Document z2yn2eKndkmR9j1kRe1ZZ4k6

IN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA IN RE: NORTH AMERICAN REFRACTORIES COMPANY, ETAL., Debtor. NORTH AMERICAN REFRACTORIES COMPANY, ETAL., Movant, v(NO RESPONDENT). ------- ---------- ) In Proceedings for a ) Reorganization under ) Chapter 11 ) ) ) Case No. 02- ) ) ) Motion No. OL -'Outf ) ) } ) )) x MOTION OF DEBTORS FOR AUTHORITY TO (1) OBTAIN POST-PETITION FINANCING, (2) GRANT LIENS AND ADMINISTRATIVE EXPENSE STATUS, AND (31 ENTER INTO AGREEMENT WITH HONEYWELL The above-captioned debtors and debtors in possession (collectively, the "Debtors") hereby move the Court for authority to enter into an agreement with and obtain post-petition financing from Honeywell. In support of this Motion, the Debtors respectfully represent as follows: Jurisdiction 1. On January 4,2002 tbe Debtors commenced their respective reorganization cases by filing voluntary petitions for relief under chapter 11 of the Bankruptcy Code, 11 U.S.C. 101-1330 (the "Bankruptcy Code"). 2. The Debtors are continuing in possession oftheir respective properties and are operating and managing their businesses, as debtors in possession, pursuant to sections 1107 and 1108 of the Bankruptcy Code. 3. The Court has jurisdiction over this matter pursuant to 28 U.S.C. 157 and 1334. This is a core proceeding pursuant to 28 U.S.C. 157(b)(2). Factual Background 4. The Debtors are the manufacturers ofa full line of clay and non-clay refractory products used in the steel industry to line industrial furnaces. Refractory materials are specially designed and manufactured to be both chemically and physically stable at extremely high temperatures to support heat-processing and steel handling applications. 5. The Debtors conduct operations in several states and have about 790 employees. The Debtors are headquartered in Pittsburgh, Pennsylvania and also operate industrial plants located in Indiana Hills and lone, California; Gary, Indiana; South Shore, Kentucky; White Cloud, Michigan; and Cincinnati, Ohio. 6. The Debtors' business has been significantly impacted by the downturn in the steel industry, which is the primary market for the Debtors' products. As more ofthe Debtors' steelproducing customers have encountered financial problems, the demand for refractory products has declined considerably, resulting in financial difficulties for the Debtors as well. 7. In addition to the negative effects flowing from the downturn in the steel industry, the Debtors' current economic situation has been strained by a massive number ofasbestos-related litigation cases which target the Debtors as defendant Because the Debtors' products formerly included asbestos, the Debtors, like other former producers ofasbestos-containing products, have been overwhelmed by the claims of individuals who assert that they have been injured by exposure to asbestos or asbestos-containing products. The Debtors estimate that more than 100,000 asbestos claims may currently be pending against them. The cost and effect upon the 2 Debtor's business operations ofdefending and resolving these asbestos claims is overwhelming and consuming. Pre-Petition Relationship of the Debtors and Honeywell 8. Prior to January 17, 1986, a portion ofthe refractory business currently owned by North American Refractories Coip. ("NARCO") was an unincorporated division ofa predecessor to Honeywell International Inc. ("Honeywell")9. In 1986, in connection with the sale ofthe NARCO business, Honeywell agreed to indemnify NARCO, with certain exceptions, for any liability associated with asbestos-containing products manufactured and sold by the NARCO business prior to January 17, 1986 and that constituted "Discontinued Products" as defined in the agreement granting the indemnity, as such indemnity has been amended to date (the "Honeywell Indemnity"). 10. There is a significant dispute between Honeywell and NARCO relating to which products are Discontinued Products, the scope ofthe Honeywell Indemnity, and the respective rights and obligations ofHoneywell and NARCO with respect to pending and future claims arising from the NARCO business. 11. As previously described, NARCO is a defendant in numerous personal injury actions related to (a) Discontinued Products, (b) NARCO products that were continued after January 17, 1986, and (c) NARCO products manufactured and sold for the first time after January 17,1986, and NARCO expects similar actions to be asserted in the future (the "NARCO Actions"). Honeywell is a defendant in some of the NARCO Actions. 