<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 27, 1998 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-14378
ACME METALS INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 36-3802419
(State of incorporation) (I.R.S. Employer Identification No.)
13500 SOUTH PERRY AVENUE 60827-1182
(Address of principal executive offices) (Zip Code)
</TABLE>
(708) 849-2500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
Common Stock, par value $1.00
Preferred Share Purchase Rights
12 1/2% Senior Secured Notes due 2002
13 1/2% Senior Secured Discount Notes due 2004
10 7/8% Senior Unsecured Notes due 2007
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
The aggregate market value as of March 8, 1999 of common stock, par value
$1.00, held by nonaffiliates of the Registrant was: $3,032,788.
Number of shares of Common Stock outstanding as of March 8, 1999,
11,664,571.
The following document is partially incorporated into this report by
reference:
(1) Proxy Statement filed in connection with the Annual Meeting of Shareholders
scheduled for April 22, 1999 is partially incorporated by reference into
Part III, Items 11, 12 and 13.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
ACME METALS INCORPORATED
1998 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 7
Item 3. Legal Proceedings........................................... 8
Item 4. Submission of Matters to a Vote of Security Holders......... 12
PART II
Item 5. Market for the Company's Common Stock and Related
Shareholder Matters......................................... 13
Item 6. Selected Financial Data..................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 16
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 21
Item 8. Financial Statements and Supplementary Data................. 22
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 22
PART III
Item 10. Directors and Executive Officers of the Company............. 22
Item 11. Executive Compensation...................................... 23
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 24
Item 13. Certain Relationships and Related Transactions.............. 24
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 24
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
Acme Metals Incorporated ("Acme Metals") was incorporated as a Delaware
corporation in 1992 as the successor to the original Acme Steel Company which
was a part of Interlake, Inc. from 1964 until spunoff as a separate public
company in 1986.
The principal business activities of Acme Metals are conducted through two
separate industry segments:
Steel Making Segment
Acme Steel Company ("Acme Steel") -- integrated iron and steel producer
Steel Fabricating Segment
Acme Packaging Corporation ("Acme Packaging") -- manufacturer of steel
strapping, plastic strapping, and strapping products
Alpha Tube Corporation ("Alpha Tube") -- manufacturer of welded steel
tube products
Acme Metals and all of its direct and indirect subsidiaries report
financial information on a consolidated basis and are together referred to as
the "Company."
CHAPTER 11 BANKRUPTCY FILINGS
On September 28, 1998 ("Petition Date"), Acme Metals and its principal
direct and indirect subsidiaries, Acme Steel, Acme Packaging, Alpha Tube,
Alabama Metallurgical Corporation ("Alabama Metallurgical") and Acme Steel
Company International, Inc. ("Acme Steel International"), filed separate
voluntary petitions for protection and reorganization under Chapter 11 of Title
11 ("Chapter 11") of the United States Code ("Bankruptcy Code") in the United
States Bankruptcy Court for the District of Delaware ("Bankruptcy Court"). These
reorganization cases are being jointly administered under Case Number 98-2179
pursuant to Rule 1015 (b) of the Federal Rules of Bankruptcy Procedure. The
Company is in possession of its properties and assets and continues to manage
its businesses with its existing directors and officers as debtors-in-possession
subject to the supervision of the Bankruptcy Court.
On September 28, 1998, the Company filed its voluntary petitions for
reorganization under Chapter 11 of the Bankruptcy Code after management
determined that action was required to preserve the operational strength and
assets of the Company's businesses while the Company reorganizes its business
and restructures its balance sheet.
Factors contributing to the Company's decision to seek Chapter 11
Bankruptcy protection included, among others, a loss of orders from its
traditional higher margin, value-added niche customers, which, together with the
dramatic increase of imported foreign steel during the last half of 1998,
resulted in a weak order book, an adverse mix of products, substantially lower
average selling prices and production cost inefficiencies. These factors
contributed to the Company's increased operating loss and net loss during 1998.
Such losses resulted in reduced liquidity, breach of certain financial covenants
in the Company's loan agreements and a projected inability to service ongoing
debt obligations. The rapidly deteriorating steel market and the Company's
weakening financial condition clearly limited the availability of and the time
to implement other options. These factors resulted in the decision of the Board
of Directors to file for Chapter 11 Bankruptcy protection.
Pursuant to the provisions of the Bankruptcy Code, all actions to collect
upon any of the Company's liabilities as of the Petition Date or to enforce
pre-Petition Date contractual obligations were automatically stayed. Absent
approval from the Bankruptcy Court, the Company is prohibited from paying
pre-petition obligations. However, the Bankruptcy Court has approved payment of
certain pre-petition liabilities such as
3
<PAGE> 4
employee wages and benefits and certain specified pre-petition obligations to
vendors, customers and taxing authorities. Additionally, the Bankruptcy Court
has allowed for the retention of legal and financial professionals and adequate
protection payments (payments to adequately protect holders of certain secured
claims against the Company). As a debtor-in-possession, the Company has the
right, subject to Bankruptcy Court approval and certain other conditions, to
assume or reject any pre-petition executory contracts and unexpired leases.
Parties affected by such rejections may file pre-petition claims with the
Bankruptcy Court in accordance with Bankruptcy procedures.
On December 18, 1998, with the approval of the Bankruptcy Court, Acme
Metals, Acme Steel, Acme Packaging, Alabama Metallurgical and Acme Steel
International entered into a twenty-one month Loan and Security Agreement ("DIP
Financing Agreement") with BankAmerica Business Credit, Inc. ("BankAmerica
Credit"), which provides for a maximum of $100 million of revolving credit
borrowings subject to certain borrowing base limitations based on inventory and
accounts receivable. Alpha Tube, whose inventory and accounts receivable are
excluded from the borrowing base computation, has guaranteed the obligations
incurred under the DIP Financing Agreement. Alpha Tube's guaranty obligation
with respect to the DIP Financing Agreement is effectively subordinate to
pre-petition trade obligations and Chapter 11 Bankruptcy administrative expenses
of Alpha Tube. Further information about the DIP Financing Agreement is set
forth in the Notes to the Consolidated Financial Statements.
The Company currently intends to present a plan of reorganization to the
Bankruptcy Court to reorganize the Company's businesses and to restructure the
Company's balance sheet. Although management expects to file a plan of
reorganization, there can be no assurance at this time that a plan of
reorganization will be proposed by the Company, approved or confirmed by the
Bankruptcy Court, or that such plan will be consummated. The Bankruptcy Court
has granted the Company's request to extend its exclusive right to file a plan
of reorganization through April 26, 1999. While the Company intends to request
further extensions of the exclusivity period, there can be no assurance that the
Bankruptcy Court will grant such further extensions. If the exclusivity period
were to expire or be terminated, other interested parties, such as creditors of
the Company, would have the right to propose alternative plans of
reorganization.
Although the Chapter 11 Bankruptcy filing raises substantial doubt about
the Company's ability to continue as a going-concern, the accompanying financial
statements have been prepared on a going-concern basis. This basis contemplates
the continuity of operations, realization of assets, and discharge of
liabilities in the ordinary course of business. The statements also present the
assets of the Company at historical cost and the current intention that they
will be realized as a going-concern and in the normal course of business. A plan
of reorganization could materially change the amounts currently disclosed in the
financial statements.
The statements do not present the amount which may ultimately be paid to
settle liabilities and contingencies which may be allowed in the Chapter 11
Bankruptcy cases. Under Chapter 11 Bankruptcy, the rights of, and ultimate
payment by the Company to, pre-petition creditors may be substantially altered.
This could result in claims being liquidated in the Chapter 11 Bankruptcy
proceedings at less (and possibly substantially less) than 100 percent of their
face value. At this time, because of material uncertainties, pre-petition claims
are carried at face value in the accompanying financial statements. Further
information about the financial impact of the Chapter 11 Bankruptcy filings is
set forth in Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations and Notes to Consolidated Financial Statements.
OPERATIONS -- BUSINESS SEGMENTS
The Company operates and reports its operations in two separate business
segments: Steel Making (principally through Acme Metals' wholly-owned subsidiary
Acme Steel), and Steel Fabricating (principally through Acme Metals'
wholly-owned subsidiary, Acme Packaging, and Acme Packaging's wholly-owned
subsidiary, Alpha Tube). Universal Tool & Stamping Company, Inc. ("Universal
Tool") was a wholly-owned subsidiary of Acme Packaging in the Steel Fabricating
Segment until March 9, 1998, when Universal Tool was sold. Financial information
about the Company's business segments is contained in the Business Segments
section of the Notes to the Consolidated Financial Statements beginning on page
50. Additional
4
<PAGE> 5
information about the Company's business segments is set forth in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Steel Making Segment
Acme Steel is the smallest fully integrated steel producer in the United
States. Acme Steel's operations are located in Riverdale and Chicago, Illinois
and include the following plant facilities: coke ovens, blast furnaces, pigging
machines, basic oxygen furnaces, ladle metallurgical facilities, a continuous
thin slab caster/hot strip mill, pickle lines, cold mills, annealing furnaces,
slitter lines and cut-to-length lines.
In the third quarter of 1996, Acme Steel completed construction of a new
continuous thin slab caster/hot strip mill complex ("New Facility") at its
Riverdale, Illinois plant. In June 1997, Acme Steel completed the
decommissioning of its ingot making operations at its Riverdale plant. Acme
Steel manufactures flat-rolled steel, including sheet and strip steel. Acme
Steel has historically specialized in the production of mid- and high-carbon,
alloy, and high strength low alloy ("HSLA") steels. The principal markets served
by Acme Steel include the automotive, agricultural, industrial fastener, pipe
and tube, and tool manufacturing industries, processors, and steel service
centers.
In 1996, Acme Steel, as a 40 percent equity participant in NACME Steel
Processing, LLC, a limited liability company ("NACME"), constructed a steel coil
processing plant on land owned by Acme Steel in Chicago, Illinois adjacent to
Acme Steel's Riverdale, Illinois steel making operations. NACME pickles, oils,
slits and packages steel coils produced at Acme Steel's New Facility. Pursuant
to a steel processing agreement between Acme Steel and NACME, Acme Steel has
agreed to certain tonnage provision and cost plus return on investment
guarantees.
Acme Steel accounted for approximately 48.0 percent of the Company's total
sales during 1998. Acme Steel's order backlogs for its products were $25.6
million and $38.5 million at December 27, 1998 and December 28, 1997,
respectively.
Steel Fabricating Segment
Acme Packaging is one of the two major domestic producers of steel
strapping and strapping tools in North America. In addition, Acme Packaging
began manufacturing plastic strapping during 1998. Acme Packaging's operations
are located in Riverdale, Illinois; New Britain, Connecticut; Leeds, Alabama;
and Bay Point, California. The principal markets served by Acme Packaging
include the agricultural, automotive, brick, construction, fabricated and
primary metals, forest products, paper and wholesale industries.
Alpha Tube is a leading producer of high quality welded carbon steel tube
and pipe. Alpha Tube's operations are located in Walbridge, Ohio. The principal
markets served by Alpha Tube are the appliance, automotive, construction,
heating and cooling equipment, household and leisure furniture, material
handling, recreational products, truck exhaust industries and service centers.
Universal Tool, which was sold in March 1998, produced automotive and light
truck jacks, tire wrenches and accessories for the original equipment
manufacturer market in North America. Universal Tool accounted for approximately
1.7 percent of the Company's total sales during 1998.
Acme Packaging and Alpha Tube accounted for approximately 32.4 percent and
17.9 percent, respectively, of the Company's total sales during 1998. Alpha
Tube's order backlogs were $12.6 million at December 27, 1998 and $10.7 million,
at December 28, 1997. Due to the nature of its business, Acme Packaging does not
have a significant order backlog.
EMPLOYEES
As of December 27, 1998, the Company had 2,003 active employees, of which
523 were salaried and 1,480 were hourly. Of the hourly employees, 1,341 are
represented by unions; all salaried employees and all employees of Alpha Tube
are non-unionized. A contract with the United Steelworkers Union covering 1,226
employees at the Acme Steel and Acme Packaging operations in Chicago and
Riverdale is scheduled to expire
5
<PAGE> 6
on August 31, 1999. Contract negotiations between the Company and the United
Steelworkers Union have commenced.
Existing labor agreements covering Acme Packaging employees at Bay Point,
California; New Britain, Connecticut; and Leeds, Alabama, are scheduled to
expire on October 31, 2000, March 31, 2001 and April 30, 2001, respectively.
There have been no significant changes in the union contracts since the
Chapter 11 Bankruptcy filings.
COMPETITION
Steel Making Segment
Acme Steel faces intense competition from domestic and foreign flat-rolled
carbon steel producers, steel service centers, and producers of plastics,
ceramics, aluminum and other materials which can be used in place of flat-rolled
steel in manufactured products. The primary competitive factors faced by Acme
Steel are price, quality, reliability of supply, timeliness of delivery and
customer service.
For commercial sales, Acme Steel currently competes in the low-, mid-,
high-carbon, HSLA and alloy steel markets. Acme Steel has numerous competitors
composed principally of steel service centers, which sell a large portion of
imported steel and, to a lesser extent, other small integrated mills and
mini-mills. Recently improved thin slab casting practices, such as those
utilized in the New Facility, have allowed mini-mill producers to enter certain
sectors of the flat-rolled market, including a portion of Acme Steel's niche
market, which had traditionally been supplied by integrated steel makers. The
cost position of Acme Steel, even though improved since the New Facility began
operations, was uncompetitive at December 27, 1998.
Domestic steel producers have faced significant competition from foreign
steel producers who typically have lower labor costs, currently benefit from
foreign exchange rates and may have less stringent environmental compliance
regulations. Many foreign steel producers are owned, controlled or subsidized by
their governments and their decisions with respect to production and sales may
be influenced more by political and economic policy considerations than by
prevailing market conditions. Additional information about foreign competition
is set forth in Item 7. Management's Discussion and Analysis of Financial
Conditions and Results of Operations.
During 1998, foreign imports of flat-rolled steel were at record high
volumes, adversely affecting sales volume and pricing experienced by domestic
companies including Acme Steel. According to data published by the United States
Department of Commerce ("Department of Commerce"), steel imports for 1998 were
41.5 million tons, an all-time record high, representing an increase of 33
percent over 1997 which resulted in 30 percent of apparent domestic consumption
being supplied by foreign steel. Steel imports increased steadily in each
quarter of 1998, and during the fourth quarter accounted for 11 million tons, an
increase of 65 percent over the fourth quarter of 1997. The main sources of
steel imports were Japan, Russia and Korea, which together accounted for
approximately 80 percent of the surge in foreign imports during 1998. This glut
of "dumped" foreign steel has caused a sharp drop in the price of domestic steel
and has forced domestic steel companies to cut production and lower capacity
utilization.
On September 30, 1998, twelve domestic steel companies and two unions
joined forces to file unfair trade cases against hot-rolled carbon steel
products from Japan, Russia and Brazil. On November 23, 1998, the Department of
Commerce issued a preliminary finding of "critical circumstances" with respect
to hot-rolled steel imports from Japan and Russia. On February 12, 1999, the
Department of Commerce made preliminary determinations of dumping and imposed
duties ranging from 50.7 percent to 71.0 percent on hot-rolled sheet steel from
Brazil and 25.1 percent to 67.6 percent on hot-rolled sheet steel from Japan,
both retroactive to mid-November 1998. The Department of Commerce at that time
postponed applying duties on Russian steel pending reaching an agreement which
would establish quotas and minimum prices on all steel products imported to the
United States from Russia.
6
<PAGE> 7
Steel Fabricating Segment
Acme Packaging has one primary competitor in the steel strapping market.
The Company believes that these two steel strapping companies share
approximately 80 percent of the domestic steel strapping and strapping tool
market. During recent years, steel strapping has experienced competition from
plastic strapping, especially high strength polyester product. Many of Acme
Packaging's historical steel strapping customers also purchase plastic
strapping. As a result, in 1998 Acme Packaging installed two plastic strapping
extrusion lines at its Riverdale facility to strengthen its competitive position
and distribution efficiencies in the marketplace.
Alpha Tube operates in a highly competitive market characterized by
numerous participants with widely varying capabilities. In 1998 Alpha Tube
consolidated its operations into one modern manufacturing facility and upgraded
the capability of its large diameter tube mill, which resulted in increased
capacity and a reduction of various operating costs.
RAW MATERIALS AND ENERGY SOURCES
Raw materials represent a major component of production costs in the steel
industry. The principal raw materials used by Acme Steel are iron ore, coal and
scrap. Acme Steel obtains its iron ore requirements through Acme Steel's
indirect 15.1 percent participation in Wabush Mines, an iron ore mining venture
in Eastern Canada ("Wabush"), and through contracts. Acme Steel is required to
pay its proportionate share of the fixed operating costs of Wabush, regardless
of the quantity of ore received, plus the variable operation costs of minimum
ore production by Wabush for Acme Steel. Acme Steel reimburses the joint venture
for these costs through its purchase of ore. There is currently a world-wide
surplus of metallurgical coal. As a result, Acme Steel is able to satisfy its
coal requirements at competitive prices through short-term contracts and
purchases on the open market. Acme Steel purchases steel scrap from external
sources and believes adequate supplies of steel scrap are readily available at
competitive prices. The Company uses large amounts of electricity and natural
gas and is able to satisfy its requirements at prevailing market rates and in
adequate quantities.
Raw materials, primarily steel, for the Fabricating Segment are principally
supplied by contracts with the Steel Segment and, if necessary, other outside
producers or suppliers.
ENVIRONMENTAL COMPLIANCE
The operations of Acme Steel, Acme Packaging and Alpha Tube 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 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 workplace
environment. See Item 3. Legal Proceedings, Environmental.
TRADEMARKS AND PATENTS
The Company has the trademarks, patents and licenses necessary for the
operation of its businesses as presently conducted. The Company does not hold
any patents, trademarks or licenses which are deemed material to its businesses.
ITEM 2. PROPERTIES
The Company has facilities throughout the United States. The Company
believes its manufacturing facilities are being properly maintained and their
production capability is adequate to meet current customer orders.
Acme Steel
Acme Steel's principal properties are located in Chicago, Illinois and
Riverdale, Illinois. The facilities in Chicago include coke ovens, blast
furnaces and pigging machines. The facilities in Riverdale include basic oxygen
furnaces, the New Facility, pickle lines, cold mills, annealing furnaces,
slitter lines and cut-to-length
7
<PAGE> 8
lines. The facilities in both Chicago and Riverdale are owned in fee simple,
subject to mortgages held by certain secured creditors. In addition, Acme Steel
owns, in fee simple, the land on which NACME is located and leases it to NACME
Steel Processing, LLC. This land, together with the improvements on it, are
subject to a leasehold mortgage. (See discussion of NACME in Item 1.) In
addition, Acme Steel leases two regional sales offices in the United States.
Acme Packaging
Acme Packaging's principal properties consist of a steel strapping plant
(which includes slitting and painting equipment) and a leased plastic strapping
plant in Riverdale, Illinois, steel strapping plants (which include slitting and
painting equipment and warehouses) in Leeds, Alabama, and Bay Point, California,
and a strapping tool plant in New Britain, Connecticut. The property in
Riverdale is owned in fee simple by Acme Steel, subject to a mortgage held by
certain secured creditors, and leased to Acme Packaging. The properties in
Leeds, Alabama; Bay Point, California; and New Britain, Connecticut, are owned
in fee simple. In addition, Acme Packaging leases five regional sales offices
throughout the United States.
Alpha Tube
Alpha Tube's new state-of-the-art facility is located in Walbridge, Ohio,
and consists of five tube mills for the production of steel tube and pipe and a
steel slitting operation. This facility is owned by Acme Metals, subject to a
mortgage, held by certain secured creditors, and is leased to Alpha Tube.
ITEM 3. LEGAL PROCEEDINGS
GENERAL
For information concerning the Company's Chapter 11 Bankruptcy filings, see
Item 1. Business-Chapter 11 Bankruptcy Filings, page 3.
Pursuant to an Agreement and Plan of Reorganization as of March 5, 1986,
the Company (prior to the Company's 1992 reorganization, the Company was Acme
Steel Company, now a subsidiary and formerly called Interlake, Inc., hereinafter
referred to as the "Company") and 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 1985 through the Spin-Off remain unresolved and are now
pending in the United States Tax Court (The Interlake Corporation v. Commissions
of Internal Revenue, Docket No. 8258-96 and The Interlake Corporation v.
Commissions of Internal Revenue, Docket No. 15740-98). Interlake has been
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.
8
<PAGE> 9
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 workplace environment.
These current environmental control requirements are comprehensive and
continue to reflect a long-term trend towards increasing stringency. The Company
expects these requirements will continue to become even more stringent in future
years. The U.S. EPA's proposal 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 claims
that the Company's operations have violated certain environmental laws,
conditions of existing permits, or 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 $10.3 million for environmental projects (exclusive of any such expenditures
related to the New Facility) in the period from 1995 through 1998. 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 and
1998 to maintain environmental compliance at the New Facility. The Company
anticipates making nominal capital expenditures for environmental projects
during 1999. 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
9
<PAGE> 10
not disposed of waste materials at the site and was not properly named as a PRP;
or, ii) the Company's proportion of materials disposed of at such sites is of
sufficiently small volume to qualify the Company as a de minimis contributor of
waste material at such sites. This de minimis status has been confirmed at
essentially all of the applicable sites.
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.
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:
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. Environmental Protection Agency ("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 the U.S. EPA's Standards for Disposal of Sludges with the U.S. EPA
and filed a Petition for Review of the U.S. EPA's decision with the Court of
Appeals for the DC Circuit. 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 the U.S. EPA's consideration of
the Comments and Administrative Request for Reconsideration and Clarification.
The Court granted this Motion on September 14, 1994. On September 10, 1996 Acme
Steel filed, along with the other steel company, with the 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 the 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. The 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 the 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.
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
10
<PAGE> 11
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 the 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 the 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 the U.S. EPA and the IEPA will resolve
these issues or whether additional emission controls will be required and or the
cost of such controls at this time.
Recycling of Coke Plant By-Product Residues. By letter dated September 30,
1998, the U.S. EPA issued a notice and opportunity to show cause why Acme Steel
qualifies for the coke plant by-product residue recycling exemption in 40 CFR
261.4 (a)(10) and why, therefore, its facility is not a treatment, storage or
disposal facility operating in violation of the Resource Conservation and
Reclamation Act of 1976, 42 U.S.C. Section 6901 et seq. ("RCRA"). This notice
relates to a process operated by Kipin, an outside contractor, at the coke
plant, which prepares coke plant by-product residues for recycling to the coke
ovens. Acme Steel is involved in discussions with the U.S. EPA, and based on the
discussions to date, believes the matter can be resolved by minor modification
to the process. The cost of resolving this matter is unknown at this time but is
not anticipated to be material.
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 and Exchange Commission for the fiscal year 1992, Securities and
Exchange Commission file no. 0-14727.
Pursuant to the terms of this Agreement, for a period of ten (10) years
following the date of the Spin-Off (as that 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
11
<PAGE> 12
more specifically in the Agreement, includes but is not limited to environmental
matters relating to the Interlake Business 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 at Duluth,
Minnesota.
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 reported the soil remediation was substantially completed in
1997. The Minnesota environmental agency ("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 the
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.
Merger of The Interlake Corporation and GKN North America Manufacturing
Inc. On December 5, 1998, GKN North America Manufacturing Inc. (the
"Purchaser") and Interlake entered into an agreement and plan of merger ("Merger
Agreement"). The Purchaser is a wholly owned subsidiary of GKN North America
Incorporated which, in turn, is an indirect subsidiary of GKNplc of the United
Kingdom ("GKNplc").
Pursuant to the Merger Agreement, on December 10, 1998, the Purchaser
commenced a tender offer for all of the outstanding common stock and outstanding
Series A Convertible Exchangeable Preferred Stock ("Preferred Stock") of
Interlake. The Purchaser acquired by cash purchase in excess of 95 percent of
the outstanding common stock and Preferred Stock by February 10, 1999.
Subsequently, on February 10, 1999, pursuant to the Merger Agreement, the
Purchaser was merged into Interlake. Interlake, a subsidiary of Purchaser, is
the surviving corporation.
The Company believes the above described acquisition of Interlake by GKNplc
through its direct and indirect subsidiary will not alter the obligations and
rights of the Company and Interlake as described herein.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the last quarter of the last fiscal year.
12
<PAGE> 13
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The following table presents the high and low sales or bid information on a
quarterly basis for the Company's Common Stock for the two fiscal years from
December 30, 1996 through December 27, 1998. From December 30, 1996 through
September 29, 1998, the Common Stock traded on the New York Stock Exchange under
the symbol AMI. Subsequent to September 29, 1998 through December 27, 1998 (and
continuing to date), the Common Stock has traded on the Bulletin Board Quotation
System of the National Association of Securities Dealers under the symbol AMIIQ.
In addition, from December 30, 1996 through December 8, 1998, the Company's
Common Stock traded on the Toronto Stock Exchange under the symbol AMK. On
December 8, 1998, the Toronto Stock Exchange suspended trading of the Company's
stock due to its Chapter 11 Bankruptcy filings. As of March 8, 1999 there were
11,664,571 shares of Common Stock outstanding held by 4,735 shareholders of
record.
<TABLE>
<CAPTION>
QUARTER 1998 1997
------- ---- ----
<S> <C> <C>
First.................................................. 10 5/8-14 1/2 19 5/8-14 7/8
Second................................................. 9 3/8- 3 3/8 17 3/4-13
Third.................................................. 5- 1 5/8 17 5/8-13 1/2
Fourth................................................. 1- 1/10 15 7/8- 8 1/2
</TABLE>
No dividends have been declared or paid on the Common Stock since the
Company became a public company in 1986. Special payments in 1992 and 1988
reflected the redemption of preferred stock purchase rights. Certain covenants
in the Company's debt instruments and agreements have in the past limited the
Company's ability to pay dividends. Currently, the Company's status under
Chapter 11 of the Bankruptcy Code and the DIP Financing Agreement prohibit the
payment of dividends and the repurchase of shares.
13
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEARS IN REVIEW (dollars in thousands except for per share data)
Certain amounts have been reclassified to conform with the 1998 presentation.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME DATA
Net sales $459,920 $488,030 $498,242 $521,619 $522,880
- ----------------------------------------------------------------------------------------------
Income (loss) from operations (39,482) (35,057) 5,036 48,812 33,480
- ----------------------------------------------------------------------------------------------
Income (loss) before income taxes,
extraordinary loss and a cumulative
effect of a change in accounting
principle (71,954) (76,642) 5,093 44,135 28,693
- ----------------------------------------------------------------------------------------------
Income tax provision (benefit) 55,736 (29,124) 2,426 15,889 9,935
- ----------------------------------------------------------------------------------------------
Net income (loss) before
extraordinary loss and a cumulative
effect of a change in accounting
principle (127,690) (47,518) 2,667 28,246 18,758
- ----------------------------------------------------------------------------------------------
Extraordinary loss, net of taxes (23,411) (1,787)
- ----------------------------------------------------------------------------------------------
Cumulative effect of a change in
accounting principle, net of tax (6,276)
- ----------------------------------------------------------------------------------------------
Net income (loss) (127,690) (77,205) 2,667 28,246 16,971
==============================================================================================
PER SHARE DATA -- BASIC
Net income (loss) $ (10.94) $ (6.64) $ 0.23 $ 2.44 $ 2.19
- ----------------------------------------------------------------------------------------------
Weighted average shares outstanding
(in thousands) 11,673 11,628 11,598 11,574 7,751
==============================================================================================
PER SHARE DATA -- DILUTED
Income (loss) before extraordinary
loss and a cumulative effect of a
change in accounting principle $ (10.94) $ (4.09) $ 0.23 $ 2.44 $ 2.38
- ----------------------------------------------------------------------------------------------
Extraordinary loss (2.01) (0.22)
- ----------------------------------------------------------------------------------------------
Cumulative effect of a change in
accounting principle (0.54)
- ----------------------------------------------------------------------------------------------
Net income (loss) (10.94) (6.64) 0.23 2.44 2.16
- ----------------------------------------------------------------------------------------------
Shareholders' equity 3.22 16.02 22.45 21.42 19.31
- ----------------------------------------------------------------------------------------------
Weighted average shares outstanding
(in thousands) 11,673 11,628 11,663 11,596 7,873
==============================================================================================
BALANCE SHEET
Current assets $147,863 $192,443 $182,837 $258,787 $273,842
- ----------------------------------------------------------------------------------------------
Property, plant and equipment, net 550,428 550,350 560,725 379,178 148,829
- ----------------------------------------------------------------------------------------------
Total assets 737,088 829,081 805,749 754,743 682,330
- ----------------------------------------------------------------------------------------------
Current liabilities 52,576 100,300 115,940 108,330 81,391
- ----------------------------------------------------------------------------------------------
Long-term debt (including current
maturities) 233,463 424,743 310,085 276,831 265,055
- ----------------------------------------------------------------------------------------------
Liabilities subject to compromise 296,074
==============================================================================================
Shareholders' equity 37,638 186,343 260,701 248,111 223,278
==============================================================================================
CASH FLOWS
Net cash provided by (used for)
operating activities $ 11,687 $(60,712) $ 46,034 $ 59,541 $ 47,422
- ----------------------------------------------------------------------------------------------
Net cash used for investing
activities (11,291) (28,599) (85,562) (83,547) (334,124)
- ----------------------------------------------------------------------------------------------
Net cash provided by financing
activities 12,019 62,541 19,709 410 312,897
- ----------------------------------------------------------------------------------------------
Net increase (decrease) in cash 12,415 (26,770) (19,819) (23,596) 26,195
==============================================================================================
ADDITIONAL INFORMATION
Depreciation $ 37,920 $ 39,410 $ 16,591 $ 13,613 $ 15,514
- ----------------------------------------------------------------------------------------------
Capital expenditures 37,808 45,929 119,122 244,374 56,339
- ----------------------------------------------------------------------------------------------
Working capital 95,287 92,143 66,897 150,457 192,451
==============================================================================================
</TABLE>
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
On September 28, 1998, the Company filed voluntary petitions for protection
and reorganization under Chapter 11 of the Bankruptcy Code in the Bankruptcy
Court. This discussion and analysis of results of operations should be read in
conjunction with the financial data in the table included below and in
conjunction with the consolidated financial statements and notes thereto. See
Item 1. Business-Chapter 11 Bankruptcy Filings.
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 hot-rolled sheet and strip steel. The Steel Fabricating Segment
includes the operations of Acme Packaging, Alpha Tube and, prior to its sale,
Universal Tool, which use flat-rolled steel in their respective fabricating
processes.
During 1998, Acme Steel continued to experience a substantial reduction in
the average selling price per ton due to competitive pressures, principally
imports of foreign steel in the second half of 1998, and a continued reduction
of orders, including orders from its traditional higher margin value-added niche
customers in the markets for mid- to high-carbon, alloy and HSLA products.
The reduction of orders from its traditional higher margin value-added
niche customers was due to production start-up issues at the New Facility and
the late delivery and slower than expected ramp-up of the slitting capabilities
at NACME that occurred in 1997. During 1998 the Company substantially improved
its ability to produce and finish products for its higher margin value-added
niche customers but was not able to increase shipments to traditional levels due
to intense competition from new entrants coupled with lower demand in certain
segments of the niche markets.
Due to the oversupply in the domestic steel market in the second half of
1998, Acme Steel's New Facility operated at an average of 76.4 percent of
capacity for the year. By operating at less than full capacity and continuing to
experience a slower than expected improvement in material yield, the New
Facility continued to incur cost inefficiencies.
As a result, Acme Steel incurred significant losses in 1998 due to, among
other factors, the rapid deterioration in steel demand and selling prices in the
second half of 1998, production cost inefficiencies resulting from low levels of
production, and an adverse mix of products.
The Steel Fabricating Segment recorded strong operating results. However,
the operating income of this segment was unable to offset the significant
operating losses of Acme Steel.
Such losses resulted in reduced liquidity, breach of certain financial
covenants in the Company's loan agreements and a projected inability to service
ongoing debt obligations. All these factors contributed to the Company's
decision to seek protection under Chapter 11 of the Bankruptcy Code.
15
<PAGE> 16
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 29,
1998 1997 1996
------------ ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C>
Sales:
Steel Making Segment.................................... $ 310.1 $299.6 $ 335.3
Steel Fabricating Segment............................... 239.8 286.7 277.2
Intersegment sales...................................... (90.0) (98.3) (114.3)
------- ------ -------
Sales................................................ $ 459.9 $488.0 $ 498.2
======= ====== =======
Operating income (loss):
Steel Making Segment.................................... $ (62.1) $(61.9) $ (14.9)
Steel Fabricating Segment............................... 22.6 26.8 19.9
------- ------ -------
Operating income (loss).............................. (39.5) (35.1) 5.0
Non-operating income (expense):
Interest expense -- net................................. (38.0) (41.1) (0.5)
Reorganization charges under Chapter 11 Bankruptcy...... (6.7)
Other -- net............................................ 12.2 (0.4) 0.6
------- ------ -------
Income (loss) before income taxes.................... (72.0) (76.6) 5.1
Income tax (benefit) provision.......................... 55.7 (29.1) 2.4
------- ------ -------
Income (loss) before extraordinary loss and cumulative
effect of a change in accounting principle........... (127.7) (47.5) 2.7
Extraordinary loss, net of tax.......................... (23.4)
Change in accounting principle, net of tax.............. (6.3)
------- ------ -------
Net income (loss).................................... $(127.7) $(77.2) $ 2.7
======= ====== =======
</TABLE>
Fiscal 1998 as compared to fiscal 1997
The Company. For the fiscal year ended December 27, 1998 the Company's
consolidated net sales decreased 5.7 percent to $459.9 million from $488.0
million in 1997. The decline was primarily due to the absence of Universal Tool
which was sold in the first quarter of 1998. In 1998, the Company incurred a net
loss of $127.7 million, or $10.94 per diluted share, which included an income
tax provision of $55.7 million relating to a full valuation reserve recorded
against net income tax benefits previously recognized. The 1998 net loss
compares unfavorably by $50.5 million with a 1997 net loss of $77.2 million, or
$6.64 per share. The 1997 net loss included a $29.1 million income tax benefit,
a $23.4 million (net of tax) extraordinary loss from a restructuring of debt,
and a $6.3 million (net of tax) charge due to a change in accounting principle.
The operating loss in 1998 was $39.5 million compared to the 1997 operating
loss of $35.1 million. The operating loss in 1997 included Universal Tool
operating income of $3.9 million.
The results for 1998 reflect operations prior to Chapter 11 Bankruptcy for
the period December 29, 1997 through September 28, 1998 and operations under
Chapter 11 Bankruptcy for the remainder of the year. Certain expenses, primarily
interest expense on unsecured debt, have been reduced since the Bankruptcy
filings.
Steel Making. Steel sales of $310.1 million in 1998 were up more than 3.5
percent over 1997 sales of $299.6 million. The increase is attributable to a
21.5 percent increase in shipment volume. Offsetting that higher level of
shipments was a 9.4 percent per ton decrease in average selling price related to
lower prices and a weaker sales mix. The lower average selling price was caused
by the competition from lower priced imported steel entering the market in the
second half of 1998 coupled with lower demand for Acme Steel's product.
The New Facility operated at 76.4 percent of capacity in 1998, the second
full year of operation, compared to 59.0 percent in 1997. During early periods
of 1998, the mill operated at near 90.0 percent levels with the last half of
1998 utilization falling to 63.0 percent due to the lower demand for Acme
Steel's products.
16
<PAGE> 17
The 1998 loss from operations was $62.1 million compared to a loss in 1997
of $61.9 million.
Steel Fabricating. Sales of $239.8 million in 1998 were down $46.9 million
or 16.4 percent from the $286.7 million in 1997. The absence of Universal Tool,
which was sold in the first quarter of 1998, accounted for $32.9 million of the
change. Acme Packaging sales were down 8.0 percent due to sales volume declines
and lower average selling prices. Alpha Tube sales were slightly below the 1997
level with lower shipment volumes.
In 1998 operating income of $22.6 million was down $4.2 million from $26.8
million in 1997 which approximated the change in operating income generated by
Universal Tool. Lower raw material and operating costs nearly offset the sales
declines in Acme Packaging. The richer sales mix and lower material costs more
than offset the volume and price declines in the tube and pipe market as income
from operations at Alpha Tube were up over $1.0 million from the prior year.
Net Interest Expense. Net interest expense of $38.0 million in 1998 was
$3.1 million lower than net interest expense of $41.1 million in 1997. Interest
expense relating to unsecured debt was not accrued during the fourth quarter of
1998 due to the Chapter 11 Bankruptcy filings.
Reorganization Charges under Chapter 11 Bankruptcy. The $6.7 million of
reorganization charges consists of costs related to unwinding certain hedging
transactions along with administrative professional and legal fees associated
with the Chapter 11 Bankruptcy filings.
Income Taxes. The Company recorded an income tax provision of $55.7
million for the year ended December 27, 1998 as compared to an income tax
benefit of $29.1 million in 1997, excluding the 1997 tax effect associated with
an extraordinary loss and the cumulative effect of a change in accounting
principle. As a result of the losses incurred to date and its Chapter 11
Bankruptcy filings, the Company recorded a full valuation reserve against its
deferred net income tax asset balance.
Fiscal 1997 as compared to fiscal 1996
The Company. The Company's 1997 consolidated net sales of $488.0 million
decreased 2 percent from $498.2 million in 1996. An unfavorable product mix and
a decrease in non flat-rolled product shipments as compared to 1996 were
partially offset by increased sales volumes in the Steel Fabricating Segment.
The Company incurred a net loss of $77.2 million in 1997, or $6.64 per diluted
share. The 1997 net loss compares with net income in 1996 of $2.7 million, or
$0.23 per diluted share. The 1997 net loss includes two net of tax adjustments
amounting to $29.7 million for an extraordinary loss associated with a bank
refinancing and a change in accounting principle.
The 1997 operating loss was $35.1 million compared to operating income of
$5.0 million in 1996. Included in 1997 operating results was the continued
startup of the New Facility and the idling of an ingot-based steel making
facility in the Steel Making Segment. That segment generated $47.0 million
higher operating losses in 1997 compared to 1996 performance.
Steel Making. In 1997, net sales were $299.6 million, a 10.6 percent
decrease as compared to net sales of $335.3 million in 1996. Decreases in the
affiliated shipments, an unfavorable product mix, lower sales of non flat-rolled
products and overall lower selling prices accounted for the decrease from the
prior year.
1997 included nonrecurring expenses related to the phase out (completed in
June 1997) of the redundant ingot operations and the product cost inefficiencies
resulting from operating the New Facility at less than optimal production levels
in the New Facility's first full year of production. Production for 1997 on the
New Facility was 615.2 thousand tons compared to 33.4 thousand tons in 1996.
A loss from operations of $61.9 million was recorded in 1997, an increased
loss of $47.0 million over the 1996 operating loss of $14.9 million. The
increased loss was the result of (i) the phase out of the ingot-based operations
and phase in of the New Facility; (ii) lower revenues and margins associated
with a weaker sales mix; (iii) lower shipping levels to affiliates; (iv) reduced
shipments and higher inventory levels associated with the startup of NACME; and
(v) higher depreciation expense related to the New Facility, a $22.9 million
increase over 1996.
17
<PAGE> 18
Steel Fabricating. Sales of $286.7 million were recorded in 1997 as
compared to sales of $277.2 million for 1996, a 3.4 percent increase over 1996.
The increase is a result of volume gains with slightly higher prices.
Operating income of $26.8 million in 1997 increased by $6.8 million over
the $20.0 million in 1996. This 34.5 percent improvement in 1997 was the result
of increased sales and lower raw material costs.
Net Interest Expense. In 1997 net interest expense was $41.1 million,
which was $40.6 million higher than net interest expense of $0.5 million in
1996. The increase in net interest expense relates to decreased interest income
as a result of reduced cash and investment balances from payments for the
construction of the New Facility and to support operating losses in 1997. During
1997, all interest costs were being charged against earnings versus 1996 when a
significant part of these costs were being capitalized. The Company ceased
capitalization of interest costs related to the New Facility midway through the
fourth quarter of 1996.
Income Taxes. A $29.1 million income tax benefit was recorded in 1997,
which excludes the tax effect of expenses related to an extraordinary loss and
the cumulative effect of a change in accounting principle. In 1996 there was an
income tax provision of $2.4 million. The benefit in 1997 relates to the timing
differences and 1997 pre-tax net loss.
LIQUIDITY AND CAPITAL RESOURCES
The most significant factors affecting the Company's liquidity and capital
resources are the adverse market conditions for its products, the higher than
planned cost structure, and operating under the protection of the Bankruptcy
Code. Additional information and discussions concerning the circumstances which
led to the filings under Chapter 11 Bankruptcy are contained in Item 1.
Business-Chapter 11 Bankruptcy Filings, and elsewhere in this Item 7. Cash and
cash equivalents balances at the end of 1998 and 1997 were $18.9 million and
$6.5 million, respectively. The higher cash level at the end of 1998 is a direct
result of the suspension of debt service requirements and the deferral of
substantial liabilities outstanding as of September 28, 1998.
The Company's current liquidity requirements include funding losses,
working capital needs, Chapter 11 Bankruptcy administrative expenses, payments
to adequately protect holders of certain secured claims against the Company
(such payments to be made pursuant to the approval of the Bankruptcy Court) and
capital investments. On December 18, 1998, with the approval of the Bankruptcy
Court, Acme Metals, Acme Steel, Acme Packaging, Alabama Metallurgical and Acme
Steel International entered into a twenty-one month DIP Financing Agreement with
BankAmerica Credit, which provides for a maximum of $100 million of revolving
credit borrowings subject to certain borrowing base limitations based on
inventory and accounts receivable less reserves. Alpha Tube, whose inventory and
accounts receivable are excluded from the borrowing base computation, has
guaranteed the obligations incurred under the DIP Financing Agreement. Alpha
Tube's guaranty obligation with respect to DIP Financing Agreement is
effectively subordinate to pre-petition trade obligations and Chapter 11
Bankruptcy administrative expenses of Alpha Tube. The Company intends to finance
its current operating and investment activities with cash from operations and to
the extent necessary, by borrowing against its DIP Financing Agreement.
Consistent with this strategy, the Company will borrow and repay amounts from
time to time as conditions warrant. At February 28, 1999, the Company had no
outstanding borrowings and approximately $60.0 million was available for
borrowing under its DIP Financing Agreement.
During the period of operation under the protection of Chapter 11
Bankruptcy, the Company is precluded from paying most pre-petition liabilities.
Although payments to creditors have been deferred and collection of pre-petition
liabilities by creditors has been stayed, the Bankruptcy Court authorized
payments of wages and benefits and payment of certain other amounts. The
pre-petition obligations which are not being paid among others, include debt
service, pre-petition trade payables, pre-petition pension related liabilities,
and amounts related to executory contracts. The post-petition trade payables at
the end of 1998 amounted to $14.7 million. Trade payables at year end 1997 were
$64.7 million.
Capital expenditures are expected to be approximately $20.0 million in 1999
and will be principally for necessary replacement projects. The Company expects
to make approximately $21.0 million of adequate
18
<PAGE> 19
protection payments during 1999 pursuant to stipulations with various secured
parties that have been or will soon be presented to the Bankruptcy Court for its
approval.
Although the Company currently believes the anticipated cash provided by
future operations and borrowings under the DIP Financing Agreement will provide
sufficient liquidity for the Company to meet its adequate protection payments
and fund ongoing operations in Chapter 11 Bankruptcy, including required capital
expenditures, there can be no assurance these or other possible sources will be
adequate.
OUTLOOK
The Company currently intends to present a plan of reorganization to the
Bankruptcy Court to reorganize the Company's businesses and to restructure the
Company's balance sheet. Although management expects to file a plan of
reorganization, there can be no assurance at this time that a plan of
reorganization will be proposed by the Company, approved or confirmed by the
Bankruptcy Court, or that such plan will be consummated. The Bankruptcy Court
has granted the Company's request to extend its exclusive right to file a plan
of reorganization through April 26, 1999. While the Company intends to request
further extensions of the exclusivity period, there can be no assurance that the
Bankruptcy Court will grant such further extensions. If the exclusivity period
were to expire or be terminated, other interested parties, such as creditors of
the Company, would have the right to propose alternative plans of
reorganization. Although the Board of Directors strives to maximize shareholder
value, a plan of reorganization could, among other things, result in material
dilution of the equity of existing shareholders of the Company as a result of
the issuance of equity to creditors or new investors.
Steel Making Segment
Acme Steel continues to incur operating losses and does not expect to
achieve the sales, production and performance levels necessary to achieve a
profit for the year 1999. Competition from foreign steel continues to adversely
affect Acme Steel sales. The Company also believes that a structural change in
the pricing of niche products has occurred which has and will compress the
premium received by Acme Steel for niche steel products. The cost position of
Acme Steel, even though improved since the New Facility began operations,
remains uncompetitive. The Company is working to optimize the operating
performance of its facilities, reduce cash manufacturing costs and optimize its
mix of higher margin productions.
The Company is engaged in negotiations with the United Steelworkers of
America. The current contract expires on August 31, 1999.
Steel Fabricating Segment
Steel Fabricating Segment earnings in 1999 are expected to remain
relatively steady. Acme Packaging will increase the utilization of the plastic
strapping lines in this first full year of operations. Alpha Tube has completed
the relocation and consolidation of its tube mills which is expected to improve
material handling capability and lower operating costs.
Year 2000 Compliance
The Company is in the process of implementing and executing a Year 2000
assessment with the objective of having all of its significant business systems
functioning properly with respect to the Year 2000 issue before January 1, 2000.
As part of this assessment, significant service providers, vendors, suppliers,
and customers believed to be critical to business operations after January 1,
2000, have been identified and steps are being taken to reasonably ascertain
their stage of Year 2000 readiness through questionnaires, interviews, on-site
visits, and other available means. At this time, the Company believes its
significant service providers, vendors, suppliers, and customers' readiness
issues will not materially affect the Company.
The Company has implemented a Year 2000 compliant business system at Acme
Metals and its Acme Steel and Acme Packaging subsidiaries. Alpha Tube is in the
process of implementing a Year 2000 compliant
19
<PAGE> 20
system (at a cost of approximately $2.0 million) and expects implementation to
be materially completed before January 1, 2000.
The Company's current desktop computers are not Year 2000 compliant. The
Company will have to obtain compliant machinery at a cost of approximately $1.0
million before year end.
Other areas of operations, such as the New Facility, have been tested and
are, at this time, considered to be materially Year 2000 compliant. The Company,
however, continues testing its manufacturing and other systems to ensure
continued compliance.
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Numerous factors could
cause the expected cost and completion dates to differ from the above estimates.
Contingency plans, if needed, will be in place prior to January 1, 2000.
However, the Company currently believes that the Year 2000 issues will not have
a material adverse impact on the Company's financial conditions, results of
operations, or cash flow.
FORWARD LOOKING STATEMENT
Actual events might materially differ from those projected in the above
forward looking statements. If there are substantial unexpected production
interruptions or other operating difficulties, or if the New Facility fails to
achieve production utilization and material yield goals, 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 import levels, 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.
Furthermore, the Chapter 11 Bankruptcy filings introduce numerous
uncertainties which may affect the Company's businesses, results of operations
and prospects.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued FAS No. 133, "Accounting for Derivatives and
Similar Financial Instruments and Hedging Activities," which requires all
derivatives to be measured at fair value and recognized in the statement of
financial position as assets or liabilities. In addition, all hedges fall into
one of two categories -- fair value and cash flow hedges -- which determines
whether changes in fair value of the hedge are recorded in net income or in
other comprehensive income. The statement is effective for fiscal years
beginning after June 15, 1999. Adoption of the Statement is not expected to have
a material impact on the Company's financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange. Until its Chapter 11 Bankruptcy filings, the Company
used foreign exchange forward contracts on the Canadian Dollar to hedge its
exposure from changes in foreign exchange rates for the purchase of raw
materials from its Wabush joint venture. Upon filing for Chapter 11 Bankruptcy
protection,
20
<PAGE> 21
the Company unwound its forward positions. A 10 percent unfavorable movement in
the Canadian Dollar would affect raw material costs by approximately $2.5
million.
Interest Rates. Until its Chapter 11 Bankruptcy filings, the Company used
interest rate swaps to fix its exposure to interest rate movements. Upon filing
for Chapter 11 Bankruptcy protection, the Company unwound its interest rate
swaps.
The Company's net exposure interest rate risk consists of floating rate
debt instruments linked to LIBOR. See footnote entitled "Debt Refinancing and
Long-Term Debt" contained in the accompanying financial statements and footnotes
for a description of debt instruments. The Company, while under Chapter 11
Bankruptcy, is prohibited from making interest payments but, with the approval
of the Bankruptcy Court, has or expects to enter into adequate protection
agreements with secured lenders. See footnote entitled "Debt Refinancing and
Long-Term Debt" contained in the accompanying financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to Item 8 is submitted in a separate section of this Annual
Report on Form 10-K. See the audited Consolidated Financial Statements and
Financial Statement Schedule of Acme Metals Incorporated attached hereto and
listed in the index on page 29 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information with respect to directors of the Company is incorporated herein
by reference to the proxy statement for the Annual Meeting of Shareholders of
the Company to be held on April 22, 1999 under the caption Election of
Directors.
The following table sets forth, as of March 8, 1999 with respect to each
executive officer of the Company, his name and all positions held during the
last five years. Executive officers are elected annually by the Board of
Directors of the Company to serve for a term of office of one year and until
their successors are elected.
As a result of a Reorganization effected May 25, 1992, Acme Steel Company
became and continues to be a subsidiary of the Company. Prior to the
Reorganization some of the executive officers listed below were executive
officers of Acme Steel Company and, at the time of the Reorganization, were
elected to similar positions within the Company.
<TABLE>
<CAPTION>
NAME AND AGE POSITIONS DURING LAST 5 YEARS
------------ -----------------------------
<S> <C>
Brian W. H. Marsden (67).................. Non-employee Chairman of the Company since March 1,
1997; Chairman of the Company since April 15, 1996;
Chairman and Chief Executive Officer of the Company
January 1, 1993 to April 15, 1996; Chairman, President
and Chief Executive Officer of the Company May 1992 to
December 1992; President and Chief Executive Officer of
Acme Steel Company (integrated steel producer) June 1986
to May 1992.
</TABLE>
21
<PAGE> 22
<TABLE>
<CAPTION>
NAME AND AGE POSITIONS DURING LAST 5 YEARS
------------ -----------------------------
<S> <C>
Stephen D. Bennett (49)................... President and Chief Executive Officer of the Company
since April 15, 1996; President and Chief Operating
Officer of the Company January 1, 1993 to April 15,
1996; Group Vice President of the Company May 1992 to
December 1992; Group Vice President of Acme Steel
Company January 1992 to May 1992; Vice President --
Operations of Acme Steel Company June 1990 to December
1991; General Manager of Fairfield Works, USS Division
of USX Corporation (integrated steel producer) December
1987 to May 1990. Director of the Company since January
1, 1993.
Derrick T. Bay (51)....................... Controller and Chief Accounting Officer of the Company
since January 19, 1998; Vice President -- Finance of
Acme Steel Company January 1992 to January 18, 1998;
Director of Operational Accounting of Acme Steel Company
September 1989 to January 1992.
Robert W. Dyke (51)....................... Senior Vice President -- Fabricating of the Company
since February 1, 1998; Group Vice President of the
Company September 1, 1997 to January 31, 1998; President
of Acme Packaging Corporation (manufacturer of steel and
plastic strapping and strapping products) since 1992.
James W. Hoekwater (52)................... Treasurer of the Company since July 1, 1994; Corporate
Controller of ITT Rayonier (producer of pulp and wood
products) December 1989 to March 1994.
James N. Howell (57)...................... Senior Vice President -- Steel of the Company and
President of Acme Steel Company since February 1, 1998;
Executive Vice President of Acme Steel Company September
1, 1997 to January 31, 1998; Senior Vice President and
Chief Operating Officer of National Steel Company 1993
to 1994; Vice President of National Steel Company 1975
to 1993.
Gerald J. Shope (55)...................... Vice President -- Human Resources of the Company since
April 1, 1995; Vice President -- Human Resources of Acme
Steel Company January 1, 1992 to March 31, 1995;
Director -- Human Resources of Acme Steel Company June
1986 to December 1991.
Edward P. Weber, Jr. (61)................. Vice President, General Counsel and Secretary of the
Company since May 25, 1992; Vice President, General
Counsel and Secretary of Acme Steel Company June 1986 to
May 25, 1992.
Jerry F. Williams (59).................... Vice President, Finance and Administration and Chief
Financial Officer of the Company since May 25, 1992;
Vice President -- Finance and Administration and Chief
Financial Officer of Acme Steel Company May 1986 to May
25, 1992.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is incorporated herein by
reference to the proxy statement for the Annual Meeting of Shareholders of the
Company to be held on April 22, 1999 under the caption Executive Compensation.
22
<PAGE> 23
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to security ownership of certain beneficial owners and
management is incorporated herein by reference to the proxy statement for the
Annual Meeting of Shareholders of the Company to be held on April 22, 1999 under
the caption Security Ownership of Certain Beneficial Owners and Management.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and related transactions is
incorporated herein by reference to the proxy statement for the Annual Meeting
of Shareholders of the Company to be held on April 22, 1999 under the caption
Certain Relationships and Related Transactions.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements:
The response to this portion of Item 14 is submitted in a separate
section of this report. See the audited Consolidated Financial
Statements and Financial Statement Schedule of Acme Metals Incorporated
attached hereto and listed on the index on page 29 of this report.
(2) Financial Statement Schedule:
The response to this portion of Item 14 is submitted in a separate
section of this report. See the audited Consolidated Financial
Statements and Financial Statement Schedule of Acme Metals Incorporated
attached hereto and listed on the index on page 29 of this report.
(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S> <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.
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.
</TABLE>
23
<PAGE> 24
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S> <C>
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 12 1/2%
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.
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.
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S> <C>
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. Filed as Exhibit 4.19 to the Company's Registration
Statement on Form S-4, SEC file No. 33-52749, filed on May
15, 1998.
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 No. 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 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.
10.4 First Amendment to the Working Capital Facility effective as
of December 18, 1997. Filed as Exhibit 10.4 to the 1997 10-K
and incorporated by reference herein.
10.5 Second Amendment to the 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.
10.6 $175,000,000 Credit Agreement dated as of December 18, 1997
(the "$175,000,000 Credit Agreement") 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.
10.7 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
*10.8 Loan and Security Agreement dated as of December 18, 1998
among BankAmerica Business Credit, Inc. and AM South Bank,
as lenders, BankAmerica Business Credit, Inc., as Agent, and
Acme Metals Incorporated, Acme Steel Company, Acme Packaging
Corporation, Alabama Metallurgical Corporation and Acme
Steel Company International, Inc., as Borrowers.
*10.9 Guaranty dated as of December 18, 1998 by Alpha Tube
Corporation in favor of BankAmerica Business Credit, Inc.,
as Agent.
*10.10 Security Agreement dated as of December 18, 1998 between
Alpha Tube Corporation and BankAmerica Business Credit,
Inc., as Agent.
*10.11 Cash Flow Agreement dated as of December 18, 1998 between
Acme Metals Incorporated, Acme Steel Company, Acme Packaging
Corporation, Alabama Metallurgical Corporation, Acme Steel
Company International, Inc., as Borrowers, Alpha Tube
Corporation, and BankAmerica Business Credit, Inc., as
Agent.
10.12 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, SEC File
No. 33-54101, and incorporated by reference herein.
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S> <C>
10.13 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.
10.14 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.
10.15 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.
10.16 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.
10.17 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.
10.18 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.
10.19 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.
10.20 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.
10.21 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.
10.22 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.
10.23 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.
10.24 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.
10.25 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.
10.26 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.
10.27 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.
10.28 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.
10.29 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.
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S> <C>
10.30 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.
10.31 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.
10.32 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.
10.33 Amendment No. 1 to the Past Service Pension Plan.(1) Filed
as Exhibit 10.38 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 26, 1993, SEC File
No. 0-14727, and incorporated by reference herein.
10.34 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.
*10.35 Key Employee Retention Plan(1)
*21 Subsidiaries of the registrant
23 Consent of experts and counsel
*23.1 Consent of PricewaterhouseCoopers LLP
*27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K The following reports Form 8-K were filed in the
fourth quarter of 1998:
Form 8-K dated September 28, 1998 reported the filing by the Company
and its principal wholly-owned subsidiaries of voluntary petitions
for relief under Chapter 11 of the United States Bankruptcy Code in
the United States Bankruptcy Court for the District of Delaware.
Form 8-K dated December 18, 1998 reported that the Company and
BankAmerica Business Credit, Inc., had entered into a twenty-one
month $100 million secured working capital facility for
post-petition debtor-in-possession financing.
- -------------------------
* Filed herewith
(1) Filed pursuant to Item 14 of Form 10-K
27
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ACME METALS INCORPORATED
<TABLE>
<S> <C> <C>
/s/ BRIAN W. H. MARSDEN Chairman March 17, 1999
---------------------------------------------
Brian W. H. Marsden
/s/ STEPHEN D. BENNETT Director, President, and March 17, 1999
--------------------------------------------- Chief Executive Officer
Stephen D. Bennett
/s/ JERRY F. WILLIAMS Vice President-Finance and March 17, 1999
--------------------------------------------- Administration and Chief
Jerry F. Williams Financial Officer (Principal
Financial Officer)
/s/ DERRICK T. BAY Controller (Principal March 17, 1999
--------------------------------------------- Accounting Officer)
Derrick T. Bay
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ BUDDY W. DAVIS Director March 17, 1999
---------------------------------------------
Buddy W. Davis
/s/ ANDREW R. LAIDLAW Director March 17, 1999
---------------------------------------------
Andrew R. Laidlaw
/s/ JOHN T. LANE Director March 17, 1999
---------------------------------------------
John T. Lane
/s/ FRANK A. LEPAGE Director March 17, 1999
---------------------------------------------
Frank A. LePage
/s/ REYNOLD C. MACDONALD Director March 17, 1999
---------------------------------------------
Reynold C. MacDonald
/s/ ALLAN L. RAYFIELD Director March 17, 1999
---------------------------------------------
Allan L. Rayfield
/s/ WILLIAM P. SOVEY Director March 17, 1999
---------------------------------------------
William P. Sovey
/s/ L. FREDERICK SUTHERLAND Director March 17, 1999
---------------------------------------------
L. Frederick Sutherland
/s/ WILLIAM R. WILSON Director March 17, 1999
---------------------------------------------
William R. Wilson
</TABLE>
28
<PAGE> 29
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
FORM 10-K -- ITEM 8 AND ITEMS 14(A)(1) AND 14(A)(2)
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 8 and
Item 14(a)(1):
<TABLE>
<CAPTION>
PAGE IN THIS
FORM 10-K
------------
<S> <C>
Report of Independent Accountants........................... 30
Report of Management........................................ 31
Consolidated Statements of Operations for the fiscal years
ended December 27, 1998, December 28, 1997 and December
29, 1996.................................................. 32
Consolidated Balance Sheets at December 27, 1998 and
December 28, 1997......................................... 33
Consolidated Statements of Cash Flows for the fiscal years
ended December 27, 1998, December 28, 1997 and December
29, 1996.................................................. 34
Consolidated Statements of Changes in Shareholders' Equity
for the fiscal years ended December 27, 1998, December 28,
1997 December 29, 1996.................................... 35
Notes to Consolidated Financial Statements.................. 36
</TABLE>
The following Consolidated Financial Statement Schedule of Acme Metals
Incorporated is included in Item 14(a)(2):
<TABLE>
<S> <C>
Schedule II -- Valuation and Qualifying Accounts............ 62
</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.
29
<PAGE> 30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Acme Metals Incorporated
In our opinion, the 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 27, 1998
and December 28, 1997 and the results of their operations and their cash flows
for each of the three years in the period ended December 27, 1998, 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.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going-concern. As discussed in the
Note entitled "Bankruptcy Proceedings" to the consolidated financial statements,
the Company has incurred substantial losses from operations and experienced
related liquidity issues resulting in the filing for Chapter 11 Bankruptcy
protection on September 28, 1998 which raises substantial doubt about its
ability to continue as a going-concern. Management's plans in regard to these
matters are also described in the Note entitled "Bankruptcy Proceedings". The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
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/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------------------------------------
PricewaterhouseCoopers LLP
January 25, 1999
30
<PAGE> 31
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 PricewaterhouseCoopers 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>
31
<PAGE> 32
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
--------------------------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES............................................. $ 459,920 $ 488,030 $ 498,242
COSTS AND EXPENSES:
Cost of products sold............................... 425,339 445,256 431,957
Depreciation........................................ 36,514 38,623 15,820
----------- ----------- -----------
Gross profit (loss)................................... (1,933) 4,151 50,465
Selling and administrative.......................... 37,549 39,208 35,496
Training and Pre-Startup -- New Facility............ 9,933
----------- ----------- -----------
Operating income (loss)............................... (39,482) (35,057) 5,036
NON-OPERATING INCOME (EXPENSE):
Interest expense.................................... (39,161) (41,632) (6,193)
Interest income..................................... 1,179 508 5,620
Reorganization charges under Chapter 11
Bankruptcy....................................... (6,747)
Gain on sale of Universal Tool...................... 12,000
Other -- net........................................ 257 (461) 630
----------- ----------- -----------
Income (loss) before income taxes, extraordinary loss
and cumulative effect of a change in accounting
principle............................................ (71,954) (76,642) 5,093
Income tax provision (benefit)........................ 55,736 (29,124) 2,426
----------- ----------- -----------
(127,690) (47,518) 2,667
Extraordinary loss, net of tax........................ (23,411)
Cumulative effect of a change in accounting principle,
net of tax.......................................... (6,276)
----------- ----------- -----------
Net income (loss)..................................... $ (127,690) $ (77,205) $ 2,667
=========== =========== ===========
INCOME (LOSS) PER SHARE:
BASIC:
Income (loss) before extraordinary loss and
cumulative effect of a change in accounting
principle.......................................... $ (10.94) $ (4.09) $ 0.23
Extraordinary loss, net of tax...................... (2.01)
Cumulative effect of a change in accounting
principle, net of tax.............................. (0.54)
----------- ----------- -----------
Net income (loss)................................... $ (10.94) $ (6.64) $ 0.23
----------- ----------- -----------
Weighted average shares outstanding................... 11,673,443 11,628,497 11,597,675
=========== =========== ===========
DILUTED:
Income (loss) before extraordinary loss and
cumulative effect of a change in accounting
principle.......................................... $ (10.94) $ (4.09) $ 0.23
Extraordinary loss, net of tax...................... (2.01)
Cumulative effect of a change in accounting
principle, net of tax.............................. (0.54)
----------- ----------- -----------
Net income (loss)..................................... $ (10.94) $ (6.64) $ 0.23
----------- ----------- -----------
Weighted average shares outstanding................... 11,673,443 11,628,497 11,662,643
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
32
<PAGE> 33
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 18,869 $ 6,454
Accounts receivable trade, less allowances of $1,278 and
$1,296, respectively................................... 48,597 59,646
Inventories............................................... 75,664 81,630
Income tax receivable..................................... 24,936
Deferred income taxes..................................... 14,082
Other current assets...................................... 4,733 5,695
--------- ---------
Total current assets................................. 147,863 192,443
--------- ---------
INVESTMENTS AND OTHER ASSETS:
Investments in associated companies....................... 19,157 17,395
Other assets.............................................. 19,640 20,357
Deferred income taxes..................................... 48,536
--------- ---------
Total investments and other assets................... 38,797 86,288
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment............................. 902,000 864,192
Accumulated depreciation.................................. (351,572) (313,842)
--------- ---------
Total property, plant and equipment.................. 550,428 550,350
--------- ---------
$ 737,088 $ 829,081
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 14,690 $ 64,691
Accrued expenses.......................................... 37,576 34,109
Income taxes payable...................................... 310
Current installments of long-term debt.................... 1,500
--------- ---------
Total current liabilities............................ 52,576 100,300
--------- ---------
LONG-TERM LIABILITIES:
Long-term debt............................................ 233,463 423,243
Other long-term liabilities............................... 17,791
Post-retirement benefits other than pensions.............. 97,974 95,814
Retirement benefit plans.................................. 19,363 5,590
--------- ---------
Total long-term liabilities.......................... 350,800 542,438
--------- ---------
LIABILITIES SUBJECT TO COMPROMISE:.......................... 296,074
--------- ---------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par value, 2,000,000 share authorized,
no shares issued
Common stock, $1 par value, 20,000,000 shares authorized,
11,674,634 and 11,627,380 shares issued and outstanding,
respectively............................................. 11,675 11,627
Additional paid-in capital................................ 165,951 165,608
Retained earnings (deficit)............................... (106,263) 21,427
Accumulated other comprehensive income (loss)............. (33,725) (12,319)
--------- ---------
Total shareholders' equity........................... 37,638 186,343
--------- ---------
$ 737,088 $ 829,081
========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
33
<PAGE> 34
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
--------------------------------------------
DECEMBER 27, DECEMBER 28, DECEMBER 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $(127,690) $ (77,205) $ 2,667
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Gain on sale of Universal Tool.......................... (12,000)
Depreciation............................................ 37,920 39,410 16,591
Accretion of senior discount notes...................... 150 8,803 13,324
Loss on early extinguishment of debt.................... 37,759
Cumulative effect of a change in accounting principle,
net of tax............................................ 6,276
Deferred income taxes................................... 55,126 (19,506) (2,073)
Pension contribution.................................... (3,691)
CHANGE IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable................................... 14,785 (10,880) 2,842
Income tax receivable................................... 25,246 (24,936)
Inventories............................................. 7,270 (14,050) (16,952)
Accounts payable........................................ (47,744) (8,478) 18,345
Other current accounts.................................. (797) (7,051) (3,429)
Liabilities subject to compromise....................... 91,918
Other, net.............................................. (32,497) 12,837 14,719
--------- --------- ---------
Net cash (used for) provided by operating activities.... 11,687 (60,712) 46,034
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments.................................. (331) (26,929)
Sales and/or maturities of investments.................... 12,148 149,173
Investments in associated companies....................... (1,750)
Capital expenditures...................................... (11,291) (16,852) (27,909)
Capital expenditures -- New Facility...................... (23,564) (178,147)
--------- --------- ---------
Net cash used for investing activities.................... (11,291) (28,599) (85,562)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of Universal Tool...................... 18,000
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)
Debt redemption costs..................................... (29,947)
Payment of Term Loan...................................... (50,000)
Borrowings under Working Capital Facility................. 129,750 269,000
Repayments of Working Capital Facility.................... (134,750) (264,000)
Payment of Senior Secured Credit Agreement................ (750)
Payment of Note Payable................................... (500)
Issuance of Environmental Improvement Bonds, net of
discount................................................ 19,873
Debt issuance costs and fees.............................. (11,630) (550)
Payment of capital lease obligations...................... (122)
Exercise of stock options and other....................... 391 282 386
--------- --------- ---------
Net cash provided by financing activities................. 12,019 62,541 19,709
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents...... 12,415 (26,770) (19,819)
Cash and cash equivalents at beginning of period.......... 6,454 33,224 53,043
--------- --------- ---------
Cash and cash equivalents at end of period................ $ 18,869 $ 6,454 $ 33,224
========= ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
34
<PAGE> 35
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Additional Retained Comprehensive Total Comprehensive
Stock, Paid-in Earnings Income Shareholders' Income
$1 Par Value Capital (Deficit) (Loss) Equity (Loss)
------------ ---------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE -- DECEMBER 31,
1995.................. $ 11,580 $ 164,987 $ 95,965 $ (24,421) $ 248,111 $
--------- --------- --------- --------- ---------
Net income............ 2,667 2,667 2,667
Stock plans --
issuance of
shares............. 31 325 356
Tax benefit arising
from stock plan
transactions....... 30 30
Minimum pension
liability.......... 9,537 9,537 9,537
--------- --------- --------- --------- --------- ---------
BALANCE -- DECEMBER 29,
1996.................. 11,611 165,342 98,632 (14,884) 260,701 $ 12,204
--------- --------- --------- --------- --------- =========
Net loss.............. (77,205) (77,205) (77,205)
Stock plans --
issuance of
shares............. 16 266 282
Minimum pension
liability.......... 2,565 2,565 2,565
--------- --------- --------- --------- --------- ---------
BALANCE -- DECEMBER 28,
1997.................. 11,627 165,608 21,427 (12,319) 186,343 $ (74,640)
--------- --------- --------- --------- --------- =========
Net loss.............. (127,690) (127,690) (127,690)
Stock plans --
issuance of
shares............. 48 343 391
Minimum pension
liability.......... (21,406) (21,406) (21,406)
--------- --------- --------- --------- --------- ---------
BALANCE -- DECEMBER 27,
1998.................. $ 11,675 $ 165,951 $(106,263) $ (33,725) $ 37,638 $(149,096)
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
35
<PAGE> 36
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BANKRUPTCY PROCEEDINGS:
On September 28, 1998, Acme Metals and its subsidiary companies (Acme
Steel, Acme Packaging, Alpha Tube, Alabama Metallurgical and Acme Steel
International) voluntarily filed separate petitions for protection under Chapter
11 of Title 11 of the Code in the Bankruptcy Court. These Chapter 11 cases are
being jointly administered by the Bankruptcy Court, with the Company managing
its business as debtors-in-possession subject to Bankruptcy Court approval for
certain of the actions that the Company takes. The Company's financial
difficulties and the reasons for the Chapter 11 Bankruptcy filings were
principally attributable to a combination of a delay in achieving the full
benefits of the New Facility at Acme Steel, a dramatic market weakness and the
related adverse impact on operating and financial results, primarily in the
Company's steel manufacturing business. These factors had a material negative
impact on the liquidity and cash flow of the Company. These financial
difficulties resulted in reduced liquidity, breach of certain financial
covenants in the Company's loan agreements and a projected inability to service
ongoing debt obligations.
