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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11 )
FANSTEEL INC., et al,' ) Case No. 02-10109 (JJF) ) (Jointly Administered)
Debtors. ) Objection Deadline: July 30, 2002 at 12:00 p.m. (noon) E.T.
Hearing Date: (Only if objections are filed) July 31, 2002 at 12:30 p.m. (noon) E.T.
MOTION OF DEBTORS TO SHORTEN NOTICE OF TIME PERIOD AND TO APPROVE FORM AND MANNER THEREOF
Debtors and debtors-in-possession ("Debtors") in the captioned cases, by and
through their undersigned counsel, hereby move ("Motion") this Court pursuant to Rule 2002 of
the Federal Rule of Bankruptcy Procedure (the "Bankruptcy Rules"), Section 102 of chapter 11
of title 11 of the United States Code ("Bankruptcy Code"), and Del. Bankr. L.R. 9006-1(e) for
entry of an order providing that the notice period with respect to the attached Motion for an
Emergency Order Authorizing Debtors to Enter into an Insurance Premium Financing
Agreement (the "Insurance Premium Financing Motion") be shortened as set forth below.
1. The Debtors seek Court approval to Shorten the Notice Period for the
Insurance Premium Financing Agreement so that Debtors (a) can have continuity on their
insurance coverage and (b) are not forced to procure replacement insurance coverage in less
favorable terms and conditions. THE FINANCING AGREEMENT IS CONDITIONED ON
ITS APPROVAL BY THIS COURT ON OR BEFORE JULY 31, 2002.
1 The Debtors are the following entities: Fansteel Inc.; Fansteel Holdings, Inc., Custom Technologies Corp., Escast, Inc., Wellman Dynamics Corp., Washington Mfg. Co., Phoenix Aerospace Corp., American Sintered Technologies, Inc., and Fansteel Schulz Products, Inc.
27311 -001 \DOCSDE:51670.I 07/26/02 7:21 PM 3,s, c /e
2. Insurance coverage is essential to the Debtors' ongoing operations and to
protect the Debtors' assets for the benefit of their respective bankruptcy estates. Any interuption
in their insurance coverage would expose the Debtors to serious risks associated with lapses in
coverage, including (a) direct liability for payment of claims that otherwise would have been
payable by the insurers and (b) possible fines and other consequences that may arise in
connection with failure to maintain insurance coverage required by law.
3. The insurance financing proposal in the Insurance Premium Financing
Motion, is on better financial terms than Debtors' use of its DIP financing - or any other
available financing - to pay for the premiums. Accordingly the proposed insurance premium
financing preserves the assets of the estate and thus, is in the best interests of the estates and its
creditors.
4. Debtors seek an order from this Court requiring that objections, if any, to
the Insurance Premium Financing Motion be filed with the Court and served upon both
undersigned counsel and co-counsel on or before July 30, 2002, at 12:00 p.m. (noon), Eastern
Time and providing that, if any objection is entered, a hearing be held on the Insurance Premium
Financing Motion at the hearing already scheduled in these cases on July 31, 2002 at 12:30 p.m.
Otherwise, this Court may act upon the Motion without further notice or a hearing.
5. In addition to shortening the time period for the notice period for the
motion, the Debtors also request that the Court approve the attached Notice that sets forth an
objection period of approximately four days. Service of this Application will be made on all
27311 -001\DOCS DE:51670.1 07/26/02 7:21 PM
-2-
parties required to receive notice pursuant to Local Rule of Bankruptcy Procedure 2002-1 either:
(a) by hand, if the party is local, or (b) by overnight mail.
WHEREFORE, Debtors respectfully request the entry of an Order approving the
timing and attached form of Notice and providing that notice of the attached Insurance Premium
Financing Motion be limited to those parties designated above.
Dated: July 26, 2002
SCHULTE ROTH & ZABEL LLP Jeffrey S. Sabin (JSS 7600) 919 Third Avenue New York, NY 10022 Telephone: (212) 756-2000 Facsimile: (212) 593-5955
and
PACHULSKI, STANG, ZIEHL, YOUNG & JONES P.C.
