<PAGE>   1
                                                                    EXHIBIT 10.1


                        BANKAMERICA BUSINESS CREDIT, INC.



                                                              September 29, 1998

Acme Metals Incorporated
13500 S. Perry Avenue
Riverside, Illinois  60627-1182

Attention:  Jerry F. Williams
            Chief Financial Officer


                   Re:  DIP Financing Commitment

Dear Sirs:

                You have advised BankAmerica Business Credit, Inc. ("BABC") that
Acme Metals Incorporated, a Delaware corporation (the "Company"), and its
subsidiaries (the "Subsidiaries" and together with the Company, the "Borrowers")
have filed a petition under chapter 11 of title 11 of the United States Code
(the "Bankruptcy Code"). In connection with the Borrowers' bankruptcy filing,
BABC is pleased to advise you that it is willing, subject to the terms and
conditions of this letter agreement, to provide the Borrowers, as debtors in
possession, with a revolving credit facility (the "Permanent Facility")
providing for extensions of credit in an amount (the "Commitment Amount") not to
exceed $100,000,000 in the form of revolving credit loans and letters of credit.
BABC would act as agent (the "Agent") for itself and one or more other lenders
acceptable to BABC (together with BABC, as a lender, the "Lenders") under the
Financing Facility (as hereinafter defined). The amount available at any time
for revolving credit loans and letters of credit under the Permanent Facility
shall be the excess (the "Available Amount") of (x) the lesser of the Borrowing
Base (as defined in the Term Sheet (as hereinafter defined)) and the Commitment
Amount over (y) the sum of (i) the undrawn amount of issued and outstanding
letters of credit under the Financing Facility, (ii) the amount of drawn letters
of credit under the Financing Facility for which there has been no
reimbursement, (iii) the then outstanding revolving credit loans under the
Financing Facility and (iv) reserves instituted by the Agent in its reasonable
discretion (including, without limitation, a $2,000,000 reserve for professional
fees). The undrawn amount of issued and outstanding letters of credit under the
Financing Facility plus the amount of drawn letters of credit under the
Financing Facility for which there has been no reimbursement shall not exceed
$5,000,000 at any time.



                                       -1-

<PAGE>   2



                Although BABC's commitment is for the Permanent Facility, BABC
understands that the Bankruptcy Code and the applicable rules under the Federal
Rules of Bankruptcy Procedure require the approval of the Permanent Facility by
the United States Bankruptcy Court (the "Court") in the Borrowers' chapter 11
case (the "Case") upon notice to those creditors and parties in interest that
the Court may direct. Therefore, BABC is willing, subject to the terms and
conditions of this letter agreement, to extend credit on an interim basis (the
"Interim Facility" and together with the Permanent Facility, as used herein and
in the Term Sheet, the "Financing Facility"). The commitment under the Interim
Facility (the "Interim Commitment Amount") shall not exceed $50,000,000, or such
lesser amount as may be approved by the Court. The amount available at any time
for revolving credit loans and letters of credit under the Interim Facility
shall be the excess (the "Interim Facility Available Amount") of (x) the lesser
of the Borrowing Base (as defined in the Term Sheet) and the Interim Commitment
Amount over (y) the sum of (i) the undrawn amount of issued and outstanding
letters of credit under the Interim Facility, (ii) the amount of drawn letters
of credit under the Interim Facility for which there has been no reimbursement,
(iii) the then outstanding revolving credit loans under the Interim Facility and
(iv) reserves instituted by the Agent in its reasonable discretion (including,
without limitation, a $2,000,000 reserve for professional fees). The undrawn
amount of issued and outstanding letters of credit under the Interim Facility
plus the amount of drawn letters of credit under the Interim Facility for which
there has been no reimbursement shall not exceed $5,000,000 at any time.
Advances under the Interim Facility shall be substantially on the terms and
conditions set forth on the Term Sheet and in an order authorizing the
Borrowers, as debtors in possession, to obtain interim financing and to incur
post-petition indebtedness with a first priority security interest and lien on
collateral consisting of now or hereafter acquired or created accounts
receivable and inventory of the Borrowers and all proceeds thereof and liens on
all other property of the Borrowers having a priority junior only to Existing
Liens (as hereinafter defined) and with a superpriority administrative expense
status (the "Interim Order ") to be entered by the Court. The Interim Order
shall be substantially in the form attached as Annex I to the Outline of
Proposed Terms and Conditions attached hereto as Exhibit A (the "Term Sheet").

                The Financing Facility shall have substantially the terms and
conditions set forth in the Term Sheet. Each Borrower will be jointly and
severally liable for the payment of all amounts due under the Financing
Facility. The commitment of BABC is subject in all respects to satisfaction of
the terms and conditions set forth below and in the Term Sheet.



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                As a condition precedent to BABC'S commitment to provide the
Financing Facility and in consideration therefor, the Borrower has agreed to
pay, on the date of the Interim Order or any other interim order authorizing
borrowing, a closing fee equal to $750,000. BABC acknowledges that it has
received from the Borrowers an advance of $25,000 to fund the "Expenses" (as
such term is defined in the Term Sheet) in connection with the Financing
Facility. To the extent that the Expenses exceed $25,000, the Borrowers shall,
jointly and severally, reimburse BABC promptly upon BABC's request therefor. If
the Expenses are less than $25,000 at the time this commitment expires and the
closing of the Interim Facility has not occurred by such expiration, BABC shall
return the unused portion of the $25,000 advance payment to the Company on
behalf of the Borrowers. If the Expenses are less than $25,000 at the closing of
the Interim Facility, the unused portion of the $25,000 advance payment shall be
applied to payment of the fees owing by the Borrowers to the Agent and/or
Lenders on the date of such closing. All reasonable fees and expenses incurred
by the Agent in connection with the preparation, negotiation, consummation,
administration, syndication, enforcement and termination of any portion of the
Financing Facility and Agent's review and due diligence with respect to the
Financing Facility, such as reasonable legal fees and expenses (including the
allocated costs of in-house counsel to the Agent), audit and appraisal expenses,
together with an allocated charge per auditor which is currently $750 per day
(or portion thereof) per auditor, search and filing fees and travel expenses,
shall be paid, jointly and severally, by the Borrowers whether or not any of the
transactions herein contemplated is consummated.

                By its execution hereof and the Company's acceptance of the
commitment, each of the Borrowers agrees, jointly and severally, to indemnify
and hold harmless the Agent and each Lender, each of their affiliates and each
of the Agent's, Lenders' and their affiliates' respective directors, officers,
employees, counsel, consultants and agents (each an "Indemnified Party") from
and against any and all losses, claims, damages, liabilities and expenses
(including fees and disbursements of counsel, which shall include the allocated
costs of in-house counsel to the Agent) arising out of, or in any manner related
to, this letter agreement, the commitment made herein, the Financing Facility or
the use of proceeds thereof, but excluding therefrom for any Indemnified Party
all losses, claims, damages, liabilities or expenses which are finally
determined in a non-appealable decision of a court to have resulted from such
Indemnified Party's gross negligence or willful misconduct. Each of the
Borrower's obligations to the Indemnified Parties under this paragraph shall
remain effective whether or not definitive documentation is executed or any
financing is provided to any Borrower and notwithstanding any termination of

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this letter agreement or the closing of any portion of the Facility Financing.
None of the Indemnified Parties shall be responsible or liable to any Borrower
or any other person for any special, indirect, punitive, exemplary or
consequential damages which may be alleged.