Although the Chapter 11 filings raise substantial doubt about the Company's
ability to continue as a going-concern, the accompanying consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles applicable to a company on a going-concern basis which contemplates
the continuity of operations, realization of assets and the liquidation of
liabilities in the ordinary course of business. As a result of the Chapter 11
Bankruptcy filings, such realization of assets and liquidation of liabilities
are subject to significant uncertainties. Specifically, the financial statements
do not present the amount which will ultimately be paid to settle liabilities
and contingencies which may be allowed in the Chapter 11 Bankruptcy
reorganization cases. Also the consolidated financial statements do not reflect
adjustments to assets which may result if the Company is forced to liquidate all
or portions of its operations. A plan of reorganization could materially change
the amounts currently disclosed in the consolidated financial statements. The
Company currently intends to present a plan of reorganization to the Bankruptcy
Court to reorganize the Company's businesses and to restructure its balance
sheet.
The consolidated financial statements include adjustments and
reclassifications to reflect liabilities as "Liabilities Subject to Compromise"
under the Chapter 11 Bankruptcy proceedings. Certain pre-petition liabilities
have been approved for payment by the Bankruptcy Court, such as employee wages
and benefits, and specified pre-petition obligations to vendors, customers and
taxing authorities, and are included in the appropriate liability caption on the
balance sheet.
Currently, it is not possible to predict the length of time the Company
will operate under the protection of Chapter 11, the outcome of the Chapter 11
proceedings in general, or the effect of the proceedings on the business of the
Company or on the interest of the various creditors and security holders.
DIP FINANCING:
On December 18, 1998, with approval of the Bankruptcy Court, Acme Metals,
Acme Steel, Acme Packaging, Alabama Metallurgical and Acme Steel International
entered into a DIP Financing Agreement with BankAmerica Credit, which provides
for a maximum of $100 million of borrowings subject to borrowing base
limitations based on inventory and accounts receivable less reserves. Alpha
Tube, whose inventory and accounts receivable are excluded from the borrowing
base computation, has guaranteed the obligations incurred under the DIP
Financing Agreement. Alpha Tube's guaranty obligation with respect to the DIP
Financing Agreement is effectively subordinate to pre-petition trade obligations
and Chapter 11 Bankruptcy administrative expenses of Alpha Tube. At December 27,
1998, no borrowings were outstanding and $55.8 million was available based on
borrowing base limitations. The DIP Financing Agreement is intended to support
the Company's operations during Chapter 11 Bankruptcy proceedings and will
expire on the earlier of September 29, 2000 or upon Bankruptcy Court approval of
the Company's plan of reorganization.
36
<PAGE> 37
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The DIP Financing Agreement is collateralized by substantially all of the
assets of the Company. Borrowings bear interest at either the prime rate or
LIBOR, plus, depending on the levels of borrowings, margins of 50 basis points
to 100 basis points over prime or 175 basis points to 300 basis points over
LIBOR, respectively.
Covenants of the DIP Financing Agreement generally restrict creating
additional liens on assets, creating any claims superior to those of the DIP
Financing Agreement, paying pre-petition obligations, merging or consolidating
with any person, selling assets, incurring new debt or paying certain
reclamation claims. The Company will be required to maintain a financial
covenant of minimum operating cash flow, defined in the DIP Financing Agreement
as EBITDA less capital expenditures, reorganization costs, certain cash interest
payments (including adequate protection payments to secured lenders), and
reclamation claims. In addition, Alpha Tube must maintain a ratio of eligible
inventory and receivables as defined in the DIP Financing Agreement equal to
110% of the sum of Alpha Tube's pre- and post-petition debt plus accrued and
unpaid Chapter 11 administrative expenses.
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 Metals").
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 years
1998, 1997 and 1996 each contained 52 weeks.
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.
Cash and Cash Equivalents
Cash and cash equivalents include cash balances and highly liquid
investments with an original maturity of three months or less.
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
37
<PAGE> 38
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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-Startup -- 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-Startup -- 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, if permitted under
Chapter 11 Bankruptcy.
The Company has unfunded post-retirement health care and life insurance
plans. Provisions for post-retirement costs are determined pursuant to the
provisions of Financial Accounting Standard ("FAS") No. 106, "Employers'
Accounting for Post-retirement 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. All net deferred taxes were fully reserved in 1998.
Other Comprehensive Income
During 1998, the Company adopted FAS No. 130, "Reporting Comprehensive
Income," which requires the Company to disclose, in financial statement format,
all non-owner changes in equity. As of December 27, 1998, all such changes in
equity resulted from changes in the minimum pension liability.
Disclosures about Segments of an Enterprise and Related Information
During 1998, the Company adopted FAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which establishes 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.
The Company's operations are divided into two segments, the Steel Making
Segment and the Steel Fabricating Segment based on management decisions as to
resource allocation. The Steel Making Segment includes all of the facilities
used in the manufacturing and finishing of flat-rolled steel. The Steel
Fabricating Segment includes the conversion and fabrication of the flat-rolled
steel. Operating decisions are based on operating results of each segment.
38
<PAGE> 39
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Reorganization Charges under Chapter 11 Bankruptcy
During 1998, the Company recorded $6.7 million of reorganization charges as
a result of its Chapter 11 Bankruptcy filings. The charges primarily represent
professional fees related to the reorganization ($3.8 million) and the balance
represents one-time charges for the unwinding of an interest rate swap and a
Canadian Dollar hedge. Actual cash payments for expenses related to the Chapter
11 Bankruptcy proceedings amounted to $3.5 million.
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.
INCOME PER SHARE:
Basic income (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 income (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 significant dilutive effect on the income/loss
per share amounts.
INVENTORIES:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Raw materials.............................................. $18,343 $13,510
Semi-finished and finished products........................ 50,607 62,126
Supplies................................................... 6,714 5,994
------- -------
$75,664 $81,630
======= =======
</TABLE>
On December 27, 1998 and December 28, 1997, inventories valued on the LIFO
method were less than the current costs of such inventories by $54.9 million and
$52.7 million, respectively.
39
<PAGE> 40
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Land................................................... $ 4,140 $ 4,140
Buildings.............................................. 121,506 104,532
Equipment.............................................. 770,455 745,773
Construction in progress............................... 5,899 9,747
--------- ---------
902,000 864,192
Less accumulated depreciation.......................... (351,572) (313,842)
--------- ---------
$ 550,428 $ 550,350
========= =========
</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.
In March 1998, the Company completed the sale of Universal Tool, through a
stock sale, generating proceeds to the Company of $18.0 million and a gain of
$12.0 million, ($7.2 million net of tax).
INVESTMENTS IN ASSOCIATED COMPANIES:
The Company has an indirect 15.1 percent participation of an iron ore
mining venture. The Company's carrying value of the venture is $14.3 million at
both December 27, 1998, and December 28, 1997. In 1998, 1997 and 1996, the
Company made iron ore purchases of $28.2 million, $27.3 million and $23.8
million, respectively, from the venture. At December 27, 1998, $7.0 million was
owed to the venture for iron ore purchases ($6.3 million at December 28, 1997).
The Company has invested $3.5 million, representing a 40 percent interest
in NACME which performs processing of certain of the Company's steel products.
The investment is accounted for by the equity method of accounting and has a
carrying value of $4.9 million at December 27, 1998 ($3.1 million at December
28, 1997). The Company's share of NACME's equity income in 1998 was $1.8 million
and $0.3 million equity loss in 1997.
RETIREMENT BENEFIT PLANS AND POST-RETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company has various retirement benefit plans covering substantially all
salaried and hourly employees. 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. All salaried
employees with one full calendar quarter of service are eligible to participate
in the Company's defined contribution plan ("SERSP"). In 1998, the Company
expensed $1.8 million under the SERSP and the ESOP plans, while the Company
expensed $2.5 million and $3.7 million in 1997 and 1996, respectively. The
Company permanently discontinued the ESOP contributions as of June 1, 1998 and
merged the ESOP into the SERSP on March 1, 1999. See the table below for the
Company's contribution rate for the respective dates, for each plan.
<TABLE>
<CAPTION>
SERSP ESOP
----- ----
<S> <C> <C>
December 29, 1997 -- January 31, 1998....................... -- --
February 1, 1998 -- May 31, 1998............................ 7 1/2% 3 1/2%
June 1, 1998 -- December 27, 1998........................... 5 1/2% --
</TABLE>
40
<PAGE> 41
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CHANGE IN BENEFIT OBLIGATION
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Projected benefit obligation at beginning of
year.......................................... $222,373 $208,789 $116,394 $114,031
Service cost.................................... 2,162 2,329 1,876 2,040
Interest cost................................... 15,924 15,764 7,713 7,800
Participant contributions....................... 1,128 1,033
Actuarial loss (gain)........................... 30,424 16,333 12,538 (1,324)
Benefits paid................................... (20,507) (20,842) (8,355)
Plan amendments................................. 77 (3,685) (7,186)
-------- -------- -------- --------
Projected benefit obligation at the end of
year.......................................... $250,453 $222,373 $127,609 $116,394
======== ======== ======== ========
</TABLE>
CHANGE IN PLAN ASSETS
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Fair value of plan assets at beginning of
year.......................................... $216,244 $194,850 $ $
Actual return on plan assets.................... 34,620 38,544
Employer contributions.......................... 3 3,692 7,226 6,153
Employee contribution........................... 1,128 1,033
Benefits paid................................... (20,507) (20,842) (8,354) (7,186)
-------- -------- -------- --------
Fair value of plan assets at end of year........ $230,360 $216,244 $ $
======== ======== ======== ========
</TABLE>
RECONCILIATION OF PREPAID (ACCRUED) BENEFIT COST
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Funded status................................. $(20,094) $ (6,128) $(127,609) $(116,394)
Unrecognized transition cost.................. (3,849) (5,776)
Unrecognized prior service cost............... 3,301 3,658 (5,105) (1,855)
Unrecognized actuarial loss................... 40,969 28,469 27,909 15,370
-------- -------- --------- ---------
Prepaid (accrued) benefit cost................ $ 20,327 $ 20,223 $(104,805) $(102,879)
======== ======== ========= =========
</TABLE>
41
<PAGE> 42
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AMOUNTS RECOGNIZED IN THE CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------------- ------------------------
1998 1997 1998 1997
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Prepaid benefit cost.......................... $ $ 90 $ $
Accrued cost.................................. (16,569) (3,206) (104,805) (102,879)
Intangible asset.............................. 3,307 3,601
Minimum pension liability..................... 33,589 19,738
-------- -------- --------- ---------
Net amount recognized......................... $ 20,327 $ 20,223 $(104,805) $(102,879)
======== ======== ========= =========
</TABLE>
WEIGHTED-AVERAGE ASSUMPTIONS AT END OF YEAR
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Discount rate................................... 6.75% 7.25% 6.75% 7.25%
Expected return on plan assets.................. 10.00% 9.75%
Expected rate of compensation increase.......... 5.00% 5.00%
</TABLE>
For measurement purposes, a 6 percent annual rate of increase in the per
capita cost of covered health care benefit was assumed for 2000. The rate was
assumed to decrease to 5 percent for 2001 and remain at that level thereafter.
The 2000 annual rate increase of 6 percent reflects the mid-1998 decrease in
retirees' health care benefits.
COMPONENTS OF NET PERIODIC BENEFIT COST
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
---------------------- ------------------
1998 1997 1998 1997
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service cost........................................ $ 2,162 $ 2,329 $1,875 $2,040
Interest cost....................................... 15,924 15,764 7,713 7,800
Expected return on plan assets...................... (18,891) (17,184)
Amortization of transition obligation (asset)....... (1,927) (1,927)
Amortization of prior year service cost............. 436 429 (436) (192)
Recognized net actuarial loss (gain)................ 2,195 2,256
-------- -------- ------ ------
Net periodic pension cost........................... $ (101) $ 1,667 $9,152 $9,648
======== ======== ====== ======
</TABLE>
The projected obligation, accumulated benefit obligation, and fair value of
plan assets for the pension plans with accumulated benefit obligations in excess
of plan assets were $250 million, $247 million and $230 million, respectively,
as of December 27, 1998, and $222 million, $219 million, and $216 million,
respectively, as of December 28, 1997.
As a result of the Chapter 11 Bankruptcy filings, the Company cannot make
pension contributions relating to the pre-petition period without Bankruptcy
Court approval. Failure to make minimum funding contributions is a Reportable
Event under ERISA; additionally the PBGC may create a pre-petition lien in favor
of the Plan against the Company, and the IRS may assess a pre-petition excise
tax equal to 10 percent of the accumulated fund deficiency. The Company has
minimum funding requirements of approximately
42
<PAGE> 43
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$15.0 million during 1999 of which approximately $13.5 million is pre-petition
which the Company is currently prohibited from paying. The first payment is due
April 15, 1999.
The health care plan is contributory. The life insurance plan is
noncontributory. On September 1, 1998, the Company increased deductibles,
co-insurance, and participant contributions to its post-retirement health care
plan for salaried retirees. Assumed health care cost trend rates have a
significant effect on the amounts reported for the health care plan. A
one-percentage point change in assumed health care cost trend would have the
following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE 1-PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Increase (decrease) in total of 1998 service cost and
interest cost............................................. $ 1,722 $ (1,367)
Increase (decrease) in APBO as of December 27, 1998......... 18,019 (14,667)
</TABLE>
ACCRUED EXPENSES:
Accrued expenses at December 27, 1998 (not included within "Liabilities
Subject to Compromise") and December 28, 1997 include the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Accrued salaries and wages................................. $10,837 $12,075
Accrued post-retirement benefits other than pensions....... 8,232 7,067
Accrued taxes other than income taxes...................... 1,924 4,837
Accrued worker's compensation.............................. 359 2,446
Accrued interest........................................... 10,155 2,466
Accrued reorganization charges............................. 3,177
Other current liabilities.................................. 2,892 5,218
------- -------
$37,576 $34,109
======= =======
</TABLE>
INCOME TAXES:
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Taxes on income:
Current provision (benefit):
Federal...................................... $ $ (9,215) $ 4,018
State........................................ 610 (403) 481
------- -------- -------
610 (9,618) 4,499
Deferred (benefit) provision, net of valuation
allowance.................................... 55,126 (19,506) (2,073)
------- -------- -------
$55,736 $(29,124) $ 2,426
======= ======== =======
</TABLE>
As a result of the losses incurred to date and its Chapter 11 Bankruptcy
filings on September 28, 1998, the Company recorded a valuation allowance
against its entire net deferred tax asset and is continuing to record valuation
reserves to offset any future income tax benefit until it is more likely than
not that the Company will be able to realize such benefits.
43
<PAGE> 44
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The effective income tax rates for the fiscal years 1998, 1997 and 1996,
before the valuation allowance recorded in 1998, are reconciled to the federal
statutory tax rate in the following table:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal statutory income tax rate...................... 35.0% 35.0% 35.0%
Change in tax rate due to:
State income taxes -- net of federal tax effect...... 3.3 3.6 9.6
Municipal bond interest.............................. (1.0)
Disallowed meals and entertainment................... (0.1) (0.1) 1.9
Penalties............................................ (0.1) (0.1)
Employee life insurance premiums..................... (0.1) (0.1) 2.0
Gain on sale of Universal Tool....................... 0.5
Other -- net......................................... (0.5) (0.3) 0.1
---- ---- ----
38.0% 38.0% 47.6%
==== ==== ====
</TABLE>
Significant components of the Company's deferred tax liabilities and assets
at December 27, 1998 and December 28, 1997 are summarized below:
<TABLE>
<CAPTION>
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
DEFERRED TAX LIABILITIES
Property, plant and equipment............................ $ 82,371 $ 53,897
-------- --------
DEFERRED TAX ASSETS
Post-retirement benefits other than pensions............. 40,789 39,988
Net operating loss carryforward.......................... 112,460 55,414
Other.................................................... 18,048 21,113
-------- --------
Gross deferred tax assets.............................. 171,297 116,515
-------- --------
Net deferred tax asset.............................. 88,926 62,618
Valuation allowance................................. (88,926)
-------- --------
Net deferred tax asset.............................. $ $ 62,618
======== ========
</TABLE>
44
<PAGE> 45
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DEBT REFINANCING AND LONG-TERM DEBT:
The Company's long-term debt not recorded as "Liabilities Subject to
Compromise" at December 27, 1998 and December 28, 1997 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
10.875 percent Senior Unsecured Notes, net of discount
(A).................................................... $ $198,506
Senior Secured Credit Agreement (B)...................... 174,250 175,000
12.5 percent Senior Secured Notes (C).................... 17,623 17,623
13.5 percent Senior Secured Discount Notes (D)........... 669 669
Note Payable (E)......................................... 6,000
Environmental Improvement Bonds 7.95 percent (F)......... 11,345 11,345
Environmental Improvement Bonds 7.90 percent (F)......... 8,585 8,585
Working Capital Facility (G)............................. 5,000
Other long-term debt (H)................................. 6,291 2,015
Walbridge Facility (I)................................... 14,700
-------- --------
$233,463 $424,743
======== ========
</TABLE>
As a result of the Chapter 11 Bankruptcy filings on September 28, 1998, all
of the long-term debt was in default as of the filing date. Without a Bankruptcy
Court order, pre-petition debt cannot be paid or restructured until the
conclusion of the Chapter 11 proceedings.
The Company has secured a DIP Financing Agreement with BankAmerica Credit
allowing the Company to meet its operating needs while in Chapter 11 Bankruptcy
proceedings. For further information, see footnote entitled "DIP Financing."
Interest expense has been accrued after September 28, 1998 only on secured
debt. Scheduled principal payments on debt including capital lease obligations,
which have not been made for the post-petition period, totaled $0.5 million. The
Company cannot make any payments absent a Bankruptcy Court order until the
conclusion of Chapter 11 proceedings. The Company has received or expects to
receive Bankruptcy Court orders allowing adequate protection payments on secured
debt.
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 guaranteed on a senior, unsecured basis by the Company's subsidiary,
Acme Steel (see footnote entitled "Guarantor's Financial Statements"). Because
these notes are unsecured, they are no longer classified as a long-term debt as
of the Chapter 11 Bankruptcy filing date and are recorded as a "Liability
Subject to Compromise."
B. Senior Secured Credit Agreement -- In December 1997, the Company entered
into a $175 million Senior Secured Credit Agreement, due 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 Secured Credit Agreement was 8.5
percent at December 27, 1998 and 8.7 percent at December 28, 1997. Each of the
Company's subsidiaries is a guarantor under the Senior Secured Credit Agreement.
The Company did not make a principal payment of $0.3 million due in the fourth
quarter of 1998. In 1998, the Company entered into an extendible (at the option
of the bank) interest rate swap agreement through September 1999 effectively
fixing the base rate at 5.8 percent. The interest rate swap was unwound in
September 1998 at a cost of
45
<PAGE> 46
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$2.6 million (recorded in reorganization charges under Chapter 11 Bankruptcy in
the year ending December 27, 1998). The Senior Secured Credit Agreement ranks
pari passu and shares collateral with the 12.5 percent Senior Secured Notes and
the 13.5 percent Senior Secured Discount Notes.
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 Senior Secured Notes rank pari passu and share collateral and guarantees
with the Senior Secured Credit Agreement and the 13.5 percent Senior Secured
Discount Notes.
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 Senior Secured Discount Notes rank pari passu
and share collateral and guarantees with the Senior Secured Credit Agreement and
the 12.5 percent Senior Secured Notes.
E. Note Payable -- The Note Payable 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 of Acme
Steel from The Interlake Corporation. The Note Payable bears an interest rate of
6.5 percent to 6.75 percent. At December 27, 1998, the Company is not delinquent
on any scheduled principal payments. Due to the unsecured nature of this Note,
the Note has been reclassified to a "Liabilities Subject to Compromise."
F. 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 secured by a lien on certain personal property and fixtures of Acme
Steel.
G. Working Capital Facility -- The Company's Working Capital Facility
agreement entered into on December 17, 1997 was replaced by the Company's DIP
Financing Agreement. See footnote entitled "DIP Financing Agreement."
H. Other Long-Term Debt -- The other long-term debt is primarily for Acme
Packaging's plastic strapping line lease and a computer related equipment lease.
The plastic line lease yields an interest rate of 8.0 percent while the computer
related equipment lease yields 7.5 percent. At December 27, 1998, the Company
was delinquent in its principal payments by $0.1 million for each the plastic
lease and computer related equipment lease. These leases are secured by the
assets attached to the lease.
I. Walbridge Facility -- As a result of its Chapter 11 Bankruptcy filings
on September 28, 1998, the Company recorded an obligation for future payments
under a financial agreement for property used by Alpha Tube. This debt was
formerly treated as an operating lease. The debt is secured by the related
assets and bears an interest rate of LIBOR plus 2 percent (7.7 percent at
December 27, 1998).
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.
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
46
<PAGE> 47
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
LIABILITIES SUBJECT TO COMPROMISE:
The following have been included as "Liabilities Subject to Compromise" as
of December 27, 1998:
<TABLE>
<CAPTION>
1998
----
(IN THOUSANDS)
<S> <C>
Accounts payable............................................ $ 56,532
Accrued interest............................................ 6,094
Accrued utilities........................................... 2,413
Bond payable and other related liability.................... 2,503
Other accrued liabilities................................... 2,340
Taxes other than income..................................... 5,567
Note payable................................................ 5,500
10.875 percent Senior Unsecured Notes, net of discount...... 198,656
Other long-term liabilities................................. 16,469
--------
Total....................................................... $296,074
========
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Cash and Cash Equivalents
The carrying value of cash and cash equivalents approximates fair value.
Long-term Debt
Since filing Chapter 11 Bankruptcy, the fair value of the long-term debt
cannot be determined.
STOCK COMPENSATION PLANS:
The Company has a 1986 and a 1994 Stock Incentive Program which have
reserved 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 and 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, 479,500 stock
options and 120,800 stock awards have been granted under this Program. Through
December 27, 1998, a total of 67,200 stock options and stock awards have been
canceled and returned to the 1994 Stock Incentive Program for future issuance,
leaving a total of 16,900 shares available for issuance. In addition, the
Company has a Non-Employee
47
<PAGE> 48
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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,
1998, 42,000 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 the
majority of the options granted prior to April 1997 occurred in two equal
installments on the first and second anniversaries of the date of grant; vesting
of the majority of the 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 or upon the employee leaving
service with the Company for reasons other than death, disability, or
retirement.
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 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 1998, 1997 and 1996 consistent with the provisions of FAS No.
123, the Company's net income (loss) and net income (loss) per share would not
have been materially effected.
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 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:
Under the Bankruptcy Code, actions by creditors to collect pre-petition
indebtedness are stayed and other pre-petition contractual obligations may not
be enforced against the Company. As a debtor-in-possession, the Company has the
right, subject to Bankruptcy Court approval and certain other limitations, to
assume or reject executory contracts and unexpired leases. In this context,
"rejection" means that the Company is relieved from its obligations to perform
further under the contract or lease but is subject to a claim for damages for
the breach thereof. Any damages resulting from rejection are treated as
pre-petition general unsecured claims in the reorganization. The parties
affected by these rejections may file claims with the Bankruptcy Court in
accordance with bankruptcy procedures. Pre-petition claims which were contingent
or
48
<PAGE> 49
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
unliquidated at the commencement of the Chapter 11 proceedings are generally
allowable against the Company in amounts fixed by the Bankruptcy Court. To date,
the Company has neither assumed nor rejected any contractual obligations and in
general will do so upon entering its plan of reorganization.
The Company's indirect 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. The Company reimburses the
joint venture for these costs through its purchase of ore. The Company's
interest in NACME requires Acme Steel to comply with certain tonnage and cost
plus return on investment guarantees.
In connection with the Company's Spin-Off from Interlake on May 29, 1986,
the Company entered into certain indemnification agreements with Interlake.
Pursuant to the terms of the indemnification agreements, Interlake undertook to
defend, indemnify and hold the Company harmless from any claims, as defined,
relating to the Company's operations or predecessor operations occurring before
May 29, 1986, the Spin-Off. The indemnification agreements cover certain
environmental matters including certain litigation and Superfund Sites in
Duluth, Minnesota, and Gary, Indiana, for which either Interlake or the
Company'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, the Company entered
into a Tax Indemnification Agreement ("TIA") which generally provides for
Interlake to indemnify the Company for certain tax matters. While certain issues
have been negotiated and settled between the Company, Interlake and the Internal
Revenue Service, certain significant issues for the tax years beginning in 1982
through 1986 remain unresolved.
On March 17, 1994, 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 1982-1984 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 the
Company 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, was unable to fulfill its obligations under the TIA, the Company could
have increased future obligations.
Merger of The Interlake Corporation and GKN North America Manufacturing
Inc. On December 5, 1998, GKN North America Manufacturing Inc. (the "Purchaser")
and Interlake entered into an agreement and plan of merger ("Merger Agreement").
The Purchaser is a wholly owned subsidiary of GKN North America Incorporated
which, in turn, is an indirect subsidiary of KGKNplc of the United Kingdom
("GKNplc").
Pursuant to the Merger Agreement, on December 10, 1998, the Purchaser
commenced a tender offer for all of the outstanding common stock and outstanding
Series A Convertible Exchangeable Preferred Stock ("Preferred Stock") of
Interlake. The Purchaser acquired by cash purchase in excess of 95 percent of
the outstanding common stock and Preferred Stock by February 10, 1999.
Subsequently, on February 10, 1999,
49
<PAGE> 50
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
pursuant to the Merger Agreement, Purchaser was merged into Interlake.
Interlake, a subsidiary of Purchaser, is the surviving corporation.
The Company believes the above described acquisition of Interlake by GKNplc
through its direct and indirect subsidiary will not alter the obligations and
rights of the Company and Interlake as described herein.
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.
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 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.
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.
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.
REPORTING 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, HSLA and specialty
grades. Principal markets include agricultural, automotive, industrial
equipment, industrial fasteners, welded steel tubing, and tool manufacturing
industries, processors and steel service centers.
The Steel Fabricating segment processes and distributes steel strapping,
strapping tools and industrial packaging (Acme Packaging), and welded steel
tubing (Alpha Tube). The Steel Fabricating segment sells to a number of markets.
50
<PAGE> 51
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
All sales between segments are recorded at annual contract price which
approximates current market price.
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.
The Company is divided into Steel Making and Steel Fabricating operating
segments based on the value-added production in making the product. Operating
segment information based on operating income is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
STEEL MAKING:
Sales to unaffiliated customers......................... $220,801 $ 202,331 $ 222,642
Intersegment sales...................................... 89,292 97,233 112,700
-------- --------- ---------
Net Sales............................................ $310,093 $ 299,564 $ 335,342
======== ========= =========
Depreciation............................................ $ 33,599 $ 35,511 $ 12,572
Loss from operations.................................... (62,126) (61,897) (14,921)
Total assets............................................ 577,016 710,395 660,672
Capital expenditures.................................... 11,598 34,861 195,297
STEEL FABRICATING:
Sales to unaffiliated customers......................... $239,119 $ 285,699 $ 275,600
Intersegment sales...................................... 716 984 1,553
-------- --------- ---------
Net Sales............................................ $239,835 $ 286,683 $ 277,153
======== ========= =========
Depreciation............................................ $ 4,321 $ 3,883 $ 3,696
Income from operations.................................. 22,644 26,840 19,957
Total assets............................................ 130,176 95,100 107,652
Capital expenditures.................................... 25,132 11,053 3,778
</TABLE>
51
<PAGE> 52
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Reconciliation of the operating segment information to the Company's
consolidated financial statements is as follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------- --------- ---------
<S> <C> <C> <C>
Net Sales:
Steel Making............................................ $310,093 $ 299,564 $ 335,342
Steel Fabricating....................................... 239,835 286,683 277,153
Intersegment sales...................................... (90,008) (98,217) (114,253)
-------- --------- ---------
$459,920 $ 488,030 $ 498,242
======== ========= =========
Operating income (loss):
Steel Making............................................ $(62,126) $ (61,897) $ (14,921)
Steel Fabricating....................................... 22,644 26,840 19,957
-------- --------- ---------
(39,482) (35,057) 5,036
Less:
Interest expense..................................... (39,161) (41,632) (6,193)
Reorganization charges under Chapter 11 Bankruptcy... (6,747)
Other................................................ (461)
Add:
Interest income...................................... 1,179 508 5,620
Gain from sale of assets............................. 12,000
Other................................................ 257 630
-------- --------- ---------
Income (loss) before income taxes, extraordinary loss
and cumulative effect of a change in accounting
principle.......................................... $(71,954) $ (76,642) $ 5,093
======== ========= =========
Total Assets:
Steel Making............................................ $577,016 $ 710,395 $ 660,672
Steel Fabricating....................................... 130,176 95,100 107,652
Corporate............................................... 29,896 23,586 37,425
-------- --------- ---------
$737,088 $ 829,081 $ 805,749
======== ========= =========
</TABLE>
52
<PAGE> 53
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
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"). In June 1998, the Company registered 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 27, 1998
-----------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.............................. $ $ 310,093 $239,835 $(90,008) $ 459,920
Cost and expenses...................... 353,247 198,614 (90,008) 461,853
--------- --------- -------- -------- ---------
Gross profit (loss).................... (43,154) 41,221 (1,933)
Selling and administrative expense..... 18,972 18,577 37,549
--------- --------- -------- -------- ---------
Operating income (loss)................ (62,126) 22,644 (39,482)
Reorganization charges under Chapter 11
Bankruptcy........................... (3,357) (2,384) (1,006) (6,747)
Net interest income (expense) and
other................................ 6,393 (41,490) 9,372 (25,725)
--------- --------- -------- -------- ---------
Income (loss) before income taxes...... 3,036 (106,000) 31,010 (71,954)
Income tax provision................... 4,930 32,664 18,142 55,736
--------- --------- -------- -------- ---------
Net income (loss) before equity
adjustment........................... (1,894) (138,664) 12,868 (127,690)
Equity loss in subsidiaries............ (125,796) 125,796
--------- --------- -------- -------- ---------
Net income (loss)...................... $(127,690) $(138,664) $ 12,868 $125,796 $(127,690)
========= ========= ======== ======== =========
</TABLE>
53
<PAGE> 54
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
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 sales....................... $ $ 299,564 $ 286,683 $ (98,217) $ 488,030
Cost and expenses............... 342,684 239,412 (98,217) 483,879
--------- --------- --------- --------- ---------
Gross profit (loss)............. (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......................... 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>
54
<PAGE> 55
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
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-Startup -- New
Facility.......................... 9,933 9,933
Selling and administrative
expense........................... 15,004 20,492 35,496
------- -------- -------- --------- --------
Operating income (loss)............. (14,921) 19,957 5,036
Interest income (expense)........... 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>
55
<PAGE> 56
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 27, 1998
----------------------------------------------------------------
SUBSIDIARY
SUBSIDIARY NON TOTAL
PARENT GUARANTOR GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......... $ 18,457 $ $ 412 $ $ 18,869
Accounts receivable, net.......... (7) 18,690 29,914 48,597
Inventories....................... 49,076 28,352 (1,764) 75,664
Other current assets.............. 949 3,474 310 4,733
Due to (from) affiliates.......... 469,351 (17,317) 20,084 (472,118)
-------- -------- -------- --------- --------
Total current assets...... 488,750 53,923 79,072 (473,882) 147,863
-------- -------- -------- --------- --------
INVESTMENTS AND OTHER ASSETS:
Investments in associated
companies...................... (9,079) 19,157 9,079 19,157
Other assets...................... 14,125 3,792 1,723 19,640
-------- -------- -------- --------- --------
Total investments and
other assets............ 5,046 22,949 1,723 9,079 38,797
-------- -------- -------- --------- --------
PROPERTY, PLANT AND EQUIPMENT --
Net:.............................. 15,603 500,144 34,681 550,428
-------- -------- -------- --------- --------
$509,399 $577,016 $115,476 $(464,803) $737,088
======== ======== ======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued
expenses....................... $ 13,928 $ 30,274 $ 8,064 $ $ 52,266
Income taxes payable.............. 310 310
-------- -------- -------- --------- --------
Total current
liabilities............. 14,238 30,274 8,064 52,576
-------- -------- -------- --------- --------
LONG-TERM LIABILITIES:
Long-term debt.................... 233,463 233,463
Post-retirement benefits other
than pensions.................. 1,593 82,007 14,374 97,974
Retirement benefit plans.......... 2,423 17,454 (514) 19,363
-------- -------- -------- --------- --------
Total long-term
liabilities............. 237,479 99,461 13,860 350,800
-------- -------- -------- --------- --------
LIABILITIES SUBJECT TO COMPROMISE... 220,044 501,065 48,847 (473,882) 296,074
-------- -------- -------- --------- --------
SHAREHOLDERS' EQUITY (DEFICIT):..... 37,638 (53,784) 44,705 9,079 37,638
-------- -------- -------- --------- --------
$509,399 $577,016 $115,476 $(464,803) $737,088
======== ======== ======== ========= ========
</TABLE>
56
<PAGE> 57
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF 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........... $ 5,452 $ $ 1,002 $ $ 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
Deferred income taxes............... 14,082 14,082
Other current assets................ 614 1,145 3,936 5,695
Due to (from) affiliates............ 455,089 (431,633) (24,473) 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
Post-retirement 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 (DEFICIT):....... 186,343 28,054 32,828 (60,882) 186,343
-------- --------- -------- -------- --------
$624,437 $ 205,205 $ 60,321 $(60,882) $829,081
======== ========= ======== ======== ========
</TABLE>
57
<PAGE> 58
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 27, 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............... $ (7,274) $ 23,419 $ (4,458) $ $ 11,687
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............... (142) (17,919) 6,770 (11,291)
--------- --------- --------- --------- ---------
Net cash provided by (used for)
investing activities............ (142) (17,919) 6,770 (11,291)
--------- --------- --------- --------- ---------
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.......... (750) (500) (1,250)
Proceeds from assets held for
sale............................ 18,000 18,000
Payment of capital lease........... (122) (122)
Payment of intercompany dividend... 20,780 (20,780)
Exercise of stock options and
other........................... 391 391
--------- --------- --------- --------- ---------
Net cash (used for) provided by
financing activities............ 20,421 (5,500) (2,902) 12,019
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
cash equivalents................ 13,005 (590) 12,415
Cash and cash equivalents at
beginning of period............. 5,452 1,002 6,454
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of
period.......................... $ 18,457 $ $ 412 $ $ 18,869
========= ========= ========= ========= =========
</TABLE>
58
<PAGE> 59
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
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................ $ (2,297) $ (76,469) $ 18,054 $ $ (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 Discount 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 issue 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 provided by financing
activities....................... (36,628) 107,831 (8,662) 62,541
--------- --------- -------- --------- ---------
Net increase (decrease) in cash and
cash equivalents................. (27,124) 354 (26,770)
Cash and cash equivalents at
beginning of period.............. 32,576 648 33,224
--------- --------- -------- --------- ---------
Cash and cash equivalents at end of
period........................... $ 5,452 $ $ 1,002 $ $ 6,454
========= ========= ======== ========= =========
</TABLE>
59
<PAGE> 60
ACME METALS INCORPORATED
(DEBTOR-IN-POSSESSION)
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 (USED FOR) PROVIDED BY
OPERATING ACTIVITIES................ $ 27,172 $ 7,056 $11,806 $ $ 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 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)
Payment of intercompany dividend.... 49,000 (33,000) (16,000)
Exercise of stock options and
other............................ 386 386
--------- --------- ------- --------- ---------
Net cash (used for) provided by
financing activities............. (168,921) 196,925 (8,295) 19,709
--------- --------- ------- --------- ---------
Net increase (decrease) in cash and
cash equivalents................. (19,552) (267) (19,819)
Cash and cash equivalents at
beginning of period.............. 52,128 915 53,043
--------- --------- ------- --------- ---------
Cash and cash equivalents at end of
period........................... $ 32,576 $ $ 648 $ $ 33,224
========= ========= ======= ========= =========
</TABLE>
60
<PAGE> 61
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>
1998
Net Sales................................. $144,996 $124,339 $103,460 $ 87,125
Operating loss............................ (4,034)(1) (2,979) (13,819) (18,650)
Net loss.................................. (1,675)(1) (8,643) (92,656)(2) (24,716)
Net loss per share........................ $ (0.14) $ (0.74) $ (7.94) $ (2.12)
- ----------------------------------------------------------------------------------------------
1997
Net Sales................................. $125,331 $123,471 $115,250 $123,978
Operating loss............................ (14,509) (9,296) (9,147) (2,105)
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
Operating income(loss).................... 4,300 3,927 3,878 (7,069)
Net income (loss)......................... 3,436 3,190 2,859 (6,818)
Net income (loss) per share............... $ 0.30 $ 0.27 $ 0.25 $ (0.59)
- ----------------------------------------------------------------------------------------------
</TABLE>
(1) In March 1998, the Company completed the sale of Universal Tool, through a
stock sale, generating proceeds to the Company of approximately $18.0
million and a gain of approximately $12.0 million ($7.2 million net of tax).
(2) As a result of the losses incurred to date, and its Chapter 11 Bankruptcy
filings, the Company recorded a valuation allowance of $76.7 million against
its entire net deferred tax asset.
61
<PAGE> 62
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
---------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
1998
Allowance for doubtful accounts
receivable....................... $1,296 $ 237 $ 31(a) $(286)(b) $ 1,278
FAS 109 valuation allowance......... $ $81,308 $7,618(c) $ $88,926
====== ======= ====== ===== =======
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
====== ======= ====== ===== =======
</TABLE>
- -------------------------
(a) Consists principally of recoveries of accounts charged off in prior years.
(b) Uncollectible accounts charged off.
(c) Consists of charge to Accumulated other comprehensive loss.
62
<PAGE> 63
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-8 (Nos. 33-17235,
33-19437, and 33-30841) and in the Registration Statements on Form S-8 (Nos.
33-38747 and 33-59627) of Acme Metals Incorporated of our report dated January
25, 1999, appearing on page 30 of this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
March 17, 1999
<PAGE> 1
EXHIBIT 10.8
EXECUTION COPY
LOAN AND SECURITY AGREEMENT
Dated as of December 18, 1998
Among
THE FINANCIAL INSTITUTIONS NAMED HEREIN
as the Lenders
--------------
and
BANKAMERICA BUSINESS CREDIT, INC.
as the Agent
------------
and
ACME METALS INCORPORATED,
ACME STEEL COMPANY,
ACME PACKAGING CORPORATION,
ALABAMA METALLURGICAL CORPORATION,
ACME STEEL COMPANY INTERNATIONAL, INC.,
Each as a Debtor-in-Possession Under Chapter 11 of the Bankruptcy Code
as the Borrowers
----------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
ARTICLE 1 INTERPRETATION OF THIS AGREEMENT.......................................2
1.1 Definitions............................................................2
1.2 Accounting Terms......................................................30
1.3 Interpretive Provisions...............................................31
ARTICLE 2 LOANS AND LETTERS OF CREDIT...........................................32
2.1 Total Facility........................................................32
2.2 Revolving Loans.......................................................32
2.3 Letters of Credit.....................................................39
ARTICLE 3 INTEREST AND FEES.....................................................46
3.1 Interest..............................................................46
3.2 Conversion and Continuation Elections.................................47
3.3 Maximum Interest Rate.................................................48
3.4 Unused Line Fee.......................................................48
3.5 Letter of Credit Fee..................................................49
3.6 Collateral Management Fee.............................................49
ARTICLE 4 PAYMENTS AND PREPAYMENTS..............................................49
4.1 Revolving Loans.......................................................49
4.2 Termination of Facility...............................................50
4.3 Payments by the Borrowers.............................................50
4.4 Payments as Revolving Loans...........................................51
4.5 Apportionment and Application and Reversal of Payments................51
4.6 Indemnity for Returned Payments.......................................51
4.7 Agent's and Lenders' Books and Records; Monthly Statements............52
4.8 Reductions of Maximum Revolver Amount.................................52
ARTICLE 5 TAXES, YIELD PROTECTION AND ILLEGALITY................................52
5.1 Taxes.................................................................52
5.2 Illegality............................................................54
5.3 Increased Costs and Reduction of Return...............................54
5.4 Funding Losses........................................................55
5.5 Inability to Determine Rates..........................................56
5.6 Certificates of Lenders...............................................56
5.7 Survival..............................................................56
5.8 Replacement of Lenders................................................56
ARTICLE 6 COLLATERAL; ADMINISTRATIVE SUPERPRIORITY..............................57
6.1 Grant of Security Interest............................................57
6.2 Perfection and Protection of Security Interest........................59
6.3 Location of Inventory.................................................62
6.4 Title to, Liens on, and Sale and Use of Collateral....................62
6.5 Appraisals............................................................63
6.6 Access and Examination; Confidentiality...............................63
6.7 Collateral Reporting..................................................64
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
6.8 Accounts.....................................................................................65
6.9 Collection of Accounts; Payments.............................................................66
6.10 Inventory; Perpetual Inventory...............................................................68
6.11 Equipment....................................................................................69
6.12 [Intentionally Omitted]......................................................................69
6.13 Documents, Instruments, and Chattel Paper....................................................69
6.14 Right to Cure................................................................................70
6.15 Power of Attorney............................................................................70
6.16 The Agent's and Lenders' Rights, Duties and Liabilities......................................70
ARTICLE 7 BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES............................................71
7.1 Books and Records............................................................................71
7.2 Financial and Other Information..............................................................71
7.3 Notices to the Lenders.......................................................................75
ARTICLE 8 GENERAL WARRANTIES AND REPRESENTATIONS.......................................................78
8.1 Authorization, Validity, and Enforceability of this Agreement and the Loan
Documents....................................................................................78
8.2 Validity and Priority of Security Interest...................................................78
8.3 Organization and Qualification...............................................................79
8.4 Corporate Name; Prior Transactions...........................................................79
8.5 Subsidiaries and Affiliates..................................................................79
8.6 Financial Statements and Projections.........................................................79
8.7 Capitalization...............................................................................80
8.8 Reorganization Matters.......................................................................80
8.9 Debt.........................................................................................80
8.10 [Intentionally Omitted.].....................................................................80
8.11 Title to Property............................................................................80
8.12 Real Estate; Leases..........................................................................81
8.13 Proprietary Rights...........................................................................81
8.14 Trade Names..................................................................................81
8.15 Litigation...................................................................................81
8.16 Restrictive Agreements.......................................................................81
8.17 Labor Disputes...............................................................................82
8.18 Environmental Laws...........................................................................82
8.19 No Violation of Law..........................................................................83
8.20 No Default...................................................................................83
8.21 ERISA Compliance.............................................................................83
8.22 Taxes........................................................................................84
8.23 Regulated Entities...........................................................................84
8.24 Use of Proceeds; Margin Regulations..........................................................84
8.25 [Intentionally Omitted.].....................................................................84
8.26 No Material Adverse Change...................................................................84
8.27 Full Disclosure..............................................................................85
8.28 Material Agreements..........................................................................85
8.29 Bank Accounts................................................................................85
8.30 Alpha Tube Trade Debt........................................................................85
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
ARTICLE 9 AFFIRMATIVE AND NEGATIVE COVENANTS...........................................................86
9.1 Taxes and Other Obligations..................................................................86
9.2 Corporate Existence and Good Standing........................................................86
9.3 Compliance with Law and Agreements; Maintenance of Licenses..................................86
9.4 Maintenance of Property......................................................................87
9.5 Insurance....................................................................................87
9.6 Condemnation.................................................................................88
9.7 Environmental Laws...........................................................................89
9.8 Compliance with ERISA........................................................................90
9.9 Mergers, Consolidations or Sales.............................................................90
9.10 Distributions; Capital Change; Restricted Investments........................................90
9.11 Transactions Affecting Collateral or Obligations.............................................91
9.12 Guaranties...................................................................................91
9.13 Debt For Borrowed Money......................................................................91
9.14 Prepayment...................................................................................91
9.15 Transactions with Affiliates.................................................................91
9.16 Investment Banking and Finder's Fees.........................................................91
9.17 Combined Availability........................................................................92
9.18 Business Conducted...........................................................................92
9.19 Liens........................................................................................92
9.20 Sale and Leaseback Transactions..............................................................92
9.21 New Subsidiaries.............................................................................92
9.22 Fiscal Year..................................................................................92
9.23 Sale or Transfer of Inventory to Alpha Tube..................................................92
9.24 Minimum Operating Cash Flow..................................................................92
9.25 Use of Proceeds..............................................................................93
9.26 Interim Bankruptcy Court Order; Final Bankruptcy Court Order;
Administrative Expense Claim Priority; Lien Priority.........................................93
9.27 Further Assurances...........................................................................94
9.28 EBITDA Through Final Bankruptcy Court Offer Date.............................................94
9.29 Obligations under Real Estate Leases and Licenses............................................94
9.30 Reclamation Claims...........................................................................95
9.31 Prepetition Claims...........................................................................95
9.32 Applications to Bankruptcy Court.............................................................95
9.33 Use of Letters of Credit.....................................................................95
9.34 Notices......................................................................................95
ARTICLE 10 CONDITIONS OF LENDING........................................................................96
10.1 Conditions Precedent to Making of Loans on the Closing Date..................................96
10.2 Conditions Precedent to Each Loan............................................................99
ARTICLE 11 DEFAULT; REMEDIES...........................................................................100
11.1 Events of Default...........................................................................100
11.2 Remedies....................................................................................105
ARTICLE 12 TERM AND TERMINATION........................................................................106
12.1 Term and Termination........................................................................106
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
ARTICLE 13 AMENDMENTS; WAIVER; PARTICIPATIONS; ASSIGNMENTS;
SUCCESSORS......................................................................107
13.1 No Waivers; Cumulative Remedies................................................107
13.2 Amendments and Waivers..........................................................107
13.3 Assignments; Participations.....................................................108
ARTICLE 14 THE AGENT.......................................................................110
14.1 Appointment and Authorization...................................................110
14.2 Delegation of Duties............................................................111
14.3 Liability of Agent..............................................................111
14.4 Reliance by Agent...............................................................112
14.5 Notice of Default...............................................................112
14.6 Credit Decision.................................................................112
14.7 Indemnification.................................................................113
14.8 Agent in Individual Capacity....................................................113
14.9 Successor Agent.................................................................114
14.10 Withholding Tax.................................................................114
14.11 Reserved........................................................................115
14.12 Collateral Matters..............................................................115
14.13 Restrictions on Actions by Lenders; Sharing of Payments.........................116
14.14 Agency for Perfection...........................................................117
14.15 Payments by Agent to Lenders....................................................117
14.16 Concerning the Collateral and the Related Loan Documents........................118
14.17 Field Audit and Examination Reports; Disclaimer by Lenders......................118
14.18 Relation Among Lenders..........................................................119
ARTICLE 15 MISCELLANEOUS...................................................................119
15.1 Cumulative Remedies; No Prior Recourse to Collateral............................119
15.2 Severability....................................................................119
15.3 Governing Law; Choice of Forum; Service of Process..............................119
15.4 WAIVER OF JURY TRIAL............................................................120
15.5 Survival of Representations and Warranties......................................121
15.6 Other Security and Guaranties...................................................121
15.7 Fees and Expenses...............................................................121
15.8 Notices.........................................................................122
15.9 Waiver of Notices...............................................................124
15.10 Binding Effect..................................................................124
15.11 Indemnity of the Agent and the Lenders by the Borrowers.........................124
15.12 Limitation of Liability.........................................................125
15.13 Final Agreement.................................................................125
15.14 Counterparts....................................................................125
15.15 Captions........................................................................125
15.16 Right of Setoff.................................................................126
15.17 Joint and Several Liability.....................................................126
</TABLE>
iv
<PAGE> 6
EXHIBITS
EXHIBIT A - FORM OF INTERIM BANKRUPTCY COURT ORDER
EXHIBIT B - FORM OF BORROWING BASE CERTIFICATE
EXHIBIT C - FINANCIAL STATEMENTS
EXHIBIT D - FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT
EXHIBIT E - FORM OF NOTICE OF BORROWING
EXHIBIT F - FORM OF NOTICE OF CONVERSION/CONTINUATION
EXHIBIT G - FORM OF FINAL BANKRUPTCY COURT ORDER
EXHIBIT H - FORM OF BLACK BOOK
v
<PAGE> 7
SCHEDULES
Schedule 1.1 ACCOUNT DEBTORS
Schedule 6.3 BORROWERS' CHIEF EXECUTIVE OFFICE, THE LOCATION OF ITS BOOKS
AND RECORDS, THE LOCATIONS OF THE COLLATERAL
Schedule 8.3 JURISDICTIONS
Schedule 8.4 CORPORATE NAME; PRIOR TRANSACTIONS
Schedule 8.5 SUBSIDIARIES AND AFFILIATES
Schedule 8.7 CAPITALIZATION OF ACME PARTIES
Schedule 8.11 OWNED REAL PROPERTY
Schedule 8.12 LEASES
Schedule 8.13 PROPRIETARY RIGHTS
Schedule 8.14 TRADE NAMES
Schedule 8.15 LITIGATION
Schedule 8.17 LABOR DISPUTES
Schedule 8.18 ENVIRONMENTAL ISSUES
Schedule 8.21 ERISA ISSUES
Schedule 8.26 MATERIAL ADVERSE CHANGE
Schedule 8.28 MATERIAL AGREEMENTS
Schedule 8.29 BANK ACCOUNTS
Schedule 8.30 ALPHA TUBE TRADE DEBT
Schedule 9.15 TRANSACTIONS WITH AFFILIATES
Schedule 9.19 EXISTING LIENS
vi
<PAGE> 8
LOAN AND SECURITY AGREEMENT
Loan and Security Agreement, dated as of December 18, 1998, among the
financial institutions listed on the signature pages hereof (such financial
institutions, together with their respective successors and assigns, are
referred to hereinafter each individually as a "Lender" and collectively as the
"Lenders"), BankAmerica Business Credit, Inc., a Delaware corporation ("BABC")
with an office at 40 East 52nd Street, New York, New York, as agent for the
Lenders (in its capacity as agent, together with any successor in such capacity,
the "Agent"), ACME METALS INCORPORATED, a Delaware corporation and a
debtor-in-possession under Chapter 11 of the Bankruptcy Code (as hereinafter
defined), (the "Parent"), ACME STEEL COMPANY, a Delaware corporation and a
debtor-in-possession under Chapter 11 of the Bankruptcy Code ("ASC"), ACME
PACKAGING CORPORATION, a Delaware corporation and a debtor-in-possession under
Chapter 11 of the Bankruptcy Code ("APC"), ALABAMA METALLURGICAL CORPORATION, a
Washington State corporation and a debtor-in-possession under Chapter 11 of the
Bankruptcy Code ("AMC") and ACME STEEL COMPANY INTERNATIONAL, INC., a Barbados,
W.I. corporation and a debtor-in-possession under Chapter 11 of the Bankruptcy
Code) ("ASCI" and, together with the Parent, ASC, APC and AMC, jointly and
severally, the "Borrowers").
W I T N E S S E T H:
WHEREAS, each of the Borrowers and Alpha Tube (as hereinafter defined)
has filed in the Bankruptcy Court (as hereinafter defined) a voluntary petition
for relief under Chapter 11 of the Bankruptcy Code (as hereinafter defined), and
such reorganization cases are being jointly administered under Case Number
98-2179 (the "Case");
WHEREAS, the Borrowers, Alpha Tube and BABC have entered into a
Commitment Agreement (including a term sheet annexed thereto), dated September
29, 1998, (as amended from time to time in accordance with its terms, the
"Interim Agreement"), pursuant to which BABC has agreed, subject to the terms
and conditions therein contained, to make available to the Borrowers and Alpha
Tube, subject to, inter alia, the entry of the Orders (as hereinafter defined),
a revolving line of credit for loans and letters of credit in an amount not to
exceed $100,000,000;
WHEREAS, pursuant to the Interim Bankruptcy Court Order (as
hereinafter defined), the Bankruptcy Court, inter alia, approved the Interim
Agreement and limited the borrowings thereunder to $50,000,000 pending entry of
the Final Bankruptcy Court Order (as hereinafter defined);
WHEREAS, the Borrowers, Alpha Tube and BABC have agreed that Alpha
Tube will not be a borrower under such revolving line of credit;
WHEREAS, the Interim Agreement requires that the Borrowers enter into
a loan and security agreement with BABC and one or more other Lenders that will
more fully set forth the terms and conditions of such debtor-in-possession
revolving line of credit, which loan and security agreement will supersede in
its entirety, and govern all borrowings heretofore made under, the Interim
Agreement;
<PAGE> 9
WHEREAS, the Lenders have agreed to make available to the Borrowers a
debtor-in-possession revolving credit facility upon the terms and conditions set
forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth in this Agreement, and for good and valuable consideration,
the receipt of which is hereby acknowledged, the Lenders, the Agent, and the
Borrowers hereby agree as follows;
ARTICLE 1
INTERPRETATION OF THIS AGREEMENT
ARTICLE 1.1 Definitions. As used herein:
"Accounts" means, with respect to any Acme Party, all of such Acme
Party's now owned or hereafter acquired or arising accounts (as defined in the
UCC), and any other rights of such Acme Party to payment for the sale or lease
of Inventory or rendition of services, whether or not they have been earned by
performance.
"Account Debtor" means each Person obligated in any way on or in
connection with an Account.
"Acme Parties" means, collectively, the Parent and its Subsidiaries
and "Acme Party" means any of the foregoing Persons. "Acme Parties", "Parent and
its Subsidiaries", "Borrowers and their Subsidiaries" and "Borrowers and Alpha
Tube" have the same meaning.
"Affiliate" means, as to any Person, any other Person which, directly
or indirectly, is in control of, is controlled by, or is under common control
with, such Person or which owns, directly or indirectly, ten percent (10%) or
more of the outstanding equity interest of such Person. A Person shall be deemed
to control another Person if the controlling Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of the other Person, whether through the ownership of voting
securities, by contract, or otherwise.
"Agent" means BankAmerica Business Credit, Inc., solely in its
capacity as agent for the Lenders, and any successor agent.
"Agent Advances" has the meaning specified in Section 2.2(i).
"Agent-Related Persons" means the Agent and any successor agent,
together with their respective Affiliates, and the officers, directors,
employees, agents and attorneys-in-fact of such Persons.
2
<PAGE> 10
"Agent's Liens" means the Liens granted to the Agent, for the ratable
benefit of the Lenders, BABC and the Agent, pursuant to this Agreement and the
other Loan Documents.
"Agreed Administrative Expense Claim Priorities" means the
administrative expense claims incurred by the Borrowers and shall have the
following order of priority:
first, (i) amounts payable pursuant to 28 U.S.C. Section 1930(a)(6)
and (ii) upon the occurrence and during the continuance of an Event of Default,
unpaid allowed fees and expenses (whether incurred prior to or subsequent to
such Event of Default) of attorneys, accountants, financial advisors,
consultants and other professionals retained by the Borrowers, or any official
creditors' committee (the "Creditors' Committee") appointed in the Case pursuant
to Sections 327 and 1103 of the Bankruptcy Code (except to the extent that such
fees and expenses represent services or were incurred in the prosecution of
actions, claims or causes of action against Bank of America, the Agent or any of
the Lenders in connection with a challenge to any aspect of their rights and
obligations with respect to any Loan Document) ("Professional Expenses"), but
the amount of Professional Expenses entitled to priority under clause (ii) of
this clause first ("Priority Professional Expenses") shall not exceed in the
aggregate an amount (the "Priority Professional Expense Cap") equal to
$3,000,000; provided, however, that prior to the occurrence of an Event of
Default any payments actually made to such professionals under 11 U.S.C.
Sections 330 and 331 in respect of fees and expenses incurred shall not reduce
the Priority Professional Expense Cap;
second, all Obligations; and
third, all other allowed administrative expense claims.
"Agreement" means this Loan and Security Agreement.
"Alpha Tube" means Alpha Tube Corporation, a Delaware corporation and
a debtor-in-possession under Chapter 11 of the Bankruptcy Code.
"Alpha Tube Agreed Administrative Expense Claim Priorities" means the
administrative expense claims incurred by Alpha Tube and shall have the
following order of priority:
first, (i) amounts payable pursuant to 28 U.S.C. Section 1930(a)(6)
and (ii) unpaid allowed fees and expenses of attorneys, accountants, financial
advisors, consultants and other professionals retained by Alpha Tube or any
official creditors' committee appointed in the Case pursuant to Sections 327 and
1103 of the Bankruptcy Code, including any fees and expenses based upon
substantial contribution claims awarded under Section 503(b) of the Bankruptcy
Code, if any (except to the extent, in each instance under this clause (ii),
that such fees and expenses represent services or were incurred in the
prosecution of actions, claims or causes of action against Bank of America, the
Agent or
3
<PAGE> 11
any of the Lenders in connection with a challenge to any aspect of their rights
and obligations with respect to any Loan Document);
second, all other allowed administrative expense claims (other than
unpaid allowed fees and expenses of attorneys, accountants, financial advisors,
consultants and other professionals retained by Alpha Tube or any official
creditors' committee appointed in the Case pursuant to Sections 327 and 1103 of
the Bankruptcy Code, in each instance, to the extent that such fees and expenses
represent services or were incurred in the prosecution of actions, claims or
causes of action against Bank of America, the Agent or any of the Lenders in
connection with a challenge to any aspect of their rights and obligations with
respect to any Loan Document);
third, all Obligations; and
fourth, unpaid allowed administrative expense claims described in the
parenthetical in clause second above.
"Alpha Tube Carve-Out Expenses" means (i) those amounts, fees,
expenses and claims set forth in clauses first and second of the definition of
the term "Alpha Tube Agreed Administrative Expense Claim Priorities" and (ii) to
the extent not included in clause (i), Alpha Tube Trade Debt.
"Alpha Tube Cash Flow Agreement" means the agreement among the
Borrowers, Alpha Tube and the Agent with respect to restrictions on certain cash
flow between Alpha Tube and the Borrowers.
"Alpha Tube Guaranty" means the Guaranty to be entered into on the
Closing Date by Alpha Tube in favor of the Agent.
"Alpha Tube Security Agreement" means the Security Agreement to be
entered into on the Closing Date between Alpha Tube and the Agent.
"Alpha Tube Trade Debt" means the trade debt of Alpha Tube (including,
without limitation, trade debt to any trade creditor which is a Borrower or an
Affiliate of any Borrower), whether such trade debt is incurred prior to, on or
after the Filing Date.
"Anniversary Date" means each anniversary of the Closing Date.
"Applicable Margin" means, with respect to interest accruing on any
Loan during any period, the amount set forth below which corresponds to the
Exposure during such period.
Applicable Margin
Exposure for Applicable Margin for Applicable Margin for
Relevant Period Base Rate Loans LIBOR Rate Loans
--------------- --------------- ----------------
Less than $20,000,000 .50% 1.75%
4
<PAGE> 12
Applicable Margin
Equal to or greater than .50% 2.00%
$20,000,000 and less
than $50,000,000
Equal to or greater than .75% 2.50%
$50,000,000 and less
than $75,000,000
Equal to or greater than 1.00% 3.00%
$75,000,000
where "Exposure" shall mean the sum of the average daily amounts of (i) all
outstanding Revolving Loans, (ii) the undrawn amount of all issued and
outstanding Letters of Credit and (iii) the amount of all drawn Letters of
Credit for which there has been no reimbursement, during the calendar month (or,
if shorter, the period from the Closing Date to and including the last day of
the calendar month, or the period from the first day of the then current
calendar month to and including the Termination Date, as the case may be)
immediately prior to the applicable interest payment date, as determined by the
Agent on the last day of such calendar month or shorter period.
"Assignee" has the meaning specified in Section 13.3(a).
"Assignment and Acceptance" has the meaning specified in Section
13.3(a).
"Attorney Costs" means and includes all reasonable fees, expenses and
disbursements of any law firm or other external counsel engaged by the Agent,
the allocated cost of reasonable internal legal services of the Agent and all
reasonable expenses and disbursements of internal counsel of the Agent.
"BABC" means BankAmerica Business Credit, Inc.
"BABC Loan" and "BABC Loans" have the meanings specified in Section
2.2(h).
"Bank of America" means Bank of America National Trust and Savings
Association, a national banking association, or any successor entity thereto.
"Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C.
Section 101 et seq.).
"Bankruptcy Court" means the United States Bankruptcy Court for the
District of Delaware and, to the extent the United States District Court for the
District of Delaware sits in bankruptcy with respect to any matter relating to
the Case, then the United States District Court for the District of Delaware.
5
<PAGE> 13
"Base Rate" means, for any day, the rate of interest in effect for
such day as publicly announced from time to time by Bank of America in San
Francisco, California, as its "reference rate" (the "reference rate" being a
rate set by Bank of America based upon various factors including Bank of
America's costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans, which may be
priced at, above, or below such announced rate). Any change in the reference
rate announced by Bank of America shall take effect at the opening of business
on the day specified in the public announcement of such change. Each Interest
Rate based upon the Base Rate shall be adjusted simultaneously with any change
in the Base Rate.
"Base Rate Revolving Loan" means a Revolving Loan during any period in
which it bears interest based on the Base Rate.
"Borrowers" has the meaning specified in the introductory paragraph to
this Agreement.
"Borrowing" means a borrowing hereunder consisting of Revolving Loans
made on the same day by the Lenders to the Borrowers (or by BABC in the case of
a Borrowing funded by BABC Loans) or by the Agent in the case of a Borrowing
consisting of an Agent Advance.
"Borrowing Base Certificate" means a certificate by a Responsible
Officer of each of the Borrowers, substantially in the form of Exhibit B (or
another form acceptable to the Agent) setting forth a good faith calculation of
the Combined Availability, including a good faith calculation of each component
thereof, as of the close of business no more than six (6) Business Days prior to
the date of such certificate, all in such detail as shall be satisfactory to the
Agent. All calculations of Combined Availability in connection with the
preparation of any Borrowing Base Certificate shall originally be made by the
Borrowers and certified to the Agent; provided, that the Agent shall have the
right to review and adjust, in the exercise of its reasonable credit judgment,
any such calculation (1) to reflect its reasonable estimate of declines in value
of any of the Collateral described therein, and (2) to the extent that such
calculation is not in accordance with this Agreement.
"Business Day" means (a) any day that is not a Saturday, Sunday, or a
day on which banks in San Francisco, California or New York, New York are
required or permitted to be closed, and (b) with respect to all notices,
determinations, fundings and payments in connection with the LIBOR Rate or LIBOR
Rate Loans, any day that is a Business Day pursuant to clause (a) above and that
is also a day on which trading is carried on by and between banks in the London
interbank market.
"Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other
6
<PAGE> 14
law, rule or regulation, whether or not having the force of law, in each case,
regarding capital adequacy of any Lender or of any corporation controlling a
Lender.