/
Lavra Davis Jones (Bar No. 2436) Hamid Rafatjoo (CA Bar No. 181564) Rosalie L. Spelman (Bar No. 4153) 919 North Market Street, 161h Floor P.O. Box 8705 Wilmington, DE 19899-8705 (Courier 19801) Telephone: (302) 652-4100 Facsimile: (302) 652-4400
Co-Counsel for the Debtors and Debtors in Possession
SO ORDERED this __ day of ,2001
Honorable Joseph J. Farnan, Jr. United States District Court
27311-001 \DOCSDE:51670.1 07/26/02 7:21 PM
-3-
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11 )
FANSTEEL INC., et al.,' ) Case No. 02-10109 (JJF) ) (Jointly Administered)
Debtors. ) Objection Deadline: July 30, 2002 at 12:00 p.m. (noon), E.T.
Hearing Date: (Only if objections are filed) July 31, 2002 at 12:30 p.m. (noon), E.T.
NOTICE OF MOTION
TO: ALL PARTIES REQUIRED TO RECEIVE NOTICE PURSUANT TO DEL. BANKR. LR 2002-1
PLEASE TAKE NOTICE that on or about July 26, 2002, the debtors and debtors
in-possession (the "Debtors") filed with United States District Court for the District of Delaware,
824 Market Street, Wilmington, Delaware 19801 (the "Bankruptcy Court") the attached Motion
for an Emergency Order Authorizing Debtors to Enter into an Insurance Premium Financing
Agreement (the "Motion").
PLEASE TAKE FURTHER NOTICE that responses or objections, if any, to the
relief requested in the Motion must be in writing, filed with the Bankruptcy Court, and served
upon both undersigned counsel for Debtors so as to be received by 12:00 p.m. (noon), Eastern
Time on July 30, 2002.
PLEASE TAKE FURTHER NOTICE that, if any objections are timely filed and
served, a hearing on the Motion will be held on July 31, 2002 at 12:30 p.m., before the
I The Debtors are the following entities: Fansteel Inc.; Fansteel Holdings, Inc., Custom Technologies Corp., Escast, Inc., Wellman Dynamics Corp., Washington Mfg. Co., Phoenix Aerospace Corp., American Sintered Technologies,
Inc., and Fansteel Schulz Products, Inc.
27311-001 \DOCSDE:51670.1 07/26/02 7:21 PM
Honorable Joseph J. Farnan, Jr., of the United States District Court for the District of Delaware.
The hearing will be held in Courtroom 6A, J. Caleb Boggs Federal Building, 844 N. King Street,
Wilmington, Delaware 19801. Only timely filed and received written objections will be
considered by the Court at the hearing.
IF NO OBJECTIONS ARE TIMELY FILED AND SERVED IN
ACCORDANCE WITH THIS NOTICE, THE COURT MAY GRANT THE RELIEF
REQUESTED IN THE MOTION WITHOUT FURTHER NOTICE OR HEARING.
Dated: July 26, 2002
SCHULTE ROTH & ZABEL LLP Jeffrey S. Sabin (JSS 7600) 919 Third Avenue New York, NY 10022 Telephone: (212) 756-2000 Facsimile: (212) 593-5955
and
PACHULSKI, STANG, ZIEHL, YOUNG & JONES P.C.
Y aura Davis Jones (Bar No. 2436) lHamid Rafatjoo (CA Bar No. 181564) Rosalie L. Spelman (Bar No. 4153) 919 North Market Street, 16th Floor P.O. Box 8705 Wilmington, DE 19899-8705 (Courier 19801) Telephone: (302) 652-4100 Facsimile: (302) 652-4400
Co-Counsel for the Debtors and Debtors in Possession
27311-001\DOCS DE:51670.I 07/26/02 7:21 PM 2
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Chapter 11 )
FANSTEEL INC., et al., ) Case No. 02-10109 (JJF) ) (Jointly Administered)
Debtors. ) Objection Deadline: July 30, 2002 at 12:00 p.m. (noon), E.T.
Hearing Date: (Only if objections are filed) July 31, 2002 at 12:30 p.m. (noon), E.T.
NOTICE OF MOTION
TO: ALL PARTIES REQUIRED TO RECEIVE NOTICE PURSUANT TO DEL. BANKR. LR 2002-1
PLEASE TAKE NOTICE that on or about July 26, 2002, the debtors and debtors
in-possession (the "Debtors") filed with United States District Court for the District of Delaware,
824 Market Street, Wilmington, Delaware 19801 (the "Bankruptcy Court") the attached Motion
for an Emergency Order Authorizing Debtors to Enter into an Insurance Premium Financing
Agreement (the "Motion").