                BABC's commitment to provide the Financing Facility is subject
to the satisfaction of BABC at all times prior to and including the date on
which the Final Order approving the Financing Facility is entered that there has
not occurred or become known to BABC any material adverse change with respect to
the condition, financial or otherwise, operations, assets, liabilities, business
or prospects of the Borrowers, taken as a whole, from the date hereof (other
than (i) the commencement of the Borrowers' Case and (ii) the continuation of
the circumstances giving rise to the filing thereof, so long as BABC has been
made aware as of the date hereof of all such circumstances).

                The Company acknowledges that the Term Sheet is not a complete
statement of the terms and conditions of the Financing Facility and those
matters which are not covered in, or finally determined by, the Term Sheet are
subject to the mutual agreement of the parties hereto. Nevertheless, BABC is
willing to provide the Interim Facility (and make revolving credit loans and
arrange for the issuance of letters of credit thereunder) on the basis (and
subject to the conditions) of this letter agreement, the Term Sheet and the
Interim Order. BABC's commitment to provide the Permanent Facility is
conditioned upon the conditions precedent set forth in the Term Sheet and the
preparation, execution and delivery of all final documentation for the Permanent
Facility (if not previously delivered), in form and substance satisfactory to
BABC.

                The Company represents, warrants and covenants that (i) other
than projections (as to which clause (ii) of this paragraph is applicable), all
written information or other materials concerning the Company and the other
Borrowers (collectively, the "Information") which has been, or is hereafter,
made available by, or on behalf of, the Company or any other Borrower is, or
when delivered will be (considered as a whole), complete and correct in all
material respects and does not, or will not when delivered, contain any untrue
statements of material fact or omit to state a material fact necessary in order
to make the statements contained therein not misleading in light of the
circumstances under which such statements were made and (ii) to the extent that
any such Information contains projections, such projections were prepared in
good faith on the basis of (X) assumptions, methods and tests stated therein
which are reasonably believed by the Company to have been reasonable and (Y)
information reasonably believed by the Company to have

                                       -4-

<PAGE>   5



been accurate based upon the information available to the Company at the time
such projections were furnished to BABC.

                The Company agrees that prior to the filing, distribution or
release thereof it will (i) consult with BABC as to any filings or document
distribution in which reference is made to BABC or the Financing Facility (other
than the delivery of draft documents to the Court and to the United States
Trustee) and (ii) obtain the prior approval of BABC, before releasing any public
announcement in which reference is made to BABC or the Financing Facility except
as required by law or the Court. Neither the Company nor any other Borrower will
show this commitment letter to any third party (other than legal counsel and
financial advisors) prior to the filing of a chapter 11 petition by the
Borrowers without the prior written consent of BABC.

                The offer made by BABC to the Company in this letter agreement
shall remain in effect until 5:00 p.m. in New York City on September 29, 1998,
at which time it will expire unless prior thereto BABC has received (i) a signed
copy of this letter from the Company accepting this letter agreement and from
the other Borrowers agreeing to this letter agreement and (ii) payment from the
Company, in immediately available funds, of $75,000 representing payment of a
$50,000 non-refundable fee and $25,000 expense advance referred to in the letter
agreement dated September 29, 1998 by the Borrowers to BABC.

                The commitment by BABC to provide the Financing Facility shall
expire at 5:00 p.m. in New York City on October 28, 1998, unless (x) final loan
documentation shall have been entered into by the Borrowers, the Lenders and the
Agent on or prior thereto and such documentation shall have been approved by the
Court pursuant to terms satisfactory to the Agent, the Lenders and the
Borrowers, and (y) the Borrowers shall have satisfied all conditions to the
initial borrowing thereunder.

                Should the terms and conditions of the offer contained herein
meet with your approval, please indicate your acceptance by signing and
returning a copy of this letter agreement to the undersigned.

                Any inconsistency between this letter and the Term Sheet shall
be governed by the Term Sheet.

                This letter 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

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the same agreement. Delivery of an executed counterpart of a signature page to
this letter agreement by telecopier shall be effective as delivery of a manually
executed counterpart of this letter agreement.

                This letter agreement shall be governed by the law of the State
of New York, without giving effect to the conflict of laws provisions thereof,
and, upon execution by all parties hereto, shall be binding upon BABC, the
Company, the other Borrowers and their respective successors and assigns. This
letter agreement may only be amended, modified or waived in a writing signed by
the parties hereto.

                                 Very truly yours,

                                 BankAmerica Business Credit, Inc.


                                 By: ______________________________  
                                    Name:
                                    Title:


Agreed to and accepted on the date hereof:

Acme Metals Incorporated


By:__________________________________                               
   Name:
   Title:


Agreed to on the date hereof:

Acme Steel Company


By:___________________________________                               
   Name:
   Title:


Acme Packaging Corporation


By:____________________________________                               
   Name:
   Title:


                                       -6-

<PAGE>   7



Alpha Tube Corporation


By:_____________________________________                               
   Name:
   Title:


Alabama Metallurgical Corporation


By:______________________________________                               
   Name:
   Title:


Acme Steel Company, International Inc.


By:_______________________________________                               
   Name:
   Title:




                                       -7-

<PAGE>   8



                                    EXHIBIT A


                            ACME METALS INCORPORATED
                               ACME STEEL COMPANY
                           ACME PACKAGING CORPORATION
                             ALPHA TUBE CORPORATION
                        ALABAMA METALLURGICAL CORPORATION
                     ACME STEEL COMPANY, INTERNATIONAL INC.


                    Outline of Proposed Terms and Conditions


Agent:              BankAmerica Business Credit, Inc.

Lenders:            BankAmerica Business Credit, Inc. ("BABC")
                    and such other lenders acceptable to BABC
                    (the "Lenders").

Borrowers:          Acme Metals Incorporated, a Delaware
                    corporation(the "Company"), and each of the
                    Company's subsidiaries (including, without
                    limitation, Acme Steel Company, Acme
                    Packaging Corporation, Alpha Tube Corpora-
                    tion, Alabama Metallurgical Corporation and
                    Acme Steel Company, International Inc.) (the
                    "Subsidiaries" and together with the Company,
                    the "Borrowers"), each debtors in possession
                    in a case (the "Case") to be pending under
                    chapter 11 of the Bankruptcy Code and to be
                    filed with the United States Bankruptcy Court
                    (the "Court") for the District of Delaware.
                    The liability of the Borrowers with respect
                    to the Interim Facility and the Permanent
                    Facility shall be joint and several.

Interim Facility:   BABC and the other Lenders shall provide the
                    Borrowers, on an emergency basis, with a
                    revolving credit facility (the "Interim
                    Facility") providing for extensions of credit
                    in an amount (the "Interim Commitment
                    Amount") as shall be approved by the Court
                    but not exceeding $50,000,000, in the form of
                    revolving credit loans and letters of credit.
                    The undrawn amount of issued and outstanding
                    letters of credit under the Interim Facility
                    plus the amount of drawn letters of credit
                    under the Interim Facility for which there
                    has been no reimbursement shall not exceed an
                    aggregate of $5,000,000 (or such lower