"Capital Expenditures" means all payments due (whether or not paid) in
respect of the cost of any fixed asset or improvement, or replacement,
substitution, or addition thereto, which has a useful life of more than one
year, including, without limitation, those costs arising in connection with the
direct or indirect acquisition of such asset by way of increased product or
service charges or offset items or in connection with a Capital Lease and also
including, without limitation, all expenditures in respect of hardware and
software for computer systems.
"Capital Lease" means any lease of property by any Acme Party which,
in accordance with GAAP, is or should be reflected as a capital lease on the
balance sheet of such Acme Party.
"Carve-Out Expenses" means those amounts, fees, expenses and claims
set forth in clause first of the definition of the term "Agreed Administrative
Expense Claim Priorities."
"Carve-Out Reserve" means at any time an amount equal to $3,000,000.
"Case" means individually or collectively, as the context requires,
each of the Borrowers' and Alpha Tube's jointly administered reorganization
cases (numbers 98-2179, et seq.) under Chapter 11 of the Bankruptcy Code pending
in the Bankruptcy Court.
"Change of Control" means the occurrence of any of the following
events:
(i)(x) any "person" or "group" (as such terms are used in Section
13(d) or 14(d) of the Exchange Act) is or becomes the Beneficial Owner of Voting
Stock which represents a majority in the aggregate of the total voting power of
the Voting Stock of the Parent, whether as a result of an issuance of securities
of the Parent, any merger, consolidation, liquidation or dissolution of the
Parent, any direct or indirect transfer of securities or otherwise, and (y)
during any one-year period (commencing with the one-year period which starts on
the day immediately prior to the occurrence of the event described in clause (x)
above) individuals who at the beginning of such period constituted the Board of
Directors of the Parent (together with any new directors whose election by such
Board of Directors or whose nomination for election by the shareholders of the
Parent was approved by a vote of a majority of the directors of the Parent then
still in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors of the Parent then
in office; or
7
<PAGE> 15
(ii) the Parent shall fail at any time to be the Beneficial Owner of
100% of the outstanding equity interests of each of the other Borrowers and
Alpha Tube.
For purposes of this definition of "Change of Control", and the
definitions used within this definition (and only for such purposes), the
following terms shall have the following meanings:
"Beneficial Owner", and terms having similar import, means any direct
or indirect "beneficial owner", as such term is defined in Rules 13d-3 and 13d-5
under the Exchange Act.
"Board of Directors" means, with respect to any Person, such Person's
Board of Directors or any committee thereof duly authorized to act on behalf of
such Board of Directors.
"Capital Stock" of any Person means any and all shares, interests,
rights to purchase, warrants, options, contingent share issuances,
participations or other equivalents of or interests in (however designated)
equity of such Person, including any preferred stock, but excluding any debt
securities convertible into or exchangeable for such equity.
"Voting Stock" of a corporation means all classes of Capital Stock of
such corporation then outstanding and normally entitled to vote in the election
of directors.
"Closing Date" means the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor statute, and regulations promulgated thereunder.
"Collateral" has the meaning specified in Section 6.1.
"Combined Availability" of the Borrowers means, at any time:
(a) the lesser of (i) the Maximum Revolver Amount at such time or (ii) the sum
of up to (A) the then Eligible Accounts Advance Rate Percentage of the aggregate
Net Amount of Eligible Accounts of the Borrowers at such time plus (B) sixty
percent (60%) of the aggregate net amount of Eligible Inventory of the Borrowers
constituting finished goods and commodity raw materials at such time, calculated
at the lower of cost (on a FIFO basis) or market value, plus (C) fifty percent
(50%) of the aggregate net amount of Eligible Inventory of the Borrowers
constituting work-in-process at such time, calculated at the lower of cost (on a
FIFO basis) or market value; provided, that at no time prior to the Final
Bankruptcy Court Order Date shall the sum of outstanding Revolving Loans and
Letters of Credit based upon the value of Eligible Inventory in accordance with
clauses (B) and (C) above exceed $20,000,000 and provided, further that at no
time on or after the Final Bankruptcy Court
8
<PAGE> 16
Order Date shall the sum of outstanding Revolving Loans and Letters of Credit
based upon the value of Eligible Inventory in accordance with clauses (B) and
(C) above exceed $60,000,000 (it being understood that for purposes of this
Agreement, Revolving Loans and Letters of Credit are deemed made or issued, as
the case may be, first as determined on the basis of the Net Amount of Eligible
Accounts of the Borrowers at such time and then as determined on the basis of
the net amount of Eligible Inventory of the Borrowers described in clauses (B)
and (C) above), minus
(b) the sum of (i) the aggregate unpaid balance of all Revolving Loans made to
the Borrowers at such time, (ii) the aggregate amount of all Pending Revolving
Loans to be made to the Borrowers at such time, (iii) the aggregate undrawn
amount of all outstanding Letters of Credit at such time, (iv) the aggregate
amount of any unpaid reimbursement Obligations in respect of Letters of Credit
at such time, (v) reserves (if any) established by the Agent at such time for
accrued interest on the Obligations, (vi) reserves (including, without
limitation, the Carve-Out Reserve) for Carve-Out Expenses (whether or not an
Event of Default exists), claims against any Lender or the Agent under Section
506(c) of the Bankruptcy Code and other claims against any of the Borrowers that
the Agent reasonably believes could have priority over the Obligations and (vii)
all other reserves at such time which the Agent deems necessary in the exercise
of its reasonable credit judgment to maintain with respect to the Borrowers'
account, including, without limitation, reserves for landlord's liens with
respect to real properties leased by a Borrower or Inventory located at premises
not owned by a Borrower, reserves for shrinkage and markdowns and reserves for
any amounts which the Agent or any Lender may be obligated to pay in the future
for the account of any Borrower.
"Commitment" means, at any time with respect to a Lender, the
principal amount set forth beside such Lender's name under the heading
"Commitment" on the signature pages of this Agreement or on the signature page
of the Assignment and Acceptance pursuant to which such Lender became a Lender
hereunder in accordance with the provisions of Section 13.3, as such Commitment
may be adjusted from time to time in accordance with the provisions of Section
13.3 and Section 4.8, and "Commitments" means, collectively, the aggregate
amount of the commitments of all of the Lenders.
"Contaminant" means any pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos in any form or condition, polychlorinated biphenyls
("PCBs"), or any constituent of any such substance or waste.
"Conversion/Continuation Date" means the date of any conversion or
continuation of a Base Rate Loan or LIBOR Rate Loan, or portion thereof, as
contemplated by Section 3.2.
"Credit Support" has the meaning specified in Section 2.3(a).
9
<PAGE> 17
"Creditors' Committee" has the meaning specified in the definition of
Agreed Administrative Expense Claim Priorities.
"Debt" means all liabilities, obligations and indebtedness of any Acme
Party to any Person, of any kind or nature, now or hereafter owing, arising, due
or payable, howsoever evidenced, created, incurred, acquired or owing, whether
primary, secondary, direct, contingent, fixed or otherwise, and including,
without in any way limiting the generality of the foregoing: (i) such Acme
Party's liabilities and obligations to trade creditors; (ii) all Obligations;
(iii) all obligations and liabilities of any Person secured by any Lien on such
Acme Party's property, even though such Acme Party shall not have assumed or
become liable for the payment thereof; provided, however, that all such
obligations and liabilities which are limited in recourse to such property shall
be included in Debt only to the extent of the book value of such property as
would be shown on a balance sheet of such Acme Party prepared in accordance with
GAAP; (iv) all obligations or liabilities created or arising under any Capital
Lease or conditional sale or other title retention agreement with respect to
property used or acquired by such Acme Party, even if the rights and remedies of
the lessor, seller or lender thereunder are limited to repossession of such
property; provided, however, that all such obligations and liabilities which are
limited in recourse to such property shall be included in Debt only to the
extent of the book value of such property as would be shown on a balance sheet
of such Acme Party prepared in accordance with GAAP; (v) all obligations and
liabilities under Guaranties; and (vi) deferred taxes.
"Debt For Borrowed Money" means Debt for borrowed money or as
evidenced by notes, bonds, debentures or similar evidences of any such Debt of
such Person, the deferred and unpaid purchase price of any property or business
(other than trade accounts payable incurred in the ordinary course of business
and constituting current liabilities) and all obligations under Capital Leases.
"Default" means any event or circumstance which, with the giving of
notice, the lapse of time, or both, would (if not cured or otherwise remedied
during such time) constitute an Event of Default.
"Default Rate" means a fluctuating per annum interest rate at all
times equal to the sum of (a) the otherwise applicable Interest Rate plus (b)
two percent (2%). Each Default Rate shall be adjusted simultaneously with any
change in the applicable Interest Rate. In addition, with respect to Letters of
Credit, the Default Rate shall mean an increase in the Letter of Credit Fee by
two percentage points.
"Defaulting Lender" has the meaning specified in Section 2.2(g)(ii).
"Dilution" means, with respect to any twelve consecutive calendar
month period, the ratio of (x) the aggregate amount of credits issued by any
10
<PAGE> 18
of the Borrowers or non-cash credits taken by any customer of any of the
Borrowers during such period with respect to Accounts of any of the Borrowers to
(y) the aggregate amount of gross sales of the Borrowers during such period.
"Distribution" means, in respect of any corporation: (a) the payment
or making of any dividend or other distribution of property in respect of
capital stock (or any options or warrants for such stock) of such corporation,
other than distributions in capital stock (or any options or warrants for such
stock) of the same class; or (b) the redemption or other acquisition of any
capital stock (or any options or warrants for such stock) of such corporation.
"DOL" means the United States Department of Labor or any successor
department or agency.
"Dollar" and "$" means dollars in the lawful currency of the United
States.
"EBITDA" means, with respect to any fiscal period of the Borrowers,
the net income of the Parent and its Subsidiaries on a consolidated basis for
such fiscal period, as determined in accordance with GAAP and reported on the
Financial Statements for such period, excluding any and all of the following
included in such net income: (i) gain or loss arising from the sale of any
capital assets; (ii) gain or loss arising from any write-up or write-down in the
book value of any asset; (iii) earnings of any corporation, substantially all
the assets of which have been acquired by the Parent or any of its Subsidiaries
in any manner, to the extent realized by such other corporation prior to the
date of acquisition; (iv) earnings of any business entity in which the Parent or
any of its Subsidiaries has an ownership interest unless (and only to the
extent) such earnings shall actually have been received by the Parent or any of
its Subsidiaries in the form of cash distributions; (v) earnings of any Person
to which assets of the Parent or any of its Subsidiaries shall have been sold,
transferred or disposed of, or into which the Parent or any of its Subsidiaries
shall have been merged, or which has been a party with the Parent or any of its
Subsidiaries to any consolidation or other form of reorganization, prior to the
date of such transaction; (vi) gain arising from the acquisition of debt or
equity securities of the Parent or any of its Subsidiaries or from cancellation
or forgiveness of Debt; (vii) gain or loss arising from extraordinary items, as
determined in accordance with GAAP, or from any other non-recurring transaction;
(viii) non-cash writedowns of fixed assets; (ix) the sum of the provisions for
income taxes, interest expense, depreciation and amortization expense, other
non-cash charges, the effect of accounting changes and extraordinary items; and
(x) bankruptcy reorganization expenses and restructuring costs (including
$3,045,848 paid to Harris Trust and Savings Bank in satisfaction of prepetition
secured claims), in each case under clauses (i) through (x) above, to the extent
deducted in determining net income for such period.
11
<PAGE> 19
"Eligible Accounts" means all Accounts of any Borrower which the Agent
in the exercise of its reasonable discretion determines to be Eligible Accounts
based on such collateral and credit criteria as the Agent may from time to time
establish. Without limiting the discretion of the Agent to establish other
criteria of ineligibility, Eligible Accounts shall not, unless the Agent in its
sole discretion elects, include any Account:
(a) with respect to which more than 90 days (or where normal
business practice is to grant 60 day terms, 120 days) have elapsed since the
date of the original invoice therefor or it is more than 60 days past due;
(b) with respect to which any of the representations, warranties,
covenants, and agreements contained in Section 6.8 are not or have ceased to be
true and correct or have been breached;
(c) with respect to which, in whole or in part, a check,
promissory note, draft, trade acceptance or other instrument for the payment of
money has been received, presented for payment and returned uncollected for any
reason;
(d) which represents a progress billing (as hereinafter defined)
or as to which such Borrower has extended the time for payment upon notice to
the Agent (but in no event beyond 90 days from invoice date); for the purposes
hereof, "progress billing" means any invoice for goods sold or leased or
services rendered under a contract or agreement pursuant to which the Account
Debtor's obligation to pay such invoice is conditioned upon such Borrower's
completion of any further performance under the contract or agreement;
(e) as to which any one or more of the following events has
occurred with respect to the Account Debtor on such Account: death or judicial
declaration of incompetency of an Account Debtor who is an individual; the
filing by or against the Account Debtor of a request or petition for
liquidation, reorganization, arrangement, adjustment of debts, adjudication as a
bankrupt, winding-up, or other relief under the bankruptcy, insolvency, or
similar laws of the United States, any state or territory thereof, or any
foreign jurisdiction, now or hereafter in effect; the making of any general
assignment by the Account Debtor for the benefit of creditors; the appointment
of a receiver or trustee for the Account Debtor or for any of the assets of the
Account Debtor, including, without limitation, the appointment of or taking
possession by a "custodian," as defined in the Bankruptcy Code; the institution
by or against the Account Debtor of any other type of insolvency proceeding
(under the bankruptcy laws of the United States or otherwise) or of any formal
or informal proceeding for the dissolution or liquidation of, settlement of
claims against, or winding up of affairs of, the Account Debtor; the sale,
assignment, or transfer of all or any material part of the assets of the Account
Debtor; the nonpayment generally by the Account
12
<PAGE> 20
Debtor of its debts as they become due; or the cessation of the business of the
Account Debtor as a going concern;
(f) if fifty percent (50%) or more of the aggregate Dollar amount
of outstanding Accounts owed at such time by the Account Debtor thereon is
classified as ineligible under the other criteria set forth herein or otherwise
established by the Agent in accordance with this Agreement;
(g) owed by an Account Debtor which: (i) does not maintain its
chief executive office in the United States; or (ii) is not organized under the
laws of the United States or any state thereof; or (iii) is the government of
any foreign country or sovereign state, or of any state, province, municipality,
or other political subdivision thereof, or of any department, agency, public
corporation, or other instrumentality thereof; except (A) to the extent that
such Account is secured or payable by a letter of credit or guaranty
satisfactory to the Agent in its discretion; or (B) is otherwise acceptable to
the Agent in its discretion; or (C) is an account owing by the Account Debtors
listed on Schedule 1.1;
(h) owed by an Account Debtor which is an Affiliate or employee
of any Borrower;
(i) [Intentionally Omitted];
(j) which is owed by an Account Debtor to which any Borrower is
indebted in any way, or which is subject to any right of setoff or recoupment by
the Account Debtor, unless the Account Debtor has entered into an agreement
acceptable to the Agent to waive setoff rights; or if the Account Debtor thereon
has disputed liability or made any claim with respect to any other Account due
from such Account Debtor; but in each such case only to the extent of such
indebtedness, setoff, recoupment, dispute, or claim;
(k) which is owed by the government of the United States of
America, or any department, agency, public corporation, or other instrumentality
thereof, unless the Federal Assignment of Claims Act of 1940, as amended (31
U.S.C. Section 3727 et seq.), and any other steps necessary to perfect the
Agent's Lien therein, have been complied with to the Agent's satisfaction with
respect to such Account;
(l) which is owed by any state, municipality, or other political
subdivision of the United States of America, or any department, agency, public
corporation, or other instrumentality thereof and as to which the Agent
determines that its Lien therein is not or cannot be perfected;
(m) which represents a sale on a bill-and-hold, guaranteed sale,
sale and return, sale on approval, consignment, or other repurchase or return
basis;
13
<PAGE> 21
(n) which is evidenced by a promissory note or other instrument
or by chattel paper not in the possession of the Agent and, with respect to a
promissory note or other instrument, endorsed to the order of the Agent if not
in bearer form;
(o) if the Agent believes in the exercise of its reasonable
judgment, that the prospect of collection of such Account is impaired or that
the Account may not be paid by reason of the Account Debtor's financial
inability to pay;
(p) [Intentionally Omitted];
(q) which arises out of a sale not made in the ordinary course of
such Borrower's business;
(r) as to which the goods giving rise to such Account have not
been shipped and delivered to (or title passes to) and accepted by the Account
Debtor or the services giving rise to such Account have not been performed by
such Borrower, and, if applicable, accepted by the Account Debtor, or the
Account Debtor revokes its acceptance of such goods or services;
(s) is owed by an Account Debtor which is obligated to one or
more Borrowers respecting Accounts the aggregate unpaid balance of which owing
to all Borrowers exceeds fifteen (15%) percent of the aggregate unpaid balance
of all Accounts owed to all Borrowers at such time by all of the Borrowers'
Account Debtors, but only to the extent of such excess;
(t) arises out of a contract or order which, by its terms,
forbids, restricts or makes void or unenforceable the granting of a Lien by such
Borrower to the Agent with respect to such Account; or
(u) which (except for Carve-Out Expenses) is not subject to a
first priority and perfected security interest in favor of the Agent for the
benefit of the Agent and the Lenders.
If any Account at any time ceases to be an Eligible Account by reason
of any of the foregoing exclusions or any failure to meet any other eligibility
criteria established by the Agent in the exercise of its reasonable discretion,
then such Account shall promptly be excluded from the calculation of Eligible
Accounts. The Agent agrees to provide the Parent on behalf of the Borrowers with
not less than 3 Business Days' prior notice of the establishment by the Agent of
any additional criteria of ineligibility with respect to Accounts of any
Borrower.
"Eligible Accounts Advance Rate Percentage" means, at any time of
determination, that percentage set forth below opposite the Dilution for the
twelve consecutive calendar month period most recently ended prior to such time
of determination:
14
<PAGE> 22
Percentage Dilution
Eighty-five percent (85%) 5% or less
Eighty percent (80%) Greater than 5% and not more than
7.5%
Seventy-two percent (72%) Greater than 7.5% and not more than
10%
Such percentage less than seventy-two Greater than 10%
percent (72%) as the Agent shall
choose in its sole discretion
"Eligible Inventory" means Inventory of a Borrower, valued at the
lower of cost (on a FIFO basis) or market, that constitutes raw materials, work
in process and prime finished goods and that, unless the Agent in its sole
discretion elects, (a) is not, in the Agent's reasonable opinion, obsolete, slow
moving, or unmerchantable; (b) is located at premises owned by a Borrower or on
premises otherwise reasonably acceptable to the Agent; (c) upon which the Agent
for the benefit of the Agent and the Lenders has a first priority perfected
security interest (subject only to Carve-Out Expenses); (d) is not spare parts,
service parts, used parts, packaging and shipping materials, supplies,
bill-and-hold Inventory, returned or defective Inventory, or Inventory delivered
to a Borrower on consignment; (e) is not stores, molds, "non-prime", other items
which are not basic materials core products used in producing finished steel or
items which are not sold in the ordinary course of business of a Borrower; and
(f) the Agent, in the exercise of its reasonable discretion, deems eligible as
the basis for Revolving Loans and Letters of Credit based on such collateral and
credit criteria as the Agent may from time to time establish. If any Inventory
at any time ceases to be Eligible Inventory, such Inventory shall promptly be
excluded from the calculation of Eligible Inventory. Non-prime Inventory that
has been written down to a net realizable value acceptable to the Agent may be
included as part of Eligible Inventory. The Agent agrees to provide the Parent
on behalf of the Borrowers with not less than 3 Business Days prior notice of
the decision of the Agent, as a result of a revision by the Agent of its
criteria for Eligible Inventory, to make ineligible any portion of the Inventory
of a Borrower which immediately prior to such decision was Eligible Inventory.
"Environmental Claims" means all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or injury
to the environment.
"Environmental Laws" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses,
15
<PAGE> 23
authorizations and permits of, and agreements with, any Governmental Authority,
in each case relating to environmental matters.
"Environmental Lien" means a Lien in favor of any Governmental
Authority for (1) any liability under any Environmental Laws, or (2) damages
arising from, or costs incurred by such Governmental Authority in response to a
Release or threatened Release of a Contaminant into the environment.
"Equipment" means, with respect to any Acme Party, all of such Acme
Party's now owned and hereafter acquired machinery, equipment, furniture,
furnishings, fixtures, and other tangible personal property (except Inventory),
including motor vehicles with respect to which a certificate of title has been
issued, aircraft, dies, tools, jigs, and office equipment, as well as all of
such types of property leased by such Acme Party and all of such Acme Party's
rights and interests with respect thereto under such leases (including, without
limitation, options to purchase); together with all present and future additions
and accessions thereto, replacements therefor, component and auxiliary parts and
supplies used or to be used in connection therewith, and all substitutes for any
of the foregoing, and all manuals, drawings, instructions, warranties and rights
with respect thereto; wherever any of the foregoing is located.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with any Acme Party within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for
purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a Pension
Plan; (b) a withdrawal by any Acme Party or any ERISA Affiliate from a Pension
Plan subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation
of operations which is treated as such a withdrawal under Section 4062(e) of
ERISA; (c) a complete or partial withdrawal by any Acme Party or any ERISA
Affiliate from a Multi-employer Plan or notification that a Multi-employer Plan
is in reorganization; (d) the filing of a notice of intent to terminate, the
treatment of a Plan amendment as a termination under Section 4041 or 4041A of
ERISA, or the commencement of proceedings by the PBGC to terminate a Pension
Plan or Multi-employer Plan; (e) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Pension Plan or
Multi-employer Plan; or (f) the imposition of any liability under Title IV of
ERISA, other than PBGC premiums due but not delinquent under Section 4007 of
ERISA, upon any Acme Party or any ERISA Affiliate, in each case, other than the
commencement of the Case.
"Event of Default" has the meaning specified in Section 11.1.
16
<PAGE> 24
"Exchange Act" means the Securities and Exchange Act of 1934, and
regulations promulgated thereunder.
"Existing Liens" means all Liens on any assets or properties of any
Acme Party (other than Accounts, Inventory or proceeds thereof) in existence on
the Filing Date.
"FDIC" means the Federal Deposit Insurance Corporation, and any
Governmental Authority succeeding to any of its principal functions.
"Federal Funds Rate" means, for any day, the rate set forth in the
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including any
such successor, "H.15(519)") on the preceding Business Day opposite the caption
"Federal Funds (Effective)"; or, if for any relevant day such rate is not so
published on any such preceding Business Day, the rate for such day will be the
arithmetic mean as determined by the Agent of the rates for the last transaction
in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on
that day by each of three leading brokers of Federal funds transactions in New
York City selected by the Agent.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System or any successor thereto.
"Filing Date" means September 28, 1998.
"Final Bankruptcy Court Order" means an order, which need not be a
Final Order, of the Bankruptcy Court, in form, scope and substance acceptable to
the Agent and the Majority Lenders (it being understood that the form of order
annexed hereto as Exhibit G is acceptable to the Agent and the Majority
Lenders), finally approving this Agreement and the other Loan Documents, as such
order may be amended, modified or supplemented from time to time with the
express written joinder and consent of the Agent, the Majority Lenders, the
Borrowers and Alpha Tube and the approval of the Bankruptcy Court, which order
has not been vacated, appealed with respect to the question of whether the Agent
or any Lender is a good faith lender under Section 364(e) of the Bankruptcy
Code, reversed, stayed, modified or supplemented.
"Final Bankruptcy Court Order Date" means the date (which shall be no
later than December 19, 1998) on which the Final Bankruptcy Court Order shall
have been duly entered by the Bankruptcy Court and shall be in full force and
effect, and shall not have been reversed, stayed, modified or amended, absent
written consent of the Agent, the Majority Lenders, the Borrowers and Alpha
Tube.
"Final Order" means an order of the Bankruptcy Court (a) as to which
the time to appeal, petition for certiorari or move for reargument or rehearing
has expired and as to which no appeal, petition for certiorari or
17
<PAGE> 25
other proceedings for reargument or rehearing shall then be pending, or (b) if
an appeal, writ of certiorari, reargument or rehearing thereof has been filed or
sought, such order of the Bankruptcy Court shall have been affirmed by the
highest court to which such order was appealed, or certiorari shall have been
denied or reargument or rehearing shall have been denied or resulted in no
modification of such order, and the time to take any further appeal, petition
for certiorari or move or reargument or rehearing shall have expired; provided,
however, that the possibility that a motion under Rule 59 or Rule 60 of the
Federal Rules of Civil Procedure, or any analogous rule under the Federal Rules
of Bankruptcy Procedure, may be filed with respect to such order shall not cause
such order not to be a Final Order.
"Financial Statements" means, according to the context in which it is
used, the financial statements referred to in Section 8.6 or any other financial
statements required to be given to the Lenders or the Agent pursuant to this
Agreement.
"Fiscal Year" means the fiscal year of the Parent and its Subsidiaries
for financial accounting purposes. The Fiscal Year of the Parent and its
Subsidiaries will end on the last Sunday of the calendar year.
"Fixed Assets" means, with respect to any Acme Party, Equipment and
Real Estate of such Acme Party.
"Funding Date" means the date on which a Borrowing occurs.
"GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which, except with respect to the calculation or determination of
any financial covenant tests under this Agreement, are applicable to the
circumstances as of the date of determination and which, with respect to the
calculation or determination of any financial covenant tests under this
Agreement, are applicable to the circumstances as of the Closing Date.
"General Intangibles" means, with respect to any Acme Party, all of
such Acme Party's now owned or hereafter acquired general intangibles, choses in
action and causes of action and all other intangible personal property of such
Acme Party of every kind and nature (other than Accounts), including, without
limitation, all contract rights, Proprietary Rights, corporate or other business
records, inventions, designs, blueprints, plans, specifications, patents, patent
applications, trademarks, service marks, trade names, trade secrets, goodwill,
copyrights, computer software, customer lists, registrations, licenses,
franchises, tax refund claims, any funds which may become due to such Acme Party
in connection with the termination of any Plan or other employee benefit plan or
any rights thereto and any other amounts
18
<PAGE> 26
payable to such Acme Party from any Plan or other employee benefit plan, rights
and claims against carriers and shippers, rights to indemnification, business
interruption insurance and proceeds thereof, property, casualty or any similar
type of insurance and any proceeds thereof, proceeds of insurance covering the
lives of key employees on which such Acme Party is beneficiary and any letter of
credit, guarantee, claim, security interest or other security held by or granted
to such Acme Party.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"Guaranty" means, with respect to any Person, all obligations of such
Person which in any manner directly or indirectly guarantee or assure, or in
effect guarantee or assure, the payment or performance of any indebtedness,
dividend or other obligations of any other Person (the "guaranteed
obligations"), or assure or in effect assure the holder of the guaranteed
obligations against loss in respect thereof, including, without limitation, any
such obligations incurred through an agreement, contingent or otherwise: (a) to
purchase the guaranteed obligations or any property constituting security
therefor; (b) to advance or supply funds for the purchase or payment of the
guaranteed obligations or to maintain a working capital or other balance sheet
condition; or (c) to lease property or to purchase any debt or equity securities
or other property or services for the purposes of enabling such other Person to
make payments of its obligations.
"Intercompany Accounts" means all assets and liabilities, however
arising, which are due to the Parent and/or any of its Subsidiaries from, which
are due from the Parent and/or any of its Subsidiaries to, or which otherwise
arise from any transaction by the Parent and/or any of its Subsidiaries with,
any other of the Parent or any of its Subsidiaries or any Affiliate of the
Parent or any of its Subsidiaries.
"Interest Period" means, as to any LIBOR Rate Loan, the period
commencing on the Funding Date of such Loan or on the Conversion/Continuation
Date on which the Loan is converted into or continued as a LIBOR Rate Loan, and
ending on the date one, two, three or six months (to the extent available as
determined by the Agent) thereafter as selected by the Borrowers in their Notice
of Borrowing or Notice of Conversion/Continuation; provided that:
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, that Interest Period shall be extended to the following
Business Day unless the result of such extension would be to carry such Interest
Period into another calendar month, in which event such Interest Period shall
end on the preceding Business Day;
19
<PAGE> 27
(ii) any Interest Period pertaining to a LIBOR Rate Loan that
begins on the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of the calendar month at the
end of such Interest Period; and
(iii) no Interest Period shall extend beyond the Stated
Termination Date.
"Interest Rate" means each or any of the interest rates, including the
Default Rate, set forth in Section 3.1.
"Interim Bankruptcy Court Order" means the order dated September 29,
1998 entered by the Bankruptcy Court, a copy of which is attached hereto as
Exhibit A, approving the Interim Agreement, as such order may be amended,
modified or supplemented from time to time with the express written consent of
the Agent, the Majority Lenders, the Borrowers and Alpha Tube and the approval
of the Bankruptcy Court.
"Interim Bankruptcy Court Order Date" means September 29, 1998.
"Interim Agreement" has the meaning specified in the recitals to this
Agreement.
"Inventory" means, with respect to any Acme Party, all of such Acme
Party's now owned and hereafter acquired inventory, goods and merchandise,
wherever located, to be furnished under any contract of service or held for sale
or lease, all returned goods, raw materials, work in process, other materials
and supplies of any kind, nature or description which are or might be consumed
in such Acme Party's business or used in connection with the packing, shipping,
advertising, selling or finishing of such goods, merchandise and such other
personal property, and all documents of title or other documents representing
them.
"IRS" means the Internal Revenue Service and any Governmental
Authority succeeding to any of its principal functions under the Code.
"Latest Projections" means: (a) on the Closing Date and thereafter
until the Agent receives new projections pursuant to Section 7.2(f), the
projections of the consolidated financial condition, results of operations and
cash flow of the Parent and its Subsidiaries for the Parent's current Fiscal
Year and the period commencing on the day after the Parent's current Fiscal Year
and ending on December 31, 2000 (prepared on a monthly basis except for the year
ending December 31, 2000 which shall be prepared on a quarterly or annual
basis), delivered to the Agent prior to the Closing Date; and (b) thereafter,
the projections most recently received by the Agent pursuant to Section 7.2(f).
20
<PAGE> 28
"Lender" and "Lenders" have the meanings specified in the introductory
paragraph hereof and shall include the Agent to the extent of any Agent Advance
outstanding and BABC to the extent of any BABC Loan outstanding; provided that
no such Agent Advance or BABC Loan shall be taken into account in determining
any Lender's Pro Rata Share.
"Letter of Credit" means a letter of credit issued or caused to be
issued for the account of the Borrowers pursuant to Section 2.3.
"Letter of Credit Fee" has the meaning specified in Section 3.5.
"LIBOR Interest Payment Date" means, with respect to a LIBOR Rate
Loan, the last day of each Interest Period applicable to such Loan.
"LIBOR Rate" means, for any Interest Period, with respect to LIBOR
Rate Loans comprising part of the same Borrowing, the rate of interest per annum
(rounded upward to the next 1/1000th of 1.0%) determined by the Agent as
follows:
LIBOR Rate = LIBOR
-----------------
1.00 - Eurodollar Reserve Percentage
where:
"Eurodollar Reserve Percentage" means for any day for any Interest
Period the maximum reserve percentage (expressed as a decimal, rounded upward to
the next 1/100th of 1%) in effect on such day (whether or not applicable to any
Lender) under regulations issued from time to time by the Federal Reserve Board
for determining the maximum reserve requirement (including any emergency,
supplemental or other marginal reserve requirement) with respect to Eurocurrency
funding (currently referred to as "Eurocurrency Liabilities"); and
"LIBOR" means the rate of interest per annum (rounded upward to the
next 1/16th of 1%) notified to the Agent by Bank of America as the rate of
interest at which dollar deposits in the approximate amount of the Loan to be
made or continued as, or converted into, a LIBOR Rate Loan and having a maturity
comparable to such Interest Period would be offered by Bank of America's
applicable lending office to major banks in the London Eurodollar market at
approximately 11:00 a.m. (London time) two Business Days prior to the
commencement of such Interest Period.
"LIBOR Revolving Loan" or "LIBOR Rate Loan" means a Revolving Loan
during any period in which it bears interest based on the LIBOR Rate.
"Lien" means: (a) any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the property, whether such
interest is based on the common law, statute, or contract, and including,
without limitation, a security interest, charge, claim, or lien arising from a
21
<PAGE> 29
mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit
arrangement, agreement, security agreement, conditional sale or trust receipt or
a lease, consignment or bailment for security purposes; and (b) to the extent
not included under clause (a), any reservation, exception, encroachment,
easement, right-of-way, covenant, condition, restriction, lease or other title
exception or encumbrance affecting property.
"Loan Account" means the loan account of the Borrowers, which account
shall be maintained by the Agent.
"Loan Documents" means this Agreement, the Alpha Tube Guaranty, the
Alpha Tube Security Agreement, the Alpha Tube Cash Flow Agreement, the Interim
Agreement, the Interim Bankruptcy Court Order, the Final Bankruptcy Court Order
and any other agreements, instruments, and documents heretofore, now or
hereafter evidencing, securing, guaranteeing or otherwise relating to the
Obligations, the Collateral, or any other aspect of the transactions
contemplated by this Agreement.
"Loans" means, collectively, all loans and advances provided for in
Article 2.
"Majority Lenders" means, at any time, Lenders whose Pro Rata shares
aggregate more than 50% of the Commitments or, if no Commitments shall then be
in effect, Lenders who hold more than 50% of the aggregate principal amount of
the Loans then outstanding.
"Margin Stock" means "margin stock" as such term is defined in
Regulation T, U or X of the Federal Reserve Board.
"Material Adverse Effect" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, condition
(financial or otherwise) or prospects of the Parent and its Subsidiaries taken
as a whole or any material portion of the Collateral; (b) a material impairment
of the ability of the Parent or any of its Subsidiaries to perform under any
Loan Document and to avoid any Event of Default; or (c) a material adverse
effect upon the legality, validity, binding effect or enforceability against the
Parent or any of its Subsidiaries of any Loan Document.
"Maximum Revolver Amount" means $50,000,000 at any time prior to the
Final Bankruptcy Court Order Date and $100,000,000 at any time on or after the
Final Bankruptcy Court Order Date, in each case, as such amount may be reduced
from time to time in accordance with the provisions of Section 4.8.
"Mortgages" means all real property mortgages, leasehold mortgages,
assignments of leases, mortgage deeds, deeds of trust, deeds to secure debt,
security agreements, and other similar instruments now or hereafter entered
into, which provide the Agent a Lien for the benefit of the Agent and Lenders,
on or other interest in any portion of the Real Estate or
22
<PAGE> 30
any other real property or improvements thereon or interests therein now or
hereafter owned or acquired by any Borrower or other Acme Party or which relate
to any such Lien or interest.
"Multi-employer Plan" means a "multi-employer plan" as defined in
Section 4001(a)(3) of ERISA which is or was at any time during the current year
or the immediately preceding six (6) years contributed to by any Acme Party or
any ERISA Affiliate.
"Net Amount of Eligible Accounts" means, at any time, the gross amount
of Eligible Accounts less sales, excise or similar taxes, and less returns,
discounts, claims, credits and allowances of any nature at any time issued,
owing, granted, outstanding, available or claimed.
"Notice of Borrowing" has the meaning specified in Section 2.2(b).
"Notice of Conversion/Continuation" has the meaning specified in
Section 3.2(b).
"Obligations" means all present and future loans, advances,
liabilities, obligations, covenants, duties, and debts owing by any Acme Party
to the Agent and/or any Lender, arising under or pursuant to this Agreement or
any of the other Loan Documents, whether or not evidenced by any note, or other
instrument or document, whether arising from an extension of credit, opening of
a letter of credit, acceptance, loan, guaranty, indemnification or otherwise,
whether direct or indirect (including, without limitation, those acquired by
assignment from others, and any participation by the Agent and/or any Lender in
any Acme Party's debts owing to others), absolute or contingent, due or to
become due, primary or secondary, as principal or guarantor, and including,
without limitation, all principal, interest, charges, expenses, fees, attorneys'
fees, filing fees and any other sums chargeable to any Acme Party hereunder or
under any of the other Loan Documents. "Obligations" includes, without
limitation, all Revolving Loans and all debts, liabilities, and obligations now
or hereafter owing from any Acme Party to the Agent and/or any Lender under or
in connection with the Revolving Loans or the Letters of Credit.
"Operating Cash Flow" means, with respect to any period, EBITDA for
such period less the sum of (i) the aggregate amount of Capital Expenditures
made by the Parent and its Subsidiaries during such period, (ii) the aggregate
amount of bankruptcy and reorganization expenses incurred by the Parent and its
Subsidiaries during such period, (iii) the excess, if any, of (x) the aggregate
amount of actual cash interest payments made by the Parent and its Subsidiaries
during such period over (y) the aggregate amount of cash interest payments
projected to be made by the Parent and its Subsidiaries during such period under
the most recent forecasts covering such period delivered to (and agreed to by)
the Agent prior to the Closing Date, which reflects cash interest payments only
on the Obligations, (iv) the aggregate amount of adequate protection payments
made by the Parent and its Subsidiaries
23
<PAGE> 31
during such period not constituting interest included in clause (iii)(x) above
for such period and (v) the aggregate amount of payments made by the Borrowers
and Alpha Tube during such period with respect to reclamation claims against
Alpha Tube or Alpha Tube's assets permitted to be paid under Section 9.31(v).
"Orders" means and refers to the Interim Bankruptcy Court Order and
the Final Bankruptcy Court Order.
"Other Taxes" means any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies which arise
from any payment made hereunder or from the execution, delivery or registration
of, or otherwise with respect to this Agreement or any other Loan Documents.
"Parent" has the meaning specified in the introductory paragraph to
this Agreement.
"Participating Lender" means any Person who shall have been granted
the right by any Lender to participate in the financing provided by such Lender
under this Agreement, and who shall have entered into a participation agreement
in form and substance satisfactory to such Lender.
"Payment Account" means each blocked bank account established pursuant
to Section 6.9, to which the funds of a Borrower (including, without limitation,
proceeds of Accounts and other Collateral) are deposited or credited, and which
is maintained in the name and under the sole dominion and control of the Agent
on terms acceptable to the Agent.
"PBGC" means the Pension Benefit Guaranty Corporation or any
Governmental Authority succeeding to the functions thereof.
"Pending Revolving Loans" means at any time, the aggregate principal
amount of all Revolving Loans requested by the Borrowers in any Notice(s) of
Borrowing received by the Agent which have not yet been advanced.
"Pension Plan" means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA which any Acme Party sponsors, maintains, or
to which it makes, is making, or is obligated to make contributions, or in the
case of a Multiple-employer Plan has made contributions at any time during the
immediately preceding five (5) plan years.
"Permitted Consignment Inventory" means Inventory acquired or disposed
of in a consignment or approval transaction (x) permitted by Section 6.10 or (y)
prior to the Filing Date (it being agreed that none of such Inventory shall be
deemed to be Eligible Inventory).
"Permitted Liens" means the following Liens (to the extent, with
respect to any Borrower or Alpha Tube or any of its assets or properties, (x) if
created, incurred or assumed by such Borrower or Alpha Tube on or after the
24
<PAGE> 32
Filing Date the same have either been approved and authorized by the Bankruptcy
Court or do not in the aggregate for all of the Borrowers and Alpha Tube
(exclusive of Carve-Out Expenses and Alpha Tube Carve-Out Expenses) secure more
than $10,000,000 and (y) if created, incurred or assumed by such Borrower or
Alpha Tube before the Filing Date same are valid, perfected and non-avoidable in
accordance with applicable law):
(a) Liens for taxes and assessments not delinquent encumbering
assets or properties of any Acme Party (other than Liens encumbering Accounts,
Inventory (other than Permitted Consignment Inventory) or proceeds thereof that
are prior to the Agent's Liens therein) or statutory Liens for taxes encumbering
assets or properties of any Acme Party (other than Liens encumbering Accounts,
Inventory (other than Permitted Consignment Inventory) or proceeds thereof that
are prior to the Agent's Liens therein), provided that the payment of such taxes
which are due and payable (other than those taxes owing prior to the Filing Date
that cannot be paid as a result of a Borrower's or Alpha Tube's status as a
debtor-in-possession) is being contested in good faith and by appropriate
proceedings diligently pursued and as to which adequate financial reserves to
the extent required by GAAP have been established on the relevant Acme Party's
books and records and a stay of enforcement of any such Lien is in effect;
(b) the Agent's Liens;
(c) pledges and deposits under workers' compensation,
unemployment insurance, social security and other similar laws, or to secure the
performance of bids, tenders or contracts (other than for the repayment of
borrowed money) or to secure indemnity, performance or other similar bonds for
the performance of bids, tenders or contracts (other than for the repayment of
borrowed money) or to secure statutory obligations (other than liens arising
under ERISA or Environmental Liens) or surety or appeal bonds, or to secure
indemnity, performance or other similar bonds in the ordinary course of
business;
(d) Liens imposed by law securing the claims or demands (in each
case, arising in the ordinary course of business) of materialmen, mechanics,
carriers, warehousemen, landlords and other like Persons, provided that the
payment of such claims or demands (other than those claims or demands in
existence on the Filing Date that cannot be paid as a result of a Borrower's or
Alpha Tube's status as a debtor-in-possession) are not overdue by more than
thirty (30) days or are being contested in good faith and by appropriate
proceedings diligently pursued or for which adequate surety has been provided
and, in each instance other than with respect to Liens on Real Estate, a stay of
enforcement of any such Lien which arises from the nonpayment of any such claims
or demands is in effect;
(e) Reservations, exceptions, encroachments, easements, rights of
way, covenants running with the land, and other similar title exceptions or
encumbrances affecting any Real Estate; provided that they do
25
<PAGE> 33
not in the aggregate materially detract from the value of the Real Estate or
materially interfere with its use in the ordinary conduct of any Acme Party's
business;
(f) Judgment and other similar Liens arising in connection with
court proceedings, provided that (A) the existence of such Liens is being
contested in good faith and by proper proceedings diligently pursued, (B)
reserves or other appropriate provision, if any, as are required by GAAP have
been made therefor, (C) a stay of enforcement of any such Liens is in effect,
(D) the priority of any such Liens is subordinate to that of the Agent's Liens,
and (E) the existence of any judgment or court proceedings upon which such Liens
are based does not otherwise constitute an Event of Default under this
Agreement;
(g) Purchase Money Liens;
(h) (1) Existing Liens, but only to the extent encumbering
Collateral other than Inventory (other than Permitted Consignment Inventory),
Accounts and the proceeds thereof, and (2) adequate protection Liens for Debt
For Borrowed Money secured by Existing Liens as may be granted by the Bankruptcy
Court, but only (i) with respect to items of plant, property and equipment and
other fixed assets, in connection with the repair, removal, or replacement of
components thereof, which components so repaired, removed or replaced are
already subject to Existing Liens, and which replacement Liens extend only to
similar components as so repaired or replaced, all in the ordinary course of the
Borrowers' operations, (ii) to the extent encumbering Collateral other than
Inventory, Accounts and proceeds thereof and only if such Liens are subordinate
and junior in all respects to the Liens of the Agent therein or (iii) with the
prior written consent of the Agent and the Majority Lenders;
(i) with respect to the Borrowers, Carve-Out Expenses and, with
respect to Alpha Tube, Alpha Tube Carve-Out Expenses (it being understood that
no Person that is entitled to Carve-out Expenses or Alpha Tube Carve-Out
Expenses shall be entitled to a Lien on any Collateral to secure same; and
(j) consignment and approval transactions (and interests of other
Persons) in respect of Inventory (x) permitted by Section 6.10 or (y)
consummated before the Filing Date.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
Governmental Authority, or any other entity.
"Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which any Acme Party sponsors or maintains or to which such Acme Party
makes, is making, or is obligated to make contributions and includes any Pension
Plan.
26
<PAGE> 34
"Premises" means the land identified by addresses on Schedule 8.12,
together with all buildings, improvements and fixtures thereon and all
tenements, hereditaments, and appurtenances belonging or in any way appertaining
thereto, and which constitutes all of the real property in which any Acme Party
has any interests on the Closing Date.
"Priority Professional Expense Cap" has the meaning specified in the
definition of the term "Agreed Administrative Expense Claim Priorities."
"Priority Professional Expenses" has the meaning specified in the
definition of the term "Agreed Administrative Expense Claim Priorities."
"Pro Rata Share" means, with respect to a Lender, a fraction
(expressed as a percentage), the numerator of which is the amount of such
Lender's Commitment and the denominator of which is the sum of the amounts of
all of the Lenders' Commitments, or if no Commitments are outstanding, a
fraction (expressed as a percentage), the numerator of which is the amount of
Obligations owed to such Lender and the denominator of which is the aggregate
amount of the Obligations owed to the Lenders.
"Professional Expenses" has the meaning specified in the definition of
the term "Agreed Administrative Expense Claim Priorities."
"Proprietary Rights" means, with respect to an Acme Party, all of such
Acme Party's now owned and hereafter arising or acquired: licenses, franchises,
permits, patents, patent rights, copyrights, works which are the subject matter
of copyrights, trademarks, service marks, trade names, trade styles, patent,
trademark and service mark applications, and all licenses and rights related to
any of the foregoing, including, without limitation, those patents, trademarks,
service marks, trade names and copyrights set forth on Schedule 8.13 hereto, and
all other rights under any of the foregoing, all extensions, renewals, reissues,
divisions, continuations, and continuations-in-part of any of the foregoing, and
all rights to sue for past, present and future infringement of any of the
foregoing.
"Purchase Money Liens" means purchase money mortgages or other
purchase money Liens (including, without limitation, Capital Leases) in favor of
non-Affiliates of the Acme Parties upon any fixed or capital assets hereafter
acquired by any Acme Party constituting machinery and equipment, or purchase
money mortgages (including, without limitation, Capital Leases) on any such
assets hereafter acquired or existing at the time of acquisition of such assets
by any Acme Party, whether or not assumed, so long as (i) any such Lien does not
extend to or cover any other asset of the applicable Acme Party and (ii) such
Lien secures only the obligation to pay the purchase price of such asset (or the
obligation under such Capital Leases), interest thereon and other customary
incidental obligations relating thereto only.
"Real Estate" means all of the present and future interests of any
Acme Party, as owner, lessee, or otherwise, in any real property or any
27
<PAGE> 35
improvements thereon, including, without limitation, any interest arising from
an option to purchase or lease any such real property or improvements or any
portion thereof.
"Release" means a release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of a
Contaminant into the indoor or outdoor environment or into or out of any Real
Estate or other property, including the movement of Contaminants through or in
the air, soil, surface water, groundwater or Real Estate or other property.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder, other than any such event for
which the 30-day notice requirement under ERISA has been waived in regulations
issued by the PBGC, and other than the commencement of the Case.
"Required Lenders" means, at any time, Lenders whose Pro Rata Shares
aggregate more than 66-2/3% of the Commitments or, if no Commitments shall then
be in effect, Lenders who hold more than 66-2/3% of the aggregate principal
amount of the Loans then outstanding.
"Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its property or to which the Person or any of its property is subject.
"Responsible Officer" means the chief executive officer or the
president of any Borrower, as appropriate, or any other officer having
substantially the same authority and responsibility; or, with respect to
compliance with financial covenants and the preparation of the Borrowing Base
Certificate, the chief financial officer, chief accounting officer, the
controller or the treasurer of such Borrower, or any other officer having
substantially the same authority and responsibility.
"Restricted Investment" means any acquisition of property by any Acme
Party in exchange for cash or other property, whether in the form of an
acquisition of stock, debt, or other indebtedness or obligation, or the purchase
or acquisition of any other property, or a loan, advance, capital contribution,
or subscription, except acquisitions of the following: (a) Equipment to be used
in the business of such Acme Party so long as the acquisition costs thereof
constitute Capital Expenditures permitted hereunder; (b) Inventory in the
ordinary course of business; (c) current assets arising from the sale or lease
of goods or the rendition of services in the ordinary course of business of such
Acme Party; (d) capital advances to Wabush Mines, a Canadian joint venture,
under agreements existing as of the Filing Date not to exceed $3,000,000 in the
aggregate for all such advances during the period commencing on the Filing Date
and ending on the date of termination of this Agreement; (e) obligations of or
guaranteed by the United States of America,
28
<PAGE> 36
its agencies or government-sponsored enterprises; (f) short-term commercial bank
and corporate obligations that have been accorded ratings of at least A2 or P2
by Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc.
("Moody's"), respectively; (g) money market preferred stocks which, at the date
of acquisition, are accorded ratings of at least A- or A-3 by S&P or Moody's,
respectively, (h) tax-exempt obligations that are accorded ratings of at least
A- or A-3 (or equivalent short-term ratings) by S&P or Moody's, respectively, at
the time of purchase; (i) master repurchase agreements with foreign or domestic
banks having a capital surplus of not less than $250,000,000 or primary dealers
so long as such agreements are collateralized with obligations of the United
States of America or its agencies having maturities of no greater than two years
from date of purchase at a ratio of 102% or with collateral rated at least AA or
Aa2 by S&P or Moody's, respectively, at a ratio of 103% and, in either case,
marked-to-market weekly and so long as such securities shall be held by a
third-party agent; (j) 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 AAA or Aaa by S&P or Moody's, respectively; (k) time deposits with,
and certificates of deposit and banker's acceptances issued by, any bank having
a capital surplus and undivided profits aggregating at least $50,000,000; (l)
money market funds, the portfolio of which is limited to investments described
in clauses (e) through (k) above; and (m) other property in an aggregate amount
not to exceed $5,000,000; provided that none of the obligations or other
investments described in any of clauses (e), (f), (h), (j) or (k) shall mature
beyond two years from the date of acquisition thereof.
"Revolving Loans" has the meaning specified in Section 2.2 and
includes each Agent Advance and BABC Loan.
"Settlement" and "Settlement Date" have the meanings specified in
Section 2.2(j)(i).
"Stated Termination Date" means September 29, 2000.
"Subsidiary" of a Person means any corporation, association,
partnership, joint venture or other business entity of which more than fifty
percent (50%) of the voting stock or other equity interests (in the case of
Persons other than corporations), is owned or controlled directly or indirectly
by the Person, or one or more of the Subsidiaries of the Person, or a
combination thereof. Unless the context otherwise clearly requires, references
herein to a "Subsidiary" refer to a Subsidiary of the Parent. Notwithstanding
the foregoing but subject to the next sentence, Tilden Iron Mining Company will
not be deemed a Subsidiary of any Borrower, but shall nevertheless be an
Affiliate of the Borrowers. In any event, any Person which is an Affiliate of
the Parent or any Borrower that executes a Loan Document shall be a Subsidiary
of the Parent and of the applicable Borrower.
29
<PAGE> 37
"Taxes" means any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority.
"Termination Date" means the earliest to occur of (i) the Stated
Termination Date, (ii) the confirmation date of a plan of reorganization for any
of the Borrowers or Alpha Tube, provided that in the event an order of
confirmation of such plan of reorganization has been entered which provides for
(A) the termination of all Lenders' Commitments and payment in full in cash of
all Obligations and the cash collateralization or return of all Letters of
Credit in a manner satisfactory to the Agent and the Lenders (collectively, the
"Termination of the DIP Financing") on or before the effective date of such plan
of reorganization (as such term is used in Section 1129 of the Bankruptcy Code)
and (B) until the Termination of the DIP Financing, the continuity and priority
of the Liens of the Agent in the Collateral, the superpriority administrative
expense claim status of the claims of the Agent and the Lenders under the Loan
Documents and the other rights and remedies of the Agent and the Lenders under
the Loan Documents, in each instance, to the same extent as is provided in the
Final Bankruptcy Court Order, then the effective date of such plan of
reorganization, (iii) the date the Total Facility is terminated either by the
Borrowers pursuant to Section 4.2 or by the Majority Lenders pursuant to Section
11.2, and (iv) the date this Agreement is otherwise terminated for any reason
whatsoever.
"Total Facility" has the meaning specified in Section 2.1.
"UCC" means the Uniform Commercial Code (or any successor statute) of
the State of New York or of any other state, the laws of which are required by
Section 9-103 thereof to be applied in connection with the issue of perfection
of security interests.
"Unfunded Pension Liability" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Plan's assets, in each case determined in accordance with the assumptions used
for funding the Pension Plan pursuant to Section 412 of the Code for the
applicable plan year.
"Unused Letter of Credit Subfacility" means an amount equal to
$10,000,000 minus the sum of (a) the aggregate undrawn amount of all outstanding
Letters of Credit plus (b) the aggregate unpaid reimbursement obligations with
respect to all Letters of Credit.
"Unused Line Fee" has the meaning specified in Section 3.4.
30
<PAGE> 38
ARTICLE 1.2 Accounting Terms. Any accounting term used in this Agreement
shall have, unless otherwise specifically provided herein, the meaning
customarily given in accordance with GAAP, and all financial computations
hereunder shall be computed, unless otherwise specifically provided herein, in
accordance with GAAP as consistently applied as used in the preparation of the
Financial Statements delivered to Agent and Lenders pursuant to Section 8.6;
provided that, other than with respect to the calculation or determination of
any financial covenant test contained in this Agreement, if the Borrowers notify
the Agent that the Borrowers request an amendment to any provision hereof to
eliminate the effect of any change occurring after the date hereof in GAAP or in
the application thereof on the operation of such provision, regardless of
whether any such notice is given before or after such change in GAAP or in the
application thereof, then such provision shall be interpreted on the basis of
GAAP as in effect and applied immediately before such change shall have become
effective until such notice shall have been withdrawn or such provision amended
in accordance herewith.
ARTICLE 1.3 Interpretive Provisions. The meanings of defined terms are
equally applicable to the singular and plural forms of the defined terms.
(a) The words "hereof," "herein," "hereunder" and similar words refer
to this Agreement as a whole and not to any particular provision of this
Agreement; and Subsection, Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(b) The term "documents" includes any and all instruments, documents,
agreements, certificates, indentures, notices and other writings, however
evidenced.
(i) The term "including" is not limiting and means "including,
without limitation."
(ii) In the computation of periods of time from a specified date
to a later specified date, the word "from" means "from and including," the words
"to" and "until" each mean "to but excluding" and the word "through" means "to
and including."
(c) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
31
<PAGE> 39
(d) The captions and headings of this Agreement are for convenience of
reference only and shall not affect the interpretation of this Agreement.
(e) This Agreement and other Loan Documents may use several different
limitations, tests or measurements to regulate the same or similar matters. All
such limitations, tests and measurements are cumulative and shall each be
performed in accordance with their terms.
(f) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Agent, the Borrowers
and the other parties, and are the products of all parties. Accordingly, they
shall not be construed against the Lenders or the Agent merely because of the
Agent's or Lenders' involvement in their preparation.
ARTICLE 2
LOANS AND LETTERS OF CREDIT
ARTICLE 2.1 Total Facility. Subject to all of the terms and conditions of
this Agreement and subject to the Interim Bankruptcy Court Order and the entry
of the Final Bankruptcy Court Order, as the case may be, the Lenders severally
agree to make available a total credit facility of up to $100,000,000 (the
"Total Facility") for the Borrowers' use from time to time during the term of
this Agreement. The Total Facility shall be comprised of a revolving line of
credit consisting of revolving loans and letters of credit up to the Maximum
Revolver Amount, as described in Sections 2.2 and 2.3.
32
<PAGE> 40
ARTICLE 2.2 Revolving Loans.
(a) Amounts. Subject to the satisfaction of the conditions precedent
set forth in Article 10 and subject to the Interim Bankruptcy Court Order and
the Final Bankruptcy Court Order, as the case may be, each Lender severally
agrees, upon the Borrowers' request from time to time on any Business Day during
the period from the Closing Date to but excluding the Termination Date, to make
revolving loans (the "Revolving Loans") to the Borrowers, in amounts not to
exceed (except for BABC with respect to BABC Loans or Agent Advances) such
Lender's Pro Rata Share of the Combined Availability. The Lenders, however, in
their discretion, may elect to make Revolving Loans to the Borrowers or
participate (as provided for in Section 2.3(f)) in the credit support or
enhancement provided through the Agent to the issuers of Letters of Credit in
excess of the Combined Availability on one or more occasions, but if they do so,
neither the Agent nor the Lenders shall be deemed thereby to have changed the
limits of the Maximum Revolver Amount or the Combined Availability or to be
obligated to exceed such limits on any other occasion. If the Combined
Availability is equal or less than zero, the Lenders may refuse to make or
otherwise restrict the making of Revolving Loans as the Lenders determine until
the Combined Availability is greater than zero, subject to the Agent's
authority, in its sole discretion, to make Agent Advances pursuant to the terms
of Section 2.2(i). All loans (including principal, accrued interest and fees)
and all other obligations owing under the Interim Agreement and related
documents shall be deemed to be Revolving Loans hereunder and/or other
Obligations owing under this Agreement. Subject to the terms and conditions set
forth herein, the Borrowers may borrow, prepay and reborrow Revolving Loans.
(b) Procedure for Borrowing. Each Borrowing by the Borrowers shall be
made upon irrevocable written notice of the Parent on behalf of the Borrowers
(which notice shall be deemed a notice by all the Borrowers of such Borrowing)
delivered to the Agent in the form of a Notice of Borrowing substantially in the
form of Exhibit E or another form acceptable to the Agent (each, a "Notice of
Borrowing") together with (if after giving effect to such Borrowing the sum of
(i) the aggregate unpaid balance of all Revolving Loans, (ii) the aggregate
undrawn amount of all outstanding Letters of Credit and (iii) the aggregate
amount of any unpaid reimbursement Obligations in respect of Letters of Credit
shall exceed $20,000,000) a Borrowing Base Certificate reflecting sufficient
Combined Availability (which must be received by the Agent (i) prior to 11:00
a.m. (New York City time) three Business Days prior to the requested Funding
Date, in the case of LIBOR Rate Loans and (ii) no later than 1:00 p.m. on the
requested Funding Date, in the case of Base Rate Loans), specifying:
(A) the amount of the Borrowing (which Borrowing, in the case of
a request for a LIBOR Rate Loan, shall be in the amount of $500,000 or an
integral multiple of $500,000 in excess thereof);
33
<PAGE> 41
(B) the requested Funding Date, which shall be a Business Day;
(C) whether the Revolving Loans requested are to be Base Rate
Revolving Loans or LIBOR Revolving Loans; and
(D) the duration of the Interest Period if the requested
Revolving Loans are to be LIBOR Revolving Loans. If the Notice of Borrowing
fails to specify the duration of the Interest Period for any Borrowing comprised
of LIBOR Rate Loans, such Interest Period shall be three months;
provided, however, that with respect to the new Borrowings to be made on the
Closing Date, such Borrowings will consist of Base Rate Revolving Loans only.
(2) After giving effect to any Borrowing, there may not be more than
eight (8) different Interest Periods in effect for the Borrowers in the
aggregate.
(3) With respect to any request for Base Rate Revolving Loans, in lieu
of delivering the above-described Notice of Borrowing, the Parent on behalf of
the Borrowers may give the Agent telephonic notice of such request by the
required time with such telephonic notice to be confirmed in writing within 24
hours of the giving of such notice but the Agent shall be entitled to rely on
the telephonic notice in making such Revolving Loans.
(c) Reliance upon Authority. On or prior to the Closing Date and
thereafter prior to any change with respect to any of the information contained
in the following clauses (i) and (ii), the Parent on behalf of the Borrowers
shall deliver to the Agent a writing setting forth (i) the account or accounts
of the Borrowers to which the Agent is authorized to transfer the proceeds of
the Revolving Loans requested pursuant to this Section 2.2, and (ii) the names
of the officers and any other designated representatives of the Parent
authorized to request Revolving Loans on behalf of the Borrowers, and shall
provide the Agent with a specimen signature of each such officer and other
designated representatives. The Agent shall be entitled to rely conclusively on
such officer's or designated representatives' authority to request Revolving
Loans on behalf of the Borrowers, the proceeds of which are to be transferred to
any of the accounts specified by the Parent on behalf of the Borrowers pursuant
to the immediately preceding sentence, until the Agent receives written notice
to the contrary. The Agent shall have no duty to verify the identity of any
individual representing him or herself as one of the officers or designated
representatives authorized by the Parent to make such requests on behalf of the
Borrowers.
34
<PAGE> 42
(d) No Liability. The Agent shall not incur any liability to any Borrower
as a result of acting upon any notice referred to in Sections 2.2(b) and (c),
which notice the Agent believes in good faith to have been given by an officer
duly authorized by the Parent to request Revolving Loans or for otherwise acting
in good faith under this Section 2.2, and the crediting of Revolving Loans to
the applicable Borrower's deposit account, or transmittal to such Person as the
Parent on behalf of the Borrowers shall direct, shall conclusively establish the
obligation of the Borrowers to repay such Revolving Loans as provided herein.
(e) Notice Irrevocable. Any Notice of Borrowing (or telephonic notice in
lieu thereof) made pursuant to Section 2.2(b) shall be irrevocable and the
Borrowers shall be bound to borrow the funds requested therein in accordance
therewith.
(f) Agent's Election. Promptly after receipt of a Notice of Borrowing (or
telephonic notice in lieu thereof) pursuant to Section 2.2(b), the Agent shall
elect, in its discretion, (i) to have the terms of Section 2.2(g) apply to such
requested Borrowing, or (ii) to request BABC to make a BABC Loan pursuant to the
terms of Section 2.2(h) in the amount of the requested Borrowing; provided,
however, that if BABC declines in its sole discretion to make a BABC Loan
pursuant to Section 2.2(h), the Agent shall elect to have the terms of Section
2.2(g) apply to such requested Borrowing.
(g) Making of Revolving Loans. In the event that the Agent shall elect to
have the terms of this Section 2.2(g) apply to a requested Borrowing as
described in Section 2.2(f), then promptly after receipt of a Notice of
Borrowing or telephonic notice pursuant to Section 2.2(b), the Agent shall
notify the Lenders by telecopy, telephone or other similar form of transmission,
of the requested Borrowing. Each Lender shall make the amount of such Lender's
Pro Rata Share of the requested Borrowing available to the Agent in same day
funds, to such account of the Agent as the Agent may designate, not later than
1:00 p.m. (New York City time) on the Funding Date applicable thereto. After the
Agent's receipt of the proceeds of such Revolving Loans, upon satisfaction of
the applicable conditions precedent set forth in Article 10, the Agent shall
make the proceeds of such Revolving Loans available to the Borrowers on the
applicable Funding Date by transferring same day funds equal to the proceeds of
such Revolving Loans received by the Agent to the account of the Borrowers,
designated in writing by the Parent on behalf of the Borrowers and acceptable to
the Agent; provided, however, that the amount of Revolving Loans so made on any
date shall in no event exceed the Combined Availability on such date.
(i) Unless the Agent receives notice from a Lender on or prior to the
Closing Date or, with respect to any Borrowing after the Closing Date, at least
one Business Day prior to the date of such Borrowing, that such Lender will not
make available as and when required hereunder to the Agent for the account of
the Borrowers the amount of that Lender's Pro Rata Share of the
35
<PAGE> 43
Borrowing, the Agent may assume that each Lender has made such amount available
to the Agent in immediately available funds on the Funding Date and the Agent
may (but shall not be so required), in reliance upon such assumption, make
available to the Borrowers on such date a corresponding amount. If and to the
extent any Lender shall not have made its full amount available to the Agent in
immediately available funds and the Agent in such circumstances has made
available to the Borrowers such amount, that Lender shall on the Business Day
following such Funding Date make such amount available to the Agent, together
with interest at the Federal Funds Rate for each day during such period. A
notice of the Agent submitted to any Lender with respect to amounts owing under
this subsection shall be conclusive, absent manifest error. If such amount is so
made available, such payment to the Agent shall constitute such Lender's Loan on
the date of Borrowing for all purposes of this Agreement. If such amount is not
made available to the Agent on the Business Day following the Funding Date, the
Agent will notify the Parent on behalf of the Borrowers of such failure to fund
and, upon demand by the Agent, the Borrowers shall pay such amount to the Agent
for the Agent's account, together with interest thereon for each day elapsed
since the date of such Borrowing, at a rate per annum equal to the interest rate
applicable at the time to the Loans comprising such Borrowing. The failure of
any Lender to make any Loan on any Funding Date (any such Lender, prior to the
cure of such failure, being hereinafter referred to as a "Defaulting Lender")
shall not relieve any other Lender of any obligation hereunder to make a Loan on
such Funding Date, but no Lender shall be responsible for the failure of any
other Lender to make the Loan to be made by such other Lender on any Funding
Date.
(ii) The Agent shall not be obligated to transfer to a Defaulting
Lender any payments made by any Borrower to the Agent for the Defaulting
Lender's benefit; nor shall a Defaulting Lender be entitled to the sharing of
any payments hereunder. Amounts payable to a Defaulting Lender shall instead be
paid to or retained by the Agent. The Agent may hold and, in its discretion,
re-lend to the Borrowers the amount of all such payments received or retained by
it for the account of such Defaulting Lender. Any amounts so re-lent to the
Borrowers shall bear interest at the rate applicable to Base Rate Revolving
Loans and for all other purposes of this Agreement shall be treated as if they
were Revolving Loans, provided, however, that for purposes of voting or
consenting to matters with respect to the Loan Documents and determining Pro
Rata Shares, such Defaulting Lender shall be deemed not to be a "Lender" and
such Lender's Commitment shall be deemed to be zero (-0-). Until a Defaulting
Lender cures its failure to fund its Pro Rata Share of any Borrowing (1) such
Defaulting Lender shall not be entitled to any portion of the Unused Line Fee
and (2) the Unused Line Fee shall accrue in favor of the Lenders which have
funded their respective Pro Rata Shares of such requested Borrowing, shall be
allocated among such performing Lenders ratably based upon their relative
Commitments, and shall be calculated based upon the average amount by which the
aggregate Commitments of such performing Lenders exceeds the sum of outstanding
Revolving Loans and the undrawn face amount of all outstanding Letters of
Credit. This section shall remain effective with respect to such Lender until
such time as the Defaulting Lender shall no
36
<PAGE> 44
longer be in default of any of its obligations under this Agreement. The terms
of this Section shall not be construed to increase or otherwise affect the
Commitment of any Lender, or relieve or excuse the performance by any Borrower
of its duties and obligations hereunder.