PLEASE TAKE FURTHER NOTICE that responses or objections, if any, to the
relief requested in the Motion must be in writing, filed with the Bankruptcy Court, and served
upon both undersigned counsel for Debtors so as to be received by 12:00 p.m. (noon), Eastern
Time on July 30, 2002.
PLEASE TAKE FURTHER NOTICE that, if any objections are timely filed and
served, a hearing on the Motion will be held on July 31, 2002 at 12:30 p.m., before the
I The Debtors are the following entities: Fansteel Inc.; Fansteel Holdings, Inc., Custom Technologies Corp., Escast,
Inc., Wellman Dynamics Corp., Washington Mfg. Co., Phoenix Aerospace Corp., American Sintered Technologies, Inc., and Fansteel Schulz Products, Inc.
27311-O01'DOCSDE:51670.1 07/26/02 7:02 PM
Honorable Joseph J. Faman, Jr., of the United States District Court for the District of Delaware.
The hearing will be held in Courtroom 6A, J. Caleb Boggs Federal Building, 844 N. King Street,
Wilmington, Delaware 19801. Only timely filed and received written objections will be
considered by the Court at the hearing.
IF NO OBJECTIONS ARE TIMELY FILED AND SERVED IN
ACCORDANCE WITH THIS NOTICE, THE COURT MAY GRANT THE RELIEF
REQUESTED IN THE MOTION WITHOUT FURTHER NOTICE OR HEARING.
Dated: July 26, 2002
SCHULTE ROTH & ZABEL LLP Jeffrey S. Sabin (JSS 7600) 919 Third Avenue New York, NY 10022 Telephone: (212) 756-2000 Facsimile: (212) 593-5955
and
PACHULSKI, STANG, ZIEHL, YOUNG & JONES P.C.
ýar Dios(BrN.236) Hlamid Rafatjoo (CA Bar No. 181564)
Rosalie L. Spelman (Bar No. 4153) 919 North Market Street, 16th Floor P.O. Box 8705 Wilmington, DE 19899-8705 (Courier 19801) Telephone: (302) 652-4100 Facsimile: (302) 652-4400
Co-Counsel for the Debtors and Debtors in Possession
27311-001 \DOCSDE:51670.1 07/26/02 7:02 PM 2
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Case No. 02-10109(JJF) )
FANSTEEL INC., et al.,' ) Chapter 11 ) (Jointly Administered)
Debtors. ) ) )
Objection Deadline: July 30, 2002 at 12:00 p.m. (noon) E.T. Hearing Date: (Only if objections are filed) July 31, 2002 at 12:30 p.m. (noon) E.T.
MOTION FOR AN EMERGENCY ORDER AUTHORIZING DEBTORS TO ENTER INTO
INSURANCE PREMIUM FINANCING AGREEMENT WITH CANANWILL, INC.
Pursuant to I 1 U.S.C § 364, §§ 101 et seq. (the "Bankruptcy Code"), Federal Rule
of Bankruptcy Procedure 4001(c) and Delaware Local Rule of Bankruptcy Procedure 4001-2, the
above-captioned debtors and debtors in possession (collectively the "Debtors") hereby move this
Court (the "Motion") for the entry of an order authorizing the Debtors to enter into an insurance
premium financing agreement (the "Premium Financing Agreement") with Cananwill, Inc.,
("Cananwill"). The Premium Financing Agreement is secured by an assignment of the Debtors'
interests in the insurance policies financed. In further support of this motion, the Debtors state as
follows:
Jurisdiction
This court has jurisdiction to consider the Motion pursuant to 28 U.S.C.
§§ 157 and 1334. This a core proceeding pursuant to 28 U.S.C. § 157(b)(2). The statutory
I The Debtors are the following entities: Fansteel Inc., Fansteel Holdings, Inc., Custom Technologies Corp., Escast, Inc., Wellman Dynamics Corp., Washington Mfg. Co., Phoenix Aerospace Corp., American Sintered Technologies, Inc., and Fansteel Schulz Products, Inc.