                                       -1-

<PAGE>   9



                     Interim Commitment Amount approved by the
                     Court) at any time. The amount available at
                     any time for revolving credit loans and
                     letters of credit under the Interim Facility
                     shall be the excess (the "Interim Available
                     Amount") of (x) the lesser of the Borrowing
                     Base (as hereinafter defined) and the Interim
                     Commitment Amount over (y) the sum of (i) the
                     undrawn amount of issued and outstanding
                     letters of credit under the Interim Facility,
                     (ii) the amount of drawn letters of credit
                     under the Interim Facility for which there has
                     been no reimbursement, (iii) the then
                     outstanding revolving credit loans under the
                     Interim Facility and (iv) reserves instituted
                     by the Agent in its reasonable discretion
                     (including, without limitation, a $2,000,000
                     reserve for professional fees). Advances and
                     issuances of letters of credit against
                     inventory of the Borrowers shall not exceed
                     $20,000,000 at any one time. The Interim
                     Facility shall be made available upon entry by
                     the Court of an order authorizing the
                     Borrowers to obtain interim financing and to
                     incur post-petition indebtedness with a first
                     priority security interest and lien on
                     collateral consisting of all now or hereafter
                     acquired or created accounts receivable and
                     inventory of the Borrowers and all proceeds
                     thereof and security interests and liens on
                     all other property of the Borrowers having a
                     priority junior only to the Existing Liens and
                     with superpriority administrative expense
                     status (the "Interim Order"). The Interim
                     Order shall be substantially in the form
                     attached hereto as Annex 1. The Interim
                     Facility will have a final maturity of the
                     earlier of (i) the date of entry of the Final
                     Order (as hereinafter defined) and (ii)
                     October 28, 1998 (unless it has been
                     terminated earlier as expressly provided
                     herein or extended by written agreement of the
                     Borrowers, the Lenders and the Agent). The
                     Interim Facility shall be on substantially the
                     same terms and conditions as the Permanent
                     Facility (as hereafter defined) (and all
                     covenants, representations and warranties,
                     default provisions and other terms to the
                     extent set forth in the Term Sheet shall be
                     binding on the Borrowers on and after the
                     closing of the Interim

                                       -2-

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                         Facility), provided, however, in the event
                         there is no Permanent Facility for any reason
                         or no reason, (i) the Borrowers shall
                         immediately cash collateralize all documentary
                         and standby letters of credit remaining
                         outstanding on the maturity of the Interim
                         Facility at 105% of the face amount of such
                         letters of credit and (ii) the Interim Order
                         shall provide for the repayment in full of all
                         borrowings under the Interim Facility.
                       
Permanent Facility:      BABC and the other Lenders shall provide the
                         Borrowers with a revolving credit facility
                         (the "Permanent Facility") providing for
                         extensions of credit in an amount not to
                         exceed $100,000,000 (the "Commitment Amount")
                         in the form of revolving credit loans and
                         letters of credit.  The undrawn amount of
                         issued and outstanding letters of credit
                         under the Financing Facility plus the amount
                         of drawn letters of credit under the
                         Financing Facility for which there has been
                         no reimbursement shall not exceed an
                         aggregate of $5,000,000 at any time.  The
                         amount available at any time for revolving
                         credit loans and letters of credit under the
                         Permanent Facility shall be the excess (the
                         "Available Amount") of (x) the lesser of the
                         Borrowing Base (as hereinafter defined) and
                         the Commitment Amount over (y) the sum of
                         (i) the undrawn amount of issued and
                         outstanding letters of credit under the
                         Financing Facility, (ii) the amount of drawn
                         letters of credit under the Financing
                         Facility for which there has been no
                         reimbursement, (iii) the then outstanding
                         revolving credit loans under the Financing
                         Facility and (iv) reserves instituted by the
                         Agent in its reasonable discretion
                         (including, without limitation, a $2,000,000
                         reserve for professional fees).  If the
                         Permanent Facility is entered into, it will
                         repay in full and replace the Interim
                         Facility.  Standby letters of credit and
                         documentary letters of credit issued under
                         the Financing Facility shall not be used in a
                         manner that violates the "Purposes" section
                         of this Term Sheet.  Advances and issuances
                         of letters of credit against inventory of the

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                         Borrowers shall not exceed $60,000,000 at any one 
                         time under the Permanent Facility.

                         All borrowings and drawings of letters of
                         credit by the Borrowers, all Expenses (as
                         hereinafter defined) of the Agent and Lenders
                         and all other obligations owed to the Agent
                         or any of the Lenders, in each case, under
                         the Financing Facility, shall be directly
                         charged to the loan account.

Letters of Credit:       All letters of credit under the Financing
                         Facility will be issued by a bank mutually
                         acceptable to the Company and the Agent (the
                         Company agreeing that Bank of America
                         National Trust and Savings Association is
                         acceptable) for the joint and several account
                         of the Borrowers and shall have an expiry
                         date no later than the earlier of (i) one
                         year from the date of issuance and (ii) 
                         fifteen days prior to the Maturity Date (as
                         hereinafter defined), unless on or prior to
                         such date such letters of credit shall be
                         cash collateralized at 105% of the face
                         amount of such letters of credit.  The
                         Borrowers will be bound by usual and
                         customary terms contained in the issuing
                         bank's letter of credit issuance documentation, 
                         including indemnification for capital
                         adequacy and taxes, as well as payment of
                         usual and customary fees and charges of such
                         bank.  At the Maturity Date, no liens will be
                         released (and the superpriority status in
                         favor of the Agent and Lenders shall
                         continue) until all letters of credit that
                         are not cash collateralized in accordance
                         with the foregoing expire and all amounts due
                         under the Permanent Facility are paid.

Letter of Credit Fee:    A fee of 1-3/4% per annum (plus bank
                         charges), payable monthly in arrears, based
                         upon the average daily undrawn amount of all
                         letters of credit outstanding.  If any event
                         of default occurs and is continuing under the
                         Financing Facility, then the fee shall be
                         3-3/4% per annum (plus bank charges) payable
                         on demand.

Term of Commitment:      The Permanent Facility will expire and the
                         borrowings thereunder (other than letters of
                         credit that are cash collateralized) will be

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<PAGE>   12



                         due and payable upon the earlier of (i) the second
                         anniversary of the date of entry of the Interim Order
                         (the "Maturity Date") or (ii) the substantial
                         consummation (as defined in section 1101 of Chapter 11
                         of the Bankruptcy Code) of a plan of reorganization (a
                         "Plan") in the Case that has been confirmed by an order
                         of the Court (such confirmation order shall not
                         discharge any of the obligations of the Borrowers to
                         the Agent and the Lenders under the Financing Facility
                         other than after payment in full of such obligations
                         and in no event shall indemnities in favor of the Agent
                         and the Lenders which by their terms survive the
                         termination of the Financing Facility be affected by
                         the repayment of the obligations).

Expiration of
Commitments:             The Commitment of BABC with respect to the
                         Interim Facility shall expire on October 2,
                         1998, unless all conditions to the Interim
                         Facility set forth herein shall have been
                         satisfied by such date.  In the event that
                         the Interim Facility has been approved by the
                         Court, the Commitment of BABC with respect to
                         the Permanent Facility shall expire on the
                         earlier of October 28, 1998 and the date of
                         entry of the Final Order, unless all
                         conditions to the Permanent Facility shall
                         have been satisfied by such date.
Collateral
and Priority:            All indebtedness, liabilities and obligations
                         of the Borrowers to the Agent and the Lenders
                         shall be:  (x) entitled to superpriority
                         administrative expense claim status in
                         accordance with 11 U.S.C. Section 364(c)(1) in the
                         Case over any and all administrative expenses
                         of the Borrowers, whether heretofore or
                         hereafter incurred, of the kind specified in
                         11 U.S.C. Section 503(b) or 507(b), but subject
                         and subordinate to (i) in the event that an
                         Event of Default has occurred and is
                         continuing, the payment of allowed professional 
                         fees and disbursements incurred by the
                         Borrowers or any statutory committee
                         appointed in the Case ("Professional Fees")
                         in an aggregate amount not in excess of
                         $2,000,000 at any time (the "Cap") (provided
                         such fees are not incurred in connection with
                         a challenge to any aspect of the Agent's or