12. Prior to January 1,2001, Honeywell and NARCO, by agreement, shared in the costs of the defense and/or settlement of all cases. NARCO's obligation to make certain payments in connection with the Honeywell Indemnity is hereinafter referred to as the "NARCO Contribution." Honeywell contends that since January 1,2001. NARCO has not performed its obligations with respect to the NARCO Contribution, and NARCO contends that it has a claim for an overpayment of the NARCO Contribution for years prior to 2001. 13. Notwithstanding this dispute, with a full reservation ofrights since January 1,2001, Honeywell has undertaken the defense ofNARCO Actions filed against NARCO, including those that allege liability arising out ofthe manufacture and sale ofproducts that Honeywell believes are not covered by the Honeywell Indemnity. 14. Prior to the bankruptcy filing, Honeywell indicated to the Debtors that it was unwilling to continue the entire defense ofNARCO Actions in light ofthe significant disputes between the parties as to the Honeywell Indemnity. In addition, Honeywell informed the Debtors that it would seek contribution from NARCO for amounts which Honeywell alleged was owed to it by NARCO as required by the NARCO Contribution. 15. Prior to the Filing Date, Honeywell and NARCO evaluated many options for resolving their disputes and managing the asbestos litigation. They agreed that the only way to achieve a fair, orderly, timely and efficient disposition and payment of all valid current and future claims against the NARCO business would be a Chapter 11 filing by NARCO, whereby a plan ofreorganization would be approved which would include, among other things, a channelling injunction under 524(g) ofthe Bankruptcy Code, and the creation ofa trust for the payment ofpresent and future asbestos claims. 16. The purpose ofthe bankruptcy filing is to restructure and strengthen the business operations of the Debtors, while utilizing the channeling injunction provided by 11 U.S.C. 524(g) to provide a central forum and mechanism for resolving and providing for the asbestos claims. XYK 747S35-I 017354 00!$ 4 Financing Requirements 17. Prior to the Filing, the Debtors were able to operate their business without a line of credit or any other type of secured financing. 18. The Debtors have conducted a lien search and, except for nominal financed equipment, the Debtors' property is unencumbered. 19. The Debtors have undertaken an extensive evaluation of their business and financing needs. The Debtors have determined that a line of credit, in an amount not to exceed $20,000,000.00 (the "Loan"), is necessary in order meet their operating expenses and continue operating their businesses during the bankruptcy case, with the ultimate goal ofrehabilitating their business and proposing a plan of reorganization. 20. The Debtors have engaged in extensive negotiations with Honeywell regarding post petition financing. 21. Honeywell has indicated its willingness, through its affiliate Jan 2002 Funding LLC (the "DIP Lender"), to provide financing, upon the terms and conditions contained herein. Honeywell is prepared to begin funding the line of credit immediately upon this Court's approval ofthe transaction described in this Motion and upon the terms set forth in the proposed order included as Exhibit E. Terms of the Financing 22. Prior to the Filing, NARCO, Honeywell and the parent company ofNARCO, RHI Refractones Holding Company {"RHI") executed agreements relating to post-petition financing for the Debtors and other financial accommodations between the parties. A copy of the agreement between NARCO and Honeywell is attached as Exhibit B (the "NARCO NYK 74783;-! 03'3S4 0018 5 Agreement")- A copy of the agreement between RHI and Honeywell is attached as Exhibit C (the "RHI Agreement"). 23. The Debtors and Honeywell have agreed upon the terms ofpost-petition financing to be provided by the DIP Lender (the "DIP Facility"). 24. The terms ofthe DIP Facility are set forth in the Debtor-In-Possession Credit Agreement between NARCO and Honeywell (the "DIP Loan Agreement"), a final but unexecuted copy ofwhich is attached hereto as Exhibit D (excluding exhibits, copies ofwhich will be provided upon request). 