(h) Making of BABC Loans. In the event the Agent shall elect, with the
consent of BABC, to have the terms of this Section 2.2(h) apply to a requested
Borrowing as described in Section 2.2(f), BABC shall make a Revolving Loan in
the amount of such Borrowing (any such Revolving Loan made solely by BABC
pursuant to this Section 2.2(h) being referred to as a "BABC Loan" and such
Revolving Loans being referred to collectively as "BABC Loans") available to the
Borrowers on the Funding Date applicable thereto by transferring same day funds
to an account of the Borrowers, designated in writing by the Parent on behalf of
the Borrowers and acceptable to the Agent. Each BABC Loan is a Revolving Loan
hereunder and shall be subject to all the terms and conditions applicable to
other Revolving Loans except that all payments thereon shall be payable to BABC
solely for its own account (and for the account of the holder of any
participation interest with respect to such Revolving Loan). The Agent shall not
request BABC to make any BABC Loan if (i) the Agent shall have received written
notice from any Lender, or otherwise has actual knowledge, that one or more of
the applicable conditions precedent set forth in Article 10 will not be
satisfied on the requested Funding Date for the applicable Borrowing, or (ii)
the requested Borrowing would exceed the Combined Availability on such Funding
Date. BABC shall not otherwise be required to determine whether the applicable
conditions precedent set forth in Article 10 have been satisfied or the
requested Borrowing would exceed the Combined Availability on the Funding Date
applicable thereto prior to making, in its sole discretion, any BABC Loan. In no
event shall the aggregate outstanding principal amount of all BABC Loans at any
one time exceed $6,000,000 without the prior written consent of the Lenders.
(i) The BABC Loans shall be repayable as provided herein (including
without limitation Section 2.2(j)) and secured by the Collateral, shall
constitute Revolving Loans and Obligations hereunder, and shall bear interest at
the rate applicable to the Revolving Loans from time to time.
37
<PAGE> 45
(i) Agent Advances. Subject to the limitations set forth in the
provisos contained in this Section 2.2(i), the Agent is hereby authorized by the
Borrowers and the Lenders, from time to time in the Agent's sole discretion, (1)
after the occurrence of a Default or an Event of Default, or (2) at any time
that any of the other applicable conditions precedent set forth in Article 10
have not been satisfied, to make Revolving Loans to the Borrowers on behalf of
the Lenders which the Agent, in its reasonable business judgment, deems
necessary or desirable (A) to preserve or protect the Collateral, or any portion
thereof, (B) to enhance the likelihood of, or maximize the amount of, repayment
of the Loans and other Obligations, or (C) to pay any other amount chargeable to
any Borrower pursuant to the terms of this Agreement, including, without
limitation, costs, fees and expenses as described in Section 15.7 (any of the
advances described in this Section 2.2(i) being hereinafter referred to as
"Agent Advances"); provided, that the Required Lenders may at any time revoke
the Agent's authorization contained in this Section 2.2(i) to make Agent
Advances, any such revocation to be in writing and to become effective
prospectively upon the Agent's receipt thereof. In no event shall the aggregate
outstanding principal amount of all Agent Advances at any one time exceed
$5,000,000 without the prior written consent of the Lenders.
(i) The Agent Advances shall be repayable on demand and secured
by the Collateral, shall constitute Revolving Loans and Obligations hereunder,
and shall bear interest at the rate applicable to the Revolving Loans from time
to time. The Agent shall notify each Lender in writing of each such Agent
Advance.
(j) Settlement. It is agreed that each Lender's funded portion of the
Revolving Loan is intended by the Lenders to be equal at all times to such
Lender's Pro Rata Share of the outstanding Revolving Loans. Notwithstanding such
agreement, the Agent, BABC, and the other Lenders agree (which agreement shall
not be for the benefit of or enforceable by any Borrower) that in order to
facilitate the administration of this Agreement and the other Loan Documents,
settlement among them as to the Revolving Loans, the BABC Loans and the Agent
Advances shall take place on a periodic basis in accordance with the following
provisions:
(i) The Agent shall request settlement ("Settlement") with the
Lenders on a weekly basis, or on a more frequent basis if so determined by the
Agent, (1) on behalf of BABC, with respect to each outstanding BABC Loan, (2)
for itself, with respect to each Agent Advance, and (3) with respect to
collections received, in each case, by notifying the Lenders of such requested
Settlement by telecopy, telephone or other similar form of transmission, of such
requested Settlement, no later than 1:00 p.m. (New York City time) on the date
of such requested Settlement (the "Settlement Date"). Each Lender (other than
BABC, in the case of BABC Loans) shall make the amount of such Lender's Pro Rata
Share of the outstanding principal amount of the BABC Loans and Agent Advances
with respect to which Settlement is requested available to the Agent,
38
<PAGE> 46
for itself or for the account of BABC, in same day funds, to such account of the
Agent as the Agent may designate, not later than 3:00 p.m. (New York City time),
on the Settlement Date applicable thereto, regardless of whether the applicable
conditions precedent set forth in Article 10 have then been satisfied. Such
amounts made available to the Agent shall be applied against the amounts of the
applicable BABC Loan or Agent Advance and, together with the portion of such
BABC Loan or Agent Advance representing BABC's Pro Rata Share thereof, shall
constitute Revolving Loans of such Lenders. If any such amount is not made
available to the Agent by any Lender on the Settlement Date applicable thereto,
the Agent shall be entitled to recover such amount on demand from such Lender
together with interest thereon at the Federal Funds Rate for the first three (3)
days from and after the Settlement Date and thereafter at the Interest Rate then
applicable to the Revolving Loans.
(ii) Notwithstanding the foregoing, not more than one (1) Business Day
after demand is made by the Agent (whether before or after the occurrence of a
Default or an Event of Default and regardless of whether the Agent has requested
a Settlement with respect to a BABC Loan or Agent Advance), each other Lender
shall irrevocably and unconditionally purchase and receive from BABC or the
Agent, as applicable, without recourse or warranty, an undivided interest and
participation in such BABC Loan or Agent Advance to the extent of such Lender's
Pro Rata Share thereof by paying to the Agent, in same day funds, an amount
equal to such Lender's Pro Rata Share of such BABC Loan or Agent Advance. If
such amount is not in fact made available to the Agent by any Lender, the Agent
shall be entitled to recover such amount on demand from such Lender together
with interest thereon at the Federal Funds Rate for the first three (3) days
from and after such demand and thereafter at the Interest Rate then applicable
to the Revolving Loans.
(iii) From and after the date, if any, on which any Lender purchases
an undivided interest and participation in any BABC Loan or Agent Advance
pursuant to subsection (ii) above, the Agent shall promptly distribute to such
Lender at such address as such Lender may request in writing, such Lender's Pro
Rata Share of all payments of principal and interest and all proceeds of
Collateral received by the Agent in respect of such BABC Loan or Agent Advance.
(iv) Between Settlement Dates, the Agent, to the extent no Agent
Advances or BABC Loans are outstanding, may pay over to BABC any payments
received by Agent, which in accordance with the terms of this Agreement would be
applied to the reduction of the Revolving Loans for application to BABC's other
outstanding Revolving Loans. If, as of any Settlement Date, collections received
since the then immediately preceding Settlement Date have been applied to BABC's
other outstanding Revolving Loans other than to BABC Loans or Agent Advances, as
provided for in the previous sentence, BABC shall pay to the Agent for the
accounts of the Lenders, to be applied to the outstanding Revolving Loans of
such Lenders, an amount such that each Lender shall, upon receipt of such
amount, have, as of such Settlement Date, its Pro Rata Share of the Revolving
Loans. During the period
39
<PAGE> 47
between Settlement Dates, BABC with respect to BABC Loans, the Agent with
respect to Agent Advances, and each Lender with respect to the Revolving Loans
other than BABC Loans and Agent Advances, shall be entitled to interest at the
applicable rate or rates payable under this Agreement on the actual average
daily amount of funds employed by BABC, the Agent and the other Lenders.
(k) Notation. The Agent shall record on its books the principal amount of
the Revolving Loans owing to each Lender, including the BABC Loans owing to
BABC, and the Agent Advances owing to the Agent, from time to time. In addition,
each Lender is authorized, at such Lender's option, to note the date and amount
of each payment or prepayment of principal of such Lender's Revolving Loans in
its books and records, including computer records, such books and records
constituting rebuttably presumptive evidence, absent manifest error, of the
accuracy of the information contained therein.
(l) Lenders' Failure to Perform. All Loans (other than BABC Loans and
Agent Advances) shall be made by the Lenders simultaneously and in accordance
with their Pro Rata Shares. It is understood that (a) no Lender shall be
responsible for any failure by any other Lender to perform its obligation to
make any Loans hereunder, nor shall any Commitment of any Lender be increased or
decreased as a result of any failure by any other Lender to perform its
obligation to make any Loans hereunder, (b) no failure by any Lender to perform
its obligation to make any Loans hereunder shall excuse any other Lender from
its obligation to make any Loans hereunder, and (c) the obligations of each
Lender hereunder shall be several, not joint and several.
ARTICLE 2.3 Letters of Credit.
(a) Agreement to Cause Issuance. Subject to the terms and conditions of
this Agreement and subject to the Interim Bankruptcy Court Order and the Final
Bankruptcy Court Order, as the case may be, and in reliance upon the
representations and warranties of the Borrowers herein set forth, the Agent
agrees to cause Letters of Credit to be issued for the joint and several account
of the Borrowers and to provide credit support or other enhancement to banks
acceptable to the Agent and the Borrowers (which banks shall in any event
include, without limitation, Bank of America), which issue Letters of Credit for
the joint and several account of the Borrowers (any such credit support or
enhancement being herein referred to as a "Credit Support") in accordance with
this Section 2.3 from time to time during the term of this Agreement. Upon the
Closing Date, all letters of credit issued pursuant to the Interim Agreement
shall constitute Letters of Credit hereunder with the same effect and status as
if such Letters of Credit were originally issued pursuant to this Agreement.
40
<PAGE> 48
(b) Amounts; Outside Expiration Date. The Agent shall not have any
obligation to cause to be issued any Letter of Credit or to provide Credit
Support for any Letter of Credit at any time if: (1) the maximum undrawn amount
of the requested Letter of Credit is greater than the Unused Letter of Credit
Subfacility at such time; (2) the maximum undrawn amount of the requested Letter
of Credit and all commissions, fees, and charges due from the Borrowers in
connection with the opening thereof exceed the Combined Availability at such
time; or (3) such Letter of Credit has an expiration date later than the Stated
Termination Date (unless on or prior to the Stated Termination Date such Letter
of Credit shall be cash collateralized at 105% of the face amount of such Letter
of Credit) or more than twelve (12) months from the date of its issuance.
(c) Other Conditions. In addition to being subject to the satisfaction of
the applicable conditions precedent contained in Article 10 and subject to the
Interim Bankruptcy Court Order and the Final Bankruptcy Court Order, as the case
may be, the obligation of the Agent to cause to be issued any Letter of Credit
or to provide Credit Support for any Letter of Credit is subject to the
following conditions precedent having been satisfied in a manner satisfactory to
the Agent:
(1) The Borrowers shall have delivered to the proposed issuer of such
Letter of Credit, at such times and in such manner as such proposed issuer may
prescribe, an application in form and substance reasonably satisfactory to such
proposed issuer and the Agent for the issuance of the Letter of Credit and such
other documents as may be required pursuant to the terms thereof, and the form
and terms of the proposed Letter of Credit shall be reasonably satisfactory to
the Agent and such proposed issuer; and
(2) As of the date of issuance, no order of any court, arbitrator or
Governmental Authority shall purport by its terms to enjoin or restrain the
proposed issuer of such Letter of Credit from, the issuance of letters of credit
generally or the issuance of such Letters of Credit.
41
<PAGE> 49
(d) Issuance of Letters of Credit.
(1) Request for Issuance. The Parent on behalf of the Borrowers shall
give the Agent two (2) Business Days' prior written notice of the Borrowers'
request for the issuance of a Letter of Credit. Such notice shall be irrevocable
and shall specify the original face amount of the Letter of Credit requested,
that such Letter of Credit is for the joint and several account of the
Borrowers, the effective date (which date shall be a Business Day) of issuance
of such requested Letter of Credit, whether such Letter of Credit may be drawn
in a single or in partial draws, the date on which such requested Letter of
Credit is to expire (which date shall be a Business Day), the purpose for which
such Letter of Credit is to be issued, and the beneficiary of the requested
Letter of Credit. The Parent on behalf of the Borrowers shall attach to such
notice the proposed form of the Letter of Credit.
(2) Responsibilities of the Agent; Issuance. The Agent shall
determine, as of the Business Day immediately preceding the requested effective
date of issuance of the Letter of Credit set forth in the notice from the Parent
on behalf of the Borrowers pursuant to Section 2.3(d)(1), (i) the amount of the
applicable Unused Letter of Credit Subfacility and (ii) the Combined
Availability as of such date. If (i) the undrawn amount of the requested Letter
of Credit is not greater than the applicable Unused Letter of Credit Subfacility
and (ii) the issuance of such requested Letter of Credit and all commissions,
fees, and charges due from the Borrowers in connection with the opening thereof
would not exceed the Combined Availability, the Agent shall, subject to the
terms and conditions hereof, cause the intended issuer of the Letter of Credit
to issue the requested Letter of Credit on such requested effective date of
issuance.
(3) Notice of Issuance. On each Settlement Date the Agent shall give
notice to each Lender of the issuance of all Letters of Credit issued since the
last Settlement Date.
(4) No Extensions or Amendment. The Agent shall not be obligated to
cause any Letter of Credit to be extended or amended to increase the amount
thereof unless the requirements of this Section 2.3(d) are met as though a new
Letter of Credit were being requested and issued. With respect to any Letter of
Credit which contains any "evergreen" or automatic renewal provision, each
Lender shall be deemed to have consented to any such extension or renewal unless
any such Lender shall have provided to the Agent, not less than thirty (30) days
prior to the last date on which the applicable issuer can in accordance with the
terms of the applicable Letter of Credit decline to extend or renew such Letter
of Credit, written notice that it declines to consent to any such extension or
renewal, provided, that if all of the requirements of this Section 2.3 are met
and no Default or Event of Default exists, no Lender shall decline to consent to
any such extension or renewal.
42
<PAGE> 50
(e) Payments Pursuant to Letters of Credit.
(1) Payment of Letter of Credit Obligations. Each Borrower agrees
jointly and severally to reimburse (i) the applicable issuer for any draw under
any Letter of Credit and (ii) the Agent for the account of the Lenders upon any
payment pursuant to any Credit Support immediately upon demand, and to pay the
issuer of the Letter of Credit the amount of all other obligations and other
amounts payable to such issuer under or in connection with any Letter of Credit
immediately when due, irrespective of any claim, setoff, defense or other right
which such Borrower may have at any time against such issuer or any other
Person. The Borrowers may, pursuant to Section 4.4, finance such reimbursement
obligations with the proceeds of Revolving Loans.
(2) Revolving Loans to Satisfy Reimbursement Obligations. In the
event that the issuer of any Letter of Credit honors a draw under such Letter of
Credit or the Agent shall have made any payment pursuant to any Credit Support
and the Borrowers shall not have repaid such amount to the issuer of such Letter
of Credit or the Agent, as applicable, pursuant to Section 2.3(e)(1), the Agent
shall, upon receiving notice of such failure, notify each Lender of such
failure, and each Lender shall unconditionally pay to the Agent, for the account
of such issuer or the Agent, as applicable, as and when provided hereinbelow, an
amount equal to such Lender's Pro Rata Share of the amount of such payment in
Dollars and in same day funds. If the Agent so notifies the Lenders prior to
1:00 p.m. (New York City time) on any Business Day, each Lender shall make
available to the Agent the amount of such payment, as provided in the
immediately preceding sentence, on such Business Day. Such amounts paid by the
Lenders to the Agent shall constitute Revolving Loans which shall be deemed to
have been requested by the Borrowers pursuant to Section 2.2 as set forth in
Section 4.7.
(f) Participations.
(1) Purchase of Participations. Immediately upon issuance of any
Letter of Credit in accordance with Section 2.3(d), each Lender shall be deemed
to have irrevocably and unconditionally purchased and received without recourse
or warranty, an undivided interest and participation in the Letter of Credit or
the Credit Support provided through the Agent to such issuer in connection with
the issuance of such Letter of Credit, equal to such Lender's Pro Rata Share of
the face amount of such Letter of Credit or the amount of such Credit Support
(including, without limitation, all obligations of the Borrowers with respect
thereto, and any security therefor or guaranty pertaining thereto).
(2) Sharing of Reimbursement Obligation Payments. Whenever the Agent
receives a payment from any Borrower on account of reimbursement obligations in
respect of a Letter of Credit or Credit Support as to which the Agent has
previously received for the account of the issuer
43
<PAGE> 51
thereof payment from a Lender pursuant to Section 2.3(e)(2), the Agent shall
promptly pay to such Lender such Lender's Pro Rata Share of such payment from
such Borrower in Dollars. Each such payment shall be made by the Agent on the
Business Day on which the Agent receives immediately available funds paid to
such Person pursuant to the immediately preceding sentence, if received prior to
3:00 p.m. (New York City time) on such Business Day and otherwise on the next
succeeding Business Day.
(3) Documentation. Upon the request of any Lender, the Agent shall
furnish to such Lender copies of any Letter of Credit, reimbursement agreements
executed in connection therewith, application for any Letter of Credit and
credit support or enhancement provided through the Agent in connection with the
issuance of any Letter of Credit, and such other documentation as may reasonably
be requested by such Lender.
(4) Obligations Irrevocable. The obligations of each Lender to make
payments to the Agent with respect to any Letter of Credit or with respect to
any Credit Support provided through the Agent with respect to a Letter of
Credit, and the obligations of the Borrowers to make payments to the Agent, for
the account of the Lenders, shall be irrevocable, not subject to any
qualification or exception whatsoever (it being understood that any such payment
by the Borrowers shall be without prejudice to, and shall not constitute a
waiver of, any rights the Borrowers might have or might acquire against the
issuer of a Letter of Credit as a result of the improper payment by such issuer
of any draft presented with respect to such Letter of Credit or the
reimbursement by the Borrowers thereof), including, without limitation, any of
the following circumstances:
(ii) any lack of validity or enforceability of this Agreement or any
of the other Loan Documents;
(iii) the existence of any claim, setoff, defense or other right
which any Borrower may have at any time against a beneficiary named in a Letter
of Credit or any transferee of any Letter of Credit (or any Person for whom any
such transferee may be acting), any Lender, the Agent, the issuer of such Letter
of Credit, or any other Person, whether in connection with this Agreement, any
Letter of Credit, the transactions contemplated herein or any unrelated
transactions (including any underlying transactions between any Borrower or any
other Person and the beneficiary named in any Letter of Credit);
(iv) any draft, certificate or any other document presented under the
Letter of Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any respect;
(v) the surrender or impairment of any security for the performance
or observance of any of the terms of any of the Loan Documents; or
44
<PAGE> 52
(vi) the occurrence of any Default or Event of Default.
(g) Recovery or Avoidance of Payments. In the event any payment by or on
behalf of any Acme Party received by the Agent with respect to any Letter of
Credit or Credit Support provided for any Letter of Credit (or any guaranty by
any Acme Party or reimbursement obligation of any Borrower relating thereto) and
distributed by the Agent to the Lenders on account of their respective
participations therein is thereafter set aside, avoided or recovered from the
Agent in connection with any receivership, liquidation or bankruptcy proceeding,
the Lenders shall, upon demand by the Agent, pay to the Agent their respective
Pro Rata Shares of such amount set aside, avoided or recovered, together with
interest at the rate required to be paid by the Agent upon the amount required
to be repaid by it.
(h) Compensation for Letters of Credit.
(1) Letter of Credit Fee. Each Borrower agrees, jointly and
severally, to pay to the Agent with respect to each Letter of Credit, for the
account of the Lenders, the Letter of Credit Fee specified in, and in accordance
with the terms of, Section 3.5.
(2) Issuer Fees and Charges. Each Borrower shall jointly and
severally pay to the issuer of any Letter of Credit, or to the Agent, for the
account of the issuer of any such Letter of Credit, solely for such issuer's
account, such fees and other charges as are charged by such issuer for letters
of credit issued by it, including, without limitation, its standard fees for
issuing, administering, amending, renewing, paying and canceling letters of
credit and all other fees associated with issuing or servicing letters of
credit, as and when assessed.
(i) Indemnification; Exoneration; Power of Attorney.
(1) Indemnification. In addition to amounts payable as elsewhere
provided in this Section 2.3, each Borrower hereby agrees, jointly and
severally, to protect, indemnify, pay and save the Lenders and the Agent
harmless from and against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable attorneys' fees) which
any Lender or the Agent may incur or be subject to as a consequence, direct or
indirect, of the issuance of any Letter of Credit or the provision of any credit
support or enhancement in connection therewith, except that the Borrowers shall
have no such liability to any Lender or the Agent for any such claims, demands,
liabilities, damages, losses, costs, charges and expenses which are finally
determined by a court of competent jurisdiction to have resulted from the gross
negligence or wilful misconduct of such Lender or the Agent, as the case may be.
The agreement in this Section 2.3(i)(1) shall survive payments of all
Obligations.
(2) Assumption of Risk by the Borrowers. As among the Borrowers, the
Lenders, and the Agent, each Borrower assumes all risks of the
45
<PAGE> 53
acts and omissions of, or misuse of any of the Letters of Credit by, the
respective beneficiaries of such Letters of Credit. In furtherance and not in
limitation of the foregoing, the Lenders and the Agent shall not be responsible
for: (A) the form, validity, sufficiency, accuracy, genuineness or legal effect
of any document submitted by any Person in connection with the application for
and issuance of and presentation of drafts with respect to any of the Letters of
Credit, even if it should prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (B) the validity or sufficiency
of any instrument transferring or assigning or purporting to transfer or assign
any Letter of Credit or the rights or benefits thereunder or proceeds thereof,
in whole or in part, which may prove to be invalid or ineffective for any
reason; (C) the failure of the beneficiary of any Letter of Credit to comply
duly with conditions required in order to draw upon such Letter of Credit; (D)
errors, omissions, interruptions, or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise, whether or not they be
in cipher; (E) errors in interpretation of technical terms; (F) any loss or
delay in the transmission or otherwise of any document required in order make a
drawing under any Letter of Credit or of the proceeds thereof; (G) the
misapplication by the beneficiary of any Letter of Credit of the proceeds of any
drawing under such Letter of Credit; or (H) any consequences arising from causes
beyond the control of the Lenders or the Agent, including, without limitation,
any act or omission, whether rightful or wrongful, of any present or future de
jure or de facto Governmental Authority. None of the foregoing shall affect,
impair or prevent the vesting of any rights or powers of the Agent or any Lender
under this Section 2.3(i). Further, none of the foregoing shall prejudice, or
constitute a waiver of, any rights the Borrowers might have as against the
issuer of a Letter of Credit.
(3) Exoneration. In furtherance and extension, and not in limitation,
of the specific provisions set forth above, any action taken or omitted by the
Agent or any Lender under or in connection with any of the Letters of Credit or
any related certificates, if taken or omitted in the absence of gross negligence
or willful misconduct, shall not put the Agent or any Lender under any resulting
liability to any Borrower or relieve any Borrower of any of its obligations
hereunder to any such Person.
(4) Power of Attorney. In connection with all Inventory financed by
Letters of Credit, each Borrower hereby appoints the Agent, or the Agent's
designee, as its attorney, with full power and authority: (a) to sign and/or
endorse such Borrower's name upon any warehouse or other receipts; (b) to sign
such Borrower's name on bills of lading and other negotiable and non-negotiable
documents; (c) to clear Inventory through customs in the Agent's or such
Borrower's name, and to sign and deliver to customs officials powers of attorney
in such Borrower's name for such purpose; (d) to complete in such Borrower's or
the Agent's name, any order, sale, or transaction, obtain the necessary
documents in connection therewith, and collect the proceeds thereof; and (e) to
do such other acts and things as are necessary in order to enable the Agent to
obtain possession of the Inventory and to obtain payment of the Obligations.
Neither the Agent nor its designee, as any Borrower's attorney,
46
<PAGE> 54
will be liable for any acts or omissions, nor for any error of judgement or
mistakes of fact or law, except for acts, omissions, errors or mistakes which
are finally determined by a court of competent jurisdiction to have resulted
from the gross negligence or wilful misconduct of the Agent or its designee, as
the case may be. This power, being coupled with an interest, is irrevocable
until all Obligations have been paid and satisfied.
(5) Account Party. Each Borrower hereby authorizes and directs any
issuer of a Letter of Credit to name such Borrower as an "Account Party" therein
and to deliver to the Agent, with notice thereof to the Parent on behalf of the
Borrowers, all instruments, documents and other writings and property received
by the issuer pursuant to the Letter of Credit, and to accept and rely upon the
Agent's instructions and agreements with respect to all matters arising in
connection with the Letter of Credit or the application therefor.
(6) Control of Inventory. In connection with all Inventory financed
by Letters of Credit, each Borrower will, at the Agent's request, instruct all
suppliers, carriers, forwarders, warehouses or others receiving or holding
Inventory, documents or instruments in which the Agent holds a security interest
to deliver them to the Agent and/or subject to the Agent's order, and if they
shall come into such Borrower's possession, to deliver them, upon request, to
the Agent in their original form. Each Borrower shall also, at the Agent's
request, designate the Agent as the consignee on all bills of lading and other
negotiable and non-negotiable documents.
(j) Cash Collateral. If, notwithstanding the provisions of Section 2.3(b)
and Section 12.1, any Letter of Credit is outstanding upon the termination of
this Agreement, then upon such termination, the Borrowers shall deposit (to the
extent not then on deposit with the Agent pursuant to Section 2.3(b)) with the
Agent, for the ratable benefit of the Agent and the Lenders, with respect to
each Letter of Credit then outstanding, cash in the amount of 105% of the face
amount of such Letter of Credit. Such deposit of cash shall be held by the
Agent, for the ratable benefit of the Agent and the Lenders, as security for,
and to provide for the payment of, the aggregate undrawn amount of such Letters
of Credit remaining outstanding until such time as such Letters of Credit shall
have been terminated or canceled and all of the Obligations owing from the
Borrowers in respect of the Letters of Credit have been paid in full.
47
<PAGE> 55
ARTICLE 3
INTEREST AND FEES
ARTICLE 3.1 Interest.
(a) Interest Rates. All outstanding Obligations shall bear interest on
the unpaid principal amount thereof (including, to the extent permitted by law,
on interest thereon not paid when due) from the date made until paid in full in
cash at a rate determined by reference to the Base Rate or the LIBOR Rate and
Sections 3.1(a)(i) or (ii), as applicable, but not to exceed the Maximum Rate
described in Section 3.3. Subject to the provisions of Section 3.2, any of the
Loans may be converted into, or continued as, Base Rate Loans or LIBOR Rate
Loans in the manner provided in Section 3.2. If at any time Loans are
outstanding with respect to which notice has not been delivered to the Agent in
accordance with the terms of this Agreement specifying the basis for determining
the interest rate applicable thereto, then those Loans shall be Base Rate
Revolving Loans and shall bear interest at a rate determined by reference to the
Base Rate until notice to the contrary has been given to the Agent in accordance
with this Agreement and such notice has become effective. Except as otherwise
provided herein, the outstanding Obligations shall bear interest as follows:
(i) For all Base Rate Revolving Loans and other Obligations
(other than LIBOR Revolving Loans) at a fluctuating per annum rate equal to the
Base Rate plus the Applicable Margin; and
(ii) For all LIBOR Revolving Loans at a per annum rate equal to
the LIBOR Rate plus the Applicable Margin.
Each change in the Base Rate shall be reflected in the interest rate described
in (i) above as of the effective date of such change. All interest charges shall
be computed on the basis of a year of 360 days and actual days elapsed (which
results in more interest being paid than if computed on the basis of a 365-day
year). Interest accrued on all Loans will be payable in arrears on the first day
of each month hereafter and at maturity (whether by acceleration or otherwise);
provided that interest accrued on all LIBOR Revolving Loans having an Interest
Period of one, two or three months will be payable in arrears on the last day of
the Interest Period therefor and interest accrued on all LIBOR Revolving Loans
having an Interest Period of six months will be payable in arrears on the date
which occurs three months after the initial date of the Interest Period therefor
and on the last day of the Interest Period therefor and, in each instance under
this proviso, at maturity (whether by acceleration or otherwise).
48
<PAGE> 56
(b) Default Rate. If any Event of Default occurs and is continuing and
the Majority Lenders in their discretion so elect, then, while any such Event of
Default is continuing, all of the Obligations shall bear interest at the Default
Rate applicable thereto.
ARTICLE 3.2 Conversion and Continuation Elections. The Parent on behalf of
the Borrowers may, upon irrevocable written notice to the Agent in accordance
with Subsection 3.2(b):
(i) elect, as of any Business Day, in the case of Base Rate Loans
to convert any such Loans (or any part thereof in an amount not less than
$500,000, or that is in an integral multiple of $500,000 in excess thereof) into
LIBOR Rate Loans; or
(ii) elect, as of the last day of the applicable Interest Period,
to continue any LIBOR Rate Loans having Interest Periods expiring on such day
(or any part thereof in an amount not less than $500,000, or that is in an
integral multiple of $500,000 in excess thereof);
provided, that if at any time the aggregate amount of LIBOR Rate Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $500,000, such LIBOR Rate Loans shall automatically
convert into Base Rate Loans, and on and after such date the right of the
Borrowers to continue such Loans as, and convert such Loans into, LIBOR Rate
Loans, as the case may be, shall terminate.
(b) The Parent on behalf of the Borrowers shall deliver a Notice of
Conversion/Continuation (substantially in the form of Exhibit F or another form
acceptable to the Agent) (each, a "Notice of Conversion/Continuation") to be
received by the Agent not later than 11:00 a.m. (New York City time) at least
three Business Days in advance of the Conversion/Continuation Date, if the Loans
are to be converted into or continued as LIBOR Rate Loans and specifying:
(i) the proposed Conversion/Continuation Date;
(ii) the aggregate amount of Loans to be converted or renewed;
(iii) the type of Loans resulting from the proposed conversion or
continuation; and
(iv) the duration of the requested Interest Period.
49
<PAGE> 57
(c) If upon the expiration of any Interest Period applicable to LIBOR
Rate Loans, the Borrowers have failed to timely select a new Interest Period to
be applicable to LIBOR Rate Loans or if any Event of Default then exists, the
Borrowers shall be deemed (without the giving of a Notice of
Conversion/Continuation) to have elected to convert such LIBOR Rate Loans into
Base Rate Revolving Loans effective as of the expiration date of such Interest
Period.
(d) The Agent will promptly notify each Lender of its receipt of a
Notice of Conversion/Continuation. All conversions and continuations shall be
made ratably according to the respective outstanding principal amounts of the
Loans with respect to which the notice was given held by each Lender.
(e) During the existence of an Event of Default, the Borrowers may not
elect to have a Loan converted into or continued as a LIBOR Rate Loan.
(f) After giving effect to any conversion or continuation of Loans,
there may not be more than eight (8) different Interest Periods in effect with
respect to the Borrowers in the aggregate.
ARTICLE 3.3 Maximum Interest Rate. In no event shall any interest rate
provided for hereunder exceed the maximum rate legally chargeable by the Lenders
under applicable law for loans of the type provided for hereunder (the "Maximum
Rate"). If, in any month, any interest rate, absent such limitation, would have
exceeded the Maximum Rate, then the interest rate for that month shall be the
Maximum Rate, and, if in future months, that interest rate would otherwise be
less than the Maximum Rate, then that interest rate shall remain at the Maximum
Rate until such time as the amount of interest paid hereunder equals the amount
of interest which would have been paid if the same had not been limited by the
Maximum Rate. In the event that, upon payment in full of the Obligations, the
total amount of interest paid or accrued under the terms of this Agreement is
less than the total amount of interest which would, but for this Section 3.3,
have been paid or accrued if the interest rates otherwise set forth in this
Agreement had at all times been in effect, then the Borrowers shall, to the
extent permitted by applicable law, pay the Agent, for the account of the
Lenders, an amount equal to the difference between (a) the lesser of (i) the
amount of interest which would have been charged if the Maximum Rate had, at all
times, been in effect or (ii) the amount of interest which would have accrued
had the interest rates otherwise set forth in this Agreement, at all times, been
in effect and (b) the amount of interest actually paid or accrued under this
Agreement. In the event that a court determines that the Agent and/or any Lender
has received interest and other charges hereunder in excess of the Maximum Rate,
such excess shall be deemed received on account of, and shall automatically be
applied to reduce, the Obligations other than interest, in the inverse order of
maturity, and if there are no Obligations outstanding, the Agent and/or such
Lender shall refund to the Parent on behalf of the Borrowers such excess.
50
<PAGE> 58
ARTICLE 3.4 Unused Line Fee. Until the Obligations have been paid in full
and this Agreement is terminated, the Borrowers agree, jointly and severally, to
pay, on the first day of each month and on the Termination Date, to the Agent,
for the ratable account of the Lenders, an unused line fee (the "Unused Line
Fee") equal to three-eighths of one percent (0.375%) per annum on the amount by
which the average daily Maximum Revolver Amount exceeded the sum of the average
daily outstanding amount of Revolving Loans, the average daily aggregate undrawn
face amount of all outstanding Letters of Credit plus the average daily
aggregate amount of any unpaid reimbursement Obligations in respect of Letters
of Credit, during the immediately preceding month or shorter period if
calculated on the Termination Date. The Unused Line Fee shall be computed on the
basis of a 360-day year for the actual number of days elapsed. All payments
received by the Agent on account of Accounts or as proceeds of other Collateral
shall be deemed to be credited to the Borrowers' Loan Account immediately upon
receipt for purposes of calculating the unused line fee pursuant to this Section
3.4.
ARTICLE 3.5 Letter of Credit Fee. The Borrowers agree, jointly and
severally, to pay to the Agent, for the ratable account of the Lenders, for each
Letter of Credit (including, without limitation, each letter of credit issued
pursuant to the Interim Agreement), a fee (the "Letter of Credit Fee") equal to
one and three-quarter percent (1.75%) per annum of the outstanding undrawn face
amount of each Letter of Credit, plus all out-of-pocket costs, fees and expenses
incurred by the Agent in connection with the application for, issuance of, or
amendment to any Letter of Credit, which costs, fees and expenses could include
a "fronting fee" required to be paid by the Agent to such issuer for the
assumption of the settlement risk in connection with the issuance of such Letter
of Credit. The Letter of Credit Fee shall be payable by the Borrowers monthly in
arrears on the first day of each month following any month in which a Letter of
Credit was issued and/or in which a Letter of Credit remains outstanding. The
Letter of Credit Fee shall be computed on the basis of a 360-day year for the
actual number of days elapsed. If any Event of Default occurs and is continuing,
then the Letter of Credit Fee shall be three and three-quarter percent (3.75%)
per annum (plus bank charges) and shall be payable on demand.
ARTICLE 3.6 Collateral Management Fee. The Borrowers agree, jointly and
severally, to pay to the Agent, for its own account, on each anniversary of the
Interim Bankruptcy Court Order Date a collateral management fee in the amount of
$100,000. This fee, and all other fees hereunder, shall be fully earned and
non-refundable upon payment.
ARTICLE 3.7 Accommodation Fee. The Borrowers agree, jointly and severally,
to pay to the Agent, for its own account, on the Closing Date an accommodation
fee in the amount of $165,000. Such fee shall be fully earned and non-refundable
upon payment.
51
<PAGE> 59
ARTICLE 4
PAYMENTS AND PREPAYMENTS
ARTICLE 4.1 Revolving Loans. The Borrowers shall repay the outstanding
principal balance of the Revolving Loans, plus all accrued but unpaid interest
thereon, on the Termination Date. The Borrowers may prepay Revolving Loans at
any time, and reborrow subject to the terms of this Agreement; provided,
however, that with respect to any LIBOR Revolving Loans prepaid by any Borrower
prior to the expiration date of the Interest Period applicable thereto, the
Borrowers promise to pay, jointly and severally, to the Agent for account of the
Lenders the amounts described in Section 5.4. In addition, and without limiting
the generality of the foregoing, upon demand the Borrowers promise to pay to the
Agent, for the account of the Lenders, the amount, without duplication, by which
the Combined Availability is less than zero (such payment to be applied first to
outstanding Base Rate Revolving Loans until paid in full with any remaining
portion of such payment to be held by the Agent as cash collateral for the
payment of the Obligations on terms acceptable to the Agent to be applied by the
Agent to other Base Rate Revolving Loans or at the end of the respective
Interest Periods therefor LIBOR Rate Loans; provided that if there shall exist
an Event of Default such cash collateral may be immediately applied by the Agent
to the payment of any Obligations).
ARTICLE 4.2 Termination of Facility. The Borrowers may jointly (but not
individually) terminate this Agreement upon at least thirty (30) Business Days'
notice to the Agent and the Lenders, upon (a) the payment in full of all
outstanding Revolving Loans, together with accrued interest thereon, and the
cancellation of all outstanding Letters of Credit (or delivery to the Agent of
cash collateral therefor under terms acceptable to the Agent), (b) the payment
in full in cash of all other Obligations together with accrued interest thereon,
and (c) with respect to any LIBOR Rate Loans prepaid in connection with such
termination prior to the expiration date of the Interest Period applicable
thereto, the payment of the amounts described in Section 5.4.
ARTICLE 4.3 Payments by the Borrowers. All payments to be made by any
Borrower shall be made without set-off, recoupment or counterclaim. Except as
otherwise expressly provided herein, all payments by any Borrower shall be made
to the Agent for the account of the Lenders at the Agent's address set forth in
Section 15.8, and shall be made in Dollars and in immediately available funds,
no later than 3:00 p.m. (New York City time) on the date specified herein. Any
payment received by the Agent later than 3:00 p.m. (New York City time) shall be
deemed to have been received on the following Business Day and any applicable
interest or fee shall continue to accrue.
52
<PAGE> 60
(a) Subject to the provisions set forth in the definition of "Interest
Period" herein, whenever any payment is due on a day other than a Business Day,
such payment shall be made on the following Business Day, and such extension of
time shall in such case be included in the computation of interest or fees, as
the case may be.
(b) Unless the Agent receives notice from the Borrowers prior to the
date on which any payment is due to the Lenders that the Borrowers will not make
such payment in full as and when required, the Agent may assume that the
Borrowers have made such payment in full to the Agent on such date in
immediately available funds and the Agent may (but shall not be so required), in
reliance upon such assumption, distribute to each Lender on such due date an
amount equal to the amount then due such Lender. If and to the extent the
Borrowers have not made such payment in full to the Agent, each Lender shall
repay to the Agent on demand such amount distributed to such Lender, together
with interest thereon at the Federal Funds Rate for each day from the date such
amount is distributed to such Lender until the date repaid.
ARTICLE 4.4 Payments as Revolving Loans. All payments of principal,
interest, reimbursement obligations in connection with Letters of Credit, fees,
premiums and other sums payable hereunder, including all reimbursement for
expenses pursuant to Section 15.7, may be paid from the proceeds of Revolving
Loans made hereunder, whether made following a request by the Borrowers pursuant
to Section 2.2 or a deemed request as provided in this Section 4.4. Each
Borrower hereby irrevocably authorizes the Agent to charge the Loan Account for
the purpose of paying principal, interest, reimbursement Obligations in
connection with Letters of Credit, fees, premiums and other sums due and payable
hereunder by the Borrowers, including reimbursing expenses pursuant to Section
15.7, and agrees that all such amounts charged shall constitute Revolving Loans
(including BABC Loans and Agent Advances) and that all such Revolving Loans so
made shall be deemed to have been requested by the Borrowers pursuant to Section
2.2.
53
<PAGE> 61
ARTICLE 4.5 Apportionment and Application and Reversal of Payments.
Aggregate principal and interest payments shall be apportioned ratably among the
Lenders (according to the unpaid principal balance of the Loans to which such
payments relate held by each Lender) and payments of the fees shall, as
applicable, be apportioned ratably among the Lenders. All payments shall be
remitted to the Agent and all such payments not relating to principal or
interest of specific Loans, or not constituting payment of specific fees, and
all proceeds of Accounts or other Collateral received by the Agent, shall be
applied, ratably, subject to the provisions of this Agreement, first, to pay any
fees, indemnities or expense reimbursements then due to the Agent from the
Borrowers; second, to pay any fees or expense reimbursements then due to the
Lenders from the Borrowers; third, to pay interest due in respect of all
Revolving Loans, including BABC Loans and Agent Advances; fourth, to pay or
prepay principal of the BABC Loans and Agent Advances; fifth, to pay or prepay
principal of the Revolving Loans (other than BABC Loans and Agent Advances) and
unpaid reimbursement Obligations in respect of Letters of Credit; and sixth, to
the payment of any other Obligation due to the Agent or any Lender by the
Borrowers. Notwithstanding anything to the contrary contained in this Agreement,
unless so directed by the Borrowers, or unless an Event of Default is
outstanding, neither the Agent nor any Lender shall apply any payments which it
receives to any LIBOR Revolving Loan, except on the expiration date of the
Interest Period applicable to any such LIBOR Revolving Loan. The Agent shall
promptly distribute to each Lender, pursuant to the applicable wire transfer
instructions received from each Lender in writing, such funds as it may be
entitled to receive, subject to a Settlement delay as provided for in Section
2.2(j).
ARTICLE 4.6 Indemnity for Returned Payments. If, after receipt of any
payment of, or proceeds applied to the payment of, all or any part of the
Obligations, the Agent or any Lender is for any reason compelled to surrender
such payment or proceeds to any Person, because such payment or application of
proceeds is invalidated, declared fraudulent, set aside, determined to be void
or voidable as a preference, impermissible setoff, or a diversion of trust
funds, or for any other reason, then the Obligations or part thereof intended to
be satisfied shall be revived and continue and this Agreement shall continue in
full force as if such payment or proceeds had not been received by the Agent or
such Lender, and the Borrowers shall be liable, jointly and severally, to pay to
the Agent, and hereby do indemnify the Agent and the Lenders and hold the Agent
and the Lenders harmless for, the amount of such payment or proceeds
surrendered. The provisions of this Section 4.6 shall be and remain effective
notwithstanding any contrary action which may have been taken by the Agent or
any Lender in reliance upon such payment or application of proceeds, and any
such contrary action so taken shall be without prejudice to the Agent's and the
Lenders' rights under this Agreement and shall be deemed to have been
conditioned upon such payment or application of proceeds having become final and
irrevocable. The provisions of this Section 4.6 shall survive the termination of
this Agreement.
54
<PAGE> 62
ARTICLE 4.7 Agent's and Lenders' Books and Records; Monthly Statements.
Each Borrower agrees that the Agent's and each Lender's books and records
showing the Obligations and the transactions pursuant to this Agreement and the
other Loan Documents shall be admissible in any action or proceeding arising
therefrom, and shall constitute rebuttably presumptive proof thereof,
irrespective of whether any Obligation is also evidenced by a promissory note or
other instrument. The Agent will provide to the Parent on behalf of the
Borrowers a monthly statement of Loans, payments, and other transactions
pursuant to this Agreement. Such statement shall be deemed correct, accurate,
and binding on the Borrowers and an account stated (except for corrections of
errors discovered by the Agent), unless the Borrowers notify the Agent in
writing to the contrary within six (6) months after such statement is rendered.
In the event a timely written notice of objections is given by the Borrowers,
only the items to which exception is expressly made will be considered to be
disputed by the Borrowers.
ARTICLE 4.8 Reductions of Maximum Revolver Amount. The Maximum Revolver
Amount may be reduced at any time in integral multiples of $5,000,000 at the
option of the Borrowers, upon not less than seven (7) Business Days' prior
written notice to the Agent, without penalty but subject to compliance with the
mandatory prepayment requirements set forth herein; provided, that the Maximum
Revolver Amount shall not be reduced below $50,000,000. The Commitments of each
Lender shall be reduced on a pro rata basis in connection with any such
reduction such that the aggregate Commitments of all the Lenders shall be equal
to the Maximum Revolver Amount as reduced pursuant to this Section.
ARTICLE 5
TAXES, YIELD PROTECTION AND ILLEGALITY
ARTICLE 5.1 Taxes. Subject to Section 5.1(f), any and all payments by any
Borrower to each Lender or the Agent under this Agreement and any other Loan
Document shall be made free and clear of, and without deduction or withholding
for any Taxes, excluding net income taxes and franchise taxes (imposed in lieu
of net income taxes) imposed on the Agent or any Lender solely as a result of a
present or former connection between the Agent or such Lender and the
jurisdiction of the Governmental Authority imposing such tax or any political
subdivision or taxing authority thereof or therein (other than any such
connection arising from the Agent or such Lender having executed, delivered,
enforced, performed its obligations under or received payments under this
Agreement or any Loan Document) (all such non-excluded Taxes being hereafter
referred to collectively as "Non-Excluded Taxes"). In addition, the Borrowers
shall, jointly and severally, pay all Other Taxes.
55
<PAGE> 63
(a) Subject to Section 5.1(f), each Borrower agrees, jointly and
severally, to indemnify and hold harmless each Lender and the Agent for the full
amount of Non-Excluded Taxes or Other Taxes (including any Taxes or Other Taxes,
whether or not Non-Excluded Taxes, imposed by any jurisdiction on amounts
payable under this Section) paid by the Lender or the Agent and any liability
(including penalties, interest, additions to tax and expenses) arising therefrom
or with respect thereto, whether or not such Taxes or Other Taxes were correctly
or legally asserted. Payment under this indemnification shall be made within
thirty (30) days after the date the Lender or the Agent makes written demand
therefor.
(b) If any Borrower shall be required by law to deduct or withhold any
Non-Excluded Taxes or Other Taxes from or in respect of any sum payable
hereunder to any Lender or the Agent, then:
(i) the sum payable shall be increased (the amount of such
increase, an "additional amount") as necessary so that after making all required
deductions and withholdings (including deductions and withholdings applicable to
additional sums payable under this Section) such Lender or the Agent, as the
case may be, receives an amount equal to the sum it would have received had no
such deductions or withholdings been made;
(ii) such Borrower shall make such deductions and withholdings;
and
(iii) such Borrower shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in accordance with
applicable law.
(c) Within thirty (30) days after the date of any payment by any
Borrower of Non-Excluded Taxes or Other Taxes, such Borrower shall furnish the
Agent the original or a certified copy of a receipt evidencing payment thereof,
or other evidence of payment satisfactory to the Agent.
(d) If any Borrower is required to pay additional amounts to any
Lender or the Agent pursuant to subsection (c) of this Section, then such Lender
shall use reasonable efforts (consistent with legal and regulatory restrictions)
to change the jurisdiction of its lending office so as to eliminate any such
additional payment by such Borrower which may thereafter accrue, if such change
in the judgment of such Lender is not otherwise disadvantageous to such Lender.
56
<PAGE> 64
(e) For any period with respect to which a Lender (or the Agent on
behalf of a Lender) has failed to provide a Borrower with the appropriate form
pursuant to Section 14.10 (unless such failure is due to a change in law), such
Lender (or Agent) shall not be entitled to indemnification under this Section
5.1 with respect to Taxes imposed by the United States; provided, however, that
should a Lender which is otherwise exempt from withholding tax become subject to
Taxes because of its failure to provide a form required hereunder, such Borrower
shall take such steps as such Lender shall reasonably request to assist such
Lender to recover such Taxes.
(f) If a Lender (or the Agent on behalf of a Lender) receives a refund
of, or in respect of, any Non-Excluded Taxes for which a Borrower has paid
additional amounts pursuant to Section 5.1(c), such Lender shall as promptly as
possible pay to such Borrower an amount equal to such refund.
ARTICLE 5.2 Illegality. If any Lender determines that the introduction of
any Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Governmental Authority has asserted
that it is unlawful, for any Lender or its applicable lending office to make
LIBOR Rate Loans, then, on notice thereof by the Lender to the Parent on behalf
of the Borrowers through the Agent, any obligation of that Lender to make LIBOR
Rate Loans shall be suspended until the Lender notifies the Agent and the Parent
on behalf of the Borrowers that the circumstances giving rise to such
determination no longer exist; provided that such Lender shall use reasonable
efforts (consistent with legal and regulatory restrictions) to change the
jurisdiction of its lending office with respect to LIBOR Rate Loans if such
change would permit it to lawfully maintain such LIBOR Rate Loan and if such
change would not in the judgment of such Lender be otherwise disadvantageous to
such Lender.
(a) If a Lender determines that it is unlawful to maintain any LIBOR
Rate Loan, the Borrowers shall, upon their or the Parent's receipt of notice of
such fact and demand from such Lender (with a copy to the Agent), prepay in full
such LIBOR Rate Loans of that Lender then outstanding, together with interest
accrued thereon and amounts required under Section 5.4, either on the last day
of the Interest Period thereof, if the Lender may lawfully continue to maintain
such LIBOR Rate Loans to such day, or immediately, if the Lender may not
lawfully continue to maintain such LIBOR Rate Loan. If the Borrowers are
required to so prepay any LIBOR Rate Loan, then concurrently with such
prepayment, such Borrowers shall borrow from the affected Lender, in the amount
of such repayment, a Base Rate Loan.
57
<PAGE> 65
ARTICLE 5.3 Increased Costs and Reduction of Return. If any Lender
determines that, due to either (i) the introduction of or any change in the
interpretation of any law or regulation or (ii) the compliance by that Lender
with any guideline or request from any central bank or other Governmental
Authority (whether or not having the force of law), there shall be any increase
in the cost to such Lender of agreeing to make or making, funding or maintaining
any LIBOR Rate Loans, then the Borrowers shall be liable for, and shall from
time to time, upon demand (with a copy of such demand to be sent to the Agent),
pay to the Agent for the account of such Lender, additional amounts as are
sufficient to compensate such Lender for such increased costs.
(a) If any Lender shall have determined that (i) the introduction of
any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy
Regulation, (iii) any change in the interpretation or administration of any
Capital Adequacy Regulation by any central bank or other Governmental Authority
charged with the interpretation or administration thereof, or (iv) compliance by
the Lender or any corporation or other entity controlling the Lender with any
Capital Adequacy Regulation, affects or would affect the amount of capital
required or expected to be maintained by the Lender or any corporation or other
entity controlling the Lender and (taking into consideration such Lender's or
such corporation's or other entity's policies with respect to capital adequacy
and such Lender's desired return on capital) determines that the amount of such
capital is increased as a consequence of its Commitment, loans, credits or
obligations under this Agreement, then, upon demand of such Lender to the Parent
on behalf of the Borrowers through the Agent, the Borrowers shall, jointly and
severally, pay to the Lender, from time to time as specified by the Lender,
additional amounts sufficient to compensate the Lender for such increase.
(b) If any Lender requests compensation under subsection (a) or (b) of
this Section, then such Lender shall use reasonable efforts (consistent with
legal and regulatory restrictions) to change the jurisdiction of its lending
office which would eliminate or reduce amounts payable pursuant to subsection
(a) or (b) of this Section, if such change would not in the judgment of such
Lender be otherwise disadvantageous to such Lender.
(c) Failure or delay on the part of any Lender to demand compensation
pursuant to subsection (a) or (b) of this Section shall not constitute a waiver
of such Lender's right to demand such compensation; provided that the Borrowers
shall not be required to compensate a Lender pursuant to subsection (a) or (b)
of this Section for any costs incurred more than 180 days prior to the date that
such Lender notifies the Parent on behalf of the Borrowers of the event giving
rise to such costs and of such Lender's intention to claim compensation
therefor.
58
<PAGE> 66
ARTICLE 5.4 Funding Losses. The Borrowers shall, jointly and severally,
reimburse each Lender and hold each Lender harmless from any loss or expense
which the Lender may sustain or incur as a consequence of:
(a) the failure of the Borrowers to make on a timely basis any payment
of principal of any LIBOR Rate Loan;
(b) the failure of the Borrowers to borrow, continue or convert a Loan
after the Borrowers have given (or is deemed to have given) a Notice of
Borrowing or a Notice of Conversion/ Continuation;
(c) the prepayment or other payment (including after acceleration
thereof) of a LIBOR Rate Loan on a day that is not the last day of the relevant
Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its LIBOR Rate Loans or from fees payable to
terminate the deposits from which such funds were obtained.
ARTICLE 5.5 Inability to Determine Rates. If the Agent determines that for
any reason adequate and reasonable means do not exist for determining the LIBOR
Rate for any requested Interest Period with respect to a proposed LIBOR Rate
Loan, or that the LIBOR Rate for any requested Interest Period with respect to a
proposed LIBOR Rate Loan does not adequately and fairly reflect the cost to the
Lenders of funding such Loan, the Agent will promptly so notify the Parent on
behalf of the Borrowers and each Lender. Thereafter, the obligation of the
Lenders to make or maintain LIBOR Rate Loans hereunder shall be suspended until
the Agent revokes such notice in writing. Upon receipt of such notice, the
Borrowers may revoke any Notice of Borrowing or Notice of
Conversion/Continuation then submitted by it. If the Borrowers do not revoke
such Notice, the Lenders shall make, convert or continue the Loans, as proposed
by the Borrowers, in the amount specified in the applicable notice submitted by
the Borrowers, but such Loans shall be made, converted or continued as Base Rate
Loans instead of LIBOR Rate Loans.
ARTICLE 5.6 Certificates of Lenders. Any Lender claiming reimbursement or
compensation under this Article 5 shall deliver to the Parent on behalf of the
Borrowers (with a copy to the Agent) within 90 days of demand a certificate
setting forth in reasonable detail the amount payable to the Lender hereunder
and such certificate shall be conclusive and binding on the Borrowers in the
absence of manifest error.
59
<PAGE> 67
ARTICLE 5.7 Survival. The agreements and obligations of the Borrowers in
this Article 5 shall survive the payment of all other Obligations.
ARTICLE 5.8 Replacement of Lenders. If the Borrowers are required to pay
any additional amount to any Lender or any Governmental Authority for the
account of any Lender pursuant to Section 5.1, or if any Lender requests
compensation under Section 5.3, or if any Lender defaults in its obligation to
fund Loans hereunder, then the Borrowers may, at their sole expense and effort,
upon notice to such Lender and the Agent, require such Lender to assign and
delegate, without recourse (in accordance with and subject to the restrictions
contained in Section 13.3 with the Borrowers or the assignee being liable to pay
the Agent the processing fee referred to in such Section), all its interests,
rights and obligations under this Agreement to an assignee that shall assume
such obligations (which assignee may be another Lender, if a Lender accepts such
assignment); provided that (i) the Borrowers shall have received the prior
written consent of the Agent, (ii) such Lender shall have received payment of an
amount equal to the outstanding principal of its Loans and participations in
Letters of Credit and Credit Support, accrued interest thereon, accrued fees and
all other amounts payable to it hereunder, from the assignee (to the extent of
such outstanding principal and accrued interest and fees) or the Borrowers (in
the case of all other amounts) and (iii) in the case of any such assignment
resulting from a claim for payments required to be made pursuant to Section 5.1
or compensation under Section 5.3, such assignment will result in a reduction in
such compensation or payments. A Lender shall not be required to make any such
assignment and delegation if, prior thereto, as a result of a waiver by such
Lender or otherwise, the circumstances entitling the Borrowers to require such
assignment and delegation cease to apply. In no event may the Borrowers replace
a Lender which is also an issuer of a Letter of Credit or Credit Support or
whose Affiliate has issued a Letter of Credit or Credit Support unless (x) all
Letters of Credit and Credit Support issued by such Lender and its Affiliates
have expired or have been terminated or canceled and such Lender and/or
Affiliate, as the case may be, shall have been reimbursed for all payments made
by it under the Letters of Credit and Credit Support issued by it or (y) such
Lender and/or Affiliate, as the case may be, shall have been indemnified in a
manner satisfactory to it for any outstanding Letters of Credit and Credit
Support issued by it and other obligations, absolute or contingent, with respect
to Letters of Credit and Credit Support issued by it. Further, in no event may
the Borrowers replace a Lender which is also the Agent.
60
<PAGE> 68
ARTICLE 6
COLLATERAL; ADMINISTRATIVE SUPERPRIORITY
ARTICLE 6.1 Grant of Security Interest. As security for all present and
future Obligations, each Borrower hereby grants to the Agent, for the ratable
benefit of the Agent and the Lenders, a continuing security interest in, lien
on, and right of set-off against, all of the following property of such
Borrower, whether now owned or existing or hereafter acquired or arising,
regardless of where located:
(i) all Accounts;
(ii) all Inventory;
(iii) all contract rights, letters of credit, chattel paper,
instruments, notes, documents, and documents of title;
(iv) all General Intangibles;
(v) all Equipment;
(vi) all money, investment property, securities, security
entitlements, securities accounts and other property of any kind of such
Borrower, including, without limitation, any capital stock or equity interests
in any Subsidiaries of such Borrower;
(vii) all deposit accounts, credits and balances with and other
claims against the Agent or any Lender or any of its affiliates or any other
financial institution in which such Borrower maintains deposits;
(viii) all books, records and other property related to or
referring to any of the foregoing, including, without limitation, books,
records, account ledgers, data processing records, computer software and other
property and General Intangibles at any time evidencing or relating to any of
the foregoing; and
(ix) all accessions to, substitutions for and replacements,
products and proceeds of any of the foregoing, including, but not limited to,
proceeds of any insurance policies, claims against third parties, and
condemnation or requisition payments with respect to all or any of the
foregoing.
All of the foregoing, together with the property or interests therein covered by
the Orders, and all other property of any Borrower or other Person (including,
without limitation, Alpha Tube) in which the Agent or any Lender may at any time
be granted a Lien to secure any or all of the Obligations, is herein
collectively referred to as the "Collateral."
61
<PAGE> 69
(b) As security for all Obligations, the Orders create a Lien in favor
of the Agent, for the ratable benefit of the Agent and the Lenders, on all real
property, improvements thereon and interests therein now or hereafter owned or
acquired by the Borrowers and Alpha Tube. To more fully effectuate such Lien,
the Borrowers shall (and shall cause Alpha Tube to), to the extent requested at
any time during the term of this Agreement by the Agent or the Majority Lenders,
execute and deliver to the Agent Mortgage(s).
(c) All of the Obligations shall be secured by all of the Collateral.
(d) Each Borrower hereby agrees that the Obligations shall constitute
allowed administrative expense claims in its respective Case having priority
pursuant to Section 364(c)(1) of the Bankruptcy Code over all administrative
expense claims and unsecured claims against such Borrower now existing or
hereafter arising, of any kind or nature whatsoever, including, without
limitation, all administrative expense claims of the kind specified in Sections
503(b) and 507(b) of the Bankruptcy Code, subject, as to priority, only to
Carve-Out Expenses, the establishment of which super-priority shall have been
approved and authorized by the Bankruptcy Court. Each of the Borrowers hereby
represents and warrants that the Obligations of Alpha Tube constitute allowed
administrative expense claims in Alpha Tube's Case subject, as to priority, only
to the Alpha Tube Carve-Out Expenses, the establishment of which super-priority
shall have been approved and authorized by the Bankruptcy Court.
(e) The Agent's Liens and the super-priority administrative expense
claim granted pursuant to clause (d) above have been independently granted by
the Loan Documents, and may be independently granted by other Loan Documents
heretofore or hereafter entered into. The Agent's Liens and the super-priority
administrative expense claim granted pursuant to clause (d) above, this
Agreement, the Interim Bankruptcy Court Order, the Final Bankruptcy Court Order
and the other Loan Documents supplement each other, and the grants, priorities,
rights and remedies of the Lenders and the Agent hereunder and thereunder are
cumulative. In the event of a direct conflict between the Interim Bankruptcy
Court Order or the Final Bankruptcy Court Order, on the one hand, and any other
Loan Document, on the other hand, the Interim Bankruptcy Court Order or the
Final Bankruptcy Court Order, as the case may be, shall control.
62
<PAGE> 70
(f) The Agent agrees that, with respect to any Liens of the Agent in
any item or items of Collateral (other than Accounts, Inventory or proceeds
thereof) which is also encumbered by a Permitted Lien described in clause (h)(1)
of such definition, the Agent's Lien therein shall be subordinate and junior in
all respects to such Permitted Lien therein and the Agent shall not exercise any
of its rights or remedies to foreclose or otherwise realize upon such item or
items of Collateral unless (i) the relevant Debt For Borrowed Money secured by
such Permitted Lien on such item or items of Collateral is paid in full or (ii)
the Agent obtains the prior written consent of the requisite holders of such
Debt For Borrowed Money; provided that the foregoing shall in no event prohibit
the Agent from receiving the proceeds of any such Collateral as a junior
lienholder therein in connection with the exercise of rights or remedies with
respect to such Collateral by the holder of any such Permitted Lien.
ARTICLE 6.2 Perfection and Protection of Security Interest. Each Borrower
shall, at its expense, perform all steps requested by the Agent at any time to
more fully effectuate, maintain, protect, and enforce the Agent's Liens,
including, without limitation, at the request of the Agent: (i) executing,
delivering and/or filing and recording of the Mortgage(s) and executing and
filing financing or continuation statements, and amendments thereof, in form and
substance satisfactory to the Agent; (ii) delivering to the Agent the originals
of all instruments, documents, and chattel paper, and all other Collateral of
which the Agent determines it should have physical possession in order to
perfect and protect the Agent's security interest therein, duly pledged,
endorsed or assigned to the Agent without restriction; (iii) delivering to the
Agent warehouse receipts covering any portion of the Collateral located in
warehouses and for which warehouse receipts are issued; (iv) when an Event of
Default exists and is continuing, transferring Inventory to warehouses
designated by the Agent; (v) placing notations on such Borrower's books of
account to disclose the Agent's security interest; (vii) delivering to the Agent
all letters of credit on which such Borrower is named beneficiary; and (viii)
taking such other steps as are deemed necessary or desirable by the Agent to
maintain and protect the Agent's Liens. To the extent permitted by applicable
law, the Agent may file, without any Borrower's signature, one or more financing
statements disclosing the Agent's Liens. Each Borrower agrees that a carbon,
photographic, photostatic, or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement.
63
<PAGE> 71
(a) If any Inventory is at any time in the possession or control of
any warehouseman, bailee or any of any Borrower's or Alpha Tube's agents or
processors, then such Borrower shall (or shall cause Alpha Tube, as appropriate,
to) notify the Agent thereof and shall notify such Person of the Agent's
security interest in such Inventory and, upon the Agent's request, instruct such
Person to hold all such Inventory for the Agent's account subject to the Agent's
instructions (provided that, with respect to (x) consignments of Inventory by
the Borrowers and Alpha Tube or (y) shipments of Inventory by the Borrowers and
Alpha Tube to processors, involving less than $1,000,000 of Inventory with any
customer or processor and less than $2,500,000 of Inventory in the aggregate for
all consignments by the Borrowers and Alpha Tube and shipments by the Borrowers
and Alpha Tube to processors, no such notice or instructions to such Person
shall be required unless requested by the Agent during the existence of an Event
of Default). If at any time any Inventory is located on any operating facility
of a Borrower or Alpha Tube which is not owned by such Borrower or Alpha Tube,
as appropriate, then such Borrower shall (or shall cause Alpha Tube, as
appropriate, to), at the request of the Agent, obtain written waivers, in form
and substance reasonably satisfactory to the Agent, of all present and future
Liens to which the owner or lessor of such premises may be entitled to assert
against the Inventory.
(b) From time to time, each Borrower shall (or shall cause Alpha Tube,
as appropriate, to), upon the Agent's request, execute and deliver confirmatory
written instruments pledging to the Agent, for the ratable benefit of the Agent
and the Lenders, the Collateral with respect to such Borrower or Alpha Tube, as
appropriate, but such Borrower's or Alpha Tube's failure to do so shall not
affect or limit the Agent's security interest or the Agent's other rights in and
to the Collateral with respect to such Borrower or Alpha Tube. So long as this
Agreement is in effect and until all Obligations have been fully satisfied, the
Agent's Liens shall continue in full force and effect in all Collateral (whether
or not deemed eligible for the purpose of calculating the Combined Availability
or as the basis for any advance, loan, extension of credit, or other financial
accommodation).
64
<PAGE> 72
(c) Notwithstanding anything to the contrary contained herein or
elsewhere:
(i) The Agent's Liens shall be deemed valid and perfected by
entry of the Interim Bankruptcy Court Order and the Final Bankruptcy Court
Order, as the case may be. The Agent and the Lenders shall not be required to
file any financing statements, mortgages, notices of lien or similar instruments
in any jurisdiction or filing office, or to take possession of any Collateral or
to take any other action in order to validate or perfect the Liens granted by or
pursuant to this Agreement, the Interim Bankruptcy Court Order, the Final
Bankruptcy Court Order or any other Loan Document. If the Agent or the Majority
Lenders shall, in its or their sole discretion, from time to time elect to file
any such financing statements, mortgages, notices of lien or similar
instruments, take possession of any Collateral or take any other action to
further validate the perfection of all or any portion of the Agent's Liens, all
such documents and actions shall be deemed to have been filed or recorded or
taken at the time and on the Interim Bankruptcy Court Order Date.
(ii) The Liens, lien priorities, super-priority administrative
expense claims and other rights and remedies granted to the Agent and the
Lenders pursuant to this Agreement, the Interim Bankruptcy Court Order, the
Final Bankruptcy Court Order or the other Loan Documents (specifically
including, but not limited to, the existence, perfection and priority of the
Liens provided for herein and therein, and the administrative expense claim
priority provided herein and therein) shall not be modified, altered or impaired
in any manner by any other financing or extension of credit or incurrence of
debt by any Borrower or Alpha Tube (pursuant to Section 364 of the Bankruptcy
Code or otherwise), or by dismissal or conversion of the Case, or by any other
act or omission whatsoever. Without limiting the generality of the foregoing,
notwithstanding any such order, financing, extension, incurrence, dismissal,
conversion, act or omission:
(A) except for the Carve-Out Expenses and Alpha Tube
Carve-Out Expenses, no costs or expenses of administration which have been or
may be incurred in the Case or any conversion of the same or in any other
proceedings related thereto, and no priority claims, are or will be prior to or
on a parity with any claim of any Lenders, Bank of America or the Agent against
any Borrower or Alpha Tube in respect of any Obligation;
(B) the Agent's Liens shall constitute valid and perfected
first priority Liens subject and subordinate only, (x) in the case of the
Agent's Liens encumbering Collateral not consisting of Inventory (other than
Permitted Consignment Inventory), Accounts and the proceeds thereof, to
Permitted Liens described in clause (a), (d), (e), (g), (h), (i) and (j) of the
definition thereof, (y) in the case of the Agent's Liens encumbering Collateral
consisting of Inventory (other than Permitted Consignment Inventory), Accounts
and the proceeds thereof (other than the foregoing under
65
<PAGE> 73
this clause (y) owned by Alpha Tube), Carve-Out Expenses and (z) in the case of
the Agent's Liens encumbering Collateral of Alpha Tube consisting of Inventory
(other than Permitted Consignment Inventory), Accounts and the proceeds thereof,
Alpha Tube Carve-Out Expenses, and in each case under clauses (x), (y) and (z)
above shall be prior to all other Liens, now existing or hereafter arising, in
favor of any other creditor or other Person; and
(C) the Agent's Liens shall continue to be valid and
perfected without the need for the Agent to file financing statements or
mortgages or to otherwise perfect the Agent's Liens under applicable
nonbankruptcy law.