                                       -5-

<PAGE>   13



                           any Lender's rights and obligations under the
                           Interim Facility or the Permanent Facility);
                           and (ii) the payment of fees pursuant to 28
                           U.S.C. Section 1930 (collectively, the
                           "Carveout"); and (y) secured pursuant to 11
                           U.S.C. Sections 364(c)(1) and (c)(2), subject to
                           the Carveout and, only with respect to assets
                           other than inventory, accounts receivable and
                           their proceeds, any valid, perfected, prior
                           and unavoidable liens as may exist on the day
                           the Case is commenced (as described in
                           Schedule 1 hereto, the "Existing Liens"), by a
                           first and senior security interest and lien
                           not subject to subordination, in and on all
                           now existing and hereafter acquired property
                           of the Borrowers, including without limitation
                           all now existing and hereafter acquired
                           property described in clauses (i) through and
                           including (vi) below (the "Collateral"): (i)
                           accounts receivable, (ii) inventory, (iii)
                           machinery and equipment, leases and real
                           property (whether owned or leased), (iv)
                           general intangibles (including patents, trade
                           names and trademarks and licenses thereof),
                           (v) books and records of the Borrowers and
                           (vi) all cash and all proceeds of the
                           foregoing. As a condition to the Financing
                           Facility, there shall be no liens or
                           encumbrances of any kind on any Collateral
                           (other than Existing Liens (only with respect
                           to assets other than inventory, accounts
                           receivable and their proceeds) and Permitted
                           Liens (as hereinafter defined)). "Permitted
                           Liens" shall mean (i) liens for current
                           property taxes not delinquent or for property
                           taxes being contested in good faith and by
                           appropriate proceedings (and in respect of
                           which adequate reserves or other appropriate
                           provisions are being maintained in accordance
                           with GAAP), (ii) carriers', warehousemen's,
                           mechanics', materialmen's, repairmen's and
                           other like liens imposed by law, arising in
                           the ordinary course of business and securing
                           obligations that are not overdue by more than
                           30 days or are being contested in good faith
                           and by appropriate proceedings diligently
                           pursued, (iii) pledges and deposits made in
                           the ordinary course of business in compliance
                           with workers' compensation, unemployment
                           insurance and other social security laws or

                                       -6-

<PAGE>   14



                           regulations (other than for the repayment of
                           borrowed money),(iv) liens in connection with
                           the acquisition of machinery and equipment
                           after the date hereof, and attaching only to
                           the machinery and equipment being acquired,
                           provided that the indebtedness secured by such
                           liens may not exceed an aggregate amount
                           agreed to by the Borrowers and the Lenders
                           prior to the entry of the Final Order, and (v)
                           liens on real property arising in the ordinary
                           course of business which do not materially
                           detract from the value or interfere with the
                           use of such property of the Borrowers or
                           otherwise materially impair the business or
                           operations of the Borrowers, provided that the
                           indebtedness secured by such liens may not
                           exceed an aggregate amount agreed to by the
                           Borrowers and the Lenders prior to the entry
                           of the Final Order. The Borrowers hereby grant
                           to the Agent for the benefit of the Agent and
                           the Lenders a security interest in all
                           Collateral to secure all present and future
                           indebtedness, liabilities and obligations of
                           Borrowers to the Agent and the Lenders. The
                           Borrowers shall be permitted to pay, as the
                           same may become due and payable (i)
                           administrative expenses of the kind specified
                           in 11 U.S.C. Section 503(b) incurred in the
                           ordinary course of business of the Borrowers,
                           (ii) compensation and reimbursement of
                           expenses to professionals allowed and payable
                           under 11 U.S.C. Sections 330 and 331, and, in
                           the absence of the occurrence of an Event of
                           Default, the payment of such compensation and
                           reimbursement of expenses to professionals
                           shall not reduce the Cap and (iii) payments
                           pursuant to "first day" orders reviewed and
                           acceptable to the Agent.

Purpose:                   To fund working capital (including inventory
                           purchases in the ordinary course of business
                           of the Borrowers) needs of the Borrowers;
                           provided, however, that documentary letters
                           of credit issued under the Interim Facility
                           or the Permanent Facility shall not be used
                           for the purchase of inventory from domestic
                           vendors.




                                       -7-

<PAGE>   15



Revolving
Credit Note:               At the option of the Agent, Promissory Note(s) 
                           in a maximum aggregate amount for each
                           Lender equal to each Lender's share of the
                           Interim Commitment Amount and/or the
                           Commitment Amount, as the case may be.

Closing Fee:               A closing fee of $750,000, payable on the 
                           date of the Interim Order or any other interim 
                           order authorizing borrowing.

Collateral Manage-
ment Fee:                  $100,000 per annum, payable annually in
                           advance on the closing date of the Interim
                           Facility and on each subsequent
                           anniversary date thereof.

Unused Line Fee:           .375% per annum on the average daily excess
                           of the Commitment Amount or Interim
                           Commitment Amount, as the case may be, over
                           the sum of outstanding borrowings, the
                           undrawn amount of issued and outstanding
                           letters of credit and the amount of drawn
                           letters of credit for which reimbursement has
                           not been made.  Such fee shall be paid
                           monthly in arrears.

Nature of Fees:            Non-refundable under all circumstances.
                           Fees, Expenses and interest may be charged by
                           the Agent to any Borrower's loan account.

Notices:                   The Borrowers shall give such notice of the
                           motions regarding the Interim Facility and
                           Permanent Facility, as shall be required by 
                           the Court.

Interest Rate:           The unpaid balance on the revolving loans
                         outstanding under the Financing Facility
                         shall bear interest (payable monthly on the
                         first day of each month) at a rate equal to
                         (i) a fluctuating per annum rate equal to the
                         applicable margin set forth below in excess
                         of the Reference Rate or (ii) at the
                         Borrowers' option, the applicable margin set
                         forth below plus the one month, two month,
                         three month or six month LIBOR rate as quoted
                         from time to time by Bank of America N.T. &
                         S.A., San Francisco, California ("Bank of
                         America").  No more than eight LIBOR rate
                         loans may be outstanding at any time and each
                         shall be in amounts of not less than $500,000
                        
                                       -8-
                        
<PAGE>   16
                        
                        
                        
                         and shall be subject to certain restrictions relating
                         to terms, maturity, and incremental amounts. All
                         interest (as well as the Unused Line Fee and Letter of
                         Credit Fees set forth above) shall be calculated on the
                         basis of a 360-day year for actual days elapsed. If any
                         event of default occurs and is continuing under the
                         Facility Financing, then the Borrowers will pay
                         interest on the unpaid balance of loans outstanding at
                         a per annum rate two percent (2%) greater than the rate
                         of interest specified above. "Reference Rate" means the
                         rate of interest publicly announced from time to time
                         by Bank of America as its reference rate. It is 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 it
                         is used as a reference point for pricing some loans.
                         However, Bank of America may price loans at, above, or
                         below the reference rate.

<TABLE>
<CAPTION>

                                Applicable Margin
                                -----------------
Exposure for relevant           Applicable Margin for     Applicable Margin for
  Interest Period               Reference Rate Loans        LIBOR Rate Loans
  ---------------               --------------------        ----------------
<S>                                <C>                          <C>  
Less than $20,000,000               .50%                         1.75%

Equal to or greater                 .50%                         2.00%
than $20,000,000 and
less than $50,000,000

Equal to or greater                 .75%                         2.50%
than $50,000,000 and
less than $75,000,000

Equal to or greater                1.00%                         3.00%
than $75,000,000
</TABLE>

                         Exposure shall mean, for any calendar month or shorter
                         period of determination, the average utilization of
                         loans and letters of credit for such calendar month or
                         shorter period as determined by the Agent on the last
                         day of such calendar month or shorter period.