25. In order for the DIP Lender to advance funds pursuant to the DP Credit Agreement, the Debtors must, among other things: a. Grant the DP Lender, pursuant to 11 U.S.C. 364(cX2), a first priority lien on the cash collateral, inventory and accounts receivable assets ofthe Debtors (the "Collateral"). Additional collateral must be pledged in the event that the value ofthe eligible receivables and eligible inventoiy fall below a defined level. b. Have an interim and then final order entered in this case in substantially the same form as the order attached as Exhibit E (the "Order"). c. Grant the DP Lender first priority administrative expense status, as permitted by 11 U.S.C. 364(cXl), over all administrative expenses specified in 11 U.S.C. 503(b) or 507(b), subject to the carve-out described in paragraph 4 of the Order. d. Seek, by means of an adversary proceeding in form and substance satisfactory to Honeywell, an injunction under Bankruptcy Code 362 and 105 to stay any litigation against Honeywell arising out of the NARCO business (the "Honeywell Actions"). 26. The DP Credit Agreement and Order can be generally outlined as follows: NYK 747S33-1 037354 001? 6 Borrower. NARCO shall be the borrower and each ofthe other Debtors shall be a guarantor. Amount ofDIP Loan. The advances to NARCO shall not exceed $20,000,000, exclusive of interest and other fees and charges. Use ofProceeds: Borrowings by NARCO under the Loan shall be subject to and in accordance with a budget reasonably approved by the DIP Lender. Term ofDIP Loan. Upon satisfaction ofthe conditions precedent described in the DIP Financing Agreement, the Loan shall be immediately available to NARCO. The DIP Credit Agreement and the Loan shall terminate and payment in full shall be required, after the applicable notice and cure period, upon any ofthe following events (`"NARCO Termination Events"): (a) Exceeding the Budget, in any month, by more than 10%; (a) Failure by NARCO to fulfill its obligations under the DIP Financing Agreement; (b) Failure by RHI to fulfill its obligations under the RHI Agreement; (c) Entry of an order dismissing this Case or converting it to a case under Chapter 7 of the Bankruptcy Code; (d) Entry, in this case, ofan order appointing a trustee or a responsible officer or an examiner with enlarged powers relating to the operation ofNARCO's business (beyond those set forth in Bankruptcy Code 1106(a)(3) or (4)) under Bankruptcy Code 1106(b); (e) After the tennination ofNARCO's exclusive right to file a plan of reorganization or to solicit acceptances to a plan, a plan ofreorganization is proposed by NARCO or any other entity that is unsatisfactory to Honeywell in its sole discretion. In the event that Honeywell elects to terminate its obligations to make any further payments to RHI pursuant to the RHI Agreement, NARCO shall have a period of90 days in which to obtain replacement DIP Financing, and during such interim period the DIP Lender shall continue to fund under the DIP Commitment and DIP Orders as ifno NARCO Termination Event had occurred. Interest. The DIP Loan shall bear interest on the principal amount at a rate per annum equal to the sum of the LIBO Rate as in effect from time to time plus 2 lA%. Upon termination, the interest rate is increased to the sum ofthe LIBO Rate as in effect from time to time plus 4%. Fees. An upfront administrative fee and annual administrative fees, as specified in the Credit Agreement, shall become due and payable on the Termination Date or such earlier date on which such fees become due and payable on account of acceleration or otherwise. Repayment Terms: Periodic principal and interest payments are not required because all fees and interest payable by the Debtors are accrued and become due and payable upon the occurrence ofspecified events, as described in the DIP Financing Agreement. Lien for DIP Financing. The DIP Lender will be granted first priority security interest and liens, superior to all other creditors ofthe Debtors' estates and all other liens granted by the Debtors, in and upon the Debtors' cash collateral inventory and accounts receivable and the proceeds of such (the "DIP Collateral"). "). Additional collateral must be pledged in the event that the value ofthe eligible receivables and eligible inventory fall below a defined level. The Debtors must also provide a negative pledge oftheir remaining property. Administrative Priority Claim. In addition to the DIP Collateral, die claims ofthe DIP Lender shall be allowed an administrative