66
<PAGE> 74
ARTICLE 6.3 Location of Inventory. Each Borrower represents and warrants to
the Agent and the Lenders that: (a) Schedule 6.3 is a true and correct list of
such Borrower's and each of its Subsidiaries' chief executive office, the
location of its books and records, the locations of the Inventory (other than
Inventory in transit and other than consigned Inventory or Inventory located at
processors described in the proviso below), and the locations of all of its
other places of business; and (b) Schedule 6.3 correctly identifies any of such
facilities and locations that are not owned by such Borrower or such Subsidiary,
as applicable, and sets forth the names of the owners and lessors or sublessors
(with respect to locations not owned, leased or subleased by any Borrower or
Alpha Tube, if known to such Borrower) of and, if known to such Borrower, the
holders of any mortgages on, such facilities and locations. Each Borrower
covenants and agrees that it will not (and will cause each of its Subsidiaries
not to) (i) maintain any Inventory at any location other than those locations
listed for such Borrower or such Subsidiary, as applicable, on Schedule 6.3
(other than Inventory in transit and other than consigned Inventory or Inventory
located at processors described in the proviso below), (ii) otherwise change or
add to any of such locations, or (iii) change the location of its chief
executive office from the location identified in Schedule 6.3, unless (with
respect to (i), (ii) and (iii) above and, as to the execution of financing
statements and other documents requested by the Agent as provided below, also
with respect to consigned Inventory and Inventory located at processors
described in the proviso below) it gives the Agent at least thirty (30) days'
prior written notice thereof (at least three (3) Business Days' prior written or
oral notice with respect to consigned Inventory and Inventory located at
processors) (any such notice timely received by the Agent to be deemed an
amendment to Schedule 6.3) (provided that with respect to (x) consignments of
Inventory by the Borrowers and Alpha Tube or (y) shipments of Inventory by the
Borrowers and Alpha Tube to processors, (1) involving less than $1,000,000 of
Inventory with any customer or processor and less than $2,500,000 of Inventory
in the aggregate for all consignments by the Borrowers and Alpha Tube and
shipments by the Borrowers and Alpha Tube to processors or (2) to facilities and
locations as to which notice has been given subsequent to the monthly update
referred to below or which appears on the most recent such monthly update, no
such three (3) Business Days' notice shall be required, but the Borrowers shall
nevertheless be required to provide to the Agent a written update in form and
substance satisfactory to the Agent no less often than monthly indicating all
locations of consigned Inventory or Inventory located at processors (which
update shall constitute notice to the Agent of the location of such consigned
Inventory or Inventory located at processors as required above)), and executes
(or, if applicable, causes its relevant Subsidiary to execute) any and all
financing statements and other documents that the Agent requests in connection
therewith.
67
<PAGE> 75
ARTICLE 6.4 Title to, Liens on, and Sale and Use of Collateral. Each
Borrower represents and warrants to the Agent and the Lenders and agrees with
the Agent and the Lenders that: (a) all of its and its Subsidiaries' Collateral
is and will continue to be owned by such Borrower or the relevant Subsidiary, as
applicable, free and clear of all Liens whatsoever, except for Permitted Liens;
(b) the Agent's Liens in such Collateral will not be subject to any prior Lien
other than Permitted Liens described in clause (a) (such prior Liens in such
clause (a) not encumbering any Inventory (other than Permitted Consignment
Inventory), Accounts or proceeds thereof), (d), (e), (g), (h), (i) or (j) of the
definition thereof; (c) such Borrower will (and will cause each of its
Subsidiaries to) use, store, and maintain such Collateral with all reasonable
care and will use such Collateral for lawful purposes only; and (d) such
Borrower will not (and will cause each of its Subsidiaries not to) except as
otherwise permitted by this Agreement, without the Agent's prior written
approval, sell, or dispose of or permit the sale or disposition of any of such
Collateral except for sales of Inventory in the ordinary course of business and
sales of Equipment as permitted by Section 6.11. The inclusion of proceeds in
the Collateral shall not be deemed to constitute the Agent's or any Lender's
consent to any sale or other disposition of the Collateral except as expressly
permitted herein.
ARTICLE 6.5 Appraisals. Whenever an Event of Default exists, and at such
other times not more frequently than once a year as the Agent requests, each
Borrower shall (and shall cause each of its Subsidiaries to), at its expense and
upon the Agent's request, provide the Agent with appraisals or updates thereof
of any or all of its Collateral from an appraiser, and prepared on a basis,
satisfactory to the Agent, such appraisals and updates to include, without
limitation, information required by applicable law and regulation and by the
internal policies of the Lenders.
68
<PAGE> 76
ARTICLE 6.6 Access and Examination; Confidentiality. The Agent, accompanied
by any Lender which so elects, may, upon reasonable notice (and without notice
when a Default or Event of Default exists), at all reasonable times during
regular business hours (and at any time when a Default or Event of Default
exists) have access to, examine, audit, make extracts from or copies of and
inspect any or all of each Borrower's and its Subsidiaries' records, files, and
books of account and the Collateral, and discuss each Borrower's and its
Subsidiaries' affairs with each Borrower's and its Subsidiaries' officers and
management. Each Borrower will (and will cause each of its Subsidiaries to)
deliver to the Agent any instrument necessary for the Agent to obtain records
from any service bureau maintaining records for each Borrower and its
Subsidiaries. If any of a Borrower's or any of its Subsidiaries' records or
reports of the Collateral are prepared by an accounting service or other agent,
such Borrower hereby authorizes (and shall cause each of its Subsidiaries to
authorize) and, upon the request of the Agent, shall cause such service or agent
to deliver such records, reports, and related documents to the Agent, for
distribution to the Lenders, and/or, as the Agent shall choose, provide access
to the Agent thereto. The Agent may, and at the direction of the Majority
Lenders shall, at any time when a Default or Event of Default exists, and at the
Borrowers' expense, make copies of all of any Borrower's and its Subsidiaries'
books and records, or require such Borrower to deliver (or cause to be
delivered) such copies to the Agent. The Agent may, without expense to the
Agent, use such of each Borrower's respective personnel, supplies, and premises
as may be reasonably necessary for maintaining or enforcing the Agent's Liens.
The Agent shall have the right, at any time, in the Agent's name or in the name
of a nominee of the Agent, to verify the validity, amount or any other matter
relating to the Accounts, Inventory, or other Collateral, by mail, telephone, or
otherwise.
69
<PAGE> 77
(a) Each Borrower agrees that, subject to such Borrower's or
Subsidiary's, as the case may be, prior consent for uses other than in a
traditional tombstone, which consent shall not be unreasonably withheld or
delayed, the Agent and each Lender may use such Borrower's or such Subsidiary's
name in advertising and promotional material and in conjunction therewith
disclose the general terms of this Agreement. The Agent and each Lender agree to
take normal and reasonable precautions and exercise due care to maintain the
confidentiality of all information provided to the Agent or such Lender by or on
behalf of such Borrower, under this Agreement or any other Loan Document, and
neither the Agent, nor such Lender nor any of their respective Affiliates shall
use any such information other than in connection with or in enforcement of this
Agreement and the other Loan Documents, except to the extent that such
information (i) was or becomes generally available to the public other than as a
result of disclosure by the Agent or any Lender, or (ii) was or becomes
available on a nonconfidential basis from a source other than such Borrower or
Subsidiary, provided that such source is not bound by a confidentiality
agreement with such Borrower or Subsidiary known to the Agent or such Lender;
provided, however, that the Agent and any Lender may disclose such information
(1) at the request or pursuant to any requirement of any Governmental Authority
to which the Agent or such Lender is subject or in connection with an
examination of the Agent or such Lender by any such Governmental Authority; (2)
pursuant to subpoena or other court process; (3) when required to do so in
accordance with the provisions of any applicable requirement of law; (4) to the
extent reasonably required in connection with any litigation or proceeding
(including, but not limited to, any bankruptcy proceeding) to which the Agent,
any Lender or their respective Affiliates may be party; (5) to the extent
reasonably required in connection with the exercise of any remedy hereunder or
under any other Loan Document; (6) to the Agent's or such Lender's independent
auditors, accountants, attorneys and other professional advisors; (7) to any
prospective Participating Lender or assignee under any Assignment and
Acceptance, actual or potential, provided that such prospective Participating
Lender or assignee agrees to keep such information confidential to the same
extent required of the Agent and the Lenders hereunder; (8) as expressly
permitted under the terms of any other document or agreement regarding
confidentiality to which such Borrower or Alpha Tube is party or is deemed party
with the Agent or such Lender; and (9) to its Affiliates.
70
<PAGE> 78
ARTICLE 6.7 Collateral Reporting. Each Borrower shall provide the Agent
with the following documents at the following times in form satisfactory to the
Agent: (a) on a monthly basis, or more frequently if requested by the Agent, a
schedule of such Borrower's and its Subsidiaries' respective Accounts created
since the last such schedule; (b) on a monthly basis, an aging of such
Borrower's and its Subsidiaries' respective Accounts, together with a
reconciliation to the previous month's aging of such Borrower's and its
Subsidiaries' respective Accounts and to such Borrower's and its Subsidiaries'
respective general ledger; (c) upon request, on a monthly basis, an aging of
such Borrower's and its Subsidiaries' respective accounts payable including
amounts on deposit with vendors; (d) on a monthly basis (or more frequently if
requested by the Agent), within fifteen Business Days of the last day of each
month, Inventory reports by category, with additional detail showing additions
to and deletions from the Inventory (provided that if during such month no Loans
were made or Letters of Credit were issued against Inventory of any Borrower
(based upon the methodology set forth in the parenthetical at the end of clause
(a) of the defined term Combined Availability) such report need only be a
summary report of Inventory); (e) upon request, copies of invoices in connection
with such Borrower's and its Subsidiaries' respective Accounts, customer
statements, credit memos, remittance advices and reports, deposit slips,
shipping and delivery documents in connection with such Borrower's and its
Subsidiaries' respective Accounts and for Inventory and Equipment acquired by
such Borrower or any of its Subsidiaries, purchase orders and invoices; (f) upon
request, a statement of the balance of each of the Intercompany Accounts; (g)
such other reports as to the Collateral of such Borrower and its Subsidiaries as
the Agent shall reasonably request from time to time; (h) on a weekly basis,
within six (6) Business Days following each Sunday, a Borrowing Base Certificate
(to include an update of gross Accounts on a roll forward basis and at least
once a month a detailed calculation of ineligible Accounts and Inventory); and
(i) with the delivery of each of the foregoing, a certificate of such Borrower
executed by an officer thereof certifying as to the accuracy and completeness of
the foregoing.
71
<PAGE> 79
ARTICLE 6.8 Accounts. Each Borrower hereby represents and warrants to the
Agent and the Lenders, with respect to such Borrower's and its Subsidiaries'
respective Accounts, that: (i) each existing Account represents, and each future
Account will represent, a bona fide sale or lease and delivery of goods by such
Borrower or the relevant Subsidiary, as applicable, or rendition of services by
such Borrower or the relevant Subsidiary, as applicable, in the ordinary course
of such Borrower's or such Subsidiary's respective business; (ii) each existing
Account is, and each future Account will be, for a liquidated amount payable by
the Account Debtor thereon on the terms set forth in the invoice therefor or in
the schedule thereof delivered to the Agent, without at the time of creation of
each such Account any offset, deduction, defense, or counterclaim known to such
Borrower except those reported to the Agent and the Lenders pursuant to this
Agreement; (iii) no payment will be received with respect to any Account, and no
credit, discount, or extension, or agreement therefor will be granted on any
Account, except as reported to the Agent and the Lenders in accordance with this
Agreement or properly reflected in a Borrowing Base Certificate; (iv) each copy
of an invoice delivered to the Agent by such Borrower or any of its Subsidiaries
at the request of the Agent will be a genuine copy of the original invoice sent
to the Account Debtor named therein; and (v) all goods described in each invoice
will have been delivered to the Account Debtor and all services of such Borrower
or the relevant Subsidiary, as applicable, described in each invoice will have
been performed.
(a) Neither any Borrower nor any of its Subsidiaries shall re-date any
invoice or sale or make sales on extended dating beyond that customary in such
Borrower's or the relevant Subsidiary's, as applicable, business or modify any
Account or extend any Account beyond 90 days from invoice date without the
Agent's prior written consent. If any Borrower becomes aware of any matter
adversely affecting the collectability of any Account or Account Debtor
involving an amount greater than $1,000,000, including information regarding the
Account Debtor's creditworthiness, such Borrower will promptly so advise the
Agent.
(b) Neither any Borrower nor any of its Subsidiaries shall accept any
note or other instrument (except a check or other instrument for the immediate
payment of money) with respect to any Account without the Agent's written
consent. If the Agent consents to the acceptance of any such instrument, it
shall be considered as evidence of the Account and not payment thereof and such
Borrower will promptly deliver or cause to be delivered such instrument to the
Agent, endorsed by such Borrower or the relevant Subsidiary, as applicable, to
the Agent in a manner satisfactory in form and substance to the Agent.
72
<PAGE> 80
(c) Each Borrower shall notify the Agent promptly of all disputes and
claims in excess of $1,000,000 individually, or $5,000,000 in the aggregate with
any Account Debtor, and agrees (and shall cause each of its Subsidiaries to
agree) to settle, contest, or adjust such dispute or claim at no expense to the
Agent or any Lender. No discount, credit or allowance shall be granted by any
Borrower or any of its Subsidiaries to any such Account Debtor without the
Agent's prior written consent, except for discounts, credits and allowances made
or given in the ordinary course of such Borrower's or the relevant Subsidiary's,
as applicable, business when no Event of Default exists hereunder. Each Borrower
shall send (or cause to be sent) the Agent a copy of each credit memorandum in
excess of $1,000,000 as soon as issued. The Agent may, and at the direction of
the Required Lenders shall, at all times when an Event of Default exists
hereunder, settle or adjust disputes and claims directly with Account Debtors
for amounts and upon terms which the Agent or the Required Lenders, as
applicable, shall consider advisable and, in all cases, the Agent will credit
the Borrowers' Loan Account with only the net amounts received by the Agent in
payment of any Accounts.
(d) Each Borrower shall immediately report (or cause to be reported)
to the Agent any return involving an amount in excess of $1,000,000. Each such
report shall indicate the reasons for the returns and the locations and
condition of the returned Inventory. In the event any Account Debtor returns
Inventory in excess of $250,000 to any Borrower or any of its Subsidiaries when
an Event of Default exists, such Borrower, upon request of the Agent, shall (and
shall cause such Subsidiary to): (i) hold the returned Inventory in trust for
the Agent; (ii) segregate all returned Inventory from all of its other property;
(iii) dispose of the returned Inventory solely according to the Agent's written
instructions; and (iv) not issue any credits or allowances with respect thereto
without the Agent's prior written consent. All returned Inventory shall be
subject to the Agent's Liens thereon. Whenever any Inventory is returned, the
related Account shall be deemed ineligible to the extent of the amount owing by
the Account Debtor with respect to such returned Inventory.
73
<PAGE> 81
ARTICLE 6.9 Collection of Accounts; Payments. The Borrowers shall have
established on or prior to the Closing Date lock-box services for the
establishment of Payment Accounts and for collections of Accounts and other
Collateral at banks reasonably acceptable to the Agent and pursuant to
documentation satisfactory to the Agent (including that such documentation shall
provide for such Payment Accounts and all amounts deposited therein to be
subject to the first priority and sole Lien of the Agent for the benefit of the
Agent and the Lenders). The Borrowers shall instruct all Account Debtors to make
all payments directly to the addresses established for such lock-box services.
If, notwithstanding such instructions, any Borrower receives any proceeds of
Accounts or if any Borrower receives any payments on account of any other
Collateral or any other payments of any source, it shall receive such payments
as the Agent's trustee, and shall immediately (and not less often then daily)
deposit such payments into the applicable Payment Account. All collections and
other payments received in any such lock-box or Payment Account or directly by
the Borrowers and all funds in any Payment Account or other account to which
such collections or payments are deposited shall be subject to the Agent's sole
dominion and control. Each Payment Account shall be governed by an agreement
among the relevant Borrower, the depository bank (which bank shall be acceptable
to the Agent) and the Agent, in form and substance acceptable to the Agent which
shall provide, among other things, that (i) after the occurrence of an Event of
Default or (ii) if Combined Availability is below $20,000,000, the Agent shall
have the right to notify the depository bank that all amounts deposited in such
Payment Account shall thereafter be transferred to an account of the Agent on a
daily basis. All payments so received by the Agent would be credited to the
Borrowers' Loan Account on the date on receipt of good funds, if such good funds
are received by 2:00 p.m. (New York City time) on such day and if received by
the Agent after such time on the next Business Day. The Agent or the Agent's
designee may, at any time after the occurrence and during the continuance of an
Event of Default, notify Account Debtors that the Accounts have been assigned to
the Agent and of the Agent's security interest therein, and may collect them
directly and charge the collection costs and expenses to the Borrowers' Loan
Account as a Revolving Loan. So long as an Event of Default has occurred and is
continuing, the Borrowers, at the Agent's request, shall execute and deliver to
the Agent such documents as the Agent shall require to grant the Agent access to
any post office lock-box in which collections of Accounts are received. The
Parent agrees to collect from Alpha Tube on a daily basis all of the cash of
Alpha Tube unless such collection is prohibited by the terms of the Alpha Tube
Cash Flow Agreement.
74
<PAGE> 82
(a) If sales of Inventory are made for cash, each Borrower shall
immediately deliver to the Agent or deposit into a Payment Account the cash
which such Borrower receives.
(b) All payments, including immediately available funds received by
the Agent at a bank designated by it, received by the Agent on account of
Accounts or as proceeds of other Collateral will be the Agent's sole property
for its benefit and the benefit of the Lenders and will be credited to the
Borrowers' Loan Account (conditional upon final collection) on the date of
receipt of good funds by the Agent if such good funds are received prior to 2:00
p.m. (New York City time) on such date and otherwise one (1) Business Day after
such date of receipt; provided, however, that such payments shall be deemed to
be credited to the Borrowers' Loan Account immediately upon receipt for purposes
of (i) determining Combined Availability, (ii) calculating the unused line fee
pursuant to Section 3.4, and (iii) calculating the amount of interest to be
distributed by the Agent to the Lenders (but not the amount of interest payable
by the Borrowers). Any amounts remaining in the Borrowers' Loan Account in
excess of the then outstanding Obligations shall upon the request of the Parent
on behalf of the Borrowers be remitted to the Parent on behalf of the Borrowers.
(c) In the event the Borrowers repay all of the Obligations upon the
termination of this Agreement or upon acceleration of the Obligations, other
than through the Agent's receipt of payments on account of the Accounts or
proceeds of the other Collateral, such payment will be credited (conditional
upon final collection) to the Borrowers' Loan Account one (1) Business Day after
the Agent's receipt of such funds unless such funds are received by the Agent
prior to 11:00 a.m. (New York City time) on the date of the Agent's receipt
thereof, in which case such funds shall be credited (conditional upon final
collection) to the Borrowers' Loan Account on the date of such receipt.
75
<PAGE> 83
ARTICLE 6.10 Inventory; Perpetual Inventory. Each Borrower represents and
warrants to the Agent and the Lenders and agrees with the Agent and the Lenders
that all of the Inventory owned by such Borrower and each of its Subsidiaries is
and will be held for sale or lease (and in the case of raw materials and work in
process for further processing into finished goods to be held for sale), or to
be furnished in connection with the rendition of services, in the ordinary
course of such Borrower's or such Subsidiary's, as applicable, business. Each
Borrower will keep (and will cause each of its Subsidiaries to keep) its
Inventory in all material respects in good and marketable condition, at its own
expense. Neither any Borrower nor any of its Subsidiaries will acquire or accept
any inventory on consignment or approval (none of which Inventory shall in any
event be Eligible Inventory), without the prior written consent of the Agent,
unless the Agent has received a copy of the agreement or instrument pursuant to
which such Inventory is so acquired or accepted and an agreement or instrument
reasonably satisfactory to the Agent pursuant to which the Person from which
such Inventory is acquired or accepted agrees that any Liens that may arise in
respect of such Inventory does not extend to the proceeds thereof (provided that
in no event may the Borrowers or any of their respective Subsidiaries acquire,
accept or hold any inventory on consignment or approval in an aggregate amount
for the Parent and its Subsidiaries in excess of $10,000,000 at any one time
without the prior written consent of the Agent). Each Borrower agrees that all
Inventory produced in the United States will be produced in accordance with the
Federal Fair Labor Standards Act of 1938, as amended, and all rules,
regulations, and orders thereunder. The Borrowers will conduct (or cause to be
conducted) a physical count of the Inventory at least once per Fiscal Year, and
after and during the continuation of an Event of Default, at such other times as
the Agent requests. The Borrowers will at all times maintain (and will cause
each of their respective Subsidiaries at all times to maintain) Inventory
records in no less detail as such records are maintained by the Borrowers and
their respective Subsidiaries on the Closing Date. During the continuance of an
Event of Default, the Borrowers will not (and will cause their respective
Subsidiaries not to), without the Agent's written consent, sell any Inventory on
a bill-and-hold, guaranteed sale, sale and return, sale on approval,
consignment, or other repurchase or return basis and no such Inventory sold on
any such basis will be deemed to be Eligible Inventory. Any inventory of others
which is on the premises of any Borrower for processing, cutting, manufacturing,
finishing or otherwise, shall be segregated and shall not be reported or
included on any Borrowing Base Certificate as Inventory or Eligible Inventory of
such Borrower. The Borrowers represent and warrant to the Agent and the Lenders
that the aggregate amount of all inventory subject to consignment or approval
transactions consummated before the Filing Date did not, as of the Filing Date,
exceed $10,000,000 with respect to inventory sold or transferred by any Borrower
or any of its Subsidiaries on a consignment or approval basis and $10,000,000
with respect to inventory acquired or accepted by any Borrower or any of its
Subsidiaries on a consignment or approval basis.
76
<PAGE> 84
ARTICLE 6.11 Equipment. Each Borrower represents and warrants to the Agent
and the Lenders and agrees with the Agent and the Lenders that the Equipment
owned by such Borrower and each of its Subsidiaries is and will be used or held
for use in such Borrower's or such Subsidiary's respective business, and is and
will in all material respects be fit for such purposes. Each Borrower shall (and
shall cause each of its Subsidiaries to) keep and maintain its Equipment used or
useful in its business in good operating condition and repair (ordinary wear and
tear excepted) and shall make all necessary replacements thereof, all in
accordance with past practices.
(a) Each Borrower shall promptly inform the Agent of any material
additions to or deletions from the Equipment. Except as disclosed to the Agent,
such Borrower shall not (and shall cause each of its Subsidiaries not to) permit
any Equipment to become a fixture with respect to real property or to become an
accession with respect to other personal property with respect to which real or
personal property the Agent does not have a Lien. Neither any Borrower nor any
of its Subsidiaries will, without the Agent's prior written consent, alter or
remove any identifying symbol or number on any of such Borrower's or such
Subsidiary's Equipment consisting of Collateral.
(b) The Borrowers shall not (and shall cause each of their respective
Subsidiaries not to), without the Majority Lender's written consent, sell, lease
as a lessor, or otherwise dispose of any of the Equipment of the Borrowers or
any of their respective Subsidiaries except as permitted by Section 9.9. Except
as provided in clause (iv) of Section 9.9, all cash proceeds of each such sale
shall, subject to Existing Liens (if any) thereon, be remitted to the Agent for
application to the Revolving Loans (to the extent any Revolving Loans are then
outstanding) or, with respect to sales of Equipment of Alpha Tube only, be used
by Alpha Tube to purchase replacement Equipment. All replacement Equipment
purchased by any Borrower or any of its Subsidiaries shall be free and clear of
all Liens except Permitted Liens.
ARTICLE 6.12 [Intentionally Omitted].
ARTICLE 6.13 Documents, Instruments, and Chattel Paper. Each Borrower
represents and warrants to the Agent and the Lenders that (a) all documents,
instruments, and chattel paper describing, evidencing, or constituting
Collateral, and all signatures and endorsements thereon, are and will be
complete, valid, and genuine, and (b) all goods evidenced by such documents,
instruments, and chattel paper are and will be owned by such Borrower or its
relevant Subsidiary, as applicable, free and clear of all Liens other than
Permitted Liens.
77
<PAGE> 85
ARTICLE 6.14 Right to Cure. The Agent may, in its discretion, and shall, at
the direction of the Majority Lenders, pay any amount or do any act required of
any Borrower hereunder or under any other Loan Document in order to preserve,
protect, maintain or enforce the Obligations, the Collateral or the Agent's
Liens therein, and which such Borrower fails to pay or do (or cause to be paid
or done), including, without limitation, payment of any judgment against such
Borrower or any of its Subsidiaries, any insurance premium, any warehouse
charge, any finishing or processing charge, any landlord's claim, and any other
Lien upon or with respect to the Collateral. All payments that the Agent makes
under this Section 6.14 and all out-of-pocket costs and expenses that the Agent
pays or incurs in connection with any action taken by it hereunder shall be
charged to the Borrowers' Loan Account as a Revolving Loan. Any payment made or
other action taken by the Agent under this Section 6.14 shall be without
prejudice to any right to assert an Event of Default hereunder and to proceed
thereafter as herein provided.
ARTICLE 6.15 Power of Attorney. Each Borrower hereby appoints the Agent and
the Agent's designee as such Borrower's attorney, with power: (a) so long as any
Event of Default has occurred and is continuing, to endorse such Borrower's name
on any checks, notes, acceptances, money orders, or other forms of payment or
security that come into the Agent's or any Lender's possession; (b) to sign such
Borrower's name on any invoice, bill of lading, warehouse receipt or other
document of title relating to any Collateral, on drafts against customers, on
assignments of Accounts, on notices of assignment, financing statements and
other public records and to file any such financing statements by electronic
means with or without a signature as authorized or required by applicable law or
filing procedure; (c) so long as any Event of Default has occurred and is
continuing, to notify the post office authorities to change the address for
delivery of such Borrower's mail to an address designated by the Agent and to
receive, open and dispose of all mail addressed to such Borrower; (d) to send
requests for verification of Accounts to customers or Account Debtors in
conformity with this Agreement; and (e) to do all things reasonably necessary to
carry out this Agreement. Each Borrower ratifies and approves all acts of such
attorney. None of the Lenders or the Agent nor their attorneys will be liable
for any acts or omissions taken in good faith or for any good faith error of
judgment or mistake of fact or law, except for such acts, omissions or errors
which are finally determined by a court of competent jurisdiction to constitute
the gross negligence or willful misconduct of the Agent or such Lender. This
power, being coupled with an interest, is irrevocable until this Agreement has
been terminated and the Obligations have been fully satisfied.
78
<PAGE> 86
ARTICLE 6.16 The Agent's and Lenders' Rights, Duties and Liabilities. Each
Borrower assumes all responsibility and liability arising from or relating to
the use, sale or other disposition of the Collateral, except to the extent such
liability is finally determined by a court of competent jurisdiction to have
resulted from acts or omissions on the part of the Agent or any Lender
constituting gross negligence or willful misconduct. The Obligations shall not
be affected by any failure of the Agent or any Lender to take any steps to
perfect the Agent's Liens or to collect or realize upon the Collateral, nor
shall loss of or damage to the Collateral release any Borrower from any of the
Obligations. Following the occurrence and continuation of an Event of Default,
the Agent may (but shall not be required to), and at the direction of the
Majority Lenders shall, without notice to or consent from any Borrower, sue upon
or otherwise collect, extend the time for payment of, modify or amend the terms
of, compromise or settle for cash, credit, or otherwise upon any terms, grant
other indulgences, extensions, renewals, compositions, or releases, and take or
omit to take any other action with respect to the Collateral, any security
therefor, any agreement relating thereto, any insurance applicable thereto, or
any Person liable directly or indirectly in connection with any of the
foregoing, without discharging or otherwise affecting the liability of any
Borrower for the Obligations or under this Agreement or any other agreement now
or hereafter existing between the Agent and/or any Lender and any Borrower.
ARTICLE 7
BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES
ARTICLE 7.1 Books and Records. Each Borrower shall maintain (and shall
cause each of its Subsidiaries to maintain), at all times, correct and complete
books, records and accounts in which complete, correct and timely entries are
made of its transactions in all material respects in accordance with GAAP
applied consistently with the audited Financial Statements required to be
delivered pursuant to Section 7.2(a). Each Borrower shall (and shall cause each
of its Subsidiaries to), by means of appropriate entries, reflect in such
accounts and in all Financial Statements proper liabilities and reserves for all
taxes and proper provision for depreciation and amortization of property and bad
debts, all in accordance with GAAP in all material respects. Each Borrower shall
maintain (and shall cause each of its Subsidiaries to maintain) at all times
books and records pertaining to the Collateral in such detail, form and scope as
the Agent or any Lender shall reasonably require, including, but not limited to,
records of (a) all payments received and all credits and extensions granted with
respect to the Accounts; (b) the return, rejections, repossession, stoppage in
transit, loss, damage, or destruction of any Inventory; and (c) all other
dealings affecting the Collateral.
79
<PAGE> 87
ARTICLE 7.2 Financial and Other Information. Each Borrower shall promptly
furnish to each Lender, all such financial information as the Agent or any
Lender shall reasonably request. Without limiting the foregoing, the Borrowers
will furnish to the Agent, in sufficient copies for distribution by the Agent to
each Lender, in such detail as the Agent or the Lenders shall request, the
following:
(a) As soon as available, but in any event not later than ninety-five
(95) days after the close of each Fiscal Year, (x) a consolidated audited
balance sheet and a consolidated audited statement of operations, cash flow and
of stockholders' equity for the Parent and its consolidated Subsidiaries for
such Fiscal Year, and the accompanying notes thereto, setting forth in each case
in comparative form figures for the previous Fiscal Year, all in reasonable
detail, fairly presenting in all material respects the financial position and
the results of operations of the Parent and its consolidated Subsidiaries as at
the date thereof and for the Fiscal Year then ended, in conformity with GAAP and
(y) consolidating unaudited balance sheets and consolidating unaudited
statements of operations, cash flow and of stockholders' equity for the Parent
and its consolidated Subsidiaries for such Fiscal Year, setting forth in each
case in comparative form figures for the previous Fiscal Year, all in reasonable
detail, fairly presenting in all material respects the financial position and
the results of operations of the Parent and its consolidated Subsidiaries as at
the date thereof and for the Fiscal Year then ended, and in conformity with GAAP
(except for reclassifications for public reporting purposes and the absence of
footnotes). Such consolidated statements shall be examined in accordance with
generally accepted auditing standards by and, in the case of such statements
performed on a consolidated basis, accompanied by a report thereon unqualified
as to scope of PricewaterhouseCoopers or other independent certified public
accountants selected by the Parent and reasonably satisfactory to the Agent. The
Parent, simultaneously with retaining such independent public accountants to
conduct such annual audit, shall send a letter (in form acceptable to the Agent)
to such accountants, with a copy to the Agent and the Lenders, notifying such
accountants that one of the primary purposes for retaining such accountants'
services and having audited financial statements prepared by them is for use by
the Agent and the Lenders. Each of the Borrowers understands that the Agent may
from time to time request (i) to communicate directly with such Borrower's
certified public accountants and discuss directly with such accountants the
finances and affairs of such Borrower and its consolidated Subsidiaries and (ii)
that such accountants disclose to the Agent any and all financial statements of
such Borrower and its consolidated Subsidiaries and other supporting financial
documents and schedules relating to such Borrower and its consolidated
Subsidiaries. Each Borrower agrees to use its best efforts to cause its
independent certified public accountants to agree to such communication and
disclosure and to cooperate with the Agent therewith. The Agent agrees to
provide the Parent on behalf of the Borrowers with reasonable prior notice of
the Agent's intention to communicate with any Borrower's certified public
accountants and/or request disclosure of financial statements
80
<PAGE> 88
of any Borrower or any of its consolidated Subsidiaries and/or other supporting
financial documents and schedules relating to a Borrower or any of its
consolidated Subsidiaries and an opportunity to be present at any such
communication and/or disclosure. The Parent shall certify by a certificate
signed by its chief financial officer or chief accounting officer that all such
consolidating statements present fairly in all material respects the financial
position of the Parent and its consolidated Subsidiaries as at the date thereof
and the results of operation of the Parent and its consolidated Subsidiaries for
the Fiscal Year then ended, in conformity with GAAP (except for
reclassifications for public reporting purposes and the absence of footnotes)
applied consistently with the audited Financial Statements required to be
delivered pursuant to this Section 7.2(a).
(b) As soon as available, but in any event not later than forty-five
(45) days after the end of each month, consolidated and consolidating unaudited
balance sheets of the Parent and its consolidated Subsidiaries as at the end of
such month, and consolidated and consolidating unaudited statements of
operations and cash flow for the Parent and its consolidated Subsidiaries for
such month and for the period from the beginning of the Fiscal Year to the end
of such month, all in reasonable detail. The Parent shall certify by a
certificate signed by its chief financial officer or chief accounting officer
that all such statements present fairly in all material respects, subject to
normal year-end adjustments, the financial position of the Parent and its
consolidated Subsidiaries as at the dates thereof and the results of operation
of the Parent and its consolidated Subsidiaries for the periods then ended in
conformity with GAAP applied consistently with the audited Financial Statements
required to be delivered pursuant to Section 7.2(a) (except for the absence of
footnotes and other reclassifications for public reporting purposes). The
Borrowers shall include with the monthly financial statements required to be
delivered by this Section 7.2(b) a report of open orders as at the end of the
month for which such financial statement is being delivered. Such report shall
be in form and substance satisfactory to the Agent.
(c) As soon as available, but in any event not later than forty-five
(45) days after the close of each fiscal quarter other than the fourth quarter
of a Fiscal Year, consolidated and consolidating unaudited balance sheets of the
Parent and its consolidated Subsidiaries as at the end of such quarter, and
consolidated and consolidating unaudited statements of operations and statements
of cash flow for the Parent and its consolidated Subsidiaries for such quarter
and for the period from the beginning of the Fiscal Year to the end of such
quarter, all in reasonable detail. The Parent shall certify by a certificate
signed by its chief financial officer or chief accounting officer that all such
statements present fairly in all material respects, subject to normal year-end
adjustments, the financial position of the Parent and its consolidated
Subsidiaries as at the dates thereof and the results of operations of the Parent
and the consolidated Subsidiaries for the periods then ended in conformity with
GAAP applied consistently with the audited Financial Statements required to be
delivered pursuant to
81
<PAGE> 89
Section 7.2(a) (except for the absence of footnotes and other reclassifications
for public reporting purposes).
(d) With each of the audited Financial Statements delivered pursuant
to Section 7.2(a), a certificate of the independent certified public accountants
that examined such statement to the effect that they have reviewed this
Agreement and that, in examining such Financial Statements, they did not become
aware of any fact or condition which then caused them to believe that the
Borrowers failed to comply with Section 9.24 insofar as it relates to accounting
matters, except for those, if any, described in such certificate.
(e) With each of the annual audited Financial Statements delivered
pursuant to Section 7.2(a), and within forty-five (45) days after the end of
each fiscal quarter (other than the fourth quarter of a Fiscal Year), a
certificate of the chief financial officer or chief accounting officer of the
Parent (i) setting forth in reasonable detail the calculations required to
establish that the Borrowers were in compliance with the covenant set forth in
Section 9.24 during the period covered in such Financial Statements and as at
the end thereof, and (ii) stating that, except as explained in reasonable detail
in such certificate, (A) all of the representations and warranties of the
Borrowers and the other Acme Parties contained in this Agreement and the other
Loan Documents are true and correct in all material respects as at the date of
such certificate as if made at such time, (B) the Borrowers and the other Acme
Parties are, at the date of such certificate, in compliance in all material
respects with all of their respective covenants and agreements in this Agreement
and the other Loan Documents, (C) no Default or Event of Default then exists or
existed during the period covered by such Financial Statements and (D)
explaining the variances of the figures in the corresponding budgets and prior
Fiscal Year financial statements. If such certificate discloses that a
representation or warranty is not true or correct, or that a covenant has not
been complied with, in each case, in all material respects, or that a Default or
Event of Default existed or exists, such certificate shall set forth what action
the Parent has taken or proposes to take with respect thereto.
(f) No sooner than thirty (30) days prior but not more than sixty (60)
days after the beginning of each Fiscal Year, annual forecasts (to include a
forecasted consolidated balance sheet, statement of operations and statement of
cash flow) for the Parent and its Subsidiaries as at the end of and for each
month of such Fiscal Year.
(g) Promptly after filing with the PBGC and the IRS, a copy of each
annual report or other filing filed with respect to each Plan of any Acme Party.
(h) Promptly upon the filing thereof, copies of all reports, if any,
to or other documents filed by the Parent or any of its Subsidiaries with the
Securities and Exchange Commission under the Exchange
82
<PAGE> 90
Act, and all reports, notices, or statements sent or received by the Parent or
any of its Subsidiaries to or from the holders of any equity interests of the
Parent (other than routine non-material correspondence sent by shareholders of
the Parent to the Parent and other than material sent to members of any Acme
Party's board of directors in their capacity as members of the board) or any
such Subsidiary or of any Debt For Borrowed Money of the Parent or any of its
Subsidiaries registered under the Securities Act of 1933 or to or from the
trustee under any indenture under which the same is issued.
(i) As soon as available, but in any event not later than fifteen (15)
days after any Borrower's or any of its Subsidiaries' receipt thereof, a copy of
all management reports and management letters prepared for any Borrower or any
of its Subsidiaries by any independent certified public accountants of any
Borrower or any of its Subsidiaries.
(j) Promptly after their preparation, copies of any and all proxy
statements, financial statements, and reports which any Borrower or any of its
Subsidiaries makes available to its shareholders, to the extent the same are
required pursuant to the Exchange Act, or the Securities Act of 1933 or other
federal or state securities laws.
(k) Promptly after filing with the IRS, a copy of each federal tax
return filed by the Parent or by any of its Subsidiaries.
(l) Copies of all pleadings, motions, applications, plans, disclosure
statements, schedules, reports, financial information and other materials and
documents filed in connection with the Case (other than notices of appearance
and motions and orders relating to pro hac vice admissions) promptly following
the filing thereof.
(m) As soon as available, but in any event not later than twenty (20)
Business Days after the end of each month, a "Black Book" for the month just
ended in substantially the form attached as Exhibit H.
(n) Such additional information as the Agent and/or any Lender may
from time to time reasonably request regarding the financial and business
affairs of the Parent or any Subsidiary thereof.
ARTICLE 7.3 Notices to the Lenders. Each Borrower shall notify the Agent,
in writing of the following matters at the following times:
(a) Immediately after becoming aware of any Default or Event of
Default.
(b) Immediately after becoming aware of the assertion by the holder of
any capital stock of such Borrower or any of its Subsidiaries or of any material
post-petition Debt thereof that a default exists with respect thereto or that
such Borrower or Subsidiary is not in compliance with the
83
<PAGE> 91
terms thereof, or the threat or commencement by such holder of any enforcement
action because of such asserted default or non-compliance.
(c) Immediately after becoming aware of any material adverse change in
such Borrower's or any of its Subsidiaries' property, business, operations, or
condition (financial or otherwise).
(d) Immediately after becoming aware of any pending or threatened
action, suit, proceeding, or counterclaim by any Person, or any pending or
threatened investigation by a Governmental Authority, which could reasonably be
expected to materially and adversely affect the Collateral, the repayment of the
Obligations, the Agent's or any Lender's rights under the Loan Documents, or any
Borrower's or any of its Subsidiaries' property, business, operations, or
condition (financial or otherwise).
(e) Immediately after becoming aware of any pending or threatened
strike, work stoppage, unfair labor practice claim, or other labor dispute
affecting any Borrower or any of its Subsidiaries in a manner which could
reasonably be expected to have a Material Adverse Effect.
(f) Immediately after becoming aware of any violation of any law,
statute, regulation, or ordinance of a Governmental Authority affecting any
Borrower or any of its Subsidiaries which could reasonably be expected to have a
Material Adverse Effect.
(g) Immediately after receipt of any notice of any violation by any
Borrower or any of its Subsidiaries of any Environmental Law which could
reasonably be expected to have a Material Adverse Effect or that any
Governmental Authority has asserted that any Borrower or any of its Subsidiaries
is not in compliance with any Environmental Law or is investigating any
Borrower's or any of its Subsidiaries' compliance therewith which such
noncompliance could reasonably be expected to have a Material Adverse Effect.
(h) Immediately after receipt of any written notice that any Borrower
or any of its Subsidiaries is or may be liable to any Person as a result of the
Release or threatened Release of any Contaminant or that such Borrower or
Subsidiary is subject to investigation by any Governmental Authority evaluating
whether any remedial action is needed to respond to the Release or threatened
Release of any Contaminant which, in either case, is reasonably likely to have a
Material Adverse Effect.
(i) Immediately after receipt of any written notice of the imposition
of any Environmental Lien against any property of any Borrower or any of its
Subsidiaries.
(j) Any change in any Borrower's or any of its Subsidiaries' name,
state of incorporation, or form of organization, trade names or styles under
which any Borrower or any of its Subsidiaries will sell
84
<PAGE> 92
Inventory or create Accounts, or to which instruments in payment of Accounts may
be made payable, in each case at least thirty (30) days prior thereto.
(k) Within ten (10) Business Days after any Borrower, any of its
Subsidiaries or any ERISA Affiliate knows or has reason to know, that an ERISA
Event or a prohibited transaction (as defined in Sections 406 of ERISA and 4975
of the Code) has occurred, and, when known, any action taken or threatened by
the IRS, the DOL or the PBGC with respect thereto.
(l) Upon request, within ten (10) Business Days after the filing
thereof with the IRS, a copy of each annual report (form 5500 series), including
Schedule B thereto, filed with the IRS with respect to each Plan, and each other
filing or notice filed with the PBGC, the DOL or the IRS, with respect to each
Plan of any Borrower, any of its Subsidiaries or any ERISA Affiliate, provided
that a copy of any funding waiver request filed with respect to any Pension Plan
of any Borrower, any of its Subsidiaries or any ERISA Affiliate, and any other
notices or other communications from or to the PBGC, the DOL or the IRS with
respect to such request or that relates to any Borrower's or any Subsidiary's
liability under Section 412 of the Code or Title IV of ERISA with respect to any
Pension Plan, including without limitation, any notice of the PBGC's intention
to terminate a Pension Plan or have a trustee appointed to administer such Plan,
shall be delivered to the Agent within five (5) Business Days after filing or
receipt.
(m) Upon request, copies of each actuarial report for any Plan or
Multi-employer Plan and annual report for any Multi-employer Plan; and within
ten (10) Business Days after receipt thereof by any Borrower or any of its
Subsidiaries, copies of the following: (i) any favorable or unfavorable
determination letter from the IRS regarding the qualification of a Plan under
Section 401(a) of the Code; or (ii) any notice from a Multi-employer Plan
regarding the imposition of withdrawal liability.
(n) Within ten (10) Business Days after the following: any changes in
the benefits offered under any existing Plan which increase any Borrower's or
any Subsidiary's annual costs with respect thereto by an amount in excess of
$1,000,000, or the establishment of any new Plan or the commencement of
contributions to any Plan to which any Borrower, any of its Subsidiaries or any
ERISA Affiliate was not previously contributing; and within five (5) Business
Days after the following: any failure by any Borrower, any of its Subsidiaries
or any ERISA Affiliate to make a required installment or any other required
payment under Section 412 of the Code on or before the due date for such
installment or payment, except for such installment or payment, if any, with
respect to any period prior to the Filing Date that the Borrower or such
Subsidiary is unable to make as a result of its status as a debtor-in-possession
in the Case.
(o) Within ten (10) Business Days after any Borrower or any of its
Subsidiaries knows or has reason to know that any of the following events has or
will occur: (i) a Multi-employer Plan has been or will be
85
<PAGE> 93
terminated; (ii) the administrator or plan sponsor of a Multi-employer Plan
intends to terminate a Multi-employer Plan; or (iii) the PBGC has instituted or
will institute proceedings under Section 4042 of ERISA to terminate a
Multi-employer Plan.
Each notice given under this Section shall describe the subject matter
thereof in reasonable detail, and shall set forth the action that any Borrower,
its Subsidiary, or any ERISA Affiliate, as applicable, has taken or proposes to
take with respect thereto.
ARTICLE 8
GENERAL WARRANTIES AND REPRESENTATIONS
Each Borrower warrants and represents to the Agent and the Lenders
that except as hereafter disclosed to and accepted by the Agent and the Majority
Lenders in writing; provided that acceptance by the Agent and the Majority
Lenders shall not be required for the updating of Schedules 8.3, 8.5, 8.12 or
8.13 or written disclosure to the Agent and to Lenders, in each case solely as a
result of transactions expressly permitted under this Agreement:
86
<PAGE> 94
ARTICLE 8.1 Authorization, Validity, and Enforceability of this Agreement
and the Loan Documents. Each of such Borrower and its Subsidiaries has the
corporate power and authority to execute, deliver and perform this Agreement and
the other Loan Documents to which it is a party, to incur the Obligations, and
to grant to the Agent Liens upon and security interests in the Collateral owned
by it. Each of such Borrower and its Subsidiaries has taken all necessary
corporate action (including, without limitation, obtaining approval of its
stockholders if necessary) to authorize its execution, delivery, and performance
of this Agreement and the other Loan Documents to which it is a party. No
consent, approval, or authorization of, or declaration or filing with, any
Governmental Authority, and no consent of any other Person, is required in
connection with such Borrower's or any of its Subsidiary's execution, delivery
and performance of this Agreement and the other Loan Documents to which it is a
party, except for the Final Bankruptcy Court Order and those orders already duly
obtained. This Agreement and the other Loan Documents have been duly executed
and delivered by each of the Borrowers and its Subsidiaries party thereto, and,
subject to the Orders, constitute the legal, valid and binding obligations of
each of the Borrowers and its Subsidiaries party thereto, enforceable against
each such Borrower and its Subsidiaries in accordance with their respective
terms without defense, set-off or counterclaim. Such Borrower's and Subsidiary's
execution, delivery, and performance of this Agreement and the other Loan
Documents to which it is a party do not and will not conflict with, or
constitute a violation or breach of, or constitute a default under, or, except
for Liens created under the Loan Documents, result in the creation or imposition
of any Lien upon the property of such Borrower or any of its Subsidiaries by
reason of the terms of (a) any contract, mortgage, Lien, lease, agreement,
indenture, or instrument to which such Borrower or any of its Subsidiaries is a
party or which is binding upon it to which the automatic stay provisions of the
Bankruptcy Code do not apply, (b) any Requirement of Law applicable to such
Borrower or any of its Subsidiaries (including, without limitation, any court
order entered in the Case), or (c) the certificate or articles of incorporation
or by-laws of such Borrower or any of its Subsidiaries.
ARTICLE 8.2 Validity and Priority of Security Interest. The provisions of
this Agreement and the other Loan Documents create legal and valid Liens on all
the Collateral in favor of the Agent, for the ratable benefit of the Agent and
the Lenders, and such Liens constitute perfected and continuing Liens on all the
Collateral, having priority over all other Liens on the Collateral other than
Permitted Liens pursuant to clauses (a) (such prior Liens not encumbering any
Accounts, Inventory (other than Permitted Consignment Inventory) or proceeds
thereof), (c), (d), (e), (g), (h), (i) and (j) of the definition thereof,
securing all the Obligations, and enforceable against such Borrower and its
Subsidiaries, as applicable, and all third parties.
87
<PAGE> 95
ARTICLE 8.3 Organization and Qualification. Except as set forth on Schedule
8.3, each of such Borrower and its Subsidiaries (a) is duly incorporated and
organized and validly existing in good standing under the laws of the
jurisdiction of its incorporation, (b) is qualified to do business as a foreign
corporation and is in good standing in the jurisdictions set forth on Schedule
8.3 which are the only jurisdictions in which qualification is necessary in
order for it to own or lease its property and conduct its business and (c) has
all requisite power and authority to conduct its business and to own its
property.
ARTICLE 8.4 Corporate Name; Prior Transactions. Except as set forth on
Schedule 8.4, neither such Borrower nor any of its Subsidiaries has, during the
past five (5) years, been known by or used any other corporate or fictitious
name, or been a party to any merger or consolidation, or acquired all or
substantially all of the assets of any Person, or acquired any of its property
outside of the ordinary course of business.
ARTICLE 8.5 Subsidiaries and Affiliates. Except as set forth in Schedule
8.5, the Parent has no Subsidiaries other than the other Borrowers and Alpha
Tube. No Borrower (other than the Parent) has any Subsidiary, except as set
forth in Schedule 8.5. Schedule 8.5 is a true and correct list of the name and
relationship to the Parent of each and all of the Parent's Subsidiaries and
other Affiliates.
ARTICLE 8.6 Financial Statements and Projections. The Parent has delivered
to the Agent and the Lenders the audited consolidated balance sheet and related
consolidated statements of operations, cash flows, and changes in stockholders
equity for the Parent and its consolidated Subsidiaries as of December 28, 1997,
and for the Fiscal Year then ended, accompanied by the report thereon of the
Parent's independent certified public accountants. The Parent has also delivered
to the Agent and the Lenders the unaudited consolidated and consolidating
balance sheet and related statements of operations and cash flows for the Parent
and its consolidated Subsidiaries as of September 27, 1998. Such financial
statements are attached hereto as Exhibit C. All such financial statements
present in all material respects the financial position of the Parent and its
consolidated Subsidiaries as at the dates thereof and their results of
operations for the periods then ended in conformity with GAAP subject, in the
case of the unaudited statements, to the addition of year-end schedules, the
absence of footnotes, normal year-end adjustments and reclassifications for
public reporting purposes.
(a) The Latest Projections when submitted to the Lenders as required
herein represent the Parent's estimates of the future financial performance of
the Parent and its consolidated Subsidiaries for the periods set forth therein
on the date when submitted. The Latest Projections have been prepared on the
basis of the assumptions set forth therein, which the Parent believes are fair
and reasonable in light of current and reasonably foreseeable business
conditions at the time submitted to the Lender.
88
<PAGE> 96
ARTICLE 8.7 Capitalization. On the Closing Date, the capitalization of each
of the Borrowers and its Subsidiaries is as shown on Schedule 8.7.
ARTICLE 8.8 Reorganization Matters. Pursuant to and to the extent permitted
in the Interim Bankruptcy Court Order and the Final Bankruptcy Court Order, the
Obligations will constitute allowed administrative expense claims in the Case
having priority over all administrative expense claims and unsecured claims
against the Borrowers and Alpha Tube now existing or hereafter arising, of any
kind whatsoever, including, without limitation, all administrative expense
claims of the kind specified in Sections 503(b) and 507(b) of the Bankruptcy
Code, subject and subordinate, as to priority, only to Carve-Out Expenses (with
respect to the Borrowers) or Alpha Tube Carve-Out Expenses (with respect to
Alpha Tube).
(a) Pursuant to and to the extent permitted under the Interim
Bankruptcy Court Order and the Final Bankruptcy Court Order, the Obligations
will be secured by a valid and perfected Lien on all of the Collateral.
(b) The Interim Bankruptcy Court Order (with respect to the period
prior to the Final Bankruptcy Court Order Date) and the Final Bankruptcy Court
Order (with respect to the period on or after the Final Bankruptcy Court Order
Date), as the case may be, shall have been entered, shall be in full force and
effect and shall not have been reversed, stayed, modified or amended absent
express written joinder and consent of the Majority Lenders and the Agent.
ARTICLE 8.9 Debt. Each balance sheet of the Parent and its consolidated
Subsidiaries reflecting actual results delivered from time to time by any of the
Borrowers to the Agent pursuant to Section 7.2 (a) or (c) accurately sets forth
as of the date of such balance sheet all Debt of the Parent and its consolidated
Subsidiaries required by GAAP to be disclosed therein.
ARTICLE 8.10 [Intentionally Omitted.]
ARTICLE 8.11 Title to Property. Each Borrower and each of its Subsidiaries
has good and marketable title in fee simple to its real property, if any, listed
in Schedule 8.11 hereto as being owned by such Borrower or Subsidiary, and each
of such Borrower and Subsidiary has good title to all of its other property
(including, without limitation, the assets reflected on the September 27, 1998
Financial Statements delivered to the Agent and the Lenders, in each case,
except as disposed of in the ordinary course of business since the date thereof
and property subject to capital leases), free of all Liens except Permitted
Liens.
89
<PAGE> 97
ARTICLE 8.12 Real Estate; Leases. Schedule 8.11 sets forth a true and
correct list of all Real Estate owned by such Borrower or any of its
Subsidiaries as of the Closing Date, and Schedule 8.12 sets forth a true and
correct list of all leases and subleases of real or personal property by such
Borrower or any of its Subsidiaries as lessee or sublessee (other than leases of
personal property as to which such Borrower or Subsidiary, as applicable, is
lessee or sublessee for which the value of such personal property is less than
$1,000,000 individually or $5,000,000 in the aggregate for the Parent and its
Subsidiaries), and all leases and subleases of real or personal property by such
Borrower or Subsidiary, as applicable, as lessor, lessee, sublessor or
sublessee. Each of such leases and subleases is in all material respects valid
and enforceable in accordance with its terms and is in full force and effect,
and no material default by such Borrower or Subsidiary, as applicable, or to the
Borrowers' knowledge any other party to any such lease or sublease exists.
ARTICLE 8.13 Proprietary Rights. Schedule 8.13 sets forth a true and
correct list of all of such Borrower's and each of its Subsidiaries' Proprietary
Rights registered in the U.S. Patent and Trademark Office. None of the material
Proprietary Rights (other than commercially available software) is subject to
any licensing agreement or similar arrangement except as set forth on Schedule
8.13. To the best of such Borrower's knowledge, none of the Proprietary Rights
infringes on or conflicts in any material respect with any other Person's
property, and no other Person's property infringes on or conflicts in any
material respect with the Proprietary Rights. The Proprietary Rights described
on Schedule 8.13 in all material respects constitute all of the property of such
type necessary to the current and anticipated future conduct of such Borrower's
and its Subsidiaries' respective businesses.
ARTICLE 8.14 Trade Names. All trade names or styles under which such
Borrower or any of its Subsidiaries will sell Inventory or create Accounts, or
to which instruments in payment of Accounts may be made payable, are listed on
Schedule 8.14.
ARTICLE 8.15 Litigation. Except as set forth on Schedule 8.15, there is no
pending or (to the best of such Borrower's knowledge) threatened, action, suit,
proceeding, or counterclaim by any Person, or investigation by any Governmental
Authority which, if adversely determined, could reasonably be expected to cause
a Material Adverse Effect.
90
<PAGE> 98
ARTICLE 8.16 Restrictive Agreements. None of such Borrower nor any of its
Subsidiaries is a party to any contract or agreement, or subject to any charter
or other corporate restriction, which affects its ability to execute, deliver,
and perform the Loan Documents and repay the Obligations or which materially and
adversely affects or, insofar as such Borrower can reasonably foresee, could
reasonably be expected to materially and adversely affect, the property,
business, operations, or condition (financial or otherwise) of such Borrower or
Subsidiary, or would in any respect cause a Material Adverse Effect.
ARTICLE 8.17 Labor Disputes. Except as set forth on Schedule 8.17, (a)
there is no collective bargaining agreement or other labor contract covering
employees of such Borrower or any of its Subsidiaries, (b) no such collective
bargaining agreement or other labor contract is scheduled to expire during the
term of this Agreement, (c) as of the Closing Date, no union or other labor
organization is seeking to organize, or to be recognized as, a collective
bargaining unit of employees of such Borrower or any of its Subsidiaries or for
any similar purpose, and (d) there is no pending or (to the best of such
Borrower's knowledge, as of the Closing Date) threatened, material strike,
material work stoppage, material unfair labor practice claim, or other material
labor dispute against or affecting such Borrower or any of its Subsidiaries or
its employees.
ARTICLE 8.18 Environmental Laws. Except as otherwise disclosed on Schedule
8.18:
(a) The Acme Parties are in material compliance with all Environmental
Laws applicable to their respective Real Estate, if any, and their respective
businesses, and neither the Acme Parties nor any of their respective present
Real Estate, if any, or operations, nor their respective past property or
operations, is subject to any material enforcement order from or liability
agreement with any Governmental Authority or private Person respecting (i)
compliance with any Environmental Law or (ii) any material potential liabilities
or material costs or remedial action arising from the Release or threatened
Release of a Contaminant.
(b) The Acme Parties have obtained all material permits necessary for
their respective current operations under Environmental Laws, and all such
permits are in all material respects in good standing and the Acme Parties are
in material compliance with all terms and conditions of such permits.
(c) [Intentionally omitted.]
(d) The Acme Parties have not received any material summons,
complaint, order or similar written notice that they are not currently in
compliance with, or that any Governmental Authority is investigating their
compliance with, any Environmental Laws or that they are
91
<PAGE> 99
or may be liable to any other Person as a result of a Release or threatened
Release of a Contaminant.
(e) None of the present or, to the Borrowers' knowledge, past
operations of the Acme Parties is the subject of any material investigation by
any Governmental Authority evaluating whether any remedial action is needed to
respond to a Release or threatened Release of a Contaminant.
(f) There is not now on or in any of the Real Estate any underground
storage tanks or surface impoundments.
(g) The Acme Parties have not entered into any negotiations or
settlement agreements with any Person (including, without limitation, the prior
owner of their respective property) imposing material obligations or liabilities
on the Acme Parties with respect to any remedial action in response to the
Release of a Contaminant or environmentally related claim.
(h) None of the products currently manufactured, distributed or sold
by the Acme Parties contain asbestos containing material.
(i) No Environmental Lien has attached to any Real Estate of any of
the Acme Parties.
ARTICLE 8.19 No Violation of Law. None of such Borrower nor any of its
Subsidiaries is in material violation of (or, due to the filing of the Case, is
exempted from compliance with) any law, statute, regulation, ordinance,
judgment, order, or decree applicable to it.
ARTICLE 8.20 No Default. None of such Borrower nor any of its Subsidiaries
is in default with respect to any note, indenture, loan agreement, mortgage,
lease, deed, or other agreement entered into on or after the Filing Date to
which such Borrower or Subsidiary is a party or by which it is bound, which
default could reasonably be expected to have a Material Adverse Effect.
92
<PAGE> 100
ARTICLE 8.21 ERISA Compliance. Except as specifically disclosed in
Schedule 8.21:
(a) Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state law. Each
Plan which is intended to qualify under Section 401(a) of the Code has received
a favorable determination letter from the IRS and to the best knowledge of such
Borrower, nothing has occurred which would cause the loss of such qualification.
Such Borrower, each of its Subsidiaries and each ERISA Affiliate has made all
required contributions to any Plan subject to Section 412 of the Code, except
for such contributions, if any, with respect to any period prior to the Filing
Date that the Borrower or any of its Subsidiaries is unable to make as a result
of its status as a debtor-in-possession in the Case, and no application for a
funding waiver or an extension of any amortization period pursuant to Section
412 of the Code has been made with respect to any Plan. No Plan is a
Multi-employer Plan as of the Closing Date.
(b) There are no pending or, to the best knowledge of such Borrower,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Plan which has resulted or could reasonably be expected to
result in a Material Adverse Effect. There has been no prohibited transaction or
violation of the fiduciary responsibility rules with respect to any Plan which
has resulted or could reasonably be expected to result in a Material Adverse
Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to
occur; (ii) as of the Closing Date, the aggregate amount of Unfunded Pension
Liability among all Pension Plans of the Acme Parties does not exceed
$55,000,000; (iii) neither such Borrower, any of its Subsidiaries nor any ERISA
Affiliate has incurred, or reasonably expects to incur, any liability under
Title IV of ERISA with respect to any Pension Plan (other than premiums due and
not delinquent under Section 4007 of ERISA); (iv) neither such Borrower, any of
its Subsidiaries nor any ERISA Affiliate has incurred, or reasonably expects to
incur, any liability (and no event has occurred which, with the giving of notice
under Section 4219 of ERISA, would result in such liability) under Section 4201
or 4243 of ERISA with respect to a Multi-employer Plan; and (v) neither such
Borrower, any of its Subsidiaries, nor any ERISA Affiliate has engaged in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.
93
<PAGE> 101
ARTICLE 8.22 Taxes. Each of such Borrower and its Subsidiaries has filed
all Federal and other tax returns and reports required to be filed, and has paid
all material Federal and other taxes, assessments, fees and other governmental
charges levied or imposed upon it or its properties, income or assets otherwise
due and payable, except for taxes with respect to periods prior to the Filing
Date for which payment cannot be made as a result of such Borrower's or
Subsidiary's status as a debtor-in-possession and except to the extent being
contested in good faith by appropriate proceedings diligently pursued, for which
reserves in accordance with GAAP have been established and for which no Lien on
any assets or property of any Borrower or any of its Subsidiaries shall have
arisen except for Permitted Liens described in clause (a) of the definition
thereof.
ARTICLE 8.23 Regulated Entities. None of such Borrower, any of its
Subsidiaries or any Person controlling such Borrower is an "Investment Company"
within the meaning of the Investment Company Act of 1940. None of such Borrower
nor any of its Subsidiaries is subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act,
any state public utilities code, or any other Federal or state statute or
regulation limiting its ability to incur indebtedness.
ARTICLE 8.24 Use of Proceeds; Margin Regulations. The proceeds of the Loans
are to be used solely for the purposes permitted by Section 9.25. No Borrower
nor any of its Subsidiaries is engaged in the business of purchasing or selling
Margin Stock or extending credit for the purpose of purchasing or carrying
Margin Stock.
ARTICLE 8.25 [Intentionally Omitted.]
ARTICLE 8.26 No Material Adverse Change. Except as set forth in Schedule
8.26, no material adverse change shall have occurred in the financial position,
business, operations, assets, liabilities, profits or prospects of the Acme
Parties since September 27, 1998 other than (i) the commencement of the Case and
(ii) the continuation of the circumstances giving rise to the filing thereof, so
long as the Agent has been made aware as of the Interim Bankruptcy Court Order
Date of all such circumstances. The Acme Parties are in the process of
comprehensively reviewing and assessing the Acme Parties' computer applications
and inquiring of the computer applications of the Acme Parties' material
suppliers, vendors and customers in connection with the "Year 2000 problem"
(that is, the risk that computer applications used by any Person may be unable
to recognize and perform properly date sensitive functions involving certain
dates prior to and any date after December 31, 1999). The Borrowers reasonably
believe that the "Year 2000 problem" will not result in a Material Adverse
Effect.
94
<PAGE> 102
ARTICLE 8.27 Full Disclosure. None of the representations or warranties
made by such Borrower or any of its Subsidiaries in the Loan Documents as of the
date such representations and warranties are made or deemed made, and none of
the information or statements contained in any exhibit, report, statement,
certificate or other writing furnished by or on behalf of such Borrower or any
of its Subsidiaries or otherwise made available by or on behalf of such Borrower
or any of its Subsidiaries to the Agent or any Lender in connection with the
Loan Documents (including the offering and disclosure materials delivered by or
on behalf of such Borrower or any of its Subsidiaries to the Lenders prior to
the Closing Date), contains any untrue statement of a material fact or omits any
material fact required to be stated therein or necessary to make the information
or statements made therein, in light of the circumstances under which they are
made, not misleading in any material respect as of the time when made or
delivered; provided that, with respect to projected financial information, such
Borrower represents only that such information was prepared in good faith based
upon (A) assumptions, methods and tests stated therein reasonably believed by
such Borrower to be reasonable at the time and (B) information reasonably
believed by such Borrower to have been accurate at the time such projected
financial information was furnished to the Agent or the Lenders.
ARTICLE 8.28 Material Agreements. Schedule 8.28 hereto sets forth all
material agreements and contracts to which such Borrower or any of its
Subsidiaries is a party or is bound as of the date hereof (it being understood
that for purposes of this Section, only agreements and contracts that are
required to be filed as an exhibit to the Parent's Form 10K securities filing
shall be deemed "material").
ARTICLE 8.29 Bank Accounts. Schedule 8.29 contains a complete and accurate
list of all material bank accounts maintained by such Borrower or any of its
Subsidiaries with any bank or other financial institution.
ARTICLE 8.30 Alpha Tube Trade Debt. Schedule 8.30 sets forth all Alpha Tube
Trade Debt (including each trade creditor and the amount owing by Alpha Tube to
each such creditor) both as of the Filing Date and as of November 22, 1998.
95
<PAGE> 103
ARTICLE 9
AFFIRMATIVE AND NEGATIVE COVENANTS
Each Borrower covenants to the Agent and each Lender that, so long as
any of the Obligations remain outstanding or this Agreement is in effect:
ARTICLE 9.1 Taxes and Other Obligations. Such Borrower shall, and shall
cause each of its Subsidiaries to, (a) file when due all material tax returns
and other reports which it is required to file; (b) pay, or provide for the
payment, when due, of all material taxes, fees, assessments and other
governmental charges against it or upon its property, income and franchises,
make all required material withholding and other tax deposits, and establish
adequate reserves for the payment of all such items to the extent required by
GAAP, and provide to the Agent and the Lenders, upon request, satisfactory
evidence of its timely compliance with the foregoing; and (c) pay when due all
Debt owed by it and all claims of materialmen, mechanics, carriers,
warehousemen, landlords and other like Persons, and all other indebtedness owed
by it and perform and discharge in a timely manner all other obligations
undertaken by it (in each instance under this clause (c), other than
pre-petition Debt, claims and other obligations and indebtedness except as
permitted by Section 9.31); provided, however, neither such Borrower nor any of
its Subsidiaries need pay any tax, fee, assessment, governmental charge or the
items set forth in (c) above, (x) that (i) it is contesting in good faith by
appropriate proceedings diligently pursued, (ii) such Borrower or Subsidiary, as
the case may be, has established proper reserves for as provided in GAAP, and
(iii) no Lien (other than a Permitted Lien) results from such non-payment, or
(y) to the extent that the failure to so pay, together with the non-payment by
such Borrower and the other Acme Parties of all other such taxes, fees,
assessments, governmental charges and items set forth in clause (c) above, would
not reasonably be expected to have a Material Adverse Effect.