Borrowing Base:          An aggregate amount of up to (i) seventy-five
                         percent (75%) of the net amount of eligible
                         accounts of the Borrowers (increasing, if
                         agreed to by the Agent in its sole

                                       -9-

<PAGE>   17



                         discretion, up to eighty-five percent (85%), after
                         completion and satisfaction with results by the
                         Agent of due diligence with respect to accounts),
                         (ii) thirty percent (30%) of the net amount of
                         eligible inventory of the Borrowers constituting
                         finished goods and commodity raw materials
                         (increasing, if agreed to by the Agent in its sole
                         discretion, up to sixty percent (60%) after
                         completion and satisfaction with results by the
                         Agent of due diligence with respect to inventory),
                         calculated at the lower of cost (on a FIFO basis)
                         or market value, and (iii) if agreed to by the
                         Agent after completion and satisfaction with
                         results by the Agent with respect to inventory,
                         fifty percent (50%) of the net amount of eligible
                         inventory of the Borrowers constituting
                         work-in-process, calculated at the lower of cost
                         (on a FIFO basis) or market value. Collateral
                         eligibility and the establishment of reserves
                         against Borrowing Base availability shall be
                         determined by the Agent in its reasonable
                         discretion, provided, however, that (A) the
                         following inventory in any event shall be
                         ineligible: coals, stores, molds, stools and other
                         items carried in inventory which are not either
                         basic materials core products used in producing
                         finished steel or items which are not sold in the
                         ordinary course of business and (B) the following
                         accounts in any event shall be ineligible:
                         accounts remaining unpaid for more than 90 days
                         from original invoice date, accounts of any
                         obligor where 50% or more of such obligor's
                         accounts remain unpaid for more than 90 days from
                         original invoice date, contra accounts,
                         intercompany or affiliate accounts and foreign
                         accounts. The Borrowing Base shall be adjusted
                         weekly.

Mandatory Prepayment:    Mandatory prepayment, but not reduction of
                         commitment, immediately if aggregate
                         borrowings and letters of credit exceed the
                         lesser of the Borrowing Base and the Interim
                         Commitment Amount or the Commitment Amount,
                         as the case may be, until aggregate
                         borrowings and letters of credit are within
                         the limitations of the Borrowing Base and the
                         Interim Commitment Amount or the Commitment
                         Amount, as the case may be.

                                      -10-

<PAGE>   18



                         On and after the execution and delivery by
                         the Borrowers, the Lenders and the Agent of
                         definitive loan documentation for the
                         Financing Facility, the Borrowers shall be
                         required on a daily basis to concentrate all
                         cash receipts and other collections into one
                         or more deposit accounts that are subject to
                         an agreement among the relevant Borrower, the
                         depository bank (which bank shall be
                         acceptable to the Agent) and the Agent,
                         acceptable to the Agent. The agreements would
                         provide that (i) after the occurrence of a
                         default or (ii) if unused loan availability
                         is below $20,000,000, the Agent would have
                         the right to notify the depository bank that
                         all amounts deposited in such accounts would
                         thereafter be transferred to the Agent's
                         account on a daily basis. All payments
                         received by the Agent would be credited to
                         the Borrowers' loan account on the date of
                         receipt of good funds, if such good funds are
                         received by 12 noon (New York time) of such
                         day.

Optional Prepayment/
Reduction of Commit-
ment Amount:             Optional prepayment in whole or in part at
                         any time at option of the Borrowers without
                         penalty.  Optional reductions of commitment
                         at any time in whole or in integral multiples
                         of $5,000,000 at option of the Borrowers
                         without penalty, subject to compliance with
                         mandatory prepayment requirements set forth
                         above.

Conditions of Initial
Extension of Credit
Under Interim
Facility:                (a) The Agent shall have received consolidated
                             and consolidating financial statements of the
                             borrowers as of August 31, 1998, in form and 
                             substance satisfactory to the Agent.

                         (b) The Interim Order of the Court substantially
                             in the form attached hereto as Annex I shall have
                             been entered by no later than October 2, 1998
                             (and the Agent shall have received a copy thereof
                             certified by the Court). The Interim Order shall
                             not have been

                                      -11-

<PAGE>   19

                              reversed, vacated, modified, amended 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 benefits of Section 364(e) of the
                              Bankruptcy Code), except for modifications and
                              amendments that are acceptable to the Agent and
                              the Lenders.
           
                          (c) There shall have been no material adverse
                              change in the business, operations, assets,
                              properties, liabilities, profits, prospects or
                              financial position of the Borrowers 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 circum-
                              stances 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.

                          (d) The Agent shall have completed the due
                              diligence that it was practicable to
                              undertake given the proposed filing date
                              of the Case, including, without limita-
                              tion, a review satisfactory to the Agent
                              of the Borrowers' books and records,
                              systems and control and analysis of the
                              accounts receivable and inventory by an
                              outside consultant selected by the
                              Agent.  The results of such review shall
                              be in form and substance satisfactory to
                              the Agent.  The Agent expressly reserves
                              the right to continue its diligence
                              efforts during the term of the Interim
                              Facility.

                          (e) If requested by the Agent, delivery of the
                              Promissory Note and other financing documents
                              executed by the Borrowers (not later than the
                              earlier of October 28, 1998 and the date of the
                              initial hearing before the Court for the
                              Permanent Facility (the "Permanent Facility
                              Hearing Date")), as applicable, as well as the
                              delivery to the Agent of evidence (including UCC
                              searches) establishing

                                      -12-

<PAGE>   20



                              the absence of any liens on Collateral (other than
                              Existing Liens and Permitted Liens) and upon the
                              request of the Agent, the execution and delivery
                              of any public filings deemed necessary or
                              desirable by the Agent.

                          (f)  Payment of fees required hereunder.

                          (g)  The terms, conditions and amounts of all
                               outstanding indebtedness related to any of the
                               Borrowers shall be reasonably satisfactory to the
                               Agent.

                          (h)  Any and all security interests and liens in any
                               Collateral consisting of accounts receivable,
                               inventory or proceeds of any of the foregoing
                               shall have been released by the holders thereof.

                          (i)  The Borrowers shall have unused availability
                               under the Interim Facility of not less than
                               $30,000,000.

                           None of the Agent nor any Lender shall be deemed to
                           have waived any of the foregoing conditions unless it
                           has delivered to the Borrowers a writing evidencing
                           such waiver. In the event that the Agent and the
                           Lenders do not request the execution and/or delivery
                           or other satisfaction of any of the foregoing
                           conditions (a) through and including (i) prior to the
                           closing of the Interim Facility, the Borrowers hereby
                           covenant and agree to promptly execute, deliver
                           and/or satisfy any and all such conditions upon the
                           request of the Agent or the Lenders at any time
                           thereafter so long as any obligations or commitments
                           are outstanding under the Financing Facility.

Conditions of Initial
Extension of Credit
under Permanent 
Facility:                  (a) All conditions to the Interim Facility
                               shall have been satisfied (or waived in writing
                               by the Agent and the Lenders by a waiver,
                               additional to, and which shall supersede, the
                               waiver granted in connection with the conditions
                               to the Interim Facility).

                                      -13-

<PAGE>   21



                           (b) An order (the "Final Order") of the Court shall
                               have been entered by no later than October 28,
                               1998, which Final Order shall contain the Order
                               Provisions, other appropriate provisions
                               contained in the Interim Order and otherwise
                               authorizing the Permanent Facility and the
                               superpriority status and lien status described
                               herein, such Final Order to be in all respects in
                               form and substance satisfactory to the Agent and
                               the Lenders. Such Final Order shall not 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 benefits of Section 364(e) of the
                               Bankruptcy Code). The Agent shall have received a
                               copy of the Final Order certified by the Court.