priority claim under Bankruptcy Code 507(b) over all other expenses of administration ofthe Debtors' cases, excluding professional fees as described in paragraph 4 ofthe Order. Administrative Agent JPMorgan Chase Bank will be providing all administrative services for the Credit Agreement The rights, remedies and obligations ofthe Administrative Agent are detailed in the DIP Credit Agreement, the Agency Agreement and other Loan Documents. Potential Cancellation/Forgiveness of Amounts due under DP Loan: Upon confirmation and substantial consummation ofa plan acceptable to Honeywell in its sole discretion, the Debtors' obligations to repay the Loan shall be cancelled and forgiven. At a minimum, a plan that is acceptable to Honeywell must provide for a channeling injunction pursuant to Section 524(g) of the Bankruptcy Code in form and substance satisfactory to Honeywell in its sole discretion that enjoins any future litigation against Honeywell or any affiliate (or any insurer thereof) in respect ofthe NARCO Actions and the Honeywell Actions, but Honeywell shall retain sole and absolute discretion and approval with respect to the amount and timing ofany payment or other contribution to the Plan made by or on its behalf. Legal Analysis 27. Section 364(c), ofTitle 11 ofthe United States Code, provides: (c) Ifthe trustee is unable to obtain unsecured credit allowable under section 503(bXl) ofthis title as an administrative expense, the court, after notice and a hearing, may authorize the obtaining ofcredit or the incurring ofdebt -1 (1) With priority over any or all administrative expenses ofthe kind specified in section 503(b) or 507(b) ofthis title; VYK 747&1M 017354 0018 8 (2) Secured by a lien on property ofthe estate that is not otherwise subject to a lien; or (3) Secured by a junior hen on property ofthe estate that is subject to a lien28. The Debtors are unable to obtain credit and the DIP Lender is unwilling to lend funds on an unsecured basis allowable under 11 U.S.C. 503(bXl). 29. The Debtors are unable to obtain credit on any more favorable basis than that offered by the DP Lender under the DP Credit Agreement 30. The Debtors intend to use the DP Financing to fund operations in accordance with a Budget attached to the DP Credit Agreement. The Debtors believe that the DP Financing will provide them with adequate resources to meet all post-petition obligations as and when they become due. 31. Continued operation ofthe Debtors' businesses is in the best interest ofthe Debtors' estates. Specifically, continued operation will preserve the going concern value and provide the prospect of a greater potential recovery for creditors than would an immediate termination and liquidation ofthe Debtors' businesses. Continued operation ofthe Debtors' businesses and maintenance ofthe value ofthe Debtors' assets can only be accomplished with the use ofDP Facility. 32. The DP Credit Agreement has been negotiated by the Debtors and Honeywell and the DP Lender in good faith and at arms length and the Debtors believe that the Loan is in the best interest of the Estate. The terms ofthe DP Credit Agreement are fair and reasonable, reflect the Debtors' exercise of prudent business judgment consistent with their fiduciary duties, and are supported by reasonably equivalent value and fair consideration. COUNT I INTERIM RELIEF PURSUANT TO BANKRUPTCY RULE 4001 (cX21 33. The allegations contained in paragraphs 1 - 32 are incorporated by reference. 34. The Debtors must borrow, on an interim basis, funds sufficient to meet their operating expenses during the next 30 days, pending a final hearing on the Motion. 35. The Debtors anticipate that they may require immediate access to cash, from the Loan, in the amount of$5,500,000.00 (the "Interim Borrowing Amount"). This amount is based upon projected expenses for the month ofJanuary, 2002, as reflected on the Budget 36. The need for immediate access to the Interim Borrowing Amount is based upon the need to restore and maintain proper raw material inventory levels, the potential requirement to provide adequate assurance to utility providers, and the necessity to make certain payments to vendors, employees and other critical persons, all of which is the subject of separate motions pending before this Court. 