27311 -001 \DOCSDE:51663.1 07/26/02 7:04 PM9267431.3
predicates for relief are section 364 of the Bankruptcy Code, Bankruptcy Procedure Rule 4001(c)
and Delaware Local Rule of Bankruptcy Procedure 4001-2.
Background
1. Fansteel Inc. ("Fansteel") and the other eight Debtors (each a direct or
indirect wholly-owned subsidiary of Fansteel) have been engaged for over 70 years in the
business of manufacturing and marketing specialty metal products with today's operations being
conducted at ten manufacturing facilities (five of which are owned by Fansteel) in nine states.
Collectively, Debtors have approximately 1,250 employees, substantially all on a full time basis,
including approximately 365 employees that are working under collective bargaining agreements
with four different unions. Each Debtor is operated separately, with separate employees,
separate operations and separately maintained books and records.
2. On January 15, 2002 (the "Petition Date"), the Debtors each filed a
voluntary petition for relief under chapter 11 of the Bankruptcy Code. The Court has entered an
order pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy
Rules"), directing that the Debtors' separate chapter 11 cases (the "Bankruptcy Cases") be
procedurally consolidated and jointly administered by this Court.
3. The Debtors continue to manage their respective properties and operate
their respective businesses as debtors in possession pursuant to sections 1107(a) and 1108 of the
Bankruptcy Code.
4. On January 29, 2002, the Office of the United States Trustee for the
District of Delaware appointed an official committee of unsecured creditors (the "Committee")
27311-001\DOCS DE:51663.1 07/26/02 7:04 PM9267431.3
for these chapter 11 cases. No trustee or examiner has been appointed in any of the Bankruptcy
Cases.
Pre-Petition Unsecured Lenders
5. Prior to the Petition Date, The Northern Trust Company ("NTC"), as agent
for itself and M&I Bank ("M&I"), had extended to Fansteel a $30 million unsecured revolving
facility (the "Pre-Petition Credit Facility"), which provided for up to $20 million in revolving
advances for working capital and up to $10 million in letters of credit. Fansteel is the only
borrower under the Pre-Petition Credit Facility and none of the other Debtors has any obligations
thereunder; however, under the Pre-Petition Credit Facility, Fansteel agreed not to permit any of
its direct or indirect subsidiaries (including all of the other Debtors) to incur indebtedness or to
pledge any of their assets, subject to certain exceptions. As of the Petition Date, there was
approximately $8.5 million outstanding under the Pre-Petition Credit Facility in addition to $6.5
million in outstanding letters of credit, which includes a $3.7 million letter of credit in favor of
the NRC.2
Causes Leading to the Bankruptcy Filings
6. The operations of Debtors' respective businesses have involved
compliance with state and federal environmental laws, including the Atomic Energy Act. The
Debtors' bankruptcy cases are an outgrowth of the discontinuation of one of Fansteel's
operations that was conducted from the 1950s through 1989 at a site owned and operated by
Fansteel in Muskogee, Oklahoma (the "Muskogee Site"). At the Muskogee Site, Fansteel, in
accordance with a license obtained from the U.S. Nuclear Regulatory Commission (the "NRC")
2 There is a second letter of credit in favor of the NRC in the amount of approximately $750,000, which is not
issued pursuant to the Pre-Petition Credit Facility.
27311-001\DOCSDE:51663.1
07/26/02 7:04 PM9267431.3
in 1967, processed tantalum ore for further processing at Fansteel's plant in North Chicago.
Tantalum naturally occurs with other metals, including uranium and thorium, each of which is
radioactive, and the processing of tantalum results in, among other things, radioactive residues
and soils. Fansteel, in accordance with applicable regulations promulgated by the NRC, is
required, upon discontinuance of its business to remediate these residues and soils.
