all of the Notes have been repaid in full and all of the obligations of the
Company under the Indentures and the guarantee of the Notes have terminated or
(ii) all of the Company's obligations now or hereafter evidenced by the New
Working Capital Facility or the documents evidencing or securing any Permitted
Bank Refinancing shall have been repaid in full and terminated in accordance
with the terms thereof.
3.12. Further Assurances. Each of the parties hereto shall execute and
file all such further documents and instruments, and perform such other acts, as
may be necessary or advisable to effectuate the purposes of this Agreement.
3.13. Inconsistent Provisions. If any provision of this Agreement shall
be inconsistent with, or contrary to, any provision in the New Working Capital
Facility, the Indentures, the
13
<PAGE> 14
Credit Agreement, the Notes, the documents evidencing or securing any Additional
Senior Debt or Permitted Bank Refinancing or any other instrument delivered in
connection with the transactions contemplated thereby, the applicable provision
in this Agreement shall be controlling and shall supersede such inconsistent
provision to the extent necessary to give full effect to all provisions
contained in this Agreement.
3.14. CONSENT TO JURISDICTION. THE PARTIES HERETO HEREBY CONSENT TO THE
EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN NEW YORK
COUNTY, STATE OF NEW YORK AND IRREVOCABLY AGREE THAT, SUBJECT TO THE COLLATERAL
AGENT'S OR THE WORKING CAPITAL FACILITY AGENT'S ELECTION, ALL ACTIONS OR
PROCEEDINGS RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN SUCH COURTS. EACH
PARTY HERETO ACCEPTS FOR AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, IN ANY SUCH ACTIONS OR PROCEEDINGS THE EXCLUSIVE JURISDICTION
OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH THIS AGREEMENT, WITH ANY JUDGMENT SUBJECT TO RIGHTS OF APPEAL IN THE
JURISDICTIONS SET FORTH ABOVE.
3.15. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW.
3.16. Authority. Each of the parties represents and warrants to all
other parties hereto that the execution, delivery and performance by or on
behalf of such party to this Agreement has been duly authorized by all necessary
action, corporate or otherwise, does not violate any provision of law,
governmental regulation, or any agreement or instrument by which such party is
bound, and requires no governmental or other consent that has not been obtained
and is not in full force and effect.
3.17. Counterparts. This Agreement may be executed in any number of
counterparts, each counterpart, when so executed and delivered, shall be deemed
to be an original and all of which counterparts, taken together, shall
constitute one and the same agreement.
3.18. Severability of Provisions. Any provision of this Agreement that
is unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such unenforceability, without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
3.19. Headings. The article and section headings used in this Agreement
are for convenience of reference only and shall not affect the construction of
this Agreement.
3.20. Concerning Collateral Agent. Notwithstanding anything to the
contrary set forth herein, no provision of this Agreement shall require the
Collateral Agent to expend or risk its
14
<PAGE> 15
own funds or otherwise incur any financial liability in the performance of its
duties hereunder, or in the exercise of any of its powers, if it shall have
reasonable grounds for believing repayment of such funds or adequate indemnity
against such risk or liability is not reasonably assured to it including,
without limitation, liability relating in any way to Environmental Laws or
Hazardous Materials (as such terms are defined in the mortgage relating to the
Real Property).
The undersigned hereby acknowledge and agree to the foregoing terms and
provisions. By executing this Agreement, the undersigned agree to be bound by
the provisions hereof as they relate to the relative rights of the Collateral
Agent, any Additional Secured Party and the Working Capital Facility Agent as
among such parties; provided, however, that nothing in this Agreement shall
amend, modify, change or supersede the respective terms of the Indentures, the
Credit Agreement or the New Working Capital Facility or the documents evidencing
or securing any Additional Senior Debt or Permitted Bank Refinancing (or any
other document to which the undersigned may be parties) as between each party
and the undersigned as a borrower and/or guarantor, and in the event of any
conflict or inconsistency between the terms of this Agreement and the
Indentures, the Credit Agreement or the New Working Capital Facility or the
documents evidencing or securing any Additional Senior Debt or Permitted Bank
Refinancing (or any such other documents as the case may be), the terms of the
Indentures, the Credit Agreement, the New Working Capital Facility or the
documents evidencing or securing any Additional Senior Debt or Permitted Bank
Refinancing, as the case may be, shall govern the relationship between each such
party and the undersigned, as borrower and/or guarantor. The undersigned further
agree that the terms of this Agreement shall not give the undersigned any
substantive rights vis-a-vis the holders of the Notes, the Lenders, any
Additional Secured Party, the Collateral Agent, the Banks or the Working Capital
Facility Agent.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
an instrument under seal as of the date and year first above written.
ACME METALS INCORPORATED
By: _________________________
Name:
Title:
ACME STEEL COMPANY
By: _________________________
Name:
Title:
15
<PAGE> 16
HARRIS TRUST AND SAVINGS BANK
By: _________________________
Name: Richard H. Robb
Title: Vice President
STATE STREET BANK AND TRUST
COMPANY, as Collateral Agent
By: _________________________
Name:
Title:
16
<PAGE> 1
EXHIBIT 5
UNGARETTI & HARRIS
3500 THREE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60602
May 15, 1998
Acme Metals Incorporated
13500 S. Perry Avenue
Riverdale, Illinois 60827
Ladies and Gentlemen:
We have acted as counsel to Acme Metals Incorporated, a Delaware
corporation (the "Company"), in connection with the preparation of the
Registration Statement of the Company on Form S-4 filed with the Securities and
Exchange Commission (the "Commission") on the date hereof (the "Registration
Statement"), relating to the registration under the Securities Act of 1933, as
amended (the "Securities Act"), of $200,000,000 aggregate principal amount of
the Company's 10 7/8% Senior Notes due 2007 (the "New Notes") which will be
issued by the Company in exchange for up to $200,000,000 aggregate principal
amount of the Company outstanding 10 7/8% Senior Notes due 2007 (the "Old
Notes"). The Old Notes were issued, and the New Notes will be issued, under the
Indenture dated December 18, 1997 (the "Indenture") among the Company, Acme
Steel Company and Harris Trust and Savings Bank, as trustee (the "Trustee").
In this regard, we have examined:
a. the amended and restated certificate of incorporation and by-laws of
the Company;
b. the Indenture;
c. certain resolutions adopted by the Board of Directors of the Company;
d. the Registration Statement; and
e. such other documents as we have deemed relevant for purposes of
rendering the opinions set forth herein, including certifications as
to certain matters of fact by responsible officers of the Company and
by governmental authorities.
We have assumed the authenticity of all documents submitted to us as
originals and the conformity to original documents of all documents submitted to
us as copies.
Based upon the foregoing, we are of the opinion that:
1. The New Notes have been duly and validly authorized and, when duly
executed by authorized officers of the Company, duly authenticated by the
Trustee and issued by the Company in accordance with the terms of the
Indenture against surrender and cancellation of a like principal amount of
Old Notes pursuant to the terms of the exchange offer set forth in the
Registration Statement, will constitute the legal, valid and binding
obligations of the Company enforceable in accordance with their terms and
the terms of the Indenture, subject to bankruptcy, reorganization,
insolvency, fraudulent conveyance and similar laws affecting creditors'
rights generally, and general principles of equity (regardless of whether
the application of such principles is considered in a proceeding in equity
or at law).
2. The Indenture has been duly and validly authorized and, when duly
executed by an authorized officer of the Trustee, will constitute the
legal, valid and binding obligation of the Company enforceable in
accordance with its terms, subject to bankruptcy, reorganization,
insolvency, fraudulent conveyance and similar laws affecting creditors'
rights generally, and general principles of equity (regardless of whether
the application of such principles is considered in a proceeding in equity
or at law).