ARTICLE 9.2 Corporate Existence and Good Standing. Such Borrower shall, and
shall cause each of its Subsidiaries to, maintain its corporate existence and
its qualification and good standing in all jurisdictions in which the failure to
maintain such existence and qualification or good standing could reasonably be
expected to have a material adverse effect on such Borrower's or Subsidiary's
property, business, operations, prospects, or condition (financial or
otherwise).
96
<PAGE> 104
ARTICLE 9.3 Compliance with Law and Agreements; Maintenance of Licenses.
Such Borrower shall, and shall cause each of its Subsidiaries to, comply in all
material respects with all Requirements of Law of any Governmental Authority
having jurisdiction over it or its business (including the Federal Fair Labor
Standards Act), except such as may be contested in good faith as to which a bona
fide dispute may exist. Such Borrower shall, and shall cause each of its
Subsidiaries to, obtain and maintain all material licenses, permits, franchises,
and governmental authorizations necessary to own its property and to conduct its
business as conducted on the Closing Date. Neither such Borrower nor any of its
Subsidiaries shall modify, amend or alter its certificate or article of
incorporation other than in a manner which does not adversely affect the rights
of the Lenders or the Agent.
ARTICLE 9.4 Maintenance of Property. Such Borrower shall, and shall cause
each of its Subsidiaries to, maintain all of its material property necessary and
useful in the conduct of its business, in good operating condition and repair,
ordinary wear and tear excepted.
ARTICLE 9.5 Insurance. Such Borrower shall, and shall cause each of its
Subsidiaries to, maintain with financially sound and reputable insurers having a
rating of at least A-VI or better by Best Rating Guide, insurance against loss
or damage by fire with extended coverage; theft, burglary, pilferage and loss in
transit; public liability and third party property damage; larceny or
embezzlement; business interruption; public liability and third party property
damage; and such other hazards or of such other types as is customary for
Persons engaged in the same or similar business, as the Agent, in its
discretion, or acting at the direction of the Required Lenders, shall specify,
in amounts, and under policies acceptable to the Agent and the Required Lenders.
Without limiting the foregoing, each of such Borrower and its Subsidiaries shall
also maintain flood insurance, in the event of a designation of the area in
which any Real Estate and any of the Equipment and Inventory (other than
Permitted Consignment Inventory) located on such Real Estate is located as
"flood prone" or a "flood risk area," (hereinafter "SFHA") as defined by the
Flood Disaster Protection Act of 1973, in an amount to be reasonably determined
by the Agent, and shall comply with the additional requirements of the National
Flood Insurance Program as set forth in said Act. Upon the Required Lenders'
request, such Borrower or Subsidiary, as appropriate, shall maintain flood
insurance for its Inventory (other than Permitted Consignment Inventory) and
Equipment which is, at any time, located in a SFHA.
97
<PAGE> 105
(a) Such Borrower shall, and shall cause each of its Subsidiaries to,
cause the Agent, for the ratable benefit of the Agent and the Lenders, to be
named in each such policy as secured party or mortgagee and loss payee or
additional insured, in a manner acceptable to the Agent. Each policy of
insurance shall contain a clause or endorsement requiring the insurer to give
not less than thirty (30) days' prior written notice to the Agent in the event
of material modification or cancellation of the policy for any reason whatsoever
and a clause or endorsement stating that the interest of the Agent shall not be
impaired or invalidated by any act or neglect of any Borrower, any of its
Subsidiaries or the owner of any premises for purposes more hazardous than are
permitted by such policy. All premiums for such insurance shall be paid by such
Borrower or Subsidiary, as appropriate, when due, and certificates of insurance
and photocopies of the policies shall be delivered to the Agent, in each case in
sufficient quantity for distribution by the Agent to each of the Lenders. If
such Borrower or Subsidiary, as appropriate, fails to procure such insurance or
to pay the premiums therefor when due, the Agent may, and at the direction of
the Required Lenders shall, do so from the proceeds of Revolving Loans.
(b) Such Borrower shall, and shall cause each of its Subsidiaries to,
promptly notify the Agent and the Lenders of any material loss, damage, or
destruction to any portion of the Collateral arising from its use, whether or
not covered by insurance. With respect to property other than Inventory (other
than Permitted Consignment Inventory), if an Event of Default has occurred and
is continuing, the Agent is hereby authorized (subject to Existing Liens and
Permitted Liens described in clauses (g) and (j) of the definition thereof) to
collect all insurance proceeds directly, and to apply or remit them as follows:
(i) With respect to insurance proceeds relating to property other
than Collateral, after deducting from such proceeds the reasonable expenses, if
any, incurred by the Agent in the collection or handling thereof, the Agent
shall promptly remit to the applicable Borrower or Subsidiary such proceeds.
(ii) With respect to insurance proceeds relating to Collateral
other than Fixed Assets, after deducting from such proceeds the reasonable
expenses, if any, incurred by the Agent in the collection or handling thereof,
the Agent shall apply such proceeds to the Revolving Loan.
(iii) With respect to insurance proceeds relating to Collateral
consisting of Fixed Assets, after deducting from such proceeds the reasonable
expenses, if any, incurred by the Agent in the collection or handling thereof,
the Agent shall, subject to Existing Liens thereon, apply such proceeds to the
Revolving Loans.
If an Event of Default has occurred and is continuing, the Agent is hereby
authorized to collect all insurance proceeds with respect to Inventory (other
98
<PAGE> 106
than Permitted Consignment Inventory, which is covered above) directly and to
apply them, after deducting from such proceeds the reasonable expenses, if any,
incurred by the Agent in the collection or handling thereof, to the Revolving
Loan.
ARTICLE 9.6 Condemnation. Such Borrower shall (and shall cause each of its
Subsidiaries to), immediately upon learning of the institution of any proceeding
for the condemnation or other taking of any of its material property, notify the
Agent of the pendency of such proceeding, and agrees that the Agent may
participate in any such proceeding, and such Borrower from time to time will
deliver (or cause to be delivered) to the Agent all instruments reasonably
requested by the Agent to permit such participation.
(a) With respect to property other than Inventory (other than
Permitted Consignment Inventory), if an Event of Default has occurred and is
continuing, the Agent (subject to Existing Liens and Permitted Liens described
in clauses (g) and (j) of the definition thereof) is hereby authorized to
collect the proceeds of any condemnation claim or award directly, and to apply
or remit them as follows:
(i) With respect to condemnation proceeds relating to property
other than Collateral, after deducting from such proceeds the reasonable
expenses, if any, incurred by the Agent in the collection or handling thereof,
the Agent shall remit to the applicable Borrower or Subsidiary such proceeds.
(ii) With respect to condemnation proceeds relating to Collateral
other than Fixed Assets, after deducting from such proceeds the reasonable
expenses, if any, incurred by the Agent in the collection or handling thereof,
the Agent shall apply such proceeds, ratably, to the reduction of the
Obligations in the order provided for in Section 4.5.
(iii) With respect to condemnation proceeds relating to
Collateral consisting of Fixed Assets, after deducting from such proceeds the
reasonable expenses, if any, incurred by the Agent in the collection or handling
thereof, the Agent shall, subject to Existing Liens thereon, apply such proceeds
to the Revolving Loans.
If an Event of Default has occurred and is continuing, the Agent is hereby
authorized to collect all proceeds of any condemnation claim or award with
respect to Inventory (other than Permitted Consignment Inventory, which is
covered above) directly and to apply them, after deducting from such proceeds
the reasonable expenses, if any, incurred by the Agent in the collection or
handling thereof, to the Revolving Loan.
99
<PAGE> 107
ARTICLE 9.7 Environmental Laws. Such Borrower shall, and shall cause each
of its Subsidiaries to, conduct its business in material compliance with all
Environmental Laws applicable to it, including, without limitation, those
relating to the generation, handling, use, storage, and disposal of any
Contaminant. Such Borrower shall, and shall cause each of its Subsidiaries to,
take prompt and appropriate action to respond to any material non-compliance
with Environmental Laws and shall regularly report to the Agent on such
response.
(a) Without limiting the generality of the foregoing, such Borrower
shall submit to the Agent and the Lenders annually, commencing on the first
anniversary of the Interim Bankruptcy Court Order Date and on each anniversary
date of the Interim Bankruptcy Court Order Date thereafter, an update of the
status of each material environmental compliance or liability issue. The Agent
or any Lender may request copies of technical reports prepared by such Borrower
or any of its Subsidiaries and its communications with any Governmental
Authority to determine whether such Borrower or Subsidiary is proceeding
reasonably to correct, cure or contest in good faith any alleged non-compliance
or environmental liability. Such Borrower shall (or shall cause the relevant
Subsidiary to), at the Agent's or the Required Lenders' request and at such
Borrower's or Subsidiary's expense, (a) retain an independent environmental
engineer acceptable to the Agent to evaluate the site, including tests if
appropriate, where the non-compliance or alleged non-compliance with
Environmental Laws has occurred and prepare and deliver to the Agent, in
sufficient quantity for distribution by the Agent to the Lenders, a report
setting forth the results of such evaluation, a proposed plan for responding to
any environmental problems described therein, and an estimate of the costs
thereof, and (b) provide to the Agent and the Lenders a supplemental report of
such engineer whenever the scope of the environmental problems, or the response
thereto or the estimated costs thereof, shall change in any material respect.
ARTICLE 9.8 Compliance with ERISA. Such Borrower shall, and shall cause
each of its Subsidiaries and ERISA Affiliates to: (a) maintain each Plan in
compliance in all material respects with the applicable provisions of ERISA, the
Code and other federal or state law; (b) cause each Plan which is qualified
under Section 401(a) of the Code to maintain such qualification; (c) make all
required material contributions to any Plan subject to Section 412 of the Code,
except for such contributions, if any, with respect to any periods prior to the
Filing Date that the Borrower or Subsidiary is unable to make as a result of its
status as a debtor-in-possession in the Case; (d) not engage in a prohibited
transaction or violation of the fiduciary responsibility rules with respect to
any Plan that could reasonably be expected to result in liability in excess of
$1,000,000 in the aggregate for all such prohibited transactions and violations;
and (e) not engage in a transaction that could be subject to Section 4069 or
4212(c) of ERISA that could reasonably be expected to result in liability in
excess of $1,000,000 in the aggregate for all such transactions.
100
<PAGE> 108
ARTICLE 9.9 Mergers, Consolidations or Sales. Such Borrower shall not, and
shall not suffer or permit any of its Subsidiaries to, enter into any
transaction of merger, reorganization (other than the Case), or consolidation,
or transfer, sell, assign, lease, or otherwise dispose of all or any part of its
property, or wind up, liquidate or dissolve, or agree to do any of the foregoing
or petition the Bankruptcy Court for authority to do any of the foregoing,
except (i) for sales of Inventory in the ordinary course of its business, (ii)
dispositions of assets in connection with the rejection or expiration of any
real estate leases in a manner consistent with a maximization of the value of
the assets of such Borrower or Subsidiary (provided that all proceeds of such
dispositions shall be applied to the repayment of the Revolving Loans), (iii) in
the case of APC, the disposition of the manufacturing plant located in New
Britain, Connecticut (including the Equipment located at such plant), (iv)
dispositions of Equipment and Real Estate in an aggregate amount, when combined
with the aggregate amount of such dispositions of all of the Acme Parties, not
to exceed $5,000,000 during the term of this Agreement (provided that all
proceeds of such dispositions shall be applied to promptly replace such assets
or for corporate purposes of the Acme Parties not prohibited hereunder), (v)
dispositions of Equipment (other than those covered in clause (iv) above) in the
ordinary course of business that are obsolete or no longer used by such Borrower
or Subsidiary in its businesses not to exceed $500,000 for any item of Equipment
or, when combined with the aggregate amount of such dispositions of all of the
Acme Parties, $4,000,000 in the aggregate for all Equipment during the term of
this Agreement and (vi) other dispositions of tangible assets (other than
Inventory and not, in any event, including a significant portion of the tangible
assets of such Borrower or Subsidiary) for fair market value, if the proceeds
are used to promptly replace such assets.
ARTICLE 9.10 Distributions; Capital Change; Restricted Investments. Such
Borrower shall not, and shall not suffer or permit any of its Subsidiaries to,
(i) directly or indirectly declare or make, or incur any liability to make, any
Distribution, except to a Borrower, (ii) make any change in its capital
structure which could have a Material Adverse Effect or issue any capital stock
other than common stock or (iii) make any Restricted Investment.
ARTICLE 9.11 Transactions Affecting Collateral or Obligations. Such
Borrower shall not, and shall not suffer or permit any of its Subsidiaries to,
enter into any transaction which would be reasonably expected to have a Material
Adverse Effect.
ARTICLE 9.12 Guaranties. Such Borrower shall not, and shall not suffer or
permit any of its Subsidiaries to, make, issue, or become liable on any
Guaranty, except Guaranties of the Obligations in favor of the Agent and
endorsement of negotiable instruments in the ordinary course of business.
101
<PAGE> 109
ARTICLE 9.13 Debt For Borrowed Money. Such Borrower shall not, and shall
not suffer or permit any of its Subsidiaries to, incur or maintain any Debt For
Borrowed Money, other than: (a) the Obligations; (b) other Debt For Borrowed
Money existing on the Filing Date; (c) Debt For Borrowed Money contemplated by
the Interim Bankruptcy Court Order or Final Bankruptcy Court Order and (d) Debt
For Borrowed Money owing to a Borrower or Alpha Tube.
ARTICLE 9.14 Prepayment. Subject to Section 9.31, such Borrower shall not,
and shall not suffer or permit any of its Subsidiaries to, voluntarily prepay,
acquire or defease any Debt for Borrowed Money, except the Obligations in
accordance with the terms of this Agreement.
ARTICLE 9.15 Transactions with Affiliates. Except as set forth below but
subject to Section 9.23, such Borrower shall not, and shall not suffer or permit
any of its Subsidiaries to, sell, transfer, distribute, or pay any money or
property, including, but not limited to, any fees or expenses of any nature
(including, but not limited to, any fees or expenses for management services),
to any Affiliate (other than a Borrower or Alpha Tube), or lend or advance money
or property to any Affiliate (other than a Borrower or Alpha Tube), or invest in
(by capital contribution or otherwise) or purchase or repurchase any stock or
indebtedness, or any property, of any Affiliate (other than a Borrower or Alpha
Tube), or become liable on any Guaranty of the indebtedness, dividends, or other
Obligations of any Affiliate (other than a Borrower or Alpha Tube).
Notwithstanding the foregoing but subject to Section 9.23, such Borrower or
Subsidiary may engage in transactions (A) with Borrowers or Alpha Tube, (B) with
other Affiliates in the ordinary course of business, in amounts and upon terms
fully disclosed to the Agent and the Lenders, and no less favorable to such
Borrower or Subsidiary than would be obtained in a comparable arm's-length
transaction with a third party who is not an Affiliate and (C) of the type
described in Schedule 9.15.
ARTICLE 9.16 Investment Banking and Finder's Fees. Such Borrower shall not,
and shall not suffer or permit any of its Subsidiaries to, pay or agree to pay,
or reimburse any other party with respect to, any investment banking or similar
or related fee, underwriter's fee, finder's fee, or broker's fee to any Person
in connection with this Agreement. Such Borrower shall defend and indemnify the
Agent and the Lenders against and hold them harmless from all claims of any
Person that such Borrower or any of its Subsidiaries is obligated to pay for any
such fees, and all costs and expenses (including without limitation, attorneys'
fees) incurred by the Agent and/or any Lender in connection therewith.
102
<PAGE> 110
ARTICLE 9.17 Combined Availability. The Borrowers shall at all times
maintain Combined Availability (determined without giving effect to clause
(a)(i) of such defined term) of not less than $15,000,000.
ARTICLE 9.18 Business Conducted. Such Borrower shall not, and shall not
suffer or permit any of its Subsidiaries to, engage directly or indirectly, in
any line of business other than the businesses in which such Borrower or
Subsidiary is engaged on the Closing Date.
ARTICLE 9.19 Liens. Such Borrower shall not, and shall not suffer or permit
any of its Subsidiaries to, create, incur, assume, or permit to exist any Lien
on any property now owned or hereafter acquired by it, except Permitted Liens.
Schedule 9.19 sets forth as of the date hereof all tax, judgment, ERISA and
other Liens of the type for which a notice thereof is filed or recorded in any
public record (other than in respect of Permitted Consignment Inventory) and all
consensual perfected Existing Liens the perfection of which is evidenced by
filing, recordation or possession. None of the Liens set forth in Schedule 9.19
encumbers any Accounts, Inventory or proceeds thereof.
ARTICLE 9.20 Sale and Leaseback Transactions. Such Borrower shall not (and
shall not suffer or permit any of its Subsidiaries to), directly or indirectly,
enter into any arrangement with any Person providing for such Borrower or
Subsidiary to lease or rent property that such Borrower or Subsidiary, as
appropriate, has sold or will sell or otherwise transfer to such Person.
ARTICLE 9.21 New Subsidiaries. Such Borrower shall not (and shall not
suffer or permit any of its Subsidiaries to), directly or indirectly, organize,
create, acquire or permit to exist any Subsidiary other than any Subsidiary set
forth on Schedule 8.5 as in effect on the Closing Date.
ARTICLE 9.22 Fiscal Year. Such Borrower shall not, and shall not suffer or
permit any of its Subsidiaries to, change its Fiscal Year.
ARTICLE 9.23 Sale or Transfer of Inventory to Alpha Tube. The Borrowers
shall not, without the prior written consent of the Agent, sell or otherwise
transfer Inventory to Alpha Tube in excess of $2,500,000 (valued at not less
than the seller's or transferor's cost thereof) in the aggregate in any calendar
month.
ARTICLE 9.24 Minimum Operating Cash Flow. The Borrowers shall not permit
Operating Cash Flow for each period commencing on September 28, 1998 and ending
on the last day of each fiscal quarter set forth below to be less than the
amount set forth below opposite such fiscal quarter:
Fiscal Quarter Amount
103
<PAGE> 111
Fourth fiscal quarter of 1998 Fiscal Year Negative $36,000,000
First fiscal quarter of 1999 Fiscal Year Negative $60,000,000
Second fiscal quarter of 1999 Fiscal Year Negative $78,500,000
Third fiscal quarter of 1999 Fiscal Year Negative $91,000,000
Fourth fiscal quarter of 1999 Fiscal Year Negative $93,500,000
First fiscal quarter of 2000 Fiscal Year Negative $91,400,000
Second fiscal quarter of 2000 Fiscal Year Negative $90,000,000
Third fiscal quarter of 2000 Fiscal Year Negative $87,500,000
Fourth fiscal quarter of 2000 Fiscal Year Negative $87,500,000
ARTICLE 9.25 Use of Proceeds. Such Borrower shall not use any portion of
the Loan proceeds, directly or indirectly, (i) to purchase or carry Margin
Stock, (ii) to repay or otherwise refinance indebtedness of such Borrower or
others incurred to purchase or carry Margin Stock, (iii) to extend credit for
the purpose of purchasing or carrying any Margin Stock, or (iv) to acquire any
security in any transaction that is subject to Section 13 or 14 of the Exchange
Act. Such Borrower shall use the Loan proceeds received hereunder, exclusively,
to fund the working capital needs of the Borrowers and Alpha Tube (including
inventory purchases in the ordinary course of business of such Borrower and
Alpha Tube) and to make payments permitted by Section 9.31.
ARTICLE 9.26 Interim Bankruptcy Court Order; Final Bankruptcy Court Order;
Administrative Expense Claim Priority; Lien Priority. Such Borrower shall not,
and shall not suffer or permit any of its Subsidiaries to, at any time seek,
consent to or suffer to exist any modification, stay, vacation or amendment of
the Interim Bankruptcy Court Order or the Final Bankruptcy Court Order, as the
case may be, except for modifications and amendments mutually agreed to in
writing by the Majority Lenders, the Borrowers, Alpha Tube and the Agent.
(a) Such Borrower shall not, and shall not suffer or permit any of its
Subsidiaries to, at any time suffer to exist a priority for any administrative
expense claim or unsecured claim against such Borrower or Subsidiary (now
existing or hereafter arising of any kind or nature whatsoever, including
without limitation any administrative expense claim of the kind specified in
Sections 503(b) and 507(b) of the Bankruptcy Code) equal or superior to the
priority of the Lenders and the Agent in respect of the Obligations, except for
the Carve-Out Expenses (with respect to the Borrowers) or the Alpha Tube
Carve-Out Expenses (with respect to Alpha Tube).
104
<PAGE> 112
(b) Such Borrower shall not, and shall not suffer or permit any of its
Subsidiaries to, at any time suffer to exist any Lien on any properties, assets
or rights (including, without limitation, Inventory and other Collateral) of
such Borrower or Subsidiary having a priority equal or superior to the Agent's
Liens, except for Permitted Liens.
(c) Prior to the date on which the Obligations have been paid in full
in cash and the Lenders' Commitments have been terminated, such Borrower shall
not, and shall not suffer or permit any of its Subsidiaries to, pay any
administrative expense claims except (i) Priority Professional Expenses (with
respect to the Borrowers) and unpaid allowed fees and expenses of professionals
described in clause (ii) of clause first in the defined term "Alpha Tube Agreed
Administrative Expense Claim Priorities" and Alpha Tube Trade Debt (with respect
to Alpha Tube), (ii) other administrative expense claims incurred in the
ordinary course of the business of such Borrower or Subsidiary, in each case to
the extent and having the order of priority set forth in the term "Agreed
Administrative Expense Claim Priorities" (with respect to the Borrowers) or the
term "Alpha Tube Agreed Administrative Expense Claim Priorities" (with respect
to Alpha Tube) and (iii) the fees and expenses of attorneys, accountants,
financial advisors and consultants retained by the Lenders and the Agent, except
to the extent the Majority Lenders and the Agent consent in writing to the
payment of any such claims.
(d) Notwithstanding the foregoing, such Borrower or Subsidiary, as
appropriate, shall be permitted to pay as the same may become due and payable
(i) administrative expenses of the kind specified in section 503(b) of the
Bankruptcy Code incurred in the ordinary course of its business, (ii)
compensation and reimbursement of expenses to professionals allowed and payable
under section 330 and 331 of the Bankruptcy Code, subject (with respect to the
Borrowers) after the occurrence of an Event of Default to the Priority
Professional Expense Cap, and (iii) payments pursuant to "first day" and other
orders reviewed by and acceptable to the Agent.
ARTICLE 9.27 Further Assurances. Such Borrower shall, and shall cause each
of its Subsidiaries to, execute and deliver, or cause to be executed and
delivered, to the Agent and/or the Lenders such documents and agreements, and
shall take or cause to be taken such actions, as the Agent or any Lender may,
from time to time, reasonably request to carry out the terms and conditions of
this Agreement and the other Loan Documents.
ARTICLE 9.28 EBITDA Through Final Bankruptcy Court Offer Date. The
Borrowers shall maintain or cause to be maintained for the period from August
31, 1998 through each date thereafter through and including October 25, 1998
EBITDA (exclusive of restructuring costs) of not less than negative $7,500,000.
105
<PAGE> 113
ARTICLE 9.29 Obligations under Real Estate Leases and Licenses. Such
Borrower shall, and shall cause each of its Subsidiaries to, pay all
post-petition obligations under its real estate leases and licenses of
intellectual property, if any, as required by the Bankruptcy Code or the
Bankruptcy Court, provided, however, that without the consent of the Majority
Lenders, such Borrower or Subsidiary may reject or permit to expire any of its
real estate leases (in a manner consistent with a maximization of the value of
the assets of such Borrower or Subsidiary).
ARTICLE 9.30 Reclamation Claims. Such Borrower shall, and shall cause each
of its Subsidiaries to, promptly furnish the Agent and the Lenders with
information and notices regarding any material reclamation claims (including
amount and claimant) upon such Borrower's or Subsidiary's receipt thereof.
Neither such Borrower nor any of its Subsidiaries (other than Alpha Tube) shall
incur any Liens related to reclamation claims encumbering any Accounts,
Inventory or any proceeds thereof.
ARTICLE 9.31 Prepetition Claims. Such Borrower shall not, and shall not
suffer or permit any of its Subsidiaries to, pay Debt which was incurred prior
to the Filing Date; provided, however, that such Borrower or Subsidiary may (i)
pay pre-Filing Date obligations to employees and payroll taxes, sales and
similar taxes to taxing authorities to the extent approved by order of the
Bankruptcy Court, (ii) make adequate protection payments on account of secured
Debt For Borrowed Money which was incurred prior to the Filing Date so long as
(A) the making of any such payment will not cause a breach of Section 9.24 and
(B) there is no Event of Default continuing at the time of the making of such
payment; (iii) pay pre-petition claims pursuant to any "first day" or other
orders reviewed by and acceptable to the Agent; (iv) make rental payments (other
than rental payments owing for any period prior to the Filing Date) under true
leases entered into by such Borrower or Subsidiary prior to the Filing Date;
provided, however, that Alpha Tube shall be permitted to make any rental
payments that may be due and owing to any Borrower; and (v) make payments in
respect of valid reclamation claims against Alpha Tube or Alpha Tube's assets
relating to goods shipped to Alpha Tube; provided that the aggregate amount of
payments permitted under this clause (v) shall not exceed $1,600,000.
Notwithstanding any provision herein to the contrary, the Borrowers and Alpha
Tube may pay any franchise (and similar) taxes incurred prior to the Filing Date
necessary to maintain their existence and qualification or good standing in the
respective jurisdictions of their incorporation and in all other jurisdictions
in which qualification to do business as a foreign corporation is necessary.
106
<PAGE> 114
ARTICLE 9.32 Applications to Bankruptcy Court. Such Borrower shall not, and
shall not suffer or permit any of its Subsidiaries to, apply to the Bankruptcy
Court for authority to take any action prohibited by this Article 9.
ARTICLE 9.33 Use of Letters of Credit. Such Borrower shall not use
documentary Letters of Credit issued hereunder for the purchase of inventory
from domestic vendors.
ARTICLE 9.34 Notices. Such Borrower shall promptly give to the Agent notice
of any motions regarding this Agreement.
ARTICLE 10
CONDITIONS OF LENDING
ARTICLE 10.1 Conditions Precedent to Making of Loans on the Closing Date.
The obligation of the Lenders to make the initial Revolving Loans on the Closing
Date, and the obligation of the Agent to cause to be issued or provide Credit
Support for any Letter of Credit on the Closing Date and the obligation of the
Lenders to participate in Letters of Credit issued on the Closing Date or in
Credit Support for any Letters of Credit, are subject to the following
conditions precedent having been satisfied in a manner satisfactory to the Agent
and each Lender:
(a) This Agreement and the other Loan Documents have been executed by
each party thereto and the Acme Parties shall have performed and complied with
all covenants, agreements and conditions contained herein and in the other Loan
Documents which are required to be performed or complied with by the Acme
Parties before or on such Closing Date.
(b) All representations and warranties made hereunder and in the other
Loan Documents shall be true and correct as of the Closing Date as if made on
such date (both immediately prior to, and after giving effect to, such extension
of credit).
(c) No Default or Event of Default shall exist on the Closing Date, or
would exist after giving effect to the Loans to be made on such date or the
Letters of Credit to be issued or the Credit Support to be provided on such
date.
(d) The Agent and the Lenders shall have received such opinions of
counsel (concerning, among other things, entry of the Orders and proper notice
having been given in accordance with the Orders) for the Borrowers and Alpha
Tube as the Agent or any Lender shall request, each such opinion to be in a
form, scope, and substance satisfactory to the Agent, the Lenders, and their
respective counsel.
107
<PAGE> 115
(e) The Borrowers shall have paid all fees (including without
limitation a $750,000 closing fee and the first annual $100,000 payment of the
collateral management fee, in each case on the Interim Bankruptcy Court Order
Date, and a $165,000 accommodation fee on the Closing Date) and expenses of the
Agent and the Lenders and the Attorney Costs incurred in connection with any of
the Loan Documents and the transactions contemplated thereby.
(f) The Agent shall have received evidence, in form, scope, and
substance, reasonably satisfactory to the Agent, of all insurance coverage as
required by the Agreement.
(g) The Agent and the Lenders shall have had an opportunity, if they
so choose, to examine the books of account and other records and files of the
Borrowers and Alpha Tube and to make copies thereof, and to conduct a
pre-closing audit which shall include, without limitation, verification of
Inventory, Accounts, and Combined Availability, and the results of such
examination and audit shall have been satisfactory to the Agent and the Lenders
in all respects.
(h) No order shall have been entered by the Bankruptcy Court (i) for
appointment of a trustee or examiner with enlarged powers substantially similar
to those of a trustee, or (ii) converting the Case to a Chapter 7 case or
dismissing the Case or (iii) terminating prior to any expiration date the
Borrowers' and Alpha Tube's exclusive time period to file a plan of
reorganization and with respect to clauses (i) through (iii) above, no such
order shall have been requested by the Borrowers, Alpha Tube or other parties in
interest, unless such requested order is being contested by the Borrowers and
Alpha Tube in good faith and by appropriate proceedings diligently pursued.
(i) All proceedings taken in connection with the execution of this
Agreement, all other Loan Documents and all documents and papers relating
thereto shall be satisfactory in form, scope, and substance to the Agent and the
Lenders.
(j) The Agent shall be satisfied as to the continued implementation by
the Borrowers and Alpha Tube of a cash management system reasonably satisfactory
to the Agent, which cash management system shall include, among other things,
the remittance procedures of the type contemplated in this Agreement.
(k) [Intentionally omitted.]
(l) The Borrowers and Alpha Tube shall have satisfied the Agent that
(a) the Borrowers and Alpha Tube have taken and are taking all necessary and
appropriate steps to ascertain the extent of, quantify and successfully address
the business and financial risks facing the Borrowers and
108
<PAGE> 116
Alpha Tube as a result of what is commonly referred to as the "Year 2000
problem" (i.e., the inability of certain computer applications to recognize
correctly and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999), including risks resulting from
the failure of key customers and suppliers of the Borrowers and Alpha Tube to
address successfully the Year 2000 problem, and (b) the Borrowers' and Alpha
Tube's material computer applications will on a timely basis adequately address
the Year 2000 problem in all material respects.
(m) All covenants, agreements and conditions under the Interim
Agreement shall have been satisfied (or waived in writing by the Agent and the
Interim Lenders by a waiver, additional to, and which shall supersede, any
waiver granted in connection with the covenants, agreements or conditions to the
Interim Agreement).
(n) There shall be no material adverse change in the business,
operations, assets, properties, liabilities, profits, prospects or financial
position of the Borrowers and Alpha Tube as determined by the Agent and the
Lenders in their sole discretion other than (i) the commencement of the Case and
(ii) the continuation of the circumstances giving rise to the filing thereof, so
long as the Agent and the Lenders have been made aware as of the date hereof of
all such circumstances.
(o) The Agent shall have completed the due diligence with respect to
this Agreement, including, without limitation, a review satisfactory to the
Agent of the Borrowers' and Alpha Tube's books and records, systems and control
and analysis of the accounts receivable and inventory by an outside consultant
selected by the Agent and environmental matters with respect to the Borrowers,
Alpha Tube and their properties. The results of such review shall be in form and
substance satisfactory to the Agent.
(p) The Lenders shall be fully satisfied with the compliance by the
Borrowers and Alpha Tube with any and all applicable laws, statutes, rules and
regulations relating to the conduct and operations of the business and
properties of the Borrowers and Alpha Tube.
(q) With respect to Borrowings made pursuant to the Interim Agreement,
the Interim Bankruptcy Court Order shall be in full force and effect and shall
not have been reversed, stayed, modified or amended absent prior written consent
of the Agent, the Majority Lenders, the Borrowers and Alpha Tube and with
respect to borrowings made pursuant to this Loan and Security Agreement, the
Final Bankruptcy Court Order shall have been entered by the Bankruptcy Court and
such order shall be in full force and effect and shall not have been reversed,
stayed, modified or amended absent prior written consent of the Agent, the
Majority Lenders, the Borrowers and Alpha Tube.
The acceptance by any of the Borrowers of any Loans made on the Closing
Date or of any Credit Support or Letters of Credit issued or provided
109
<PAGE> 117
on the Closing Date shall be deemed to be a representation and warranty made by
all of the Borrowers to the effect that all of the conditions precedent to the
making of such Loans or the issuance or provision of such Credit Support or
Letters of Credit have been satisfied, with the same effect as delivery to the
Agent and the Lenders of a certificate signed by a Responsible Officer of the
Borrowers, dated the Closing Date, to such effect.
Execution and delivery to the Agent by a Lender of a counterpart of
this Agreement shall be deemed confirmation by such Lender that (i) all
conditions precedent in this Section 10.1 have been fulfilled to the
satisfaction of such Lender and (ii) the decision of such Lender to execute and
deliver to the Agent an executed counterpart of this Agreement was made by such
Lender independently and without reliance on the Agent or any other Lender as to
the satisfaction of any condition precedent set forth in this Section 10.1.
ARTICLE 10.2 Conditions Precedent to Each Loan. The obligation of the
Lenders to make each Loan (it being understood that the conversion or
continuation of a Loan shall not be deemed to be the making of a Loan),
including the initial Revolving Loans on the Closing Date, and the obligation of
the Agent to cause to be issued or to provide Credit Support for any Letter of
Credit and the obligation of the Lenders to participate in Letters of Credit or
Credit Support for Letters of Credit, shall be subject to the further conditions
precedent that on and as of the date of any such extension of credit:
(a) The following statements shall be true, and the acceptance by
any Borrower of any extension of credit shall be deemed to be a statement by
Borrower each to the effect set forth in clauses (i) and (ii), with the same
effect as the delivery to the Agent and the Lenders of a certificate signed by a
Responsible Officer, dated the date of such extension of credit, stating that:
(i) The representations and warranties contained in this
Agreement and the other Loan Documents are true and correct in all material
respects on and as of the date of such extension of credit as though made on and
as of such date (both immediately prior to, and after giving effect to, such
extension of credit), other than any such representation or warranty which
relates to a specified prior date and except to the extent the Agent and the
Lenders have been notified by the Borrowers that any representation or warranty
is not true and correct and the Majority Lenders have explicitly waived in
writing compliance with such representation or warranty; and
(ii) No event has occurred and is continuing, or would result
from such extension of credit, which constitutes a Default or an Event of
Default.
(b) The amount of the Combined Availability shall be sufficient
to make such Revolving or Credit Support, provided, however, that
110
<PAGE> 118
the foregoing conditions precedent are not conditions to each Lender
participating in or reimbursing BABC or the Agent for such Lenders' Pro Rata
Share of any BABC Loan or Agent Advance as provided in Sections 2.2(h), (i) and
(j).
(c) The Interim Bankruptcy Court Order (if such date is on or
after the Interim Bankruptcy Court Order Date but is prior to the Final
Bankruptcy Court Order Date) or the Final Bankruptcy Court Order (if such date
is on or after the Final Bankruptcy Court Order Date), as the case may be, shall
be in full force and effect and shall not have been reversed, stayed, modified
or amended, except for such modifications and amendments mutually agreed to by
the Borrowers, Alpha Tube, the Agent and the Majority Lenders, and there shall
have been no material objections to the Final Bankruptcy Court Order by the
United States Trustee or any major creditors or interested parties, which
contests any finding in the Final Bankruptcy Court Order that the Agent or the
Lenders are entitled to the benefits of Section 364(e) of the Bankruptcy Code
and which remain subject to appeal.
(d) The Agent shall have received a Notice of Borrowing from the
applicable Borrowers to the extent required by Section 2.2(b).
(e) No administrative claim that is senior to or pari passu with
the superpriority claims of the Agent and the Lenders shall exist, except the
Carve-Out Expenses (with respect to the Borrowers) and the Alpha Tube Carve-Out
Expenses (with respect to Alpha Tube).
ARTICLE 11
DEFAULT; REMEDIES
ARTICLE 11.1 Events of Default. It shall constitute an event of default
("Event of Default") if any one or more of the following shall occur for any
reason:
(a) (i) any failure to pay the principal of any of the
Obligations when due, whether upon demand or otherwise or (ii) any failure to
pay interest, fees or premiums on any of the Obligations when due, whether upon
demand or otherwise, if such default shall have continued unremedied for two (2)
Business Days after such interest, fees or premiums on any of the Obligations
became due;
(b) any representation or warranty made or deemed made by any
Borrower in this Agreement or by any Acme Party in any of the other Loan
Documents, any Financial Statement, or any certificate furnished by any Acme
Party at any time to the Agent or any Lender pursuant to this Agreement or any
other Loan Document shall prove to be untrue or incorrect in any material
respect as of the date on which made, deemed made, or furnished;
111
<PAGE> 119
(c) (i) any default shall occur in the observance or performance
of any of the covenants and agreements contained in this Agreement or any other
Loan Documents and such default (other than in respect of any of Article 6 or 7
or the third sentence of Section 9.5(b) or any of Section 9.8(c), (d) or (e),
9.9, 9.10, 9.11, 9.12, 9.13, 9.14, 9.15, 9.17, 9.18, 9.19, 9.20, 9.21, 9.22,
9.23, 9.24, 9.25, 9.26, 9.28, 9.31, 9.32, or 9.33) shall continue unremedied for
a period of thirty or more days or (ii) if this Agreement or any other Loan
Document shall terminate (other than in accordance with its terms or the terms
hereof or with the written consent of the Agent and the Majority Lenders) or
become void or unenforceable, without the written consent of the Agent and the
Majority Lenders;
(d) default shall occur with respect to any Debt For Borrowed
Money created or incurred after the Filing Date in an outstanding principal
amount which exceeds $1,000,000, or under any agreement or instrument entered
into on or after the Filing Date (or assumed by any Borrower or Alpha Tube on or
after the Filing Date or effective thereafter in accordance with applicable law)
under or pursuant to which any such Debt For Borrowed Money may have been
issued, created, assumed, or guaranteed by any Borrower or Alpha Tube, and such
default shall continue for more than the period of grace, if any, therein
specified, if the effect thereof (with or without the giving of notice or
further lapse of time or both) is to accelerate, or to permit the holders of any
such Debt For Borrowed Money to accelerate, the maturity of any such Debt For
Borrowed Money; or any such Debt For Borrowed Money shall be declared due and
payable or be required to be prepaid (other than by a regularly scheduled
required prepayment) prior to the stated maturity thereof;
(e) any Borrower or Alpha Tube shall file a certificate of
dissolution under applicable state law or shall be liquidated, dissolved or
wound-up or shall commence or have commenced against it any action or proceeding
for dissolution, winding-up or liquidation, or shall take any corporate action
in furtherance thereof;
(f) all or any material part of the property of any Borrower or
Alpha Tube shall be nationalized, expropriated or condemned, seized or otherwise
appropriated, or custody or control of such property or of any Borrower or Alpha
Tube shall be assumed by any Governmental Authority or any court of competent
jurisdiction at the instance of any Governmental Authority, except where
contested in good faith by proper proceedings diligently pursued where a stay of
enforcement is in effect;
(g) one or more judgments or orders for the payment of money
aggregating in excess of $1,000,000, which amount shall not be fully covered by
insurance, shall be rendered against any Borrower or Alpha Tube and (x) the same
shall not be discharged (or provision shall not be made for such discharge), or
a stay of execution thereof shall not be procured, within 30 days from the date
of entry thereof, (y) the relevant Borrower or Alpha Tube, as appropriate, shall
not, within said period of 30 days, or such longer period during which execution
of the same shall have been stayed, appeal
112
<PAGE> 120
therefrom and cause the execution thereof to be stayed during such appeal and
(z) at all times during such 30 day period or such longer period no
post-judgment or order remedy shall have been taken with respect to any such
judgment or order;
(h) any loss, theft, damage or destruction of any item or items
of Collateral or other property of any Borrower or Alpha Tube occurs which (i)
materially and adversely affects the property, business, operation, prospects,
or condition of such Borrower or Alpha Tube; or (ii) is material in amount and
is not adequately covered by insurance;
(i) there occurs a Material Adverse Effect (other than the
commencement of the Case or the continuation of the circumstances giving rise to
the filing thereof so long as the Agent has been made aware as of the Interim
Bankruptcy Court Order Date of all such circumstances);
(j) there is filed against any Borrower or Alpha Tube any
criminal action, suit or proceeding under any federal or state racketeering
statute (including, without limitation, the Racketeer Influenced and Corrupt
Organization Act of 1970), which action, suit or proceeding (1) is not dismissed
within one hundred twenty (120) days, and (2) could reasonably be expected to
result in the confiscation or forfeiture of any material portion of the
Collateral;
(k) for any reason, other than the failure of the Agent to take
any action available to it to maintain perfection of the Agent's Liens pursuant
to the Loan Documents, (i) any Loan Document ceases to be in full force and
effect in any material respect, (ii) any Lien with respect to any portion of the
Collateral intended to be secured thereby (A) ceases to be, or is not, valid,
perfected and (X) in the case of Collateral consisting of Inventory (other than
Permitted Consignment Inventory) and Accounts and the proceeds thereof, prior to
all other Liens and (Y) in the case of Collateral not consisting of Inventory
(other than Permitted Consignment Inventory) and Accounts and the proceeds
thereof, prior to all other Liens except Permitted Liens described in clause
(a), (d), (e), (g), (h), (i) or (j) of the definition thereof, or (B) is
terminated, revoked or declared void, (iii) any Lien (other than Permitted
Liens) exists with respect to any portion of the Collateral;
(l) one or more ERISA Events shall occur with respect to any
Pension Plans or Multi-employer Plans which have resulted or could reasonably be
expected to result in liability of any Borrower or Alpha Tube under Title IV of
ERISA to the Pension Plan, Multi-employer Plan or the PBGC in an aggregate
amount for all such Pension Plans and Multi-employer Plans in excess of
$1,000,000; or (ii) any Borrower, Alpha Tube or any ERISA Affiliate shall fail
to pay when due, after the expiration of any applicable grace period, any
installment payment with respect to its withdrawal liability under Section 4201
of ERISA under a Multi-employer Plan in an aggregate amount,
113
<PAGE> 121
together with all other such amounts not paid by such Borrower, Alpha Tube or
ERISA Affiliate when due, in excess of $1,000,000;
(m) there occurs a Change of Control;
(n) an order with respect to the Case shall be entered by the
Bankruptcy Court (i) appointing a trustee or (ii) appointing an examiner with
enlarged powers substantially similar to those of a trustee;
(o) an order with respect to the Case shall be entered by the
Bankruptcy Court converting such Case to a case under Chapter 7 of the
Bankruptcy Code;
(p) (i) an order shall be entered by the Bankruptcy Court
confirming a plan of reorganization in the Case which does not (x) contain a
provision for termination of all of the Lenders' Commitments and payment in full
in cash of all Obligations and the cash collateralization or return of all
Letters of Credit on the date of effectiveness of such plan and otherwise in a
manner satisfactory to the Agent and the Lenders on or before the effective date
of such plan and (y) provide for the continuation of the Agent's Liens and
priorities until such effective date or (ii) any Borrower or Alpha Tube shall
have filed such a plan of reorganization in the Case;
(q) an order shall be entered by the Bankruptcy Court dismissing
the Case which does not contain a provision for termination of all of the
Lenders' Commitments and payment in full in cash of all Obligations and the cash
collateralization or return of all Letters of Credit in a manner satisfactory to
the Agent and the Lenders upon such dismissal;
(r) an order with respect to the Case shall be entered, in each
case without the express prior written consent of the Agent and the Lenders, (i)
to revoke, vacate, reverse, stay, modify, supplement or amend the credit
facility herein contemplated, any Loan Document or the Final Bankruptcy Court
Order, as the case may be, or (ii) to permit any administrative expense claim or
any claim (now existing or hereafter arising, of any kind or nature whatsoever)
to have administrative priority as to any Borrower or Alpha Tube equal or
superior to the priority of the Lenders and the Agent in respect of the
Obligations, except for allowed administrative expense claims having priority
over the Obligations to the extent set forth in the definition of the term
"Agreed Administrative Expense Claim Priorities" (with respect to the Borrowers)
or the term "Alpha Tube Agreed Administrative Expense Claim Priorities" and
Alpha Tube Trade Debt (with respect to Alpha Tube) or (iii) to grant or permit
the grant of any administrative claim or Lien (other than the Permitted Liens),
which is senior to or pari passu with the superpriority claim of the Agent and
the Lenders on any Collateral;
(s) an application for any of the orders described in clause (n),
(o), (p), (q) or (r) above shall be made by any Borrower, Alpha Tube or any
other Person and such application (if made by any Person other
114
<PAGE> 122
than such Borrower or Alpha Tube, as applicable) is not contested by such
Borrower or Alpha Tube, as applicable, in good faith or the relief requested is
granted in an order that is not stayed pending appeal;
(t) an order shall be entered by the Bankruptcy Court that is not
stayed pending appeal granting relief from the automatic stay to the holder or
holders of any Liens on any assets of any Borrower or Alpha Tube and (i) the
Agent and the Majority Lenders shall determine that a Material Adverse Effect is
reasonably likely to result from the entry of such order or (ii) the aggregate
amount secured by such Liens is greater than $2,000,000;
(u) (i) any Person files a plan of reorganization in the Case
which does not contain a provision for termination of all Lenders' Commitments
and payment in full in cash of all Obligations and the cash collateralization or
return of all Letters of Credit in a manner satisfactory to the Agent and the
Lenders on or before the effective date of such plan and (ii) an order shall be
entered by the Bankruptcy Court approving the disclosure statement with respect
to any such plan;
(v) any Borrower or Alpha Tube shall attempt to invalidate,
reduce or otherwise impair the Agent's or any Lender's claims against any
Borrower or Alpha Tube or to invalidate, challenge, subordinate or otherwise
impair any Lien on any Collateral or to subject any Collateral to assessment
pursuant to Section 506(c) of the Bankruptcy Code;
(w) there shall be any payment on, or application by a Borrower
or Alpha Tube for authority to pay, any prepetition claim, other than those of
normal customer returns and credits (subject to Combined Availability),
employees (or paid for their benefit) or taxing authorities or permitted by
Section 9.31, in each instance without the express prior written consent of the
Agent and the Majority Lenders;
(x) a Final Order shall be entered by the Bankruptcy Court with
respect to the Case granting any creditor relief from the automatic stay which,
in the Required Lenders' reasonable judgment, has any adverse impact on the
Lenders or the Collateral;
(y) (i) The Final Bankruptcy Court Order shall not have been
entered on or before December 19, 1998, (ii) such Final Bankruptcy Court Order
shall not contain the Order Provisions (as defined in the Interim Agreement),
other appropriate provisions contained in the Interim Bankruptcy Court Order and
otherwise authorize this Agreement and the superpriority status and lien status
described herein, (iii) such Final Bankruptcy Court Order is not in all respects
in form and substance satisfactory to the Agent and the Lenders, (iv) such Final
Bankruptcy Court Order shall have been reversed, vacated, modified, amended
(except for modifications and amendments that are acceptable to the Agent and
the Lenders) or stayed (or any application for any of the foregoing shall have
been filed which contests any finding in such order that the Agent and the
Lenders are entitled to the
115
<PAGE> 123
benefits of Section 364(e) of the Bankruptcy Code) or (v) the Agent shall not
have received a copy of such Final Bankruptcy Court Order certified by the
Bankruptcy Court within two Business Days of its being entered; or
(z) if Alpha Tube shall at any time deliver to any Borrower, the
Agent or any Lender a Deficiency Notice (as defined in the Alpha Tube Cash Flow
Agreement) and the deficiency referred to therein is not cured within 3 Business
Days of the earliest date such Deficiency Notice is given to any Borrower, the
Agent or any Lender.
ARTICLE 11.2 Remedies. Notwithstanding the provisions of Section 362 of the
Bankruptcy Code and without order of or application or motion to the Bankruptcy
Court:
(a) If an Event of Default exists and is continuing, the Agent
may, in its discretion, and shall (and, in either case, without limiting any
other remedies available), at the direction of the Majority Lenders, do one or
more of the following at any time or times and in any order during such
continuance, upon three (3) Business Days' written (including facsimile) notice
to the Borrowers, their counsel and counsel to the Creditors' Committee (and the
Final Bankruptcy Court Order shall provide for the lifting of the automatic stay
under Section 362 of the Bankruptcy Code with respect to any and all such
actions): (i) reduce the Maximum Revolver Amount, or the advance rates against
Eligible Accounts and/or Eligible Inventory used in computing the Combined
Availability, or reduce one or more of the other elements used in computing the
Combined Availability; (ii) without limiting Section 10.2, restrict the amount
of or refuse to make Revolving Loans; (iii) without limiting Section 10.2,
restrict or refuse to arrange for or provide Letters of Credit or Credit
Support; (iv) terminate the Commitments and this Agreement; (v) declare any or
all Obligations to be immediately due and payable; (vi) set-off against any
outstanding Obligations, amounts in the accounts of any Borrower maintained by
or with any Lender or any agent or bailee thereof and otherwise exercise any and
all rights and remedies with respect to the Collateral; (vii) demand cash
collateral equal to 105% of the face amount of all outstanding Letters of
Credit; and (viii) pursue its other rights and remedies under the Loan Documents
and applicable law.
116
<PAGE> 124
(b) Without limitation to the foregoing but subject to any
applicable notice requirements set forth in Section 11.2(a), if an Event of
Default exists and is continuing: (i) the Agent shall have for the benefit of
the Agent and the Lenders, in addition to all other rights of the Agent and the
Lenders, the rights and remedies of a secured party under the UCC; (ii) the
Agent may, at any time, take possession of the Collateral and keep it on the
Borrowers' premises, at no cost to the Agent or any Lender, or remove any part
of it to such other place or places as the Agent may desire, or the Borrowers
shall, upon the Agent's demand, at the Borrowers' cost, assemble the Collateral
and make it available to the Agent at a place reasonably convenient to the
Agent; and (iii) the Agent may sell and deliver any Collateral at public or
private sales conducted in a commercially reasonable manner, for cash, upon
credit or otherwise, at such prices and upon such terms as the Agent deems
advisable, in its sole discretion, and may, if the Agent deems it reasonable,
postpone or adjourn any sale of the Collateral by an announcement at the time
and place of sale or of such postponed or adjourned sale without giving a new
notice of sale. Without in any way requiring notice to be given in the following
manner, the Borrowers agree that any notice by the Agent of sale, disposition or
other intended action hereunder or in connection herewith, whether required by
the UCC or otherwise, shall constitute reasonable notice to the Borrowers if
such notice is mailed by registered or certified mail, return receipt requested,
postage prepaid, or is delivered personally against receipt, at least five (5)
Business Days prior to such action to the Borrowers' address specified in or
pursuant to Section 15.8. If any Collateral is sold on terms other than payment
in full at the time of sale, no credit shall be given against the Obligations
until the Agent or the Lenders receive payment, and if the buyer defaults in
payment, the Agent may resell the Collateral without further notice to the
Borrowers. In the event the Agent seeks to take possession of all or any portion
of the Collateral by judicial process, the Borrowers irrevocably waives: (a) the
posting of any bond, surety or security with respect thereto which might
otherwise be required; (b) any demand for possession prior to the commencement
of any suit or action to recover the Collateral; and (c) any requirement that
the Agent retain possession and not dispose of any Collateral until after trial
or final judgment. The Borrowers agree that the Agent has no obligation to
preserve rights to the Collateral or marshal any Collateral for the benefit of
any Person. The Agent is hereby granted a license or other right to use, without
charge, the Borrowers' labels, patents, copyrights, name, trade secrets, trade
names, trademarks, and advertising matter, or any similar property, in
completing production of, advertising or selling any Collateral, and the
Borrowers' rights under all licenses and all franchise agreements shall inure to
the Agent's benefit for such purpose. The proceeds of sale shall be applied
first to all expenses of sale, including attorneys' fees, and then to the
Obligations in whatever order the Agent elects. The Agent will return any excess
to the Borrowers and the Borrowers shall remain liable for any deficiency.
117
<PAGE> 125
(c) If an Event of Default occurs, the Borrowers hereby waive,
except to the extent expressly provided otherwise herein, all rights to notice
and hearing prior to the exercise by the Agent of the Agent's rights to
repossess the Collateral without judicial process or to replevy, attach or levy
upon the Collateral without notice or hearing.
ARTICLE 12
TERM AND TERMINATION
ARTICLE 12.1 Term and Termination. The term of this Agreement shall end on
the Termination Date. The Agent upon direction from the Majority Lenders may
terminate this Agreement without notice upon the occurrence and during the
continuance of an Event of Default. Upon the effective date of termination of
this Agreement for any reason whatsoever, all Obligations (including, without
limitation, all unpaid principal, accrued interest and any early termination or
prepayment fees or penalties) shall become immediately due and payable and
Borrowers shall immediately arrange for the cancellation of all Letters of
Credit then outstanding (or cash collateralization thereof, on terms acceptable
to the Agent, at 105% of the face amount of such Letters of Credit).
Notwithstanding the termination of this Agreement, until all Obligations are
indefeasibly paid and performed in full in cash, the Borrowers shall remain
bound by the terms of this Agreement and shall not be relieved of any of their
Obligations hereunder, and the Agent and the Lenders shall retain all their
rights and remedies hereunder (including, without limitation, the Agent's Liens
(including, without limitation, the superpriority status thereof) in and all
rights and remedies with respect to all then existing and after-arising
Collateral).
ARTICLE 13
AMENDMENTS; WAIVER; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS
ARTICLE 13.1 No Waivers; Cumulative Remedies. No failure by the Agent or
any Lender to exercise any right, remedy, or option under this Agreement or any
present or future supplement thereto, or in any other agreement between or among
any Acme Party and the Agent and/or any Lender, or delay by the Agent or any
Lender in exercising the same, will not operate as a waiver thereof. No waiver
by the Agent or any Lender will be effective unless it is in writing, and then
only to the extent specifically stated. No waiver by the Agent or the Lenders on
any occasion shall affect or diminish the Agent's and each Lender's rights
thereafter to require strict performance by the Borrowers of any provision of
this Agreement. The Agent's and each Lender's rights under this Agreement will
be cumulative and not exclusive of any other right or remedy which the Agent or
any Lender may have.
118
<PAGE> 126
ARTICLE 13.2 Amendments and Waivers. No amendment or waiver of any
provision of this Agreement or any other Loan Document, and no consent with
respect to any departure by any Borrower or other Acme Party therefrom, shall be
effective unless the same shall be in writing and signed by the Majority Lenders
(or by the Agent at the written request of the Majority Lenders) and the
Borrowers or other Acme Parties party thereto and then any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no such waiver, amendment, or
consent shall, unless in writing and signed by all the Lenders and the Borrowers
and acknowledged by the Agent, do any of the following:
(a) increase or extend the Commitment of any Lender;
(b) postpone or delay any date fixed by this Agreement or any
other Loan Document for any payment of principal, interest, fees or other
amounts due to the Lenders (or any of them) hereunder or under any other Loan
Document;
(c) reduce the principal of, or the rate of interest specified
herein on any Loan, or any fees or other amounts payable hereunder or under any
other Loan Document;
(d) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Loans which is required for the Lenders or any of
them to take any action hereunder;
(e) increase any of the percentages set forth in the definition
of Combined Availability or amend the definitions of Eligible Inventory or
Eligible Accounts; provided that nothing herein shall limit or restrict the
Agent's discretion as set forth in such definitions;
(f) amend this Section or any provision of the Agreement
providing for consent or other action by all Lenders;
(g) release Collateral other than as permitted by Section 14.12;
or
(h) change the definitions of "Majority Lenders" or "Required
Lenders";
and, provided further, that no amendment, waiver or consent shall, unless in
writing and signed by the Agent, affect the rights or duties of the Agent under
this Agreement or any other Loan Document. Further, in addition to those
applicable requirements set forth above, no amendment or waiver of any of the
following definitions or provisions of this Agreement, and no consent with
respect to any departure by Alpha Tube therefrom, shall be effective unless the
same shall be in writing and signed by Alpha Tube:
119
<PAGE> 127
(a) change the definition of "Alpha Tube Agreed Administrative
Expense Claim Priorities", "Alpha Tube Carve-Out Expenses", "Alpha Tube Trade
Debt" or "Permitted Liens" (but only clause (i) of such definition and only to
the extent relating to Alpha Tube Carve-Out Expenses);
(b) Section 6.2(d)(ii)(A) or (B) or Section 11.1(k) (in each
instance, only to the extent relating to the priority of Alpha Tube Carve-Out
Expenses); or
(c) Section 9.26(d) (but only to the extent relating to Alpha
Tube Carve-Out Expenses).
ARTICLE 13.3 Assignments; Participations. Any Lender may, with the written
consent of the Agent, assign and delegate to one or more assignees (provided
that no written consent of the Agent shall be required in connection with any
assignment and delegation by a Lender to an Affiliate of such Lender) (each an
"Assignee") all, or any ratable part of all, of the Loans, the Commitments and
the other rights and obligations of such Lender hereunder, in a minimum amount
of $10,000,000 and, if the remaining Commitment of such Lender would be less
than $10,000,000, the entire amount of such Lender's Commitment; provided,
however, that the Borrowers and the Agent may continue to deal solely and
directly with such Lender in connection with the interest so assigned to an
Assignee until (i) written notice of such assignment, together with payment
instructions, addresses and related information with respect to the Assignee,
shall have been given to the Borrowers and the Agent by such Lender and the
Assignee (and the Borrowers shall have had the opportunity to consult with the
Agent with respect to the prospective Assignee); (ii) such Lender and its
Assignee shall have delivered to the Borrowers and the Agent an Assignment and
Acceptance in the form of Exhibit D ("Assignment and Acceptance") and (iii) the
assignor Lender or Assignee has paid to the Agent a processing fee in the amount
of $3,000.
(a) From and after the date that the Agent notifies the assignor
Lender that it has received an executed Assignment and Acceptance and payment of
the above-referenced processing fee, (i) the Assignee thereunder shall be a
party hereto and, to the extent that rights and Obligations, including, but not
limited to, the obligation to participate in Letters of Credit and Credit
Support have been assigned to it pursuant to such Assignment and Acceptance,
shall have the rights and obligations of a Lender under the Loan Documents, and
(ii) the assignor Lender shall, to the extent that rights and obligations
hereunder and under the other Loan Documents have been assigned by it pursuant
to such Assignment and Acceptance, relinquish its rights and be released from
its obligations under this Agreement (and in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto).
120
<PAGE> 128
(b) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the Assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (1) other than as
provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other Loan Document furnished
pursuant hereto; (2) such assigning Lender makes no representation or warranty
and assumes no responsibility with respect to the financial condition of the
Acme Parties or the performance or observance by the Acme Parties of any of
their Obligations under this Agreement or any other Loan Document furnished
pursuant hereto; (3) such Assignee confirms that it has received a copy of this
Agreement, together with such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (4) such Assignee will, independently and without
reliance upon the Agent, such assigning Lender or any other Lender, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement; (5) such Assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under this Agreement
as are delegated to the Agent by the terms hereof, together with such powers as
are reasonably incidental thereto; and (6) such Assignee agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of this Agreement are required to be performed by it as a Lender.
(c) Immediately upon each Assignee's making its processing fee
payment under the Assignment and Acceptance, this Agreement shall be deemed to
be amended to the extent, but only to the extent, necessary to reflect the
addition of the Assignee and the resulting adjustment of the Commitments arising
therefrom. The Commitment allocated to each Assignee shall reduce such
Commitments of the assigning Lender pro tanto.
121
<PAGE> 129
(d) Any Lender may, with the written consent of the Agent, at any
time sell to one or more commercial banks, financial institutions, or other
Persons not Affiliates of any Acme Party (a "Participant") participating
interests in any Loans, the Commitment of that Lender and the other interests of
that Lender (the "originating Lender") hereunder and under the other Loan
Documents; provided, however, that (i) the originating Lender's obligations
under this Agreement shall remain unchanged, (ii) the originating Lender shall
remain solely responsible for the performance of such obligations, (iii) the
Borrowers and the Agent shall continue to deal solely and directly with the
originating Lender in connection with the originating Lender's rights and
obligations under this Agreement and the other Loan Documents, and (iv) no
Lender shall transfer or grant any participating interest under which the
Participant has rights to approve any amendment to, or any consent or waiver
with respect to, this Agreement or any other Loan Document, and all amounts
payable by any Borrower hereunder shall be determined as if such Lender had not
sold such participation; except that, if amounts outstanding under this
Agreement are due and unpaid, or shall have been declared or shall have become
due and payable upon the occurrence of an Event of Default, each Participant
shall be deemed to have the right of set-off in respect of its participating
interest in amounts owing under this Agreement to the same extent as if the
amount of its participating interest were owing directly to it as a Lender under
this Agreement.
(e) Notwithstanding any other provision in this Agreement, any
Lender may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Agreement in favor of any
Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury
Regulation 31 CFR Section 203.14, and such Federal Reserve Bank may enforce such
pledge or security interest in any manner permitted under applicable law.
(f) Notwithstanding any other provision in this Agreement, BABC
may, without the consent of any of the Acme Parties, any Lender or any other
Person and without complying with any of the requirements or conditions set
forth in this Section 13.3, assign and delegate to Bank of America all or any
part of the Loans, Commitments and the other rights and obligations of BABC
hereunder.
122
<PAGE> 130
ARTICLE 14
THE AGENT
ARTICLE 14.1 Appointment and Authorization. Each Lender hereby designates
and appoints BankAmerica Business Credit, Inc. as its Agent under this Agreement
and the other Loan Documents and each Lender hereby irrevocably authorizes the
Agent to take such action on its behalf under the provisions of this Agreement
and each other Loan Document and to exercise such powers and perform such duties
as are expressly delegated to it by the terms of this Agreement or any other
Loan Document, together with such powers as are reasonably incidental thereto.
The Agent agrees to act as such on the express conditions contained in this
Article 14. The provisions of this Article 14 are solely for the benefit of the
Agent and the Lenders and the Acme Parties shall have no rights as a third party
beneficiary of any of the provisions contained herein. Notwithstanding any
provision to the contrary contained elsewhere in this Agreement or in any other
Loan Document, the Agent shall not have any duties or responsibilities, except
those expressly set forth herein, nor shall the Agent have or be deemed to have
any fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
Without limiting the generality of the foregoing sentence, the use of the term
"agent" in this Agreement with reference to the Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law. Instead, such term is used merely as a matter of
market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties. Except as expressly
otherwise provided in this Agreement, the Agent shall have and may use its sole
discretion with respect to exercising or refraining from exercising any
discretionary rights or taking or refraining from taking any actions which the
Agent is expressly entitled to take or assert under this Agreement and the other
Loan Documents, including, without limitation, (a) the determination of the
applicability of ineligibility criteria with respect to the calculation of the
Combined Availability, (b) the making of Agent Advances pursuant to Section
2.2(i), and (c) the exercise of remedies pursuant to Section 11.2, and any
action so taken or not taken shall be deemed consented to by the Lenders.
ARTICLE 14.2 Delegation of Duties. The Agent may execute any of its duties
under this Agreement or any other Loan Document by or through agents, employees
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects as
long as such selection was made without gross negligence or willful misconduct.
123
<PAGE> 131
ARTICLE 14.3 Liability of Agent. None of the Agent-Related Persons shall
(i) be liable for any action taken or omitted to be taken by any of them under
or in connection with this Agreement or any other Loan Document or the
transactions contemplated hereby (except for its own gross negligence or willful
misconduct), or (ii) be responsible in any manner to any of the Lenders for any
recital, statement, representation or warranty made by any Acme Party, or any
officer thereof, contained in this Agreement or in any other Loan Document, or
in any certificate, report, statement or other document referred to or provided
for in, or received by the Agent under or in connection with, this Agreement or
any other Loan Document, or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document, or
for any failure of any Acme Party or any other party to any Loan Document to
perform its obligations hereunder or thereunder. No Agent-Related Person shall
be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any other Loan Document, or to inspect the properties,
books or records of any Acme Party.
ARTICLE 14.4 Reliance by Agent. The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons, and upon advice and statements of legal counsel (including counsel
to the Acme Parties), independent accountants and other experts selected by the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Majority Lenders (or such higher
percentage, if any, required under Section 13.2) as it deems appropriate and, if
it so requests, it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement or
any other Loan Document in accordance with a request or consent of the Majority
Lenders (subject in the case of any amendment or waiver to any higher percentage
required under Section 13.2) and such request and any action taken or failure to
act pursuant thereto shall be binding upon all of the Lenders.
(a) For purposes of determining compliance with the conditions
specified in Section 10.1, each Lender that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter either sent by the Agent to such Lender for consent,
approval, acceptance or satisfaction, or required thereunder to be consented to
or approved by or acceptable or satisfactory to the Lender.
124
<PAGE> 132
ARTICLE 14.5 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest and fees required
to be paid to the Agent for the account of the Lenders, unless the Agent shall
have received written notice from a Lender or any Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default." The Agent will notify the Lenders of its
receipt of any such notice. The Agent shall take such action with respect to
such Default or Event of Default as may be requested by the Majority Lenders in
accordance with Section 11; provided, however, that unless and until the Agent
has received any such request, the Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable.
ARTICLE 14.6 Credit Decision. Each Lender acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that no
act by the Agent hereinafter taken, including any review of the affairs of the
Acme Parties, shall be deemed to constitute any representation or warranty by
any Agent-Related Person to any Lender. Each Lender represents to the Agent that
it has, independently and without reliance upon any Agent-Related Person and
based on such documents and information as it has deemed appropriate, made its
own appraisal of and investigation into the business, prospects, operations,
property, financial and other condition and creditworthiness of the Acme
Parties, and all applicable bank regulatory laws relating to the transactions
contemplated hereby, and made its own decision to enter into this Agreement and
to extend credit to the Borrowers. Each Lender also represents that it will,
independently and without reliance upon any Agent-Related Person and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and the other Loan Documents, and to make
such investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of the Acme Parties. Except for notices, reports and other
documents expressly herein required to be furnished to the Lenders by the Agent,
the Agent shall not have any duty or responsibility to provide any Lender with
any credit or other information concerning the business, prospects, operations,
property, financial and other condition or creditworthiness of the Acme Parties
which may come into the possession of any of the Agent-Related Persons.