                           (c) There shall be no material adverse change in the
                               business, operations, assets, properties,
                               liabilities, profits, prospects or financial
                               position of the Borrowers 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.

                           (d) The Agent shall have completed the due diligence
                               with respect to the Financing Facility,
                               including, without limitation, a review
                               satisfactory to the Agent of the Borrowers' 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 and their properties. The results of
                               such review shall be in

                                      -14-

<PAGE>   22



                               form and substance satisfactory to the Agent.

                           (e) Satisfactory opinions of counsel to the Borrowers
                               concerning, among other things, entry of the
                               Final Order and notice having been given in
                               accordance with the Final Order.

                           (f) Payment of fees required hereunder.

                           (g) The Lenders' full satisfaction with the
                               compliance by the Borrowers with any and all
                               applicable laws, statutes, rules and regulations
                               relating to the conduct and operations of the
                               business and properties of the Borrowers.

                           (h) No order shall have been entered (i) for the
                               appointment of a trustee or receiver with respect
                               to the Case, (ii) to convert the Case to a
                               Chapter 7 case or dismiss the proceeding, or
                               (iii) terminating the Borrowers' exclusive time
                               period to file a plan of reorganization and no
                               such order shall have been requested unless such
                               requested order is being contested in good faith
                               and by appropriate proceedings diligently
                               pursued.

                           (i) The exclusive period to file a plan of
                               reorganization in the Case shall not have expired
                               or terminated and no proposed plan of
                               reorganization shall have been filed in the Case
                               by a party without the exclusive right to do so.
                               Any such plan of reorganization shall be in form
                               and substance acceptable to the Agent and the
                               Lenders.

                           (j) Such other conditions as may be required by the
                               Agent or the Lenders in its or their reasonable
                               discretion and which are customary in
                               transactions of this nature, including the
                               execution by the Borrowers of such financing
                               documents as the Agent may reasonably request.


                                      -15-

<PAGE>   23



Conditions of Each         The obligation to provide each extension of credit 
Extension of Credit:       (including the initial extension of credit) shall be 
                           subject to the satisfaction of the following 
                           conditions:

                           (a) The borrowing, together with the aggregate amount
                               of all outstanding borrowings under the Financing
                               Facility (including the undrawn amount of all
                               issued and outstanding letters of credit under
                               the Financing Facility and amount of all drawn
                               letters of credit under the Financing Facility
                               which have not been reimbursed), shall not exceed
                               the lowest of the amount authorized by (i) the
                               Interim Commitment Amount or the Commitment
                               Amount, as the case may be, (ii) the Borrowing
                               Base then in effect and (iii) the Interim Order
                               or Final Order, as the case may be.

                           (b) The Interim Order or the Final Order, as the case
                               may be, shall be in full force and effect and
                               shall not have been reversed, modified, amended
                               or stayed (or application therefor made), except
                               for modifications and amendments that are
                               acceptable to the Agent and the Lenders.

                           (c) No Event of Default and no condition which would
                               constitute an Event of Default with the giving of
                               notice or lapse of time or both shall exist.

                           (d) Representations and warranties shall be true and
                               correct in all material respects at the date of
                               each extension of credit as if made on such date
                               (except if such representation or warranty
                               specifically relates only to a prior date).

                           (e) Receipt of a notice of borrowing or a letter of
                               credit application from the Borrowers. The
                               request for and the acceptance of each extension
                               of credit by the Borrowers shall constitute a
                               representation and warranty that the conditions
                               to each extension of credit shall have been
                               satisfied.

                                      -16-

<PAGE>   24



                           (f) No administrative claim that is senior to or pari
                               passu with the superpriority claims of the Agent
                               and the Lenders shall exist, except the
                               Carveouts.

                           (g) Satisfactory corporate proceedings and receipt of
                               information and documents (including corporate
                               resolutions and incumbency certificates)
                               reasonably requested by the Agent.

Representations
and Warranties:            The Borrowers are hereby representing with respect to
                           the initial advance under the Interim Facility and
                           shall represent and warrant with respect to each
                           subsequent advance as to:

                           (a) Due incorporation and good standing; the Company
                               has no subsidiaries except the other Borrowers;

                           (b) No governmental or judicial consent or approval
                               is required other than the Interim Order or the
                               Final Order, as the case may be;

                           (c) Due authorization, execution and delivery of the
                               Interim Facility and the Permanent Facility and
                               any documents delivered pursuant thereto;

                           (d) Compliance in all material respects with all
                               applicable laws and regulations (including,
                               without limitation, environmental laws and
                               regulations), except to the extent the Borrowers
                               are exempted from such compliance or the
                               Borrowers are prohibited from complying, under
                               applicable bankruptcy law;

                           (e) The historical financial statements present
                               fairly, in all material respects, the
                               consolidated financial position of the Company
                               and the other Borrowers at the balance sheet
                               dates, and the consolidated results of their
                               operations and their consolidated cash flows for
                               the periods covered by such financial statements,
                               in conformity with GAAP;

                                      -17-

<PAGE>   25



                           (f) (i) All Information, other than projections (as
                               to which clause (ii) of this sentence is
                               applicable), which has been, or is hereafter,
                               made available by, or on behalf of, any of the
                               Borrowers to the Agent or the Lenders, does not,
                               or will not when delivered, contain any untrue
                               statements of material fact or omit to state a
                               material fact necessary in order to make the
                               statements contained therein not misleading in
                               light of the circumstances under which such
                               statements were made and (ii) to the extent that
                               any such Information contains projections, such
                               projections were prepared in good faith on the
                               basis of (X) assumptions, methods and tests
                               stated therein which are reasonably believed by
                               the Borrowers to have been reasonable and (Y)
                               information reasonably believed by the Borrowers
                               to have been accurate based upon the information
                               available to the Borrowers at the time such
                               projections were furnished to the Agent or the
                               Lenders. No material adverse change shall have
                               occurred in the financial position, business,
                               operations, assets, liabilities, profits or
                               prospects of the Borrowers since August 31, 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 date hereof of all
                               such circumstances;

                           (g) Continued effectiveness of the Interim Order and
                               the Final Order as applicable;

                           (h) Use of proceeds; and

                           (i) With respect to advances subsequent to the
                               initial advances under the Interim Facility, such
                               other representations and warranties as shall be
                               satisfactory to the Agent in its reasonable
                               discretion and which are customary to
                               transactions of this nature.