<PAGE> 2
Acme Metals Incorporated
May 15, 1998
Page 2
We are members of the Bar of the State of Illinois. Our opinion is limited
to the laws of the State of Illinois. Insofar as our opinion relates to matters
of New York law (the governing law specified in the Indenture), we have assumed,
with your permission, that the laws of the State of New York are the same as the
laws of the State of Illinois.
We consent to the use of this opinion as an Exhibit to the Registration
Statement and to the reference to our firm in the Prospectus that is part of the
Registration Statement. In giving such consent, we do not hereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act.
Very truly yours,
UNGARETTI & HARRIS
<PAGE> 1
EXHIBIT 8
UNGARETTI & HARRIS
3500 THREE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60602
May 15, 1998
Acme Metals Incorporated
13500 South Perry Avenue
Riverdale, Illinois 60827
Ladies and Gentlemen:
We have acted as counsel to Acme Metals Incorporated, a Delaware
corporation (the "Company"), in connection with an exchange offer (the "Exchange
Offer") under which up to $200,000,000 in aggregate principal amount of the
Company's 10 7/8% Senior Notes due 2007 (the "New Notes") will be offered in
exchange for the Company's outstanding 10 7/8% Senior Notes due 2007 (the "Old
Notes"). The Exchange Offer is the subject of a Registration Statement on Form
S-4 under the Securities Act of 1933 (the "Registration Statement").
We have examined originals or copies, certified or otherwise identified to
our satisfaction, of all such agreements, certificates and other statements of
corporate officers and other representatives of the Company as we have deemed
necessary as a basis for this opinion. In such examination we have assumed the
genuineness of all signatures and the authenticity of all documents submitted to
us as originals and the conformity with the originals of all documents submitted
to us as copies.
Based on and subject to the foregoing, we are of the opinion that a holder
will not recognize gain or loss for federal income tax purposes on the exchange
of the Old Notes for the New Notes pursuant to the Exchange Offer. We are also
of the opinion that the section entitled "Certain United States Federal Income
Tax Considerations" in the Prospectus included in the Registration Statement
contains an accurate general description under currently applicable law of the
material United States federal income tax considerations that apply to holders
of the New Notes.
We consent to the use of this opinion as an Exhibit to the Registration
Statement and to the reference to our firm in the Prospectus that is part of the
Registration Statement. In giving such consent we do not hereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Securities Act.
Very truly yours,
UNGARETTI & HARRIS
<PAGE> 1
EXHIBIT 12
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------------------------------------------------
DECEMBER 26, DECEMBER 25, DECEMBER 31, DECEMBER 29, DECEMBER 28,
1993 1994 1995 1996 1997
------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net income (loss) before extraordinary item and changes
in accounting principle $ 6,259 $ 18,758 $ 28,246 $ 2,667 $ (47,518)
Provision (benefit) for income taxes 4,173 9,935 15,889 2,426 (29,124)
Fixed charges-interest expense 5,974 16,353 35,803 38,436 42,398
Capitalized interest - (2,000) (14,600) (31,400) -
Equity in (earnings) loss of joint venture (1,210) (336) - 464
--------- --------- --------- --------- ---------
$ 15,196 $ 42,710 $ 65,338 $ 12,129 $ (33,780)
========= ========= ========= ========= =========
Fixed charges-interest expense $ 5,974 $ 16,353 $ 35,803 $ 38,436 $ 42,398
========= ========= ========= ========= =========
Ratio of earnings to fixed charges 2.5x 2.5x 1.5x - -
========= ========= ========= ========= =========
<CAPTION>
FOR THE THREE MONTHS ENDED
----------------------------
MARCH 30, MARCH 29,
1997 1998
------------ ------------
<S> <C> <C>
Net income (loss) before extraordinary item and changes
in accounting principle $ (15,867) $ (1,675)
Provision (benefit) for income taxes (8,174) (900)
Fixed charges- interest expense 10,364 11,605
Capitalized interest
Equity in (earnings) loss of joint venture - (406)
---------- ---------
$ (13,677) $ 8,624
========== =========
Fixed charges- interest expense $ 10,364 $ 11,605
========== =========
Ratio of earnings to fixed charges - -
========== =========
</TABLE>
Earnings were insufficient to cover fixed charges by $26.3 million, $76.2
million, $24.0 million and $3.0 million for the year ended December 29, 1996,
the year ended December 28, 1997, the three months ended March 30, 1997 and
the three months ended March 29, 1998, respectively.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Acme Metals Incorporated of our report
dated January 23, 1998, except as to the Note entitled "Assets Held for Sale"
which is as of March 10, 1998, and except as to the Note entitled "Summary of
Significant Accounting Policies -- Comprehensive Income", which is as of May 6,
1998 relating to the financial statements of Acme Metals Incorporated, which
appears in such Prospectus. We also consent to the references to us under the
headings "Independent Accountants" and "Selected Financial Data" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has not
prepared or certified such "Selected Financial Data."
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Chicago, Illinois
May 13, 1998
<PAGE> 1
EXHIBIT 23.3
May 13, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that Acme Metals Incorporated has included our report
dated May 7, 1998 (issued pursuant to the provisions of Statement on Auditing
Standards No. 71) in the Prospectus constituting part of its Registration
Statement on Form S-4 to be filed on or about May 14, 1998. We are also aware
of our responsibilities under the Securities Act of 1933.
Yours very truly,
Price Waterhouse LLP
<PAGE> 1
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
Statement of Eligibility
Under the Trust Indenture Act of 1939
of a Corporation Designated to Act as
Trustee
Check if an Application to Determine
Eligibility of a Trustee Pursuant to Section
305(b)(2) _______________
HARRIS TRUST AND SAVINGS BANK
(Name of Trustee)
Illinois 23-1614034
(I.R.S. Employer
(State of Incorporation) Identification No.)
111 West Monroe Street, Chicago, Illinois 60603
(Address of principal executive offices)
Daniel G. Donovan, Harris Trust and Savings Bank,
111 West Monroe Street, Chicago, Illinois, 60603
312-461-2908
(Name, address and telephone number for agent for service)
ACME METALS INCORPORATED
(Name of Obligor)
Delaware 36-3802419
(I.R.S. Employer
(State of Incorporation) Identification No.)
13500 S. Perry Avenue
Riverdale, Illinois 60627-1182
(Address of principal executive offices)
10 7/8% Senior Notes, Due 2007
(Title of indenture securities)
<PAGE> 2
1. GENERAL INFORMATION. Furnish the following information as to the
Trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Commissioner of Banks and Trust Companies, State of Illinois,
Springfield, Illinois; Chicago Clearing House Association, 164
West Jackson Boulevard, Chicago, Illinois; Federal Deposit
Insurance Corporation, Washington, D.C.; The Board of
Governors of the Federal Reserve System, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Harris Trust and Savings Bank is authorized to exercise
corporate trust powers.
2. AFFILIATIONS WITH OBLIGOR. If the Obligor is an affiliate of the
Trustee, describe each such affiliation.
The Obligor is not an affiliate of the Trustee.
3. thru 15.
NO RESPONSE NECESSARY
16. LIST OF EXHIBITS.
1. A copy of the articles of association of the Trustee as now in
effect which includes the authority of the trustee to commence
business and to exercise corporate trust powers.
A copy of the Certificate of Merger dated April 1, 1972 between
Harris Trust and Savings Bank, HTS Bank and Harris Bankcorp, Inc.
which constitutes the articles of association of the Trustee as
now in effect and includes the authority of the Trustee to
commence business and to exercise corporate trust powers was filed
in connection with the Registration Statement of Louisville Gas
and Electric Company, File No. 2-44295, and is incorporated herein
by reference.
2. A copy of the existing by-laws of the Trustee.
A copy of the existing by-laws of the Trustee was filed in
connection with the Registration Statement of Commercial Federal
Corporation, File No. 333-20711, and is incorporated herein by
reference.
3. The consents of the Trustee required by Section 321(b) of the Act.
(included as Exhibit A on page 2 of this statement)
4. A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or
examining authority.
