motion of debtors to shorten notice of time period and to approve … · 2020-01-05 · motion, the...

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

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-3-




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.



and


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


27311-001\DOCS DE:51670.I 07/26/02 7:21 PM 2




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.



and


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


27311-001 \DOCSDE:51670.1 07/26/02 7:02 PM 2



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")

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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").

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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


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 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.

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(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

27311-001 \DOCSDE:51663.1 07/26/02 7:04 PM9267431.3

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