Affirmative Covenants:     (a) The Borrowers shall permit the Agent and
                               the Lenders or their designees from time

                                      -18-

<PAGE>   26



                               to time to conduct an audit of accounts
                               receivable and inventory (and/or conduct an
                               inventory valuation) and to inspect the books and
                               records of the Borrowers at any time and from
                               time to time; Borrowers will provide from time
                               to time access to all information reasonably
                               requested by the Agent or any Lender. All
                               reasonable costs and expenses of the Agent or any
                               of the Lenders incurred in connection with the
                               foregoing shall be included within the definition
                               of "Expenses" as set forth in this Term Sheet;

                           (b) No later than the execution and delivery by the
                               Borrowers, the Lenders and the Agent of
                               definitive loan documentation for the Financing
                               Facility, the Borrowers shall enter into a
                               collection account satisfactory to the Agent with
                               a bank acceptable to the Agent; all cash receipts
                               and other collections shall be deposited in such
                               collection account to be subject to the first
                               (other than Existing Liens) and sole (other than
                               Existing Liens and certain Permitted Liens) lien
                               of the Agent and, upon the occurrence of a
                               default or as otherwise provided in the Mandatory
                               Prepayment section above, shall be remitted to
                               the Agent and applied to repay amounts
                               outstanding under the Interim Facility or the
                               Permanent Facility, as the case may be, and at
                               the Agent's option shall be used to cash
                               collateralize letters of credit;

                           (c) The Borrowers shall prepare financial statements
                               in accordance with GAAP, and shall maintain true
                               and complete books and records in all material
                               respects;

                           (d) The Borrowers shall furnish collateral reporting
                               and financial or accounting statements as the
                               Agent or any Lender may reasonably request from
                               time to time, including, without limitation, a
                               weekly borrowing base certificate (which
                               certificate shall update accounts receivable on a
                               weekly basis and

                                      -19-

<PAGE>   27



                               inventory on a monthly basis) and monthly agings,
                               all in form, substance and detail satisfactory to
                               the Agent and delivered to the Agent in a timely
                               fashion;

                           (e) The Borrowers shall deliver to counsel for the
                               Agent all pleadings, motions, applications and
                               other documents filed with the Court and will
                               deliver to the Agent any financial information
                               distributed to any official committee appointed
                               in the Case;

                           (f) The Borrowers shall maintain insurance on all
                               their property for such risks, in such amounts
                               and with such deductible amounts, as are
                               customarily maintained by similar businesses,
                               with financially sound and responsible insurance
                               carriers having ratings acceptable to the Agent
                               and cause the Agent to be named as loss payee or
                               additional insured on such policies as the Agent
                               may require and such insurance policies covering
                               the Collateral (including business interruption
                               or similar insurance) shall contain provisions
                               regarding 30 days notification to the Agent with
                               respect to material modification or cancellation
                               and provisions protecting the Agent from the
                               Borrowers' breach, each as the Agent customarily
                               requires;

                           (g) The Borrowers shall comply in all material
                               respects with all laws, rules, applicable
                               environmental laws and regulations, except to the
                               extent the Borrowers are exempted from such com-
                               pliance or the Borrowers are prohibited from
                               complying, under applicable federal bankruptcy
                               law;

                           (h) The Borrowers shall preserve, renew and keep in
                               full force their respective corporate existences,
                               their respective material licenses, etc.;

                           (i) The Borrowers shall notify the Agent of any
                               default or Event of Default;


                                      -20-

<PAGE>   28



                           (j) The Borrowers shall deliver to the Agent not
                               later than the closing date of the Permanent
                               Facility a projection of their financial position
                               and results of operations for the period ending
                               on December 31, 2000 prepared on a monthly basis
                               (on a quarterly or annual basis for the calendar
                               year 2000);

                           (k) The Borrowers shall provide other financial
                               information reasonably requested by the Agent or
                               any Lender in a manner reasonably satisfactory to
                               the Agent and the Lenders;

                           (l) The Borrowers shall pay all post-petition
                               obligations under real estate leases and licenses
                               of intellectual property as required by the
                               Bankruptcy Code or the Court, provided, however,
                               that without the consent of the Lenders, the
                               Borrowers may reject or permit to expire any real
                               estate leases (in a manner consistent with a
                               maximization of the value of the assets of the
                               Borrowers);

                           (m) The Borrowers shall comply with such other
                               affirmative covenants as may be required by the
                               Agent or the Lenders in their reasonable
                               discretion, and which are customary in
                               transactions of this nature; and

                           (n) The Borrowers shall promptly furnish the Agent
                               and the Lenders with information and notices
                               regarding reclamation claims (including amount
                               and claimant) upon any Borrower's receipt
                               thereof.

Negative Covenants:        The Borrowers shall not (nor shall they apply to the 
                           Court for authority to):

                           (a) Create or permit to exist any liens or
                               encumbrances on any Collateral, other than
                               Existing Liens and Permitted Liens;

                           (b) Create or permit to exist any other
                               administrative claim which is senior to or pari
                               passu with the superpriority claims of the Agent
                               and the Lenders, other than the Carveouts;

                                      -21-

<PAGE>   29



                           (c) Pay pre-petition indebtedness of any kind;
                               provided, however, that the Borrowers may (i) pay
                               pre-petition obligations to employees and payroll
                               taxes, sales and similar taxes to taxing
                               authorities to the extent approved by order of
                               the Court and (ii) make adequate protection
                               payments with respect to pre-petition
                               indebtedness in an aggregate amount mutually
                               agreed to by the Borrowers and the Lenders;

                           (d) Merge or consolidate with any other person or
                               sell or otherwise dispose of assets outside the
                               ordinary course of business except for (i)
                               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 the Borrowers
                               (provided that all proceeds of such dispositions
                               shall be applied to repayment of the borrowings
                               hereunder), (ii) the disposition of the
                               manufacturing plant of the Borrowers located in
                               New Britain, Connecticut, (iii) dispositions of
                               machinery, equipment and real estate in an
                               aggregate amount not to exceed $5,000,000 during
                               the term of the Financing Facility (provided that
                               all proceeds of such dispositions shall be
                               applied to promptly replace such assets or for
                               corporate purposes of the Borrowers not
                               prohibited hereby or by the definitive loan
                               documentation), (iv) dispositions of machinery
                               and equipment (other than those covered in clause
                               (iii) above)in the ordinary course of business
                               that are obsolete or no longer used by the
                               Borrowers in their businesses not to exceed
                               $500,000 for any item of machinery or equipment
                               or $4,000,000 in the aggregate for all such
                               machinery and equipment during the term of the
                               Financing Facility and (v) other dispositions of
                               assets (other than inventory and not in any event
                               including a significant portion of the assets)
                               for fair market value, if the proceeds are used
                               to promptly replace such assets;


                                      -22-

<PAGE>   30



                           (e) Create or permit to exist indebtedness for
                               borrowed money other than pre-petition debt and
                               debt contemplated by the Interim Order or the
                               Final Order;

                           (f) Limit capital expenditures to a stated maximum
                               amount;

                           (g) Establish or acquire any subsidiary;

                           (h) Incur liens related to reclamation claims;

                           (i) Fail to maintain for the period from September 1,
                               1998 through each date thereafter through and
                               including the closing date of the Permanent
                               Facility EBITDA (exclusive of restructuring
                               costs) of not less than negative $4,000,000 and
                               thereafter fail to maintain such financial
                               covenants as shall be mutually agreed to by the
                               Borrowers and the Lenders; and

                           (j) Fail to observe such other negative covenants,
                               including a prohibition on "restricted payments"
                               by the Borrowers, as may be required by the Agent
                               or the Lenders in their reasonable discretion,
                               and which are customary in transactions of this
                               nature.

Events of Default:         Upon the occurrence and continuance of any of the
                           following Events of Default beyond the applicable
                           grace period (if any) set forth below, the Agent or
                           the Lenders may (but the same shall not be deemed to
                           be by way of limitation) take all or any of the
                           following actions without further order of or
                           application to the Court upon 3 business days'
                           written (including facsimile) notice to Borrowers and
                           their counsel (and each of the Interim Order and the
                           Final Order shall provide for the lifting of the
                           automatic stay with respect to any and all such
                           actions):

                           (i)  Declare the principal of and accrued interest 
                                on the outstanding obligations to be immediately
                                due and payable;


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<PAGE>   31



                               (ii)  Terminate, reduce or restrict any further
                                     commitment to extend credit to the
                                     Borrowers;

                               (iii) Set-off against outstanding obligations,
                                     amounts in the accounts 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; and

                               (iv)  Maintain cash collateral equal to 105% of
                                     all outstanding Letters of Credit.