(included as Exhibit B on page 3 of this statement)
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
HARRIS TRUST AND SAVINGS BANK, a corporation organized and existing under the
laws of the State of Illinois, has duly caused this statement of eligibility to
be signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Chicago, and State of Illinois, on the 16th day of March 1998.
HARRIS TRUST AND SAVINGS BANK
By: /s/ DGDonovan
-------------------------------
D. G. Donovan
Assistant Vice President
EXHIBIT A
The consents of the Trustee required by Section 321(b) of the Act.
Harris Trust and Savings Bank, as the Trustee herein named, hereby consents that
reports of examinations of said trustee by Federal and State authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
HARRIS TRUST AND SAVINGS BANK
By: /s/ DGDonovan
-------------------------------
D.G. Donovan
Assistant Vice President
2
<PAGE> 4
EXHIBIT B
Attached is a true and correct copy of the statement of condition of Harris
Trust and Savings Bank as of December 31, 1997, as published in accordance with
a call made by the State Banking Authority and by the Federal Reserve Bank of
the Seventh Reserve District.
[HARRIS BANK LOGO]
Harris Trust and Savings Bank
111 West Monroe Street
Chicago, Illinois 60603
of Chicago, Illinois, And Foreign and Domestic Subsidiaries, at the close of
business on December 31, 1997, a state banking institution organized and
operating under the banking laws of this State and a member of the Federal
Reserve System. Published in accordance with a call made by the Commissioner of
Banks and Trust Companies of the State of Illinois and by the Federal Reserve
Bank of this District.
Bank's Transit Number 71000288
<TABLE>
<CAPTION>
THOUSANDS
ASSETS OF DOLLARS
<S> <C> <C>
Cash and balances due from depository institutions:
Non-interest bearing balances and currency and coin ............ $ 1,252,381
Interest bearing balances ...................................... $ 598,062
Securities:
a. Held-to-maturity securities $ 0
b. Available-for-sale securities $ 3,879,399
Federal funds sold and securities purchased under agreements to resell $ 71,725
Loans and lease financing receivables:
Loans and leases, net of unearned income ....................... $ 8,813,821
LESS: Allowance for loan and lease losses ..................... $ 99,678
-----------
Loans and leases, net of unearned income, allowance, and reserve
(item 4.a minus 4.b) ........................................... $ 8,714,143
Assets held in trading accounts .............................................. $ 136,538
Premises and fixed assets (including capitalized leases) ..................... $ 221,312
Other real estate owned ...................................................... $ 642
Investments in unconsolidated subsidiaries and associated companies .......... $ 103
Customer's liability to this bank on acceptances outstanding ................. $ 46,480
Intangible assets ............................................................ $ 279,897
Other assets ................................................................. $ 653,101
-----------
TOTAL ASSETS $15,853,783
===========
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
Deposits:
In domestic offices ..................................................................... $ 8,926,635
Non-interest bearing ........................................................... $ 3,692,891
Interest bearing ............................................................... $ 5,233,744
In foreign offices, Edge and Agreement subsidiaries, and IBF's .......................... $ 1,763,669
Non-interest bearing ........................................................... $ 22,211
Interest bearing ............................................................... $ 1,741,458
Federal funds purchased and securities sold under agreements to repurchase in domestic offices
of the bank and of its Edge and Agreement subsidiaries, and in IBF's:
Federal funds purchased.& securites sold under agreements to repurchase ................. $ 2,693,600
Trading Liabilities .......................................................................... 82,861
Other borrowed money: ........................................................................ $ 601,799
a. With remaining maturity of one year or less .............................................. $ 0
b. With remaining maturity of more than one year
Bank's liability on acceptances executed and outstanding ..................................... $ 46,480
Subordinated notes and debentures ............................................................ $ 325,000
Other liabilities ............................................................................ $ 134,309
===========
TOTAL LIABILITIES ............................................................................ $14,574,353
===========
EQUITY CAPITAL
Common stock ................................................................................. $ 100,000
Surplus ...................................................................................... $ 601,026
a. Undivided profits and capital reserves ................................................... $ 573,416
b. Net unrealized holding gains (losses) on available-for-sale securities ................... $ 4,988
-----------
TOTAL EQUITY CAPITAL ......................................................................... $ 1,279,430
===========
Total liabilities, limited-life preferred stock, and equity capital .......................... $15,853,783
===========
</TABLE>
I, Pamela Piarowski, Vice President of the above-named bank, do hereby
declare that this Report of Condition has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System and
is true to the best of my knowledge and belief.
PAMELA PIAROWSKI
1/30/98
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and, to the best of our
knowledge and belief, has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and the
Commissioner of Banks and Trust Companies of the State of Illinois and is true
and correct.
EDWARD W. LYMAN,
ALAN G. McNALLY,
RICHARD E. TERRY
Directors.
4
<PAGE> 1
EXHIBIT 99.1
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE
10 7/8% SENIOR NOTES DUE 2007
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
FOR ANY AND ALL OUTSTANDING
10 7/8% SENIOR NOTES DUE 2007
OF
ACME METALS INCORPORATED
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
Deliver to:
HARRIS TRUST AND SAVINGS BANK, EXCHANGE AGENT
<TABLE>
<CAPTION>
Facsimile Transmission Number:
By Registered or Certified Mail: By Hand or Overnight Delivery: (For Eligible Institutions Only):
- -------------------------------- ------------------------------ ---------------------------------
<S> <C> <C>
Harris Trust and Savings Bank Harris Trust and Savings Bank (212) 701-7636
c/o Harris Trust Company c/o Harris Trust Company (212) 701-7637
of New York of New York
P.O. Box 1010 88 Pine Street
Wall Street Station 19th Floor Confirm Receipt of Facsimile
New York, NY 10268-1010 New York, NY 10005 by Telephone:
Attention: Reorganization Attention: Reorganization ---------------------------------
Department Department
(212) 701-7624 (212) 701-7624 (212) 701-7624
</TABLE>
------------------------
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OR FACSIMILE NUMBER
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE
INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED. THIS INSTRUMENT SHOULD NOT BE DELIVERED TO THE
COMPANY.
<PAGE> 2
The undersigned acknowledges receipt and review of the Prospectus dated
, 1998 (as may be amended or supplemented from time to time, the
"Prospectus") of Acme Metals Incorporated (the "Company") which, together with
this Letter of Transmittal (the "Letter of Transmittal"), constitutes the
Company's offer ("Exchange Offer") to exchange $1,000 in principal amount of its
newly issued 10 7/8% Senior Notes due 2007 (the "New Notes") for each $1,000
principal amount of its outstanding 10 7/8% Senior Notes due 2007 (the "Old
Notes"). The terms of the New Notes are identical in all material respects
(including principal amount, interest rate and maturity) to the terms of the Old
Notes for which they may be exchanged pursuant to the Exchange Offer, except
that the New Notes will have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), and, therefore, will not bear legends
restricting the transfer thereof and holders of the New Notes will not be
entitled to certain rights of holders of Old Notes under the Registration Rights
Agreement (as defined below), which will terminate upon consummation of the
Exchange Offer.
The Exchange Offer is being made pursuant to the Registration Rights
Agreement dated as of December 18, 1997 (the "Registration Rights Agreement"),
and all Old Notes validly tendered will be accepted for exchange. Any Old Notes
not tendered will remain outstanding and continue to accrue interest, but will
not retain any rights under the Registration Rights Agreement. This Letter of
Transmittal is to be completed by a Holder (as defined below) of Old Notes
either (i) if certificates are to be forwarded herewith or (ii) if a tender of
certificates for Old Notes, if available, is to be made by book-entry transfer
to the account maintained by Harris Trust and Savings Bank (the "Exchange
Agent") at the Depository Trust Company ("DTC") pursuant to the procedures set
forth in "The Exchange Offer -- Procedures for Tendering" section of the
Prospectus. Holders of Old Notes who are unable to deliver their certificates or
confirmation of book-entry tender of their Old Notes into the Exchange Agent's
account at DTC (a "Book-Entry Confirmation") and all other documents required by
this Letter of Transmittal to the Exchange Agent on or prior to the Expiration
Date, must tender their Old Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer -- Guaranteed Delivery Procedures"
section of the Prospectus. See also Instruction 1 of the Instructions attached
hereto. Delivery of documents to DTC does not constitute delivery to the
Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person in
whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
Holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this Letter of Transmittal in its entirety.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND PROSPECTUS CAREFULLY
BEFORE PROVIDING ANY INFORMATION BELOW. THE INSTRUCTIONS INCLUDED WITH THIS
LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR
FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE
DIRECTED TO THE EXCHANGE AGENT.