37. Without the Interim Borrowing Amount, the Debtors will be unable to operate their businesses, maintain the continuity ofbusiness and maintain appropriate raw material levels and immediate and-irreparable harm will result 38. Rule 4001 (cX2) ofthe Federal Rules ofBankruptcy Procedure states drat the court "may commence a final hearing on a motion for authority to obtain credit no earlier than 15 days after service ofthe motion." Fed.R.Bankr.P. 4001(c)(2). At the request of a moving party, the court may conduct an interim hearing to avoid irreparable harm to the estate. Id. 39. As permitted by Bankruptcy Rule 4001(c)(2), the Debtors request a hearing before the 15-day notice period expires in order to avoid immediate and irreparable harm to the estates pending a final hearing. NYK747S33-! 037354 00IS 10 RELIEF REQUESTED TN COUNT J WHEREFORE, the Debtors ask the Court to provide the following interim relief: a. Authorize the Debtors to borrow money and seek other financial accommodations from the DIP Lender on an interim basis up to an aggregate amount of$5,500,000 .00, which is the amount necessary to avoid immediate and irreparable harm, on the terms and conditions stated in the DP Credit Agreement, pursuant to 11 U.S.C. 364(cXl) and (cX2). b. Enter an interim order in substantially the form as the Order attached as Exhibit E to Hus Motion; c. Authorize the Debtors to grant the DP Lender and/or the Administrative Agent a first priority security interest, pursuant to 11 U.S.C. 364(c)(2), in the Collateral pursuant to the terms and provisions ofthe DP Credit Agreement; d. Grant the DP Lender and/or the Administrative Agent first priority administrative expense status, as permitted by 11 U.S.C. 364(cXl), over all administrative expenses specified in 11 U.S.C. 503(b) or 507(b), subject to the carve-out described in paragraph 4 of the Order. e: Authorize the Debtors to execute those documents necessary to effectuate the transaction contemplated by this Motion and perform their obligations to the DP Lender imposed thereby; f. Grant a final hearing on this Motion; and g. Grant such other and further relief as is just under the circumstances; NYK 747833-1 037354 0018 11 COUNTn FINAL RELIEF PURSUANT TO BANKRUPTCY RULE 4001 fcX2) 40. The allegations contained in paragraphs 1 - 32 are incorporated by reference. 41. The Debtors filed their Chapter 11 petition to facilitate in the reorganization ofthenfinancial affairs. Based upon the Debtors budget, in order to maintain appropriate raw material levels and continue business uninterrupted, it must have Debtor in Possession financing as contemplated by the DIP Credit Agreement RELIEF REQUESTED IN COUNT H WHEREFORE, the Debtors ask the Court to provide the following final relief: a. Authorize the Debtors to borrow money and seek other financial accommodations from the DIP Lender in the principal amount of520,000,000, in the form of a line ofcredit, on the terms and provisions stated in the DP Credit Agreement, pursuant to 11 U.S.C. 364(c)(2) and (c)(3); b. Enter a final order in substantially the form as the Order attached as Exhibit E to this Motion; c. Authorize the Debtors to grant the DP Lender and/or the Administrative Agent a first priority security interest, pursuant to 11 U.S.C. 364(cX2), in the Collateral pursuant to the terms and provisions of the DP Credit Agreement; d. Grant the DP Lender and/or the Administrative Agent first priority administrative expense status, as permitted by 11 U.S.C. 364(c)(1), over all administrative expenses specified in 11 U.S.C. 503(b) or 507(b), subject to the carve-out described in paragraph 4 of the Order. NYK 74783.'-! 037354 0018 12 e. Authorize the Debtors to execute those documents necessary to effectuate the transaction contemplated by this Morion and perform their obligations to the DIP Lender imposed thereby; f. Giant such other and further relief as isjust under the circumstances; Notice 42. No trustee or examiner has been appointed in these chapter 11 cases. The Debtors will serve motion and notice ofhearing on the creditors holding the twenty (20) largest unsecured claims against the Debtors on a consolidated basis, counsel for Honeywell and the DIP Lender, counsel for the Administrative Agent and the United States Trustee. Dated: January 4,2002 Respectfully submitted. 3 X' Paul M. Singer (PAM). #00286) David Ziegler (PA LD. #37527 Amy M. Tonti (PA ID. #33468) REED SMITH LLP 435 Sixth Avenue Pittsburgh, PA 15219 (412)288-3114/3026 ATTORNEY FOR DEBTORS AND DEBTORS IN POSSESSION \YK 747833-1 037354 0018 13 See CD For Balance Documents