7. In 1989, Fansteel discontinued its operations at the Muskogee Site.
Notwithstanding such discontinuation, Fansteel has remained at all times in compliance with its
NRC license, and has maintained the Muskogee Site in a manner that protects the health and
safety of its employees and the public. Following its discontinuation of operations at the
Muskogee Site, Fansteel developed a method to reprocess the residues at the Muskogee Site and
to remediate the contaminated soils, and obtained the approval of the NRC for various aspects of
such reprocessing and remediation. Unfortunately, due to operational problems in the plant and
the significant decline in the price of tantalum during the second and third quarters of 2001,
operation of the reprocessing facility was determined to be uneconomic, requiring Fansteel, as a
matter of generally accepted accounting principals, in its financial statements for the quarter
ended September 30, 2001, to write off the costs that Fansteel had expended in designing and
building the reprocessing plant (approximately $32 million), and to take an immediate reserve
for the reasonably anticipated costs of remediating the radioactive residues and soils that remain
on the Muskogee Site without regard to any reprocessing (an approximately $57 million reserve).
8. Fansteel's plight was further aggravated by the actions of NTC and M&I.
In mid October 2001, Fansteel promptly informed NTC of the prospective write-off and reserve
required with respect to the Muskogee Site, and requested waivers of any events of default
arising under the Pre-Petition Credit Facility as a result thereof, as well as an amendment of the
27311-00PDOCSDE:51663.1 07/26/02 7:04 PM9267431.3
loan documents governing the Pre-Petition Credit Facility in order either to allow Fansteel
sufficient additional availability under the Pre-Petition Credit Facility or to allow Fansteel's
subsidiaries to borrow funds on a secured basis which, in either case, would have provided the
Debtors with sufficient liquidity to avoid a bankruptcy filing. However, NTC refused these
requests and, on November 19, 2001, accelerated the Pre-Petition Credit Facility, froze all of the
Debtors' accounts that were maintained at NTC and M&I and set-off amounts owed under the
Pre-Petition Credit Facility against those accounts. As a result of the freeze and such set-off, the
Debtors no longer had access to the funds necessary to operate their respective businesses and a
bankruptcy filing became inevitable.
Post-Petition Credit Facilities
9. Because Debtors were not able to obtain more traditional financing, on or
about January 15, 2002, Debtors filed an emergency motion for interim and final approval of
debtor in possession financing provided by insiders (the "HBD DIP Facility"). Through the
HBD DIP Facility, Debtors sought an order approving interim postpetition financing of $500,000
and final approval of financing up to $3,000,000. On January 17, 2002, the Court entered an
order approving the HBD DIP Facility on an interim basis. On February 8, 2002, the Court
entered an order granting final approval of the HBD DIP Facility.
10. After the Petition Date, Debtors entered into negotiations with Congress
Financial Corporation (Central) ("Congress") regarding debtor in possession financing (the
"DIP Financing"). After extensive negotiations the Debtors reached an agreement for the DIP
Financing with Congress. This court entered an order "Authorizing Debtors to Incur Post
Petition Debt, Grant Liens and Provide Other Security and Other Relief to Congress Financial
Corporation (Central)" on May 21, 2002 (the "DIP Order").
27311 -001\DOCSDE:51663.1 07/26/02 7:04 PM9267431.3
11. Pursuant to the DIP Order, Congress has a first priority liens (subject to
limited carveouts and limited liens outlined in the DIP Order) on substantially all of the Debtors'
assets including without limitation all accounts and inventory and proceeds thereof. Congress
was granted a superpriority lien under section 364(c)(1) of the Bankruptcy Code, giving it
priority over any and all administrative expenses of the kind specified in sections 503(b),
507(a)(1) and 507(b) of the Bankruptcy Code, and any other superpriority claims.
12. Congress, as the post-petition lender, has consented to this Premium
Financing Arrangement and has agreed to subordinate any liens or claims it may have pertaining
to the insurance policies covered by the such agreement, to Cananwill's claims pursuant to the
Premium Financing Agreement.
Insurance Policies
13. In connection with the day-to-day operations of their businesses, the
Debtors maintain a wide variety of insurance policies because such policies are either required
by law or are in the best interest of the Debtors' operations.
14. The Premium Financing Agreement covers four insurance policies, all of
which are part of an insurance program that has been in place for many years (the "Insurance
Coverage"). The Insurance Coverage insures: Fansteel, Schulz Products, Inc. ("Schulz"), Escast,
Inc. ("Escast"), Washington Mfg. Co. ("Washington"), Wellman Dynamics Corp. ("Wellman"),
and American Sintered Technologies, Inc. ("AST") 3, and is essential to both the ongoing
operations of the Debtors and their reorganization efforts.