2
<PAGE> 3
List below the Old Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, list the certificate numbers and
principal amount of Old Notes on a separate signed schedule and affix the list
to this Letter of Transmittal.
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OLD NOTES
- --------------------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF AGGREGATE PRINCIPAL AMOUNT OF
REGISTERED HOLDER(S) CERTIFICATE OLD NOTES REPRESENTED BY PRINCIPAL AMOUNT OF OLD NOTES
(PLEASE FILL IN IF BLANK) NUMBER(S)* CERTIFICATE(S) TENDERED**
- --------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
TOTAL PRINCIPAL
AMOUNT OF OLD NOTES
- --------------------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders. Such holders should check the appropriate box below and provide the
requested information.
** Unless indicated in the column labeled "Principal Amount of Old Notes Tendered," any tendering holder of Old Notes
will be deemed to have tendered the entire principal amount of Old Notes represented by the column labeled "Aggregate
Principal Amount of Old Notes Represented by Certificate(s)." All tenders must be in integrals of $1,000.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
TENDER OF NOTES
[ ] CHECK HERE IF TENDERED OLD NOTES NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS DEFINED IN INSTRUCTION
1) ONLY):
Name of Tendering Institution:
- --------------------------------------------------------------------------------
Account Number:
----------------------------------------------------------------------------
Transaction Code Number:
----------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING (FOR
USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered Holder(s) of Old Notes:
-------------------------------------------------------------
Window Ticket Number (if any):
-----------------------------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
--------------------------------------------------------
Name of Eligible Institution that Guaranteed Delivery:
-------------------------------------------------------
Account Number (if delivered by book-entry transfer):
------------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED OLD CERTIFICATES FOR
YOUR OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING
ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:
----------------------------------------------------------------------------
Address:
----------------------------------------------------------------------------
Telephone Number and Contact Person:
----------------------------------------------------------------------
3
<PAGE> 4
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the above-described principal amount
of Old Notes. Subject to, and effective upon, the acceptance for exchange of the
Old Notes tendered in accordance with this Letter of Transmittal, the
undersigned hereby sells, assigns and transfers to, or upon the order of, the
Company all right, title and interest in and to the Old Notes tendered hereby.
The undersigned hereby constitutes and appoints the Exchange Agent the true and
lawful agent and attorney-in-fact of the undersigned (with full knowledge that
the Exchange Agent also acts as the agent for the Company) with respect to the
tendered Old Notes with full power of substitution to (i) deliver certificates
for such Old Notes, or transfer ownership of such Old Notes on the account books
maintained by DTC, to the Company and deliver all accompanying evidences of
transfer and authenticity to, or upon the order of, the Company, (ii) present
such Old Notes for transfer on the books of the Company, and (iii) receive all
benefits and otherwise exercise all rights of beneficial ownership of such Old
Notes, all in accordance with the terms of the Exchange Offer. The power of
attorney granted in this paragraph shall be deemed to be irrevocable and coupled
with an interest.
The undersigned hereby represent(s) and warrant(s) that he, she or it has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim, when the same are acquired by the Company.
The undersigned acknowledges that this Exchange Offer is being made in
reliance upon interpretations contained in letters issued to third parties by
the staff of the Securities and Exchange Commission that the New Notes issued in
exchange for the Old Notes pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by Holders thereof (other than any such
Holder that is an "affiliate" of the Company within the meaning of Rule 405
promulgated under the Securities Act), without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holder's business and such
Holder is not engaging in and does not intend to engage in a distribution of
such New Notes. If the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of New Notes. If the undersigned is a Participating Broker-Dealer,
it agrees that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes; however, by so
acknowledging and delivering a prospectus, the undersigned will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
If the undersigned is a Participating Broker-Dealer, the undersigned
understands that for 180 days following the Expiration Date, the Company will
promptly send additional copies of the Prospectus and any amendment or
supplement to the Prospectus to any broker-dealer to the undersigned upon
request.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of tendered Old
Notes.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Old Notes when, as and if the Company has given oral
or written notice thereof to the Exchange Agent.
If any tendered Old Notes are not accepted for exchange pursuant to the
Exchange Offer for any reason, certificates for any such unaccepted Old Notes
will be returned, without expense, to the undersigned at the address shown below
or at a different address as may indicated herein under "Special Delivery
Instructions" or, in the case of Old Notes tendered by book-entry transfer, such
unaccepted Old Notes will be credited to an account at DTC, as promptly as
practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, executors, administrators, successors,
assigns, trustees in bankruptcy and other legal representatives of the
undersigned. Tendered Old Notes may be withdrawn at any
4
<PAGE> 5
time prior to 5:00 p.m., New York City time, on the Expiration Date by following
the procedures set forth herein.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer -- Procedures for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Issuance Instructions," the
undersigned hereby directs that the New Notes be issued in the name(s) of the
undersigned or, in the case of a book-entry transfer of Old Notes, that such New
Notes be credited to the account indicated above maintained at DTC. If
applicable, substitute Certificates representing Old Notes not tendered or not
accepted for exchange will be issued to the undersigned or, in the case of a
book-entry transfer of Old Notes, will be credited to the account indicated
above maintained at DTC. Similarly unless otherwise indicated under "Special
Delivery Instructions," the undersigned hereby directs that New Notes be
delivered to the undersigned at the address shown below the undersigned's
signature.
5
<PAGE> 6
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
- ------------------------------------ -----------------------------------
(Date)
- ------------------------------------ -----------------------------------
(Date)
SIGNATURE(S) OF REGISTERED HOLDERS
OR AUTHORIZED SIGNATORY
Area Code and Telephone Number(s):
- -----------------------------------------------------------------------
Tax Identification or Social Security Number(s):
- -----------------------------------------------------------------------
THE ABOVE LINES MUST BE SIGNED BY REGISTERED HOLDER(S) OF OLD NOTES EXACTLY
AS THEIR NAME(S) APPEAR(S) ON THE CERTIFICATE(S) FOR THE OLD NOTES OR BY ANY
PERSON(S) AUTHORIZED TO BECOME REGISTERED HOLDER(S) BY A PROPERLY COMPLETED BOND
POWER FROM THE REGISTERED HOLDER(S), A COPY OF WHICH MUST BE TRANSMITTED WITH
THIS LETTER OF TRANSMITTAL. IF SIGNATURE IS BY A TRUSTEE, EXECUTOR,
ADMINISTRATOR, GUARDIAN, ATTORNEY-IN-FACT, OFFICER OF A CORPORATION OR OTHER
PERSON ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, THEN SUCH PERSON MUST
(I) SET FORTH HIS OR HER FULL TITLE BELOW AND (II) UNLESS WAIVED BY THE COMPANY,
SUBMIT EVIDENCE SATISFACTORY TO THE COMPANY OF SUCH PERSON'S AUTHORITY SO TO
ACT. SEE INSTRUCTION 4 REGARDING THE COMPLETION OF THIS LETTER OF TRANSMITTAL.