125
<PAGE> 133
ARTICLE 14.7 Indemnification. Whether or not the transactions contemplated
hereby are consummated, the Lenders shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of the Acme
Parties and without limiting the obligation of the Acme Parties to do so), pro
rata, from and against any and all Indemnified Liabilities as such term is
defined in Section 15.11; provided, however, that no Lender shall be liable for
the payment to the Agent-Related Persons of any portion of such Indemnified
Liabilities resulting solely from such Person's gross negligence or willful
misconduct. Without limitation of the foregoing, each Lender shall reimburse the
Agent upon demand for its ratable share of any costs or out-of-pocket expenses
(including Attorney Costs) incurred by the Agent in connection with the
preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement,
any other Loan Document, or any document contemplated by or referred to herein,
to the extent that the Agent is not reimbursed for such expenses by or on behalf
of the Acme Parties. The undertaking in this Section shall survive the payment
of all Obligations hereunder and the resignation or replacement of the Agent.
ARTICLE 14.8 Agent in Individual Capacity. BABC and its Affiliates may make
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with any of the Borrowers and
its Affiliates as though BABC were not the Agent hereunder and without notice to
or consent of the Lenders. The Lenders acknowledge that, pursuant to such
activities, BABC or its Affiliates may receive information regarding the Acme
Parties (including information that may be subject to confidentiality
obligations in favor of the Acme Parties) and acknowledge that the Agent shall
be under no obligation to provide such information to them. With respect to its
Loans, BABC shall have the same rights and powers under this Agreement as any
other Lender and may exercise the same as though it were not the Agent, and the
terms "Lender" and "Lenders" include BABC in its individual capacity.
126
<PAGE> 134
ARTICLE 14.9 Successor Agent. The Agent may resign as Agent upon thirty
(30) days' notice to the Lenders and the Borrowers. If the Agent resigns under
this Agreement, the Majority Lenders shall appoint from among the Lenders a
successor agent for the Lenders. If no successor agent is appointed prior to the
effective date of the resignation of the Agent, the Agent may appoint, after
consulting with the Lenders and the Borrowers, a successor agent from among the
Lenders. Upon the acceptance of its appointment as successor agent hereunder,
such successor agent shall succeed to all the rights, powers and duties of the
retiring Agent and the term "Agent" shall mean such successor agent and the
retiring Agent's appointment, powers and duties as Agent shall be terminated.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Section 14 shall inure to its benefit as to any actions taken or omitted to
be taken by it while it was Agent under this Agreement. If no successor agent
has accepted appointment as Agent by the date which is thirty (30) days
following a retiring Agent's notice of resignation, the retiring Agent's
resignation shall nevertheless thereupon become effective and the Lenders shall
perform all of the duties of the Agent hereunder until such time, if any, as the
Majority Lenders appoint a successor agent as provided for above.
Notwithstanding any other provision in this Agreement, BABC may resign as the
Agent and Bank of America may succeed as successor agent to BABC, without the
consent of any Lender or any other Person.
ARTICLE 14.10 Withholding Tax. Each Lender and each Assignee within the
meaning of Section 13.3 organized under the laws of a jurisdiction outside the
United States, on or prior to the earlier of the date of its execution and
delivery of this Agreement or the date on which it becomes an Assignee, and from
time to time thereafter, if requested in writing by a Borrower or the Agent and
if permitted under then applicable law, shall provide each of the respective
Borrowers and the Agent with:
(i) one duly completed and executed IRS Form 1001 or 4224, as
appropriate, or any successor form, certifying that such Lender (or Assignee) is
exempt from withholding tax on payments pursuant to this Agreement under an
income tax treaty to which the United States is a party or certifying that the
income receivable pursuant to this Agreement is effectively connected with the
conduct of a trade or business in the United States; or
(ii) any other form or certificate required by a U.S. taxing
authority (including any certificate required by Section 871(h) or 881(c) of the
Code), certifying that such Lender (or Assignee) is entitled to an exemption
from tax on payments pursuant to this Agreement; and in all cases
(iii) one duly completed and executed IRS Form W-8 or W-9, as
appropriate, or any successor form.
127
<PAGE> 135
Such Lender or Assignee agrees to promptly notify the Agent and the Borrowers of
any change in circumstances which would modify or render invalid any claimed
exemption or reduction.
(b) If any Lender or Assignee required under this Section to
provide IRS Form 1001 sells, assigns, grants a participation in, or otherwise
transfers all or part of the Obligations of the Borrowers, such Lender or
Assignee agrees to notify the Agent and the Borrowers of the percentage amount
in which it is no longer the beneficial owner of Obligations of the Borrowers.
To the extent of such percentage amount, the Agent and the Borrowers will treat
such Lender's or Assignee's IRS Form 1001 as no longer valid.
(c) If any Lender or Assignee required under this Section to
provide IRS Form 4224 sells, assigns, grants a participation in, or otherwise
transfers all or part of the Obligations of the Borrowers, such Lender agrees to
undertake sole responsibility for complying with the withholding tax
requirements imposed by Sections 1441 and 1442 of the Code.
(d) If any Lender or Assignee is entitled to a reduction in the
applicable withholding tax, the Agent may withhold from any interest payment to
such Lender or Assignee an amount equivalent to the applicable withholding tax
after taking into account such reduction. If the forms or other documentation
required by subsection (a) of this Section are not delivered to the Agent or the
Borrowers, then the Agent or the Borrowers may withhold from any interest
payment to such Lender or Assignee not providing such forms or other
documentation an amount equivalent to the applicable withholding tax.
(e) If the IRS or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that the Agent or the Borrowers did
not properly withhold tax from amounts paid to or for the account of any Lender
or Assignee (because the appropriate form was not delivered, was not properly
executed, or because such Lender or Assignee failed to notify the Agent or the
Borrowers of a change in circumstances which rendered the exemption from, or
reduction of, withholding tax ineffective, or for any other reason) such Lender
or Assignee shall indemnify the Agent or the Borrowers fully for all amounts
paid, directly or indirectly, by the Agent or the Borrowers as tax or otherwise,
including penalties and interest, and including any taxes imposed by any
jurisdiction on the amounts payable to the Agent under this Section, together
with all costs and expenses (including Attorney Costs). The obligation of a
Lender or Assignee under this subsection shall survive the payment of all
Obligations and the resignation or replacement of the Agent.
128
<PAGE> 136
ARTICLE 14.11 Reserved.
ARTICLE 14.12 Collateral Matters. The Lenders hereby irrevocably authorize
the Agent, at its option and in its sole discretion, to release any Agent's Lien
upon any Collateral (i) upon the termination of the Commitments and payment and
satisfaction in full by the Borrowers of all Loans and reimbursement obligations
in respect of Letters of Credit and Credit Support, and the termination of all
outstanding Letters of Credit (whether or not any of such Obligations are due)
and payment of all other obligations; (ii) constituting property being sold or
disposed of if the Borrowers certify to the Agent that the sale or disposition
is made in compliance with Section 9.9 (and the Agent may rely conclusively on
any such certificate, without further inquiry); (iii) constituting property in
which the Acme Parties owned no interest at the time the Lien was granted or at
any time thereafter; or (iv) constituting property leased to any Acme Party
under a lease which has expired or been terminated in a transaction permitted
under this Agreement. Except as provided above, the Agent will not release any
of the Agent's Liens without the prior written authorization of the Lenders;
provided that the Agent may, in its discretion and without the prior written
authorization of the Lenders, release the Agent's Liens on (x) Accounts,
Inventory and other Collateral in which the Agent has a first priority Lien
valued in the aggregate not in excess of $1,000,000 and (y) Collateral in which
the Agent does not have a first priority Lien without limitation as to amount if
the holder of the prior Lien therein releases its Lien in such Collateral and
receives any proceeds from the sale or other disposition of such Collateral.
Upon request by the Agent or the Borrowers at any time, the Lenders will confirm
in writing the Agent's authority to release any Agent's Liens upon particular
types or items of Collateral pursuant to this Section 14.12.
(a) Upon receipt by the Agent of any authorization required
pursuant to Section 14.12(a) from the Lenders of the Agent's authority to
release any Agent's Liens upon particular types or items of Collateral, and upon
at least five (5) Business Days' prior written request by the Borrowers, the
Agent shall (and is hereby irrevocably authorized by the Lenders to) execute
such documents as may be necessary to evidence the release of the Agent's Liens
upon such Collateral; provided, however, that (i) the Agent shall not be
required to execute any such document on terms which, in the Agent's opinion,
would expose the Agent to liability or create any obligation or entail any
consequence other than the release of such Liens without recourse or warranty,
and (ii) such release shall not in any manner discharge, affect or impair the
Obligations or any Liens (other than those expressly being released) upon (or
obligations of any Acme Party in respect of) all interests retained by any Acme
Party, including (without limitation) the proceeds of any sale, all of which
shall continue to constitute part of the Collateral.
129
<PAGE> 137
(b) The Agent shall have no obligation whatsoever to any of the
Lenders to assure that the Collateral exists or is owned by the Acme Parties or
is cared for, protected or insured or has been encumbered, or that the Agent's
Liens have been properly or sufficiently or lawfully created, perfected,
protected or enforced or are entitled to any particular priority, or to exercise
at all or in any particular manner or under any duty of care, disclosure or
fidelity, or to continue exercising, any of the rights, authorities and powers
granted or available to the Agent pursuant to any of the Loan Documents, it
being understood and agreed that in respect of the Collateral, or any act,
omission or event related thereto, the Agent may act in any manner it may deem
appropriate, in its sole discretion given the Agent's own interest in the
Collateral in its capacity as one of the Lenders and that the Agent shall have
no other duty or liability whatsoever to any Lender as to any of the foregoing.
ARTICLE 14.13 Restrictions on Actions by Lenders; Sharing of Payments. Each
of the Lenders agrees that it shall not, without the express consent of all
Lenders, and that it shall, to the extent it is lawfully entitled to do so, upon
the request of all Lenders, set off against the Obligations, any amounts owing
by such Lender to the Acme Parties or any accounts of the Acme Parties now or
hereafter maintained with such Lender. Each of the Lenders further agrees that
it shall not, unless specifically requested to do so by the Agent, take or cause
to be taken any action to enforce its rights under this Agreement or against the
Acme Parties, including, without limitation, the commencement of any legal or
equitable proceedings, to foreclose any Lien on, or otherwise enforce any
security interest in, any of the Collateral.
130
<PAGE> 138
(a) If at any time or times any Lender shall receive (i) by
payment, foreclosure, setoff or otherwise, any proceeds of Collateral or any
payments with respect to the Obligations of any Acme Party to such Lender
arising under, or relating to, this Agreement or the other Loan Documents,
except for any such proceeds or payments received by such Lender from the Agent
pursuant to the terms of this Agreement, or (ii) payments from the Agent in
excess of such Lender's ratable portion of all such distributions by the Agent,
such Lender shall promptly (1) turn the same over to the Agent, in kind, and
with such endorsements as may be required to negotiate the same to the Agent, or
in same day funds, as applicable, for the account of all of the Lenders and for
application to the Obligations in accordance with the applicable provisions of
this Agreement, or (2) purchase, without recourse or warranty, an undivided
interest and participation in the Obligations owed to the other Lenders so that
such excess payment received shall be applied ratably as among the Lenders in
accordance with their Pro Rata Shares; provided, however, that if all or part of
such excess payment received by the purchasing party is thereafter recovered
from it, those purchases of participations shall be rescinded in whole or in
part, as applicable, and the applicable portion of the purchase price paid
therefor shall be returned to such purchasing party, but without interest except
to the extent that such purchasing party is required to pay interest in
connection with the recovery of the excess payment.
ARTICLE 14.14 Agency for Perfection. Each Lender hereby appoints each other
Lender as agent for the purpose of perfecting the Lenders' security interest in
assets which, in accordance with Article 9 of the UCC can be perfected only by
possession. Should any Lender (other than the Agent) obtain possession of any
such Collateral, such Lender shall notify the Agent thereof, and, promptly upon
the Agent's request therefor shall deliver such Collateral to the Agent or in
accordance with the Agent's instructions.
ARTICLE 14.15 Payments by Agent to Lenders. All payments to be made by the
Agent to the Lenders shall be made by bank wire transfer or internal transfer of
immediately available funds to:
if to BABC: Bank of America NT & SA
1850 Gateway Blvd.
Concord, CA 94520
ABA No. 121000358
Account No. 12353-03848
Account Name: BankAmerica Business Credit, Inc.
Reference: Acme
Contact: Operations Manager
Telephone: (212) 836-5324
Facsimile: (212) 836-5172
or pursuant to such other wire transfer instructions as each party may designate
for itself by written notice to the Agent. Concurrently with each
131
<PAGE> 139
such payment, the Agent shall identify whether such payment (or any portion
thereof) represents principal, premium or interest on the Revolving Loans, or
otherwise.
ARTICLE 14.16 Concerning the Collateral and the Related Loan Documents.
Each Lender authorizes and directs the Agent to enter into this Agreement and
the other Loan Documents relating to the Collateral, for the ratable benefit of
the Agent and the Lenders. Each Lender agrees that any action taken by the
Agent, Majority Lenders or Required Lenders, as applicable, in accordance with
the terms of this Agreement or the other Loan Documents relating to the
Collateral, and the exercise by the Agent, the Majority Lenders, or the Required
Lenders, as applicable, of their respective powers set forth therein or herein,
together with such other powers that are reasonably incidental thereto, shall be
binding upon all of the Lenders.
ARTICLE 14.17 Field Audit and Examination Reports; Disclaimer by Lenders.
By signing this Agreement, each Lender:
(a) is deemed to have requested that the Agent furnish such
Lender, promptly after it becomes available, a copy of each field audit or
examination report (each a "Report" and collectively, "Reports") prepared by the
Agent;
(b) expressly agrees and acknowledges that neither BABC nor the
Agent (i) makes any representation or warranty as to the accuracy of any Report,
or (ii) shall be liable for any information contained in any Report;
(c) expressly agrees and acknowledges that the Reports are not
comprehensive audits or examinations, that the Agent or other party performing
any audit or examination will inspect only specific information regarding the
Acme Parties and will rely significantly upon the Acme Parties' books and
records, as well as on representations of the Acme Parties' personnel;
(d) agrees to keep all Reports confidential and strictly for its
internal use, and not to distribute except to its participants, or use any
Report in any other manner; and
(e) without limiting the generality of any other indemnification
provision contained in this Agreement, agrees: (i) to hold the Agent and any
such other Lender preparing a Report harmless from any action the indemnifying
Lender may take or conclusion the indemnifying Lender may reach or draw from any
Report in connection with any loans or other credit accommodations that the
indemnifying Lender has made or may make to any Borrower, or the indemnifying
Lender's participation in, or the indemnifying Lender's purchase of, a loan or
loans of any Borrower; and (ii) to pay and protect, and indemnify, defend and
hold the Agent and any such other Lender preparing a Report harmless from and
against, the claims, actions,
132
<PAGE> 140
proceedings, damages, costs, expenses and other amounts (including, without
limitation attorney costs) incurred by the Agent and any such other Lender
preparing a Report as the direct or indirect result of any third parties who
might obtain all or part of any Report through the indemnifying Lender.
ARTICLE 14.18 Relation Among Lenders. The Lenders are not partners or
co-venturers, and no Lender shall be liable for the acts or omissions of, or
(except as otherwise set forth herein in case of the Agent) authorized to act
for, any other Lender.
ARTICLE 15
MISCELLANEOUS
ARTICLE 15.1 Cumulative Remedies; No Prior Recourse to Collateral. The
enumeration herein of the Agent's and each Lender's rights and remedies is not
intended to be exclusive, and such rights and remedies are in addition to and
not by way of limitation of any other rights or remedies that the Agent and the
Lenders may have under the UCC or other applicable law. The Agent and the
Lenders shall have the right, in their sole discretion, to determine which
rights and remedies are to be exercised and in which order. The exercise of one
right or remedy shall not preclude the exercise of any others, all of which
shall be cumulative. The Agent and the Lenders may, without limitation, proceed
directly against any or all of the Borrowers or other Acme Parties to collect
the Obligations without any prior recourse to the Collateral. No failure to
exercise and no delay in exercising, on the part of the Agent or any Lender, any
right, remedy, power or privilege hereunder, shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege.
ARTICLE 15.2 Severability. The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement required
hereunder.
ARTICLE 15.3 Governing Law; Choice of Forum; Service of Process. THIS
AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES
HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE
CONFLICT OF LAWS PROVISIONS PROVIDED THAT PERFECTION ISSUES WITH RESPECT TO
ARTICLE 9 OF THE UCC MAY GIVE EFFECT TO APPLICABLE CHOICE OR CONFLICT OF LAW
RULES SET FORTH IN ARTICLE 9 OF THE UCC) OF THE STATE OF NEW YORK; PROVIDED THAT
THE AGENT, THE BORROWERS AND THE LENDERS SHALL RETAIN ALL RIGHTS ARISING UNDER
FEDERAL LAW.
133
<PAGE> 141
(a) EXCEPT FOR MATTERS WITHIN THE EXCLUSIVE JURISDICTION OF THE
BANKRUPTCY COURT, ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK
OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, EACH BORROWER, THE AGENT AND THE LENDERS
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EXCEPT FOR MATTERS WITHIN THE EXCLUSIVE
JURISDICTION OF THE BANKRUPTCY COURT, EACH BORROWER, THE AGENT AND THE LENDERS
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. NOTWITHSTANDING THE FOREGOING
AND EXCEPT FOR MATTERS WITHIN THE EXCLUSIVE JURISDICTION OF THE BANKRUPTCY
COURT: (1) THE AGENT AND THE LENDERS SHALL HAVE THE RIGHT TO BRING ANY ACTION OR
PROCEEDING AGAINST ANY BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION THE AGENT OR THE LENDERS DEEM NECESSARY OR APPROPRIATE IN ORDER TO
REALIZE ON THE COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS AND (2) EACH OF
THE PARTIES HERETO ACKNOWLEDGES THAT ANY APPEALS FROM THE COURTS DESCRIBED IN
THE IMMEDIATELY PRECEDING SENTENCE MAY HAVE TO BE HEARD BY A COURT LOCATED
OUTSIDE THOSE JURISDICTIONS.
(b) EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY
REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO SUCH BORROWER AT ITS
ADDRESS SET FORTH IN SECTION 15.8 AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE U.S.
MAILS. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF AGENT OR THE LENDERS
TO SERVE LEGAL PROCESS BY ANY OTHER MANNER PERMITTED BY LAW.
ARTICLE 15.4 WAIVER OF JURY TRIAL. EACH BORROWER, THE LENDERS AND THE AGENT
EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER
WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH BORROWER, THE
LENDERS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
134
<PAGE> 142
ARTICLE 15.5 Survival of Representations and Warranties. All of the
Borrowers' representations and warranties contained in this Agreement shall
survive the execution, delivery, and acceptance thereof by the parties,
notwithstanding any investigation by the Agent or the Lenders or their
respective agents.
ARTICLE 15.6 Other Security and Guaranties. The Agent, may, without notice
or demand and without affecting any Borrower's obligations hereunder, from time
to time: (a) take from any Person and hold collateral (other than the
Collateral) for the payment of all or any part of the Obligations and exchange,
enforce or release such collateral or any part thereof; and (b) accept and hold
any endorsement or guaranty of payment of all or any part of the Obligations and
release or substitute any such endorser or guarantor, or any Person who has
given any Lien in any other collateral as security for the payment of all or any
part of the Obligations, or any other Person in any way obligated to pay all or
any part of the Obligations.
135
<PAGE> 143
ARTICLE 15.7 Fees and Expenses. Each Borrower agrees, jointly and
severally, to pay to the Agent, for its benefit, on demand, all reasonable costs
and expenses that Agent pays or incurs in connection with the negotiation,
preparation, consummation, administration, enforcement, and termination of this
Agreement and the other Loan Documents and each Borrower agrees to pay to each
Lender all reasonable costs and expenses that such Lender pays or incurs in
connection with the enforcement of this Agreement and the other Loan Documents,
including, in each case, without limitation: (a) Attorney Costs; (b) costs and
expenses (including attorneys' and paralegals' fees and disbursements which
shall include the allocated costs of Agent's in-house counsel fees and
disbursements) for any amendment, supplement, waiver, consent, or subsequent
closing in connection with the Loan Documents and the transactions contemplated
thereby; (c) costs and expenses of lien and title searches and title insurance;
(d) taxes, fees and other charges for recording mortgages, filing financing
statements and continuations, and other actions to perfect, protect, and
continue the Agent's Liens (including costs and expenses paid or incurred by the
Agent in connection with the consummation of Agreement); (e) sums paid or
incurred to pay any amount or take any action required of any Borrower or other
Acme Party under the Loan Documents that such Borrower or other Acme Party fails
to pay or take; (f) costs of appraisals, inspections, and verifications of the
Collateral, including, without limitation, travel, lodging, and meals for
inspections of the Collateral and the Borrowers' operations by the Agent plus
the Agent's then customary charge for field examinations and audits and the
preparation of reports thereof (such charge is currently $750 per day (or
portion thereof) for each agent or employee of the Agent with respect to each
field examination or audit); (g) costs and expenses of forwarding loan proceeds,
collecting checks and other items of payment, and establishing and maintaining
Payment Accounts and lock boxes; (h) costs and expenses of preserving and
protecting the Collateral; and (i) costs and expenses (including attorneys' and
paralegals' fees and disbursements which shall include the allocated cost of
Agent's in-house counsel fees and disbursements) paid or incurred to obtain
payment of the Obligations, enforce the Agent's Liens, sell or otherwise realize
upon the Collateral, and otherwise enforce the provisions of the Loan Documents,
or to defend any claims made or threatened against the Agent or any Lender
arising out of the transactions contemplated hereby (including without
limitation, preparations for and consultations concerning any such matters).
Without limiting the foregoing, the Borrowers shall also pay on demand, jointly
and severally, directly or at the option of the Agent through direct charges to
the outstanding balance of the Loan all reasonable costs and expenses incurred
by the Agent or any Lender in connection with any litigation, contest, dispute,
suit or proceeding relating to this Agreement or any other Loan Document. The
foregoing shall not be construed to limit any other provisions of the Loan
Documents regarding costs and expenses to be paid by any Borrower. All of the
foregoing costs and expenses shall be charged to the Borrowers' Loan Account as
Revolving Loans as described in Section 4.4.
136
<PAGE> 144
ARTICLE 15.8 Notices. Except as otherwise provided herein, all notices,
demands and requests that any party is required or elects to give to any other
shall be in writing, or by a telecommunications device capable of creating a
written record, and any such notice shall become effective (a) upon personal
delivery thereof, including, but not limited to, delivery by overnight mail and
courier service, (b) four (4) days after it shall have been mailed by United
States mail, first class, certified or registered, with postage prepaid, or (c)
in the case of notice by such a telecommunications device, when properly
transmitted, in each case addressed to the party to be notified as follows:
If to the Agent or to BABC:
BankAmerica Business Credit, Inc.
40 East 52nd Street
New York, New York 10022
Attention: Portfolio Manager
Telecopy No. (212) 836-5169
with copies to:
Bank of America NT & SA
335 Madison Avenue
New York, New York 10017
Attention: Legal Department
Telecopy No. (212) 503-7350
and:
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, New York 10017
Attention: Albert M. Fenster, Esq.
Telecopy No. (212) 836-7151
137
<PAGE> 145
If to the Borrowers:
c/o Acme Metals Incorporated
13500 S. Perry Avenue
Riverdale, Illinois 60827
Attention: CFO and Treasurer
Telecopy No. (708) 841-6010
with copies to:
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004
Attention: David M. LeMay
Telecopy No. (212) 422-4726
If to the Creditors' Committee:
c/o Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038
Attention: Lawrence M. Handelsman, Esq.
Telecopy No. (212) 806-6006
or to such other address as each party may designate for itself by like notice.
Failure or delay in delivering copies of any notice, demand, request, consent,
approval, declaration or other communication to the persons designated above to
receive copies shall not adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.
ARTICLE 15.9 Waiver of Notices. Unless otherwise expressly provided herein,
each Borrower waives presentment, protest and notice of demand or dishonor and
protest as to any instrument, notice of intent to accelerate the Obligations and
notice of acceleration of the Obligations, as well as any and all other notices
to which it might otherwise be entitled. No notice to or demand on any Borrower
which the Agent or any Lender may elect to give shall entitle such Borrower to
any or further notice or demand in the same, similar or other circumstances.
ARTICLE 15.10 Binding Effect. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective representatives,
successors, and assigns of the parties hereto; provided, however, that no
interest herein may be assigned by any Borrower without prior written consent of
the Agent and each Lender. The rights and benefits of the Agent and the Lenders
hereunder shall, if such Persons so agree, inure to any party acquiring any
interest in the Obligations or any part thereof.
138
<PAGE> 146
ARTICLE 15.11 Indemnity of the Agent and the Lenders by the Borrowers. Each
Borrower agrees, jointly and severally, to defend, indemnify and hold the
Agent-Related Persons, and each Lender and each of its respective officers,
directors, employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified Person") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including Attorney Costs) of any kind or
nature whatsoever which may at any time (including at any time following
repayment of the Loans and the termination, resignation or replacement of the
Agent or replacement of any Lender) be imposed on, incurred by or asserted
against any such Person in any way relating to or arising out of this Agreement
or any document contemplated by or referred to herein, or the transactions
contemplated hereby, or any action taken or omitted by any such Person under or
in connection with any of the foregoing, including with respect to any
investigation, litigation or proceeding (including any Insolvency Proceeding or
appellate proceeding) related to or arising out of this Agreement, any other
Loan Document, or the Loans or the use of the proceeds thereof, whether or not
any Indemnified Person is a party thereto (all the foregoing, collectively, the
"Indemnified Liabilities"); provided, that the Borrowers shall have no
obligation hereunder to any Indemnified Person with respect to Indemnified
Liabilities resulting solely from the gross negligence or willful misconduct of
such Indemnified Person. The agreements in this Section shall survive payment of
all other Obligations.
(a) Each Borrower, jointly and severally, hereby indemnifies,
defends and holds harmless the Indemnified Persons from any loss or liability
directly or indirectly arising out of the use, generation, manufacture,
production, storage, release, threatened release, discharge, disposal or
presence of a hazardous substance. This indemnity will apply whether the
hazardous substance is on, under or about any of such Borrower's property or
operations or property leased to such Borrower or property to which such
Borrower has sent any hazardous substance. The indemnity includes but is not
limited to attorneys' fees (including the reasonable estimate of the allocated
cost of in-house counsel and staff). The indemnity extends to the Agent-Related
Persons, and each Lender, its parent, subsidiaries and all of their directors,
officers, employees, agents, successors, attorneys and assigns. "Hazardous
Substances" means any substance, material or waste that is or becomes designated
or regulated as "toxic," "hazardous," "pollutant," or "contaminant" or a similar
designation or regulation under any federal, state or local law (whether under a
common law, statute, regulation or otherwise) or judicial or administrative
interpretation of such, including without limitation petroleum or natural gas.
This indemnity will survive termination of the Agreement.
139
<PAGE> 147
ARTICLE 15.12 Limitation of Liability. No claim may be made by any
Borrower, any Lender or other Person against the Agent, any Lender, or the
affiliates, directors, officers, officers, employees, or agents of any of them
for any special, indirect, consequential or punitive damages in respect of any
claim for breach of contract or any other theory of liability arising out of or
related to the transactions contemplated by this Agreement or any other Loan
Document, or any act, omission or event occurring in connection therewith, and
each Borrower and each Lender hereby waive, release and agree not to sue upon
any claim for such damages, whether or not accrued and whether or not known or
suspected to exist in its favor.
ARTICLE 15.13 Final Agreement. This Agreement and the other Loan Documents
are intended by the Borrowers, the Agent and the Lenders to be the final,
complete, and exclusive expression of the agreement among them. Upon execution
and except to the extent the Bankruptcy Court orders otherwise, this Agreement
supersedes the Interim Agreement and any and all prior oral or written
agreements relating to the subject matter hereof. No modification, rescission,
waiver, release, or amendment of any provision of this Agreement or any other
Loan Document shall be made, except by a written agreement signed by the
Borrowers or other Acme Parties party thereto (and, to the extent provided in
the last sentence of Section 13.2 with respect to certain definitions and
provisions of this Agreement, Alpha Tube) and a duly authorized officer of each
of the Agent and the requisite Lenders. All borrowings made and letters of
credit issued under the Interim Agreement shall, upon execution hereof, be
deemed Borrowings hereunder or Letters of Credit issued hereunder, and all terms
and conditions hereof shall apply to such borrowings and letters of credit, and
to the parties hereto with respect to such borrowings and letters of credit.
140
<PAGE> 148
ARTICLE 15.14 Counterparts. This Agreement may be executed in any number of
counterparts, and by the Agent, each Lender and the Borrowers in separate
counterparts, each of which shall be an original, but all of which shall
together constitute one and the same agreement.
ARTICLE 15.15 Captions. The captions contained in this Agreement are for
convenience of reference only, are without substantive meaning and should not be
construed to modify, enlarge, or restrict any provision.
ARTICLE 15.16 Right of Setoff. In addition to any rights and remedies of
the Lenders provided by law, if an Event of Default exists or the Loans have
been accelerated, each Lender is authorized at any time and from time to time,
without prior notice to any Borrower, any such notice being waived by each
Borrower to the fullest extent permitted by law, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held by, and other indebtedness at any time owing by, such Lender to or for
the credit or the account of the Borrowers against any and all Obligations owing
to such Lender, now or hereafter existing, irrespective of whether or not the
Agent or such Lender shall have made demand under this Agreement or any Loan
Document and although such Obligations may be contingent or unmatured. Each
Lender agrees promptly to notify the Borrowers and the Agent after any such
set-off and application made by such Lender; provided, however, that the failure
to give such notice shall not affect the validity of such set-off and
application. NOTWITHSTANDING THE FOREGOING, NO LENDER SHALL EXERCISE ANY RIGHT
OF SET-OFF, BANKER'S LIEN, OR THE LIKE AGAINST ANY DEPOSIT ACCOUNT OR PROPERTY
OF ANY BORROWER HELD OR MAINTAINED BY SUCH LENDER WITHOUT THE PRIOR WRITTEN
UNANIMOUS CONSENT OF THE LENDERS.
ARTICLE 15.17 Joint and Several Liability. The Borrowers shall be liable
for all amounts due to the Agent and/or any Lender under this Agreement,
regardless of which Borrower actually receives Loans or other extensions of
credit hereunder (including the issuance of Letters of Credit for the account of
such Borrowers) or the amount of such Loans received or Letters of Credit issued
or the manner in which the Agent and/or such Lender accounts for such Loans or
other extensions of credit on its books and records. Each Borrower's Obligations
with respect to Loans made to it and Letters of Credit issued for its account,
and each Borrower's Obligations arising as a result of the joint and several
liability of the Borrowers hereunder, with respect to Loans made to the other
Borrowers and Letters of Credit issued for the account of such other Borrowers
hereunder, shall be separate and distinct Obligations, but all such Obligations
shall be primary Obligations of each Borrower.
The Borrowers' Obligations arising as a result of the joint and
several liability of the Borrowers hereunder with respect to Loans or other
extensions of credit made to the other Borrowers hereunder (including the
issuance of Letters of Credit for the account of such Borrowers) shall, to the
fullest extent permitted by law, be unconditional irrespective of (i) the
141
<PAGE> 149
validity or enforceability, avoidance or subordination of the Obligations of any
or all other Borrowers or of any promissory note or other document evidencing
all or any part of the Obligations of any or all other Borrowers, (ii) the
absence of any attempt to collect the Obligations from any or all other
Borrowers, any other guarantor, or any other security therefor, or the absence
of any other action to enforce the same, (iii) the waiver, consent, extension,
forbearance or granting of any indulgence by the Agent and/or any Lender with
respect to any provision of any instrument evidencing the Obligations of any or
all other Borrowers, or any part thereof, or any other agreement now or
hereafter executed by any or all other Borrowers and delivered to the Agent
and/or any Lender, (iv) the failure by the Agent and/or any Lender to take any
steps to perfect and maintain its security interest in, or to preserve its
rights to, any security or collateral for the Obligations of any or all other
Borrowers, (v) the Agent's and/or any Lender's election, in any proceeding
instituted under the Bankruptcy Code, of the application of Section 1111(b)(2)
of the Bankruptcy Code, (vi) any borrowing or grant of a security interest by
any or all other Borrowers, as debtors-in-possession under Section 364 of the
Bankruptcy Code, or (vii) any other circumstances which might constitute a legal
or equitable discharge or defense of a guarantor or of any or all other
Borrowers. With respect to the Borrowers' Obligations arising as a result of the
joint and several liability of the Borrowers hereunder with respect to Loans or
other extensions of credit made to any or all other Borrowers hereunder, each
Borrower waives, until the Obligations shall have been paid in full and this
Agreement shall have been terminated, any right to enforce any right of
subrogation or any remedy which the Agent and/or any Lender now has or may
hereafter have against any other Borrower, any endorser or any guarantor of all
or any part of the Obligations, and any benefit of, and any right to participate
in, any security or collateral given to the Agent and/or any Lender to secure
payment of the Obligations or any other liability of any Borrower to the Agent
and/or any Lender.
Upon any Event of Default (but subject to any applicable notice
requirements set forth in Section 11.2(a)), the Agent may proceed directly and
at once, without notice, against any Borrower to collect and recover the full
amount, or any portion of the Obligations, without first proceeding against any
other Borrower or any other Person, or against any security or collateral for
the Obligations. Each Borrower consents and agrees that the Agent shall be under
no obligation to marshal any assets in favor of any Borrower or other Acme Party
or against or in payment of any or all of the Obligations.
[SIGNATURE PAGE TO FOLLOW.]
142
<PAGE> 150
IN WITNESS WHEREOF, the parties have entered into this Agreement on
the date first above written.
"BORROWERS"
ACME METALS INCORPORATED, Debtor-in-
Possession
By ________________________________
Name: Jerry F. Williams
Title: Vice President - Finance and
Administration
ACME STEEL COMPANY, Debtor-in-Possession
By ________________________________
Name: Jerry F. Williams
Title: Vice President
ACME PACKAGING CORPORATION, Debtor-
in-Possession
By ________________________________
Name: Jerry F. Williams
Title: Vice President
ALABAMA METALLURGICAL CORPORATION,
Debtor-in-Possession
By ________________________________
Name: Jerry F. Williams
Title: President
143
<PAGE> 151
ACME STEEL COMPANY INTERNATIONAL, INC.,
Debtor-in-Possession
By ________________________________
Name: Jerry F. Williams
Title: Chairman
"AGENT"
BANKAMERICA BUSINESS CREDIT, INC., as the
Agent
By________________________________
[Signatures of Lenders appear on the following page.]
144
<PAGE> 152
"LENDERS"
Commitment: $75,000,000 BANKAMERICA BUSINESS CREDIT,
INC., as a Lender
By_________________________
Name:
Title:
Commitment: $25,000,000 AMSOUTH BANK, as a Lender
By_________________________
Name:
Title:
145
<PAGE> 153
EXHIBIT A
INTERIM BANKRUPTCY COURT ORDER
1
<PAGE> 154
EXHIBIT B
FORM OF BORROWING BASE CERTIFICATE
1
<PAGE> 155
EXHIBIT C
FINANCIAL STATEMENTS
1
<PAGE> 156
EXHIBIT D
[FORM OF] ASSIGNMENT AND ACCEPTANCE AGREEMENT
This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "Assignment and
Acceptance") dated as of _______, ____ is made between _________________________
(the "Assignor") and __________________________ (the "Assignee").
RECITALS
WHEREAS, the Assignor is party to that certain Loan and Security
Agreement dated as of December 18, 1998 (as amended, amended and restated,
modified, supplemented or renewed, the "Credit Agreement") among Acme Metals
Incorporated, a debtor-in-possession (the "Parent"), Acme Steel Company, a
debtor-in-possession ("ASC"), Acme Packaging Corporation, a debtor-in-possession
("APC"), Alabama Metallurgical Corporation, a debtor-in-possession ("AMC"), and
Acme Steel Company International, Inc., a debtor-in-possession ("ACSI" and,
together with the Parent, ASC, APC and AMC, jointly and severally, the
"Borrowers"), the several financial institutions from time to time party thereto
(including the Assignor, the "Lenders"), and BankAmerica Business Credit, Inc.,
as agent for the Lenders (the "Agent"). Any terms defined in the Credit
Agreement and not defined in this Assignment and Acceptance are used herein as
defined in the Credit Agreement;
WHEREAS, as provided under the Credit Agreement, the Assignor has
committed to making Loans (the "Committed Loans") to the Borrowers in an
aggregate amount not to exceed $__________ (the "Commitment");
WHEREAS, the Assignor has made Committed Loans in the aggregate
principal amount of $__________ to the Borrowers;
WHEREAS, [the Assignor has acquired a participation in its pro rata
share of the Lenders' liabilities under or with respect to Letters of Credit and
Credit Support in an aggregate principal amount of $____________ (the "L/C
Obligations")] [no Letters of Credit are outstanding under the Credit
Agreement]; and
WHEREAS, the Assignor wishes to assign to the Assignee [part of the]
[all] rights and obligations of the Assignor under the Credit Agreement in
respect of its Commitment, together with a corresponding portion of each of its
outstanding Committed Loans and L/C Obligations, in an amount equal to
$__________ (the "Assigned Amount") on the terms and subject to the conditions
set forth herein and the Assignee wishes to accept assignment of such rights and
to assume such obligations from the Assignor on such terms and subject to such
conditions;
1
<PAGE> 157
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
1. Assignment and Acceptance.
(a) Subject to the terms and conditions of this Assignment and
Acceptance, (i) the Assignor hereby sells, transfers and assigns to the
Assignee, and (ii) the Assignee hereby purchases, assumes and undertakes from
the Assignor, without recourse and without representation or warranty (except as
provided in this Assignment and Acceptance) __% (the "Assignee's Percentage
Share") of (A) the Commitment, the Committed Loans and the L/C Obligations of
the Assignor and (B) all related rights, benefits, obligations, liabilities and
indemnities of the Assignor under and in connection with the Credit Agreement
and the other Loan Documents.
(b) With effect on and after the Effective Date (as defined in Section
5 hereof), the Assignee shall be a party to the Credit Agreement and succeed to
all of the rights and be obligated to perform all of the obligations of a Lender
under the Credit Agreement, including the requirements concerning
confidentiality and the payment of indemnification, with a Commitment in an
amount equal to the Assigned Amount. The Assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Credit Agreement are required to be performed by it as a Lender. It is the
intent of the parties hereto that the Commitment of the Assignor shall, as of
the Effective Date, be reduced by an amount equal to the Assigned Amount and the
Assignor shall relinquish its rights and be released from its obligations under
the Credit Agreement to the extent such obligations have been assumed by the
Assignee; provided, however, the Assignor shall not relinquish its rights under
Section 15.11 of the Credit Agreement to the extent such rights relate to the
time prior to the Effective Date.
(c) After giving effect to the assignment and assumption set forth
herein, on the Effective Date the Assignee's Commitment will be $__________.
(d) After giving effect to the assignment and assumption set forth
herein, on the Effective Date the Assignor's Commitment will be $__________.
2. Payments.
(a) As consideration for the sale, assignment and transfer contemplated
in Section 1 hereof, the Assignee shall pay to the Assignor on the Effective
Date in immediately available funds an amount equal to $__________, representing
the Assignee's Percentage Share of the principal amount of all Committed Loans.
(b) The Assignee further agrees to pay to the Agent a processing fee in
the amount specified in Section 13.3 of the Credit Agreement.
2
<PAGE> 158
3. Reallocation of Payments.
Any interest, fees and other payments accrued to the Effective Date
with respect to the Commitment, Committed Loans and L/C Obligations shall be for
the account of the Assignor. Any interest, fees and other payments accrued on
and after the Effective Date with respect to the Assigned Amount shall be for
the account of the Assignee. Each of the Assignor and the Assignee agrees that
it will hold in trust for the other party any interest, fees and other amounts
which it may receive to which the other party is entitled pursuant to the
preceding two sentences and pay to the other party any such amounts which it may
receive promptly upon receipt.
4. Independent Credit Decision.
The Assignee (a) acknowledges that it has received a copy of the Credit
Agreement and the Schedules and Exhibits thereto, together with copies of the
most recent financial statements of the Parent and its Consolidated
Subsidiaries, and such other documents and information as it has deemed
appropriate to make its own credit and legal analysis and decision to enter into
this Assignment and Acceptance; and (b) agrees that it will, independently and
without reliance upon the Assignor, the Agent or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit and legal decisions in taking or not taking
action under the Credit Agreement.
5. Effective Date; Notices.
(a) As between the Assignor and the Assignee, the effective date for
this Assignment and Acceptance shall be __________, ____ (the "Effective Date");
provided that the following conditions precedent have been satisfied on or
before the Effective Date:
(i) this Assignment and Acceptance shall be executed and delivered
by the Assignor and the Assignee;
(ii) the consent of the Agent required for an effective assignment
of the Assigned Amount by the Assignor to the Assignee shall have been duly
obtained and shall be in full force and effect as of the Effective Date;
(iii) the Assignee shall pay to the Assignor all amounts due to the
Assignor under this Assignment and Acceptance;
(iv) the processing fee referred to in Section 2(b) hereof and in
Section 13.3 of the Credit Agreement shall have been paid to the Agent; and
(b) Promptly following the execution of this Assignment and Acceptance,
the Assignor shall deliver to the Parent on behalf of the Borrowers and the
Agent for
3
<PAGE> 159
acknowledgment by the Agent, a Notice of Assignment in the form attached hereto
as Schedule 1.
[6. Agent. [INCLUDE ONLY IF ASSIGNOR IS AGENT]
(a) The Assignee hereby appoints and authorizes the Assignor to take
such action as agent on its behalf and to exercise such powers under the Credit
Agreement as are delegated to the Agent by the Lenders pursuant to the terms of
the Credit Agreement.
(b) The Assignee shall assume no duties or obligations held by the
Assignor in its capacity as Agent under the Credit Agreement.]
7. Withholding Tax.
The Assignee (a) represents and warrants to the Assignor, the Agent and
the Borrowers that under applicable law and treaties as of the Effective Date no
tax will be required to be withheld by the Assignor with respect to any payments
to be made to the Assignee hereunder, (b) agrees to furnish (if it is organized
under the laws of any jurisdiction other than the United States or any State
thereof) to the Agent and the Borrowers such U.S. Internal Revenue Service Forms
as and to the extent required by the Credit Agreement, including, without
limitation, pursuant to Section 14.10 of the Credit Agreement, and (c) agrees to
comply with all applicable U.S. laws and regulations with regard to such
withholding tax exemption.
8. Representations and Warranties.
(a) The Assignor represents and warrants that (i) it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any Lien or other adverse claim; (ii) it is duly
organized and existing and it has the full power and authority to take, and has
taken, all action necessary to execute and deliver this Assignment and
Acceptance and any other documents required or permitted to be executed or
delivered by it in connection with this Assignment and Acceptance and to fulfill
its obligations hereunder; (iii) no notices to, or consents, authorizations or
approvals of, any Person are required (other than any already given or obtained)
for its due execution, delivery and performance of this Assignment and
Acceptance, and apart from any agreements or undertakings or filings required by
the Credit Agreement, no further action by, or notice to, or filing with, any
Person is required of it for such execution, delivery or performance; and (iv)
this Assignment and Acceptance has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of the Assignor, enforceable
against the Assignor in accordance with the terms hereof, subject, as to
enforcement, to bankruptcy, insolvency, moratorium, reorganization and other
laws of general application relating to or affecting creditors' rights and to
general equitable principles.
4
<PAGE> 160
(b) The Assignor makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or any other instrument or document furnished pursuant thereto. The
Assignor makes no representation or warranty in connection with, and assumes no
responsibility with respect to, the solvency, financial condition or statements
of the Acme Parties, or the performance or observance by the Acme Parties, of
any of its respective Obligations under the Credit Agreement or any other
instrument or document furnished in connection therewith.
(c) The Assignee represents and warrants that (i) it is duly organized
and existing and it has full power and authority to take, and has taken, all
action necessary to execute and deliver this Assignment and Acceptance and any
other documents required or permitted to be executed or delivered by it in
connection with this Assignment and Acceptance, and to fulfill its obligations
hereunder; (ii) no notices to, or consents, authorizations or approvals of, any
Person are required (other than any already given or obtained) for its due
execution, delivery and performance of this Assignment and Acceptance; and apart
from any agreements or undertakings or filings required by the Credit Agreement,
no further action by, or notice to, or filing with, any Person is required of it
for such execution, delivery or performance; and (iii) this Assignment and
Acceptance has been duly executed and delivered by it and constitutes the legal,
valid and binding obligation of the Assignee, enforceable against the Assignee
in accordance with the terms hereof, subject, as to enforcement, to bankruptcy,
insolvency, moratorium, reorganization and other laws of general application
relating to or affecting creditors' rights and to general equitable principles.
9. Further Assurances.
The Assignor and the Assignee each hereby agree to execute and deliver
such other instruments, and take such other action, as either party may
reasonably request in connection with the transactions contemplated by this
Assignment and Acceptance, including the delivery of any notices or other
documents or instruments to the Borrowers or the Agent, which may be required in
connection with the assignment and assumption contemplated hereby.
10. Miscellaneous.
(a) Any amendment or waiver of any provision of this Assignment and
Acceptance shall be in writing and signed by the parties hereto. No failure or
delay by either party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof and any waiver of any breach of the
provisions of this Assignment and Acceptance shall be without prejudice to any
rights with respect to any other or further breach thereof.
5
<PAGE> 161
(b) All payments made hereunder shall be made without any set-off or
counterclaim.
(c) The Assignor and the Assignee shall each pay its own costs and
expenses incurred in connection with the negotiation, preparation, execution and
performance of this Assignment and Acceptance.
(d) This Assignment and Acceptance may be executed in any number of
counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument.
(e) THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. The Assignor and the
Assignee each irrevocably submits to the non-exclusive jurisdiction of any State
or Federal court sitting in the City and State of New York over any suit, action
or proceeding arising out of or relating to this Assignment and Acceptance and
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such State or Federal court. Each party to this
Assignment and Acceptance hereby irrevocably waives, to the fullest extent it
may effectively do so, the defense of an inconvenient forum to the maintenance
of such action or proceeding.
(f) THE ASSIGNOR AND THE ASSIGNEE EACH HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH
THIS ASSIGNMENT AND ACCEPTANCE, THE CREDIT AGREEMENT, ANY RELATED DOCUMENTS AND
AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, OR STATEMENTS (WHETHER
ORAL OR WRITTEN).
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this
Assignment and Acceptance to be executed and delivered by their duly authorized
officers as of the date first above written.
[ASSIGNOR]
By:
Title:
Address:
----------------------------------------
----------------------------------------
[ASSIGNEE]
By:
----------------------------------------
Title:
Address:
----------------------------------------
----------------------------------------
6
<PAGE> 162
SCHEDULE 1
NOTICE OF ASSIGNMENT AND ACCEPTANCE
_______________, 19__
BankAmerica Business Credit, Inc., as Agent
40 East 52nd Street
New York, NY
Attn: Portfolio Manager
Acme Metals Incorporated
[Address]
Re: Acme Metals Incorporated
Ladies and Gentlemen:
We refer to the Loan and Security Agreement dated as of December 18, 1998
(as amended, amended and restated, modified, supplemented or renewed from time
to time, the "Credit Agreement") among Acme Metals Incorporated, a
debtor-in-possession (the "Parent"), Acme Steel Company, a debtor-in-possession
("ASC"), Acme Packaging Corporation, a debtor-in-possession ("APC"), Alabama
Metallurgical Corporation, a debtor-in-possession ("AMC"), and Acme Steel
Company International, Inc., a debtor-in-possession ("ACSI" and, together with
the Parent, ASC, APC and AMC, jointly and severally, the "Borrowers"), the
several financial institutions from time to time party thereto as lenders (the
"Lenders"), and BankAmerica Business Credit, Inc., as agent for the Lenders (the
"Agent"). Terms defined in the Credit Agreement are used herein as therein
defined.
1. We hereby give you notice of, and request the consent of the Agent to,
the assignment by __________________ (the "Assignor") to _______________ (the
"Assignee") of _____% of the right, title and interest of the Assignor in and to
the Credit Agreement (including, without limitation, the right, title and
interest of the Assignor in and to the Commitments of the Assignor, all
outstanding Loans made by the Assignor and the Assignor's participation in the
Letters of Credit and Credit Support) pursuant to the Assignment and Acceptance
Agreement attached hereto (the "Assignment and Acceptance"). We understand and
agree that, as of _________, the Assignor's Commitment is $___________, the
aggregate amount of its outstanding Loans is $_____________, and its
participation in L/C Obligations is $_____________.
7
<PAGE> 163
2. The Assignee agrees that, upon receiving the consent of the Agent to
such assignment, the Assignee will be bound by the terms of the Credit Agreement
as fully and to the same extent as if the Assignee were the Lender originally
holding such interest in the Credit Agreement.
3. The following administrative details apply to the Assignee:
(A) Notice Address:
Assignee name:
--------------------------------------
Address:
---------------------------------------------
-----------------------------------------
-----------------------------------------
Attention:
-------------------------------------------
Telephone: ( )
---- -----------------------------------
Telecopier: ( )
---- -----------------------------------
(B) Payment Instructions:
Account No.:
-----------------------------------------
At:
--------------------------------------------------
-----------------------------------------
-----------------------------------------
Reference:
-------------------------------------------
Attention:
-------------------------------------------
4. You are entitled to rely upon the representations, warranties and
covenants of each of the Assignor and Assignee contained in the Assignment and
Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Notice
of Assignment and Acceptance to be executed by their respective duly authorized
officials, officers or agents as of the date first above mentioned.
Very truly yours,
[NAME OF ASSIGNOR]
By:
Title:
8
<PAGE> 164
[NAME OF ASSIGNEE]
By:
Title:
ACKNOWLEDGED AND ASSIGNMENT
CONSENTED TO:
BankAmerica Business Credit, Inc,
as Agent
By:
Title:
-------------------------------------
--------------------------------
- -------------------------------------
--------------------------------
9
<PAGE> 165
EXHIBIT E
NOTICE OF BORROWING
Date: __________ __, ____
To: BankAmerica Business Credit, Inc. as Agent for the Lenders who are parties
to the Loan and Security Agreement dated as of December 18, 1998 (as extended,
renewed, amended or restated from time to time, the "Loan and Security
Agreement") among Acme Metals Incorporated, a debtor-in-possession (the
"Parent"), Acme Steel Company, a debtor-in-possession ("ASC"), Acme Packaging
Corporation, a debtor-in-possession ("APC"), Alabama Metallurgical Corporation,
a debtor-in-possession ("AMC") , and Acme Steel Company International, Inc., a
debtor-in-possession ("ACSI" and, together with the Parent, ASC, APC and AMC,
jointly and severally, the "Borrowers"), certain Lenders which are signatories
thereto and BankAmerica Business Credit, Inc., as Agent
Ladies and Gentlemen:
The undersigned, on behalf of the Borrowers, refers to the Loan and
Security Agreement, the terms defined therein being used herein as therein
defined, and hereby gives you notice irrevocably of the Borrowing specified
below:
1. The Business Day of the proposed Borrowing is ___________ __, ____.
2. The aggregate amount of the proposed Borrowing is $______________.
3. The Borrowing is to be comprised of $____________ of Base Rate
Revolving Loans and $__________ of LIBOR Rate Loans.
4. The duration of the Interest Period for the LIBOR Rate Loans, if any,
included in the Borrowing shall be _____ months.
The undersigned hereby certifies that the following statements are true on
the date hereof, and will be true on the date of the proposed Borrowing, before
and after giving effect thereto and to the application of the proceeds
therefrom:
(a) The representations and warranties of the Borrowers and the other Acme
Parties contained in the Loan and Security Agreement and in the other Loan
Documents (other than
1
<PAGE> 166
those representations and warranties which relate to a specified prior date) are
true and correct in all material respects as though made on and as of such date;
(b) No Default or Event of Default has occurred and is continuing, or would
result from such proposed Borrowing; and
(c) The amount of the Combined Availability is sufficient to make the
proposed Borrowing.
ACME METALS INCORPORATED, Debtor-in-
Possession, on behalf of itself
and the other Borrowers
By ________________________________
Name:
Title:
2
<PAGE> 167
EXHIBIT F
NOTICE OF CONVERSION/CONTINUATION
Date: ____________ __, _____
To: BankAmerica Business Credit, Inc. as Agent for the Lenders who are parties
to the Loan and Security Agreement dated as of December 18, 1998 (as extended,
renewed, amended or restated from time to time, the "Loan and Security
Agreement") among Acme Metals Incorporated, a debtor-in-possession (the
"Parent"), Acme Steel Company, a debtor-in-possession ("ASC"), Acme Packaging
Corporation, a debtor-in-possession ("APC"), Alabama Metallurgical Corporation,
a debtor-in-possession ("AMC"), and Acme Steel Company International, Inc., a
debtor-in-possession ("ACSI" and, together with the Parent, ASC, APC and AMC,
jointly and severally, the "Borrowers"), certain Lenders which are signatories
thereto, and BankAmerica Business Credit, Inc., as Agent
Ladies and Gentlemen:
The undersigned, on behalf of the Borrowers, refers to the Loan and
Security Agreement, the terms defined therein being used herein as therein
defined, and hereby gives you notice irrevocably of the [conversion]
[continuation] of the Loans specified herein, that:
1. The Conversion/Continuation Date is _____________, 19__.
2. The aggregate amount of the Loans to be [converted] [continued] is $______.
3. The Loans are to be [converted into] [continued as] [LIBOR Rate] [Base Rate
Revolving] Loans.
4. The duration of the Interest Period for the LIBOR Rate Loans included in
the [conversion] [continuation] shall be ___ months.
The undersigned hereby certifies that the following statements are true on
the date hereof, and will be true on the proposed Conversion/Continuation Date,
before and after giving effect thereto and to the application of the proceeds
therefrom:
(a) The representations and warranties of the Borrowers and the
other Acme Parties contained in the Loan and Security Agreement and in the other
Loan Documents (other than those representations and warranties which relate to
a specified prior date) are true and correct in all material respects as though
made on and as of such date; and
1
<PAGE> 168
(b) No Event of Default has occurred and is continuing, or would
result from such proposed [conversion] [continuation].
ACME METALS INCORPORATED, Debtor-in-
Possession, on behalf of itself
and the other Borrowers
By ________________________________
Name:
Title:
2
<PAGE> 169
EXHIBIT G
FORM OF FINAL BANKRUPTCY COURT ORDER
1
<PAGE> 170
EXHIBIT H
FORM OF BLACK BOOK
1
<PAGE> 1
EXHIBIT 10.9
GUARANTY
GUARANTY, dated as of December 18, 1998 (this "Guaranty"),
made by ALPHA TUBE CORPORATION, a Delaware corporation and a
debtor-in-possession under Chapter 11 of the Bankruptcy Code (the "Guarantor"),
in favor of BANKAMERICA BUSINESS CREDIT, INC., as agent (together with any
successor in such capacity, the "Agent") for the financial institutions
(collectively, the "Lenders" and, together with the Agent, the "Secured
Parties") now or hereafter being parties to the Credit Agreement (as hereinafter
defined).
WHEREAS, Acme Metals Incorporated, a debtor-in-possession (the
"Parent"), Acme Steel Company, a debtor-in-possession ("ASC"), Acme Packaging
Corporation, a debtor-in-possession ("APC"), Alabama Metallurgical Corporation,
a debtor-in-possession ("AMC"), Acme Steel Company International, Inc., a
debtor-in-possession ("ASCI" and, together with the Parent, ASC, APC and AMC,
jointly and severally, the "Borrowers"), the Lenders and the Agent have entered
into a certain Loan and Security Agreement dated as of the date hereof (as
amended, amended and restated, modified, supplemented or renewed from time to
time, the "Credit Agreement");
WHEREAS, as a condition to the Lenders and the Agent making
any Loans and issuing or causing the issuance of any Letters of Credit or Credit
Support under the Credit Agreement, the Lenders and the Agent have required the
execution and delivery of this Guaranty by the Guarantor.
NOW, THEREFORE, in consideration of the premises and in order
to induce the Lenders and the Agent to make Loans and to issue or cause the
issuance of Letters of Credit and Credit Support under the Credit Agreement, the
Guarantor hereby agrees with the Agent for the benefit of the Secured Parties as
follows:
1. Defined Terms. Unless otherwise defined herein, terms which
are defined in the Credit Agreement and used herein are so used as so defined.
2. Guaranty. (a) The Guarantor hereby, unconditionally and
irrevocably, guarantees to the Agent and the other Secured Parties the prompt
and complete payment and performance of (i) all present and future Obligations,
whether at stated maturity, by acceleration or otherwise and (ii) all present
and future obligations of each of the Borrowers under each of the Loan
Documents, whether at stated maturity, by acceleration or otherwise
(collectively, the "Guaranteed Obligations").
(a) The guaranty contained herein is an absolute, unconditional
and continuing guaranty of the full and punctual payment and performance of the
Guaranteed Obligations, is not a guaranty of collection, and is in no way
conditioned upon any requirement that the Agent on behalf of the Secured Parties
or any of the other Secured Parties first collect or attempt to collect the
Guaranteed Obligations or any portion thereof from any Borrower or other Person
or resort to any security or other means of obtaining payment of any of the
Guaranteed Obligations. Payments by the Guarantor hereunder may be required by
the Agent on behalf of the Secured Parties on any number of occasions.
(b) The Guarantor agrees that whenever, at any time, or from
time to time, it shall make any payment to the Agent on account of its
<PAGE> 2
liability hereunder, it will notify the Agent in writing that such payment is
made under this Guaranty for such purpose.
(c) The Agent agrees to provide to the Guarantor and Wolf,
Block, Schorr and Solis-Cohen (at 250 Park Avenue, New York, New York 10177,
Attn.: Dennis M. O'Dea, Esq., Fax. No. 212-986-0604) not less than three
Business Days prior written notice of the Agent's intention to demand payment
under this Guaranty.
2. Right of Setoff. The Agent and each other Secured Party are
hereby irrevocably authorized at any time and from time to time following the
occurrence and for so long as an Event of Default is continuing, without notice
(except for any notice required by Section 11.2(a) of the Credit Agreement) to
the Guarantor, any such notice being hereby waived by the Guarantor, to set off
and appropriate and apply any and all deposits (general or special, time or
demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the Agent or such Secured Party to or for the credit or the account of
the Guarantor, or any part thereof in such amounts as the Agent and such Secured
Party may elect, on account of the liabilities of the Guarantor hereunder,
whether or not the Agent or such Secured Party has made any demand for payment.
The rights of the Agent or the other Secured Parties under this paragraph are in
addition to any other rights and remedies (including, without limitation, other
rights of setoff) which the Agent and the other Secured Parties may have.
3. No Subrogation. Notwithstanding any payment or payments made
by the Guarantor hereunder, or any setoff or application of funds of the
Guarantor by the Agent or any other Secured Party, the Guarantor hereby
irrevocably waives any and all rights of subrogation to the rights of the Agent
and the other Secured Parties against any Borrower and any and all rights of
reimbursement, assignment, indemnification or implied contract or any similar
rights against any Borrower or against any endorser or other guarantor of all or
any part of the Guaranteed Obligations, until the termination of this Guaranty
in accordance with paragraph 6 hereof. If, notwithstanding the foregoing, any
amount shall be paid to the Guarantor on account of such subrogation rights at
any time when all of the Guaranteed Obligations shall not have been paid in
full, such amount shall be held by the Guarantor in trust for the Agent and each
other Secured Party, segregated from other funds of the Guarantor, and shall,
forthwith upon (and in any event within two (2) Business Days of) receipt by the
Guarantor, be turned over to the Agent in the exact form received by the
Guarantor (duly endorsed by the Guarantor to the Agent, if required), to be
applied against the Guaranteed Obligations, whether matured or unmatured, in
such order as the Agent may determine (subject to the provisions of the Credit
Agreement).
4. Amendments, etc., With Respect to the Guaranteed
Obligations. The Guarantor shall remain obligated hereunder notwithstanding
that, without any reservation of rights against the Guarantor, and without
notice to or further assent by the Guarantor, any demand for payment of any of
the Guaranteed Obligations made by the Agent or any other Secured Party may be
rescinded by the Agent or such Secured Party, and any of the Guaranteed
Obligations continued, and the Guaranteed Obligations, or the liability of any
other party upon or for any part thereof, or any collateral security or
2
<PAGE> 3
guarantee therefor or right of setoff with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered or released by the Agent or any other Secured
Party, and the Credit Agreement, the other Loan Documents and any other document
executed in connection therewith may be amended, modified, supplemented or
terminated, in whole or in part, as the Agent and the other Secured Parties may
deem advisable from time to time, and any guarantee or right of setoff at any
time held by the Agent or any other Secured Party for the payment of the
Guaranteed Obligations may be sold, exchanged, waived, surrendered or released.
When making any demand hereunder against the Guarantor, the Agent may, but shall
be under no obligation to, make a similar demand on any Borrower or any other
guarantor, and any failure by the Agent to make any such demand or to collect
any payments from any Borrower or any such other guarantor or any release of any
Borrower or any such other guarantor shall not impair or affect the rights and
remedies, express or implied, or as a matter of law, of the Agent against the
Guarantor. For the purposes hereof "demand" shall include the commencement and
continuance of any legal proceedings.
5. Guaranty Absolute and Unconditional; Termination. The
Guarantor waives any and all notice of the creation, renewal, extension or
accrual of any of the Guaranteed Obligations and notice of or proof of reliance
by the Agent and the other Secured Parties upon this Guaranty or acceptance of
this Guaranty; the Guaranteed Obligations, and any of them, shall conclusively
be deemed to have been created, contracted or incurred in reliance upon this
Guaranty; and all dealings between any Borrower or the Guarantor, on the one
hand, and the Agent and/or any of the other Secured Parties, on the other, shall
likewise be conclusively presumed to have been had or consummated in reliance
upon this Guaranty. The Guarantor waives diligence, presentment, protest, demand
for payment and notice of default or nonpayment to or upon any Borrower, any
other Person or itself with respect to the Guaranteed Obligations. This Guaranty
shall be construed as a continuing, absolute and unconditional guaranty of
payment without regard to (a) the validity or enforceability of the Credit
Agreement, any other Loan Document, any of the Guaranteed Obligations or any
other guarantee or right of setoff with respect thereto at any time or from time
to time held by the Agent or any other Secured Party, (b) any defense, setoff or
counterclaim (other than a defense of payment or performance) which may at any
time be available to or be asserted by any Borrower or any other guarantor
against the Agent or any other Secured Party, or (c) any other circumstance
whatsoever (with or without notice to or knowledge of any Borrower, any other
guarantor or the Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of any Borrower or other guarantor
for the Guaranteed Obligations, or of the Guarantor under this Guaranty. When
pursuing its rights and remedies hereunder against the Guarantor, the Agent or
any other Secured Party may, but shall be under no obligation to, pursue such
rights and remedies as it may have against any of the Borrowers or any other
Person or guaranty for the Guaranteed Obligations or any right of setoff with
respect thereto, and any failure by the Agent or any other Secured Party to
pursue such other rights or remedies or to collect any payments from any of the
Borrowers or any such other Person or to realize upon any such guaranty or to
exercise any such right of setoff, or any release of any of the Borrowers or any
such other Person or any guaranty or right of setoff, shall not relieve the
Guarantor of any liability hereunder, and shall not impair or affect the rights
and remedies, whether express, implied or available as a matter of law, of the
3
<PAGE> 4
Agent or such Secured Party against the Guarantor. Subject to the provisions of
paragraph 7 hereof, this Guaranty shall remain in full force and effect and be
binding in accordance with and to the extent of its terms upon the Guarantor and
the successors and assigns thereof, and shall inure to the benefit of the Agent
and the other Secured Parties, and their successors, endorsees, transferees and
assigns, until the payment in full of all Guaranteed Obligations, the
termination or cancellation of all Letters of Credit and the termination of all
Commitments. Subject to the provisions of paragraph 7 hereof, upon the payment
in full of all Guaranteed Obligations, the termination or cancellation of all
Letters of Credit and the termination of all Commitments, this Guaranty shall
terminate.
6. Reinstatement. This Guaranty shall continue to be effective,
or be reinstated, as the case may be, if at any time the payment, or any part
thereof, of any of the Guaranteed Obligations is rescinded or must otherwise be
restored or returned by the Agent or any other Secured Party upon or as a result
of the insolvency, bankruptcy, dissolution, liquidation or reorganization of any
Borrower or the Guarantor or upon or as a result of the appointment of a
receiver, intervenor or conservator of, or trustee or similar officer for, any
Borrower or the Guarantor or any substantial part of their respective property,
or otherwise, all as though such payments had not been made.
7. Expenses. The Guarantor will upon demand pay the Agent for
any and all reasonable costs, sums and expenses which the Agent may pay or incur
pursuant to the provisions of this Guaranty or in enforcing this Guaranty or in
enforcing payment of the Guaranteed Obligations or otherwise in connection with
the provisions hereof, including, but not limited to, all reasonable filing or
recording fees, court costs, collection charges, travel expenses, computer fees,
telephone fees, duplicating fees and reasonable attorneys' fees. All of the
foregoing, together with interest thereon as specified in paragraph 11 hereof,
shall be part of the Guaranteed Obligations and be payable on demand.
8. Payments; Covenants. The Guarantor hereby agrees that it
will make payments in respect of the Guaranteed Obligations within two Business
Days' of demand therefor to the Agent, without setoff, deduction, withholding or
counterclaim, by wire transfer in immediately available funds and in Dollars at
such place as the Agent may direct from time to time by notice to the Guarantor.
The Guarantor hereby covenants and agrees that so long as any part of the
Guaranteed Obligations shall remain unpaid, any Letter of Credit or Credit
Support shall be outstanding or any Lender shall have any Commitment it will
comply with all of the obligations, requirements and restrictions in the
covenants contained in Sections 6, 7 and 9 of the Credit Agreement to the extent
that they are applicable to the Guarantor. The Guarantor hereby represents and
warrants to the Secured Parties all of the representations and warranties made
in Sections 6 and 8 of the Credit Agreement to the extent that they are
applicable to the Guarantor.