                           Events of Default shall include (without limitation):

                           (a) Failure by any of the Borrowers to pay to the
                               Agent or the Lenders principal when due, or
                               failure for more than 2 days to pay interest or
                               fees when due;

                           (b) Breach by any of the Borrowers of any of the
                               negative covenants described above;

                           (c) Breach by any of the Borrowers of any other
                               covenant or agreement contained herein or in any
                               loan documentation, subject to grace periods for
                               certain covenants to be negotiated by the Agent
                               and the Borrowers;

                           (d) Any representation or warranty made by any of the
                               Borrowers shall prove to have been incorrect in
                               any material respect when made;

                           (e) Any lien or encumbrance shall exist on any
                               Collateral, other than the lien of the Agent,
                               Permitted Liens and Existing Liens;

                           (f) (i) The Case shall be dismissed or converted to a
                               chapter 7 case; a chapter 11 trustee shall be
                               appointed in the Case or an examiner shall be
                               appointed in the Case and given powers
                               substantially similar to those of a trustee; any
                               administrative claim (other than the Carveouts)
                               or lien, other than Existing Liens, which is

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<PAGE>   32



                               senior to or pari passu with the superpriority
                               claim of the Agent and the Lenders shall be
                               granted in the Case without the Agent's consent;
                               the Interim Order or the Final Order, as the case
                               may be, shall be stayed, amended, modified,
                               reversed or vacated without the Agent's consent,
                               except for modifications and amendments that are
                               acceptable to the Agent; a plan shall be filed by
                               any of the Borrowers, which does not provide for
                               termination of the Commitment and payment in full
                               in cash of the Borrowers' obligations under the
                               Financing Facility on the effective date of the
                               plan; or an order shall be entered which
                               dismisses the Case and which order does not
                               provide for termination of the Commitment and
                               payment in full in cash of all obligations of
                               Borrowers under the Financing Facility or (ii)
                               any of the Borrowers shall take any action,
                               including the filing of an application, in
                               support of any of the foregoing or any person
                               other than the Borrowers shall do so and the
                               Borrowers shall not duly and promptly contest
                               such application in good faith;

                           (g) The Court shall enter an order granting relief
                               from the automatic stay to the holder of any
                               security interest in any assets of any of the
                               Borrowers in excess of a diminimus amount to be
                               agreed to by the Borrowers and the Lenders;

                           (h) All loan documentation shall not have been
                               entered into in a form satisfactory to the Agent
                               on or before the earlier of October 28, 1998 and
                               the Permanent Facility Hearing Date; and

                           (i) The Interim Order shall not have been replaced by
                               the Final Order by October 28, 1998 and all other
                               conditions to the Permanent Facility shall not
                               have been satisfied by such date.


                                      -25-

<PAGE>   33



Costs and Expenses:        All Expenses (as hereinafter defined) of the
                           Agent shall, first, be paid out of the $25,000
                           advance of expenses made by the Borrowers and, after
                           $25,000 of Expenses are incurred or the unused
                           portion of the advance is returned to the Company on
                           behalf of the Borrowers, shall be payable by the
                           Borrowers, jointly and severally, on demand directly
                           or at the option of the Agent through direct charges
                           to the loan account (if one has been established)
                           whether or not the transactions contemplated hereby
                           are consummated. "Expenses" shall mean all amounts
                           payable under clause (a) in the definition of
                           affirmative covenants in this Term Sheet and the
                           reasonable fees and expenses of the Agent and the
                           Lenders in connection with the Financing Facility
                           (including in connection with the preparation,
                           negotiation, consummation and administration of the
                           loan documentation, the syndication of the Financing
                           Facility and the protection and enforcement of the
                           Agent's and Lenders' rights thereunder and all
                           reasonable fees and expenses of third parties
                           incurred by the Agent or the Lenders in connection
                           therewith), including, without limitation, the
                           reasonable fees and expenses of the Agent's counsel
                           incurred in connection with the Financing Facility
                           (including allocated costs of in-house counsel to the
                           Agent) (including in connection with the negotiation,
                           preparation and execution of definitive documenta-
                           tion of the Interim Facility and the Permanent
                           Facility (and any subsequent amendments or waivers)
                           and advice and preparation of documents in
                           connection with the protection and enforcement of the
                           Agent's and Lenders' rights under the Financing
                           Facility, the fees and expenses of a third party
                           inventory valuation consultant incurred in connection
                           with the Agent's due diligence investigation of the
                           Borrowers, audit and appraisal expenses, together
                           with an allocated charge per auditor which is
                           currently $750 per day (or portion thereof) per
                           auditor, search and filing fees, travel expenses
                           (including those incurred in connection with periodic
                           field audits by employees of the Agent), fees and
                           expenses incurred by the Agent in connection with the
                           monitoring of the Collateral, messenger and delivery
                           expenses, and duplicating expenses,

                                      -26-

<PAGE>   34



                           in each case, incurred by the Agent or any Lender in
                           connection with the Financing Facility (including the
                           protection and enforcement of the Agent's and
                           Lenders' rights thereunder). 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 costs and
                           expenses incurred by the Agent or any Lender in
                           connection with any litigation, contest, dispute,
                           suit or proceeding relating to the commitment letter
                           or the Financing Facility.

Documentation:             Satisfactory in form and substance to the
                           Agent and the Lenders and customary
                           in transactions of this nature.

Governing Law:             New York except as governed by Bankruptcy
                           Code.

Participations, etc.:      Each Lender may sell or assign all or any
                           portion of its Commitment and/or loans with
                           the prior consent of the Agent after notice
                           to the Borrowers and the opportunity of the
                           Borrowers to consult with the Agent with
                           respect to the prospective purchaser or
                           assignee.  Each Lender may grant
                           participations in all or any of its loans and
                           letter of credit exposure without the prior
                           consent of the Borrower but with the prior
                           consent of the Agent.

Order Provisions:          As used herein, the term "Order Provisions"
                           shall mean the following:

                           (i) a finding by the bankruptcy court that pursuant
                           to Section 364(e) of the Bankruptcy Code, the Agent
                           and Lenders are acting in good faith by extending the
                           Financing Facility; (ii) a finding by the bankruptcy
                           court that the Financing Facility constitutes an
                           arm's length transaction between the Borrowers and
                           the Lenders and that the benefits of Section 364(e)
                           of the Bankruptcy Code shall apply to the Financing
                           Facility; (iii) an order granting the Agent a
                           perfected first priority lien upon and security
                           interest in the assets described in this letter
                           consisting of accounts receivable, inventory and all
                           proceeds thereof and approving the Financing Facility
                           and the definitive documentation relating thereto;

                                      -27-

<PAGE>   35



                           (iv) an order prohibiting other security interests
                           and liens on the Collateral, except as expressly
                           permitted in this Term Sheet; (v) an order requiring
                           the Borrowers to pay the Financing Facility on
                           maturity or upon the acceleration due to a default;
                           (vi) an order containing a stipulation that the terms
                           of such order may not be modified without notice to
                           the Agent; and (vii) such other terms as the Agent or
                           the Lenders may deem necessary or appropriate.

Defined Terms:             Capitalized terms used but not defined in this Term
                           Sheet shall have the meaning assigned thereto in the
                           commitment letter to which this Term Sheet is Exhibit
                           A.

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<PAGE>   36



                                                                      
                                                                      SCHEDULE 1


                                 EXISTING LIENS



                                      -29-

<PAGE>   37


                                                                         ANNEX 1


                                  INTERIM ORDER



                                      -30-