Name(s):
- --------------------------------------------------------------------------------
------------------------------------------------------------------------
(PLEASE PRINT)
Capacity:
- --------------------------------------------------------------------------------
Address:
- --------------------------------------------------------------------------------
(INCLUDE ZIP CODE)
SIGNATURE(S) GUARANTEED BY AN ELIGIBLE INSTITUTION
(IF REQUIRED BY INSTRUCTION 4):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES)
- --------------------------------------------------------------------------------
(ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER
(INCLUDING AREA CODE) OF FIRM)
- --------------------------------------------------------------------------------
(AUTHORIZED SIGNATURE)
- --------------------------------------------------------------------------------
(PRINTED NAME)
- --------------------------------------------------------------------------------
(TITLE)
Date:
- --------------------------------------------------------------------------------
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
6
<PAGE> 7
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1 AND 5)
To be completed ONLY (i) if the New Notes, or any Old Notes not tendered or
accepted, are to be issued in the name of someone other than the undersigned, or
(ii) if Old Notes tendered by book-entry transfer are to be returned by credit
to an account other than the account maintained at DTC for the undersigned.
Issue: [ ] New Notes and/or
[ ] Old Notes delivered but not tendered or accepted for exchange
Name:
--------------------------------------------------------------------------
(Please Print)
Address:
-----------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Zip Code)
- -------------------------------------------------------------------------------
(Taxpayer Identification or Social Security No.)
(Please Also Complete Substitute Form W-9)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1 AND 5)
To be completed ONLY if the Old Notes not tendered or accepted, or New Notes
issued in exchange for Old Notes accepted for exchange, are to be sent to
someone other than the undersigned, or to the undersigned, at an address other
than that shown above.
Mail or deliver Certificates to:
Name:
--------------------------------------------------------------------------
(Please Print)
Address:
-----------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Zip Code)
7
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE
EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES. The tendered Old
Notes or a Book-Entry Confirmation, as well as a properly completed and duly
executed copy or facsimile of this Letter of Transmittal, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at one of its addresses set forth herein prior to 5:00 p.m., New
York City time, on the Expiration Date. THE METHOD OF DELIVERY OF THE TENDERED
OLD NOTES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE
EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER AND, EXCEPT AS
OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE
AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Holders who wish to tender their Old Notes and (i) who cannot deliver their
Old Notes, this Letter of Transmittal or any other documents required hereby to
the Exchange Agent prior to the Expiration Date, or (ii) who are unable to
complete the procedures for book-entry transfer on a timely basis must tender
their Old Notes according to the guaranteed delivery procedures set forth in the
Prospectus. See the section entitled "Exchange Offer -- Guaranteed Delivery
Procedures" in the Prospectus. Pursuant to the guaranteed delivery procedures:
(a) the tender must be made by or through a member of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or a trust company having an office or
correspondent in the United States or an "eligible guarantor institution"
as defined by Rule 17Ad-15 under the Exchange Act of 1934 (any of the
foregoing being referred to herein as an "Eligible Institution");
(b) prior to the Expiration Date, the Exchange Agent must have
received from such Eligible Institution (by facsimile transmission, mail or
hand delivery) a properly completed and duly executed Notice of Guaranteed
Delivery setting forth the name and address of the Holder of the Old Notes,
the name(s) in which Old Notes are registered, the certificate number(s) of
such Old Notes (if available) and the aggregate principal amount of Old
Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange ("NYSE") trading
days after the Expiration Date, this duly executed Letter of Transmittal,
together with the certificate(s) representing the Old Notes in proper form
for transfer (or a confirmation of book-entry transfer of such Old Notes
into the Exchange's Agent account at DTC) and all other documents required
by this Letter of Transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(c) the certificates for the tendered Old Notes in proper form for
transfer (or Book-Entry Confirmation), together with this properly
completed and duly executed Letter of Transmittal, and all other documents
required by this Letter of Transmittal, must be received by the Exchange
Agent within three NYSE trading days after the Expiration Date.
Any Holder of Old Notes who wishes to tender his, her or its Old Notes
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery prior to 5:00
p.m., New York City time, on the Expiration Date. Upon request of the Exchange
Agent, a Notice of Guaranteed Delivery will be sent to Holders who wish to
tender their Old Notes according to the guaranteed delivery procedures set forth
above.
8
<PAGE> 9
All questions as to the form of all documents, the validity (including time
of receipt) and acceptance of tendered Old Notes, and withdrawals of tendered
Old Notes, will be determined by the Company in its sole discretion, which
determination shall be final and binding. The Company reserves the absolute
right to reject any or all tenders of Old Notes that are not in proper form or
the acceptance of which would, in the opinion of the Company or the Company's
counsel, be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Old Notes. The Company's
interpretations of the terms and conditions of the Exchange Offer (including the
instructions in this Letter of Transmittal and those set forth in the Prospectus
under the caption "The Exchange Offer -- Terms and Conditions of the Letter of
Transmittal") will be final and binding. Unless waived, any defect or
irregularity in connection with tenders of Old Notes must be cured within such
time as the Company determines. Neither the Company, the Exchange Agent nor any
other person will be under any duty to give notice of any defects or
irregularities in tenders of Old Notes, nor will any of them incur any liability
to Holders for failure to give any such notice. Tenders of Old Notes will not be
deemed to have been made until such defects or irregularities have been cured or
waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering Holders of Old
Notes, unless provided in this Letter of Transmittal, as soon as practicable
following the Expiration Date.
2. TENDER BY HOLDER. Only a Holder of Old Notes may tender such Old Notes
in the Exchange Offer. Any beneficial holder of Old Notes who is not the
registered Holder and who wishes to tender should arrange with the registered
Holder to execute and deliver this Letter of Transmittal on his, her or its
behalf or must, prior to completing and executing this Letter of Transmittal and
delivering his, her or its Old Notes, either make appropriate arrangements to
register ownership of the Old Notes in such holder's name, or obtain a properly
completed bond power from the registered Holder. The transfer of registered
ownership of Old Notes may take considerable time.
3. PARTIAL TENDERS. If a Holder tenders less than the entire principal
amount of Old Notes evidenced by certificate(s) delivered in connection
therewith, the tendering Holder must fill in the principal amount tendered in
the "Principal Amount Tendered" column of the box entitled "Description of Old
Notes" herein. The entire principal amount represented by the certificates for
all Old Notes delivered to the Exchange Agent will be deemed to have been
tendered, unless otherwise so indicated. The entire principal amount of all Old
Notes not tendered or not accepted for any reason will be sent to the Holder at
his, her or its registered address (or, if tendered by book-entry transfer,
returned by credit to the account at DTC), unless otherwise provided in the
appropriate box on this Letter of Transmittal, promptly after the Old Notes are
accepted for exchange.
4. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the
registered Holder(s) of the Old Notes tendered hereby, the signature(s) must
correspond with the name(s) as written on the face of the certificate(s) of such
Old Notes without alteration, enlargement or any change whatsoever.
If this Letter of Transmittal is executed by the registered Holder(s) of
Old Notes tendered and the certificate(s) for New Notes issued in exchange
therefor are to be issued (or if certificates representing the principal amount
of Old Notes not tendered are to be reissued) to the registered Holder, the said
Holder need not and should not endorse any tendered Old Notes, nor provide a
separate bond power. In any other case, such Holder must either properly endorse
the Old Notes tendered or transmit a properly completed separate bond power with
this Letter of Transmittal, with the signatures on the endorsement or bond power
guaranteed by an Eligible Institution.
In addition, if this Letter of Transmittal is signed by a person other than
the registered Holder(s) of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate bond powers, in each case signed as the name(s) of
such Holder(s) exactly appear(s) on the face of the Old Notes.
If this Letter of Transmittal or any certificates for Old Notes or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
proper evidence satisfactory to the Company of their authority so to act must be
submitted with, this Letter of Transmittal.
9
<PAGE> 10
Endorsements on certificates for Old Notes or signatures on bond powers
provided in accordance with this Instruction 4 by persons not executing this
Letter of Transmittal must be guaranteed by an Eligible Institution.