3 The estimated allocation of the insurance premiums between the Debtors is outlined in Exhibit A, attached hereto.
27311-001\DOCSDE:51663.1 07/26/02 7:04 PM9267431.3
15. The Insurance Coverage includes:
(a) a workers compensation policy that provides medical and lost wage payments to injured employees of the Debtors as required by various state statutes (the "Workers Compensation Policy");
(b) an automobile liability policy that protects the Debtors against legal liability arising the ownership, maintenance and use of automobiles and other highway licensed vehicles (the "Automobile Policy");
(c) a general liability insurance policy that protects the Debtors against legal liability for damage to property of others, or bodily injury to members of the public arising out of the Debtors' operations or products (the "General Policy"); and
(d) an umbrella liability policy, which increases the primary limits provided under the above policies to a level commensurate with adequate protection of the Debtors' corporate assets (the "Umbrella Policy").
16. The Debtors are unable to obtain comparable insurance policies because of
the current markets conditions and the Debtors financial status. Therefore renewing the
Insurance Coverage is the most viable and best alternative.
17. To obtain the Insurance Coverage the Debtors are required to prepay the
full premium for the applicable coverage period in the aggregate amount of $911,841.00. This
requirement to prepay the full premium places a significant financial burden on the Debtors.
Included in this figure are premiums for the Workers' Compensation Policy of $493,037.00,
premiums for the Automobile Policy of $57,037.00, premiums for the General Policy of
$226,814.00, and premiums for the Umbrella Policy of $134,953.00.
18. In order to pay for the Insurance Coverage, which is necessary for an
effective reorganization, the Debtors have unsuccessfully attempted to obtain unsecured credit as
required under 11 U.S.C. §364.
27311-001 \DOCS DE:51663.1 07/26/02 7:04 PM9267431.3
19. Although the Debtors could borrow under the DIP Financing to pay the
premiums for the Insurance Coverage, the Premium Financing Agreement provides better
financial terms because the interest rate in the Premium Financing Agreement is lower than that
of the DIP Financing.
20. To lessen this burden, Cananwill agreed to finance the payment of the
premiums for the Insurance Coverage (collectively the "Premiums") pursuant to a Premium
Financing Agreement, a copy of which is attached hereto as Exhibit Band incorporated herein by
reference.
21. The Premium Financing Agreement does not contain any of the provisions
or terms described in Delaware Local Bankruptcy Rule 4001-2(a)(i).
22. Under the Premium Financing Agreement, the Debtors are required to
make a down payment towards the Premiums of $319,144.00. The balance of the Premiums,
$592,697.00, will be financed by Cananwill. The Debtors will be obligated to repay Cananwill
the amount financed, with interest at 4.67% per annum, in seven monthly installments
commencing on August 1, 2002. The total interest paid under the Premium Financing
Agreement will be approximately $9,267.12.
23. The Premium Financing Agreement provides that the Debtors grant
Cananwill a power of attorney, which allows Cananwill to cancel the Insurance Coverage
financed under the Premium Financing Agreement in the event of a default in payment by the
Debtors. To secure payment of amounts due to Cananwill under the Premium Financing
Agreement, the Debtors also grant to Cananwill a security interest in unearned or returned
27311 -O01 \DOCS DE:51663A1 07/26/02 7:04 PM9267431.3
premiums and other amounts due to the Debtors under the Insurance Coverage that result from
the Insurance Coverage's cancellation.
24. Cananwill has agreed to finance the payment of the Insurance Coverage
under the Premium Financing Agreement provided that this court enters an order containing the
following provisions:
(a) The Debtor's entering into and performing under the Premium Financing Agreement is approved and Cananwill's security interest granted by the Debtors in the Premium Financing Agreement is approved and recognized;
(b) If the Debtors defaults on any payment due and owing under the Premium Financing Agreement, Cananwill way cancel the Insurance Coverage financed after giving any notice required by applicable state law, and may apply any unearned or return premiums due under the Insurance Coverage to any amount owing by Debtors to Cananwill without further application to the bankruptcy court; and
(c) In the event that upon cancellation of the Insurance Coverage financed by Cananwill, the unearned or return premiums are insufficient to pay Debtors' total amount due to Cananwill under the Premium Financing Agreement, then any remaining amount owing to Cananwill, including reasonable attorneys fees, shall be given priority as an administrative expense under 11 U.S.C. §503 in any distribution of assets of the estate.