9. Severability. Any provision of this Guaranty which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
4
<PAGE> 5
10. Interest. All amounts which have become due and payable
from time to time by the Guarantor hereunder shall constitute part of the
Guaranteed Obligations and shall bear interest and be payable at the interest
rate applicable to Base Rate Revolving Loans at such time under Section 3.1 of
the Credit Agreement.
11. Paragraph Headings. The captions of the various sections
and paragraphs of this Guaranty have been inserted only for the purposes of
convenience; such captions are not a part of this Guaranty and shall not be
deemed in any manner to modify, explain, enlarge or restrict any of the
provisions of this Guaranty.
12. No Waiver; Cumulative Remedies. Neither the Agent nor any
other Secured Party shall by an act (except by a written instrument pursuant to
paragraph 14 hereof), delay, indulgence, omission or otherwise, be deemed to
have waived any right or remedy hereunder or to have acquiesced in any Default
or Event of Default or in any breach of any of the terms and conditions hereof.
No failure to exercise, nor any delay in exercising, on the part of the Agent,
any right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Agent of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which the Agent would otherwise have on any future occasion. The rights
and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by law.
13. Waivers and Amendments; Successors and Assigns. None of the
terms or provisions of this Guaranty may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by the Guarantor and
the Agent and the requisite number of Lenders as set forth in the Credit
Agreement; provided, that any provision of this Guaranty may be waived by the
Agent and the requisite number of Lenders as set forth in the Credit Agreement
in a letter or agreement executed by the Agent and such Lenders or by telex or
facsimile transmission from the Agent and such Lenders. This Guaranty shall be
binding upon the successors and assigns of the Guarantor and shall inure to the
benefit of the Agent and the other Secured Parties and their respective
successors and assigns.
14. Address for Notices. All notices, requests, demands and
other communications provided for hereunder shall be in writing (unless
otherwise expressly provided herein) and mailed, telegraphed, telexed,
telecopied, cabled or delivered, if to the Guarantor, at the address specified
below its signature below with a copy to the Parent and its counsel as provided
in the Credit Agreement; if to the Agent, at its address specified below its
signature below; and if to Wolf, Block, Schorr and Solis-Cohen, at the address
specified in paragraph 2(d) hereof or, at such other address as shall be
designated by any party in a written notice to the other party hereto. All
notices and communications given by a telecommunications device shall be capable
of creating a written record of confirmation receipt. All such notices and
communications shall be mailed, telegraphed, telexed, telecopied or cabled or
sent by overnight courier or personal delivery, and shall be effective when
received.
5
<PAGE> 6
15. SETOFF; GOVERNING LAW; WAIVER OF JURY TRIAL AND SETOFF;
CONSENT TO JURISDICTION, ETC. IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO,
IN CONNECTION WITH, OR ARISING OUT OF THIS GUARANTY, OR ANY INSTRUMENT OR
DOCUMENT DELIVERED PURSUANT TO THIS GUARANTY, OR THE VALIDITY, PROTECTION,
INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, OR ANY OTHER CLAIM OR DISPUTE
HOWSOEVER ARISING, BETWEEN THE GUARANTOR ON THE ONE HAND AND ANY ONE OR MORE OF
THE SECURED PARTIES ON THE OTHER HAND, THE GUARANTOR HEREBY, TO THE FULLEST
EXTENT IT MAY EFFECTIVELY DO SO, (I) WAIVES THE RIGHT TO INTERPOSE ANY SETOFF,
RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM IN CONNECTION WITH ANY SUCH LEGAL ACTION
OR PROCEEDING, IRRESPECTIVE OF THE NATURE OF SUCH SETOFF, RECOUPMENT,
COUNTERCLAIM OR CROSS-CLAIM, UNLESS SUCH SETOFF, RECOUPMENT, COUNTERCLAIM OR
CROSS-CLAIM COULD NOT, BY REASON OF ANY APPLICABLE FEDERAL OR STATE PROCEDURAL
LAWS, BE INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION AND (II) WAIVES ANY
RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LEGAL ACTION OR PROCEEDING,
ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER
THAN, OR IN ADDITION TO, ACTUAL DAMAGES.
(a) THIS GUARANTY SHALL BE INTERPRETED AND THE RIGHTS AND
LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL
LAWS (AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF NEW YORK;
PROVIDED THAT THE AGENT SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) EXCEPT FOR MATTERS WITHIN THE EXCLUSIVE JURISDICTION OF THE
BANKRUPTCY COURT, ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY
MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES
FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS
GUARANTY, THE GUARANTOR CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO
THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EXCEPT FOR MATTERS WITHIN THE
EXCLUSIVE JURISDICTION OF THE BANKRUPTCY COURT, THE GUARANTOR IRREVOCABLY WAIVES
ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
GUARANTY OR ANY DOCUMENT RELATED HERETO. NOTWITHSTANDING THE FOREGOING AND
EXCEPT FOR MATTERS WITHIN THE EXCLUSIVE JURISDICTION OF THE BANKRUPTCY COURT:
(1) THE AGENT SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST THE
GUARANTOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION THE AGENT
DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR OTHER
SECURITY FOR THE OBLIGATIONS OF THE GUARANTOR HEREUNDER AND (2) THE GUARANTOR
ACKNOWLEDGES THAT ANY APPEALS FROM THE COURTS DESCRIBED IN THE IMMEDIATELY
PRECEDING SENTENCE MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE THOSE
JURISDICTIONS.
(c) THE GUARANTOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY
REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO THE GUARANTOR AT ITS
ADDRESS SET FORTH IN SECTION 15 AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE U.S.
MAILS. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF THE AGENT TO SERVE
LEGAL PROCESS BY ANY OTHER MANNER PERMITTED BY LAW.
(d) THE GUARANTOR HEREBY WAIVES ITS RIGHTS TO A TRIAL BY JURY
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
GUARANTY, OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER WITH RESPECT TO
6
<PAGE> 7
CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE GUARANTOR HEREBY AGREES THAT ANY
SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY.
WITHOUT LIMITING THE FOREGOING, THE GUARANTOR HEREBY FURTHER AGREES THAT ITS
RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY
ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO
CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS GUARANTY OR ANY PROVISION
HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY.
[The remainder of this page is intentionally left blank.]
IN WITNESS WHEREOF, the undersigned has caused this Guaranty to
be duly executed and delivered as of the date first above written.
ALPHA TUBE CORPORATION, a
Debtor-in-Possession
By:
--------------------------
Name: Jerry F. Williams
Title: Vice President
Address for Notices:
ALPHA TUBE CORPORATION
30400 East Broadway
Walbridge, Ohio 43465
Attention: CFO and Treasurer
Telecopier No.: (419)
661-4380
Accepted and Agreed:
BANKAMERICA BUSINESS CREDIT, INC.,
as Agent
By: ___________________________________
Name:
Title:
Address for Notices:
BANKAMERICA BUSINESS CREDIT, INC.,
40 East 52nd Street
New York, New York 10022
Attention: Portfolio Manager
Telecopier No.: (212) 836-5169
7
<PAGE> 1
EXHIBIT 10.10
SECURITY AGREEMENT
------------------
SECURITY AGREEMENT, dated as of December 18, 1998, between
ALPHA TUBE CORPORATION, a Delaware corporation and a debtor-in-possession under
Chapter 11 of the Bankruptcy Code (the "Assignor"), and BANKAMERICA BUSINESS
CREDIT, INC., as Agent (together with any successor agent, the "Agent") for the
benefit of the Agent and the lenders from time to time party to the Loan and
Security Agreement hereinafter referred to (the Agent and such lenders are
hereinafter called the "Secured Creditors"). Except as otherwise defined herein,
terms used herein and defined in the Loan and Security Agreement shall be used
herein as so defined.
W I T N E S S E T H:
WHEREAS, Acme Metals Incorporated, a debtor-in-possession (the
"Parent"), Acme Steel Company, a debtor-in-possession ("ASC"), Acme Packaging
Corporation, a debtor-in-possession ("APC"), Alabama Metallurgical Corporation,
a debtor-in-possession ("AMC"), Acme Steel Company International, Inc., a
debtor-in-possession ("ASCI" and, together with the Parent, ASC, APC and AMC,
jointly and severally, the "Borrowers"), and the Secured Creditors have entered
into a certain Loan and Security Agreement dated as of the date hereof (as
amended, amended and restated, modified, supplemented or renewed from time to
time, the "Loan and Security Agreement").
WHEREAS, as a condition to the Secured Creditors making any
Loans and issuing or causing the issuance of any Letters of Credit or Credit
Support under the Loan and Security Agreement, the Secured Creditors have
required the execution and delivery of this Security Agreement by the Assignor.
NOW, THEREFORE, in consideration of the premises and in order
to induce the Secured Creditors to make Loans and to issue or cause the issuance
of Letters of Credit and Credit Support under the Loan and Security Agreement,
the Assignor hereby agrees with the Agent for the benefit of the Secured
Creditors as follows:
ARTICLE I
SECURITY INTERESTS
ARTICLE I.1. Grant of Security Interest. As security for all
present and future Obligations (including, without limitation, the obligations
of the Assignor under the Alpha Tube Guaranty), the Assignor hereby grants to
the Agent, for the ratable benefit of the Secured Creditors, a continuing
security interest in, lien on, and right of set-off against, all of the
following property of the Assignor, whether now owned or existing or hereafter
acquired or arising, regardless of where located (collectively, the
"Collateral"):
(i) all Accounts;
(ii) all Inventory;
<PAGE> 2
(iii) all contract rights, letters of credit, chattel paper,
instruments, notes, documents, and documents of title;
(iv) all General Intangibles;
(v) all Equipment;
(vi) all money, investment property, securities, security
entitlements, securities accounts and other property of any kind of the
Assignor, including, without limitation, any capital stock or equity interests
in any Subsidiaries of the Assignor;
(vii) all deposit accounts, credits and balances with and other
claims against any Secured Creditor or any of its affiliates or any other
financial institution in which the Assignor maintains deposits;
(viii) all books, records and other property related to or
referring to any of the foregoing, including, without limitation, books,
records, account ledgers, data processing records, computer software and other
property and General Intangibles at any time evidencing or relating to any of
the foregoing; and
(ix) all accessions to, substitutions for and replacements,
products and proceeds of any of the foregoing, including, but not limited to,
proceeds of any insurance policies, claims against third parties, and
condemnation or requisition payments with respect to all or any of the
foregoing.
I(a) The security interests of the Agent under this Agreement
extend to all Collateral of the kind which is the subject of this Agreement
which the Assignor may acquire at any time during the continuation of this
Agreement.
ARTICLE I.2. Power of Attorney. The Assignor hereby irrevocably
appoints the Agent as the Assignor's attorney-in-fact, effective from time to
time after the occurrence and during the continuance of an Event of Default,
with full authority in the place and stead of the Assignor and in the name of
the Assignor or otherwise, in the Agent's discretion, to take any action and to
execute any instrument which the Agent may reasonably deem necessary or
advisable to accomplish the purposes of this Agreement and the Alpha Tube
Guaranty, which appointment as attorney is coupled with an interest.
2
<PAGE> 3
ARTICLE II
PROVISIONS CONCERNING ALL COLLATERAL
ARTICLE II.1. Protection of Agent's Security. The Assignor will do
nothing to impair the security interest granted herein to the Agent in the
Collateral. The Assignor assumes all liability and responsibility in connection
with the Collateral and the liability of the Assignor to pay the Obligations
shall in no way be affected or diminished by reason of the fact that any
Collateral may be lost, destroyed, stolen, damaged or for any reason whatsoever
unavailable to the Assignor.
ARTICLE II.2. Further Actions. The Assignor will, at its own
expense, make, execute, endorse, acknowledge, file and/or deliver to the Agent
from time to time such financing statements, transfer endorsements, powers of
attorney, certificates, reports and other assurances or instruments and take
such further steps relating to the Collateral and other property or rights
covered by the security interest hereby granted, which the Agent deems
reasonably appropriate or advisable to perfect, preserve or protect its security
interest in the Collateral.
ARTICLE II.3. Financing Statements. The Assignor agrees to execute
and deliver, upon request of the Agent, to the Agent such financing statements
(or similar statements or instruments of registration under the law of any
jurisdiction), in form acceptable to the Agent, as the Agent may from time to
time reasonably request or as are desirable in the opinion of the Agent to
establish and maintain a valid, enforceable, perfected security interest in the
Collateral. The Assignor will pay any applicable filing fees, recordation taxes
and related expenses. The Assignor authorizes the Agent to file any such
financing statements without the signature of the Assignor where permitted by
law.
ARTICLE III
REMEDIES
ARTICLE III.1. Remedies. Notwithstanding the provisions of Section
362 of the Bankruptcy Code and without order of or application or motion to the
Bankruptcy Court:
(a) The Assignor agrees that, if any Event of Default shall have
occurred and be continuing, then and in every such case, the Agent shall have
all rights as a secured creditor under the UCC in all relevant jurisdictions and
all rights now or hereafter existing under any other applicable law.
(b) Without limitation to the foregoing, if an Event of Default
exists and is continuing: (i) the Agent shall have for the benefit of the Agent
and the Lenders, in addition to all other rights of the Agent and the Lenders,
the rights and remedies of a secured party under the UCC; (ii) the Agent may, at
any time, take possession of the Collateral and keep it on the Assignor's
premises, at no cost to the Agent or any Lender, or remove any part of it to
such other
3
<PAGE> 4
place or places as the Agent may desire, or the Assignor shall, upon the Agent's
demand, at the Assignor's cost, assemble the Collateral and make it available to
the Agent at a place reasonably convenient to the Agent; and (iii) the Agent may
sell and deliver any Collateral at public or private sales conducted in a
commercially reasonable manner, for cash, upon credit or otherwise, at such
prices and upon such terms as the Agent deems advisable, in its sole discretion,
and may, if the Agent deems it reasonable, postpone or adjourn any sale of the
Collateral by an announcement at the time and place of sale or of such postponed
or adjourned sale without giving a new notice of sale. Without in any way
requiring notice to be given in the following manner, the Assignor agrees that
any notice by the Agent of sale, disposition or other intended action hereunder
or in connection herewith, whether required by the UCC or otherwise, shall
constitute reasonable notice to the Assignor if such notice is mailed by
registered or certified mail, return receipt requested, postage prepaid, or is
delivered personally against receipt, at least five (5) Business Days prior to
such action to the Assignor's address specified in or pursuant to Alpha Tube
Guaranty. If any Collateral is sold on terms other than payment in full at the
time of sale, no credit shall be given against the Obligations until the Agent
or the Lenders receive payment, and if the buyer defaults in payment, the Agent
may resell the Collateral without further notice to the Assignor. In the event
the Agent seeks to take possession of all or any portion of the Collateral by
judicial process, the Assignor irrevocably waives: (a) the posting of any bond,
surety or security with respect thereto which might otherwise be required; (b)
any demand for possession prior to the commencement of any suit or action to
recover the Collateral; and (c) any requirement that the Agent retain possession
and not dispose of any Collateral until after trial or final judgment. The
Assignor agrees that the Agent has no obligation to preserve rights to the
Collateral or marshal any Collateral for the benefit of any Person. The Agent is
hereby granted a license or other right to use, without charge, the Assignor's
labels, patents, copyrights, name, trade secrets, trade names, trademarks, and
advertising matter, or any similar property, in completing production of,
advertising or selling any Collateral, and the Assignor's rights under all
licenses and all franchise agreements shall inure to the Agent's benefit for
such purpose. The proceeds of sale shall be applied first to all expenses of
sale, including attorneys' fees, and then to the Obligations in whatever order
the Agent elects. The Agent will return any excess to the Assignor and the
Assignor shall remain liable for any deficiency.
(c) If an Event of Default occurs, the Assignor hereby waives,
except to the extent expressly provided otherwise herein, all rights to notice
and hearing prior to the exercise by the Agent of the Agent's rights to
repossess the Collateral without judicial process or to replevy, attach or levy
upon the Collateral without notice or hearing.
(d) The Agent agrees to provide the Assignor, the Parent and Wolf,
Block, Schorr and Solis-Cohen with not less than three Business Days prior
written notice of the first exercise by the Agent of any rights or remedies by
the Agent under this Section 3.1.
ARTICLE III.2. Remedies Cumulative. Each and every right, power
and remedy hereby specifically given to the Agent shall be in addition to every
other right, power and remedy specifically given under this Agreement or under
the other Loan Documents now or hereafter existing at law or in equity, or by
statute and each and every right, power and remedy whether specifically herein
given or otherwise existing may be exercised from time to time or
4
<PAGE> 5
simultaneously and as often and in such order as may be deemed expedient by the
Agent. All such rights, powers and remedies shall be cumulative and the exercise
or the beginning of exercise of one shall not be deemed a waiver of the right to
exercise of any other or others. No delay or omission of the Agent in the
exercise of any such right, power or remedy, renewal or extension of any of the
Obligations and no course of dealing between the Assignor and the Agent or any
holder of any of the Obligations shall impair any such right, power or remedy or
shall be construed to be a waiver of any Default or Event of Default or an
acquiescence therein. No notice to or demand on the Assignor in any case shall
entitle it to any other or further notice or demand in similar or other
circumstances or constitute a waiver of any of the rights of the Agent to any
other or further action in any circumstances without notice or demand. In the
event that the Agent shall bring any suit to enforce any of its rights hereunder
and shall be entitled to judgment, then in such suit the Agent may recover
reasonable expenses, including attorneys' fees, and the amounts thereof shall be
included in such judgment.
ARTICLE IV
MISCELLANEOUS
ARTICLE IV.1. Notices. Except as otherwise specified herein, all
notices, requests, demands or other communications to or upon the respective
parties hereto or Wolf, Block, Schorr and Solis-Cohen shall be given in the
manner provided in Section 15 of the Alpha Tube Guaranty.
ARTICLE IV.2. Waiver; Amendment. None of the terms and conditions
of this Agreement may be changed, waived, modified or varied in any manner
whatsoever unless in writing duly signed by the Assignor and the Agent (with the
written consent of the requisite Lenders).
ARTICLE IV.3. Obligations Absolute. The obligations of the
Assignor hereunder shall remain in full force and effect without regard to, and
shall not be impaired by, (a) any exercise or non-exercise, or any waiver of,
any right, remedy, power or privilege under or in respect of this Agreement or
any other Loan Document except as specifically set forth in a waiver granted
pursuant to Section 4.2 hereof; or (b) any amendment to or modification of any
Loan Document or any security for any of the Obligations; whether or not the
Assignor shall have notice or knowledge of any of the foregoing.
ARTICLE IV.4. Successors and Assigns. This Agreement shall be
binding upon the Assignor and its successors and assigns and shall inure to the
benefit of the Agent and each other Secured Creditor and their respective
successors and assigns, provided that the Assignor may not transfer or assign
any or all of its rights or obligations hereunder. All agreements, statements,
representations and warranties made by the Assignor herein or in any certificate
or other instrument delivered by the Assignor or on its behalf under this
Agreement shall be considered to have been relied upon by the Secured Creditors
and shall survive the execution and delivery of this
5
<PAGE> 6
Agreement and the other Loan Documents regardless of any investigation made by
the Secured Creditors or on their behalf.
ARTICLE IV.5. Headings Descriptive. The headings of the several
sections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
ARTICLE IV.6. Severability. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
ARTICLE IV.7. SETOFF; GOVERNING LAW; WAIVER OF JURY TRIAL AND
SETOFF; CONSENT TO JURISDICTION, ETC. IN ANY LEGAL ACTION OR PROCEEDING WITH
RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, OR ANY
INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO THIS AGREEMENT, OR THE VALIDITY,
PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF, OR ANY OTHER
CLAIM OR DISPUTE HOWSOEVER ARISING, BETWEEN THE ASSIGNOR ON THE ONE HAND AND ANY
ONE OR MORE OF THE SECURED CREDITORS ON THE OTHER HAND, THE ASSIGNOR HEREBY, TO
THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, (i) WAIVES THE RIGHT TO INTERPOSE
ANY SETOFF, RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM IN CONNECTION WITH ANY SUCH
LEGAL ACTION OR PROCEEDING, IRRESPECTIVE OF THE NATURE OF SUCH SETOFF,
RECOUPMENT, COUNTERCLAIM OR CROSS-CLAIM, UNLESS SUCH SETOFF, RECOUPMENT,
COUNTERCLAIM OR CROSS-CLAIM COULD NOT, BY REASON OF ANY APPLICABLE FEDERAL OR
STATE PROCEDURAL LAWS, BE INTERPOSED, PLEADED OR ALLEGED IN ANY OTHER ACTION AND
(ii) WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LEGAL ACTION
OR PROCEEDING, ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY
DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES.
(a) THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND
LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL
LAWS (AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF NEW YORK;
PROVIDED THAT THE AGENT SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) EXCEPT FOR MATTERS WITHIN THE EXCLUSIVE JURISDICTION OF THE
BANKRUPTCY COURT, ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
MAY BE BROUGHT IN THE
6
<PAGE> 7
COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE
ASSIGNOR CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EXCEPT FOR MATTERS WITHIN THE
EXCLUSIVE JURISDICTION OF THE BANKRUPTCY COURT, THE ASSIGNOR IRREVOCABLY WAIVES
ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
AGREEMENT OR ANY DOCUMENT RELATED HERETO. NOTWITHSTANDING THE FOREGOING AND
EXCEPT FOR MATTERS WITHIN THE EXCLUSIVE JURISDICTION OF THE BANKRUPTCY COURT:
(1) THE AGENT SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST THE
ASSIGNOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION THE AGENT DEEMS
NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR OTHER SECURITY
FOR THE OBLIGATIONS OF THE ASSIGNOR HEREUNDER AND (2) THE ASSIGNOR ACKNOWLEDGES
THAT ANY APPEALS FROM THE COURTS DESCRIBED IN THE IMMEDIATELY PRECEDING SENTENCE
MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE THOSE JURISDICTIONS.
(c) THE ASSIGNOR HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY
REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO THE ASSIGNOR AT ITS
ADDRESS SET FORTH IN SECTION 15 OF THE ALPHA TUBE GUARANTY AND SERVICE SO MADE
SHALL BE DEEMED TO BE COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO
DEPOSITED IN THE U.S. MAILS. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF
THE AGENT TO SERVE LEGAL PROCESS BY ANY OTHER MANNER PERMITTED BY LAW.
(d) THE ASSIGNOR HEREBY WAIVES ITS RIGHTS TO A TRIAL BY JURY OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER WITH RESPECT TO
CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE ASSIGNOR HEREBY AGREES THAT ANY
SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY.
WITHOUT LIMITING THE FOREGOING, THE ASSIGNOR HEREBY FURTHER AGREES THAT ITS
RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY
ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO
CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY PROVISION
HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
7
<PAGE> 8
ARTICLE IV.8. Assignor's Duties. It is expressly agreed, anything
herein contained to the contrary notwithstanding, that the Assignor shall remain
liable to perform all of the obligations, if any, assumed by it with respect to
the Collateral and the Agent shall not have any obligations or liabilities with
respect to any Collateral by reason of or arising out of this Agreement, nor
shall the Agent be required or obligated in any manner to perform or fulfill any
of the obligations of the Assignor under or with respect to any Collateral. The
Agent shall maintain safe custody of any Collateral in its possession and shall
account for funds received by it hereunder, but only to the extent, in each
instance, required under the UCC (and only then to the extent such requirement
cannot be waived).
ARTICLE IV.9. Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument.
ARTICLE IV.10. Termination. Upon payment in full of all
Obligations, the termination and cancellation of all Letters of Credit and the
termination of all Commitments, this Agreement shall terminate, and the Agent
shall cause to be assigned, transferred and delivered against receipt but
without any recourse, warranty or representation whatsoever, any remaining
Collateral and money received in respect thereof, to or on the order of the
Assignor and to be released and canceled all licenses and rights referred to in
Section 3.1(b). The Agent shall also execute and deliver to the Assignor upon
such termination such UCC termination statements and other documentation
reasonably requested by the Assignor to effect the termination and release of
the Liens on the Collateral.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and delivered by their duly authorized officers as of the date
first above written.
ALPHA TUBE CORPORATION, INC.
as Debtor-in-Possession
By:___________________________
Name: Jerry F. Williams
Title: Vice President
8
<PAGE> 9
BANKAMERICA BUSINESS CREDIT, INC.,
as Agent
By:_______________________________
Name:
Title:
9
<PAGE> 1
EXHIBIT 10.11
CASH FLOW AGREEMENT
CASH FLOW AGREEMENT (this "Agreement"), dated as of December 18,
1998, between Acme Metals Incorporated, a Delaware corporation (the "Parent"),
Acme Steel Company, a Delaware corporation ("ASC"), Acme Packaging Corporation,
a Delaware corporation ("APC"), Alabama Metallurgical Corporation, a Washington
State corporation ("AMC") and Acme Steel Company International, Inc., a
Barbados, W.I. corporation ("ASCI", and together with the Parent, ASC, APC, AMC
and ASCI, the "Borrowers"), Alpha Tube Corporation, a Delaware corporation
("Alpha Tube") and BankAmerica Business Credit, Inc., a Delaware corporation, as
Agent (the "Agent").
The Borrowers, certain financial institutions (the "Lenders") and
the Agent are parties to a Loan and Security Agreement dated as of December 18,
1998 (as amended, restated, supplemented or otherwise modified from time to time
in accordance with its terms, the "Loan Agreement"), providing for extensions of
credit and certain other financial accommodations (including, without
limitation, the issuance of letters of credit and credit support) to the
Borrowers.
To induce the Lenders and the Agent to enter into the Loan and
Security Agreement and to extend credit thereunder, and to induce Alpha Tube to
guarantee the obligations of the Borrowers thereunder and to pledge its assets
in support thereof, the Borrowers, Alpha Tube and the Agent have agreed to enter
into this Agreement, providing for the continued implementation, subject to the
terms and conditions herein, of the integrated cash management system of the
Borrowers and Alpha Tube and the participation of Alpha Tube therein.
Accordingly, the parties hereto agree as follows:
Section 1. All cash of Alpha Tube will be deposited in a separate
account (the "Segregated Account"). Subject to Section 3 below, Alpha Tube will
continue to "upstream" its cash receipts to the Parent in the same manner as it
did prior to the Filing Date. Subject to Section 3 below, funds deposited in the
Segregated Account shall be freely accessible by the Parent (e.g., to fund the
Borrowers' operations and administrative expenses and pay debt service under the
Loan Agreement) and all amounts deposited in the Segregated Account may be
withdrawn by the Parent on a daily basis.
Section 2. Alpha Tube will have an allowed superpriority claim
against any Borrower for all funds upstreamed by Alpha Tube after the Filing
Date to such Borrower, net of all offsets as provided in Section 4. This claim
will be junior to the claims of the Lenders (and Carve-Out Expenses, as defined
in the Loan Agreement, and in any event not to exceed the sum of (i) amounts
payable pursuant to 28 U.S.C. ss.1930(a)(6) plus (ii) $3,000,000) and senior to
all other administrative and unsecured claims. The Final Bankruptcy Court Order
will provide for such junior superpriority claim.
Section 3. Alpha Tube will periodically compute and report to the
Agent and the Borrowers the following information: (i) Alpha Tube's Eligible
Inventory and Eligible
<PAGE> 2
Accounts (calculated separately for Alpha Tube using the same criteria for
eligibility as set forth in the Loan Agreement) and (ii) the sum of Alpha Tube's
pre-petition and post-petition trade debt (including trade debt to any trade
creditor that is a Borrower or an Affiliate) and Alpha Tube's accrued and unpaid
Chapter 11 administrative expenses, all as reflected in Alpha Tube's books and
records (such sum being referred to as the "Protected Amount"). Such reports
will be prepared and delivered as frequently as the Borrowers' periodic
borrowing base reports to the Agent under the Loan Agreement. As long as the
most recent report so delivered indicates that the sum of Alpha Tube's Eligible
Accounts and Eligible Inventory (as so computed) exceeds 110% of the Protected
Amount (an "Alpha Surplus Situation"), Alpha Tube will continue to upstream its
cash receipts as provided in Section 1 above. If any such report indicates that
the sum of Alpha Tube's Eligible Accounts and Eligible Inventory does not exceed
110% of the Protected Amount, Alpha Tube shall give the Parent and the Agent
written notice (a "Deficiency Notice") of such fact, and effective upon the
expiration of three Business Days from such Deficiency Notice and unless and
until such deficiency is cured, (i) no further upstreaming of cash may be made
by Alpha Tube to the Parent, and (ii) any funds remaining in the Segregated
Account may no longer be used for purposes other than Alpha Tube's business
operations (which business operation shall be deemed to include, without
limitation, intercompany obligations) and its administrative expenses, until
such time as Alpha Tube shall deliver a report demonstrating that an Alpha
Surplus Situation again exists. If any such deficiency is not cured by the end
of such three Business Day period, Alpha Tube shall deliver a copy of such
Deficiency Notice to the financial institution where the Segregated Account is
maintained immediately upon expiration of such three Business Day Period.
Section 4. The Borrowers agree that Alpha Tube's potential cash
needs to support its operations can be funded either through use of the
Borrowers funds on hand or through borrowings by the Borrowers (to the extent
that availability exists under the Loan Agreement) and in either case
downstreamed to Alpha Tube or else directly paid in satisfaction of
post-petition obligations, and pre-petition obligations permitted to be paid by
the Bankruptcy Court and agreed to by the Agent, incurred by Alpha Tube. Any
amounts so downstreamed to Alpha Tube or paid directly on its behalf will be
offset against (and will reduce) the post-petition inter-company balance of
advances from Alpha Tube to the Borrowers referred to in Section 2 above.
Section 5. Alpha Tube hereby covenants and agrees with each
Borrower as follows:
(i) Alpha Tube will perform and comply with all
covenants, agreement and conditions contained in the Loan
Agreement and other Loan Documents as they relate to Alpha Tube;
(ii) Alpha Tube will not knowingly take any action
that causes a Default or an Event of Default to occur, and will
cooperate with the Borrowers in attempting to cure any Default or
Event of Default; and
(iii) Alpha Tube will notify Parent immediately upon
becoming aware (x) of any Default or Event of Default, (y) that
the representations and warranties contained in
2
<PAGE> 3
the Loan Agreement and the other Loan Documents as they relate to
Alpha Tube are untrue or incorrect in any material respect on any
date or (z) that any condition to any Borrowing as it relates to
Alpha Tube shall not be satisfied.
Section 6. This Agreement is for the benefit of the Agent, the
Lenders, the Borrowers and Alpha Tube and may only be modified or amended with
the prior written consent of the Agent, the Parent and Alpha Tube. Neither the
Agent nor any Lender shall have any obligations, duties or liabilities
(including, without limitation, any obligations, duties or liabilities with
respect to the calculation of Alpha Tube's Eligible Accounts and Eligible
Inventory) under this Agreement.
Section 7. This Agreement may be executed by the parties hereto
individually or in any combination, in one or more counterparts, each of which
shall together constitute one and the same instrument. Delivery of an executed
counterpart of a signature page to this Agreement by telecopier shall be
effective as delivery of a manually executed counterpart of this Agreement.
Section 8. This Agreement shall be governed by, and construed in
accordance with, the law of the State of New York, without giving effect to the
conflict of law provisions thereof, and, upon execution by all parties hereto,
shall be binding upon the Borrower, Alpha Tube and the Agent.
Section 9. Upon payment in full of all Obligations, the
termination and cancellation of all Letters of Credit and the termination of all
Commitments, this Agreement shall terminate.
Section 10. Capitalized terms used herein and not otherwise
defined shall have the respective defined meanings set forth in the Loan
Agreement.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have entered into this Agreement
on the date first above written.
Acme Metals Incorporated
By:______________________________
Name: Jerry F. Williams
Title: Vice President - Finance and
Administration
Acme Steel Company
By:______________________________
Name: Jerry F. Williams
Title: Vice President
Acme Packaging Corporation
By:______________________________
Name: Jerry F. Williams
Title: Vice President
Alabama Metallurgical Corporation
By:______________________________
Name: Jerry F. Williams
Title: President
Acme Steel Company International, Inc.
By:______________________________
Name: Jerry F. Williams
Title: Chairman
4
<PAGE> 5
Alpha Tube Corporation
By:______________________________
Name: Jerry F. Williams
Title: Vice President
BankAmerica Business Credit, Inc., as
Agent
By:______________________________
Name:
Title:
5
<PAGE> 1
Exhibit 10.35
KEY EMPLOYEE RETENTION PLAN
The objective of this Key Employee Retention Plan (the "Plan") is to provide an
incentive to certain key employees (the "Participants") to remain with the
company throughout the Chapter 11 reorganization process, to support a smooth
and successful operation of the ongoing business, and to develop a viable Plan
of Reorganization for the Debtors.
Specific Participants are included based on a combination of factors, including
job responsibilities, special skills, and an assessment of the impact their
departure would have on the performance of the business, and the ability to
complete a viable Plan of Reorganization.
The Plan should have three components. It should include a performance-based
incentive payment opportunity. It should provide a monetary payment to a
Participant who stays. Also, it should include a severance payment for a
Participant who is involuntarily separated, for other than cause, as a direct
consequence of the reorganization process. The amount of the payments should
correlate to both the Participant's level of responsibility within the
organization, and to any special, difficult-to-replace skills. The severance
payment must represent a satisfactory level of financial security to the
Participant. As a guideline, management has referred to a number of retention
plans implemented by other companies who have been through the Chapter 11
reorganization process.
I. Definitions
1.1 Definitions: As used in this Plan, the following terms shall have the
following meanings when used herein with initial capital letters:
1.1.1 "Bankruptcy Court" shall mean the United States Bankruptcy Court
for the District of Delaware.
1.1.2 "Cause" shall mean that a Participant shall, prior to any
Termination of Employment, have committed:
(a) an act of fraud, embezzlement or theft in connection with
the Participant's duties or in the course of the
Participant's employment with the Debtors;
(b) willful wrongful damage to property of the Debtors:
(c) willful wrongful disclosure of secret processes or
confidential information of the Debtors; or
(d) willful wrongful engagement in any Competitive Activity; or
Page 1
<PAGE> 2
(e) failure of a Participant to perform assigned duties in a
satisfactory manner,
and the commission of any such act shall have been determined by the
Board of Directors of the Debtors to have been materially harmful to
the Debtors.
1.1.3 "Change in Control" shall mean the occurrence at any time
during the period commencing upon the entry of an order by
the Bankruptcy Court approving this Plan (the "Order") and
ending on the first anniversary date following the entry of
an order of the Bankruptcy Court confirming the Plan of
Reorganization of any of the following events.
(a) there shall be consummated any consolidation,
dissolution, liquidation merger, sale, lease,
exchange or other transfer (in one transaction or
a series of related transactions) of all or a
significant portion of its business and/or assets,
or reorganization of the Debtors in which the
Debtors are not the continuing or surviving
corporation or pursuant to which the outstanding
voting securities or other capital interests of
the Debtors would be converted into cash,
securities or other property, including a
confirmed Plan of Reorganization pursuant to which
debt is converted, exchanged or otherwise
transferred for voting securities or other capital
interests of the Debtors; other than a
consolidation, merger, or reorganization of the
Debtors in which the holders of the Debtors'
outstanding voting securities or other capital
interests immediately prior to such consolidation,
merger or reorganization shall have seventy-five
percent (75%) or more of the outstanding voting
securities or other capital interests of the
surviving, resulting or acquiring corporation or
other legal entity;
(b) the Debtors sell, lease, exchange, or transfer (in
one transaction or a series or related
transactions) all or substantially all of its or
their business and/or assets to any other
corporation or other legal entity of which less
than seventy-five percent (75%) of the outstanding
voting securities or other capital interests of
said corporation or other legal entity are owned
in the aggregate by the stockholders of the
Debtors, directly or indirectly, immediately prior
to or after such sale;
(c) the shareholders of the Debtors shall approve any
plan or proposal for the liquidation or
dissolution of the Corporation;
(d) there is a report filed on Schedule 13D or
Schedule 14D- 1 (or any successor schedule, form
or report) each as promulgated pursuant to the
Securities Exchange Act of 1934 (the "Exchange
Act")
Page 2
<PAGE> 3
disclosing that any person (as the term "person"
is used in Section 13(d) or Section 14(d)(2) of
the Exchange Act) other than Acme Metals
Incorporated or a subsidiary or any employee
benefit plan sponsored by the Debtors has become
the beneficial owner (as the term "beneficial
owner" is defined under Rule 13d-3 or any
successor rule or regulation promulgated under the
Exchange Act) of fifty-one percent (51%) or more
of the combined voting power of Acme Metals
Incorporated's then outstanding voting securities
ordinarily (and apart from rights accruing in
special circumstances) having the right to vote in
the election of directors, as a result of a tender
or exchange offer, open market purchases,
privately negotiated purchases, or otherwise; or
(e) at any time during any period of two (2)
consecutive years, individuals who at the
beginning of any such period constitute the
Directors of Acme Metals Incorporated cease for
any reason to constitute at least a majority
thereof unless the election, or the nomination for
election by Acme Metals Incorporated's
stockholders, of each new Director of the
Corporation was approved by a vote of at least
two-thirds (2/3) of such Directors of Acme Metals
Incorporated then still in office who were
Directors of the Corporation at the beginning of
any such two-year (2) period.
(f) prior to a confirmation of a Plan of
Reorganization such other event, or events, as
shall be determined by the Board of Directors to
be a Change in Control upon the consent of the
Official Committee of Unsecured Creditors of the
Debtors or the approval of the U.S. Bankruptcy
Court for the District of Delaware; or following
the confirmation of a Plan of Reorganization, as
shall be determined by the post-confirmation board
of directors.
1.1.4 "Chapter 11 Reorganization Process" shall mean all actions,
activities, conduct, determinations, events, filings,
proceedings and similar transactions of a legal or non-legal
nature undertaken by the Debtors pursuant to the voluntary
petitions for relief under Chapter 11 of the Bankruptcy Code
filed by the Debtors with the Bankruptcy Court on September
28, 1998.
1.1.5 "Competitive Activity" shall mean a Participant's
participation, without the written consent of the chief
executive officer of Acme Metals Incorporated, in the
management of any business enterprise if such enterprise
engages in substantial and direct competition with any of
the Debtors and such enterprise's sales of any product or
service competitive with any product or service of the
Debtors amounted to 25% of such
Page 3
<PAGE> 4
enterprise's net sales for its most recently completed
fiscal year and if any of the Debtors' consolidated net
sales of said product or service amounted to 10% of said
Debtor's consolidated net sales for its most recently
completed fiscal year. "Competitive Activity" shall not
include (i) the mere ownership of securities in any publicly
traded enterprise and exercise of rights appurtenant thereto
or (ii) participation in management of any publicly traded
enterprise or business operation thereof other than in
connection with the competitive operation of such
enterprise.
1.1.6 "Debtors" shall mean, individually and collectively, Acme
Metals Incorporated, Acme Steel Company, Acme Packaging
Corporation, Acme Steel Company International, Inc., Alabama
Metallurgical Corporation and Alpha Tube Corporation, each
of which has filed their respective voluntary petitions for
relief pursuant to Chapter 11 of Title 11 of the United
States Code, U.S.C. Sections 101-1330 (as amended, the
"Bankruptcy Code"), any successor entity which acquires a
controlling interest in one or more of the Debtors by means
of consolidation, exchange, lease merger, purchase and sale,
reorganization, tender, or any similar or dissimilar
transaction (whether in one transaction or a series of or
related transactions), including a confirmed Plan of
Reorganization pursuant to which debt is converted,
exchanged or otherwise transferred for assets, voting
securities or other capital interests of the Debtors, other
than a consolidation, merger or reorganization in which the
holders of the Debtors outstanding voting securities or
other capital interests immediately prior to such
consolidation, merger or reorganization shall have
seventy-five percent (75%) or more of the outstanding voting
securities or other capital interests of the acquiring,
resulting or surviving corporation or other legal entity.
1.1.7 "EIC Plan" shall mean the Amended and Restated 1994 Acme
Metals Incorporated Executive Incentive Compensation Plan
adopted by the Board of Directors of Acme Metals
Incorporated and approved by the shareholders on April 27,
1997.
1.1.8 "Involuntary Reorganization Termination" shall mean a
Participant's permanent termination of employment by the
Debtors during the Chapter 11 reorganization process for
reasons other than Cause, death, disability, voluntary
resignation, retirement or pursuant to a Change of Control
as provided in Section IV.B. of this Plan.
1.1.9 "Other Plans" shall mean duties, obligations, payments and
rights Debtors may owe and Participants may have under other
severance compensation, deferred compensation, disability
and/or retirement plans, programs or arrangements or
agreements with the Debtors, including without limitation
the Consolidated Pension Plan for Acme Steel Company
Salaried
Page 4
<PAGE> 5
Employees and Riverdale Hourly Employees, as amended and
restated effective May 29, 1986, as heretofore or
hereinafter amended or supplemented (the "Salaried Pension
Plan"), the Acme Metals Salaried Employees' Retirement
Savings Plan Restated effective September l, 1995 (the
"SERSP"), group medical and hospitalization benefits and
long-term disability benefits (the "Group Benefits Plans"),
any stock award, stock option, restricted stock or
stock-related plans of the Debtors, or any similar
agreements, arrangements, plans or programs providing such
benefits.
1.1.10 "Participant(s)" shall mean the key employees of the Debtors
who the Board of Directors of Acme Metals Incorporated
shall, by resolution duly adopted prior to the effective
date of an order of the Bankruptcy Court approving this
Plan. specify as being a Participant in this Plan. The Board
of Directors may, by resolution duly adopted, designate
replacement Participants for Participants who are removed
and/or delete persons designated as Participants in the
Plan.
1.1.11 "Plan of Reorganization" shall mean a plan for the
reorganization of Debtors' business which complies with the
requirements of Section 1123 of the Bankruptcy Code.
1.1.12 "Plan Period" shall mean the period during which this Plan
shall be in existence, which shall commence on the date
hereof and shall expire, except to the extent that any
obligation of the Debtors hereunder remains unpaid as of
such time, on the first anniversary date following the entry
of an order of the Bankruptcy Court confirming a Plan of
Reorganization.
l.1.13 "Severance Period" shall mean, as to any Participant, the
period commencing with the date of his Termination of
Employment and ending one year after such date.
1.1.14 "Termination of Employment" shall mean, as to any
Participant:
(a) any termination by the Debtors of the employment
of any Participant within one (l) year after a
Change of Control for any reason other than for
Cause or as a result of the death or disability of
the Participant; or
(b) termination by any Participant of his employment
by the Debtors within one (l) year after a Change
in Control and upon the occurrence of any of the
following events:
(i) failure to elect or reelect the
Participant to, or removal of the
Participant from, the Board of Directors
of the Debtors (or any successor
thereto), if the Participant shall have
been
Page 5
<PAGE> 6
a member of the Board of Directors of
the Debtors immediately prior to the
Change in Control, or the office of the
Debtors which the Participant held
immediately prior to a Change in
Control;
(ii) unless otherwise agreed to in writing by
the Participant, a significant adverse
change in the nature or scope of the
authorities, powers, functions or duties
attached to the position with the
Debtors which the Participant had
immediately prior to Change in Control,
or a reduction in the level of cash
compensation from the Debtors, either of
which is not remedied within thirty (30)
calendar days after receipt by the
Debtors of written notice from the
Participant of such change or reduction,
as the case may be;
(iii) a determination by any Participant made
in good faith that as a result of a
Change in Control and a change in
circumstances thereafter significantly
affecting his position, he is unable to
carry out the authorities, powers,
functions or duties attached to his
position immediately prior to the Change
in Control, which situation is not
remedied within thirty (30) calendar
days after receipt by the Debtors of
written notice from the Participant of
such determination;
(iv) the Debtors shall require any
Participant to have as his principal
location of work any location which is
in excess of fifty (50) miles from his
principal residence as of the date on
which a Change of Control occurs and
which is at least twenty (20) miles
further than the Participant was
required to travel prior to the Change
in Control or to travel away from his
office in the course of discharging his
responsibilities or duties hereunder
more than sixty (60) days in any
consecutive ninety (90) day period
without in either case his prior consent
and such travel must be twenty percent
(20%) greater than the average time
traveled by such Participant in the past
four (4) calendar quarters immediately
preceding the Change in Control.
An election by any Participant to terminate his
employment as contemplated by subsection
1.1.14(b)(iii) shall not be deemed a voluntary
termination of employment by the Participant for
the purpose of this Plan.
Page 6
<PAGE> 7
II. Performance-Based Component
- ------------------------------------
The Participants who shall participate in the performance incentive
payment component of the plan for each year (the "Performance
Incentive Payment") shall be assigned to one of the several Groups
listed below. The potential Performance Incentive Payment would be
based on their business unit's accomplishment of specific financial
goals, which will be established for each fiscal year ("Target").
A Participant who is included in Group 1 would have the opportunity to
earn a Target Performance Incentive Payment equal to 35% of annual
base salary. Participants in Groups 2, 3, and 4 could earn Target
Performance Incentive Payments equal to 25%, 20%, and 15% of their
annual salaries, respectively. The Chief Executive Officer's Target
Performance Incentive Payment would be 50% of annual salary.
The Performance Incentive Payments shall be adjusted depending on
actual performance compared with the established financial goals. If
actual performance falls 20% below the goal, the Performance Incentive
Payment would be reduced by 50%. If performance exceeds the goal by
20% or more, the Performance Incentive Payment would be increased by
50%. Actual results ranging between -20% of goal and +20% of goal
shall be interpolated so that Performance Incentive Payments may range
between 50% and 150% of the Target Performance Incentive Payment.
No Performance Incentive Payment shall be made if actual results fall
more than 20% below the goal. The maximum possible Performance
Incentive Payment would be 150% of the Target Performance Incentive
Payment. R. W. Dyke's Performance Incentive Payment will be based on
the combined results of Acme Packaging Corporation and Alpha Tube
Corporation. J. N. Howell's Performance Incentive Payment shall be
based on Acme Steel Company's performance. The Performance Incentive
Payment for other Acme Metals Incorporated's corporate officers shall
be based 40% on Acme Steel Company results, 40% on the combined
Packaging Corporation and Alpha Tube Corporation performance, and 20%
on Acme Metals Incorporated's corporate expenses.
III. Retention Payment Component
- ------------------------------------
The Participants who shall be included in the Retention Payment
Component of the Plan for each year shall be assigned to one of the
several Groups listed below. This part of the Plan shall provide a
lump sum payment, equal to a percentage of annual salary, to a
Participant who remains with the company throughout and beyond the
Chapter 11 reorganization process (the "Retention Payment").
The Board of Directors designated the President and Chief Executive
Officer be included in this component of the plan at a Retention
Payment equal to 30% of annual salary.
Page 7
<PAGE> 8
<TABLE>
<S> <C>
S. D. Bennett Retention Payment equal to 30% of annual salary.
President & CEO
A. Group l: Retention Payment equal to 25% of annual salary.
--------
B. Group 2: Retention Payment equal to 20% of annual salary.
--------
C. Group 3: Retention Payment equal to 15% of annual salary
--------
</TABLE>
The applicable Retention Payment shall accrue monthly for each year, or
partial year, until a Plan of Reorganization is confirmed by the
Bankruptcy Court. At the time the Plan of Reorganization is confirmed,
one-half (1/2) of the accrued Retention Payment would be paid to each
Participant for each month the Participant was employed by the Debtors
during the Chapter 11 reorganization process. The remaining half of
each Participants' Retention Payment shall be paid one (1) year after
confirmation of the Plan of Reorganization if the Participant remains
an employee through the first anniversary date of the confirmation of
the Plan of Reorganization. Provided, however, any Participant who is
disabled and unable to continue to be employed by the Debtors due to
such disability or dies between the date the Plan of Reorganization is
confirmed and the first anniversary date thereof shall be paid the
remaining one-half (1/2) of the Participant's Retention Payment .
Within thirty (30) days after the effective date of disability or the
death of a Participant, said amount shall be paid to the Participant or
to the Participant's designated beneficiary, respectively.
In the event a Participant's business unit is sold, the entire accrued
Retention Payment would be paid to the affected Participant at the time
the sale closes.
In the event the cases are converted to a Chapter 7 liquidation or
Chapter 11 liquidation proceeding, the entire accrued Retention Payment
shall be paid immediately to all Participants.
IV. Severance Component
- ----------------------------
Circumstances may dictate certain Participants be terminated
involuntarily as a consequence of the Chapter 11 reorganization process
or as a result of a change of control. In the event either of these
circumstances occur, these Participants shall receive a lump severance
payment as provided herein which provides adequate financial security
to them and their families while they secure new employment. The amount
of the severance payment provided for herein should correlate with the
amount of time it would reasonably take a Plan Participant to find new
employment offering compensation comparable to the prior position with
the Debtors.
Page 8
<PAGE> 9
The severance payments for the following types of termination are
authorized for the following Groups of Participants as designated by
the Board of Directors of Acme Metals Incorporated in the amounts
indicated:
A. Involuntary Reorganization Termination
--------------------------------------
The Board of Directors has designated the President and
Chief Executive Officer shall be a member of Group 1.
Involuntary Reorganization Termination severance payments as
a result of the Chapter 11 reorganization process shall be
authorized, as necessary, for Participants in the several
Groups identified below as follows:
1. Group 1: Severance payments equal to one and
one-half (1-1/2) times the sum of (X) the
Participant's annual base salary as of the date of
involuntary termination, plus (Y) an amount equal
to the average of the actual incentive
compensation awards paid to the Participant as
compensation under this Plan or the Debtors' EIC
Plan for the two (2) years prior to involuntary
termination;
2. Group 2: Severance payments equal to the one times
the sum of (X) Participant's annual base salary as
of the date of involuntary termination, plus (Y)
an amount equal to the average of the actual
incentive compensation awards paid to the
Participant as compensation under this Plan or the
Debtor's EIC Plan for the last two (2) years prior
to involuntary termination;
3. Group 3: Severance payments equal to one-half
(1/2) times the sum of (X) Participant's annual
base salary as of the date of involuntary
termination, plus (Y) an amount equal to the
average of the ACTUAL incentive compensation
awards paid to the Participant as compensation
under this Plan or the Debtor's EIC Plan for the
last two (2) years prior to involuntary
termination.
PROVIDED, however, that any such payment actually
paid to any Participant pursuant to the Retention
Payment Component of this Plan shall be deducted
from the severance amounts otherwise paid to a
Participant who is the subject of an Involuntary
Reorganization Termination by reason of the
Chapter 11 reorganization process pursuant to this
Section IV.A.
A Participant who is the subject of an Involuntary
Reorganization Termination as a consequence of the Chapter
11 reorganization process shall receive the applicable
severance payment plus a separate additional payment in the
following amounts to cover premiums for hospitalization,
medical and accident insurance
Page 9
<PAGE> 10
benefits ("medical benefits") substantially similar to those
which a Participant was receiving immediately prior to the
Involuntary Reorganization Termination as follows: (x) the
President and CEO and Group 1 Participants for a period of
eighteen (18) months; and (Y) all other Participant Groups
for a period of twelve (12) monthsto cover premiums for
continuation of medical benefits. A Participant who is
terminated for Cause or reasons related to performance would
be ineligible for a severance payment under this Plan. The
severance payment provisions of this Plan shall remain in
effect for one (1) year following confirmation of the Plan
of Reorganization.
B. Change of Control Termination
l. Establishment of the Change of Control Termination
Plan
1.1 The Change of Control Termination Plan:
The Debtors, intending that the
Participants shall rely thereon, hereby
irrevocably establishes this Change of
Control Termination Plan (the "Change of
Control Plan") and shall maintain the
same throughout the Plan Period.
1.2 Amendments etc.: Prior to the expiration
of the Plan Period, the Debtors shall
not amend, terminate or suspend the
Change of Control Plan or any provision
hereof, including without limitation
this Section 1.2 without the prior
written consent of any Participants
adversely affected by such change. Any
such amendment, termination or
suspension to which any affected
Participants may consent shall not
affect any rights which any Participant
may otherwise have pursuant to any Other
Plan. The amendment, commencement,
suspension or termination of the payment
of any compensation pursuant to this
Change of Control Plan shall not affect
any rights which any Participant may
otherwise have pursuant to any Other
Plan.
1.3 Certain Limitations: Without limiting
any rights which any Participant may
have under any Other Plan, nothing in
this Plan shall grant any Participant
any right to remain an executive
officer, director or employee of the
Debtors, whether or not a Change of
Control shall occur.
2. Change of Control Termination Compensation
2.1 Compensation:
(a) If a Participant's employment
by the Debtors is terminated
(i) by the Debtors for Cause,
Competitive Activity or by
Page 10
<PAGE> 11
reason of disability,
retirement or death or (ii) by
a Participant other than
pursuant to Section
1.1.14.(b), a Participant
shall not be entitled to any
severance compensation under
this Change of Control Plan,
but the absence of a
Participant's entitlement to
any benefits under this Change
of Control Plan shall not
prejudice a Participant's
right to the full realization
of any and all other benefits
to which a Participant shall
be entitled pursuant to the
terms of any other provision
of this Plan or any Other
Plans in which a Participant
is a participant or other
agreements of the Debtors to
which the Participant is a
party.
(b) In the event of a Termination of
Employment of any Participant by the
Debtors other than for Cause,
Competitive Activity or as a result of
the disability, retirement or death of
such Participant, or by the Participant,
then in such event said Participant
shall be entitled to the severance
compensation provided below:
(i) In lieu of any further salary
payments to the Participant
for period subsequent to the
date of Termination of
Employment, the Debtors shall
pay as severance compensation
to the Participant at the time
specified in subsection (ii)
below, a lump sum severance
payment equal to the following
amounts according to the
appropriate Group to which a
Participant is assigned:
(A) Group 1: a payment
equal to one and
one-half (1-1/2) times
the sum of (X) the
Participant's annual
base salary in effect
at the time the Notice
of Termination of
Employment is given,
plus (Y) an amount
equal to the average of
the actual annual
incentive compensation
award paid to a
Participant as
compensation under this
Plan or the Debtors EIC
Plan for the two (2)
calendar years prior to
the date the Notice of
Termination of
Employment is given:
(B) Group 2: a payment
equal to one (1) times
the sum of (X) the
Participant's annual
base salary in effect
at the time the Notice
of Termination of
Employment is given,
plus
Page 11
<PAGE> 12
(Y) an amount equal to
the average of the
actual annual incentive
compensation award paid
to a Participant as
compensation under this
Plan or the Debtor's
EIC Plan at any time
during one of the two
(2) calendar years
prior to the date the
Notice of Termination
of Employment is given;
and
(C) Group 3: a payment
equal to one-half (1/2)
times the sum of (X)
the Participant's
highest annual base
salary in effect at any
time within five (5)
calendar years prior to
the date the Notice of
Termination of
Employment is given,
plus (Y) an amount
equal to ---- the
highest actual annual
incentive compensation
paid to a Participant
as compensation under
this Plan or the
Debtors' EIC Plan for
the two (2) calendar
years prior to the date
the Notice of
Termination of
Employment is given;
PROVIDED, however, that any such sums actually
paid to any Participant pursuant to the Retention
Payment component of this Plan shall be deducted
from the amounts otherwise payable pursuant to
this Section 2.1.(b);
(ii) the severance compensation provided for
in subsection (i) above shall be paid
not later than the tenth day following
the date of Termination of Employment,
provided, however, that if the amount of
such compensation cannot be finally
determined on or before such day, the
Debtors shall pay to the Participant on
such day an estimate, as determined in
good faith by the Debtors of the minimum
amount of such compensation and shall
pay the remainder of such compensation
(together with interest at the rate
equal to the then applicable Prime
Interest Rate Factor, as defined in
subparagraph (vi) hereinbelow, per
annum) as soon as the amount thereof can
be determined but in no event later than
the thirtieth day after the date of
Termination of Employment. In the event
the amount of the estimated payment
exceeds the amount subsequently
determined to have been due, such excess
shall constitute a loan by the Debtors
to a
Page 12
<PAGE> 13
Participant payable on the fifth day
after demand by the Debtors (together
with interest at the rate equal to the
then applicable Prime Interest Rate
Factor per annum);
(iii) a Participant who is subject to
Termination of Employment as a result of
a Change of Control shall receive the
applicable Change of Control severance
payment plus a separate additional
payment in the following amounts to
cover premiums for hospitalization,
medical and accident insurance benefits
substantially similar to those which a
Participant was receiving immediately
prior to the Termination of Employment
("medical insurance") as follows: (x)
the President and CEO and Group 1
Participants for a period of eighteen
(18) months following the date of
Termination of Employment; and (y) all
other Participant Groups for a period of
twelve (12) months following the date of
Termination of Employment;
(iv) during the term of this Plan and through
the period of (x) for the President and
CEO and Group 1 Participants eighteen
(18) months; and (y) for all other
Participant Groups twelve (12) months,
following the date of Termination of
Employment all benefits shall continue
to accrue to a Participant, crediting of
service of a Participant shall continue
and a Participant shall be entitled to
receive all benefits provided to a
Participant under the Acme Metals
Incorporated SERSP, the Salaried Pension
Plan or any other plan or agreement
relating to Other Plans. To the extent
that the amount of any retirement
benefit under the Salaried Pension Plan
or any such Other Plan or agreement
cannot take into account such accrual or
crediting by reason of a Participant's
no longer being an employee of the
Debtors during such period, the Debtors
shall pay to a Participant an amount
equal to the additional benefits that
would have been provided had such
accrual or crediting been taken into
account under the Salaried Pension Plan
or such Other Plan or agreement. The
obligation of the Debtors to provide any
retirement benefit payment under the
preceding sentence constitutes merely
the unsecured promise
Page 13
<PAGE> 14
of the Debtors to make such payments
from its general assets, and a
Participant shall have no interest in,
or lien or prior claim upon, any
property of the Debtors;
(v) if a Participant so elects by notice to
the Debtors not later than five (5) days
after the date of Termination of
Employment, in lieu of the lump sum
Change of Control Plan severance
compensation payment set forth in
subsection 2.1(b)(i) to receive such
payment over a period of thirty-six (36)
months from the date of Termination of
Employment, the Debtors shall pay a
Participant monthly an amount equal to
one thirty-sixth (1/36) of a total
amount which, payable over such period
in such installments, would have a value
equal to the amount of the lump sum
severance compensation payment set forth
in subsection 2.1(b)(i), together with
interest on the unpaid balance thereof
at the prime rate announced by The First
National Bank of Chicago (the "Prime
Interest Rate Factor").
(c) If the severance compensation under this Section
IV.B., either alone or together with other
payments to a Participant from the Debtors or a
subsidiary would constitute a "parachute payment"
(as defined in Section 280G of the Code), such
severance compensation shall be reduced to the
largest amount as will result in no portion of the
severance compensation payments under this Section
3 being subject to the excise tax imposed by
Section 4999 of the Code or being disallowed as
deductions to the Debtors under Section 280G of
the Code. The determination of any reduction in
the severance compensation payments under this
Section IV.B. pursuant to the foregoing provision
shall be made by the Debtors' independent public
accountants in good faith after consultation with
the Debtors and the Participant, and such
determination shall be conclusive and binding on
the Debtors. The Debtors shall cooperate in good
faith with the independent public accountants and
any Participant in making such determination and
in providing the necessary information for this
purpose.
Page 14
<PAGE> 15
V. General Provisions
- ---------------------------
5.1 Successors and Binding Agreements:
(a) The Debtors shall require any successor (whether
direct or indirect, by purchase, merger,
consolidation, reorganization or otherwise,
including a confirmed Plan of Reorganization
pursuant to which debt is converted, exchanged or
otherwise transferred for voting securities or
other capital interests of the Debtors to all or
substantially all of the business and/or assets of
the Debtors) to expressly to assume and to agree
to perform this Plan in the same manner and to the
same extent the Debtors would be required to
perform if no such succession had taken place.
This Plan shall be binding upon the inure to the
benefit of the Debtors and any successor of or to
the Debtors, including without limitation any
persons acquiring directly or indirectly all or
substantially all of the business and/or assets of
the Debtors whether by sale, merger,
consolidation, reorganization or otherwise,
including a confirmed Plan of Reorganization
pursuant to which debt is converted, exchanged or
otherwise transferred for voting securities or
other capital interest of the Debtors (and such
successor shall thereafter be deemed the "Debtors"
or the "Corporation" for the purposes of this
Plan), but shall not otherwise be assignable or
delegatable by the Debtors.
(b) This Plan shall inure to the benefit of and be
enforceable by each of the Participant's
respective personal or legal representatives,
executors, administrators, successors, heirs,
distributees and/or legatees.
(c) Neither the Debtors nor any Participant hereunder
shall assign, transfer or delegate this Plan
and/or any rights and/or obligations hereunder
except as expressly provided in Section 5.1(a)
hereof. Without limiting the generality of the
foregoing, no Participant's right to receive
payments hereunder shall be assignable or
transferable whether by pledge, creation of a
security interest or otherwise, other than by a
transfer by his will or by the laws of descent and
distribution and, in the event of any attempted
assignment or transfer contrary to this Section
4.1(c), the Debtors shall have no liability to pay
any amount so attempted to be assigned or
transferred.
5.2 Notices: For all purposes of this Plan, all communications
provided for herein shall be in writing and shall be deemed
to have been duly given when delivered or five (5) business
days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid,
addressed to the Debtors (to the attention of the Secretary
of the Corporation) at its principal executive office and to
a Participant at his principal residence, or to such other
address as
Page 15
<PAGE> 16
any party may have furnished to the other in writing and in
accordance herewith, except that notices of change of
address shall be effective only upon receipt.
5.3 Governing Law: The validity, interpretation, construction
and performance of this Plan shall be governed by the laws
of the State of Delaware, without giving effect to the
principles of conflict of laws of such State.
5.4 Validity: The invalidity or unenforceability of any
provision of this Plan shall not affect the validity or
enforceability of any other provision of this Plan which
shall remain in full force and effect.
5.5 Withholding of Taxes: The Debtors may withhold from any
amounts payable under this Plan all federal, state, city
and/or other taxes as shall be legally required.
5.6 Gender, Number, etc.: As used in this Plan, the singular
shall include the plural and the masculine shall include the
feminine, and vice versa.
5.7 Certain Participants may be entitled to payments pursuant to
Other Plans with the Debtors. This Plan is not intended to
and shall not alter materially the compensation or benefits
that the Participants could reasonably expect absent a
Change in Control or Involuntary Reorganization Termination,
and, accordingly, any rights which any Participant may have
pursuant to any Other Plan shall not be affected in any
manner by this Plan.
5.8 This subpart B of the Severance Component of the Plan shall
replace the Debtors' existing Key Executive Severance Pay
Plan established January 22, 1987 which shall be terminated
and of no further force or effect.
5.9 No Obligation to Mitigate Damages; No Effect on Other
Contractual Rights
(a) A Participant shall not be required to mitigate
damages or the amount of any payment provided for
under this Plan by seeking other employment or
otherwise, nor shall the amount of any payment
provided for under this Plan be reduced by any
compensation earned by a Participant as the result
of employment by another employer after the
termination of a Participant's employment, or
otherwise.
(b) The provisions of this Plan, and any payment
provided for hereunder, shall not reduce any
amounts otherwise payable, or in any way diminish
a Participant's existing rights, or rights which
would accrue solely as a result of the passage of
time, under the Salaried Pension Plan, the SERSP,
the Group Benefit Plan, or Other Plans of the
Corporation, employment agreement or other
contract, plan or arrangement of the Debtors or
any subsidiary.
Page 16
<PAGE> 17
(c) Except as expressly provided in Sections 3.1 and
3.2 hereof, there shall be no right of set-off or
counterclaim in respect of any claim, debt or
obligation against any payment to or benefit for
any participant provided for in this Plan.
Page 17
<PAGE> 1
EXHIBIT 21
ACME METALS INCORPORATED
SUBSIDIARY LISTING
AS OF MARCH 10, 1999
(OPERATING COMPANIES ARE IN UPPER CASE AND BOLD)
<TABLE>
<CAPTION>
SUBSIDIARY NAME, D/B/A, PERCENTAGE STATE OR COUNTRY
AND ITS SUBSIDIARIES OF OWNERSHIP OF INCORPORATION TYPE OF BUSINESS
- ----------------------- ------------ ----------------- ----------------
<S> <C> <C> <C>
ACME STEEL COMPANY 100% Delaware Integrated steel producer
Alabama Metallurgical 100% Washington Inactive
Corporation
Tilden Iron Mining Company 58.7% West Virginia Owns land in Wisconsin
on which timber cutting
takes place
ACME PACKAGING 100% Delaware Manufacture and sale of
CORPORATION strapping and related tools
(d/b/a Acme Steel Packaging
Corporation, State of California)
(d/b/a RAPZ Strapping Products, State
of Illinois and town of New Britain,
Connecticut)
Acme Steel Company 100% Barbados Foreign trading company
International, Inc.
ALPHA TUBE CORPORATION 100% Delaware Manufacture and sale of
(d/b/a Walbridge Steel, States of welded carbon steel tubing
Michigan and Ohio)
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-8 (Nos. 33-17235,
33-19437, and 33-30841) and in the Registration Statements on Form S-8 (Nos.
33-38747 and 33-59627) of Acme Metals Incorporated of our report dated January
25, 1999, appearing on page 30 of this Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Chicago, Illinois
March 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Audited Consolidated Balance Sheets at December 27, 1998 and Audited
Consolidated Statements of Operations for the Fiscal Year Ended December 27,
1998 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> DEC-27-1998
<CASH> 18,869
<SECURITIES> 0
<RECEIVABLES> 49,875
<ALLOWANCES> 1,278
<INVENTORY> 75,664
<CURRENT-ASSETS> 147,863
<PP&E> 902,000
<DEPRECIATION> (351,572)
<TOTAL-ASSETS> 737,088
<CURRENT-LIABILITIES> 52,576
<BONDS> 423,243
<COMMON> 11,675
0
0
<OTHER-SE> 25,963
<TOTAL-LIABILITY-AND-EQUITY> 737,088
<SALES> 459,920
<TOTAL-REVENUES> 459,920
<CGS> 425,339
<TOTAL-COSTS> 499,402
<OTHER-EXPENSES> 257
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,161
<INCOME-PRETAX> (71,954)
<INCOME-TAX> 55,736
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (127,690)
<EPS-PRIMARY> (10.94)
<EPS-DILUTED> (10.94)
</TABLE>