No signature guarantee is required if (i) this Letter of Transmittal is
signed by the registered Holder(s) of Old Notes tendered herewith and such
Holder(s) have not completed the box set forth herein entitled "Special Issuance
Instructions" or the box entitled "Special Delivery Instructions," or (ii) Old
Notes tendered herewith are tendered for the account of an Eligible Institution.
In all other cases, all signatures on Letters of Transmittal accompanying Old
Notes must be guaranteed by an Eligible Institution.
5. SPECIAL ISSUANCE AND SPECIAL DELIVERY INSTRUCTIONS. Tendering Holders
should indicate in the "Special Issuance Instructions" section the name and
address to which New Notes, or Old Notes for principal amounts not tendered or
not accepted for purchase, are to be issued or, if tendered by book-entry
transfer, are to be credited, if different from the name and address of the
person signing this Letter of Transmittal. In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated. Tendering Holders should indicate in the
"Special Delivery Instructions" if the New Notes or, Old Notes for principal
amounts not tendered or not accepted for purchase, are to be sent to someone
other than the undersigned, or to the undersigned, at an address other than that
shown above.
6. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing New Notes or Old Notes (for any principal
amount of Old Notes not tendered or accepted for exchange) are to be delivered
to, or are registered in the name of any person other than the person signing
this Letter of Transmittal, or if a transfer tax is imposed for any reason other
than the exchange of Old Notes pursuant to the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered Holder or on any
other persons) will be payable by the tendering Holder. If satisfactory evidence
of payment of such taxes or exemption therefrom is not submitted with this
Letter of Transmittal, the amount of such transfer taxes will be billed directly
to such tendering Holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
7. FORM W-9. Each tendering Holder is required to provide the Exchange
Agent with a correct taxpayer identification number ("TIN"), the Holder's social
security or federal employer identification number, on Substitute Form W-9,
which is enclosed herewith, or alternatively, to establish another basis for
exemption from backup withholding. Failure to provide the information on
Substitute Form W-9 may subject the surrendering Holder to a 31% backup
withholding tax on any payment made to Holders of New Notes. Exempt Holders
(including, among others, all corporations and certain foreign individuals) are
not subject to these backup withholding and reporting requirements. For
additional information in this regard, please refer to the enclosed Guidelines
for Certification of TIN on Substitute Form W-9. In order to satisfy the
Exchange Agent that a foreign individual qualifies as an exempt recipient, the
Holder must submit a Form W-8, signed under penalties of perjury, attesting to
that individual's exempt status. A Form W-8 may be obtained from the Exchange
Agent.
8. WAIVER OF CONDITIONS. The Company expressly reserves the absolute right,
in its sole discretion, to amend or waive any of the conditions of the Exchange
Offer, set forth in the Prospectus under the caption "The Exchange
Offer -- Terms and Conditions of the Letter of Transmittal," in the case of any
Old Notes tendered, in whole or in part, at any time and from time to time.
9. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES FOR OLD NOTES. Any
tendering Holder whose certificates for Old Notes have been mutilated, lost,
stolen or destroyed should contact the Exchange Agent at the address indicated
herein for further instructions.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering Old Notes and requests for assistance or additional
copies of the Prospectus and this Letter of Transmittal may be directed to the
Exchange Agent at the address specified herein. Holders may also contact their
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offer.
10
<PAGE> 11
FOR EXCHANGE AGENT USE ONLY
<TABLE>
<CAPTION>
CERTIFICATE
SURRENDERED OLD NOTES TENDERED OLD NOTES ACCEPTED
----------- ------------------ ------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
Delivery Prepared by:
---------------------------------
Checked by:
-------------------------------------------
Date:
-------------------------------------------------
11
<PAGE> 12
<TABLE>
<S><C>
- -----------------------------------------------------------------------------------------------
PAYOR'S NAME: HARRIS TRUST AND SAVINGS BANK:
- -----------------------------------------------------------------------------------------------
SUBSTITUTE PART 1--PLEASE PROVIDE YOUR
FORMW-9 TIN IN THE BOX AT THE RIGHT TIN: -----------------------
AND CERTIFY BY SIGNING AND Social Security Number
DATING BELOW. or
Employer Identification
-------------------------------------------------------------
PART 2--Check the box if you are exempt from backup
withholding. [ ]
-------------------------------------------------------------
Certification--Under penalties of perjury, I certify that:
Department of the (1) the number shown on this form is my correct Taxpayer
Treasury, Internal Identification Number (or I am waiting for a number to be
Revenue Service issued to me) and
PAYOR'S REQUEST FOR TAXPAYER (2) I am not subject to backup withholding either because I
IDENTIFICATION NUMBER ("TIN") have not been notified by the Internal Revenue Service
CERTIFICATION ("IRS") that I am subject to backup withholding as a
result of failure to report all interest or dividends or
the IRS has notified me that I am no longer subject to
backup withholding. (You must cross out Item (2)
above if you have been notified by the IRS that you
are subject to backup withholding because of
underreporting interest or dividends on your tax return.)
-------------------------------------------------------------
SIGNATURE DATE: , 1998
--------------------- ----------------
- -----------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU AS THE HOLDER OF THE NEW NOTES. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer
identification number has not been issued to me, and either
(a) I have mailed or delivered an application to receive a
taxpayer identification number to the appropriate Internal
Revenue Service Center or Social Security Administration
Office or (b) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a
taxpayer identification number within 60 days, 31% of all
reportable payments made to me thereafter will be withheld
until I provide a number.
Signature: Date:
------------------------------------------- ---------------
Name
-------------------------------------------------
(Please Print)
<PAGE> 13
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GUIDE THE
PAYER--Social Security Numbers have nine digits separated by two hyphens: i.e.,
000-00-0000. Employer Identification Numbers have nine digits separated by only
one hyphen: i.e., 00-0000000. The table below will help determine the number to
give the payer.
================================================================================
<TABLE>
<CAPTION>
GIVE THE SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- --------------------------------------------------------------------------------
<S> <C>
1. An individual's The individual
account
2. Two or more The actual owner of the
individuals account or, if combined
(joint account) funds, any one of the
individuals(1)
3. Custodian account of The minor(2)
a minor (Uniform Gift
to Minors Act)
4. a. The usual The grantor-trustee(1)
revocable savings
trust account
(grantor is also
trustee)
b. So-called trust The actual owner(1)
account that is
not a legal or
valid trust under
State law
5. Sole proprietorship The owner(3)
account
6. A valid trust, The legal entity (Do not
estate, or pension furnish the identifying
trust number of the personal
representative or
trustee unless the legal
entity itself is not
designated in the
account title.)(4)
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER
IDENTIFICATION
NUMBER OF--
<S> <C>
7. Corporate account The corporation
8. Religious, The organization
charitable, or
educational
organization account
9. Partnership The partnership
10. Association, club or The organization
other tax-exempt
organization
11. A broker or The broker or nominee
registered nominee
12. Account with the The public entity
Department of
Agriculture in the
name of a public
entity (such as a
State or local
government, school
district, or prison)
that receives
agricultural program
payments
</TABLE>
================================================================================
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's Social Security Number.
(3) Show the name of the owner. You may also enter your business name. You may
use your Social Security Number or Employer Identification Number.
(4) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 14
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a Taxpayer Identification Number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on broker transactions
include the following:
- - A corporation.
- - A financial institution.
- - The United States or any agency or instrumentality thereof.
- - An organization exempt from tax under Section 501(a), or an individual
retirement plan.
- - A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
- - An international organization or any agency or instrumentality thereof.
- - A registered dealer in securities or commodities registered in the United
States or a possession of the United States.
- - A real estate investment trust.
- - A common trust fund operated by a bank under Section 584(a).
- - An entity registered at all times under the Investment Company Act of 1940.
- - A foreign central bank of issue.
- - A person registered under the Investment Advisors Act of 1940 who regularly
acts as a broker.