25. The Debtors believe that it is in the best interests of the estates and the
Debtors' creditors that this motion be granted.
Request for Authority to Enter Into the Premium Finance Agreement
26. To ensure that (a) the Insurance Coverage is not interrupted and (b) the
Debtors are not forced to procure replacement insurance coverage on less favorable terms and
conditions, the Debtors request authority to enter into the Premium Financing Agreement.
27. The Insurance Coverage is essential to the Debtors' ongoing operations
and to protect the Debtors' assets for the benefit of their respective bankruptcy estates. Any
interruption in the Insurance Coverage would expose the Debtors to serious risks associated with
27311--001\DOCSDE:51663.1 07/26/02 7:04 PM9267431.3
lapses in coverage, including (a) direct liability for payment of claims that otherwise would have
been payable by the insurers providing the Insurance Coverage and (b) possible fines and other
consequences that may arise in connection with failure to maintain insurance coverage required
by law. The Debtors therefore submit that maintaining continued and uninterrupted insurance
coverage under the favorable terms and conditions provided by the Premium Financing
Agreement is in the best interest of the Debtors, their bankruptcy estates and their creditors.
28. As outlined above, one of the conditions of the Premium Financing
Agreement is that, in the event of a post-petition default by the Debtors, Cananwill is authorized
to receive and apply any unearned or return Premiums. The Debtors believe that these terms are
reasonable given the financing provided by Cananwill.
29. The Debtors, in their business judgment, submit that the terms of the
Premium Financing Agreement are reasonable. Because the Premium Financing Agreement will
allow the Debtors to maintain the Insurance Coverage without requiring that the Debtors pay the
entire amount of the Premiums now, the Debtors submit that the Premium Financing Agreement
is in the best interest of the Debtors' respective bankruptcy estates.
30. The Debtors will serve this notice on all interested parties pursuant to
Delaware Local Rule of Bankruptcy Procedure 2002-1.
[remainder of page intentionally left blank]
27311-001 \DOCSDE:51663.1 07/26/02 7:04 PM9267431.3
WHEREFORE, the Debtors respectfully request that this Court enter an Order: (i)
authorizing the Debtors to enter into the Premium Financing Agreement and to comply with the
terms of the Premium Financing Agreement, including the obligation to make the required down
payment; and (ii) granting the Debtors such other and further relief as the Court deems just and
proper.
Dated: July 26, 2002 SCHULTE, ROTH & ZABEL LLP Jeffrey S. Sabin (JSS-7600) 919 Third Avenue New York, New York 10022 Telephone: (212) 756-2000 Facsimile: (212) 593-5955
and
PACHULSKI, STANG, ZIEHL, YOUNG & JONES P.C.
Rosalie L. Spelman (Bar No. 4153) 919 North Market Street, 16th Floor
P.O. Box 8705 Wilmington, Delaware 19899-8705 (Courier 19801) Telephone: (302) 652-4100 Facsimile: (302) 652-4400
Counsel for Fansteel, Inc., et al., Debtors and Debtors in Possession
27311 -001 \DOCSDE:51663.1 07.26/02 7:04 PM9267431.3
EXHIBIT A
Estimated Allocation of Insurance premium
Total Fansteel Schulz Escast Washington Wellman AST
Dollar Totals:
Workers Compensation 493,037 165,661 21,201 19,721 78,886 150,376 57,192
Automobile 57,037 42,093 1,141 4,734 3,194 4,734 1,141
General liability 226,814 136,541 2,949 20,186 16,331 35,837 14,970
Umbrella 134,953 81,241 1,754 12,011 9,717 21,323 8,907
911,841 425,536 27,045 56,652 108,128 212,270 82,210
Percentages:
Workers Compensation 100.0% 33.6% 4.3% 4.0% 16.0% 30.5% 11.6%
Automobile 100.0% 73.8% 2.0% 8.3% 5.6% 8.3% 2.0%
General liability 100.0% 60.2% 1.3% 8.9% 7.2% 15.8% 6.6%
Umbrella 100.0% 60.2% 1.3% 8.9% 7.2% 15.8% 6.6%
27311-001 \DOCSDE:51663.1 07/26/02 7:04 PM9267431.3
Exhibit B The Premium Financing Agreement
2731 -001 \DOCSDE:51663.1 07/26/02 7:04 PM9267431.3
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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: ) Case No. 02-10109(JJF) )
FANSTEEL INC., et al.,1 ) Chapter 11 ) (Jointly Administered)
Debtors. ) ) )
ORDER AUTHORIZING DEBTORS TO ENTER INTO AN INSURANCE PREMIUM FINANCING AGREEMENT WITH CANANWILL. INC.