PAYMENTS OF INTEREST NOT GENERALLY SUBJECT TO BACKUP WITHHOLDING INCLUDE THE
FOLLOWING:
- - Payments to nonresident aliens subject to withholding under Section 1441.
- - Payments to partnerships not engaged in a trade or business in the United
States and which have at least one nonresident partner.
- - Payments made by certain foreign organizations.
Exempt payees described above should file Substitute Form W-9 to avoid
possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM,
SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER.
PRIVACY ACT NOTICE -- Section 6109 requires most recipients of dividend,
interest, or other payments to give Taxpayer Identification Numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not furnish a Taxpayer Identification Number to a payer. Certain penalties may
also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your Taxpayer Identification Number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING--If you make
a false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE IRS.
(DO NOT WRITE IN SPACE BELOW)
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY FOR
ACME METALS INCORPORATED
This Notice of Guaranteed Delivery or one substantially equivalent hereto
must be used to accept the Exchange Offer of Acme Metals Incorporated (the
"Company") made pursuant to the Prospectus, dated , 1998 (the
"Prospectus"), if the procedure for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date of
the Exchange Offer. Such form may be delivered or transmitted by facsimile
transmission, mail, overnight courier or hand delivery to Harris Trust and
Savings Bank (the "Exchange Agent") as set forth below. In addition, in order
for a holder to utilize the guaranteed delivery procedure to tender Old Notes
pursuant to the Exchange Offer, a completed, signed and dated Letter of
Transmittal (or facsimile thereof) must also be received by the Exchange Agent
within three New York Stock Exchange trading days after the Expiration Date.
Capitalized terms not defined herein are defined in the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED (THE "EXPIRATION DATE").
Deliver to:
HARRIS TRUST AND SAVINGS BANK, EXCHANGE AGENT
<TABLE>
<CAPTION>
By Registered or Certified Mail: By Hand or Overnight Delivery:
<S> <C>
Harris Trust and Savings Bank Harris Trust and Savings Bank
c/o Harris Trust Company c/o Harris Trust Company
of New York of New York
P.O. Box 1010 88 Pine Street
Wall Street Station 19th Floor
New York, NY 10268-1010 New York, NY 10005
</TABLE>
Facsimile Transmission Number:
(For Eligible Institutions Only)
(212) 701-7636
Confirm Receipt of Facsimile by Telephone:
(212) 701-7624
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE> 2
Ladies and Gentlemen:
Upon the terms and conditions set forth in the Prospectus and the
accompanying Letter of Transmittal, the undersigned hereby tenders to the
Company the principal amount of Old Notes set forth below, pursuant to the
guaranteed delivery procedures described in "The Exchange Offer -- Guaranteed
Delivery Procedures" section of the Prospectus. By so tendering, the undersigned
hereby does make, at and as of the date hereof, the representations and
warranties of a tendering Holder of Old Notes set forth in the Letter of
Transmittal.
ALL AUTHORITY HEREIN CONFERRED OR AGREED TO BE CONFERRED SHALL SURVIVE THE DEATH
OR INCAPACITY OF THE UNDERSIGNED AND EVERY OBLIGATION OF THE UNDERSIGNED
HEREUNDER SHALL BE BINDING UPON THE HEIRS, PERSONAL REPRESENTATIVES, SUCCESSORS
AND ASSIGNS OF THE UNDERSIGNED.
PLEASE SIGN HERE
-----------------------------------------------------
-----------------------------------------------------
Signature(s) of Registered Holder(s)
or Authorized Signatory
-----------------------------------------------------
-----------------------------------------------------
Name(s) of Registered Holder(s)
Area Code and Telephone Number(s):
---------------------------------------------------------------------
Principal Amount of Old Notes Tendered:
-----------------------------------------------------
Old Certificate Number(s) (if available):
-----------------------------------------------------
If Old Notes will be delivered by book-entry transfer to the Depository Trust
Company, provide DTC Account Number:
- -----------------
Total Principal Amount Represented:
- -----------------------------------------------------
This Notice of Guaranteed Delivery must be signed by the Holder(s) of Old
Notes as their name(s) appear(s) on certificates for Old Notes or by person(s)
authorized to become registered Holder(s) by endorsement and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below:
(PLEASE PRINT NAME(S) AND ADDRESSES)
Name(s):
------------------------------------------------------------------------------
---------------------------------------------------------------------
(PLEASE PRINT)
Capacity:
------------------------------------------------------------------------------
Address:
------------------------------------------------------------------------------
-----------------------------------------------------------------------
(INCLUDE ZIP CODE)
<PAGE> 3
GUARANTEE
The undersigned, a member of a registered national securities exchange,
or a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an officer or correspondent in the
United States or an "eligible guarantor institution" as defined by Rule
17Ad-15 under the Exchange Act, hereby guarantees that the certificates
representing the principal amount of Old Notes tendered hereby in proper form
for transfer, or timely confirmation of the book-entry transfer of such Old
Notes into the Exchange Agent's account at DTC pursuant to the procedures set
forth in "The Exchange Offer -- Guaranteed Delivery Procedures" section of the
Prospectus, together with a properly completed and duly executed Letter of
Transmittal (or a manually signed facsimile thereof) with any required
signature guarantee and any other documents required by the Letter of
Transmittal, will be received by the Exchange Agent at the address set forth
above, within three New York Stock Exchange trading days after the Expiration
Date.
-----------------------------------------------------
Name of Firm
-----------------------------------------------------
Address
-----------------------------------------------------
Zip Code
Area Code and Telephone No.:
-------------------
- -----------------------------------------------------
Authorized Signature
- -----------------------------------------------------
Title
Name:
- ----------------------------------------------
(Please Type or Print)
Dated:
- ----------------------------------------------
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD ONLY BE SENT WITH THE LETTER OF TRANSMITTAL.
<PAGE> 1
EXHIBIT 99.3
ACME METALS INCORPORATED
OFFER TO EXCHANGE ITS
10 7/8% SENIOR NOTES DUE 2007
FOR ANY AND ALL OF ITS OUTSTANDING
10 7/8% SENIOR NOTES DUE 2007
TO: BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES AND OTHER NOMINEES:
Acme Metals Incorporated (the "Company") is offering to exchange (the
"Exchange Offer"), upon and subject to the terms and conditions set forth in the
Prospectus dated , 1998 (the "Prospectus") and the enclosed Letter
of Transmittal (the "Letter of Transmittal"), to exchange $1,000 in principal
amount of its newly issued 10 7/8% Senior Notes Due 2007 (the "New Notes") for
each $1,000 principal amount of outstanding 10 7/8% Senior Notes Due 2007 (the
"Old Notes"). The Exchange Offer is being made in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement dated
as of December 18, 1997 between the Company and the other signatories thereto.
We are requesting that you contact your clients for whom you hold Old Notes
regarding the Exchange Offer. For your information and for forwarding to your
clients for whom you hold Old Notes registered in your name or in the name of
your nominee, or who hold Old Notes registered in their own names, we are
enclosing the following documents:
1. Prospectus dated , 1998;
2. The Letter of Transmittal for your use and for the information of
your clients;
3. A Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if time will not permit all required documents to reach the Exchange
Agent prior to the Expiration Date (as defined below) or if the procedure
for book-entry transfer cannot be completed on a timely basis;
4. A form of letter which may be sent to your clients for whose
account you hold Old Notes registered in your name or the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Exchange Offer;
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
6. Return envelopes addressed to Harris Trust and Savings Bank, the
Exchange Agent for the Old Notes.
YOUR PROMPT ACTION IS REQUESTED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00
P.M., NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED BY THE COMPANY
(THE "EXPIRATION DATE"). THE OLD NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER
MAY BE WITHDRAWN AT ANY TIME BEFORE 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE IN ACCORDANCE WITH THE INSTRUCTIONS SET FORTH IN THE LETTER OF
TRANSMITTAL.
To participate in the Exchange Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Exchange Agent and certificates representing the Old Notes should be delivered
to the Exchange Agent, all in accordance with the instructions set forth in the
Letter of Transmittal and Prospectus.
If holders of Old Notes wish to tender, but it is impracticable for them to
forward their certificates for Old Notes prior to the expiration of the Exchange
Offer or to comply with the book-entry transfer procedures on a timely basis, a
tender may be effected by following the guaranteed delivery procedures described
in the Prospectus under "The Exchange Offer -- Guaranteed Delivery Procedures"
and the Letter of Transmittal.
<PAGE> 2
The Company will, upon request, reimburse brokers, dealers, commercial
banks and trust companies for reasonable and necessary costs and expenses
incurred by them in forwarding the Prospectus and the related documents to the
beneficial owners of Old Notes held by them as nominee or in a fiduciary
capacity. The Company will pay or cause to be paid all stock transfer taxes
applicable to the exchange of Old Notes pursuant to the Exchange Offer, except
as set forth in Instruction 6 of the Letter of Transmittal.
Any inquiries you may have with respect to the Exchange Offer, or requests
for additional copies of the enclosed materials, should be directed to the
Exchange Agent for the Old Notes, at its address and telephone number set forth
on the front of the Letter of Transmittal.
Very truly yours,
ACME METALS INCORPORATED
NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY
OTHER PERSON AS AN AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR AUTHORIZE YOU
OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENTS ON BEHALF OF
EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS
EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL.
<PAGE> 1
EXHIBIT 99.4
ACME METALS INCORPORATED
OFFER TO EXCHANGE ITS
10 7/8% SENIOR NOTES DUE 2007
FOR ANY AND ALL OF ITS OUTSTANDING
10 7/8% SENIOR NOTES DUE 2007
To Our Clients:
Enclosed for your consideration is a Prospectus dated , 1998
(the "Prospectus") and the related Letter of Transmittal (which together with
the Prospectus constitute the "Exchange Offer") in connection with the offer by
Acme Metals Incorporated (the "Company") to exchange $1,000 in principal amount
of its newly issued 10 7/8% Senior Notes Due 2007 (the "New Notes") for each
$1,000 principal amount of outstanding 10 7/8% Senior Notes Due 2007 (the "Old
Notes"), upon the terms and subject to the conditions set forth in the Exchange
Offer.
We are the registered holder of the Old Notes held for your account. An
exchange of the Old Notes can be made only by us as the registered holder and
pursuant to your instructions. The Letter of Transmittal is furnished to you for
your information only and cannot be used by you to exchange the Old Notes held
by us for your account. The Exchange Offer provides a procedure for holders to
tender by means of guaranteed delivery.
We request information as to whether you wish us to exchange any or all of
the Old Notes held by us for your account upon the terms and subject to the
conditions of the Exchange Offer.
Your attention is directed to the following:
1. The New Notes will be exchanged for the Old Notes at the rate of
$1,000 principal amount of New Notes for each $1,000 principal amount of
Old Notes. The New Notes will bear interest (as do the Old Notes) at a rate
equal to 10 7/8% per annum from their date of issuance. Interest on the New
Notes is payable semi-annually on June 15 and December 15, commencing
December 15, 1998. Holders of Old Notes that are accepted for exchange will
be deemed to have waived the right to receive any payment in respect of
interest on the Old Notes accrued from December 18, 1997, or the most
recent interest payment date to which interest has been paid, until the
date of the issuance of the New Notes. Consequently, holders who exchange
their Old Notes for New Notes will receive the same interest payment on
December 15, 1998 (the first interest payment date with respect to the Old
Notes and the New Notes) that they would have received had they not
accepted the Exchange Offer. The form and terms of the New Notes are the
same in all material respects as the form and terms of the Old Notes (which
they replace) except that the New Notes have been registered under the
Securities Act of 1933, as amended (the "Securities Act").
2. Based on interpretations by the staff of the Securities and
Exchange Commission (the "SEC"), New Notes issues pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold or
otherwise transferred by holders thereof (other than any such holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or a "broker" or "dealer" registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) without compliance
with the registration and prospectus delivery provisions of the Securities
Act provided that such New Notes are acquired in the ordinary course of
such holders' business and such holders have no arrangement with any person
to participate in the distribution of such New Notes.
3. The Exchange Offer is not conditioned on any minimum principal
amount of Old Notes being tendered.
4. Notwithstanding any other term of the Exchange Offer, the Company
will not be required to accept for exchange, or exchange New Notes for, any
Old Notes not theretofore accepted for exchange,
<PAGE> 2
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Old Notes, if any of the conditions described in the
Prospectus under "The Exchange Offer" exist.
5. Tendered Old Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on , 1998 by following the procedures set
forth in the Letter of Transmittal.
6. Any transfer taxes applicable to the exchange of the Old Notes
pursuant to the Exchange Offer will be paid by the Company, except as
otherwise provided in Instruction 6 of the Letter of Transmittal.
If you wish to have us tender any or all of your Old Notes, please so
instruct us by completing, detaching and returning to us the instruction form
attached hereto. An envelope to return your instructions is enclosed. If you
authorize a tender of your Old Notes, the entire principal amount of Old Notes
held for your account will be tendered unless otherwise specified on the
instruction form. Your instructions should be forwarded to us in ample time to
permit us to submit a tender on your behalf by the Expiration Date.
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, holders of the Old Notes in any jurisdiction in which the
making of the Exchange Offer or acceptance thereof would not be in compliance
with the laws of such jurisdiction or would otherwise not be in compliance with
any provision of any applicable securities law.
Very truly yours,
<PAGE> 3
ACME METALS INCORPORATED
OFFER TO EXCHANGE ITS
10 7/8% SENIOR NOTES DUE 2007
FOR ANY AND ALL OF ITS OUTSTANDING
10 7/8% SENIOR NOTES DUE 2007
INSTRUCTION TO REGISTERED HOLDER FROM BENEFICIAL OWNER
The undersigned acknowledge(s) receipt of your letter and the enclosed
Prospectus and the related Letter of Transmittal in connection with the Exchange
Offer by the Company to exchange New Notes for Old Notes.
This will instruct you to tender the principal amount of Old Notes
indicated below held by you for the account of the undersigned, upon the terms
and subject to the conditions set forth in the Prospectus and the related Letter
of Transmittal.
The undersigned acknowledges that the Exchange Offer is being made in
reliance upon interpretations contained in letters issued to third parties by
the staff of the Securities and Exchange Commission that the New Notes issued in
exchange for the Old Notes pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by Holders thereof (other than any
Holder that is an "affiliate" of the Company within the meaning of Rule 405
promulgated under the Securities Act), without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of Holder's business and Holder is not
engaging in and does not intend to engage in a distribution of such New Notes.
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of New Notes.
If the undersigned is a broker-dealer that will receive New Notes for its own
account in exchange for Old Notes that were acquired as a result of
market-making activities or other trading activities, it agrees that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes; however, by so acknowledging and
delivering a prospectus, the undersigned will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
If the undersigned is a "broker" or "dealer" registered under the Exchange
Act that acquired Old Notes for its own account pursuant to its market-making or
other trading activities (other than Old Notes acquired directly from the
Company), the undersigned understands and acknowledges that it may be deemed to
be an "underwriter" within the meaning of the Securities Act and, therefore,
must deliver a prospectus relating to the New Notes meeting the requirement of
the Securities Act in connection with any resales by it or New Notes acquired
for its own account in the Exchange Offer. Notwithstanding the foregoing, the
undersigned does not thereby admit that it is an "underwriter" within the
meaning of the Securities Act.
<PAGE> 4
You are hereby instructed to tender all Old Notes held for the account of
the undersigned unless otherwise indicated below.
[ ] Do not tender any Old Notes.
[ ] Tender Old Notes in the principal amount of .
SIGNATURE:
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Name of Beneficial Owner (please
print)
By:
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Signature
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Address
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Zip Code
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Area Code and Telephone Number
Dated: , 1998