This matter having come before this Court on the "Motion for an Order
Authorizing the Debtors to Enter into an Insurance Premium Financing Agreement with
Cananwill, Inc." (the "Motion") 2, pursuant to 11 U.S.C. 364, §§ 101 et seq. (the "Bankruptcy
Code"), Federal Rule of Bankruptcy Procedure 4001(c) and Delaware Local Rule of Bankruptcy
Procedure 4001-2; and this Court having reviewed the Motion and the relief requested in the
Motion at a hearing before the Court (the "Hearing"); and this Court having determined that the
legal and factual bases set forth in the Motion establish just cause for the relief granted herein;
and this court having determined that notice of the Motion was sufficient under the
circumstances.
IT IS HEREBY ORDERED AS FOLLOWS:
(i) the Motion is granted in its entirety and the Debtors may enter into and
perform under an the Premium Financing Agreement, substantially in the form attached hereto;
1 The Debtors are the following entities: Fansteel Inc., Fansteel Holdings, Inc., Custom Technologies Corp., Escast, Inc.,
Wellman Dynamics Corp., Washington Mfg. Co., Phoenix Aerospace Corp., American Sintered Technologies, Inc., and Fansteel Schulz Products, Inc.
2 All terms not defined herein are defined in the Motion.
27311-001\DOCS DE:51663.1 07/26/02 7:04 PM9267431.3
(ii) in the event Debtors defaults in the timely repayment of any monies due to
Cananwill under the terms of the Premium Financing Agreement, Cananwill may cancel the
insurance polices ("Insurance Coverage") financed under the Premium Financing Agreement,
after giving any notice required by applicable state law, and Cananwill may apply any unearned
or return premiums or other amounts due to Debtors upon cancellation of the Insurance Coverage
to any amount owing by Debtors to Cananwill, all without further application to or order of this
Court;
(iii) in the event that Insurance Coverage financed by Cananwill is cancelled,
the unearned or return premiums received by Cananwill are insufficient to pay the Debtors' total
amount due to Cananwill, any remaining amount owing to Cananwill, including reasonable
attorneys fees, shall be allowed and given priority as an administrative expense under section
503 of the Bankruptcy Code in any distribution of assets of the estate;
(iv) the Debtors are authorized and directed to execute and deliver such
documents and amendments to the Premium Financing Agreement, as Debtors may deem
necessary or desirable to carry out this Order;
(v) the reversal or modification on appeal of the authorization under this
Order and Section 364 of the Bankruptcy Code shall not effect the validity of the debt, priority,
or lien granted to Cananwill under this Order, as provided by section 364(e) of the Bankruptcy
Code;
(vi) upon occurrence of a default by the Debtors under the terms and
conditions of the Premium Financing Agreement and applicable law, no action shall be taken to
hinder, impede, or delay exercise by Cananwill of its rights and remedies under the Premium
27311-001\DOCSDE:51663.1 07/26/02 7:04 PM9267431-3
Financing Agreement and applicable law, including but not limited to an action under the
Bankruptcy Code or otherwise to enjoin exercise by Cananwill of such rights; and
(vii) this Order shall be binding on the Debtors and their estates, and all
successors and assigns of the Debtors and their estates, including but not limited to any trustee
appointed in the Debtors' bankruptcy case under chapter 7 or chapter 11 of the Bankruptcy Code.
Cananwill's rights under the Premium Financing Agreement and applicable state law shall not be
impaired by this bankruptcy proceeding, the appointment of a trustee, the conversion of this
proceeding to one under Chapter 7 of the Bankruptcy Code, or any other provision of the
Bankruptcy Code.
Dated: July_, 2001 Wilmington, Delaware
The Honorable Joseph J. Farnan, Jr.
United States District Court Judge
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